Federal Reserve Bulletin, 1998-12

VOLUME 84 j NUMBER 12 !_, DECEMBER 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 1025 THRIFT INVOLVEMENT IN COMMERCIAL point, to 80.6 percent, Wi percentage points AND INDUSTRIAL LENDING below its 1967-97 average. How important a role do thrift institutions play in local banking market competition? This 1046 STATEMENTS TO THE CONGRESS article looks at a key aspect of that issue by Alan Greenspan, Chairman, Board of Goverexamining the commercial and industrial lendnors, reports on the Federal Reserve's role in ing of commercial banks and thrifts during the facilitating the private-sector refinancing of the 1990s. Generally, thrifts were far less involved large hedge fund Long-Term Capital Managein C&I lending than banks during the period, ment (LTCM) and testifies that officials of the but their involvement varied considerably with Federal Reserve Bank of New York facilitated such factors as local deposit market concentradiscussions in which the private parties arrived tion and institution size, charter type, and ownat an agreement that both served their mutual ership status. self-interest and avoided possible serious market dislocations. Chairman Greenspan states 1038 TREASURY AND FEDERAL RESERVE further that the efforts were limited to facilitat- FOREIGN EXCHANGE OPERATIONS ing a private-sector agreement and had no implications for Federal Reserve resources or During the third quarter of 1998, the dollar policies. (Testimony before the House Comdepreciated 1.7 percent against the Japanese mittee on Banking and Financial Services, yen and 7.8 percent against the German mark. October I, 1998) Against the mark, the dollar continued to trade in relatively narrow ranges during the first half 1050 William J. McDonough, President, Federal of the period. Subsequently, however, the dol- Reserve Bank of New York, describes the role lar dropped sharply amid increasing turmoil in of the Federal Reserve Bank of New York in global financial markets and shifting expecta- the events leading up to the recent privatetions for economic growth and interest rate sector recapitalization of Long-Term Capital policy. Against the yen, the dollar steadily Management and its fund Long-Term Capital appreciated throughout the first half of the Portfolio and says that it is far too early to state quarter, reaching new eight-year highs, as categorically the lessons to be learned from market participants reacted pessimistically to Long-Term Capital. He further testifies that the political uncertainty and financial-sector diffi- Federal Reserve is focused on three specific culties in Japan. Later in the period, however, issues, all relating to leverage and how the the dollar's gains against the yen were more Federal Reserve can observe it through the than reversed. The U.S. monetary authorities eyes of bank examiners, but emphasizes that did not intervene in the foreign exchange mar- the Federal Reserve has no regulatory authority kets during the quarter. over hedge funds and no regulatory authority over Long-Term Capital. (Testimony before the House Committee on Banking and Financial 1043 INDUSTRIAL PRODUCTION AND CAPACITY Services, October I, 1998) UTILIZATION FOR OCTOBER 1998 1054 Theodore E. Allison, Assistant to the Board of Industrial production edged down 0.1 percent Governors, comments on the implications for in October, held down by a 3.4 percent drop in the demand for Federal Reserve notes that are the output of utilities. At 128.3 percent of its likely to follow from the issuance of euro bank 1992 average, industrial production in October notes, which will replace the national currency was 1.4 percent higher than it was in October notes of eleven participating nations in Europe 1997. Capacity utilization fell 0.4 percentage early in the next decade, and testifies that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

availability of euro notes will reduce the use of taining conditions in reserve markets that were dollars outside the United States to some consistent with an unchanged federal funds extent. Mr. Allison further testifies that two rate of about 5]A percent. The directive did not aspects of the foreign demand for hard cur- include a presumption about the likely direcrency notes could hasten somewhat a substitu- tion of any adjustments to policy during the tion of euro notes for dollars: The first would intermeeting period. be the availability of higher-denomination euro notes, and the second would be a public 1069 LEGAL DEVELOPMENTS perception that dollar notes are significantly Various bank holding company, bank service less secure against counterfeiting. (Testimony corporation, and bank merger orders; and pendbefore the Subcommittee on Domestic and ing cases. International Monetary Policy of the House Committee on Banking and Financial Services, AI FINANCIAL AND BUSINESS STATISTICS Octobers, 1998) These tables reflect data available as of 1057 ANNOUNCEMENTS October 28, 1998. Reduction in the discount rate. A3 GUIDE TO TABULAR PRESENTATION Appointments of chairmen and deputy chair- A4 Domestic Financial Statistics men of the Federal Reserve Banks for 1999. A42 Domestic Nonfinancial Statistics Designation of a primary dealer controlled by a A50 International Statistics Dutch firm. A63 GUIDE TO STATISTICAL RELEASES AND Development of procedures for managing SPECIAL TABLES changes to Federal Reserve information systems in 1999 and the first quarter of 2000. A64 INDEX TO STATISTICAL TABLES Issuance of an interpretation of the Basle framework for capital adequacy. A66 BOARD OF GOVERNORS AND STAFF Issuance of a policy paper by the Basle A68 FEDERAL OPEN MARKET COMMITTEE Committee. AND STAFF; ADVISORY COUNCILS Issuance of Orders of Prohibition in enforcement actions. A70 FEDERAL RESERVE BOARD PUBLICATIONS Availability of revised lists of over-the-counter A72 SCHEDULE OF RELEASE DATES FOR stocks and of foreign stocks subject to margin PERIODIC RELEASES regulations. Availability of a videotape on resources for A74 MAPS OF THE FEDERAL RESERVE SYSTEM businesses owned by women. A76 FEDERAL RESERVE BANKS, BRANCHES, Change in Board staff. AND OFFICES 1062 MINUTES OF THE FEDERAL OPEN A77 INDEX TO VOLUME 84 MARKET COMMITTEE MEETING HELD ON AUGUST 18, 1998 At its meeting on August 18, 1998, the Committee adopted a directive that called for main- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

PUBLICATIONS COMMITTEE Lynn S. Fox, Chairman L • S. David Frost ' ! Karen H. Johnson I " Donald L. Kohn ). Virgil Mattingly, Jr. _J Michael J. Prell ~! Dolores S. Smith '" Richard Spillenkothen The Federal Reserve Bulletin is issued monthly under the direction of ihe staff publications committee This committee is responsible for opinions expressed except in olticial sLifcments and signed articles. It i\ assisted by the bconomic Editing Section headed by S. Ellen Dykes, the Multimedia Technologies Center under the direction ^'i' (."hristinc S. Griffith, and Publications Services supervised bv Linda C. Kvles. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending Steven J. Pilloff and Robin A. Prager, of the Board's eral restrictions (particularly those affecting commer- Division of Research and Statistics, prepared this cial and industrial lending) starting in the early 1980s article. Michael Howell provided research assistance. has led to greater portfolio diversification by many thrift institutions; however, few thrifts have taken full The rapid pace of mergers and acquisitions among advantage of their expanded powers.1 financial institutions in recent years has heightened The limited range of financial services typically the need to understand competition in banking mar- offered by thrift institutions compared with commerkets. Questions often arise as to the most appropriate cial banks raises a challenging question for those ways to measure competition. One particular issue responsible for assessing the competitive effects that has received attention from the bank regulators of proposed bank mergers and acquisitions.2 Should and antitrust officials who analyze the competitive thrifts and commercial banks be treated as equal effects of proposed bank mergers is the weight that competitors in local banking markets, or should the should be given to thrift institutions as actual or role of thrifts be discounted because of their less potential competitors of commercial banks in the extensive involvement in the provision of commerprovision of financial services. The question arises cial and industrial (C&I) loans and other business because, historically, the menu of financial services services?3 Although the degree of actual competition offered by thrift institutions has been more limited than that offered by commercial banks. Thrift institutions (savings and loan associations 1. Several key pieces of legislation included provisions thai expanded the commercial lending powers of federally chartered thrift and savings banks) are financial intermediaries that institutions. The Depository Institutions Deregulation and Monetary raise funds primarily through time and savings depos- Control Act of 1980 permitted federally chartered savings banks to its and invest principally in residential mortgages and engage in commercial and industrial (C&I) lending, up to 5 percent of their assets. The Garn-St Germain Act of 1982 empowered federally consumer loans. Their focus on consumer accounts chartered savings and loan associations to engage in C&I lending, up and loans, as opposed to business accounts and loans, to 10 percent of their assets, and increased the limit on federally is largely attributable to historical factors. Thrift insti- chartered savings banks' C&I lending authority to 10 percent of their assets. More recently, the Economic Growth and Regulatory Papertutions arose in the early nineteenth century to satisfy work Reduction Act of 1996 increased the C&I lending limits for an unmet demand for small savings accounts and federally chartered thrift institutions to 20 percent of assets, with the home mortgages in an era when commercial banks stipulation that all C&I lending in excess of 10 percent of assets must be small business loans. had little interest in these lines of business. For a discussion of changes over lime in thrift activities, see Jim Savings and loan associations (originally called Burke and Stephen A. Rhoades. "Commercial and Consumer Lending building and loan societies) were established to by Thrift Institutions." Journal of Commercial Bank Lending (May 1991), pp. 15-24; and Peter S. Rose, The Changing Structure of enable wage earners to obtain funds to build or American Banking (Columbia University Press, 1987), pp. 303-24. purchase homes. Their balance sheets consisted pri- 2. All proposed bank mergers and acquisitions must be approved marily of residential mortgages on the asset side and by one of three federal banking regulators—the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporasavings shares on the liability side. Savings banks tion (FDIC), or the Federal Reserve. The charter type and Federal were established to encourage savings by poorer Reserve System membership status of the resulting institution and the members of the working class. Their liabilities con- type of acquiring firm (whether or not it is a bank holding company) determine which federal regulator has jurisdiction. In addition, all sisted mainly of savings deposits, and their assets proposed bank mergers and acquisitions are subject to review by the were somewhat more diversified than those of sav- Department of Justice, whose antitrust authority applies to most ings and loan associations, including consumer loans industries. 3. Federal regulators do no! take a uniform approach to the treatin addition to residential mortgages. Subsequent regument of thrift institutions in antitrust analysis. Whereas the FDIC and lations, at both the state and federal levels, limited the the OCC tend to treat thrifts and commercial banks equally, the types of deposit accounts that thrifts were permitted Federal Reserve and the Justice Department in many instances discount the role of thrifts as competitors in the market for banking to offer and the extent to which they were allowed to services. For example, in analyzing the competitive effects of proinvest in non-mortgage assets. The relaxation of fed- posed bank mergers, the Federal Reserve constructs measures of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1026 Federal Reserve Bulletin L : December 1998 provided by thrifis in the area of C&I lending may be either a midyear Report of Condition and Income modest, their role as potential competitors could be (Call Report) or a midyear Thrift Financial Report. important. A thrift institution that is actively involved With certain exceptions, an institution that filed a in residential mortgage and consumer lending in a report was included in the sample if its total assets local market could, at least in theory, quickly shift were reported to be greater than zero and an amount resources into commercial lending if it determines was reported for total loans. Institutions that held that the risk-adjusted profits to be derived from com- more than 25 percent of their assets in credit card mercial lending exceed those associated with more loans were excluded because institutions that a?e traditional thrift activities. Likewise, a thrift that is heavily involved in such lending often specialize in involved in commercial lending to a very limited that activity and do not provide, and therefore do not extent could increase its involvement in response to compete for, many of the retail banking products and profitable lending opportunities. In practice, however, services typically provided by commercial banks. the specialized expertise needed to engage in C&I (The Federal Reserve typically excludes credit card lending and the perceived need to offer a broad menu banks from its analysis of the competitive effects of of financial services to commercial banking custom- proposed bank mergers.) Data are as of June 30 of ers may inhibit thrifts from aggressively pursuing each year. commercial lending opportunities. The two types of thrift institutions included in the This article assesses the role played by thrift insti- analysis, savings banks and savings and loan associatutions as competitors of commercial banks in the tions (S&Ls), were examined separately because difprovision of commercial and industrial loans by ferences in their origins and in the regulatory restricexamining variations in bank and thrift involvement tions applied to them might have caused them to in C&I lending both over time and across institutions beha\e differently with respect to C&I lending.^ and markets having different characteristics. Two aspects of insulvement are examined. "Participation" is examined by looking at the proportions of \'tiri;i!inii\ in CSil linx Artivilv nvrr Tinit' commercial banks and thrifts that have some of their assets in C&I loans, as well as the proportions whose OUT the period 1991-97, the number of commercial C&I loan-to-asset ratios are above 1 percent and banks and thrift institutions declined substantially as above 5 percent. And '"extent of involvement" is a result of mergers, acquisitions, and, particularly in examined by looking at the average ratios of C&I the early part of the period, failures.6 Each year, loans to assets for banks and thrifts that engage in banks were four to five times as numerous as thrifts C&I lending. Also examined are the ways in which (table 1). Within the thrift population, the number of the change between 1991 and 1997 in an institution's savings banks remained virtually unchanged but the involvement in C&I lending is related to certain number of savings and loan associations declined institutional characteristics. more than 60 percent, with many S&Ls converting to savings banks. Nearly all banks (more than 98 percent) had some !'\III:K\\ CS-.I L/:\niX(; ACTIVITY of their assets in C&I loans each year, and at least 96 percent had more than I percent of their assets in To examine patterns of commercial and industrial such loans. The share of banks with at least 5 percent lending, we looked at variations in lending activity of their assets in C&I loans exhibited cyclical behavover the period 1991 through 1997 and at the relation- ior, declining from 72 percent in 1991 to less than ship between 1997 lending activity and such vari- 69 percent in 1993 as the economy slowed, and then ables as institution size, ownership status, and geo- rising during the recovery to reach a level of nearly graphic location.4 The initial sample consisted of 76 percent in 1997. commercial banks and thrift institutions that filed IIMI!M.'1 structure based mi Liu1 Glares of deposits held b_\ institutions in .Y Although cicdil unions niu MHuetmiLS included in the t.fetiiutn•n a local L'cugraphic market. li»«: measures include 100 percent of ol thrift in-.liliitions. they wcic c\cUuted Inim [lie analysis frceausc ot commercial bank deposits, but lypicativ (inly 50 peuvni oi limit their specialized nature. Credit unions :i:e icstncted to serving a proup deposits (though in certain cases, they include 100 percent til Ihritl ol people with a '"common bond." such as membership in a fraternal depo-.it';i. organization or emploMtient by the same employer. As such. ti?cir 4. I lie choice ol' lime period was dictated by concerns about the ability to compete with commercial banks, savings banks, and savings data. The thrill crisis ol the 1980s adversely affected the quantity and and loan associations is somewhat limited. quality of data available lor thrift Institutions' for several years before 6. For brevity, we hereafter icier to commercial banks as "banks"; 199 I when the subject is savings banks, we use the lull term. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1027 I. C&l lending b\ banks anU Lliiil't lnsiilulwiis. l'WI-lJ7 ih wiih in^iUJUUGtik witfr I luuju in a percent of aistta' mure shall more than Type ef inslitaiiwi and yew Number of 5 percent C&I loan* Simple Asset-weighted >n C&l loans in C&l tome. average overage CnMtwtciM. BANKS IWI 11.9,13 1W.0 96.4 72J 11.4IH 99,0 w.a s!fi ISi! nw!!!;;*."!!!;!;!!;!!!!!! 11,(121 99.1 9.1 l-*.2 IW4 10.557 99.1 6S.J 0.2 \4Q 1895,.., [ 0,008 99.1 97.0 69.9 9.5 [53 9,526 99.0 97.3 73.! 9.« 13.3 1W7 ^""['.'.'.'.'.'.".'.'.'.'.'. 9.15ft 97.0 74.5 10. i 15.7 753 SAVINGS BANKS 1991 .S3 41.7 1.1.(1 3.6 ,1,4 IW2 JIB 74.7 3H.4 9.0 11 .28!! 71.1 .14.9 7.9 2.0 1.5 m*.'.^ '.,..'/..'.',....'..'.'. .30* 69.7 35.5 «.() 2.1 1995 -. .289 71.5 38.3 9.1 1.3 ! t , . • 7 * IV96 .244 74.9 4t.4 14 1.9 1997 ,17K 77.3 45 J 2.7 2.0 S*v<va» AND LOAN 1.51(1 51.9 20.7 4.4 1.6 1,6 mi'..'.'.'.'.'..'.'.'.'.'.'.. .2.W 4S.4 18.3 17 1.4 1,1 .001 49.5 IS.I 3.2 14 .8 82? 4R.6 lfi.6 2,3 1.3 ,7 ms ... ..'.'....-. M9 48.4 16.7 1.3 .6 542 51.1 19-3 \i i.4 .8 1996 53.: 22.5 4.1 1.6 1.0 1997 it' simpk- .intl .is^L-l-uL-iylHL\J . Although the proportion of thrift institutions from their organizations' names so as to convey to engaged in C&I lending was smaller than the propor- their current and potential customers the message that tion of banks, it was still substantial (approximately they now offer a broader array of products than has three-quarters of the savings banks and half the S&Ls traditionally been offered by "savings'" institutions.7 engaged in some C&l lending). However, many of Of those institutions that engaged in some C&I these institutions had only a small share of their lending, banks had annual simple average ratios of assets invested in C&l loans: In each year, only about C&I loans to assets of 9.1 percent to 10.2 percent half the thrifts that engaged in some C&I lending had over the 1991-97 period, whereas savings banks and ratios of C&I loans to assets greater than I percent. In S&Ls had simple average ratios of only 2.0 percent contrast, the vast majority of banks that engaged in to 2.7 percent and 1.2 percent to 1.6 percent respectively.x Like the participation ratios, the simple aver- C&I lending had ratios greater than I percent. Moreage ratios of C&l loans to assets first declined and over, the share of thrifts having ratios greater than then increased over the period. The annual asset- 5 percent was quite low (less than 15 percent of weighted average ratios of C&I loans to assets for savings banks and less than 5 percent of S&Ls). banks were typically about 50 percent higher than Each of the three C&I lending participation meathe simple average ratios, while the weighted aversures for thrift institutions generally followed a pattern of declining and then rising over the study period, in most cast's reaching the highest levd for the period in 1997, This pattern may simply reflect 7, Mall Andrejczak. ''Thrills. Shilling financial Ruiv.-,. Find a the cyclical nature of business borrowing. However, NLIIIII- L'lumtlv f kins ihtr TrinisilliMi." Aim-rii'iin Bunker. Ally f>. I S><38. S. Two tjp'.'s. ul" uverajl'.'s. tin" Ihc ra*iu oi C&.I ki;«\s to aswJls ui;re the increase in thrift participation in the mid-to-late i\ilcubled—a simple jncrasit'. and an asMM-weighled aserjiic. The 1990s may, to some degree, reflect a change in thrift iinip.lt avcrajii;: is the mean of tJn; ralim of OS I loans to assets for all strategy toward greater involvement in such lending, illMil'Jlions of cidl diiirw Up.: lhat hud •.nine ;isscK in C&l loans; il cLin be viewed a> an unweighted aviui:i: be^vuise the Cfcl lending which some analysts attribute to rising competition ralio o] each insuiulion receipt's u-qiuiil wei^hi in Us computation. The in residential mortgage lending from nondepository ;issc't-v.vj!!hied averse is toiafl C&l loans Ion' afll msU'lutiions o( each institutions. Support for the latter interpretation of the charier type divided by «H;il aswi-s for all instituliuns of each charter lypc lhat had some sssccs m C&I loans; it is a weighted average data is provided by the observation that many thrifts because an mstilulion's influence on the average is proportional to iJs have in recent years eliminated the word "savings" sw. as measured by asscis. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1028 Federal Reserve Bulletin • December 1998 2. Cifei k'nilinu hv and thrill institutions, by size ol institution. I9')7 Institutions with Lnstilution^ with C&I loans as « percsnt Type of in.stitu(ion Institutions wiih more than more than and level of as&ett Number of some asscis in 1 percent 5 percent (millions of dollars) irtstiLuuoiwi C ( & pe I r c l e o n o t n ) s in o C l' & a l s se lo ts an* in o C f fe u l s s l w oa s ns Simple (percent) (percent) COMMERCIAL BANKS O~25 1.510 96.7 92.8 B.2 8.3 26-50 2.150 99.3 97.5 73.4 9.4 9.4 51-100 2,334 99.3 97.9 77.0 103 10.2 101-250 1.975 99.4 98.1 79.6 10.7 10.7 251-1.000 856 98.5 98.1 84.3 11.6 11.6 More than 1.000 .331 9S.S 97.3. 89.4 15.4 I7J SAVINGS BANKS 0-25 70 42.9 24.J 11.4 3.5 3,8 26-50 I2S 68.0 43.0 19-5 3.4 3.4 51-100 211 73.9 47.4 13.7 3.0 3.6 101-250 .122 78.3 44.4 117 14 2.5 251-1,000 311 83.9 47.9 in 3.4 2.4 More than 1.000 91.2 50.0 19,1 2.S 1.8 SAVINGS AM) LOAN ASSOCIATIONS 0-25 70 21.4 12.9 4.3 2.8 26-50 42..1 17.1 5.4 1.8 1.9 51-100 153 52.9 25.5 4.6 1.6 1.7 101-250 145 62.1 26.9 2.1 1.5 1.5 251-1.000 81 72.B 23.5 4.9 1.1 1.0 More than 1.000 19 S4.2 26.3 5.3 1.6 .7 1. See note 1 lo lable 1 age ratios for thrifts were typically below the simple more visible than smaller thrifts, so that businesses average ratios. This pattern suggests that among view them as more likely sources of commercial banks engaged in C&I lending, larger institutions are loans. However, though participation and the absomore heavily involved in commerciaJ lending than lute level of involvement may increase with thrift smaller ones, while the opposite is true for thrifts. size, C&I lending may not increase proportionally to other aspects of an institution's business. Thus, if the extent of involvement is measured as C&I loans as Cross-Sectional Variations a share of assets, C&I lending may not be seen to in C&I Lending Activity increase with size. Indeed, the data do show that although thrift participation in C&I lending increases To get a clearer picture of commercial and industrial with size, average ratios of C&I loans to assets (for lending by thrift institutions, lending activity in 1997 those institutions engaged in C&I lending) generally was examined in greater detail. Of interest were decrease with size (table 2). several factors that might be expected to be associ- For banks having assets of more than $25 million, ated with cross-sectional variations in lending participation in C&I lending does not vary signifiactivity—institution size and ownership status, geocantly with institution size; participation is slightly graphic region, local banking market concentration (but statistically significantly) lower for banks having and type, and firm market share. assets of $25 million or less. The proportion with more than 1 percent of their assets in C&l loans also lustilulion Size does not vary with size for banks having assets of more than $25 million; however, the proportion with Institution size might be expected to influence thrift more than 5 percent of assets in such loans increases involvement in C&I lending, though the direction of monotonically with size, from a low of 63 percent to influence is unclear. Larger thrifts might be more a high of 89 percent. likely than smaller ones to diversify into nontradi- Thrift participation in C&I lending varies far more tional activities such as C&I lending, partly because with institution size than bank participation does. The they may have the financial resources needed to incur proportion of savings banks participating in C&I the substantial fixed costs often associated with enter- lending rises with size, from a low of 43 percent for ing a new line of business. Larger thrifts may also be those having assets of $25 million or less to a high of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1029 3. C&l I milling b> bunks ;md lliril'i institutions, hy invncrship status, IW7 institutions with Institutions with C&I louns as y percent of U.KHCIS1 Institutions with more than more than Type of institution Number of some assets in 1 percent .i percent and ownership status institutions C (p & e l rw lou n n if s in o C f & a I s s l e o t a s ns in o C f & a I s s l e o t a s ns a S v i e m ra p g le e Axse a t v 'W era e g ig e hied (percent) (percent) COMMBBCIAL BAWKS Independent 2.048 98.1 94.6 65.1 « 10.0 Owned by tjank holding company (no thrifts) 6.645 99.2 97.9 78.5 10.4 15.0 QwQtsd by hank holding company (with thrifts) 4-63 95.9 94.6 ?S.2 1(1.9 17,5 SAVINOS BANKS Independent 885 74.7 4.1.S 12.0 2.5 1.6 Owned by thrift holding company ... 186 80.6 48,4 15.1 2.7 1,6 Owned by bank holding company ... 107 92.5 67.3 28. [t 4,1 3.9 SAVINGS AND LOAN ASSOCIATIONS Independent 547 51.ft 21,9 4.0 1.6 1,0 Owned by thrift holding company ... 20 75.0 20.0 .0 .U .9 Owned by bank holding company ... 12 91,7 jn.d 16.7 2.5 1.6 I. See note I to table 1. 91 percent for those having assets of more than Ownership $1 billion. A similar monotonic relationship between participation in C&I lending and institution size Ownership status may also influence thrift involveexists for S&Ls, with the participation rate rising ment in C&I lending. Thrifts owned by bank holding from 21 percent to 84 percent with increasing size. companies might be expected to behave more like For both types of thrifts, differences in the participa- banks, and thus to be more heavily involved in C&I tion rate between the largest and smallest institutions lending, than independent thrifts or those owned by are highly statistically significant, as are many of the thrift holding companies. Managers of thrifts affilidifferences between adjacent size categories. The ated with bank holding companies are likely either to share of thrifts with C&l loan-to-asset ratios greater have commercial lending expertise themselves or to than 1 percent and 5 percent varies somewhat irregu- have access to others in the holding company who larly with institution size. have such expertise.9 For banks involved in C&I lending, average ratios Bank participation in C&I lending does not vary of C&I loans to assets (both simple and weighted) much with ownership status, except that independent increase with size, with the ratios for the largest banks are less likely than banks owned by holding institutions (simple average of 15.4 percent, weighted companies to have more than 5 percent of their assets average of 17.3 percent) being approximately double in C&I loans (table 3). Nearly all banks, regardless of those for the smallest institutions (simple average of their ownership status, hold at least 1 percent of their 8.2 percent, weighted average of 8.3 percent). (The assets in such loans. difference in simple averages between the smallest Thrift participation in C&I lending, in contrast, and largest size categories is significant at the 0.01 does vary with ownership status. Independent thrifts level.) In contrast, for thrifts involved in C&I lend- are less likely than those owned by holding compaing, average ratios of C&I loans to assets tend to nies to engage in some C&I lending; and thrifts decrease with size, with the simple average ratio owned by thrift holding companies are substantially ranging from 3.5 percent to 2.4 percent for savings less likely than those owned by bank holding compabanks and from 2.8 percent to 1.1 percent for savings nies to engage in C&I lending at each of the three and loan associations. (For savings banks, the difference in simple averages between the smallest and largest size categories is significant at the 0.10 level, but for S&Ls the difference is not statistically signifi- 9. In competitive analyses of proposed bank mergers, the Federal cant.) Thus, whereas the extent of bank involvement Reserve typically treats, thrift institutions owned by bank holding in C&I lending (as a share of assets) is positively companies [he same as commercial banks because the expertise of managers of bank holding companies is likely to make thrifts affiliated related to institution size, the extent of thrift involvewith them strong potential competitors lor many bank products and ment is, for the most part, negatively related to size. services. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1030 Federal Reserve Bulletin!.. December 1998 participation levels.10 Thus, the data suggest that commercial banks than thrifts in other parts of the thrift institutions that are owned by bank holding country. companies tend to behave more like commercial For banks, participation in C&I lending varies little banks than those under other types of ownership. across geographic regions (table 4).12 Although The simple average ratio of C&I loans to assets for regional differences in C&I lending participation banks operating under a holding company structure are more pronounced among thrift institutions than is unaffected by the presence or absence of thrift among banks, the differences are not consistent subsidiaries; the weighted average is slightly higher across the three participation measures. For example, for banks owned by holding companies that also own whereas S&Ls headquartered in the Pacific region are thrifts than for banks owned by holding companies the most likely to engage in some C&I lending, they that do not own any thrifts. Independent banks are the least likely to have C&I loan-to-asset ratios have lower average C&I loan-to-asset ratios (simple greater than 1 percent and greater than 5 percent. and weighted) than do banks owned by holding For banks, the simple average C&I loan-to-asset companies. ratio is around 9 percent or 10 percent everywhere Average C&I loan-to-asset ratios (both simple and except the Mountain (12.1 percent) and Pacific weighted) are higher for thrifts under a bank holding (15.3 percent) regions. The weighted average ratio company structure than for independent thrifts and is more variable, ranging from just over 11 percent those under a thrift holding company structure. The in the Mountain states to nearly 20 percent in New simple average ratios for thrills owned by bank hold- England. ing companies—4.1 percent for savings banks and For thrift institutions, simple average C&I loan-to- 2.8 percent for S&Ls— are substantially greater than asset ratios are highest in the East South Central and those for similar institutions not owned by bank West North Central regions. Both types of averages holding companies. (Except for the difference are lowest in the Pacific and Middle Atlantic regions. between S&Ls owned by bank holding companies For savings banks, the weighted average ratio for the and independent S&Ls. these differences are statisti- New England region (4.6 percent) far exceeds that cally significant at the 0.05 level.) This finding pro- for any other region, with the East South Central vides further evidence that thrifts owned by bank region having the second highest (2.6 percent); for holding companies behave more like commercial S&Ls, it is highest for the East South Central region. banks than other thrift institutions do. Overall, analysis reveals no consistent pattern of regional differences in the degree to which thrift institutions are involved in commercial lending. Although the weighted average ratio of C&I loans to C&I lending by thrift institutions might be expected assets suggests that New England savings banks do to vary across regions of the country as a result of substantially more C&I lending than thrift institucultural, historical, or regulatory differences that tions headquartered in other regions of the country, influence the behavior of depository institutions or other measures of involvement do not support that their customers. For example, the New England states conclusion. The unusually high weighted average began to expand the range of activities permissible ratio for New England savings banks appears to be for state-chartered thrifts in the early 1970s, almost a attributable to the behavior of a smal I number of very decade before federal legislation granted expanded large institutions.13 This finding is particularly interpowers to thrifts nationwide." This difference might esting, given that previous research on C&I lending cause New England thrifts to behave more like by thrift institutions has focused on the weighted average ratio and concluded that New England thrifts 10. Among swings banks, differences between independent institubehave substantially more like commercial banks tions and those owned by bank holding companies are, for Iwo of the three participation nujsiires. statistically significant at the 0.01 level: than thrifts in other parts of the country do.14 the same is true for diflorencvs between savings banks owned by thrift holding companies and those owned by bank holding companies, but 12. The regions are equivalent to the divisions used by the Bureau differences belueen independent savings banks and those owned by of the Census. Each institution was assigned to the region in which it thrift holding companies generally ate not significant. For S&Ls. was headquartered. For a list of states included in each region, sec the differences between independent institutions and those owned by bank general note to table 4. holding companies are. for two of the participation measures, statisti- 13. The weighted average ratio for the 23 New England savings cally significant at the 0.05 level, but differences between other banks with assets of more than $1 billion is 6.2 percent, compared categories of S&Ls arc not statistically significant. with 2.6 percent for the 189 New England savings banks with assets I I. For a detailed examination of C&I lending by New England of $1 billion or less. savings banks, see Constance Dunham. "Mutual Savings Banks: Are 14. See, for example, Jim Burke and Stephen A. Rhoades, "Com- They Now or Will They Ever Be Commercial Banks?" New England mercial and Consumer Lending by Thrift Institutions." Journal of Economic Review QMay/June 1982), pp. 51-72. Commercial Bank Lending (May 1991), pp. 15-24. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1031 •4. C&\ ieiuiititi hy hanks and thrift institutions, by iieo^rii itoUtntSoits wilh innimijons with CHI lotat u a pencew «f ««PWt' liutiUiliofiB widi more Lhan •note than Type of irittituUnfl Number of aoBB aswJi in 1 percent 5 penxnt and jjcogwphk n^iac wsiiiiitioca (percent} in o C f & K l O C h t u t m in o C f & as i s l e o t n s iB Simflfe AMet-MMghitd fpcram) tjKccem) BVerage COHMEEHIAL BAKKS New EnglBK) . !44 93.R 92.4 7S.7 K>.6 IAS Middle Atlantic 444 96j 912 65.5 $A 14.7 SODih Atlantic i.l2S 9fL4 95,9 74.5 Ifc3; 14.1 East North Central 1.768 99,0 97.2 74.4 10.3 t92 Ensi South Cinlral 791 98:9 973 73.4 9 JO 133 Wen North Ceni/ai 2,336 9&S WtJ 77,4 9.S [J3 West StHtth CeWrtl IJ79 99.6 97,3 73.fi 9.4. V6.I Mountain ...., 529 97,5 94.9 80.9 12.1 11.2 Pacific 440 97.5 96.8 87.7 15.3 f$4 SAVINGS BANKS New England 212 90,6 62.7 17.0 3.0 4.6 Middle Atlantic 210 70.0 28.1 7.6 -W \A South Atlantic 204 76.0 49.0 14.2 19 ZS Him North Genual 261 66.7 35,6 103 23: i.t Eiut South Ccmnil « £5.9 64.1 20.3 3,1 1.6 Won NarftCenifal .. 81 82.7 49.4 35.9 3.4 1.8 Wau South Oaural 64 B9.1 57.8 20.3 X0 2.0 J9 59J 51.7 13.8 2.7 1.9 Pacific 53 69 jt 26.4 9.4 1.6 1.2 SAVINGS ANO Lo*f» AssoctAiiONj Mew England .. IS 60.0 24,0 4:0 1.4 1.3 Middle AllantH! 98 592 18.4 3,1 1,1 .7 South Atlantic 87 483 27,6 3.4 (.7 (.1 Eitf Ntwh CHUinl 173 49.7 22,0 19 15 1.4 East South Central 29 41.4 20,7 3.4 2.} 3.6 Wesi North Cemral 58 56.9 27.6 103 2.4 l.fi West South Ccnlnd 50 34.0 28!> 6.(1 2.0 .9 MuunttJn 17 47.1 17.6 5.9 t,6 1.8 42 643 11.9 3.4 1.0 ,7 NLMi . Cicn^rjphiL- rkj^jon> jrr (he; divisions used b\ Ihc Burciu ol thi: sippi. Tennessee; Hwf North Central: loua, Kansas. Minnesota, Mis.soLtri. C'LI>MI\. Ilii: ^latCN in i::it:h ili\!suin :irc j\ lollov.?.: ACu Ln^Umtl: Con- Nchra.ska. North Dakota. South Dakota; Mo/ South Central: Arkansas. necticut. Maine. Mavsddlu.'k.'ttv New H:^mp^^me. Rhode Isljnd. Vennont: LouisiaiKi, Oklalionia, Te\a.s; Mountain: Arizona. Colorado. Idaho. Montana. Mitlitir .\tluntu: Neu Jersey. New ^'oik. Pennsylvania: Somli Atlunitc: Nevada. New Mexico, Utah. Wyoming: Pacific: Alaska, California. Hawaii, Dclnv-Lue. District tit CoUimbw. F'loritla, Gi'dftlin. Maryland. North Carolina. Oregon. Washington. South Carolina, Virginia. West Virginia: /"-^v/ Ninth d'tural: Illinois. Indiana, I. See note I to table 1 Michigan. Ohio. Wisconsin: /:tnv South Central: Alabama. Kentucky. Missis- Market Conconlralion commercial loan rates are higher (and commercial lending is more profitable) in highly concentrated The generally low level of thrift institution involve- markets than in less concentrated markets, we would ment in C&I lending (compared with banks) suggests expect to find a positive relationship between market that there may be significant costs associated with concentration and thrift involvement in C&I lending. thrift diversification into this line of business, even in For this analysis, the level of market concentration markets in which thrifts already do a considerable was measured by the Herfindahl-Hirschman index amount of mortgage and other lending. If this is true, (HHI).16 The HHI was calculated as the sum of the thrifts would be more likely to incur the costs asso- squares of the deposit market shares of all banks ciated with C&I lending in markets in which such operating in a particular geographic market.17 Ideally, lending is especially profitable. One source of high profitability would be high interest rates on commercial loans. Numerous empirical studies have found Stephen A. Rhoades. Slruciurr-t'eiformance Studies in Bunking: A bank profits or loan interest rates to be positively Summary and Evaluation. StalT Studies 92 (Board of Governors of the related to market concentration.'3 To the extent that Federal Reserve System. 1977); and Stephen A. Rhoades. Sinicture- Perjormance Studies in Banking: An Updated Summary and Evaluation. Staff Studies I 19 (Board of Governors of the Federal Reserve System. 1982). 15. Sec. tor example. Timothy H. Hannan. "Bank Commercial 16. For a discussion of the HHI. see Stephen A. Rhoades. "The Loan Markets and the Role ol' Market Structure: Evidence from Herfindahl-Hirschman Index." Federal Reserve Bulletin, vol. 79 Surveys ol Commercial Lending." Journal of Banking and Finance (March 1993). pp. 188-89. (February 1991). pp. 133-49: Timothy H. Hannan and J. Nellie Liang. 17. Banking markels were defined as metropolitan statistical areas "The Influence of Thrift Competition on Bank Business Loan Rales." (MSAs) or non-MSA counties. Considering markets to be local in Journal of Financial Services Research (June 1995). pp. 107-22: extent is appropriate because many banking customers, including Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1032 Federal Reserve Bulletin LJ December 1998 C&\ lending b\ bunk-, and thrift institutions. h> deposit market cortixnuatiun, 1997 [asi iuil tons wilh liwiiiukms with C&I foam as i percent of asitts- Typ i e t T of d in o n f r d it e u p li o o s n it nod Nomberof Ij s u o t m uu e t k a i s n s s e t w s i it n h m 1 o p r e e r c th e e n n t m S o p r e e r c f e l n u i ui mwtoet conccnuacon' (percent) in o C r & as t s e lo ts nns ia o C f & ns l s l t t l t s ra a S v ii e n x p ig le e Asset-wash tcti (percent) (percent) COMMERCIAL BANKS SS8 99.4 9S.2 7S.D 11.9 21,7 MtKferattty concentrated - 2<R60 98,6 96.7 75,3 10.6 I5J 1.726 98.3 96:8 77.S. 10,9 16.3 V«y fughly toneentnted 3$» 99.3 97.4 74J 9.1 14.4 5AYIN<W BANKS UnconanHfBied 75 52:0 25.3 5,3 2B .3 Ma*riitaly cohEenitsitd 3S3 73J 37,9 ill 2.3 1.7 Highly conranlniwd 28) 80,1 44.3 11.0 2,3 1.4 Very highly eonwnirBied 4J5 812 55.4 JS.6 3J 3J SAVWCSAP*D LOW* ASSOCIATIONS Urtconcentraied }7 29,7 S.I 3.7 1.0 -5 Modemlely coDcoatraled 222 52.0 20.J ij U .8 HjjWy concentrated 105 54.3 21.0 19 12 .4 Veryhfehlyewicentreied 2)5 58.1 27.9 if) 10 1,9 I. Conccntraiion cat^on s are hilled on bank-only deposii-Kisc of 0-1 OIK): MIMJLT;IIJI> L . I(H)l- I SiXI; HighU eonc Herrindahl-Hirschman index llies, as follows: I'nconcenlralcd. HHI value 1801-2^00: Vur> hi»hl> eoi 201-in.(Hll) 2. See noie 1 to lable 1. the HHI would measure concentration on the basis Commercial bank participation in C&I lending is of C&I lending rather than deposits and would be unrelated to local banking market concentration, but calculated using shares of the C&I lending mar- participation by both savings banks and S&Ls (at ket. However, market-level data on each institution's each of the three measured participation levels) tends C&] lending activity were nol available.1H Therefore, to rise as market concentration increases (table 5).?0 deposit market shares were used as a proxy for C&I Extent of involvement (as measured by ratios of lending shares. Because thrift institutions generally C&I loans to assets) generally declines with increasdo far less C&I lending than banks, thrift deposits ing market concentration for banks and rises wilh were excluded from the calculation of the HHI.iy increasing concentration for thrifts. (Differences in the simple average ratio of C&I loans to assets between institutions in markets with an HHI above many commercial borrowers, are dependent on local insluulions. For 1800 and those in markets with an HHI of 1800 or evidence supporting the local nature of retail banking markets, .see less are statistically significant at the 0.01 level for all Myron L. Kvvast. Martha Slarr-McCluer. and John D. Wolken, "Marthree types of institutions.) These findings are consisket Definition and the Analysis of Antitrust in Banking," Antitrust Bulletin, vol. 42 (Winter 1997). pp. 973-95; Gregory H. Elliehausen tent with our expectations, given the well-established and John D. Wolken. "Banking Markets and the Use of Financial empirical relationship between market concentration Services by Small and Medium-Sized Businesses," Federal Reserve and profits. Bulletin, vol. 76 (October 1990), pp. 801-17: and Gregory E. Elliehausen and John D. Wolken, "Banking Markets and the Use of Financial Services by Households," hederal Reserve Bulletin, vol. 7S (March 1992). pp. 169-81. For firms operating in more than one local Urban vs. Rural Markets banking market, the HHI was calculated as a deposit-weighted average of the HHIs in the markets they served. 18. Geocoded data on the small-business-lending activities of Thrift involvement in C&I lending might be expected depositors institutions reporting under the Community Reinvestment Act have recently become available for analysis. Although these data to differ between urban and rural markets. On the one do permit the calculation of HHIs based on commercial lending, they hand, urban markets are likely to provide greater arc of limited value in analyzing cross->octional patterns of Cisi\ commercial lending opportunities than rural markets, lending behavior because they reflect the activities of a small fraction of depository institutions (1.460 commercial banks and 41 I thrifts leading to greater C&I lending activity. On the other in I99fi> and include only C&I loans of SI million or less. See Anthony W. Cyrnak. "Bank Merger Policy and the New CRA Data." federal Reserve Bulletin, vol. 84 (September 1998). pp. 703-15. for a 20. fhe analyses involving market-level variables uahles .1 and 6) detailed analysis employing these data. are based on data on institutions that reported branch-lc\el deposit 19. When HHIs were calculated including thrift deposits—first dala to the FDIC (Summary of Deposits) or the Office nl' Thrill including 50 perceni of thrift deposits (as is often done in Federal Supervision (Branch Office Survey). Because branch-level dala were Reserve Board analysis of the competitive implications of proposed nol available for all institutions that filed Call Reports or Thrill bank mergers) and then 100 percent of thrift deposits—the results Financial Reports, the number of institutions included in these analywere similar. ses is slightly smaller than the number in the preceding analyses. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1033 6. C&\ landing by hiirtks and lliril't insimiliuns, h\ \\ pc it! iiiiii'kcl :mi! iiKirkc.1! share. I1W7 KnsIilLHumv with (.7&I loans a> a ptnveni of ass niurt- lhan T«x of i Number tif nilu type of matter CAI orSiTw"' I Simple A v\i't tn C&l loans i in OS I l(i j If. BANKS t/riun All ituiimtkins ... 1VA 16.5 By market stwc (perixni) 0.0-0.5 \M1 •M.4 76.9 12.7 15.1 0.6-1,(1 7<i,S 11.8 I.1)." LI~5.1I I .(ItiT W.I 7K.2 11 ^ IJJi 5.1-10.0 (JQ J MS.? 114 Grower itian 10.0 422 (JM 1 90.5 13-5 17.1 Hum! Ail institutions 47.7 72.7 K.6 M.4 By mniiei share (permit) O.IK10 6H2 95.0 63.1 K.I X.fi S.I-JfUl 97.4 71.7 S.6 K.'J 1.341 W.9 98.5 75. a 9.0 y.7 Grcoier item 3.1731 9H. 1 74.1) S.6 y.4 BANKS Urban AD tintilglioils B57 7S.6 41 M By maffcet share rpcrecnt) .160 63,1 ft 9 S £i 1.7 QJi-LO 7VB 42. •> 10 1 2.1 2.1 11-5 0 . 7S.7 14.7 27 1 I s.t-iao s»5-3. 52.4 15.2 2.4 1.4 Greater than 100 5K slb.h 27 b J.4 2.K Hunii 519 12 12 By (UBiket share (perecnl) 0.0-5.0 44 Sft.X 1.1.0 J.I ' 1 -i.l-10.0 76. 5(1.(1 2J I.S to 1-20n S4.4 IS.4 X 1 .1.0 Oreaier Ihm 20,0 74 9U.5 66.2 25 7 4.0 J.4 SAVitsoi Atm Lo*^ ASMK-IMIONS Urimn All institulions 51.1.7 tS.2 2.7 IJ S By markcl sliflre (percent I 191 .16 .(t 14.1 l.fi J.4 0.5-1.0 S.I 15.1 .11 .7 ..1 1.1-5.0 fi'J.W 24.7 5.4 1.4 5-1-10.0 .--- 71.1 7.7 l.fi I.S Greater lhan 10.0 To so.o 5(1.0 .0 1.7 Kural All in^tiuttionH "57 8 .1(1 1 6.X •> I 1.8 By irarkci iihun tpsn-eni I 0.0-S.O 4.1 1(1.2 1 1.0 2.1 1.2 s i mo 54.2 i 1 75.0 15 7 5.4 l.h 4K ftt.7 .15.4 10.4 10 2.U Nun. In s uih.in IT ilv nujoni\ nl'ilK-i n k.v.ilL\! in tuui-MSA cnnnlio held in hr.ni il.in \MlisliL':il .LUMS JIUI im.il .li.ue is IUM-J .in I Stv iiuk- 1 i, hand, concentration le\cls lend to be lower in urban ences between urban and rural markets apparent in markets than in rural markets, rendering thrift table 6 are statistically significant, they may be driven involvement in C&l lending in urban markets less by systematic differences in concentration levels or in attractive (because of lower profitability). market shares.:: The data indicate that thrifts are more extensively involved in C&l lending in rural markets than in urban markets, while the opposite is generally true in the l>pe in wliich H liekl llie larger share of its ttepusil-.. Assiyniui' instiuitioiK to one type ol market when lhe\ had deposits in both type-, for banks (table 6). '•' Although most of the differshould nut ha\e inllueneed the result-. Kviiuse most institutions operated primarily in a sinyle niarkei. The market in which an institution had the greater sliaie oi its deposits was home, on averago. ID 21 Local banking markels urn.- considered urb.m it' they were 92 peict'in ol' its total deposits. MSAs and rural if they were non-MSA counties. lor an nistiluiion 22. Regression results reported in the technical appendix indicate operalinsi in hulh t>|Vs of markets, the propurtion of deposits held in that when variations in concentration levels and market shares arc each type was calculated ami the inslilulion was classified as operating controlled lor. dillcrences between urban and rural markets disappear Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1034 Federal Reserve Bulletin . December 1998 Market Share loans, tends to decrease with institution size, to increase with market concentration, and to be unre- A firm's share of market deposits provides a measure lated to deposit market share; involvement tends of the strength of its presence in the market(s) in to be greater for thrifts owned by bank holding comwhich it operates. A thrift institution that captures a panies and for those operating in rural markets. large share of market deposits, and hence is locally prominent, may have greater commercial lending opportunities than a similar institution having only ('H,\\iu:s ix ,w ixsnn Titty's (\K-f f.i:M>f.\<; a small market share because it is more visible to MllYllY OVI-R TlMK commercial borrowers. Thus, we would expect to find a positive relationship between a thrift's market Cross-sectional analysis of the C&I lending behavior share and its C&I lending activity.2-1 of banks and thrift institutions leads naturally to some For this analysis, institutions in urban and rural questions about the dynamic aspects of thrift involvemarkets were treated separately because the number ment in such lending. For instance, are changes over of firms, and hence the "typical'" market share, tends time in charter type or ownership status associated to be quite different in these two settings. Bank with changes in an institution's level of C&I lending participation in C&I lending does not vary much with activity? To address such questions, we examined the market deposit share (table 6). For both savings banks average change between 1991 and 1997 in the ratio and S&Ls, and in both urban and rural markets, of C&I loans to assets for firms with different types participation is higher among firms having larger of ownership and charters. shares of market deposits than among those hav- The sample consisted of all organizations that ing smaller shares. For banks and S&Ls, extent of existed in 1991 as thrifts and were still operating in involvement is not related to market share; among 1997, either as thrifts or as commercial banks. Of the savings banks, involvement is substantially greater 2,664 thrifts that reported both financial and branchfor those in the largest market share category than for level deposit data in 1991, 1,688 were still operating those in any other category, with the difference being in 1997. Data for !23 of these 1,688 institutions were statistically significant within urban banking markets. merger-adjusted, to make the 1991 and 1997 figures comparable.24 Sixty-four of the surviving institutions were dropped from the sample because they had Simnmiry u\ Cn»i--S<.vnunu] Variations engaged in at least one acquisition in which only part of an organization was purchased (data for the partial In summary, although more than two-thirds of all institution could not be obtained, so adjusted 1991 thrift institutions engage in some C&l lending, their data that would be comparable with the 1997 data level of involvement is generally quite low relative could not be constructed). The change in the ratio of to that of banks. Their participation generally C&l loans to assets from 1991 to 1997 was calculated increased over the mid-to-late 1990s after having for each of the 1,624 institutions in the final sample. trended downward earlier in the decade. For both The institutions were then grouped according to their banks and thrifts, participation rates and levels of ownership status and charter type in 1991 and 1997, involvement appear to vary with institution size, and the (simple) average change in the ratio for each ownership status, geographic region, local banking subgroup was calculated. market concentration, and firm market share and For most subgroups of thrift institutions, the ratio between urban and rural areas. Larger thrifts, thrifts of C&I loans to assets increased over the period owned by bank holding companies, those operating (table 7). Thrifts that converted to bank charters in more concentrated banking markets, those that between 1991 and 1997 showed, on average, the have captured a larger share of local market deposits, largest increases. Although the direction of causality and those operating in rural areas are most likely to cannot be determined (that is, whether charter be involved in C&I lending. changes prompted increases in C&I lending or For those thrift institutions that do engage in C&I whether a desire to do more C&I lending led to lending, the extent of their involvement, as measured by the proportion of their assets invested in C&I 24. For each of the merger-adjusted institutions, the procedure involved aggregating financial data for the 1991 institution and for all institutions that were merged into it between 1991 and 1997. For 23. For firms operating in more than one local banking market, the example, if thrift A acquired thrift B in 1993, the 1997 data for market share was calculated as a deposit-weighted average of the thrift A were compared with the 1991 data for the hypothetical linn's market shares in all markets lhat it served. combination of thrifts A and B. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1035 Chungi: Irom to IW7 in ratio <if Citl loans to ysstts. h\ iliril'l insiituiion ouiifrship M;itus <iml I\|V Ownership status and charter typo in 1997 Owntrship status and charter g Saving* hank S&L S&L Commercial type in 1991 Independent owned by owned by nl I owned bv owned bv Independent bank owned savings hank ho th ld ri i f n t g ho b l a d n i k ng S&L I h I o h ld rj i n ng ho h l a d n in k g cum b n a w nk jciai b li v u i h d u in n g k company company company company company Independent savings hank .66" .71* 3 5 71- (497) (48) (35) (01 (0) (Oi (4) 122) Savings bunk owned by thrift holding company -.85 .77 ,05 l.'W (3) (28) (51 (III (Ol (Oi (111 13) Savings bank owned by bank holding company 2.65 (0) (0) (0) (0) CO! (I!) (5) Independent savings and loan association (S&L) .SI* .8.1" 3.16' .26" .11': 2.36 6.96* 4,40- »" (2901 C5S1 (ID (536) (10) (ft) (6) (17) Savings and loan association owned by thrift holding company 1.33 -1.2*! .50 -1.7.2 111) (51 (3) (9) (3) (0) Savings and loan association owned hy bank holding company .02 2.00 12.80 (0) III 13) (0.1 (01 (.1) (I) NotK Each table enu>. consisting of a pair ol' figures, represents a unique1 (hrifi institutions in the sample thai wure indepcnJcnt savings bunks in 1991 cnmbinaiion ol' 1991 and 19*17 ownership smus .ind charier ispe- The top comertc'd to indepvndeni commercial banks during the study period; the- avernumber in each pair of figures is the <^(.'rac.e change in [he ratio uf ( &l loans atiC ratio ol C&i loans to assets tor this group of inshtuttons increased [o asseis. in percentage [Hnni.s. across .7]! institutions in th:u sifoup; (he ntimtiL-r" 9.35 jx.'reeilU[£i-' poifiis over the f>en"d. in parentheses is the number of instiluiinns in that croup. For example, four -. •. • Significantly different Ironi zero at the 0.10. 0.05. and ll.ill ICM'IS. charter conversion), inspection of the annual C&I Although larger thrifts are more likely than smaller loan-to-asset ratios of individual thrifts undergoing thrifts to be involved in C&I lending, for those that charter conversion suggests that increased C&I lend- are involved in such lending, the proportion of assets ing generally followed rather than preceded charter invested in C&I loans tends to decline with increasconversion. Thrifts that in 1991 were independent or ing institution size. Thrifts operating primarily in owned by a bank holding company and in 1997 rural markets tend to be more heavily involved in were owned by a bank holding company also showed C&I lending than those operating primarily in urban fairly large average increases in C&I loan-to-asset markets. ratios. Perhaps our most interesting finding is that higher levels of market concentration are associated with greater thrift involvement in C&I lending. This find- CONCIA :S!ON ing has potential implications for antitrust policy. It suggests that a merger that substantially increases Our analysis confirms that thrift institutions are less concentration in a local banking market may lead likely than commercial banks to engage in commer- to greater C&I lending activity by thrifts operating cial and industrial lending and that the extent of in that market, thereby mitigating, to some degree, involvement of thrifts that do engage in such lending the potential competitive harm (to business customis generally low compared with that of banks. We ers) resulting from the merger. The effect may be also identified several factors that are related either to particularly important if the market and the thrifts the level of thrift involvement in C&I lending at a operating in it have other characteristics associated given time or to the change over time in the level of with greater thrift involvement in C&I lending. such involvement. Charter type and ownership status also influence Among thrift institutions, savings banks are much the growth of C&I lending activity over time: Conmore heavily involved in C&I lending than sav- version from a thrift charter to a bank charter is ings and loan associations. Ownership status is also associated with a large, statistically significant strongly associated with the C&I lending activity increase in C&I lending relative to institutions that of thrifts: Involvement is greater among those owned retain their thrift charters. Among thrifts that retained by bank holding companies than among either inde- their thrift charters, those that changed from indepenpendent thrifts or those owned by thrift holding dent status to bank holding company ownership durcompanies. ing the study period and those that were under bank Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1036 Federal Reserve Bulletin Li December 1998 holding company ownership throughout the period A.l. I'Atim.ik-il t/iiL-riiiJtcnK lioni [L'^rv^ L\|U;IUI)U showed significantly greater growth in C&I lending i:\pkiimMy i-Liliii nl' t'&l lo;in\ in ;I lor thrill activity than did thrifts that were independent or were under thrift holding company ownership at the end of Thrifts with some the period. Variahle AH thrifts asKK in C&I loam Our findings indicate that thrift institutions in general are far less involved in commercial and indus- Intercept -.004 1-01) trial lending than commercial banks but that the Inxiiiutron characteristics extent of involvement varies considerably and sys- Savings bank' ...,. .935*" ,924«« (6.59) (4.50) tematically with characteristics of the thrift institu- S\?e2 017 -.186" tion and the market(s) it serves. If thrift involvement (.67) 12.461 Ownership status in C&J lending is taken to be a reasonable indicator Thrift holding company-' ., .282 .362 (1.37) (1385 of the extent to which thrifts should be treated as Bank holding company' ... 1.763'" 1.542'" equal competitors of commercial banks for purposes (6.87) 15.05} Market "share5 . 041*" 014** of antitrust analysis, our findings support an approach (3.58) 12.26) to merger analysis that generally gives reduced Geographic Location * weight to thrifts as competitors but allows the weight Middle Atlantic -.725"* -.4&S (2.9ftl <1.55> to be increased for thrift institutions that are unusu- South Atlantic -.291 .049 (1.14) 1.15) ally active in C&I lending. East North Central -.620** -.340" (2.57) 11.10) East South Central -.257 -.083 (.76) (.19) West North Central .264 .679* M'f/:.\n ix: Hi-. ( ;RI-:SS IO.\ A ,\A L YSIS (.85) (1.71) West South Central .004 .123 (.01) (.30) Mountain —.570 -40S In addition to the univariate analysis presented in (1.30) (.72) tables 1-6, we ran ordinary least squares (OLS) re- Pacific -1 069*** -.766* (3.24) 11.74) gressions to further examine the relationship between Market chiinicreriilicx commercial and industrial lending by thrift institu- Market concentration1 ""O1 x ID-1"* 2.47 x ID-1*" tions and various market and firm characteristics. (2.99) (2.S4) Urban market" .186 .313 Regression analysis makes it possible to determine 1.84) 11.01) whether the relationships observed in the univari- Adjusted R-squarc .119 .083 Number of observations 1.755 1.2.17 ate analysis persist when the influence of other co-varying factors is taken into account. The regres- No IT.. Numbers in parentheses are / statistic... 1. Dummy variable equal to I if the thrill is a savings bank, and 0 if it is a sion equation was estimated for two groups—the savings: and loan association. 1,755 thrift institutions that reported both branch 2. As measured by the natural log of total assets held by the thrift. 3. Dummy variable equal to I if the thrift is owned by a thrift holding com- (Summary of Deposits or Branch Office Survey) and pany, and 0 otherwise. financial (Call Report or Thrift Financial Report) data 4. Dummy variahle equal to 1 if the thrift is owned by a bank holding company, and 0 otherwise. in 1997 and the 1,217 thrifts in that group that had 5. Deposit-weighted average of trie thrift's market share in the market(s) in some assets in C&I loans. Variables were measured which it operates. 6. Dummy variable equal to I if the thrift is headquartered in the named as of June 30, 1997, and correspond to those exam- region (bused on divisions used by the Bureau of me Census), and 0 otherwise. ined in the univariate analysis. New England! K the omitEed region. 7. Deposit-wcijzhicd average of the bank-only deposit-bnscd The results of the regression analysis (table A.I) Hcrlindahl- Hir^chrnun index in the market (si in which the thrift operate. are generally consistent with those of the univariate 8. Shnre uf thrift's total deposits held in banks located in metropolitan statistical areas. analysis. In every instance but one, the sign of the *. **, K" Significantly different from zero at the 0.10. 0.05, and 0.01 levels. coefficient estimate indicates a relationship between the variable and C&I lending similar to that indicated by the univariate analysis. The exception is that regression analysis yields a positive (but statistically cally higher in rural markets than in urban markets insignificant) coefficient on the urban market vari- and are positively related to the extent of C&I lendable, indicating that thrifts operating primarily in ing by thrifts, such as market concentration and the urban areas are more involved in C&l lending than thrift's share of deposits in the market(s) in which it those operating primarily in rural areas, whereas operates (tables 5 and 6). Therefore, the differences univariate analysis (table 6) indicates the opposite. between thrift C&I lending in urban and rural areas This discrepancy may be due to the fact that regres- shown in table 6 may be largely attributable to thrifts sion analysis controls for other factors that are typi- in rural markets having larger market shares and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Thrift Involvement in Commercial and Industrial Lending 1037 operating in more concentrated markets than thrifts in These findings are consistent with the univariate urban areas. analysis, which found that participation in C&I lend- Interestingly, the estimated coefficient on the thrift ing increases with size but that for those thrifts size variable is positive (but statistically insignifi- engaged in C&I lending, the extent of involvement, cant) for the full sample and negative for the sample as measured by the ratio of C&I loans to assets, of thrifts having at least some assets in C&f loans. declines with size. i Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1038 Treasury and Federal Reserve Foreign Exchange Operations This quarterly report describes U.S. Treasury and .1. Spur. i.j\djYiiiiL;t: rate el tliu Jollur a^msl [lit- (k'iTiW\ iif.-i System foreign exchange operations for the period and volatility implied hv "'.i^-'.rKxii!'. option IU'IL-ON. from July through September 1998. It was presented by Peter R. Fisher, Executive Vice President, Federal Murkv per iliitlai rPETSc-w per jtsa Reserve Bank of New York, and Manager, System Dollar-mark Open Market Account. Jason J. Bonanca was pri- I.X5 ^ marily responsible for preparation of the report. jl " '' 1.80 — »\^ During the third quarter of 1998, the dollar depreci- 1.75 - J ated 1.7 percent against the Japanese yen and 7.8 percent against the German mark (charts 1 and 2). 1.70 » Against the mark, the dollar continued to trade in AA relatively narrow ranges during the first half of the Diilifar-inart. imiplifi] period. Subsequently, however, the dollar dropped sharply amid increasing turmoil in global financial Apr. July Amg. Stpi. markets and shifting expectations for economic growth and interest rate policy. Against the yen. the Soi RCIS, J.P. Morpin: BlovA'jh'drt1 l.V. dollar steadily appreciated throughout the first half of the quarter, reaching new eight-year highs, as market participants reacted pessimistically to political uncer- HEIGHitNED RISK AVLRSIOK RESCUING FROM tainty and financial-sector difficulties in Japan. Later TURMOIL IN EMERGING MARKETS in the period, the dollar's gains were more than reversed as market participants unwound short yen During the first half of the quarter, market participositions in an environment of increasing risk averpants expected that near-term U.S. interest rate policy sion. The U.S. monetary authorities did not intervene would remain unchanged. The economic slowdown in the foreign exchange markets during the quarter. in Asia was expected to counterbalance ongoing, if moderating, strength in U.S. domestic demand. However, continued financial and economic weak- I, Spu'i L'XtiliiiiiL'i.' rait lit ihi.' (ioJiyf iijwiJiisi ilk* JapancM; ness in Japan and developments in emerging imil Vit'luiiSily HKfj'iik'JJn ono munih ivpiron piitw markets—particularly the deteriorating financial situation in Russia—helped to support U.S. Treasury prices during the first weeks in the quarter. Until the middle of August, the thirty-year Treasury bond yield traded consistently below 5.80 percent, near the bottom of its 1998 range (chart 3). Investor aversion to risk intensified sharply after Russia's declaration of a debt moratorium and an effective devaluation of the ruble on August 17. Losses in Russian markets and a dramatic widening of risk premiums led to successive waves of selling in emerging-market assets. Dollar-denominated, I emerging-market yield spreads over Treasuries rose Apr. Max. Ivyno July Aujv Sepi, to their highest levels since early 1995, and sales of emerging-market currencies ensued as investors I\D-II [->t-la in this chart and- ihosc ih-ar I'olJow are d:ii-v1"y- Soi «-l-s J P. Moruiin: BliHimbori: L.P. shed positions in local markets. These outflows led Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1039 U.S. TI-LMMJI-Y yk-kls, 4. J.P. Morgan EiiiiLTgiu;: Markets Bnud Iiuk-x, 1 'J'>8:Ql* TMrty-ywr — 5.5 5.0 — 4,5 July Aug. Sept. 1998 July SOURCF. Bloomberg L.P. Noii , Daia arc (he stripped sovereign >p[v;<d o\er Treasuries Sol tu i . J.P. Morgan. to increasing pressures on other markets, particularly those with fixed exchange rate regimes. Mounting strains on the Hong Kong dollar led to speculation to the Council on Foreign Relations, prompted regarding another series of currency devaluations in increased market talk about plans for international Asia. Meanwhile, increasing capital outflows from financial stabilization and possible coordinated inter- Brazil, as well as devaluations in Colombia and Ecua- est rate cuts. On September 29. the Federal Open dor, raised concerns about stability in Latin America. Market Committee (FOMC) cut its federal funds rate Sensitivity to the risk of sovereign events was target 25 basis points, to 5.25 percent. exacerbated by Malaysia's announcement of capital controls and a new fixed exchange rate regime on September 1, as well as Hong Kong's decision to DECLINE OF THE. DOf.fAR ACAMST THE MARK intervene in its equity market. In this environment, demand for U.S. Treasuries soared, with the thirty- Early in the period, the dollar traded in its year-toyear bond yield declining, to as low as 4.96, on date range of DM 1.75-1.85, guided by stable expec- September 30. Meanwhile, U.S. equities began to tations for gradual but steady growth in both the post sharp declines, responding to mounting turmoil United States and Germany. Market expectations in emerging markets and weaker-than-expected cor- regarding monetary policy in the two countries porate earnings. European shares also weakened; the reflected anticipation of steady policy in the United German DAX declined 24.2 percent over the period. States and the possibility of a rate increase in Ger- The sharp downward adjustment in asset prices in many before the beginning of the European Ecoemerging markets accelerated as leveraged investors nomic and Monetary Union (EMU) in January 1999. were forced to liquidate positions to meet margin After the events of mid-August, however, market calls. Risk aversion grew, as market participants participants became increasingly persuaded thai the anticipated that rapidly accruing losses might lead to turmoil in emerging markets and ongoing weakness a contraction of credit within the investment commu- in Asia would have a more significant effect on the nity. Further, the speed of the declines led to substan- U.S. economic outlook than had previously been tially illiquid trading conditions, which exacerbated expected. The concomitant tumble in U.S. equity volatility in already unsteady markets. Anxiety over prices served as an initial catalyst for dollar sales the health of the financial sector intensified as market against marks; between August 26 and 31. the dollar participants began to speculate that Long-Term Capi- declined from DM 1.8068 to DM 1.7547 against the tal Management, a major hedge fund, had incurred mark as the Dow Jones Industrial Average Tell large losses. 11.6 percent. During the final weeks of the period, tension in The dollar's decline coincided with the emergence global financial markets eased somewhat in response of expectations that the Federal Reserve would case to growing expectations for official policy responses monetary policy in an effort to address the possible (chart 4). The September 14 statement by the Group consequences for U.S. growth prospects posed by the of Seven (G-7) Finance Ministers and Central Bank strain on financial markets. In an address on Septem- Governors, in addition to President Clinton's speech ber 4, Chairman Greenspan said, ". . . it is just not Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1040 Federal Reserve Bulletin L December 1998 credible that the United States can remain an oasis of (k'niKin government ien-\e;ir benchmark tiunii weld. prosperity unaffected by a world that is experiencing greatly increased stress." Many market participants interpreted the Chairman's speech as a signal that the FOMC had abandoned its bias toward a tightening and was leaning toward an ease as its next move. Over the following week the implied rate on the October federal funds contract declined 17 basis points and subsequently reached a period low on September 25. of 5.15 percent. — 4,0 During the period, the increasing scope of global financial stress helped to reduce expectations that the Bundesbank would raise rates as part of the process of European convergence; the implied yield on the July Aug. Sepl. December 1998 Euromark contract declined 37 basis points, to 3.55 percent. However, market participants Soi K<. J . Bloombeig L..I1. appeared increasingly convinced that the Bundesbank was relatively less likely to ease policy than the Federal Reserve. Continued signs of European These flows helped to push the benchmark German growth, the Bundesbank's call for the gradual converbond yield to a record low on September 30, of gence of European interest rates, and perceptions that 3.87 percent (chart 6). In addition, anxiety among the European economy was relatively insulated from some market participants regarding prospects for weakness in Latin America all contributed to this impeachment proceedings against President Clinton belief. The implied yield spread between the Decemappeared to weigh on the dollar. ber Eurodollar and Euromark contracts narrowed During the final weeks of the period, the pace of from a high of 195 basis points to a low of 146 basis the dollar's depreciation subsided amid mounting points, illustrating the degree to which interest rate anticipation of G-7 aid to Latin America and increasexpectations had shifted against the dollar; during the ing evidence that expectations for a Federal Reserve same period, the dollar declined more than 12 pfenrate cut had become largely discounted by market nigs against the mark, falling from DM 1.7993 to participants. These factors partially fueled a rally in DM 1.67 18 (chart 5). U.S. share prices; The Dow Jones Industrial Average Throughout the period, the dollar-mark exchange rose 4.0 percent from a low of 7539.07 to finish the rate also reflected steady demand for selected Europeriod at 7842.62, helping to reinforce improved pean financial assets stemming from expectations for sentiment toward the dollar (chart 7). low regional inflation and confidence in the EMU. 5. Implied yield spread between Reuemhci' Fiumdolbr and 7 Global benchmark equity MILIOXO. timiiiliirk I'uuirw IWi^yl Index:Julv I • 10(1 United 200 Japan Sta(es — 100 — so — 60 Brazil Sept. July Aug. Sept. Noll-. Data arc Ihc I'.urodollur implied yield minus Ibe I'.urontark implied 1998 yield. Soi RI i . RliMimlvri! t..P. SOIKCF. Bloomberg L.P. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Treasury and Federal Reserve Foreign Exchange Operations 1041 Kl I HI., \I t >1 I ill. })i '!.f \ i< i /,•< nj 1.1<,!i / •) / \ A ¥136.50. Market pessimism regarding Japan's eco- /•//(,7-/.S .W,.l/\ W /111 Yi \ nomic and financial prospects remained in place after the September 4 meeting in San Francisco between Despite reaching fresh eight-year highs against the Treasury Secretary Rubin and Japanese Finance Minyen on August 11, the dollar declined more than ister Miyazawa. The Bank of Japan's September 9 2 yen against the Japanese currency during the quar- announcement of a monetary ease and renewed unter. Over the same period, one-month volatility certainty regarding the prospects for banking reform implied by option prices rose from 18 to 18.85 per- in Japan also contributed to yen softness. cent. Initially, market participants sold yen on doubts that a new financial reform package introduced on July 2 would be sufficient in scope or timeliness to / A1/. I ,S !'!<)'. \ \ I) !'/• hi AM / A7 .^ t.R \T f'< > i IV deal with Japan's banking crisis. The lack of any l:\CII.\X<;i: AY.MA'WA further fiscal stimulus measures also weighed on the yen. Moreover, the defeat of Japan's ruling party in The U.S. monetary authorities did not undertake any parliamentary elections on July 12 and the subse- intervention operations during this quarter. At the end quent uncertainty regarding the direction of Japa- of the quarter, the current values of the German mark nese economic and foreign exchange policy deflated and Japanese yen reserve holdings totaled $13.4 bilhopes for an early resolution of Japan's problems. lion for the Federal Reserve System and $14.6 billion Lastly, Japanese economic data that were weaker for the Exchange Stabilization Fund. The U.S. monethan expected contributed to negative sentiment tary authorities invest all of their foreign currency throughout the period; second-quarter gross domestic balances in a variety of instruments that yield marketproduct declined 1.6 percent year-over-year. related rates of return and that have a high degree of In the aftermath of the Russian devaluation, how- liquidity and credit quality. A significant portion of ever, investors increasingly took profits on long dol- these balances is invested in German and Japanese lar positions against the yen in a bid to offset losses government securities held directly or under repurin emerging markets or simply to reduce risk in an chase agreement. As of September 30, outright holdincreasingly volatile financial environment. Many ings of government securities by U.S. monetary believed that the climb in volatility had led to a authorities totaled $7.3 billion. slower pace of capital outflows from Japan than had Japanese and German government securities held been expected previously, a development that lent under repurchase agreement are arranged either further support to the yen. This trend was reinforced through transactions executed directly in the market by perceptions of Japanese investor repatriation flows or through agreements with official institutions. Govbefore the September 30 end of the fiscal half-year in ernment securities held under repurchase agreement Japan. Finally, growing anticipation that the Federal by the U.S. monetary authorities totaled $11.7 billion Reserve would ease policy also contributed to the at the end of the quarter. Foreign currency reserves dollar's decline. The dollar reached a low of ¥130.65 are also invested in deposits at the Bank for Internaon September 11, after having fallen 11.1 percent tional Settlements and in facilities at other official from its intraperiod high of ¥147.33. institutions. D In the final weeks of the period, the dollar partially retraced its losses, rising to finish the quarter at Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1042 Federal Reserve Bulletin l~l December 1998 ngL1 in)Uliiii?s oi U.S. moni_-Utp, authorities \\[scd on L'urrent exchange rales. Millions of Quarterly changes in balances by source Balance. Balance, Item June 30. 1<W iM purehus.es Impact ol Currency Imcrw) accrual Sept. .10. 1998 and (.ales' salts1 valuation I nel) and other adjustments * Deutsche marks . .... 11.652.0 0 n 102.2 9.14.4 0 I2.688.& 5.5S9.S u 0 4.2 0 5.663.8 interest recctvitrtlesJ 14.6 95.1 Other cash (low. Irani rnvv-stinems1 • •. 1.0.5 10.5 Total 17J32.8 106.4 1,004.2 4.1 18.447.5 U.S. TREASURY FxtHANGE Sl'ABIIJ/.tTHW FlJNIJ Deutsche marks 52.3 4719 0 6.42.14 Japanese yen SJOCIO.1 5.7 100.2 0 S.I 06.0 Interest receivables1' 42.0 fi.fi 4S.6 Other cash fl'ow frami snvestnteaK * 17.9 -17.9 Total 1X958.2 58.0 573.1 14.578.0 -11.3 1. Purchj.ves and vjtus jn.clu.de fcrcixw currcne)- sales ;jnJ purchLiM.'s pjlatcd lo 3. I'^rdgn currency, Kiilartces are muaked to market rnonthU at month -etui oEfteial activily, sviap i^awings and repaj-mcnls. and v.iiichousinQ. exchange rates. 2. Calculated tisinp markeef -to-nrt;iirkec exchange rales; represents the (.Itt't'er- •4. Interest receivables for the ESF are revalued at month-end exchange rates. ecice Ix-tween [he sale e\ch.irKsj!t rate .tnd ihi; most recent n.'v.ilu.ition exchange Interest receivable* tor the 1-ederal Reserve System are earned at aveiajre cost nite. Realized pro!t^ and losses on sales oi~ foreign currencies computed :is the of acquisition and are not marked (o market until interest is pnid. ditierei>ce hetween the hisiooic cost-ol-Licquisition exchange rate and the sale 5. Cash flow dillenjiices from payment and collection of funds between exchange rate are shown in table 2. quarters. Nui fir kisses i—i nil 1\.S. Ttvasury 3. Ctinvncy nrvangc L'iils. S<j])k'iiihor 3<!. Millions of dollars nil 11i-s. Amnuni o!' hislilution facility Sept. 50. 1998 Millions nl dollars Federal Reserve I US. Trea: Revipmcal Cuircncy Federal Arrangemenu; Period and itcnn Reserve SrabiliiaiKin Fund Austrian Nittional Bunk .... 250 0 National Bank of Belgium . 1.000 Valuation profits tind /fv.TfT cm Hank of Canada 2.000 (/ittttaiutirtH US.\-LJ!\ ami ffahttiurx. National Bank of Denmark 250 June M IV9H Bank of England 3.000 Deutsche mcuks .19.9 Bank of France 2.000 Japanese yen -18.2 -20.2 Deutsxhc Bundesbank 6.000 Total 21.7 ^108,8 Bank of Italy 3.000 Bant of Japan 5.000 Rt.'it[i:.i'it profits iiltd hyi Bank of Mexico 3.000 fm/n frneizn timvfti v jw Netherlands Bank .. 500 June 30. IW8-Seiir.'.W. Bank of Norway .... 250 Deutsche: nurks Bunk of Sweden 500 Swiss Niinonnl Btuik 4.000 Total Bank far huernttfwTKtt Seftla "I OaWars- againsi Swiss francs 600 \hhui[it:m profits and h I Dollar* against other authorized iHiisttmJini; rt.viri.v and European currencies 1.250 Sept. 30, I9>JH Deulsche marks 974.3 84.1 Total 32.400 I) Japanese yen 51.7 80.0 U.S. Treasury Total 11,(126.0 Exchange Stabilization Fund Currency Arrangements Deutsche 1.000 R-tnk of Mexico .VOW) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1043 Industrial Production and Capacity Utilization for October 1998 Released for publication November 16 tion in October was 1.4 percent higher than it was in October 1997. Capacity utilization fell 0.4 percentage Industrial production edged down 0.1 percent in point, to 80.6 percent, 1 Vi percentage points below its October, held down by a 3.4 percent drop in the 1967-97 average. output of utilities. Utility output, which had been at elevated levels over the summer, fell back as temperatures returned to more normal levels. Manu- MARKET GROUPS facturing output bounced back 0.3 percent, regaining only some of September's 0.6 percent loss. At The output of consumer goods edged down 0.1 per- 128.3 percent of its 1992 average, industrial produc- cent in October after having dropped a downward- Industrial production and capacity utilization Ratio scale. 1992 =100 Perccn oi capacity Industrial production Capacityutili/ation _ 130 A ~~ Manul'acturini> - 120 Total industry v& f Total industry - 110 / V* % \ - 80 Manufacturing 100 V 1 1 1 1 i 1 1 1 1 1 i 1990 1992 1994 1996 1998 1988 1990 1992 1994 1996 1998 Industrial production, market groups Ratio scale. 1992 = 100 Ratio scale. 1992 =100 _ Consumergoods _ 135 __ Intermediate products - 11 y — Durable . — 125 y 125 115 Construction supplies A' - 115 i—\^ — 105 105 S\l Nondurable Vy^vC^ Businesssupplies 95 I r 1 1 1 1 1 1 II 1 1 1 Ratio scale. 1992= 100 Ratio scale. 1992= 100 Equipment Materials 175 160 145 — Business - 130 115 100 Nondurable uoods and cneruv Def:nse arid spa*. - 85 s—, 1 Digitized for FR 19 A 9 S 0 ER 1992 1994 1996 1998 1990 1992 1994 1996 1998 http://fraser.stlouisfed.org/ AH scries are seasonally adjusted. Latest series. October. Capacity is an index of potential industrial production. Federal Reserve Bank of St. Louis

1044 Federal Reserve Bulletin • December 1998 Industrial production and capacity utilization. October 1998 Industrial production, index. 1992 = 00 "1 " Percentage change Cateeorv 1998 I9981 Oct. 1997 July1 Aug.1 Sept.' Oct.'' July Aug. Sept.' Oct. r Oct. 1998 Total 127.2 129.1 128.4 128.3 _ 2 1.5 -.5 -.1 1.4 Previous estimate 127.0 129.0 128.7 i 1.6 -.3 Major nutrkrt ^rouj's Products. lolal: 120.7 122.7 121.8 121.6 -.4 1.7 -.8 T 1.2 Consumer aoods 114.4 1 16.3 115.4 115.2 -.8 1.7 -.8 -I -.6 Business equipment 149.3 154.5 153.3 1 53.6 -.9 3.5 -.8 5.5 Conslruccum supplies 128.0 129.1 127.5 128.0 1.2 .9 -1.2 A 5.6 TMaierials 137.6 139.2 139.1 159.0 .0 1.2 -.1 .0 1.7 Maji>r iiulustrx t,'/v;//n Mamifaeliuinn 129.6 131.8 131 0 131.4 -.3 1.7 -.6 .3 1.8 Durable 146.4 152.3 150.9 151.8 -.8 -V0 -.9 .6 4.3 Nondurable 1 12.3 11 1.3 110.9 110.9 .3 -.9 -.3 -.1 -1.2 Viuiiim 106.3 105.9 104.8 103.6 -.4 -1.0 -I.I -2.1 Utilities 118.5 118.9 120 7 116 6 .4 1.5 -3.4 -.2 Ml: MO Japacitv u ilization. percent Capacity. pci- 1997 1998 centage Averase, Low. High. change. 1967-97 1982 1988-89 r Oct. 1997 Oct. July' Aug Sept.' Oct. r Oct. 1998 Total 81 1 71 1 85 4 810 80 7 81 7 81 0 80 6 4.: Previous estimate 80.6 81.6 81.1 Manufacturing 81.1 69.0 85.7 81 9 79 2 80.3 79 5 79 4 5.0 Advanced processing 80.5 70.4 84.2 80.2 77.0 78.7 77.9 77.9 5.8 Primarv processing 82.4 66.2 88.9 85.7 84.3 83.9 83.0 82.8 3.1 Miniim 87.5 80.3 88.0 89.6 89.5 89.0 88.0 86.9 9 tililnies 87.3 75 9 92.6 92.0 92.6 92 9 94.2 90.9 1.0 Noi h. Data seasonally adjusted or calculated from seasonally adjusted 2. Contains components in addition to those shown, monthly data. i Revised, I Change from preceding month. p Preliminary. revised 0.8 percent in September. The production of by the strength in homebuilding activity. The producdurable consumer goods in October was buoyed by a tion of materials has been nearly flat over the past 2.9 percent increase in automotive products as well two months. The production of basic metals fell as an increase in appliances that recovered a bit of again after having dropped nearly 3 percent in Sep- September's 7 percent loss. The output of nondura- tember: iron and steel production has tumbled more ble goods (excluding energy for consumers) was than 8 percent over the past two months. In contrast, unchanged in October; consumer energy products fell production of semiconductors and other electronic 3.7 percent, a drop that reflected lower residential components picked up noticeably in October; semidemand for electricity. conductor output had decelerated earlier this year, The production of business equipment edged up in and October's increase is the largest since January. October, with another drop in the output of industrial equipment offset by increases in information processing equipment and motor vehicles. The production of INDUSTRY GROUPS farm equipment fell again and is down almost 6 percent from a year ago. Commercial aircraft produc- Manufacturing output increased 0.3 percent in Octotion, which had been nearly flat at a high level during ber after having dropped 0.6 percent in September. the first part of the year, rose again last month. An increase in motor vehicle assemblies from The output of construction supplies increased 12.7 million units (annual rate) in September to 0.4 percent, regaining some of its September loss. 13 million units (annual rate) in October accounted Production in this category had climbed rapidly for part of the gain. But increases were fairly widebetween December of last year and August, buoyed spread within other durable goods industries, espe- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Industrial Production and Capacity Utilization 1045 cially furniture, fabricated metal products, comput- 1996 Annual Survey of Manufactures and from ers, and semiconductors. A notable exception was the selected editions of its 7997 Current Industrial iron and steel industry in which output fell again in Reports. Annual data from the Department of the October after having contracted sharply in Septem- Interior on metallic and nonmetallic minerals (except ber. The recent weakness in nondurables—production fuels) for 1996 and 1997 will also be introduced. The has fallen almost 1V2 percent in the past three updating will also include revisions to the monthly months—has been widespread, including the apparel, indicators for each industry (physical product data, chemical, paper, and petroleum industries. In Octo- production-worker hours, or electric power usage) ber, mining production declined for the third straight and revised seasonal factors. In addition, the revision month, pulled down by decreased oil and gas drilling will introduce improved measures of production for and extraction resulting from weak crude oil prices. semiconductors, coal, lawn and garden equipment, The factory operating rate fell 0.1 percentage point and aircraft. in October, to 79.4 percent—more than 2Vi percent- Capacity and capacity utilization will be revised age points below the level it had reached in January. to incorporate preliminary data from the Census Utilization rates for both primary- and advanced- Bureau's 1997 Survey of Plant Capacity. The statisprocessing industries have fallen this year. Industries tics on the industrial use of electric power will incorthat have experienced especially large declines porate more complete reports received from utilities include primary metals, petroleum products, and for the past few years as well as data from the 1996 mining. Annual Survey of Manufactures. Once the revision is published, the revised data will be available on the Board's web site, http:// REVISION OF INDUSTRIAL PRODUCTION AND www.federalreserve.gov/releases/gl7, and on disk- CAPACITY UTILIZATION ettes from Publications Services (telephone 202-452- On November 24, the Federal Reserve will publish 3245). The revised data will also be available through revisions to its measures of industrial production the Economic Bulletin Board of the Department of (IP), capacity, capacity utilization, and industrial use Commerce; for information about the Bulletin Board, of electric power. The revisions will begin with 1992 call 202-482-1986. Further information on these reviand will incorporate updated source data for more sions is available from the Board's Industrial Output recent years. Section (telephone 202-452-3197). • This regular updating of source data for IP will include annual data from the Bureau of the Census's Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1046 Statements to the Congress Statement by Alan Greenspan, Chairman, Board of What is remarkable is not this episode but the Governors of the Federal Reserve System, before the relative absence of such examples over the past five Committee on Banking and Financial Services, U.S. years. Dynamic markets periodically engender large House of Representatives, October 1, 1998 defaults. I thank you for this opportunity to report on the Federal Reserve's role in facilitating the private- EVENTS OF THE PAST FEW WEEKS sector refinancing of the large hedge fund, Long- Term Capital Management (LTCM). In my remarks LTCM is a hedge fund, or a mutual fund that is this morning, I will attempt to put into some perspec- structured to avoid regulation by limiting its clientive the events of the past few weeks and discuss tele to a small number of highly sophisticated, very some questions of importance to public policymakers wealthy individuals and that seeks high rates of return that they raise. by investing and trading in a variety of financial The Federal Reserve Bank of New York's efforts instruments. Since its founding in 1994, LTCM has were designed solely to enhance the probability of had a prominent position in the community of hedge an orderly private-sector adjustment, not to dictate funds, in part because of its assemblage of talent in the path that adjustment would take. As President pricing and trading financial instruments as well as McDonough just related, no Federal Reserve funds its large initial capital stake. In its first few years of were put at risk, no promises were made by the business, it earned an enviable reputation by racking Federal Reserve, and no individual firms were pres- up a string of above-normal returns for its investors. sured to participate. Officials of the Federal Reserve LTCM appears principally to have garnered those Bank of New York facilitated discussions in which returns by making judgments on interest rate spreads the private parties arrived at an agreement that both and the volatilities of market prices. In its search for served their mutual self-interest and avoided possible high return, LTCM levered its capital through securiserious market dislocations. Financial market partici- ties repurchase contracts and derivatives transactions, pants were already unsettled by recent global events. relying on sophisticated mathematical models of Had the failure of LTCM triggered the seizing up behavior to guide those transactions. As long as the of markets, substantial damage could have been configuration of returns generally mimicked their inflicted on many market participants, including some historical patterns, LTCM's mathematical models of not directly involved with the firm, and could have asset pricing could be used to ferret out temporary potentially impaired the economies of many nations, market price anomalies. Their trading both closed including our own. With credit spreads already ele- such price gaps and earned an extra bit of return on vated and the market prices of risky assets under capital for them. But it is the nature of the competiconsiderable downward pressure, Federal Reserve tive process driving financial innovation that such officials moved more quickly to provide their good techniques would be emulated, making it ever more offices to help resolve the affairs of LTCM than difficult to find market anomalies that provided sharewould have been the case in more normal times. In holders with a high return. Indeed, the very efficieneffect, the threshold of action was lowered by the cies that LTCM and its competitors brought to the knowledge that markets had recently become fragile. overall financial system gradually reduced the oppor- Moreover, our sense was that the consequences of tunities for above-normal profits. Indeed, LTCM a fire sale triggered by cross-default clauses, should acknowledged this when returning $2% billion of LTCM fail on some of its obligations, risked a severe capital to investors at the end of 1997. To counter drying up of market liquidity. The plight of LTCM these diminishing opportunities, LTCM apparently might scarcely have caused a ripple in financial mar- reached further for return over time by employing kets or among federal regulators eighteen months more leverage and increasing its exposure to risk, a ago—but in current circumstances it was judged to strategy that was destined to fail. Unfortunately for warrant attention. its shareholders, LTCM chose this exposure just Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1047 as financial market uncertainty and investor risk- large market swing when making their risk assessaversion began to rise rapidly around the world. ments. Indeed, when we examine banks we expect In that environment—so at variance with the expe- them to have systems in place that take account of rience built into its models—LTCM's embrace of risk outsized market moves. However, a fire sale may be on a large scale produced stunning losses. As we now sufficiently intense and widespread that it seriously know, by the end of August the firm had lost half its distorts markets and elevates uncertainty enough capital base. And as September unfolded, the bleed- to impair the overall functioning of the economy. ing continued. The firm, however, apparently did not Sophisticated economic systems cannot thrive in such unwind its positions significantly. an atmosphere.1 In our dynamic market economy, investors and The scale and scope of LTCM's operations, which traders, at times, make misjudgments. When market encompassed many markets, maturities, and currenprices and interest rates adjust promptly to evidence cies and often relied on instruments that were thinly of such mistakes, their consequences are generally traded and had prices that were not continuously felt mostly by the perpetrators and, thus, rarely cumu- quoted, made it exceptionally difficult to predict the late to pose significant problems for the financial broader ramifications of attempting to close out its system as a whole. Indeed, the operation of an effec- positions precipitately. That its mistakes should be tive market economy necessitates that investment unwound and losses incurred was never open to funds committed to capital projects that do not accu- question. How they should be unwound and when rately reflect consumer and business preferences those losses incurred so as to foster the continued should incur losses and ultimately be liquidated. smooth operation of financial markets was much What value is left needs to be redirected to profitable more difficult to assess. The price gyrations that uses—those that more accurately reflect market pref- would have evolved from a fire sale would have erences. By such winnowing of inefficiencies, pro- reflected fear-driven judgments that could only ductivity is enhanced and standards of living expand impair effective market functioning and generate over time. losses for innocent bystanders. Financial markets operate efficiently only when While the principle that fire sales undermine the participants can commit to transactions with reason- effective functioning of markets may be clear, decidable confidence that the risk of nonpayment can be ing when a potential market disruption rises to a level rationally judged and compensated for. Effective and of seriousness warranting central bank involvement seasoned markets pass this test almost all of the is among the most difficult judgments that ever contime. On rare occasions, they do not. Fear, whether fronts a central banker. In situations like this, there is irrational or otherwise, grips participants, and they no reason for central bank involvement unless there unthinkingly disengage from risky assets in favor of is a substantial probability that a fire sale would result those providing safety and liquidity. The subtle dis- in severe, widespread, and prolonged disruptions to tinctions that investors make, so critical to the effec- financial market activity. tive operation of financial markets, are abandoned. It was the judgment of officials at the Federal Assets, good and bad, are dumped indiscriminately Reserve Bank of New York (FRBNY), who were in circumstances of high uncertainty and fear that monitoring the situation on an ongoing basis, that the are not conducive to planning and investment. Such act of unwinding LTCM's portfolio in a forced liquicircumstances, were they generalized and persistent, dation would not only have a significant distorting would be wholly inconsistent with the functioning impact on market prices but also in the process could of sophisticated economies supported by long-term produce large losses, or worse, for a number of capital investment. creditors and counterparties, and for other market Quickly unwinding a complicated portfolio that participants who were not directly involved with contains exposure to all manner of risks, such as that LTCM. In that environment, it was the FRBNY's of LTCM, in such market conditions amounts to judgment that it was to the advantage of all conducting a fire sale. The prices received in a time parties—including the creditors and other market of stress do not reflect longer-run potential, adding to participants—to engender if at all possible an orderly the losses incurred. Of course, a fire sale that trans- 1. At the same time, not all fire sales are without merit. The fers wealth from one set of sophisticated market Resolution Trust Corporation earlier this decade chose to offer complayers to another, without any impact on the finan- mercial real estate in what might be termed a fire sale because it was cial ' ='em overall, should not be a concern for the the only way an otherwise seized-up market could be galvanized. Some level of market prices had to be established—even if below ceniuu Dank. Moreover, creditors should reasonably "intrinsic" or longer-run value in order to reestablish a two-way be expected to put some weight on the possibility of a market. This was a special case. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1048 Federal Reserve Bulletin • December 1998 resolution rather than let the firm go into disorderly nomic efficiency will be impaired as some unecofire-sale liquidation after a set of cascading cross nomic investments are undertaken under the implicit defaults. assumption that possible losses may be borne by the As President McDonough has detailed, officers of government. the Federal Reserve Bank of New York contacted a But is much moral hazard created by aborting fire number of creditors and asked if there were alterna- sales? To be sure, investors wiped out in a fire sale tives to forcing the firm into bankruptcy. At the same will clearly be less risk prone than if their mistakes time, FRBNY officers informed some of their col- were unwound in a more orderly fashion. But is the leagues at the Federal Reserve Board, the Treasury, broader market well served if the resulting fear and and other financial regulators of their ongoing activi- other irrational judgments govern the degree of risk ties. The troubles of LTCM were not a complete participants are subsequently willing to incur? Risksurprise to its counterparties. After all, LTCM's ear- taking is a necessary condition for wealth creation. lier statements regarding its August losses were well The optimum degree of risk aversion should be govknown, and sophisticated counterparties understood erned by rational judgments about the market place, the difficulties in closing out large losing positions. In not the fear flowing from fire sales. addition, the commercial banks among its creditors The Federal Reserve provided its good offices to had already begun taking normal precautionary mea- LTCM's creditors, not to protect LTCM's investors, sures associated with exposure to counterparties creditors, or managers from loss but to avoid the whose condition is deteriorating. Still, creditors as a distortions to market processes caused by a fire-sale whole most likely underestimated the size and scope liquidation and the consequent spreading of those of the market bets that LTCM was undertaking, an distortions through contagion. To be sure, this may issue that is currently under review. well work to reduce the ultimate losses to the original On September 23, the private-sector parties arrived owners of LTCM, but that was a byproduct, perhaps at an agreement providing a capital infusion of about unfortunate, of the process. $31/2 billion in return for substantially diluting exist- I should add that, in order to keep incentives working shareholders' stake in LTCM. Control of the firm ing in their favor, the creditors of LTCM apparently passed from the current management to a committee also understood the importance of some cushioning determined from the outside by the new investors. of the losses to the owners and managers of the firm. Those investors intend to shrink LTCM's portfolio so The private creditors and counterparties in the rescue as to reduce risk of loss and return the remaining package chose to preserve a sliver of equity for capital to the investors as soon as practicable. I do not the original owners—one-tenth—so that some of the rule out the possibility that the new owners of what is management would have an incentive to stay with left of LTCM may decide to keep part of it in busi- the firm to assist in the liquidation of the portfolio. ness. That is their judgment to make. Regrettably, the creditors felt that, given the complex- This agreement was not a government bailout in ity of market bets woven into a bewildering arrray of that Federal Reserve funds were neither provided nor financial contracts, working with the existing manever even suggested. Agreements were not forced agement would be far easier than starting from scratch. upon unwilling market participants. Creditors and counterparties calculated that LTCM and, accordingly, their claims, would be worth more over time if the liquidation of LTCM's portfolio was orderly as SOME QUESTIONS FOR POLICYMAKERS opposed to being subject to a fire sale. And with markets currently volatile and investors skittish, put- Without doubt, extensive study will be required to ting a special premium on the timely resolution of put the events of the past few weeks into proper LTCM's problems seemed entirely appropriate as a perspective. As a member of the President's Working matter of public policy. Group on Financial Markets, I support Secretary Of course, any time that there is public involve- Rubin's call for a special study on the public policy ment that softens the blow of private-sector losses— implications of hedge funds. While the affairs of even as obliquely as in this episode—the issue of LTCM are by no means settled, I would like to moral hazard arises. Any action by the government pose some tentative questions that may have to be that prevents some of the negative consequences to addressed. the private sector of the mistakes it makes raises the First, how much dependence should be placed on threshold of risks market participants will presum- financial modeling, which, for all its sophistication, ably subsequently choose to take. Over time, eco- can get too far ahead of human judgment? This Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 1049 decade is strewn with examples of bright people who insulate themselves better from LTCM's debacle. thought they had built a better mousetrap that could More important will be the assessment of whether consistently extract an abnormal return from financial those procedures are adequate for the future. But this markets. Some succeed for a time. But while there is an area in which much work has been ongoing. may occasionally be misconfigurations among mar- During the fourth quarter of 1997 and the first quarter ket prices that allow abnormal returns, they do not of 1998, supervisory staff of the Federal Reserve persist. Indeed, efforts to take advantage of such Bank of New York and the Board met with managers misalignments force prices into better alignment and at several major New York banking institutions to are soon emulated by competitors, further narrowing, discuss their current relationships with hedge funds, or eliminating, any gaps. No matter how skillful the updating a similar study conducted three and one-half trading scheme, over the long haul, abnormal returns years earlier. are sustained only through abnormal exposure to risk. Fourth, does the fact that investors have lost most Second, what steps could counterparties have taken of their capital and creditors may take some losses on to ensure that they had properly estimated their expo- their exposure to LTCM call for direct regulation of sure, particularly in markets that are volatile? To hedge funds? It is questionable whether hedge funds an important degree, the creditors of LTCM were can effectively be directly regulated in the United induced to infuse capital into the firm because they States alone. While their financial clout may be large, failed to stress test their counterparty exposures ade- hedge funds' physical presence is small. Given the quately and therefore underestimated the size of amazing communication capabilities available virtuthe uncollateralized exposure that they could face ally around the globe, trades can be initiated from in volatile and illiquid markets. In part, this also almost any location. Indeed, most hedge funds are reflected an underappreciation of the volume and only a short step from cyberspace. Any direct U.S. nature of the risks LTCM had undertaken and its regulations restricting their flexibility will doubtless relative size in the overall market. By failing to make induce the more aggressive funds to emigrate from those determinations, its fellow market participants under our jurisdiction. The best we can do in my failed to put an adequate brake on LTCM's use of judgment is what we do today: Regulate them indileverage. To be sure, sometimes decisions are based rectly through the regulation of the sources of their on judgments about the soundness of borrowers that funds. We are thus able to monitor far better hedge are accepted from third parties or, possibly in this funds' activity, especially as they influence US financase, that are founded on the impressive qualifica- cial markets. If the funds move abroad, our oversight tions of LTCM's principals. In some cases, such will diminish. truncated risk appraisals may be accurate, but they In the first line of risk defense, if I may put it that are not a substitute for a rigorous analysis by the way, are hedge funds' lenders and counterparties. lender of the borrower's overall creditworthiness and Commercial and investment banks especially have risk profile. the analytic skills to judge the degree of risk to which Third, in this regard what lessons are there for the funds are exposed. Their self-interest has, with bank regulators? Domestic commercial bank expo- few exceptions but including the one we are discusssure to LTCM included both direct lending and acting ing today, controlled the risk posed by hedge funds. as counterparties to the firm in derivatives contracts. Banking supervisors are the second line of risk A preliminary review of bank dealings with LTCM defense in their examination of lending procedures suggests that the banks have collateral adequate to for safety and soundness. We neither try, nor should cover most of their current mark-to-market exposures we endeavor, to micromanage bank lending activity. with LTCM. The unexpected surge in risk aversion We have nonetheless built up significant capabilities and the dramatic opening up of interest rate spreads in evaluating the complex lending practices in overin August obviously caught LTCM wrong footed. the-counter derivatives markets and hedge funds. If, Counterparties, including banks, continued to collect somehow, hedge funds were barred worldwide, the collateral for marks to market. What they were not American financial system would lose the benefits collateralized against was the losses that might have conveyed by their efforts, including arbitraging price occurred when prices moved even further and market differentials away. The resulting loss in efficiency liquidity dried up in a fire sale. and contribution to financial value added and the Supervisors of banks and security firms must assess nation's standard of living would be a high price to whether current procedures regarding stress testing pay—to my mind, too high a price. and counterparty assessment could have been Fifth, how much weight should concerns about improved to enable counterparties to take steps to moral hazard be given when designing mechanisms Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1050 Federal Reserve Bulletin • December 1998 for governmental regulation of markets? By way of and, especially, the externalities associated with fireexample, we should note that were banks required sale liquidations of troubled entities against shortby the market, or their regulator, to hold 40 percent term assistance to tide the firms over for a time. It capital against assets as they did after the Civil War, was such a balancing of near-term costs and longerthere would, of course, be far less moral hazard and term benefits that presumably led J.P. Morgan to far fewer instances of fire-sale market disruptions. At convene the leading bankers of his age—both comthe same time, far fewer banks would be profitable, mercial and investment—in his library in 1907 to the degree of financial intermediation would be less, address the severe panic of that year. Such episodes capital would be more costly, and the level of output were recognized as among those rare occasions when and standards of living would be decidely lower. Our otherwise highly effective markets seize up and temcurrent economy, with its wide financial safety net, porary ad hoc responses were required. The convenfiat money, and highly leveraged financial institu- ing of LTCM investors and lenders last week at the tions, has been a conscious choice of the American Federal Reserve Bank of New York could be viewed people since the 1930s. We do not have the choice of in that long tradition. It should similarly be viewed as accepting the benefits of the current system without a rare occasion, warranted because of the potential its costs. for serious disruptions to markets. We must also remain mindful of where to draw the line at which public-sector involvement ends. The efforts last week CONCLUSION were limited to facilitating a private-sector agree- For so long as there have been financial markets, ment and had no implications for Federal Reserve participants have had on occasion to weigh the costs resources or policies. Statement by William J. McDonough, President, Fed- porary price discrepancies between different interest eral Reserve Bank of New York, before the Committee rates. For example, the firm might notice that the on Banking and Financial Services, U.S. House of yield on corporate bonds relative to Treasury yields Representatives, October 1, 1998 was higher than the range observed in recent years. If Long-Term Capital believed the former relationship I am pleased to appear before you today to describe would reassert itself, it would buy corporate bonds the Federal Reserve Bank of New York's role in the and sell short Treasury bonds. If the spread narrowed events leading up to the recent private-sector recapi- as expected, the firm would profit. If, however, the talization of Long-Term Capital Management and its spread continued to widen, the firm would incur fund, Long-Term Capital Portfolio. losses. This basic strategy and many complex varia- I will cover four points. First, I will provide some tions were followed across many interest rate prodbackground on Long-Term Capital's financial prob- ucts in the United States and many overseas markets lems. Second, I will explain our judgment that an as well. The firm was active both in traditional secuabrupt and disorderly closeout of Long-Term Capi- rities markets and, perhaps more important, in derivatal's positions would have posed unacceptable risks tive product markets such as futures, swaps, and to the U.S. economy. Third, I will explain the limited options. Anticipating that some positions would move role we played in facilitating the private-sector reso- in their favor and some would move against them, the lution to this private-sector problem. Fourth, I will firm relied on diversification across a large number of identify some of the issues that should concern us as product and geographic markets. Long-Term Capital we begin to understand the lessons of this experience. proved quite successful at this strategy, generating returns in excess of 40 percent in 1995 and 1996, though somewhat less in 1997. BACKGROUND Perhaps their success went to their heads. Long- Term Capital took on larger and larger positions. Long-Term Capital is an investment partnership that They also leveraged their investments at higher levwas started in 1994. It has many of the characteristics els, returning capital to their investors but not, apparof a "hedge fund" in that it borrows money to ently, reducing risks. We now also know that they leverage its capital and is available only to wealthy took on significant positions in equity markets, investors. The strategy of Long-Term Capital was to through both swap and options contracts. The reputause complex mathematical formulas to identify tem- tions of the Long-Term Capital partners, as traders Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 1051 and economists, and their initial success appear to made a series of calls to senior Wall Street officials have contributed to so many counterparties' willing- to discuss overall market conditions. Let me take a ness to deal with them. moment to put those calls in context. One important While hubris may have set them up for a fall, it objective of the Federal Reserve is to ensure financial was the extraordinary events of August in global stability. Particularly in times of stress, it is essential markets that appear to have tripped them. that the Federal Reserve continue to take the pulse of On August 17, the Russian government announced the market. One way to do that is through candid and an effective devaluation of the ruble and declared a open communication with key market participants. debt moratorium, shocking investor confidence all Everyone I spoke to that day volunteered concern over the world. Over subsequent days and weeks, about the serious effect the deteriorating situation of equity and debt markets the world over became Long-Term could have on world markets. increasingly volatile, with U.S. equity markets falling Also on September 18, one of the firms that had and the spreads between U.S. Treasury securities and been working with Long-Term to raise new capital higher-yielding debt instruments widening sharply. asked the Long-Term Capital partners if the firm The correction of stock prices was not of exceptional could share the information it had with us. The partsize or concern and, indeed, had been anticipated ners at Long-Term Capital responded that they would by a number of astute market observers. However, prefer to present the information themselves and the abrupt and simultaneous widening of credit called me to arrange such a presentation. spreads globally, for both corporate and emerging- After conferring with Chairman Greenspan and market sovereign debt, was an extraordinary event Secretary Rubin, we agreed that a visit to Long-Term beyond the expectations of investors and financial Capital's offices was needed. A team from the New intermediaries. York Fed, led by Peter Fisher, the head of our Mar- The unusual widening of credit spreads also caused kets Group, and joined by Treasury Assistant Secresignificant losses at Long-Term Capital. As markets tary Gary Gensler, met with the Long-Term Capital around the world moved in the same direction at the partners at their offices on Sunday, September 20. same time, the diversification on which Long-Term During this meeting, we learned the broad outlines of had previously relied failed them utterly. Instead of Long-Term Capital's major positions in credit and offsetting positions, their losses were compounded. equity markets, the difficulties they were having in At the same time, the volatility in equity markets trying to reduce these positions in thin market condicaused further losses. On September 2, the partners tions, their deteriorating funding positions, and an of Long-Term Capital sent their investors a letter estimate of their largest counterparty exposures. The acknowledging 52 percent losses on the year through team also came to understand the impact that Long- August 31 and that they were seeking an injection of Term Capital's positions were already having on capital to sustain the firm. The existence of this letter markets around the world and that the size of these became widely known and reported within a few positions was much greater than market participants days. imagined. Because of this, during the first two weeks of September, concern about Long-Term Capital was a THE NEW YORK FED'S JUDGMENTS widespread topic of conversation in financial markets. It is a traditional and essential role for the I would like now to turn to my second point and President and senior officers of the Federal Reserve focus explicitly on the question of our judgment that Bank of New York to be talking to, and receiving the abrupt and disorderly closeout of Long-Term calls from, market participants regarding significant Capital's positions would pose unacceptable risks to developments and potential dislocations. In fact, the the U.S. economy. partners at Long-Term Capital called me early in There are several ways that the problems of Long- September to notify me of their difficulties and their Term Capital could have been transmitted to cause discussion with investment houses about plans to more widespread financial troubles. Had Long-Term raise new capital. Capital been suddenly put into default, its counterpar- By Friday, September 18, with the efforts to raise ties would have immediately "closed out" their posinew capital still unsuccessful—and with an increas- tions. If counterparties would have been able to close ing number of people now aware of Long-Term's out their positions at existing market prices, losses, plight because of the efforts to bring in new if any, would have been minimal. However, if many investors—events seemed to come to a head. With firms had rushed to close out hundreds of billions of market conditions particularly unsettled that day, I dollars in transactions simultaneously, they would Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1052 Federal Reserve Bulletin • December 1998 have been unable to liquidate collateral or establish WHAT DID THE NEW YORK FED DO? offsetting positions at the previously existing prices. Markets would have moved sharply, and losses Because events were moving swiftly, and with my would have been exaggerated. Several billion dollars approval and support, my colleague Mr. Fisher of losses might have been experienced by some invited representatives of the three firms that we felt of Long-Term Capital's more than seventy-five had the greatest knowledge of the situation at Longcounterparties. Term Capital and a strong interest in seeking a solu- These direct effects on Long-Term Capital's coun- tion to an early morning meeting on September 22. terparties were not our principal concern. While these The three firms were Goldman Sachs, Merrill Lynch, losses would have been considerable, and would cer- and J.P. Morgan. tainly have adversely affected the firms experiencing Continuing discussions that commenced the day them, this was not, in itself, a sufficient reason for us before, Mr. Fisher explained our interest in being to become involved. aware of developments and in reducing the risk of an Two factors influenced our involvement. First, in abrupt and chaotic closeout of Long-Term Capital. the rush of Long-Term Capital's counterparties to The firms present stated that they were not aware close out their positions, other market participants— of any other initiatives then being actively pursued investors who had no dealings with Long-Term to resolve Long-Term Capital's problems. They Capital—would have been affected as well. Second, voiced their own concerns about the risks to the as losses spread to other market participants and markets of a close-out scenario. They discussed vari- Long-Term Capital's counterparties, this would lead ous approaches to stabilizing Long-Term Capital, to tremendous uncertainty about how far prices would including the concept of a "collective industry" or move. Under these circumstances, there was a likeli- consortium approach. However, they all agreed that hood that a number of credit and interest rate markets work on a collective option should not preclude parwould experience extreme price moves and possibly allel efforts by anyone; indeed, that if any firm or cease to function for a period of one or more days group of firms wished to step forward and take Longand maybe longer. This would have caused a vicious Term Capital itself or Long-Term Capital's positions cycle: a loss of investor confidence, leading to a rush onto their balance sheets that this would be the most out of private credits, leading to a further widening of desirable outcome. In the absence of any other solucredit spreads, leading to further liquidations of posi- tions, the firms dispatched two working groups to tions, and so on. Most important, this would have Long-Term Capital's offices in Connecticut to conled to further increases in the cost of capital to U.S. sider the feasibility of "lifting" the fixed-income and businesses. the equity positions out of Long-Term Capital. A Let me be clear: Had we not just experienced in third working group met at one of the firm's offices August precisely this type of shock to our credit downtown to develop the idea of a consortium markets, had we not just seen a sudden, worldwide approach. By mutual agreement another firm, UBS, a straining of investor confidence, had there not already Swiss bank, was added to this core group and to each been under way a flight of capital away from private of the three working groups. However, no one from credit and into Treasury securities, were much of the the New York Fed participated in any of the working world not experiencing financial strain, then our judg- groups. ments about the risks to the U.S. economy of an At no point in this early morning meeting, nor abrupt and disorderly closeout of Long-Term Capital at any stage last week, was there discussion of may well have been different. But, in the circum- the use of public monies—Federal Reserve or otherstances that did in fact exist, it was my judgment that wise. No Federal Reserve or government guaranthe American people, whom we are pledged to serve, tees, actual or implied, were offered, discussed, or could have been seriously hurt if credit dried up in a solicited. general effort by banks and other intermediaries to Later that afternoon, we participated in a conferavoid greater risk. ence call to review the progress of the working In light of these risks, the responsible public policy groups. Two of the working groups concluded that a objective was to get together those with a direct "lifting" of the fixed-income and equity positions financial interest in an orderly rescue of Long-Term was not feasible. The third group developed a consor- Capital, to discuss its problems openly and objec- tium approach, which was deemed feasible. Everytively, to provide a sounding board for solutions, and one agreed that the consortium approach should be if necessary, a calming influence. In my view, we "last ditch," and that parallel solutions should still be achieved this objective. encouraged. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 1053 The four firms met at the Federal Reserve at contributing smaller amounts than the other eleven. 7:00 p.m. A draft term sheet was reviewed that Two firms declined to participate. provided detail with respect to the consortium I want to emphasize a few points. First, this was a approach. The terms and conditions were debated, private-sector solution to a private-sector problem, altered in some places, and ultimately refined so that involving an investment of new equity by Long-Term the four firms could present it to a wider group. Capital's creditors and counterparties. Second, Although Federal Reserve officials were present at although some have characterized this as a "bailout," the meeting, we did not participate in the discussion control of the Long-Term portfolio passed over to about terms and conditions. this fourteen firm creditor group, and the original At about 8:30 p.m., a meeting of a wider group equity holders have taken a severe hit. Finally, no involving thirteen firms began. Meanwhile, some rep- Federal Reserve official pressured anyone, and no resentatives of the core group called Long-Term promises were made. Not one penny of public money Capital to discuss the terms and conditions of the was spent or committed. consortium approach. Federal Reserve officials did not participate in any conversations with Long-Term ISSUES THAT SHOULD CONCERN US Capital regarding the terms and conditions. In the meeting with the wider group, Peter Fisher explained It is far too early to state categorically the lessons to the importance of avoiding a disorderly closeout of be learned from Long-Term Capital. What I can say Long-Term Capital's positions. He also underscored is that we are focused on three specific issues, all the desirability of parallel efforts to resolve the prob- relating to leverage and how we are able to observe it lem. It was agreed that the group would reconvene at through the eyes of our bank examiners. Let me 10:00 a.m. the following day. It was clear to everyone emphasize, yet again, that the Federal Reserve has no that time was of the essence. regulatory authority over hedge funds and no regula- I returned to New York from London around tory authority over Long-Term Capital. midnight. During the early morning hours, I called The first issue relates to credit analysis. Our supervarious foreign central bank officials to inform them visory guidance generally, and with respect to hedge of the situation. At about 9:30 a.m. my colleagues funds specifically, stresses the importance of knowand I met with the core group to review the status ing the borrower and the business purpose of the of the situation. A few minutes before the start of borrower's transactions. In 1994, the Federal Reserve the scheduled 10:00 a.m. meeting, one of the core issued a supervisory letter emphasizing the imporgroup firms told me that an investor group would tance of financial analysis of counterparties, includmake an offer to acquire the Long-Term portfolio. I ing hedge funds, which can quickly adjust their risk called one of the representatives of the investor group profile. There is a question whether adequate credit to confirm this development. The offer was sub- analysis was performed by creditors of Long-Term sequently conveyed to Long-Term Capital by that Capital, which needs to be examined carefully during investor group, and a response was requested by the next few weeks. If credit analysis was deficient, 12:30 p.m. we need to learn how and why before we can make After a brief consultation with the core group, I pronouncements that will avoid repetition of our decided that the effort to proceed with the consortium Long-Term Capital experience. approach needed to be suspended for a short time The second issue relates to derivatives activities until the alternative offer could be considered. As and a concept called future potential exposure, which noted earlier, the consortium approach was seen as is a measure of the likely price movements based on a "last resort." Consequently, the meeting about recent years' experience. With respect to derivatives, the consortium approach was adjourned at about the current market value is captured by financial 10:50 a.m., to reconvene at 1:00 p.m. statements prepared in accordance with generally At 12:30 p.m., I learned that the alternative offer accepted accounting principles, but not the potential had not been accepted and would not be extended. future exposure. To fully understand the degree and Shortly after 1:00 p.m., the meeting about the consor- effect of leverage in Long-Term Capital's derivativestium approach resumed. This was now the only solu- related strategies, it would have been necessary to tion being pursued. During the next five hours, the measure the potential future exposure in a rigorous private-sector participants discussed every aspect of and conservative manner. Whether sufficient informathe terms and conditions. At the end of that discus- tion was made available to Long-Term Capital's sion, fourteen banks and securities firms agreed to counterparties, including its banks, and adequately participate in the recapitalization, with three firms analyzed by those counterparties remains to be seen. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1054 Federal Reserve Bulletin • December 1998 A third question concerns stress-testing in the actions across all kinds of adverse market develcredit analysis of hedge funds and the structuring opments. Whether such models existed and, if so, of margin agreements. Stress-testing simulates the whether they were effective are issues that we need to effects on a portfolio if many asset relationships address. simultaneously move adversely far beyond historical In the aftermath of Long-Term Capital, we need to observation. We recognize that stress-testing is a pursue these leverage-related issues, and others, in developing discipline, but it is clear that adequate conjunction with our colleagues at the Federal Finantesting was not done with respect to the financial cial Institutions Examination Council. The insights conditions that precipitated Long-Term Capital's that we gain should be of value to bank supervisors problems. In a recent supervisory letter on credit and for the study of the Long-Term Capital matter underwriting generally, we emphasized the impor- that is to be done by the President's Working Group tance of stress-testing. Effective risk management in on Financial Markets, announced by Secretary Rubin a financial institution requires not only modeling but last Friday. models that can test the full range of financial trans- Statement by Theodore E. Allison, Assistant to the whose issuers will not initially be among the euro Board, Board of Governors of the Federal Reserve group.) Thus, the value of the two highest euro System, before the Subcommittee on Domestic and notes—200 and 500—will be about $240 and $600 International Monetary Policy, Committee on Bank- respectively. ing and Financial Services, U.S. House of Represen- Euro notes and coins will be introduced on Jantatives, October 8, 1998. uary 1, 2002, and will be exchanged for the bank notes of the individual countries during the following Thank you for the opportunity to comment on the six months. Bank notes denominated in German implications for the demand for Federal Reserve marks, French francs, and the like will cease to be notes that are likely to follow from the issuance legal tender on July 1, 2002.2 of euro bank notes, which will—early in the next decade—replace the national currency notes of eleven participating nations in Europe.1 You have THE USE OF U.S. CURRENCY OUTSIDE THE UNITED STATES AND ASSOCIATED BENEFITS asked the Federal Reserve to address both the overall impact of euro bank notes on the demand for U.S. For most of this century, U.S. currency has been used currency and, in particular, what impact the issuance outside this country as a store of value by people of higher-denomination euro notes might have. facing economic and political uncertainty. The Board's staff estimates, for example, that, as far back PLANS FOR THE EURO as 1960, a bit less than half of all U.S. currency in circulation was held abroad. That proportion has Eleven member countries of the European Union are grown steadily over the past four decades and has planning to adopt the euro as a single currency, which accelerated during the 1990s. We believe that as will be issued in eight coin denominations—2, 5, 10, many as two-thirds of all Federal Reserve notes in 20, and 50 euro cents, 1 euro, and 2 euros—and circulation—perhaps $250 billion to $300 billion— seven-note denominations—5, 10, 20, 50, 100, 200, are now held abroad.3 and 500 euros. The value of the euro in relation to The main force behind the recent increase in the other currencies, including the dollar, will not be holding and use of U.S. currency abroad has been known until January 1, 1999, but it is likely to be the opening up and privatizing of previously statenear the value of the European currency unit (ECU), dominated economic systems—chiefly in the former which is now about $1.20. (The ECU is a currency Soviet bloc but also in Latin America and numerous basket whose value is based on the currencies of the Asian countries. In many of these transition econoeleven euro participants, as well as the Danish krone, the Greek drachma, and the British pound sterling, 2. More information on the euro can be found at the Internet site http://europa.eu.int/euro/html/entry.html maintained by the European Commission. 1. The eleven participating countries are Austria, Belgium, Fin- 3. The U.S. dollar is not the only currency that circulates internaland, France, Germany. Ireland, Italy, Luxembourg, the Netherlands, tionally. The German mark, for example, is held fairly widely outside Portugal, and Spain. Germany. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Statements to the Congress 1055 mies, citizens and small businesses still face unstable tries. For example, a Finnish family headed for a local currencies and underdeveloped banking and vacation on the Costa del Sol might convert some payment systems. Under these conditions, it becomes Finnish markkas into dollars before leaving home, difficult to save, to make business-to-business trans- both because the dollars are more likely to be actions, and to buy and sell a range of consumer accepted in Spain, without having to be converted, goods. As a result, many residents of transition than would be markkas and because, when the dollars economies have chosen to carry out critical and large are converted to pesetas, the exchange transactions saving and transaction functions in a "hard" cur- involved—markkas to dollars and then dollars to rency, very often U.S. dollars. pesetas—may involve a lower cost overall than a The availability of U.S. currency in these econo- single markkas-to-pesetas transaction conducted in mies is of value to the people there, as demonstrated either Finland or Spain. Beginning in 2002, the Finnby the large quantity used. The functions of saving ish family will, of course, find its local currency—the and making business transactions efficiently are euro—used in Spain as well. That development will essential to the improvement of economic conditions improve efficiency, and we should be glad to see it, and living standards. even though the United States will experience some The United States also benefits from the use of its reduction in income as a result. Outside the euro area, currency outside the country. The ease with which some substitution of euros for dollars may take place, dollars can be spent in many places around the globe, especially in eastern Europe, if the cost to banks and for example, is a convenience for U.S. travelers. currency exchanges of acquiring euros is lower than Moreover, the U.S. Treasury earns income on all of the cost of acquiring dollars and if the cost advantage the currency in circulation—including that which is reflected in better exchange rates to citizens and is held outside the country—in the form of interest business firms. on assets that are held by the Federal Reserve as a In general, however, dollar currency has a lot going consequence of the currency having been issued. The for it as a store of value in areas with unstable $250 billion to $300 billion of Federal Reserve notes political or economic environments. It is accepted that appear to be in use outside the United States earn and readily available in most parts of the world. The the Treasury and the U.S. taxpayers about $12 billion United States has never recalled any outstanding to $15 billion per year. notes, so holders are confident that their dollars will always be accepted. The United States has a strong history of political stability, and the dollar has held its THE HISTORY OF LARGE-DENOMINATION value reasonably well over a long period. Our finan- NOTES IN THE UNITED STATES cial institutions and markets are highly regarded. As a consequence, the worldwide demand for dollar Notes of $500, $1,000, $5,000, and $10,000 were notes is based on an unusually favorable combination first authorized in 1918, primarily for interbank transof wide acceptability, political and financial continuactions. In 1946, with demand for the notes declinity, and esteem. ing, printing of new notes of these denominations The euro may in time earn a similar kind of status. was discontinued, and in 1969, the Treasury Depart- It seems likely, however, that any major substitution ment and the Federal Reserve decided to discontinue of euros for dollars as a trusted store of value would their issuance as well. take place fairly gradually. Since 1969, all high-denomination notes that have Nevertheless, there are two aspects of the foreign been deposited at the Federal Reserve have been demand for hard currency notes that could hasten destroyed. The Secretary of the Treasury, however, somewhat a substitution of euro notes for dollars. retains the authority to have printed, and the Federal The first would be the availability of higher- Reserve the authority to issue, notes in all four high denomination euro notes, which could make euros denominations. more convenient and efficient than dollars for some transactions. The second would be a public percep- IMPLICATIONS OF THE EURO FOR THE tion that dollar notes are significantly less secure DEMAND FOR FEDERAL RESERVE NOTES against counterfeiting. The availability of euro notes will reduce the use of THE ROLE OF HIGH-DENOMINATION NOTES dollars outside the United States, to some extent, for a variety of good reasons. Some U.S. currency is used If the $100 note remains our highest denomination, it within the euro area to facilitate travel to other coun- does seem plausible that some users would find the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1056 Federal Reserve Bulletin • December 1998 high-denomination euro notes more efficient and There are public policy arguments against reissuwould shift some currency holdings from $100 notes ing the $500 note, particularly because any efficiency to 200 and 500 euro notes. The magnitude is impos- gains, such as lower shipment and storage costs, sible to predict, but the heavy concentration of U.S. would accrue not only to legitimate users of dollar currency in $100 notes, as shown in table 1, suggests notes but also to money launderers, tax evaders, and a that there may be some unmet demand for a more variety of other lawbreakers who use currency in efficient and convenient higher denomination.4 their criminal activity. While it is not at all clear that The efficiency with which U.S. currency could be the volume of illegal drugs sold or the amount of tax shipped and stored would be increased fivefold to the evasion would necessarily increase just as a conseextent that $500 notes were used in place of quence of the availability of a larger-denomination $100 notes. Likewise, the availability of a $500 note bill, it no doubt is the case that, if wrongdoers were would reduce transaction times in the substantial provided with an easier mechanism to launder their number of large-value transactions that are conducted funds and hide their profits, enforcement authorities in $100 bills in many "dollarized" economies—most could have a harder time detecting certain illicit notably sales of real estate and consumer durable transactions occurring in cash. Consequently, we goods such as automobiles. And some households believe that the law enforcement community should would find higher-denomination U.S. currency more be consulted in any final decision about reissuing efficient for saving. $500 notes. The United States does not issue currency to generate revenue (but rather to meet the convenience and needs of the public), and it neither promotes the use THE PERCEPTION OF SECURITY AGAINST of dollars internationally nor competes with other COUNTERFEITING issuers in this regard. Nonetheless, the demand for dollars from abroad does provide significant benefits A second, and potentially important, consideration to the United States, and if making the use of U.S. for people around the globe who now keep their currency more efficient and convenient for foreign savings and business working capital in U.S. curusers by reissuing the $500 note could help preserve rency, and who might consider using an alternative, those benefits, that would be an argument for doing is likely to be their perception of the relative security so. of notes against counterfeiting. The fear of taking a We doubt that $500 notes and $1,000 notes would possible loss on a $100 bill could be an inducement improve convenience or efficiency to any significant to use an alternative currency if the alternative were degree within the United States. Research at the perceived as being less susceptible to counterfeiting. Federal Reserve suggests that, with the availability of This is not the subject of your hearing, and I won't a $500 note, domestic cash holdings might rise some- spend more time on it except to note that (a) the what, with an attendant increase in Treasury revenue, interagency committee on Advanced Counterfeit but any such effect is likely to be small. Deterrence is seriously studying further possible design improvements, especially for the $100 note 4. The attachment to this statement is available from Publications and $50 note, and (b) if the $500 note were issued Services, Mail Stop 127, Board of Governors of the Federal Reserve again, it would have to be seen as highly secure in System, Washington, DC 20551, and on the Board's site on the World order to be accepted. • Wide Web (http://federalreserve.gov). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1057 Announcements REDUCTION IN THE DISCOUNT RATE Following are the names of the chairmen and deputy chairmen appointed by the Board for 1999: The Federal Reserve on October 15, 1998, announced the following set of policy actions: Boston William C. Brainard, Professor, Department of Economics, • The Board of Governors approved a reduction in Yale University, New Haven, Conn., renamed Chairman. the discount rate by 25 basis points from 5 percent to 43/4 percent. William O. Taylor, Chairman and Chief Executive Officer, Globe Newspaper Company, Boston, Mass., renamed • The federal funds rate is expected to fall 25 basis Deputy Chairman. points from around 5 VA percent to around 5 percent. New York Growing caution by lenders and unsettled condi- John C. Whitehead, Former Chairman, Goldman Sachs & tions in financial markets more generally are likely Co., New York, N.Y., renamed Chairman. to be restraining aggregate demand in the future. Deputy Chairman—To be announced. Against this backdrop, further easing of the stance of monetary policy was judged to be warranted to sus- Philadelphia tain economic growth in the context of contained Joan Carter, President and Chief Operating Officer, UM inflation. Holdings Ltd., Haddonfield, N.J., renamed Chairman. In taking the discount rate action, the Board Charisse R. Lillie, Partner, Ballard Spahr Andrews & approved requests submitted by the Boards of Direc- Ingersoll, Philadelphia, Pa., renamed Deputy tors of the Federal Reserve Banks of New York, Chairman. Philadelphia, Atlanta, Chicago, St. Louis, Minneapo- Cleveland lis, Kansas City, and San Francisco. Subsequently, G. Watts Humphrey, Jr., President, GWH Holdings, Inc., the Board approved actions by the Boards of Direc- Pittsburgh, Pa., renamed Chairman. tors of the Federal Reserve Bank of Boston, also David H. Hoag, Chairman and Chief Executive Officer, effective October 15, and by the Boards of Directors The LTV Corporation, Cleveland, Ohio, renamed of the Federal Reserve Banks of Cleveland, Rich- Deputy Chairman. mond, and Dallas, effective October 16. The discount rate is the interest rate that is charged depository Richmond institutions when they borrow from their District Claudine B. Malone, President, Financial & Management Federal Reserve Banks. Consulting, Inc., McLean, Va., renamed Chairman. Jeremiah J. Sheehan, Chairman and Chief Executive Officer, Reynolds Metals Company, Richmond, Va., named Deputy Chairman. APPOINTMENTS OF CHAIRMEN AND DEPUTY CHAIRMEN OF THE Atlanta TWELVE FEDERAL RESERVE BANKS John F. Wieland, President, John Wieland Homes, Inc., Atlanta, Ga., named Chairman. Paula Lovell, President, Lovell Communications, Inc., The Federal Reserve Board on October 19, 1998, Nashville, Tenn., named Deputy Chairman. announced the appointments of chairmen and deputy chairmen of the twelve Federal Reserve Banks for Chicago 1999. Lester H. McKeever, Jr., Managing Partner, Washington, Each Reserve Bank has a board of directors of nine Pittman & McKeever, Chicago, III, renamed members. The Board of Governors in Washington Chairman. appoints three of these directors and designates one Arthur C. Martinez, Chairman and Chief Executive Officer, of its appointees as chairman and a second as deputy Sears, Roebuck and Co., Hoffman Estates, 111., chairman. renamed Deputy Chairman. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1058 Federal Reserve Bulletin • December 1998 St. Louis determined that U.S. companies are accorded national Susan S. Elliott, Chairman and Chief Executive Officer, treatment in their access to the government securities Systems Service Enterprises, Inc., St. Louis, Mo., market of the Netherlands. This determination was named Chairman. made after staff members of the Federal Reserve Charles W. Mueller, Chairman, President, and Chief Board and of the Federal Reserve Bank of New York Executive Officer, Ameren Corporation, St. Louis, conducted a comprehensive study of the characteris- Mo., named Deputy Chairman. tics of the Dutch government securities market. Minneapolis The Federal Reserve previously completed com- David A. Koch, Chairman, Graco Inc., Plymouth, Minn., prehensive studies of the characteristics of five other renamed Chairman. government securities markets—in the United King- James J. Howard, Chairman, President, and Chief dom, Japan, Switzerland, Germany, and France. Executive Officer, Northern States Power Company, Favorable determinations were made by the Federal Minneapolis, Minn., renamed Deputy Chairman. Reserve under the Primary Dealers Act for the United Kingdom and Japan in August 1989, for Switzerland Kansas City in December 1989, for Germany in December 1990, Jo Marie Dancik, Area Managing Partner, Ernst & Young and for France in September 1992. LLP, Minneapolis, Minn., renamed Chairman. The Federal Reserve will continue to monitor Terrence P. Dunn, President and Chief Executive Officer, J.E. Dunn Construction Company, Kansas City, Mo., developments in these markets on an ongoing basis to renamed Deputy Chairman. ensure that the requirements of the Primary Dealers Act continue to be met as the markets change over Dallas time. Roger R. Hemminghaus, Chairman and Chief Executive Copies of the report on the Dutch government Officer, Ultramar Diamond Shamrock Corp., securities market are available from Publications Ser- San Antonio, Tex., renamed Chairman. vices, Mail Stop 127, Board of Governors of the James A. Martin, General Vice President, International Federal Reserve System, Washington DC 20551. Association of Bridge, Structural, Ornamental and Reinforcing Iron Workers, Austin, Tex., renamed Deputy Chairman. San Francisco DEVELOPMENT OF PROCEDURES FOR Gary G. Michael, Chairman and Chief Executive Officer, MANAGING CHANGES TO FEDERAL RESERVE Albertson's, Inc., Boise, Ida., renamed Chairman. INFORMATION SYSTEMS IN 1999 AND THE Nelson C. Rising, President and Chief Executive Officer, FIRST QUARTER OF 2000 Catellus Development Corporation, San Francisco, Calif., named Deputy Chairman. The Federal Reserve Board on October 13, 1998, announced procedures to manage changes to its information systems in 1999 and the first quarter of 2000. DESIGNATION OF A PRIMARY DEALER The procedures for change management were devel- CONTROLLED BY A DUTCH FIRM oped in conjunction with the Federal Reserve's Century Date Change Project. The procedures establish Under the Primary Dealers Act of 1988, the Federal guidelines to limit Federal Reserve policy and opera- Reserve may not designate, or permit the continua- tional changes as well as internal hardware and softtion of the designation as, a primary dealer of any ware changes during late 1999 and early 2000. person of a foreign country if that person's home The Federal Reserve plans to complete renovacountry does not grant to U.S. companies the same tion and testing of its critical information systems competitive opportunities in the underwriting and by year-end 1998. Subsequent changes to Federal distribution of government debt instruments issued Reserve policies, rules, regulations, and services by such country as such country accords to its domes- could impair the Year 2000 readiness of critical infortic companies. A "person of a foreign country" mation systems. The procedures are designed to balincludes any foreign individual or company that ance the need to support changes to critical business directly or indirectly controls a primary dealer. processes with the need to limit changes to informa- Accordingly, in connection with a Dutch company's tion systems during this critical period. recent acquisition of a U.S. company for which it Governor Edward W. Kelley, Jr., Chairman of the sought primary dealer status, the Federal Reserve Federal Reserve Board's Committee on Federal Board and the Federal Reserve Bank of New York Reserve Bank Affairs, stated the following: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 1059 By limiting these changes to its systems, the Federal acceptable feature in a tier 1 instrument. Issuances of Reserve will also minimize changes that its customers instruments with such a feature, however, are limited could be required to make to their applications that interto 15 percent of tier 1 capital to avoid undue reliance face with Federal Reserve System software. In addition, we intend to coordinate our activities with other institu- on innovative noncommon instruments in tier 1. tions that typically generate policy and operational changes The Federal Reserve will make a determination as in the financial industry. to how to implement the Basle interpretation with regard to U.S. banks after consulting with the other In that spirit, the Federal Reserve will disseminate regulatory agencies for federal financial institutions. its guidelines to assist other organizations that estab- With regard to bank holding companies, the Fedlish rules, regulations, and standards for the financial eral Reserve notes that by its terms, the Basle Accord services industry. applies to internationally active banks but states that A summary of the change management procedures ownership structures should not be allowed to is available from Publications Services, Mail Stop weaken capital positions of banks. 127, Board of Governors of the Federal Reserve Since the inception of the Basle Accord, U.S. bank System, Washington, DC 20551. holding companies, entities that are legally separate from banks, have been subject to a risk-based capital regime that is identical to the Basle Accord, with ISSUANCE OF AN INTERPRETATION OF THE the exception that holding companies are allowed BASLE FRAMEWORK FOR CAPITAL ADEQUACY to include cumulative preferred stock in tier 1 on a limited basis. The Basle Committee on Banking Supervision (Basle Consistent with the principles that common equity Committee) on October 27, 1998, issued an interpre- should be the predominant component of tier 1 capitation of the Basle framework for capital adequacy tal and that ownership structures should not weaken (Basle Accord) regarding instruments eligible for bank capital positions, state member banks and bank inclusion in tier 1 capital. holding companies generally have been expected to The committee noted that the interpretation will be maintain risk-based capital ratios above Basle minisubject to review as part of a broader effort already mums, without reliance on preferred stock. under way to reassess the present framework for State member banks and bank holding companies evaluating banks' capital adequacy. disclose the components of their capital positions in The governors of the central banks of the Group sufficient detail to allow analysts and supervisors of Ten countries endorsed the Basle Accord, which to calculate capital ratios on many different bases, applies to internationally active banks, in 1988. including the Basle capital standard. The Federal The interpretation reaffirms that the common share- Reserve has no plans to change these policies and holders' equity is the key element of capital and practices. should be the predominant form of a bank's tier 1 The Basle Committee's press release and its report capital under the Basle Accord. The interpretation on Enhancing Bank Transparency, can be obtained emphasizes the important role public disclosure plays from the Internet (http://www.bis.org) or from the in ensuring that the integrity of capital is maintained. Basle Committee Secretariat at the Bank for Interna- In this regard, the committee notes the need for tional Settlements. banks to publicly disclose each component of tier 1 capital and its main features. Such disclosure is con- ISSUANCE OF A POLICY PAPER BY THE BASLE sistent with a report entitled Enhancing Bank Trans- COMMITTEE parency, which the Basle Committee released in September 1998. As part of its ongoing work to improve the transpar- The interpretation states that the committee has ency of banking organizations, the Basle Commitdetermined that minority interest in equity accounts tee on Banking Supervision (Basle Committee) has of consolidated subsidiaries that take the form of issued a policy paper entitled Sound Practices for special purpose vehicles may be included in tier 1 Loan Accounting, Credit Risk Disclosure and Related provided they meet certain minimum criteria. These Matters. Once finalized, the Basle Committee policy criteria include permanence, deferrability of distribu- paper will represent the first comprehensive intertions on a noncumulative basis, and ability to absorb national supervisory guidance on sound practices losses within the bank on a going-concern basis. for loan-loss allowances, accounting for troubled Further, the committee has determined that moder- loans, and related credit risk disclosures of banking ate step-ups after a minimum of ten years are an organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1060 Federal Reserve Bulletin • December 1998 The policy paper presents guidance on sound prac- ket stocks that meet the margin criteria in Regulatices through the discussion of twenty-five principles. tion T (Credit by Brokers and Dealers). Also pub- The paper provides guidance on sound practices with lished was a complete edition of the list of foreign respect to key loan accounting issues, such as the equity securities that meet the margin criteria in initial recognition and measurement of loans, subse- Regulation T. The lists were effective November 9, quent measurement of impaired loans, the establish- 1998, and supersede the previous lists published ment of loan-loss allowances, income recognition, effective August 10, 1998. and issues relating to troubled debt restructurings. The changes that have been made to the revised Moreover, the paper presents sound disclosure prac- OTC List, which now contains 4,745 OTC stocks, are tices for loan portfolios, troubled loans, loan-loss as follows: allowances, and related credit risk management practices. The paper concludes with a brief discussion of • Ninety-three stocks have been included for the the role of supervisors in assessing a bank's manage- first time, seventy-five under National Market System ment of asset quality and the adequacy of loan-loss (NMS) designation allowances. • Seventy-three stocks previously on the list have The paper has been issued by the Basle Committee been removed for substantially failing to meet the as a proposal for public comment, with comments requirements for continued listing requested by March 15, 1999. The Basle Commit- • One hundred fourteen stocks have been removed tee's press release and paper can be obtained from for reasons such as listing on a national securities the Internet (http://www.bis.org) or from the Basle exchange or involvement in an acquisition. Committee Secretariat at the Bank for International Settlements. The OTC list will expire on January 1, 1999. After January 1, 1999, all stocks trading in the NASDAQ Stock Market will be marginable at brokers and ENFORCEMENT ACTIONS dealers. The Federal Reserve Board on October 15, 1998, The foreign list is composed of those foreign equity announced the issuance of an Order of Prohibition securities that have been found to meet the criteria in against Jerome C. Bechstein, the former President, section 220.11 of Regulation T. Effective April 1, Chief Executive Officer, and a Director of the former 1998, foreign stocks that have a "ready market" for Towne Bank, Perrysburg, Ohio, and the bank's purposes of the Securities and Exchange Commisformer bank holding company, Towne Bancorp, Inc. sion's (SEC) net capital rule are also eligible for Mr. Bechstein, without admitting to any allega- margin treatment at broker-dealers. The SEC effections, consented to the issuance of the Order due to tively treats all stocks included on the Financial his alleged participation in violations of law and Times/Standard & Poor's Actuaries World Indices as unsafe or unsound practices regarding the lending having a "ready market" for capital purposes. The function at the Towne Bank. revised foreign list now contains ninety-one stocks On October 15, 1998, the Federal Reserve Board displayed in order of country. There were three deleannounced the issuance of an Order of Prohibition tions from the list, and there were no additions. against Lois A. Brigham, the former Senior Vice It is unlawful for any person to cause any represen- President and a Director of the former Towne Bank, tation to be made that inclusion of a stock on the Perrysburg, Ohio, and the bank's former bank hold- OTC list or the foreign list indicates that the Board or ing company, Towne Bancorp, Inc. the SEC has in any way passed upon the merits of Ms. Brigham, without admitting to any allegations, any such stock or transaction therein. Any references consented to the issuance of the Order due to her to the Board in connection with these lists or any alleged participation in violations of law and unsafe stocks thereon in any advertisement or similar comor unsound practices regarding the lending function munication is unlawful. at the Towne Bank. AVAILABILITY OF REVISED LISTS OF OVER-THE- AVAILABILITY OF A VIDEOTAPE ON RESOURCES COUNTER STOCKS AND OF FOREIGN STOCKS FOR BUSINESSES OWNED BY WOMEN SUBJECT TO MARGIN REGULATIONS The Federal Reserve announced on November 2, The Federal Reserve Board published on October 23, 1998, the production of a videotape designed to 1998, a revised list of over-the-counter (OTC) mar- heighten awareness among lenders about the business Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Announcements 1061 opportunities available to them in lending to busi- tional resources available to help them including the nesses owned by women. following: Businesses owned by women represent one of the fastest-growing sectors of the nation's economy. • Women's Business Development Centers Between 1987 and 1996, the number of women- • Small Business Administration Women's Busiowned businesses grew 78 percent nationwide, out- ness Centers pacing overall business growth by nearly two to one. • Community Affairs Offices at Federal Reserve Through testimonials, the videotape entitled To Banks. Their Credit: Women-Owned Businesses features successful women business owners describing their The videotape is available through FVS Media for experiences in obtaining bank credit. To potential a nominal fee. To order a copy by telephone, the entrepreneurs, the tape stresses the need for future number is 800-555-5471. commercial borrowers to build a relationship with the lender and to have a comprehensive business plan prepared before approaching a lender. To potential CHANGE IN BOARD STAFF lenders, the tape focuses on the profitability that this fast-growing segment of the economy offers financial The Federal Reserve Board announced the retireinstitutions. ment, after thirty-three years of service, of Peter A. During the thirty-minute program, future women Tinsley, Deputy Associate Director in the Division of entrepreneurs should recognize the many informa- Research and Statistics, effective in September. • Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1062 Minutes of the Federal Open Market Committee Meeting Held on August 18, 1998 A meeting of the Federal Open Market Committee Mr. Reinhart, Deputy Associate Director, Division of Monetary Affairs, Board of Governors was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Mr. Struckmeyer, Assistant Director, Division of Tuesday, August 18, 1998, at 9:00 a.m. Research and Statistics, Board of Governors Present: Ms. Low, Open Market Secretariat Assistant, Mr. Greenspan, Chairman Division of Monetary Affairs, Board of Mr. McDonough, Vice Chairman Governors Mr. Ferguson Mr. Gramlich Ms. Strand and Mr. Varvel, First Vice Presidents, Mr. Hoenig Federal Reserve Banks of Minneapolis and Mr. Jordan Richmond respectively Mr. Kelley Mr. Meyer Messrs. Beebe, Goodfriend, and Rosenblum, Senior Ms. Minehan Vice Presidents, Federal Reserve Banks of Mr. Poole San Francisco, Richmond, and Dallas Ms. Rivlin respectively Messrs. Boehne, McTeer, Moskow, and Stern, Messrs. Bolwell, King, Kopcke, Meyer, and Sullivan, Alternate Members of the Federal Open Market Vice Presidents, Federal Reserve Banks of Committee New York, Atlanta, Boston, Philadelphia, and Chicago respectively Messrs. Guynn and Parry, Presidents of the Federal Reserve Banks of Atlanta and San Francisco Mr. Weber, Senior Research Officer, Federal Reserve respectively Bank of Minneapolis Mr. Kohn, Secretary and Economist Mr. Bernard, Deputy Secretary By unanimous vote, the minutes of the meeting Ms. Fox, Assistant Secretary of the Federal Open Market Committee held on Mr. Gillum, Assistant Secretary June 30-July 1, 1998, were approved. Mr. Mattingly, General Counsel The Manager of the System Open Market Account Mr. Baxter, Deputy General Counsel Mr. Prell, Economist reported on developments in foreign exchange mar- Mr. Truman, Economist kets during the period since the previous meeting. There were no open market operations in for- Messrs. Cecchetti, Dewald, Hakkio, Lindsey, eign currencies for the System's account during Simpson, Sniderman, and Stockton, Associate this period, and thus no vote was required of the Economists Committee. Mr. Fisher, Manager, System Open Market Account The Manager also reported on developments in domestic financial markets and on System open mar- Mr. Ettin, Deputy Director, Division of Research and ket transactions in government securities and federal Statistics, Board of Governors agency obligations during the period July 1, 1998, Messrs. Madigan and Slifman, Associate Directors, through August 17, 1998. By unanimous vote, the Divisions of Monetary Affairs and Research and Committee ratified these transactions. Statistics respectively, Board of Governors The Committee then turned to a discussion of the economic and financial outlook and the implementa- Mr. Hooper and Ms. Johnson, Associate Directors, Division of International Finance, Board of tion of monetary policy over the intermeeting period Governors ahead. A summary of the economic and financial Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1063 information available at the time of the meeting and family units edged down in May but rebounded in of the Committee's discussion is provided below, June. Sales of new homes were at an all-time high in followed by the domestic policy directive that was June, and sales of existing homes were only a little approved by the Committee and issued to the Federal below the record level reached in March of this year. Reserve Bank of New York. With sales robust, the inventory of unsold new homes The information reviewed at this meeting sug- remained low. gested that domestic final demand continued to Growth of business fixed investment slowed in the expand at a robust pace. However, increases in con- second quarter as the pace of business spending for sumer spending and business investment seemed to durable equipment moderated considerably from the be moderating somewhat after very large gains ear- exceptionally strong rate of earlier in the year. Nonelier in the year, and inventory investment had slowed theless, outlays for computer and communications markedly. Net exports remained weak as a result of equipment continued to expand rapidly in the second the persisting turmoil in Asian economies. The strike quarter, and purchases of other capital goods rose at General Motors had damped overall economic briskly. Available information suggested that growth activity temporarily, but total payroll employment in business spending on capital goods likely would continued to trend upward, and labor markets slow further in the months ahead. In contrast to the remained extremely tight. Despite the pressures on strength in equipment spending, expenditures on nonlabor resources, trends in wages and prices had residential building declined further in the second remained stable in recent months. quarter, and available indicators pointed to a mixed Nonfarm payroll employment expanded further outlook for this sector in coming months. in July even though manufacturing payrolls plunged Business inventory investment slowed sharply in in association with the General Motors strike; job the second quarter, owing in substantial measure to a growth remained strong in most nonmanufacturing runoff of motor vehicle inventories at the wholesale sectors. Construction employment continued to and retail levels. In manufacturing, stockbuilding increase at about the brisk pace recorded over the first slowed somewhat in the second quarter, and the half of the year, and hiring in retail trade surged. The stock-shipments ratio at the end of the quarter expansion of jobs in the services industry slowed remained close to the low level that had prevailed considerably in July, but this partly reflected a decline over the past year. Wholesale inventories changed in temporary help jobs related to the GM strike. The little on balance in the second quarter as a sizable civilian unemployment rate was unchanged in July at decline in motor vehicle stocks offset a buildup of 4.5 percent. non-auto durable goods; in June, the aggregate Industrial production declined considerably in June inventory-sales ratio for this sector was at the upper and July. Abstracting from the effects of the GM end of its narrow range for the past year. At the retail strike, manufacturing output fell slightly over the level, a drop in inventories of motor vehicles in the June-July period after having recorded moderate second quarter more than offset a small increase gains on average in earlier months of the year; pro- in stocks at non-auto retailers, and the aggregate duction of business equipment expanded briskly in inventory-sales ratio in June was a little below the June and July, while the output of consumer goods lower end of its range for the past year. and materials weakened. The rate of utilization of The nominal deficit on U.S. trade in goods and manufacturing capacity was down appreciably in services widened substantially further in the second June and July, mostly reflecting the effects of the GM quarter; the value of exports of goods and services strike. declined for a second straight quarter, while the value Total nominal retail sales fell in July after having of imports continued to rise, though at a somewhat risen at a rapid pace in the first half of the year. A reduced pace. Much of the decline in exports in the sharp contraction in spending for motor vehicles, second quarter was in capital goods, but there also reflecting the termination at midyear of sales incen- were noticeable decreases in most other major trade tives offered by the Big Three automakers and shrink- categories. The increase in imports was concentrated ing inventories at GM dealers, more than accounted in imported consumer goods, aircraft, and steel. Ecofor the drop in July. Non-auto-related outlays contin- nomic activity in most of the major foreign industrial ued on a robust upward trend, with gains evident in countries continued to expand, though at a slower all major categories. Sales increases were particularly rate, in the second quarter. In Japan, however, ecolarge at furniture and appliance stores and apparel nomic activity appeared to have contracted sharply outlets. In the housing sector, both demand and con- further in the second quarter. In most other Asian struction activity remained strong. Starts of single- economies, currencies and equity prices were under Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1064 Federal Reserve Bulletin • December 1998 downward pressure, and in Russia, asset values plum- remained volatile and major indexes declined appremeted in often disorderly markets. Risk spreads on ciably on balance over the intermeeting period. dollar-denominated debt widened substantially, not In foreign exchange markets, the trade-weighted only in Russia but for Latin American issuers as well. value of the dollar rose somewhat further over the Price and wage inflation had remained relatively intermeeting period in relation to other major currenstable in recent months. Both the overall CPI and the cies. The dollar changed little against the continental CPI excluding food and energy items rose slightly on European currencies, but it moved up strongly against balance in June and July; a small rise in food prices the Japanese yen and, to a lesser extent, the Canadian offset a noticeable decline in energy prices over the dollar. The dollar's rise in terms of the yen reflected two-month period. For the twelve months ended spreading pessimism regarding the Japanese governin July, the core CPI registered a slightly smaller ment's ability to redress the problems of its troubled increase than it had in the year-earlier period, partly banking system and provide fiscal stimulus adequate reflecting lower prices for new motor vehicles. Pro- to turn its economy around. The dollar's advance ducer prices of finished goods changed little on bal- against the Canadian dollar occurred in the context of ance in June and July; a sizable drop in the prices of continuing weakness in global commodity prices that energy products over the June-July period more than was weighing down that currency. The dollar also offset a modest rise in core producer prices. For the appreciated slightly in terms of an index of the curyear ended in July, core producer prices rose some- rencies of the developing countries of Latin America what more than in the year-earlier period, reflecting and Asia that are important trading partners of the larger increases in the prices of finished consumer United States. goods. Hourly compensation of private industry After having expanded briskly in the second quarworkers rose in the second quarter at about the aver- ter, M2 grew at a somewhat more moderate rate in age rate for the previous two quarters. For the year July, and M3 changed little. The deceleration in M2 ended in June, however, hourly compensation picked reflected reduced inflows to retail money market up significantly from the year-earlier period; the funds. The halt in the growth of M3 was associated acceleration in compensation was evident in wages with a sharp runoff of large time deposits and outand salaries and in benefits. flows from institution-only money market funds trig- At its meeting on June 30-July 1, 1998, the Com- gered by a temporary spike in interest rates on market mittee adopted a directive that called for maintaining instruments around quarter-end. For the year through conditions in reserve markets that would be consis- July, both aggregates rose at rates well above the tent with the federal funds rate continuing to average Committee's ranges for the year. Expansion of total around 5'/2 percent. With the balance of risks still domestic nonfinancial debt appeared to have moderpointing to the possibility of rising inflation over ated somewhat in recent months after a pickup earlier time, the Committee chose to retain an asymmetric in the year. directive tilted toward a possible firming of reserve The staff forecast prepared for this meeting indiconditions and a higher federal funds rate. The cated that economic activity would expand through reserve conditions associated with this directive were 1999 at a pace somewhat below the estimated growth expected to be consistent with moderate growth in of the economy's potential. Reduced growth of for- M2 and M3 over the months ahead. eign economic activity and the lagged effects of the Open market operations were directed throughout sizable earlier rise in the foreign exchange value the period since the meeting on June 30-July 1 of the dollar were anticipated to place substantial toward maintaining the existing degree of pressure on restraint on the demand for U.S. exports and to lead reserve positions, and the federal funds rate averaged to further substitution of imports for domestic proda little above the intended level of 5 '/> percent. Most ucts. Moreover, additional moderation in business other interest rates fell slightly on balance over the inventory investment would damp domestic producintermeeting period in response to market assess- tion as inventory accumulation was brought into betments that worsening conditions in Asia, Latin ter balance with the forecast of a more moderate America, and Russia portended slower growth in U.S. trajectory of final sales. The staff analysis suggested output and inflation over an extended period ahead. that the prospective gains in income coupled with the Declines in Treasury yields also reflected a continu- earlier run-up in household wealth would support ing flight toward safety and quality from the persist- further brisk, though gradually diminishing, gains in ing turbulence in foreign markets. In an atmosphere consumer spending. Housing demand was expected of increasing concerns about the prospects for corpo- to remain relatively strong in the context of the rate earnings, share prices in U.S. equity markets persisting favorable cash flow affordability of home Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 1065 ownership, though the slower income growth antici- firms also reported that declining exports to Asia pated over the projection period would damp home- were being offset at least in part by rising exports building somewhat. Growth in business fixed invest- to other areas of the world. Looking ahead, the ment would gradually moderate from the vigorous members agreed that the duration and extent of dispace of the first half of the year in response to smaller ruptions in Asian and other economies could not be increases in business sales and profits. Pressures on anticipated with any degree of confidence; while net labor resources were likely to diminish somewhat as exports were not expected to decline as rapidly as the expansion of economic activity slowed, but infla- they had in the first half of the year, even more tion was expected to pick up gradually as a result of serious disruptions in Asia could not be ruled out an anticipated reversal of some of the decline in and would have important implications for the U.S. energy prices this year. economy. In the Committee's discussion of current and pro- In their review of developments in key expenditure spective economic conditions, members focused on sectors of the domestic economy, members observed the disparate forces that continued to shape trends in that over the first half of the year the strength in economic activity, notably the persistence of consid- domestic final demand, notably in the consumer and erable strength in private domestic spending and the business investment sectors, had more than offset the damping influences stemming from foreign economic negative effects of developments in the foreign sector developments. The latter seemed likely to be larger and other factors. In the consumer sector, the outlook than previously anticipated as financial turmoil in for further sizable increases in spending was butsome foreign economies had deepened and spread tressed by unusually favorable underlying factors, and currently showed few signs of stabilizing. More- including solid ongoing gains in employment and over, equity prices and risk spreads in U.S. financial incomes and substantial further increases in housemarkets were beginning to be adversely affected, hold net worth this year. A pause in the robust gains potentially slowing domestic demand. The members in retail sales in early summer was accounted for in generally anticipated somewhat more moderate part by limited inventories of new motor vehicles growth than they had in their previous forecasts, with associated with the now-settled GM strike. While a prospective expansion at a pace near or somewhat variety of factors pointed to sustained growth in below the growth of the economy's potential. None- consumer spending, a less ebullient stock market, theless, they remained concerned about the potential should it persist, would foster more moderate expanfor higher inflation, given the widespread tightness in sion in consumer spending, perhaps at a pace more in labor markets and an upward tilt in the rise of labor line with the rise in consumer incomes, or at an even compensation. For the present, however, inflation slower pace if consumer confidence were adversely remained subdued, and it was likely to remain rela- affected by developments in financial markets. tively low for some time in light of the weakness in Business fixed investment also seemed to be on a commodity and other import prices and the tendency solid upward trajectory, though some slowing in the for low current inflation to hold down expected price growth of business investment spending was anticiincreases. pated in response to a projected deceleration in over- Among the factors bearing on the outlook for all business output and weaker business profits. domestic economic activity, the members viewed the Members continued to cite anecdotal evidence of external sector as a major source of uncertainty. The very strong construction activity in many parts of the continued rapid decline in net exports during the first country, including indications that building projects half of the year largely seemed to reflect the further were being delayed because of shortages of labor and financial unsettlement and a deeper contraction in some construction materials. In other parts of the Asian economies than had been anticipated earlier, country, building activity remained at a high level but and several members commented that they saw lit- seemed to have moderated somewhat. Business tle evidence that financial and economic conditions spending for various types of high-tech equipment in Asia were stabilizing. Indeed, such conditions had surged to an undoubtedly unsustainable pace in appeared to be worsening further in some Asian the first half of the year. Against this background, nations, and other countries had been affected by the several members referred to emerging signs of associated weakening in the demand for commodities slightly more cautious attitudes among their business and the more risk-averse attitudes of investors. Anec- contacts, in many cases the result of concerns about dotal reports at this meeting suggested that the impact developments in Asia. On balance, diminishing on the domestic economy was being felt by manu- momentum in business investment appeared to be a facturing firms in several industries, although some likely prospect, but the ample availability of financ- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1066 Federal Reserve Bulletin • December 1998 ing on favorable terms would continue to support this impossible for business firms to raise their prices to sector. cover rising costs or enhance profit margins. Against In the housing sector, construction activity this backdrop, members remained persuaded that a remained at a high level in most parts of the nation significant rise in price inflation was not likely to and, as was the case for construction activity more occur in the nearer term. generally, homebuilding continued to be restrained in Looking further ahead, however, the members gena number of areas by limits on the availability of erally agreed that rising price inflation remained an labor and other inputs. The housing market clearly important threat. Significant additional tightening in was benefiting from strong gains in household labor markets would, of course, exacerbate that risk, incomes, high levels of household wealth, and very but even at current levels these markets were tight attractive financing costs. There were few indications and at some point labor costs could increase more of any moderation in this sector of the economy. rapidly, pressing on prices. Moreover, the effects of Even so, some slowing was anticipated, at least after some of the factors holding down inflation seemed current construction backlogs were satisfied, in likely to wane, and possibly to reverse, over time. response to the projected slowing in employment The latter included the effects of the dollar's apprecigrowth and the high level of the housing stock. ation on the prices of imports and competing domes- Currently available data indicated that the pace of tic products, a possible upturn in energy prices and inventory accumulation had moderated substantially perhaps other commodity prices as foreign econoin the second quarter. Nonetheless, the rate of non- mies stabilized, and faster increases in the costs of auto inventory investment in the spring still appeared worker benefits, notably those related to health care. to have exceeded a pace that was consistent with The apparently greater willingness of labor unions to sustainable growth in sales. Anecdotal reports at press for higher wages and other benefits in very tight this meeting pointed to a somewhat mixed picture labor markets might also intensify upward pressures with regard to desired inventory levels, including on labor costs. On balance, while the risks of an examples of both overstocking and shortages. Look- overheating economy and rising price inflation might ing ahead and apart from short-run fluctuations, have faded to some degree, many of the members inventories were not expected to add to demand over continued to emphasize that the Committee could not coming quarters, at least after the restocking of motor ignore those risks in its policy formulation. vehicles by General Motors was completed. In the Committee's discussion of policy for the In the Committee's discussion of the outlook for intermeeting period ahead, all but one of the memwages and prices, members commented that the rate bers agreed on the desirability of maintaining a steady of inflation in consumer prices was difficult to char- policy stance. The overall performance of the econacterize with precision because alternative price omy remained highly satisfactory. While inflation indexes provided different measurement results; in risks were still a concern, given the high level of particular, chain price indexes for consumption output and strong domestic demand, the uncertainties expenditures showed substantially less inflation than bearing on the economic outlook remained substanthe CPI. Even so, it was clear on the basis of any tial, and indeed the risks on the downside seemed measure that consumer prices and inflation more to have increased appreciably further. On balance, generally had remained remarkably subdued in the domestic economic and financial conditions had not context of very tight labor markets and upward pres- changed sufficiently during the intermeeting period to sure on labor compensation. And whatever the expla- warrant an adjustment to policy. With regard to the nation, it seemed that the economy had been less current uncertainties in the economic outlook, memprone to rising inflation than it had been historically bers emphasized that the extent and ultimate effects under similarly tight labor market conditions. The of the apparently spreading fragility in foreign finanmembers acknowledged that a number of special cial markets and economies on U.S. financial and factors were contributing to the relatively benign economic conditions were unknown. In these circuminflation climate. Those factors included the appreci- stances, nearly all the members believed that a cauation of the dollar; declines in many commodity tious wait-and-see approach to policy seemed approprices, notably that of oil; ample industrial capacity; priate to allow the Committee time to assess the and evidently diminished inflation expectations. course of events and the interplay of the divergent Moreover, substantial gains in productivity were forces bearing on the performance of the economy. muting the effects of rising labor compensation on In this regard it was noted that while domestic finanunit costs, and vigorous competition in numerous cial conditions remained generally accommodative, markets was continuing to make it very difficult or recent developments in foreign exchange and domes- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Minutes of the Federal Open Market Committee 1067 tic financial markets had tended on balance to giving careful consideration to economic, financial, decrease some of the stimulative effects of financial and monetary developments, the Committee decided conditions on aggregate demand in the United States that slightly greater or slightly lesser reserve restraint by shifting demand overseas, increasing somewhat would be acceptable during the intermeeting period. the cost of raising capital, and reducing the financial The reserve conditions contemplated at this meeting wealth of households. However, a few members were expected to be consistent with moderate growth expressed concern about the potentially inflationary in M2 and M3 over coming months. implications of relatively rapid growth in key mone- The Federal Reserve Bank of New York was authotary aggregates over the past year, though such rized and directed, until instructed otherwise by the growth appeared to have moderated recently. And Committee, to execute transactions in the System in the view of one of these members, the trend in Account in accordance with the following domestic monetary growth along with indications of rising policy directive: speculative imbalances and excesses in various markets for financial and nonfinancial assets called for a The information reviewed at this meeting suggests that prompt firming of monetary policy. domestic final demand has continued to expand at a robust pace, but overall economic activity has been adversely While overall economic conditions had not affected by the strike at General Motors and developments changed enough in recent weeks to warrant an adjustin Asia. Nonfarm payroll employment continued to expand ment in policy, a majority of the members agreed that through July and the civilian unemployment rate was the risks to the economic outlook were now more unchanged at 4.5 percent. Industrial production declined balanced and called for a shift from asymmetry to considerably in June and July; most of the drop over the two months reflected the GM strike. A decline in total symmetry in the Committee's directive. Such a direcretail sales in July was more than accounted for by a sharp tive would better represent their view that the Comcontraction in spending for motor vehicles. Residential mittee's next policy move could be in either direction sales and construction have remained exceptionally strong depending on developments abroad and their inter- in recent months. Available indicators point to continued action with a domestic economy that had remained growth in business capital spending, although apparently at a more moderate pace than earlier in the year. Business quite strong. Greater difficulties abroad and associinventory accumulation slowed sharply in the spring. The ated downward pressures on demand and prices had nominal deficit on U.S. trade in goods and services widsubstantially diminished the chances of a strengthen- ened substantially further in the second quarter. Trends in ing of inflation pressures over coming months and wages and prices have remained stable in recent months. quarters that would require a near-term tightening of Most interest rates have fallen slightly on balance since policy. Other members continued to believe that the the meeting on June 30-July 1. Share prices in U.S. equity risks were still tilted to some degree toward rising markets have remained volatile and major indexes have declined appreciably on balance over the intermeeting inflation, though to a lesser extent than earlier. Labor period. In foreign exchange markets, the trade-weighted market developments continued to suggest that the value of the dollar rose somewhat further over the intereconomy could well be producing beyond its sustain- meeting period in relation to other major currencies; in able potential and concrete signs that inflation pres- addition, it was up slightly in terms of an index of the sures would abate had yet to emerge. Accordingly, currencies of the developing countries of Latin America and Asia that are important trading partners of the they still preferred an asymmetrical directive but United States. could accept symmetry in light of the prevailing After robust growth in the second quarter, M2 deceleruncertainties in the economic outlook and the expecated somewhat and M3 was about unchanged in July. For tation, shared by the other members, that policy the year through July, both aggregates rose at rates well would not need to be changed during the intermeet- above the Committee's ranges for the year. Expansion of ing period ahead. total domestic nonfinancial debt appears to have moderated somewhat in recent months after a pickup earlier in the At the conclusion of the Committee's discussion, year. all but one of the members were in favor of retaining The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and a directive that called for maintaining conditions promote sustainable growth in output. In furtherance of in reserve markets that were consistent with an these objectives, the Committee reaffirmed at its meeting unchanged federal funds rate of about 5'/2 percent. on June 30-July 1 the ranges it had established in February Most also indicated that they could support a shift to for growth of M2 and M3 of 1 to 5 percent and 2 to a directive that did not include a presumption about 6 percent respectively, measured from the fourth quarter of the likely direction of any adjustments to policy 1997 to the fourth quarter of 1998. The range for growth of total domestic nonfinancial debt was maintained at 3 to during the intermeeting period. Accordingly, in the 7 percent for the year. For 1999, the Committee agreed on context of the Committee's long-run objectives for a tentative basis to set the same ranges for growth of the price stability and sustainable economic growth, and monetary aggregates and debt, measured from the fourth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1068 Federal Reserve Bulletin • December 1998 quarter of 1998 to the fourth quarter of 1999. The behavior demand for imports, housing, and consumer durables of the monetary aggregates will continue to be evaluated in will increase due to favorable interest rate trends. the light of progress toward price level stability, move- Though U.S. production of goods and services might ments in their velocities, and developments in the economy and financial markets. slow during the period ahead, it is not yet clear that In the implementation of policy for the immediate future, total demand will diminish at a comparable pace. At the Committee seeks conditions in reserve markets consis- the same time, ample credit provision encourages tent with maintaining the federal funds rate at an average speculative lending and excessive consumption. Conof around 5'/2 percent. In the context of the Committee's sequently, continued rapid growth in the money suplong-run objectives for price stability and sustainable economic growth, and giving careful consideration to eco- ply creates the risk that inflation will accelerate and nomic, financial, and monetary developments, a slightly economic imbalances will become protracted. higher federal funds rate or a slightly lower federal funds rate would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with moderate growth in M2 and M3 over coming TELEPHONE CONFERENCE months. On September 21 the Committee held a telephone Votes for this action: Messrs. Greenspan, McDonough, conference to discuss recent developments in domes- Ferguson, Gramlich, Hoenig, Kelley, Meyer, Ms. Mine- tic and international financial markets and their implihan, Mr. Poole, and Ms. Rivlin. Vote against this action: cations for the U.S. economy. The consultation was Mr. Jordan. held as background for Chairman Greenspan's testimony on September 23 before the Senate Budget Mr. Jordan dissented because he believed that the Committee. underlying strength of aggregate demand in the U.S. It was agreed that the next meeting of the Commiteconomy would remain fundamentally intact, despite tee would be held on Tuesday, September 29, 1998. economic problems abroad. The problems in Asia The meeting adjourned at 12:45 p.m. provide a channel for economic imbalances to develop. Exports from some U.S. manufacturing industries will decline due to softer foreign markets Donald L. Kohn and import competition. At the same time, domestic Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1069 Legal Developments FINAL RULE—AMENDMENT TO REGULATION A Regulation T, Credit by Brokers and Dealers. The List of Foreign Margin Stocks (Foreign List) is composed of cer- The Board of Governors is amending 12 C.F.R. Part 201, tain foreign equity securities that qualify as margin securiits Regulation A (Extensions of Credit by Federal Reserve ties under Regulation T. The OTC List and the Foreign List Banks; Change in Discount Rate), to reflect its approval of have been published four times a year by the Board, and a decrease in the basic discount rate at each Federal Re- the Foreign List will continue to be published four times a serve Bank. The Board acted on requests submitted by the year by the Board. The OTC List will be discontinued after Boards of Directors of the twelve Federal Reserve Banks. January 1, 1999. This document sets forth additions to and The amendments to 12 C.F.R. Part 201 were effective on deletions from the previous OTC List and deletions from October 15, 1998. The rate changes for adjustment credit the Foreign List. were effective on the dates specified in 12 C.F.R. 201.51. Effective November 9, 1998, 12 C.F.R. Parts 220 and 224 are amended as follows. Accordingly, pursuant to the Part 201—Extensions of Credit by Federal Reserve authority of sections 7 and 23 of the Securities Exchange Banks (Regulation A) Act of 1934, as amended (15 U.S.C. 78g and 78w), and in accordance with 12 C.F.R. Parts 220.2 and 220.11, there is 1. The authority citation for 12 C.F.R. Part 201 continues set forth below a listing of deletions from and additions to to read as follows: the OTC List and deletions from the Foreign List. Authority: 12U.S.C. 343 et seq., 347a, 347b, 347c, 347d, Deletions From The List Of Marginable OTC 348 et seq., 357, 374, 374a and 461. Stocks 2. Section 201.51 is revised to read as follows: Stocks Removed For Failing Continued Listing Requirements ABC Dispensing Technologies, Inc.: $.01 par common Section 201.51—Adjustment credit for depository ACCOM, Inc.: $.001 par common institutions. Amedisys, Inc.: $.001 par common American Claims Evaluation, Inc.: $.01 par common The rates for adjustment credit provided to depository Appliance Recycling Centers of America, Inc.: No par cominstitutions under section 201.3(a) are: mon Bontex, Inc.: $.10 par common Federal Reserve Bank Rate Effective BPI Packaging Technologies, Inc.: $.01 par common Boston 4.75 October 15, 1998 Brothers Gourmet Coffees, Inc.: $.0001 par common New York 4.75 October 15. 1998 Philadelphia 4.75 October 15, 1998 Building One Services Corporation: $.001 par common Cleveland 4.75 October 16, 1998 Richmond 4.75 October 16, 1998 Atlanta 4.75 October 15, 1998 Carver Corporation: $.01 par common Chicago 4.75 October 15, 1998 St. Louis 4.75 October 15, 1998 Casmyn Corporation: $.04 par common Minneapolis 4.75 October 15, 1998 Catalyst Semiconductor, Inc.: No par common Kansas City 4.75 October 15, 1998 Dallas 4.75 October 16, 1998 Coffee People, Inc.: No par common San Francisco 4.75 October 15, 1998 Creative Bakeries, Inc.: $.001 par common Crown Books Corporation: $.01 par common FINAL RULE--AMENDMENTS TO REGULATIONS T CSI Computer Specialists, Inc.: Class A, $.001 par common ANDX Cyclo PSS Corporation: $.001 par common The Board of Governors is amending 12 C.F.R. Parts 220 Dakotah, Incorporated: $.01 par common and 224, its Regulations T and X (Securities Credit Trans- DSI Toys, Inc.: $.01 par common actions; List of Marginable OTC Stocks; List of Foreign Cynagen, Inc.: $.01 par common Margin Stocks). The List of Marginable OTC Stocks (OTC List) is composed of stocks traded over-the-counter (OTC) Eastwind Group, Inc.: $.10 par common in the United States that qualify as margin securities under Electro-Sensors, Inc.: $.10 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1070 Federal Reserve Bulletin • December 1998 Electronic Tele-Communications, Inc.: Class A, $.01 par com- TCI Pacific Communications, Inc.: Class A, Senior cumulamon tive exchangeable preferred Electroscope, Inc.: No par common Telepanel Systems, Inc.: No par common Elron Electronic Industries, Ltd.: Warrants (expire Thinking Tools, Inc.: $.001 par common 09-01-1998) Tramford International, Ltd., $.01 par common Equus Gaming Company, L.P.: Class A, units representing Tricord Systems, Inc.: $.01 par common beneficial ownership Erly Industries, Inc.: $1.00 par common Uromed Corporation: No par common Ezcony Interamerca Inc.: No par common Versatility, Inc.: $.01 par common First City Financial Corporation: $.01 par special B preferred Voxel: No par common Florida Gaming Corporation: $.10 par common FPA Medical Management, Inc.: $.001 par common Washington Mutual, Inc.: Series E, No par non-cumulative perpetual preferred Gatefield Corporation: $. 10 par common West Coast Entertainment Corporation: $.01 par common Global Telecommunications Solutions, Inc.: $.01 par common Woodroast Systems, Inc.: $.005 par common Golden Bear Golf, Inc.: Class A, $.01 par common Grandetel Technologies, Inc.: No par common Stocks Removed for Listing on a National Securities Exchange Or Being Involved in an Granite Broadcasting Corporation: $.01 par cumulative con- Acquisition vertible exchangeable preferred Great Lakes Aviation, Ltd. $.01 par common Affiliated Community Bancorp: $.01 par common GT Bicycles, Inc.: $.001 par common Allied Life Financial Corporation: No par common Ambanc Corporation: $10.00 par common Harvest Restaurant Group. Inc.: $.01 par common Ambassador Bank of the Commonwealth: $4.00 par common Hayes Corporation: $.01 par common Amcol International Corporation: $1.00 par common American Materials & Technologies Corp: $.01 par common latros Health Network, Inc.: $.001 par common Arakis Energy Corporation: No par common Insilco Holding Company: $.001 par common Arch Petroleum, Inc.: $.01 par common ATL Products, Inc.: Class A, $.0001 par common JPE, Inc.: No par common ATL Ultrasound, Inc.: $.01 par common Atria Communities, Inc.: $.10 par common Life Medical Sciences, Inc.: $.001 par common Award Software International, Inc.: No par common National Home Centers, Inc.: $.01 par common Bacon USA, Inc.: $.01 par common Norland Medical Systems, Inc.: $.0005 par common Bell Sports Corp.: $.01 par common NView Corporation: No par common Benchmarq Microelectronics, Inc.: $.001 par common Bertucci's Inc.: $.005 par common Pacificare Health Systems, Inc.: Series A, $1.00 par cumula- Biomatrix, Inc.: $.0001 par common tive convertible preferred Broderbund Software, Inc.: $.01 par common Pages, Inc.: No par common Buttrey Food and Drug Stores Company: $.01 par common PCA International, Inc.: $.20 par common Personnel Mangement, Inc.: No par common Carnegie Bancorp (New Jersey): No par common Phoenix Gold International, Inc.: No par common Ceanic Corporation: No par common Premis Corporation: $.01 par common Claremont Technology Group, Inc.: No par common Coherent Communications Systems Corporation: $.01 par Ross Technology, Inc.: $.01 par common common RPM, Inc.: Liquid yield option notes due 2012 Community Financial Holding Corporation: $5.00 par common Seer Technologies, Inc.: $.01 par common CorporateFamily Solutions, Inc.: No par common Seiler Pollution Control Systems, Inc.: $.0001 par common Cybermedia, Inc.: $.01 par common Showscan Entertainment Inc.: $.001 par common Softquad International, Inc.: No par common Dawson Production Services, Inc.: $.01 par common Sonics & Materials, Inc.: Warrants (expire 02-27-2001) Decrane Aircraft Holdings, Inc.: $.01 par common Southwest Bancorp, Inc. (Oklahoma): Series A, redeemable, Deeptech International, Inc.: $.01 par common cumulative preferred Dime Financial Corp.: $1.00 par common Steven Madden, Ltd.: Class B, Warrants (expire 12-10-1998) Dr. Solomon's Group, PLC: American Depositary Receipts Stuart Entertainment, Inc.: $.01 par common DSC Communications Corp.: $.01 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1071 Essex County Gas Company: $2.50 par common Polio Tropical, Inc.: $.01 par common Positron Fiber Systems Corporation: No par common Fed One Bancorp, Inc.: $.10 par common Progressive Bank, Inc. (New York): $1.00 par common First Colorado Bancorp, Inc.: $1.00 par common PST Vans, Inc.: $.001 par common First Commercial Corporation: $3.00 par common First Home Bancorp, Inc. (New Jersey): $1.00 par common Regent Bancshares Corp. (Pennsylvania): $.10 par common FTP Software Inc.: $.01 par common Rent-Way, Inc.: No par common Republic Engineered Steels, Inc.: $.01 par common Gartner Group, Inc.: Class A, $.001 par common Resource Bankshares Corporation (California): $3.00 GNI Group, Inc.: $.01 par common par common Goodmark Foods, Inc.: $.01 par common Group I Software, Inc.: $.01 par common SLH Corporation: $.01 par common Somerset Savings Bank (Massachusetts): $1.00 par common Haverty Furniture Companies, Inc.: $1.00 par common; Sumitomo Bank of California, The: $5.00 par common Class A, $1.00 par common Summit Holding Southeast, Inc.: $.01 par common Hearst-Argyle Television, Inc.: Class A, $.01 par common HFNC Financial Corporation: $.01 par common Tappan Zee Financial, Inc.: $.01 par common Hyperion Software Corporation: $.01 par common Telemundo Group, Inc.: Warrants (expire 12-29-1999); Series A, $.01 par common IBS Financial Corporation: $.01 par common Teleport CommuGroup, Inc.: Class A, $.01 par common Incontrol, Inc.: $.01 par common Theragenics Corporation: $.01 par common Innoserve Technologies, Inc.: $.01 par common Timber Lodge Steakhouse, Inc.: $1.00 par common Innova Corporation: No par common Trans Financial Inc.: No par common Innovative Tech Systems, Inc.: $.001 par common Triangle Pacific Corporation: $.01 par common Intersolv, Inc.: $.01 par common Trio-Tech International: No par common IQ Software Corporation: $.00033 par common IWL Communications Incorporated: $.01 par common United Dental Care, Inc.: $.10 par common United Federal Savings Bank (North Carolina): $.01 Katz Digital Technologies, Inc.: $.001 par common par common Liberty Technologies, Inc.: $.01 par common Universal International, Inc.: $.05 par common Long Island Bancorp, Inc. (New York): $.01 par common Upper Peninsula Energy Corporation: No par common Lukens Medical Corporation: Class A, $.01 par common US Servis, Inc.: $.01 par common Marine Drilling Co.: $.01 par common Viking Office Products, Inc.: No par common Mariner Health Group, Inc.: $.01 par common Virus Research Institute, Inc.: $.01 par common Maryland Federal Bancorp, Inc.: $.01 par common May & Speh, Inc.: $.01 par common Wandel & Goltermann Technologies, Inc.: $.01 par common MCI Communications Corporation: $.10 par common Medcath Incorporated: $.01 par common Xcellenet, Inc.: $.01 par common Medicis Pharmaceutical Corporation: Class A, $.001 par common ZAG Industries Limited: Ordinary shares (NIS .01) Microprose, Inc.: $.001 par common Mid-Am, Inc. (Ohio): $5.00 par common Additions to the List of Marginable OTC Stocks Molecular Dynamics, Inc.: $.01 par common Mountbatten, Inc.: $.001 par common 24/7 Media, Inc.: $.01 par common National Surgery Centers, Inc.: $.01 par common Actuate Software Corporation: $.001 par common NCI Building Systems, Inc.: $.01 par common Admiralty Bancorp, Inc.: Class B, common stock Netvantage, Inc.: Class A, $.001 par common Advanced Aerodynamics & Structures, Inc.: Units Neurex Corporation: $.01 par common Advanced Technical Products, Inc.: $.25 par common Nimbus CD International, Inc.: $.01 par common American Pacific Bancorp: Class B, common stock Aristotle Corporation, The: $.001 par common Penederm Inc.: No par common Atlantic Gulf Communities Corporation: Series B, 20% Penn-America Group, Inc.: $.01 par common preferred stock Pete's Brewing Company: No par common Petrocorp Incorporated: $.01 par common Bankfirst Corporation: $2.50 par common Physio-Control International Corporation: $.01 par common Bindview Development Corporation: No par common Plenum Publishing Corporation: $. 10 par common Biper S.A. de C.F.: American Depositary Shares PMT Services, Inc.: $.01 par common Broadcast.com. Inc.: $.01 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1072 Federal Reserve Bulletin • December 1998 BWC Financial Corporation: No par common Kasper A.S.L., Ltd.: $.01 par common Captrock Communications Corporation: $.01 par common Landair Corporation: $.01 par common Carrier Access Corporation: $.001 par common Leap Wireless International, Inc.: $.0001 par common CBES Bancorp, Inc.: $.01 par common CD Warehouse, Inc.: $.01 par common Maxtor Corporation: $.01 par common CFS Bancorp, Inc.: $.01 par common MDC Communications Corporation: Class A, subordinate Clark/Bardes Holdings, Inc.: $.01 par common voting shares CNY Financial Corporation: $.01 par common Merrill Merchants Bancshares, Inc.: $1.00 par common Cohesion Technologies, Inc.: $.001 par common Commonwealth Telephone Enterprises, Inc.: Rights (expire 10-23-1998) Natrol, Inc.: $.01 par common Corecomm Limited: $.01 par common Northeast Optic Network, Inc.: $.01 par common Cost-U-Less, Inc.: $.001 par common Creditrust Corporation: $13.00 par common Pathfinder Bancoip, Inc.: $.10 par common Crown Castle International Corporation: $.01 par common Penwest Pharmaceuticals Company: $.001 par common Crusader Holding Corporation: $.01 par common Pilot Network Services, Inc.: $.001 par common Cyberian Outpost, Inc.: $.01 par common Price Enterprises, Inc.: Class A, $.0001 par preferred PSB Bancorp, Inc.: $.01 par common Dearborn Bancorp, Inc.: No par common Decora Industries, Inc.: $.01 par common R&G Financial Corporation: Series A, 7.40% noncumulative Delphi International, Ltd.: $.01 par common monthly income preferred stock Digital River, Inc.: $.01 par common Railwords Corporation: $.01 par common Dset Corporation: No par common Republic Bancorp, Inc.: Class A, No par common EBay Inc.: $.001 par common Echelon Corporation: $.01 par common Sequent Computer Systems, Inc.: $.01 par common Eclipsys Corporation: $.01 par common Siebert Financial Corporation: $.01 par common Electronics Boutique Holdings Corporation: $.01 par common SMED International, Inc.: No par common Entrust Technologies, Inc.: $.01 par common Softworks, Inc.: $.001 par common Eufaula Banccorp, Inc.: $1.00 par common Sound Federal Bancorp: $.10 par common Exco Resources, Inc.: $.01 par common Sunrise Technologies International, Inc.: $.001 par common Syntroleum Corporation: $.01 par common FCNB Capital Trust: No par trust preferred First Busey Corporation: Class A, No par common Taragon Realty Investors, Inc.: $.01 par common Florida Banks, Inc.: $.01 par common Telebanc Financial Corporation: $.01 par common; Series A, Fundtech, Ltd.: Ordinary shares 9% beneficial unsecured securities Terayon Communication Systems: $.001 par common Geocities: $.001 par common Thistle Group Holdings: $.01 par common GIGA Information Group, Inc.: $.001 par common Towne Services, Inc.: No par common Global Crossing, Ltd.: 9-5/8% senior notes due 2008 Tweeter Home Entertainment Group, Inc.: No par common Golden State Vintners, Inc.: Class B, $.01 par common Grand Union Company, The: $.01 par common Unity Bancorp. Inc.: No par common Heritage Commerce Corporation: No par common Hometown Auto Retailers, Inc.: Class A, $.001 par common West Essex Bancorp. Inc.: $.01 par common Wintrusl Financial Corporation: Cumulative trust preferred ICO Global Communications (Holdings) Limited: $.01 WRP Corporation: $.01 par common par common IDG Books Worldwide. Inc.: $.001 par common Independent Energy Holdings, PLC: American Depositary Deletions from the Foreign Margin Stock List Shares (NIS 1) Interactive Magic, Inc.: $.10 par common Intercorp Excelle, Inc.: No par common Tokyo lntervest Bancshares Corporation: Class A, common shares Ixos Software Aktiengesellschaft: American Depositary Shares Furukawa Co., Ltd.: ¥50 par common Meidensha Corporation: ¥50 par common Jewett-Cameron Trading Company, Ltd.: No par common NOF Corporation: ¥50 par common Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1073 ORDERS ISSUED UNDER BANK HOLDING COMPANY Applicant is Minnesota, and Applicant proposes to acquire ACT a bank in Washington. All of the conditions for an interstate acquisition enumerated in section 3(d) are met in this Orders Issued Under Section 3 of the Bank Holding case.3 In view of the facts of record, the Board is permitted Company Act to approve this proposal under section 3(d) of the BHC Act. U.S. Bancorp Minneapolis, Minnesota Competitive Considerations Order Approving the Acquisition of a Bank Holding The BHC Act prohibits the Board from approving an Company application under section 3 of the BHC Act if the proposal would result in a monopoly or would be in furtherance of U.S. Bancorp ('Applicant"), a bank holding company any attempt to monopolize the business of banking. The within the meaning of the Bank Holding Company Act BHC Act also prohibits the Board from approving a pro- ("BHC Act"), has requested the Board's approval under posed combination that would substantially lessen compesection 3 of the BHC Act (12U.S.C. § 1842) to acquire tition or tend to create a monopoly in any relevant banking Northwest Bancshares, Inc. ("Northwest"), and its wholly market, unless the Board finds that the anticompetitive owned subsidiary bank. Northwest National Bank effects of the proposal are clearly outweighed in the public ("NNB"), both of Vancouver, Washington. interest by the probable effect of the proposal in meeting Notice of the proposal, aflFording interested persons an the convenience and needs of the community to be served.4 opportunity to submit comments, has been published Applicant and Northwest compete directly in the Port- (63 Federal Register 27,286 (1998)). The time for filing land, Oregon, banking market ("Portland banking marcomments has expired, and the Board has considered the ket").5 Applicant is the largest depository institution in the proposal and all comments received in light of the factors Portland banking market, controlling deposits of $6.6 bilset forth in section 3 of the BHC Act. lion, representing 46 percent of the total deposits in com- Applicant, with total consolidated assets of approxi- mercial banks in the market ("market deposits").6 Northmately $70.9 billion, is the 17th largest commercial bank- west is the eighth largest depository institution in the ing organization in the United States, controlling approxi- market, controlling $321 million of deposits, representing mately 1.4 percent of total banking assets of insured 2.2 percent of total market deposits.7 commercial banks in the United States ("total banking To mitigate the potential anticompetitive effects of the assets").1 Applicant operates subsidiary banks in 17 states proposal. Applicant has committed to divest one branch, and engages in a broad range of permissible nonbanking which accounts for approximately $35 million in deposits activities. Applicant also is the second largest commercial banking organization in the state of Washington, controlling approximately $6.4 billion in deposits, representing principally conducted on July 1, 1996, or the date on which the approximately 17.6 percent of total deposits in commercial company became a bank holding company, whichever is later. banking organizations in the state ("state deposits"). 12U.S.C. § 1841(o)(4)(C). Northwest is the tenth largest commercial banking orga- 3. 12U.S.C. §§ 1842(d)(l)(A) & (B) and 1842(d)(2)(A) & (B). Applicant is adequately capitalized and adequately managed, as denization in Washington, controlling deposits of approxifined by applicable law. On consummation of the proposal. Applicant mately $321 million in deposits, representing less than and its affiliates would control less than 10 percent of the total amount 1 percent of state deposits. On consummation of the pro- of deposits of insured depository institutions in the United States, and posal, and accounting for the proposed divestiture, Appli- less than 30 percent of the total amount of deposits in Washington. In addition, Northwest's subsidiary bank. NNB. has been in existence cant would continue to be the second largest commercial and has operated continuously for at least five years. All other requirebanking organization in Washington, controlling approxi- ments of section 3(d) of the BHC Act also would be met on consummately $6.7 billion in deposits in the state of Washington, mation of the proposal. representing approximately 18.5 percent of state deposits. 4. 12U.S.C. § 1842(c)(l)(B). 5. The Portland banking market is defined as the Portland Ranally Metro Area ("RMA") and the remainder of Clark County in Washing- Interstate Analysis ton, and the city of Mount Angel in Marion County. Oregon, and the cities of Saint Helens, Scappoose. and Vernonia in Columbia County. Section 3(d) of the BHC Act allows the Board to approve Oregon. an application by a bank holding company to acquire 6. Market share data are based on calculations that include the deposits of thrift institutions at 50 percent. The Board previously has control of a bank located in a state other than the home indicated that thrift institutions have become, or have the potential to state of such bank holding company if certain conditions become, significant competitors of commercial banks. See, Midwest are met.2 For purposes of the BHC Act, the home state of Financial Group, 75 Federal Reserve Bulletin 386 (1989); National City Corporation, 70 Federal Reserve Bulletin 143 (1984). Thus, the Board has regularly included thrift deposits in the calculation of market share on a 50-percent weighted basis. See, e.g.. First Hawaiian 1. Asset, ranking, and deposit data are as of June 30, 1997. Inc., 77 Federal Reserve Bulletin 52 (1991). 2. A bank holding company's home state is that state in which the 7. Northwest operates solely in the portion of the Portland banking operations of the bank holding company's banking subsidiaries were market that is located in Washington State. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1074 Federal Reserve Bulletin • December 1998 and represents approximately 10.9 percent of the total tion in any relevant market.11 The Office of the Comptroldeposits controlled by Northwest in the Portland banking ler of the Currency ("OCC") and the Federal Deposit market. Applicant has committed to make this divestiture Insurance Corporation also have not objected to consumto an organization that is competitively suitable to the mation of the proposal. Board.8 After accounting for the proposed divestiture, con- The Board believes that this is a very close case and that summation of the proposal would be consistent with the the mitigating factors in this case only slightly outweigh market index thresholds applied under the Department of the potential for significantly adverse competitive effects in Justice Merger Guidelines ("DOJ Guidelines").9 In this this market. Applicant is the largest competitor in this case, after accounting for the proposed divestiture, the HHI market, with more than a 45-percent market share before would increase by not more than 186 points to not more the proposed acquisition. This market share is more than than 2761. three times the market share of the second largest banking At least 27 competitors would remain in the market after organization in the market. Although the increase in marconsummation of the proposal. These competitors include ket share represented by this acquisition would be relaseveral large national and regional banking organizations tively small, this transaction would remove a vigorous that have significant market shares and extensive branch competitor in a strategic location in the market. Moreover, networks in the market. apart from Applicant and two other competitors, this mar- Portland is the largest banking market in Oregon and the ket is comprised of many relatively small banking organi- 27th largest Metropolitan Statistical Area ("MSA") in the zations, and the Board is concerned that a strict reliance on country. The population of the Portland MSA increased an HHI analysis would permit a significant number of 17.3 percent from 1990 to 1997, more than any of the other these institutions to be acquired by the largest banking MSAs in Oregon. That portion of the Portland MSA lo- organizations in the market without recognizing the potencated in Washington State, in which Northwest is located, tially adverse effects that these acquisitions could have on increased by more than 30 percent over the same period, competition in the market. more than any MSA in Washington. In addition, among the In approving this case, the Board has placed significant 11 MSAs in Washington and Oregon, Portland ranks sec- reliance on the divestiture proposal, which was a major ond in terms of percentage of households with incomes factor in the determination by the Department of Justice more than $55,000, and second in median household in- that the transaction would not likely violate the federal come. Since 1994, ten new competitors have entered the antitrust laws. The Board also has considered the mitigatmarket; nine commercial banks have entered the market ing factors noted above, and the fact that Applicant has de novo, and one commercial bank entered the market by increased its market share recently as a result largely of acquiring branches that were divested by Applicant in a effective competition in the market rather than through one previous acquisition.10 or more acquisitions.12 The Department of Justice conducted a detailed review Based on all the facts of record, and for the reasons of the proposal and advised the Board that, with the pro- discussed above, the Board has determined that competiposed divestiture, consummation of the proposal would not tive factors are consistent with approval of the proposal. be likely to have a significantly adverse effect on competi- The Board will view any further acquisitions in this market very critically and believes that the effects of any proposed acquisition by Applicant in this market would require compelling evidence that the transaction would not be 8. Applicant has committed to execute a sales agreement for the likely to result in anticompetitive effects. proposed divestiture with a purchaser determined by the Board to be competitively suitable prior to consummation of the proposal, and to Other Factors Under the BHC Act complete the divestiture within 180 days of consummation. Applicant also has committed that, in the event it is unsuccessful in completing The BHC Act also requires the Board, in acting on an the divestiture within 180 days of consummation, it will transfer the unsold branch to an independent trustee that is acceptable to the Board application, to consider the financial and managerial reand will instruct the trustee to sell the branch promptly to one or more sources and future prospects of the companies and banks alternative purchasers acceptable to the Board. See BankAmerica involved in a proposal, the convenience and needs of the Corporation, 78 Federal Reserve Bulletin 338 (1992); United New community to be served, and certain other supervisory Mexico Financial Corporation, 77 Federal Reserve Bulletin 484 (1991). factors. 9. Under DOJ Guidelines, 49 Federal Register 26,823 (1984), a market in which the post-merger HHI is more than 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive 11. The Department of Justice focused its analysis on the effect of effects) unless the post-merger HHI is at least 1800 and the merger the proposal on small business lending in Clarke County. Washington. increases the HHI by more than 200 points. The Justice Department As explained above, the Board has analyzed the effect of the transachas stated that the higher than normal HHI thresholds for screening tion on competition in the market for the cluster of banking products bank mergers for anticompetitive effects implicitly recognize the and services in the Portland banking market. competitive effect of limited-purpose lenders and other nondepository 12. The Board also notes that pricing and profitability data for the financial institutions. Portland market are inconclusive on whether current conditions have 10. See U.S. Bancorp, 82 Federal Reserve Bulletin 177 (1996). resulted in significant adverse anticompetitive effects or performance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1075 A. Financial, Managerial, and Other Supervisory The acquisition shall not be consummated before the Factors fifteenth calendar day following the effective date of this order, and the proposal shall not be consummated later than The Board has carefully considered the financial and man- three months after the effective date of this order, unless agerial resources and future prospects of Applicant and such period is extended for good cause by the Board or by Northwest, and their respective subsidiary banks, and other the Federal Reserve Bank of Minneapolis, acting pursuant supervisory factors in light of all the facts of record. As to delegated authority. part of this consideration, the Board has reviewed relevant By order of the Board of Governors, effective reports of examination and other supervisory information October 26, 1998. prepared by the Reserve Banks and other federal agencies. The Board notes that the bank holding companies and their Voting for this action: Chairman Greenspan, Vice Chair Rivlin. and subsidiary banks are currently well capitalized and are Governors Kelley, Meyer, Ferguson, and Gramlich. expected to remain so after consummation of the proposal. ROBERT DEV. FRIERSON The Board also has considered other aspects of the Associate Secretary of the Board financial condition and resources of the two organizations, the structure of the proposed transaction, and the manage- Orders Issued Under Section 4 of the Bank Holding rial resources of each of the entities and the combined Company Act organization. Based on these and other facts of record, the Board concludes that considerations relating to the finan- KeyCorp cial and managerial resources and future prospects of Ap- Cleveland, Ohio plicant, Northwest, and their respective subsidiaries are consistent with approval of the proposal, as are the other Order Approving Notice to Engage in Nonbanking supervisory factors that the Board must consider under Activities section 3 of the BHC Act. KeyCorp, Cleveland, Ohio, a bank holding company within B. Convenience and Needs Considerations the meaning of the Bank Holding Company Act ("BHC Act"), has requested the Board's approval under sec- The Board has carefully considered the effect of the protion 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and posed acquisition on the convenience and needs of the section 225.24 of the Board's Regulation Y (12 C.F.R. community to be served in light of all the facts of record. 225.24) to merge with McDonald & Company Invest- Based on all the facts of record, including the performance ments, Inc.. Cleveland, Ohio ("McDonald"), and thereby records of the subsidiary banks of Applicant and Northacquire control of its subsidiaries, including McDonald & west under the Community Reinvestment Act ("CRA") Company Securities, Inc. ("Company").1 KeyCorp would (12 U.S.C. § 2901 et seq.), the Board concludes that convethereby engage in the following nonbanking activities: nience and needs considerations are consistent with approval of the proposal.13 (1) Extending credit and servicing loans, pursuant to section 225.28(b)(l) of Regulation Y (12 C.F.R. 225.28(b)(l)); Conclusion (2) Engaging in activities related to extending credit, pursuant to section 225.28(b)(2)(ii), (vi) Based on the foregoing, and in light of all the facts of and (vii) of Regulation Y (12 C.F.R. record, the Board has determined that the application 225.28(b)(2)(ii), (vi) and (vii)); should be, and hereby is, approved. Approval of the appli- (3) Providing leasing services, pursuant to section cation is specifically conditioned on compliance by Appli- 225.28(b)(3) of Regulation Y (12 C.F.R. cant with all the commitments made in connection with the 225.28(b)(3)); proposal and with the conditions stated or referred to in (4) Performing functions or activities that may be this order, including Applicant's divestiture commitment. performed by a trust company, pursuant to sec- For purposes of this transaction, the commitments and tion 225.28(b)(5) of Regulation Y (12 C.F.R. conditions referred to in this order shall be deemed to be 225.28(b)(5)); conditions imposed in writing by the Board in connection with its findings and decision, and, as such, may be en- (5) Providing financial and investment advisory serforced in proceedings under applicable law. vices, pursuant to section 225.28(b)(6) of Regulation Y (12 C.F.R. 225.28(b)(6)); (6) Providing securities brokerage, riskless principal, private placement, futures commission mer- 13. All of Applicant's subsidiary banks have received "outstanding" or "satisfactory" ratings for their appropriate federal supervisors at the most recent examinations of their CRA performance. Applicant's lead bank, U.S. Bank National Association, Minneapolis, Min- 1. KeyCorp also has requested the Board's approval to hold and nesota, received a "satisfactory" performance rating from its appropri- exercise an option to acquire up to 19.9 percent of the voting shares of ate federal supervisor, the OCC. In addition, NNB received a McDonald if certain events occur. The option would expire on con- "satisfactory" performance rating from the OCC. summation of the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1076 Federal Reserve Bulletin • December 1998 chant, and other agency transactional services, Key Investments, Inc. Company is, and after consummapursuant to section 225.28(b)(7) of Regula- tion of the proposal will continue to be, registered as a tion Y (12 C.F.R. 225.28(b)(7)); broker-dealer with the Securities and Exchange Commis- (7) Underwriting and dealing in government obli- sion ("SEC") under the Securities Exchange Act of 1934 gations and money market instruments in which (15 U.S.C. § 78a et seq.), registered as an investment adstate member banks may underwrite and deal viser with the SEC under the Investment Advisers Act of under 12 U.S.C. §§ 335 and 24(7) ("bank- 1940 (15 U.S.C. § 80b-1 et seq.), a member of the eligible securities"), engaging in investing and National Association of Securities Dealers, Inc. trading activities, and buying and selling bul- ("NASD"), and registered as a futures commission merlion and related activities, pursuant to sec- chant with the Commodity Futures Trading Commission tion 225.28(b)(8) of Regulation Y (12 C.F.R. ("CFTC") under the Commodity Exchange Act (7 U.S.C. 225.28(b)(8)); § 2 et seq.). Accordingly, Company is, and will continue (8) Providing management consulting and em- to be, subject to the record-keeping and reporting obligaployee benefit consulting services, pursuant to tions, fiduciary standards, and other requirements of the section 225.28(b)(9) of Regulation Y (12 C.F.R. Securities Exchange Act of 1934, the Investment Advisers 225.28(b)(9)); Act of 1940, the Commodity Exchange Act, the SEC, the (9) Underwriting and dealing in, to a limited extent, CFTC, and the NASD. all types of debt and equity securities other than interests in open-end investment companies Underwriting and Dealing in Bank-Ineligible Securities ("bank-ineligible securities"); (10) Providing administrative and other services to The Board has determined that, subject to the framework open-end investment companies ("mutual of prudential limitations established in previous decisions funds");2 and to address the potential for conflicts of interests, unsound (11) Acting as the general partner of private invest- banking practices, or other adverse effects, underwriting ment limited partnerships that invest in assets in and dealing in bank-ineligible securities is so closely rewhich a bank holding company is permitted to lated to banking as to be a proper incident thereto within invest. the meaning of section 4(c)(8) of the BHC Act.6 The Board also has determined that underwriting and dealing in bank- Notice of the proposal, affording interested persons an ineligible securities is consistent with section 20 of the opportunity to submit comments, has been published Glass-Steagall Act (12 U.S.C. § 377), provided that the (63 Federal Register 48,509 (1998)). The time for filing company engaged in the activity derives no more than comments has expired, and the Board has considered the 25 percent of its gross revenues from underwriting and notice and all comments received in light of the factors set dealing in bank-ineligible securities.7 forth in section 4(c)(8) of the BHC Act. KeyCorp, with total consolidated assets of approximately $76 billion, is the 15th largest banking organization Bulletin 921 (1997). KCMI also is authorized to engage in a variety of in the United States.3 KeyCorp operates subsidiary banks other nonbanking activities. See id. in 13 states, and engages through other subsidiaries in a 6. See J.P. Morgan & Co. Inc., et ai. 75 Federal Reserve Bulletin broad range of permissible nonbanking activities. 192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board of Governors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir. McDonald, with total consolidated assets of $987 million, 1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd sub engages in a broad range of securities underwriting and nom. Securities Industry Ass'n v. Board of Governors of the Federal dealing, brokerage, investment advisory, and other activi- Reserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. 1059 ties.4 (1988), as modified by Review of Restrictions on Director, Officer and Employee Interlocks, Cross-Marketing Activities, and the Purchase KeyCorp proposes to merge its wholly owned subsidand Sale of Financial Assets Between a Section 20 Subsidiary and an iary, Key Capital Markets, Inc., Cleveland, Ohio Affiliated Bank or Thrift, 61 Federal Register 57,679 (1996): Amend- ("KCMI"), with and into Company.5 After consummation ments to Restrictions in the Board's Section 20 Orders, 62 Federal of the proposal. Company would be renamed McDonald Register 45,295 (1997); and Clarification to the Board's Section 20 Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20 Orders"). 7. Compliance with the revenue limitation shall be calculated in 2. A list of the administrative services that KeyCorp would provide accordance with the method stated in the Section 20 Orders, as to mutual funds is included in the Appendix. modified by the Order Approving Modifications to the Section 20 3. Asset and ranking data are as of June 30, 1998. Orders, 75 Federal Reserve Bulletin 751 (1989); 10 Percent Revenue 4. McDonald currently engages in certain insurance and real estate Limit on Bank-Ineligible Activities of Subsidiaries of Bank Holding activities and has, and controls certain limited partnerships and corpo- Companies Engaged in Underwriting and Dealing in Securities, 61 rations that have, investments that are not permissible for bank hold- Federal Register 48.953 (1996); and Revenue Limit on Bank-Ineligible ing companies. KeyCorp has committed to conform the activities, Activities of Subsidiaries of Bank Holding Companies Engaged in investments, and relationships of McDonald to those permissible for Underwriting and Dealing in Securities. 61 Federal Register 68,750 bank holding companies within two years of acquiring McDonald. (1996) (collectively, "'Modification Orders"). In light of the fact that 5. KCMI currently engages in limited underwriting and dealing in KeyCorp proposes to acquire a going concern, the Board believes that bank-ineligible securities, as permitted under section 20 of the Glass- allowing Company to calculate compliance with the revenue limita- Steagall Act (12 U.S.C. § 377). See KeyCorp, 83 Federal Reserve tion on an annualized basis during the first year after consummation of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1077 KeyCorp has committed that Company will conduct its KeyCorp proposes to have certain director and officer underwriting and dealing activities using the methods and interlocks with the funds. In particular, KeyCorp proposes procedures and subject to the prudential limitations estab- that up to 25 percent of the directors of a mutual fund lished by the Board in the Section 20 Orders. KeyCorp also would be employees, officers, or directors of KeyCorp or has committed that Company will conduct its bank- one of its subsidiaries, including Company. KeyCorp proineligible securities underwriting and dealing activities poses that one of these directors may serve as chairman of subject to the Board's revenue restriction.8 As a condition the board of the fund. In addition, KeyCorp seeks to have of this order, KeyCorp is required to conduct its bank- up to three directors, officers, or employees of KeyCorp or ineligible securities activities subject to the revenue restric- its subsidiaries, including Company, serve as senior offictions and Operating Standards established for section 20 ers of the fund and have other KeyCorp personnel serve as subsidiaries ("Operating Standards").9 junior-level officers of the fund.12 The Board previously has authorized a bank holding Mutual Fund Activities company and its nonbank subsidiaries to have limited director and officer interlocks with mutual funds that the KeyCorp proposes, through Company, to provide to mutual bank holding company advises and administers.13 The funds ("funds") investment advisory, administrative, and Board noted that the independent directors of the funds other services that previously have been approved by the would be responsible for the selection and review of the Board.10 KeyCorp has committed that the proposed activi- investment adviser, the underwriter, and the other major ties will be conducted in compliance with Regulation Y service contractors of the fund.14 and Board orders governing these activities and subject to In this case, KeyCorp's personnel would not comprise the prudential and other limitations established by the more than 25 percent of any fund's board of directors. Board." Accordingly, all the funds to which KeyCorp would provide advisory and administrative services would have boards of directors in which 75 percent of the directors are the acquisition and thereafter on a rolling quarterly average basis unaffiliated with KeyCorp. In addition, any director of a would be consistent with the Section 20 Orders. See U.S. Bancorp, 84 Federal Reserve Bulletin 483 (1998); Dauphin Deposit Corporation, fund who also serves as a director, officer, or employee of 11 Federal Reserve Bulletin 672 (1991). KeyCorp would be an "interested person" under the 1940 8. KeyCorp intends to merge KCMI with and into Company within Act and, therefore, would be required to abstain from a few weeks of the consummation of the KeyCorp/McDonald merger. voting on investment advisory and other major contracts of Until the merger of KCMI and Company occurs, KeyCorp will the fund. operate Company as a separate corporate entity and both KCMI and Company will be independently subject to the 25-percent revenue limitation on underwriting and dealing in bank-ineligible securities. See Citicorp, 73 Federal Reserve Bulletin 473, 486 n.45 (1987), aff'd sub nom. Securities Industry Ass 'n v. Board of Governors of the funds and distribution activities of mutual funds would be the respon- Federal Reserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. sibility of an independent distributor, which would enter into contrac- 1059 (1988). In view of the fact that Company is significantly larger tual agreements with the mutual funds to serve as "principal underthan KCMI and will survive the merger with KCMI, the management writer." As defined in the Investment Company Act of 1940 ("1940 structure of the proposed merged company, the activities of the Act"), a principal underwriter is any underwriter who, as principal, merging companies and the proposed merged company, and the other purchases from a mutual fund any security for distribution, or who as aspects of this case, the Board believes the merger would not disqual- agent for such fund sells or has the right to sell the fund's securities to ify Company from calculating compliance with the revenue test in a dealer and/or to the public. 15 U.S.C. § 80a-2(a)(29). The indepenconformance with the annuahzed treatment described in this order. dent distributor also would be responsible for supervising sales as the 9. 12C.F.R. 225.200. Company may provide services that are principal underwriter for purposes of the federal securities laws. An necessary incidents to the proposed underwriting and dealing activi- independent distributor would enter into any sales agreements with ties. Unless Company receives specific approval under section 4(c)(8) brokers or other financial intermediaries to sell shares of mutual funds. of the BHC Act to conduct the activities independently, any revenues The independent distributor would have legal responsibility under the from the incidental activities must be treated as ineligible revenues rules of the NASD for the form and use of all advertising and sales subject to the Board's revenue limitation. literature and would be responsible for filing these materials with the 10. The Board previously has determined that providing administra- NASD or the SEC. tive services to mutual funds is closely related to banking within the 12. Senior officers include the president, secretary, treasurer, and meaning of section 4(c)(8) of the BHC Act. See, e.g., Bankers Trust vice presidents with policy-making functions. Junior officers include New York Corporation. 83 Federal Reserve Bulletin 780 (1997) assistant secretaries, assistant treasurers, or assistant vice presidents of ("BTNY"); Commerzbank AG, 83 Federal Reserve Bulletin 679 the funds. Junior officers are fund employees who have no authority or (1997). In addition, the Board previously has determined that the responsibility to make policy. Glass-Steagall Act does not prohibit a bank holding company from 13. See, e.g., BTNY; Lloyds TSB Group pic, 84 Federal Reserve providing advisory and administrative services to a mutual fund. See Bulletin 116 (1998); BankAmerica Corporation, 83 Federal Reserve 12 C.F.R. 225.125. Bulletin 913 (1997); The Governor and Company of the Bank of 11. See, e.g., BTNY. The administrative services that KeyCorp Ireland, 82 Federal Reserve Bulletin 1129 (1996). would provide to mutual funds through Company include computing 14. Under the 1940 Act, at least 40 percent of the board of directors the funds' financial data, maintaining and preserving the records of the of a mutual fund must be individuals who are not affiliated with the funds, providing office facilities and clerical support for the funds, and mutual fund, investment adviser, or any other major contractor to the preparing and filing tax returns for the funds. The services are listed in fund. The 1940 Act and related regulatory provisions require that the Appendix. independent directors annually review and approve the mutual fund's KeyCorp has committed that, on consummation of the acquisition investment advisory contract and any plan of distribution or related of Company. Company will cease serving as a distributor for mutual agreement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1078 Federal Reserve Bulletin • December 1998 The director and officer interlocks proposed by KeyCorp The Board also has reviewed the managerial resources would not appear to affect the independence of the other of each of the entities involved in this proposal in light of directors of the funds. The independent members of the examination reports and other supervisory information. In boards of directors would continue to have authority to connection with the proposal, the Federal Reserve Bank of review brokerage, advisory, administrative, and other ma- Cleveland ("Reserve Bank") has reviewed the policies and jor contracts and would retain authority to change the procedures of Company to ensure compliance with this distributor of fund shares. Based on the foregoing, the order and the Section 20 Orders, including Company's Board concludes that the proposed director and officer operational and managerial infrastructure, computer, audit, interlocks would not compromise the independence of the and accounting systems and internal risk management proboards of the funds or permit KeyCorp to control the funds cedures and controls. On the basis of the Reserve Bank's for purposes of the BHC Act or Glass-Steagall Act. review and all other facts of record, including the commitments provided in this case and the proposed managerial Other Activities Approved by Regulation or Order and risk management systems of Company, the Board has concluded that financial and managerial considerations are The Board previously has determined that credit and credit- consistent with approval of the notice. related activities; leasing activities; trust company activi- The Board has carefully considered the competitive efties; financial and investment advisory activities; securities fects of the proposal. KeyCorp represents that KCMI and brokerage, riskless principal, private placement, futures Company offer largely complementary services with few commission merchant, and other agency transactional ac- significant overlaps. KeyCorp has indicated that KCMI has tivities; bank-eligible securities underwriting and dealing; not developed the type of equity underwriting and other investing and trading activities; buying and selling bullion equity-based capital markets products, private client broand related activities; and management consulting and kerage, and high-yield debt underwriting services offered employee benefits consulting services are closely related to by Company. To the extent that KCMI and Company offer banking within the meaning of section 4(c)(8) of the BHC different types of products and services, the proposed ac- Act. 15 In addition, the Board previously has determined by quisition would result in no loss of competition. In those order that the proposed private investment limited partner- markets where the product offerings of KeyCorp's nonship activities are permissible for bank holding compa- banking subsidiaries and McDonald overlap, such as secunies.16 KeyCorp has committed that it will conduct these rities brokerage, investment advisory, trust, and insurance activities in accordance with the provisions and limitations agency activities, there are numerous existing and potential set forth in Regulation Y and the Board's orders and competitors. Consummation of the proposal, therefore, interpretations relating to each of the activities. would have a de minimis effect on competition in the market for these services, and the Board has concluded that Other Considerations the proposal would not have significantly adverse competitive effects in any relevant market. In order to approve this notice, the Board also must deter- In order to approve the proposal, the Board also must mine that the proposed activities "can reasonably be ex- find that the performance of the proposed activities by pected to produce benefits to the public, such as greater KeyCorp can reasonably be expected to produce benefits convenience, increased competition, or gains in efficiency, that would outweigh possible adverse effects under the that outweigh possible adverse effects, such as undue con- proper incident to banking standard of section 4(c)(8) of centration of resources, decreased or unfair competition, the BHC Act. Under the framework established in this and conflicts of interests, or unsound banking practices."17 As prior decisions, consummation of the proposal is not likely part of its review of these factors, the Board considers the to result in any significantly adverse effects, such as undue financial and managerial resources of the notificant and its concentration of resources, decreased or unfair competisubsidiaries and the effect the transaction would have on tion, conflicts of interests, or unsound banking practices such resources.18 that outweigh the public benefits of the proposal. In considering the financial resources of the notificant, The Board expects that consummation of the proposal the Board has reviewed the capitalization of KeyCorp and would provide added convenience to the customers of Company in accordance with the standards set forth in the KeyCorp and McDonald. KeyCorp has indicated that con- Section 20 Orders and finds the capitalization of each to be summation of the proposal would expand the range of consistent with approval. This determination is based on all products and services available to its customers and those the facts of record, including KeyCorp's projections of the of McDonald. KeyCorp also has stated that the acquisition volume of Company's underwriting and dealing activities would permit it to improve the operating efficiency of in bank-ineligible securities. KCMI and further diversify its nonbanking operations, thereby making it less vulnerable to economic fluctuations in individual business lines. 15. See 12 C.F.R. 225.28(b)(l), (2), (3), (5), (6), (7), (8), and (9). Based on all the facts of record, the Board has deter- 16. See DresdnerBankAG, 84 Federal Reserve Bulletin 361 (1998); mined that performance of the proposed activities by Key- Meridian Bancorp, Inc., 80 Federal Reserve Bulletin 736 (1994). 17. 12U.S.C. § 1843(c)(8). Corp can reasonably be expected to produce public bene- 18. Sec 12 C.F.R. 225.26. fits that outweigh any adverse effects of the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1079 Accordingly, the Board has determined that the perfor- (2) Computing net asset value, dividends, performance mance of the proposed activities by KeyCorp is a proper data and financial information regarding the funds; incident to banking for purposes of section 4(c)(8) of the (3) Furnishing statistical and research data to the funds; BHC Act. (4) Preparing and filing with the SEC and state securities regulators registration statements, notices, reports, and other materials required to be filed under applica- Conclusion ble laws; (5) Preparing reports and other informational materials On the basis of all the facts of record, the Board has regarding the funds, including prospectuses, proxies, determined that the notice should be, and hereby is, apand other shareholder communications; proved, subject to all the terms and conditions described in (6) Providing legal and other regulatory advice to the this order. The Board's approval of the proposal extends funds in connection with their other administrative only to activities conducted within the limitations of this functions; order, including the Board's reservation of authority to (7) Providing office facilities and clerical support for the establish additional limitations to ensure that Company's funds; activities are consistent with safety and soundness, avoid- (8) Developing and implementing procedures for moniance of conflicts of interests, and other relevant considertoring compliance with regulatory requirements and ations under the BHC Act. Underwriting and dealing in compliance with the funds' investment objectives, any manner other than as approved in this order is not policies, and restrictions as established by the boards within the scope of the Board's approval and is not authoof directors of the funds; rized for Company. (9) Providing routine fund accounting services to the The Board's determination also is subject to all the terms funds and liaison with outside auditors; and conditions set forth in Regulation Y, including those in (10) Preparing and filing tax returns, and monitoring tax sections 225.7 and 225.25(c) (12C.F.R. 225.7 and compliance; 225.25(c)), and to the Board's authority to require modifi- (11) Reviewing and arranging for payment of fund excation or termination of the activities of a bank holding penses; company or any of its subsidiaries as the Board finds (12) Providing communication and coordination services necessary to ensure compliance with, or to prevent evasion with regard to the funds' investment advisors, transof, the provisions and purposes of the BHC Act and the fer agent, custodian, distributor, and other service Board's regulations and orders issued thereunder. The organizations that render distribution, recordkeeping, Board's decision is specifically conditioned on compliance or shareholder communication services; with all the commitments made in connection with this (13) Reviewing and providing advice to the distributor, notice, including the commitments discussed in this order the funds, and the investment advisors regarding and the conditions set forth in this order and the Board sales literature and marketing plans for the funds; regulations and orders noted above. The commitments and (14) Providing information to the distributor's personnel conditions are deemed to be conditions imposed in writing concerning performance and administration of the by the Board in connection with its findings and decision, funds; and, as such, may be enforced in proceedings under appli- (15) Providing marketing support with respect to sales of cable law. the funds through financial intermediaries, including This proposal shall not be consummated later than three participating in seminars, meetings, and conferences months after the effective date of this order, unless such designed to present information concerning the period is extended for good cause by the Board or the funds; Reserve Bank, acting pursuant to delegated authority. (16) Assisting in the development of additional funds; By order of the Board of Governors, effective (17) Providing reports to the boards of directors of the October 21, 1998. funds with regard to the activities of the funds; and (18) Providing telephone shareholder services through a Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley and Meyer. Absent and not voting: Governors toll-free number. Ferguson and Gramlich. Orders Issued Under Sections 3 and 4 of the Bank ROBERT DEV. FRIERSON Holding Company Act Associate Secretary of the Board Charter One Financial, Inc. Cleveland, Ohio Appendix Order Approving the Formation of Bank Holding List of Administrative Services Companies (1) Maintaining and preserving certain records of the Charter One Financial, Inc., and its wholly owned subsidfunds, including financial and corporate records; iary, Charter-Michigan Bancorp, Inc. ("CMB") (collec- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1080 Federal Reserve Bulletin • December 1998 tively "Charter One"), savings and loan holding compa- of commitments designed to ensure that Charter One will nies within the meaning of the Home Owners Loan Act not exercise a controlling influence over Gateway.3 (12 U.S.C. § 1461 et seq.),1 have requested the Board's Notice of the proposal, aifording interested persons an approval under section 3 of the Bank Holding Company opportunity to submit comments, has been published Act (12 U.S.C. § 1842) ("BHC Act") to become bank (63 Federal Register 47,499 (1998)). The time for filing holding companies by acquiring ALBANK Financial Cor- comments has expired, and the Board has considered the poration ("ALBANK") and its subsidiary bank, ALBANK proposal and all comments received in light of the factors Commercial, both of Albany, New York.2 Charter One also set forth in sections 3 and 4 of the BHC Act. has requested the Board's approval under section 4(c)(8) of Charter One, with total consolidated assets of approxithe BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 mately $20.2 billion, is the seventh largest depository of the Board's Regulation Y (12 C.F.R. 225.24) to acquire organization in Ohio, controlling approximately 3.1 perthe nonbanking subsidiaries of ALBANK, including cent of the total deposits of insured depository institutions ALBANK's subsidiary savings association, ALBANK, in the state ("total deposits").4 Charter One Savings cur- F.S.B., Albany, New York ("ALBANK Savings"), to retain rently operates branches in Michigan, New York, and Ohio some of Charter One's nonbanking subsidiaries, and and Charter One engages in a number of nonbanking thereby to engage in the following nonbanking activities: activities. Charter One is the 22nd largest depository orga- (1) Extending credit and servicing loans in accor- nization in New York, controlling less than 1 percent of the dance withsection 225.28(b)(l) of Regulation Y total deposits. (12 C.F.R. 225.28(b)(l); ALBANK, with total consolidated assets of approxi- (2) Providing real estate appraisal services in accor- mately $4.1 billion, is the 21st largest commercial banking dance with section 225.28(b)(2)(i) of Regula- organization in New York, controlling less than I percent tion Y (12 C.F.R. 225.28(b)(2)(i)); of total banking deposits in the state ("total banking depos- (3) Providing asset management services in accor- its"). After consummation of the proposal, Charter One dance with section 225.28(b)(2)(vi) of Regula- would become the 14th largest commercial banking organition Y (12 C.F.R. 225.28(b)(2)(vi)); zation in New York, controlling approximately 1.4 percent (4) Engaging in leasing personal or real property in of total banking deposits. accordance with section 225.28(b)(3) of Regulation Y (12 C.F.R. 225.28(b)(3)); Competitive, Financial, and Managerial Factors (5) Operating a savings association in accordance with section 225.28(b)(4)(ii) of Regulation Y Section 3 of the BHC Act prohibits the Board from approv- (12 C.F.R. 225.28(b)(4)(ii)); ing an application if the proposal would result in a monop- (6) Providing securities brokerage services in accor- oly or would substantially lessen competition in any reledance with section 225.28(b)(7)(i) of Regula- vant banking market unless, in the latter case, the Board tion Y (12 C.F.R. 225.28(b)(7)(i)); finds that the anticompetitive effects of the proposal are (7) Engaging in credit insurance activities in accor- clearly outweighed in the public interest by the probable dance with section 225.28(b)(ll)(i) of Regula- effect of the proposal in meeting the convenience and tion Y (12 C.F.R. 225.28(b)(ll)(i)); needs of the community to be served.5 Charter One, (8) Engaging in community development activities ALBANK and Gateway do not compete directly in any in accordance with section 225.28(b)(12) of Reg- relevant banking market. Based on all the facts of record, ulation Y (12 C.F.R. 225.28(b)(12)); and the Board concludes that consummation of the proposal (9) Providing data processing services in accordance would not result in a monopoly or in any significantly with section 225.28(b)(14) of Regulation Y adverse effects on competition or on the concentration of (12 C.F.R. 225.28(b)(14)). banking resources in any relevant banking market. The BHC Act also requires the Board to consider the In connection with this application, Charter One also has financial and managerial resources and future prospects of requested the Board's approval to retain ownership of the companies and banks involved in the proposal, the 9.95 percent of the voting shares of Gateway American convenience and needs of the communities to be served, Bank of Florida, Fort Lauderdale, Florida ("Gateway"), and certain other supervisory factors. The Board has carethat Charter One currently owns. Charter One stated that it fully considered the financial and managerial resources and does not intend to control Gateway and has made a number future prospects of Charter One, ALBANK, and their respective insured depository institutions and other supervi- 1. CMB controls Charter One Bank, F.S.B. ("Charter One 3. The Board has relied on similar commitments in other cases to Savings"), Cleveland. Ohio. determine that an investing bank holding company would not be able 2. Pursuant to the merger agreement between Charter One and to exercise a controlling influence over another bank holding company ALBANK, ALBANK would be merged with and into CMB. or bank for purposes of the BHC Act. A complete list of these ALBANK also has granted Charter One an option to acquire up to commitments is set forth in the Appendix. 9.9 percent of ALBANK's outstanding common stock. The option 4. Asset, deposit, and ranking data are as of June 30, 1997. would expire on consummation of the merger. 5. 12 U.S.C. § 1842(c)(l). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1081 sory factors in light of all the facts of record, including company is closely related to banking for purposes of the supervisory reports of examination assessing the financial BHC Act.7 In making this determination the Board requires and managerial resources of the organizations and confi- that savings associations acquired by bank holding compadential financial information provided by Charter One. nies conform their direct and indirect activities to those Based on these and all the other facts of record, the Board permissible for bank holding companies under section 4 of concludes that the financial and managerial resources and the BHC Act and Regulation Y. Charter One has commitfuture prospects of Charter One, ALBANK, and their sub- ted to conform all of the activities of Charter One Savings sidiary insured depository institutions are consistent with to those permissible under section 4(c)(8) of the BHC Act.8 approval, as are the other supervisory factors that the Charter One also has filed a notice under section 4(c)(8) Board must consider under section 3 of the BHC Act. of the BHC Act to acquire the nonbanking subsidiaries of ALBANK, including ALBANK Savings, to retain some of Convenience and Needs Factor Charter One's nonbanking subsidiaries, and thereby engage in extending credit and servicing loans, providing The Board also has considered carefully the effect of the asset management and real estate appraisal services, engagproposed acquisition on the convenience and needs of the ing in leasing personal or real property, operating a savings community to be served, in light of all the facts of record. association, providing securities brokerage and data pro- Charter One Savings, which is the insured depository insti- cessing services, and engaging in credit insurance and tution controlled by the applicant in this case, received a community development activities. The Board has deter- "satisfactory" rating in its most recent evaluation by the mined by regulation that these activities are closely related Office of Thrift Supervision ("OTS") pursuant to the Com- to banking for purposes of the BHC Act.9 Charter One has munity Reinvestment Act ("CRA") (12 U.S.C. § 2901 committed to conduct these nonbanking activities in accoret seq.). ALBANK Savings F.S.B. ("ALBANK Savings"), dance with the limitations set forth in Regulation Y and all a wholly owned savings association subsidiary of the com- relevant Board orders and interpretations. pany proposed to be acquired in this case, received a In order to approve a notice under section 4(c)(8) of the "needs to improve" rating in its most recent CRA evalua- BHC Act, the Board also must determine that the proposed tion by the OTS.6 The Board also notes that ALBANK and activities are a proper incident to banking, that is, that the ALBANK Savings have entered into a consent decree with proposal "can reasonably be expected to produce benefits the Department of Justice regarding compliance with the to the public . . . that outweigh possible adverse effects, Fair Housing Act and the Equal Credit Opportunity Act such as undue concentration of resources, decreased or ("fair lending laws"). unfair competition, conflicts of interests, or unsound bank- The Board has consulted with the OTS and the Depart- ing practices."10 As part of its evaluation of these factors, ment of Justice on the steps initiated by ALBANK to the Board considers the financial condition and managerial address these matters. The Board also has reviewed rele- resources of the notificant and its subsidiaries, including vant supervisory information indicating that ALBANK's the companies to be acquired, and the effect of the proinitiatives have generated successful results. In addition, posed transaction on those resources. For the reasons disthe Board notes that Charter One intends to merge cussed above, and based on all the facts of record, the ALBANK Savings with and into Charter One Savings, Board has concluded that financial and managerial considwith the community reinvestment activities of the resulting erations are consistent with approval of the notice. institution under the direction of current Charter One man- The Board also has carefully considered the competitive agement. Charter One also has committed that it will effects of the proposed acquisition of nonbanking activiensure full compliance with the consent decree after con- ties. Charter One represents that there are few overlaps in summation of the proposed transaction. Based on all the facts of record, including in particular the performance record of Charter One and the measures taken by ALBANK to ensure compliance with fair lending laws, the Board concludes that convenience and needs considerations, including the CRA performance records of 7. 12 C.F.R. 225.28(b)(4)(ii). 8. Charter One has committed that it will conform all the insurance, the subsidiary depository institutions of Charter One and annuities, real estate, and other nonconforming activities conducted ALBANK, are consistent with approval of the proposal. by Charter One and its subsidiaries to the requirements of section 4 of the BHC Act within two years after consummation of the proposal. Nonbanking Activities Charter One must also conform the savings bank life insurance activities conducted by ALBANK to the requirements of section 4 of the BHC Act within two years after consummation of the proposal. The Board previously has determined by regulation that ALBANK already is required to conform its other activities to the the operation of a savings association by a bank holding requirements of section 4 of the BHC Act within two years of the date on which ALBANK became a bank holding company, and Charter One must conform these activities of ALBANK to the requirements of the BHC Act within that same period. 6. ALBANK Commercial received its charter from the State of 9. See 12 C.F.R. 225.28(b)(l). (b)(2)(i), (b)(2)(vi), (3), (4)(ii). (7)(i), New York on October 8, 1997, and has not yet been examined for (ll)(i), (12) and (14). CRA performance. 10. 12 U.S.C. § 1843(c)(8). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1082 Federal Reserve Bulletin • December 1998 the services provided by Charter One and ALBANK.11 To holding company or any of its subsidiaries as the Board the extent that Charter One and ALBANK offer different finds necessary to ensure compliance with, and to prevent types of products, the proposed acquisition would result in evasion of, the provisions of the BHC Act and the Board's no loss of competition. In those markets in which the regulations and orders thereunder. For purposes of this product offerings of Charter One and ALBANK overlap, transaction, the commitments and conditions referred to such as brokerage services and the sale of insurance and above shall be deemed to be conditions imposed in writing annuities products, there are numerous existing and poten- by the Board in connection with its findings and decision tial competitors. Consummation of the proposal, therefore, and, as such, may be enforced in proceedings under appliwould have a de minirnis effect on competition in the cable law. markets for these services, and the Board has concluded The acquisition of ALBANK Commercial shall not be that the proposal would not result in any significantly consummated before the fifteenth calendar day after the adverse competitive effects in any relevant market. effective date of this order, and the proposal shall not be Charter One has indicated that, after consummation of consummated later than three months after the effective the merger proposal, it may provide more products and date of this order, unless such period is extended for good services than those currently offered by ALBANK. In cause by the Board or by the Federal Reserve Bank of addition, as the Board has previously noted, there are Cleveland, acting pursuant to delegated authority. public benefits to be derived from permitting capital mar- By order of the Board of Governors, effective kets to operate so that bank holding companies can make October 28, 1998. potentially profitable investments in nonbanking companies and from permitting banking organizations to allocate Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and their resources in the manner they consider to be most Governors Meyer, Ferguson, and Gramlich. Absent and not voting: efficient when such investments and actions are consistent, Governor Kelley. as in this case, with the relevant considerations under the BHC Act.'? ROBERT DEV. FRIERSON The Board also concludes that the conduct of the pro- Associate Secretary of the Board posed nonbanking activities within the framework established under Regulation Y is not likely to result in adverse Appendix effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or Commitments For Retaining Shares of Gateway Charter unsound banking practices, that would outweigh the public benefits of the proposal, such as increased customer conve- One Financial, Inc. ("COFI") and CMB have committed, nience and gains in efficiency. Accordingly, based on all jointly and severally, that they will not, directly or indithe facts of record, the Board has determined that the rectly: balance of public benefits that the Board must consider (1) Take any action to cause Gateway or any of its under the proper incident to banking standard of sec- subsidiaries to become a subsidiary of COFI or tion 4(c)(8) of the BHC Act is favorable and consistent CMB; with approval of Charter One's notice. (2) Acquire or retain shares of Gateway that would cause the combined interests of COFI, CMB, their affili- Conclusion ates, officers, and directors to equal or exceed 10 percent of the outstanding voting shares of Gate- Based on the foregoing, and in light of all the facts of way; record, the Board has determined that the application and (3) Exercise or attempt to exercise a controlling influnotices should be, and hereby are, approved. Approval of ence over the management or policies of Gateway or the application and notice is specifically conditioned on any of its subsidiaries. compliance by Charter One with all the commitments (4) Seek or accept representation by more than one direcmade in connection with the proposal and with the condi- tor on the board of directors of Gateway or any of its tions stated or referred to in this order. The Board's deter- subsidiaries; mination on the nonbanking activities also is subject to all (5) Serve, or have or seek to have any representative of the terms and conditions set forth in Regulation Y, includ- COFI or CMB serve, as an officer, agent, or eming those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7 ployee of Gateway or any of its subsidiaries; and 225.25(c)), and to the Board's authority to require such (6) Propose more than one director in opposition to any modification or termination of the activities of a bank nominee or slate of nominees proposed by management or the board of directors of Gateway; (7) Solicit or participate in soliciting proxies with respect 11. Charter One Savings and ALBANK Savings do not compete in to any matter presented to the shareholders of Gateany relevant geographic market in providing savings association ser- way; vices. (8) Attempt to influence Gateway's or any of its subsid- 12. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin iaries': dividend policies; loan, credit, or investment 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489(1998). decisions; pricing of services; personnel decisions; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1083 operations activities, including the location of any Illinois, and Minnesota and engages in a number of permisoffices or branches or their hours of operation, etc.; or sible nonbanking activities nationwide. any similar activities or decisions of Gateway or any SBC, with total consolidated assets of approximately of its subsidiaries; $14.9 billion, is the 50th largest commercial banking orga- (9) Enter into any other banking or nonbanking transac- nization in the United States, controlling less than 1 pertions with Gateway, except that COFI or CMB may cent of total banking assets. SBC's subsidiary bank, Star establish and maintain deposit accounts with Gate- Bank, operates in Indiana, Kentucky, Ohio, and Tennessee. way, provided that the aggregate balance of all such After consummation of the proposal, Firstar would become deposit accounts does not exceed $500,000, and pro- the 24th largest commercial banking organization in the vided that the accounts are maintained on substan- United States, with consolidated assets of approximately tially the same terms as those prevailing for compara- $34.9 billion, representing approximately 1 percent of total ble accounts of persons unaffiliated with COFI or banking assets. CMB; and (10) Dispose or threaten to dispose of shares of Gateway Interstate Analysis in any manner as a condition of specific action or nonaction by Gateway or any of its subsidiaries Section 3(d) of the BHC Act, as amended by section 101 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act"), allows the Board Firstar Corporation to approve an application by a bank holding company to Milwaukee, Wisconsin acquire control of a bank located in a state other than the Order Approving the Merger of Bank Holding home state of such bank holding company if certain conditions are met.4 For purposes of the BHC Act, the home Companies state of Firstar is Wisconsin, and Firstar proposes to acquire a bank that is located in Indiana, Kentucky, Ohio, and Firstar Corporation ("Firstar"), a bank holding company within the meaning of the Bank Holding Company Act Tennessee.5 All conditions for an interstate acquisition ("BHC Act"), has requested the Board's approval under enumerated in section 3(d) are met in this case.6 In view of section 3 of the BHC Act (12 U.S.C. § 1842) to merge with all the facts of record, the Board is permitted to approve Star Bane Corporation ("SBC") and thereby acquire this proposal under section 3(d) of the BHC Act. SBC's wholly owned subsidiary bank, Star Bank, N.A. ("Star Bank"), both of Cincinnati, Ohio.1 Firstar also has Competitive, Financial, and Managerial Factors requested the Board's approval under section 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of Section 3 of the BHC Act prohibits the Board from approvthe Board's Regulation Y (12 C.F.R. 225.24) to acquire the nonbanking subsidiaries of SBC.2 ing a proposal that would result in a monopoly, or that would substantially lessen competition in any relevant Notice of the proposal, affording interested persons an banking market unless, in the latter case, the anticompetiopportunity to submit comments, has been published tive effects of the proposal in that banking market are (63 Federal Register 45,246 (1998)). The time for filing clearly outweighed in the public interest by the probable comments has expired, and the Board has considered the effect of the proposal in meeting the convenience and proposal and all comments received in light of the factors needs of the community to be served.7 Firstar and Star do set forth in sections 3 and 4 of the BHC Act. not compete directly in any relevant banking market. Based Firstar, with total consolidated assets of approximately $20 billion, is the 38th largest commercial banking organization in the United States, controlling less than 1 percent 4. Pub. L. No. 103-328. 108 Stat. 2338 (1994). A bank holding of the total assets of insured commercial banks in the company's home state is the state in which the operations of the bank United States ("total banking assets").3 Firstar is the sec- holding company's banking subsidiaries were principally conducted ond largest commercial banking organization in Wiscon- on July 1, 1966, or the date on which the company became a bank holding company, whichever is later. sin, controlling deposits of $12.8 billion in the state. Firstar 5. For purposes of the Riegle-Neal Act, the Board considers a bank also operates subsidiary banks in Arizona, Florida, Iowa, to be located in the states in which the bank is chartered, headquartered, or operates a branch. 6. Firstar is adequately capitalized and adequately managed as defined in the Riegle-Neal Act. 12 U.S.C. § 1842(d)(l)(A). SBC's only subsidiary bank, Star Bank, has been in existence and operated 1. Firstar and SBC also have requested the Board's approval to hold for the minimum period of time required by state law. 12 U.S.C. and exercise options to acquire up to 19.9 percent of each other's § 1842(d)(l)(B). On consummation of the proposal, Firstar would voting shares, if certain events occur. The options would expire on control less than 10 percent of the total amount of deposits of insured consummation of the proposed merger. depository institutions in the United States, and Firstar and SBC do 2. The nonbanking subsidiaries of SBC and their activities are listed not both operate insured depository institutions in the same states. in the Appendix. 12 U.S.C. § 1842(d)(2). All other requirements under section 3(d) of 3. All banking data, including rankings, assets, and deposits, are as the BHC Act also would be met on consummation of the proposal. of June 30. 1998. 7. See 12 U.S.C. § 1842(c). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1084 Federal Reserve Bulletin • December 1998 on all the facts of record, the Board concludes that consum- formance under the CRA by its appropriate federal supervimation of the proposal would not result in any significantly sor.8 adverse effects on competition or on the concentration of All of Firstar's subsidiary banks received "outstanding" banking resources in any relevant banking market and that or "satisfactory" ratings in the most recent examinations competitive factors are consistent with approval of the of their CRA performance. Firstar's lead subsidiary bank, proposal. Firstar Bank Milwaukee, Milwaukee, Wisconsin ("Firstar The BHC Act also requires the Board to consider the Milwaukee"), received a "satisfactory" rating in its most financial and managerial resources of the companies and recent CRA performance evaluation by the Office of the banks involved and certain other supervisory factors. The Comptroller of Currency ("OCC"), as of November 1997. Board has carefully considered the financial and manage- Firstar Bank Wisconsin, Madison, Wisconsin ("Firstar rial resources and future prospects of Firstar, SBC, and Wisconsin"), received an "outstanding" rating in its most their respective subsidiary banks and other supervisory recent CRA evaluation by the Federal Reserve Bank of factors in light of all the facts of record, including supervi- Chicago ("Reserve Bank"), as of April 1997, and Firstar sory reports of examination assessing the financial and Bank Illinois, Waukegan, Illinois ("Firstar Illinois"), remanagerial resources of the organizations and confidential ceived a "satisfactory" rating in its most recent CRA financial information provided by Firstar. Based on these examination by the Reserve Bank, as of June 1996. SBC's and all the other facts of record, the Board concludes that subsidiary bank, Star Bank, also received an "outstanding" the financial and managerial resources and future prospects rating in its most recent CRA examination by the OCC, as of Firstar, SBC, and their subsidiary banks are consistent of December 1996. with approval, as are the other supervisory factors that the The examinations found no evidence of prohibited dis- Board must consider under section 3 of the BHC Act. crimination or illegal credit practices at the subsidiary banks of Firstar or SBC. Examiners concluded that the banks solicited and accepted credit applications from all Convenience and Needs Factor segments of their service communities. Examiners also generally noted that loans made by the banks were reasonably distributed throughout the local communities served, The Board also has considered carefully the effect of the including in LMI communities, and that the banks served proposed acquisition on the convenience and needs of the all members of those communities, including LMI individcommunity to be served in light of all the facts of record, uals. In addition, examiners generally determined that the including public comments on the proposal. Three com- banks' delineation of the local communities they served menters expressed opposition to the merger proposal, alleg- were reasonable and did not arbitrarily exclude any LMI ing that Firstar and SBC have inadequate records of meet- census tracts. ing the banking and credit needs of the communities they Firstar represents that, after consummation of the proserve and, in particular, of communities with predomi- posal, it will adopt SBC's approach to meeting its responsinantly low- and moderate-income ("LMI") and minority bilities under the CRA.9 Firstar states that, by adopting populations. One commenter expressed particular concern SBC's CRA approach, it would draw on SBC's expertise about Firstar's record of lending and providing services to in providing innovative financing to projects benefiting rural and LMI communities in Wisconsin and alleged that LMI communities to expand Firstar's investments in such the proposed merger would adversely affect those commu- communities. Firstar also has indicated that it would follow nities. The commenter also alleged that Firstar's banks in SBC's community banking approach to agricultural lend- Wisconsin failed to participate adequately in state and ing, which features locally based loan officers who have federally guaranteed loan programs designed to assist LMI direct contact with their customers in rural communities. individuals, small businesses, and owners of small farms. Firstar also intends to seek out partnerships with community organizations in Firstar markets similar to partnerships established by SBC with community-based groups in sev- A. CRA Performance Examinations eral of its markets. In addition, Firstar has noted that it would retain some of its CRA programs that have proven The Board has long held that consideration of the conve- successful. Consequently, the Board has taken into account nience and needs factor includes a review of the records of the relevant depository institutions under the Community Reinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). As provided in the CRA, the Board has evaluated the conve- 8. The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA nience and needs factor in light of examinations of the examination is an important and often controlling factor in the consid- CRA performance records of the relevant insured deposi- eration of an institution's CRA record and that reports of these tory institutions by their appropriate federal financial super- examinations will be given great weight in the applications process. visory agency. An institution's most recent CRA perfor- See 54 Federal Register 13,742, 13,745 (1989); see also 62 Federal Register 52.105 (1997). mance evaluation is a particularly important consideration 9. Firstar has stated that it would place its CRA and community in the applications process because it represents a detailed, development programs under the leadership of SBC's current Director on-site evaluation of an institution's overall record of per- of Community Development. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1085 the CRA performance records of SBC and Firstar in evalu- ment activities, including making small business loans, ating the proposal. agricultural loans, and loans to businesses in LMI census tracts. Firstar has committed to carry out this initiative. B. SBC's CRA Performance Record Examiners found that Star Bank had a good distribution of branches throughout its assessment areas. For example, SBC offers a variety of products and programs through Star examiners noted favorably that 27 percent of Star Bank's Bank to assist in meeting the housing-related credit needs branches in Cincinnati were in LMI communities, which of LMI individuals and communities. For example, Star exceeded the percentage of families in Cincinnati that Bank has established a Home Advantage ("HA") mortgage resided in those census tracts (19 percent). Examiners also program that features reduced down payment, increased noted that Star Bank offered a variety of alternative delivdebt-to-income ratios, and waiver of mortgage insurance ery systems, including banking by phone, by automatic requirements. In LMI communities. Star Bank also makes teller machines ("ATMs"), and by home computer. available HA home improvement loans with reduced interest rates for LMI borrowers. Examiners noted that, in 1995, C. Firstar's CRA Performance Star Bank originated more than 1,100 HA mortgage loans, totaling $56.4 million, and more than 600 HA home im- Firstar Milwaukee. Examiners noted that Firstar Milwauprovement loans, totaling $4.9 million. kee had been responsive to the credit needs of all segments The CRA performance examination characterized Star of its service community. In particular, examiners com- Bank's responsiveness to the credit needs of its assessment mended the level of Firstar Milwaukee's home mortgage areas as excellent and commended Star Bank's penetration and home improvement lending to LMI census tracts. of consumer loans in LMI census tracts. Examiners noted, Examiners noted that, in 1996, Firstar Milwaukee made for example, that 30 percent of the total dollar volume of 10 percent of its housing-related loans in LMI census home equity loans made by Star Bank from January 1, tracts, which almost equaled the 13 percent of owner- 1995, through June 30, 1996, were made in LMI census occupied homes in the bank's service communities that tracts. Examiners stated that this percentage was favorable were in those census tracts. Examiners also commended because only 18 percent of the owner-occupied housing Firstar Milwaukee for making 38 percent of its consumer units in Star Bank's assessment areas were in LMI commu- loans to LMI borrowers, a percentage that closely approxinities. mated the 37 percent of the population in its service area with low- and moderate-incomes. Star Bank also established a Small Business Banking Group ("BBG") to meet the credit and banking needs of Examiners commended Firstar Milwaukee's lending to small business owners. Star Bank's BBG originated more small businesses, including small businesses in LMI centhan 3,300 small business loans in 1997, totaling sus tracts. Examiners also noted that Firstar Milwaukee $376 million, and made more than 1,400 small business had introduced a small business line-of-credit program. loans in the first five months of 1998, totaling $150 mil- The program offered a streamlined applications process lion. The CRA performance examination commended Star and was designed for emerging small businesses that Bank's lending to small businesses and small farms and needed to build a credit history. From the time of the noted that the bank had an excellent record of extending program's inception in 1996 through November 1997, credit to businesses and farms of different sizes. Examiners Firstar Milwaukee originated 147 small business credit also noted that Star Bank participated in federal and state lines under this program, totaling more than $3.5 million. small business lending programs, including two Small Firstar Milwaukee also has participated in a variety of Business Administration ("SBA") loan programs. Examin- governmentally insured, guaranteed, and subsidized loan ers determined that Star Bank originated 117 SBA loans programs. For example, Firstar represents that its banks under these programs in 1995, totaling approximately $25 have participated in the SBA's "Low Doc" program, which million. offers quick approvals to qualifying small businesses and The CRA performance examination commended Star farms. Firstar notes that Firstar Milwaukee originated a Bank for originating a high level of community develop- total of 40 SBA loans in 1996, totaling $6.2 million, and ment loans. Examiners cited Star Bank's origination of 43 SBA loans in 1997, totaling $9.1 million. Firstar also 21 loans from January 1994 through July 1996, totaling states that Firstar Milwaukee has actively participated in $70 million, that resulted in the rehabilitation of 1,848 Veterans Administration ("VA") and Federal Housing Adunits of affordable rental housing. Examiners also noted ministration ("FHA") loan programs. Firstar Milwaukee that Star Bank entered into an agreement with the City of made 149 VA loans in 1996, totaling $13.2 million, and 159 VA loans in 1997, totaling $14.2 million. The bank Cleveland, Ohio ("Cleveland Agreement"), to provide also originated 114 FHA loans in 1996, totaling $25 million in loans to focus on LMI neighborhoods from $8.6 million, and 330 such loans in 1997, totaling $25 1994 through 1998. As of June 1996, Star Bank had million. extended $25.9 million of credit under the Cleveland Agreement, which represented 104 percent of Star Bank's Examiners noted that Firstar Milwaukee offered a varioriginal commitment. Firstar notes that, in March 1998, ety of low-cost checking accounts to consumers, small Star Bank began a five year, $5.15 billion Community businesses, community groups and nonprofit organizations. Development Initiative to engage in community develop- Examiners also noted that Firstar Milwaukee cashed fed- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1086 Federal Reserve Bulletin • December 1998 eral government benefit checks without charge. Examiners The CRA performance examination commended the found this check-cashing service to be unique in the bank's bank's responsiveness to the credit needs of LMI individuassessment area because it was offered free to customers als and areas. For example, according to the CRA perforand to noncustomers of the bank. mance examination, Firstar Wisconsin and its affiliate, Firstar Wisconsin. The CRA examination of Firstar Wis- Firstar Home Mortgage Corporation ("FHMC"), made consin found that the bank had a strong record of small more than 10 percent of their housing-related loans in LMI business and small farm lending. Examiners noted that, in census tracts, and 21 percent of their housing-related loans 1996, Firstar Wisconsin made more than 3,600 small busi- to LMI borrowers. Examiners characterized the dispersion ness loans and originated more than 230 small farm loans. of housing-related loans in LMI census tracts and to LMI Examiners stated that approximately 500 of the small busi- borrowers as strong.12 ness and farm loans, totaling approximately $42 million, Examiners noted that Firstar Wisconsin made extensive were made in LMI areas.10 use of innovative and flexible lending practices and pro- The CRA performance examination determined that grams.13 Examiners also cited favorably Firstar's ongoing Firstar Wisconsin offered a variety of governmentally in- participation in the ADVOCAP program, which provided sured, guaranteed, and subsidized loans to small busi- mortgage loans with flexible underwriting standards to nesses, small farms, and LMI borrowers. Examiners noted, LMI families. In addition, examiners noted that Firstar for example, that Firstar Wisconsin originated 149 SBA Wisconsin had made investments in a number of projects loans, totaling $35.4 million, and 69 Farm Service Agency to fund the purchase and rehabilitation of affordable rental ("FSA") loans, totaling $11.7 million, in 1996. Examiners and multifamily housing units. also commended the bank for using a Department of Housing and Urban Development ("HUD") lending program to D. Conclusion on the Convenience and Needs Factor offer nontraditional mortgage loans on real property in certain Native American reservations, where conventional In its review of the convenience and needs factor under the mortgage lending was difficult because borrowers often did BHC Act, the Board has considered carefully the entire not own the mortgaged real estate outright. record, including the CRA performance examinations of Firstar states that, since the CRA performance examina- each of the insured depository institutions involved in this tion, Firstar Wisconsin has continued to participate ac- proposal and all the information provided by commenttively in various government-guaranteed loan programs. ers.14 Based on all the facts of record, and for the reasons For example, Firstar reports that Firstar Wisconsin made more than 130 SBA loans in 1997, totaling $37.8 million, and that the bank made 56 SBA loans in the first six sin. Firstar acknowledges that there has been some reduction in the months of 1998, totaling $15.2 million. Firstar also states volume of its origination of certain types of government-guaranteed that Firstar Wisconsin and its affiliates in Wisconsin con- loans designed for farmers and agricultural communities, but Firstar tinue to participate in various lending programs operated attributes this decrease in loan originations to changing market conditions and lower credit demand in Wisconsin. by the Wisconsin Housing and Economic Development 12. One commenter alleged that Firstar's subsidiaries in Wisconsin Authority ("WHEDA"). In 1997, for example, Firstar Wismake inadequate numbers of home mortgages to LMI individuals and consin originated 92 loans through WHEDA, of which in LMI communities. The commenter based the allegation on its almost half were made in rural communities. Firstar banks analysis of certain data reported by Firstar in 1996 under the Home in Wisconsin originated 30 loans, totaling $463,000, under Mortgage Disclosure Act (12U.S.C. § 2801 et seq.) ("HMDA"). As noted above, the CRA performance examinations of Firstar's subsidthe WHEDA Credit Relief Outreach Program during 1997. iary banks in Wisconsin noted that the banks had strong records of In addition, Firstar notes that it introduced this year the lending, including home mortgage lending, to LMI individuals and in WHEDA Home Improvement Loan Program, which makes LMI communities. Examiners of Firstar Wisconsin reached this conhome improvement loans available to agricultural borrow- clusion based on their review of the bank's 1996 HMDA data and other data. 13. A commenter alleged that Firstar has been inflexible in working with farmers to restructure existing credit relationships or to resolve differences regarding loans and loan commitments. Firstar represents 10. One commenter expressed concern about Firstar's commitment that it employs agricultural specialists to provide individualized attento agricultural lending in Wisconsin and alleged that Firstar's consoli- tion to borrowers to resolve credit problems, consistent with safe and dation of certain agricultural loan origination and servicing operations sound banking practices. into a single office has resulted in reduced lending by Firstar to smail 14. One commenter expressed concerns about the lack of branches and LMI farm owners. Firstar denies any decreased emphasis on or proprietary ATMs of Firstar Illinois in Waukegan, Illinois, and agricultural lending, noting that Firstar Wisconsin maintains a size- certain surrounding portions of Lake County. Illinois. Firstar repreable agricultural loan portfolio of $150 million. Firstar also represents sents that, although it does not maintain any branches or ATMs in that it employs 40 loan officers with agricultural lending authority and Lake County, Firstar's subsidiaries provide financial assistance to, or has implemented programs, including a simplified application for engage in community development activities in conjunction with, a small loans and speedy processing, that demonstrate its commitment variety of community-based organizations operating in Lake County. to agricultural lending. In addition, Firstar states that the consolidation The Board also notes that, under the CRA, an institution is evaluated of its agricultural lending operations does not limit its ability to extend on the basis of its record of serving the credit needs of its community, credit to farms of all sizes. including areas in which the institution maintains an office, a branch 11. One commenter expressed concern that Firstar has reduced its or a deposit-taking ATM, as well as the surrounding areas in which the participation in FSA, WHEDA, and other government-guaranteed institution originates or purchases a substantial portion of its loans. An loan programs that benefit farmers and rural communities in Wiscon- institution may not define its service community for CRA purposes in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1087 discussed above, the Board concludes that considerations and actions are consistent, as in this case, with the relevant relating to the convenience and needs factor, including the considerations under the BHC Act.18 CRA performance records of the relevant institutions, are As part of its evaluation of these factors, the Board consistent with approval of the application. considers the financial condition and managerial resources of the notificant and its subsidiaries, including the compa- Nonbanking Activities nies to be acquired, and the effect of the proposed transaction on those resources. For the reasons noted above, and Firstar also has filed a notice under section 4(c)(8) of the based on all the facts of record, the Board has concluded BHC Act to acquire SBC's nonbanking subsidiaries and that financial and managerial considerations are consistent thereby to engage in extending credit and servicing loans, with approval of the notice. leasing real or personal property, providing credit life The Board also has considered the competitive effects of insurance and providing data processing services.15 The the proposed acquisition by Firstar of the nonbanking Board has determined by regulation that these activities are subsidiaries of SBC. Numerous competitors would remain closely related to banking for purposes of the BHC Act.16 in each of the markets in which Firstar and SBC compete. Firstar has committed to conduct these nonbanking activi- The Board concludes that consummation of this proposal ties in accordance with the limitations set forth in Regula- would have a de minimis effect on competition in the tion Y and the Board's orders and interpretations govern- markets for nonbanking services in which Firstar and SBC ing each of these activities. compete. Based on all the facts of record, the Board In order to approve a notice under section 4(c)(8) of the concludes that it is unlikely that significantly adverse com- BHC Act, the Board also must determine that the proposed petitive effects would result from the nonbanking acquisiactivities are a proper incident to banking, that is, that the tions proposed in this transaction. proposal "can reasonably be expected to produce benefits The Board also concludes that the conduct of the proto the public . . . that outweigh possible adverse effects, posed nonbanking activities within the framework of Regsuch as undue concentration of resources, decreased or ulation Y and prior Board precedent is not likely to result unfair competition, conflicts of interests, or unsound bank- in adverse effects, such as undue concentration of reing practices."17 Firstar has indicated that, after consumma- sources, decreased or unfair competition, conflicts of intertion of the proposal, it would be able to provide more ests, or unsound banking practices, that would outweigh products and services with greater efficiency to current and the public benefits of the proposal, such as increased cusfuture customers of Firstar and SBC. Firstar would achieve tomer convenience and gains in efficiency. Accordingly, greater operational efficiencies, greater economies of scale, based on all the facts of record, the Board has determined and eliminate redundant systems and technologies. These that the balance of public interest factors that the Board efficiencies would strengthen Firstar's ability to compete must consider under the proper incident to banking stanmore effectively in the markets in which it operates. Firstar dard of section 4(c)(8) of the BHC Act is favorable and would draw on its product strengths and those of SBC to consistent with approval of Firstar's notice. offer more products at more locations than either organization could offer separately. In addition, as the Board has Conclusion previously noted, there are public benefits to be derived from permitting capital markets to operate so that bank Based on the foregoing, and in light of all the facts of holding companies can make potentially profitable invest- record, the Board has determined that the application and ments in nonbanking companies and from permitting bank- notice should be, and hereby are, approved.19 Approval of ing organizations to allocate their resources in the manner they consider to be most efficient when such investments 18. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489(1998). 19. Two commenters requested that the Board hold a public meeting a manner that reflects illegal discrimination or excludes LMI geogra- or hearing on the proposal. Section 3 of the BHC Act does not require phies. The CRA performance examination of Firstar Illinois deter- the Board to hold a public hearing on an application unless the mined that the bank did not exclude any area from its delineated appropriate supervisory authority for the bank to be acquired makes a service community that it could have been reasonably expected to timely written recommendation of denial. The Board has not received serve. Examiners also concluded that Firstar Illinois maintained such a recommendation from the appropriate supervisory authorities. branches and facilities in census tracts of all income levels and that the The Board's regulations provide for a hearing under section 4 of the bank provided loan products and services that were similar at all its BHC Act if there are disputed issues of material fact that cannot be locations. resolved in some other manner. See 12 C.F.R. 225.25(a)(2). 15. Firstar currently engages in insurance activities grandfathered Under its rules, the Board also may, in its discretion, hold a public under section 4(c)(8)(G) of the BHC Act ( 12 U.S.C. § 1843(c)(8)(G)) meeting or hearing on an application to acquire a bank if a meeting or ("Exemption G"). Based on the structure of the transaction, the fact hearing is necessary or appropriate to clarify factual issues related to that Firstar would be the legal entity surviving the proposed merger, the application and to provide an opportunity for testimony. 12 C.F.R. and all the other facts of this case, the Board has determined that 225.16(e). The Board has carefully considered the commenters' re- Firstar would retain its grandfathered rights to engage in Exemption G quests in light of all the facts of record. In the Board's view, commentactivities after consummation of the proposed merger. ers have had ample opportunity to submit their views, and, in fact, 16. See 12 C.F.R. 225.28(b)(l), (3). (1 l)(i), and (14). have submitted written comments that have been carefully considered 17. 12 U.S.C, § 1843(c)(8). by the Board in acting on the proposal. The commenters' requests fail Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1088 Federal Reserve Bulletin • December 1998 the application and notice is specifically conditioned on Voting for this action: Chairman Greenspan. Vice Chair Rivlin, and compliance by Firstar with all the commitments made in Governors Meyer, Ferguson, and Gramlich. Absent and not voting: Governor Kelley. connection with the proposal and with the conditions stated or referred to in this order. The Board's determination on ROBERT DEV. FRIERSON the nonbanking activities also is subject to all the terms and conditions set forth in Regulation Y, including those in Associate Secretary of the Board sections 225.7 and 225.25(c) (12C.F.R. 225.7 and 225.25(c)), and to the Board's authority to require such Appendix modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board Nonbanking Activities of SBC finds necessary to ensure compliance with, and to prevent (1) Extending credit and servicing loans in accordance evasion of, the provisions of the BHC Act and the Board's with section 225.28(b)(l) of Regulation Y (12C.F.R. regulations and orders thereunder. For purposes of this 225.28(b)(l)), through Star Bane Finance, Inc., Cinorder, the commitments and conditions referred to above cinnati, Ohio. shall be deemed to be conditions imposed in writing by the (2) Engaging in leasing personal or real property in accor- Board in connection with its findings and decision, and, as dance with section 225.28(b)(3) of Regulation Y such, may be enforced in proceedings under applicable (12 C.F.R. 225.28(b)(3)), through DJJ Leasing Limlaw.20 ited, Cincinnati, Ohio. The acquisition of Star Bank shall not be consummated (3) Engaging in credit insurance activities in accordance before the fifteenth calendar day following the effective with section 225.28(b)(ll)(i) of Regulation Y date of this order, and the proposal shall not be consum- (12 C.F.R. 225.28(b)(ll)(i)), through The Miami Valmated later than three months after the effective date of this ley Insurance Company, Cincinnati, Ohio. order, unless such period is extended for good cause by the (4) Providing data processing services in accordance with Board or by the Reserve Bank, acting pursuant to delegated section 225.28(b)(14) of Regulation Y (12 C.F.R. authority. 225.28(b)(14)), through Money Station, Inc., Cincin- By order of the Board of Governors, effective nati, Ohio. October 28, 1998. Norwest Corporation Minneapolis, Minnesota Wells Fargo & Company to identify disputed issues of fact that are material to the Board's San Francisco, California decision that may be clarified by a public meeting or hearing. The commenters also fail to indicate why a public meeting or hearing is necessary for the proper presentation or consideration of their views. Order Approving the Merger of Bank Holding As noted above, commenters have provided substantial written com- Companies ments, which have been carefully considered by the Board. For these reasons, and based on all the facts of record, the Board has determined Norwest Corporation, a bank holding company within the that a public meeting or hearing is not required or warranted in this case. Accordingly, the requests are hereby denied. meaning of the Bank Holding Company Act ("BHC Act"), 20. Commenters requested that the Board delay action on the and its wholly owned subsidiary, WFC Holdings Corporaproposal, extend the public comment period, or deny the proposal tion (collectively "Norwest"), have requested the Board's until approval under section 3 of the BHC Act (12 U.S.C. (i) A pending CRA examination of Firstar Illinois is completed § 1842) to acquire by merger Wells Fargo & Company and the public has an opportunity to review the results of this examination; ("Wells Fargo") and thereby acquire Wells Fargo's subsid- (ii) The Board investigates Firstar's treatment of LMI borrowers; iary banks, including its lead bank subsidiary, Wells Fargo (iii) The Board investigates Firstar's lending practices on certain Bank, N.A., San Francisco, California.1 Norwest also has Native American reservations; and requested the Board's approval under section 4(c)(8) of the (iv) Firstar and SBC provide additional information on their CRA BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 of plans and programs or respond to specific allegations or concerns raised by the commenters. the Board's Regulation Y (12 C.F.R. 225.24) to acquire the The requests for delay do not warrant postponement of the Board's domestic nonbank subsidiaries of Wells Fargo.2 In addiconsideration of the proposal. The Board has accumulated a significant record in this case, including reports of examination, supervisory information, public reports and information, and public comment. As noted above, in the Board's view, the commenters have had ample 1. Norwest also would acquire Wells Fargo's other subsidiary opportunity to submit their views and, in fact, have provided substan- banks, which are Wells Fargo Bank (Texas), N.A., Houston, Texas; tial written submissions that have been considered carefully by the Wells Fargo Bank (Arizona), N.A., Phoenix, Arizona; Wells Fargo Board in acting on the proposal. Based on a review of all the facts of Bank, Ltd., Los Angeles, California; Wells Fargo Central Bank, record, the Board concludes that the record in this case is sufficient to Calabasas, California; and Wells Fargo HSBC Trade Bank. N.A., warrant Board consideration and action on the proposal at this time, San Francisco, California. and further delay of consideration of the proposal, an extension of the 2. These subsidiaries are Wells Fargo Equity Capital, Inc., comment period, or denial of the proposal on the grounds discussed San Francisco, California, which makes loans and direct equity investabove or on the basis of informational insufficiency is not warranted. ments in companies in connection with such loans in accordance with Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1089 tion, Norwest has filed applications and notices under under the Community Reinvestment Act (12 U.S.C. § 2901 section 4(c)(13) of the BHC Act (12 U.S.C. § 1843(c)(13)), et seq.) ("CRA") of the insured depository institutions sections 25 and 25A of the Federal Reserve Act involved in the transaction; and the availability of informa- (12 U.S.C. §§601 et seq., 611 et seq.), and the Board's tion needed to determine and enforce compliance with the Regulation K (12 C.F.R. 211) to acquire the foreign subsid- BHC Act.7 In cases involving interstate bank acquisitions, iaries of Wells Fargo.3 the Board must also consider the concentration of deposits Norwest, with total consolidated assets of approximately in the nation and certain states and compliance with other $93.1 billion, is the 12th largest commercial banking orga- provisions of the Riegle-Neal Interstate Banking and nization in the United States.4 Norwest operates 44 subsid- Branching Efficiency Act of 1994 ("Riegle-Neal Act").8 iary banks in 16 states,5 and it engages through nonbanking subsidiaries in a number of permissible nonbanking activi- Public Comment on the Proposal ties nationwide, including securities underwriting and dealing, consumer finance, mortgage banking, venture capital, To give interested members of the public an opportunity to insurance brokerage, and commercial finance. submit comments to the Board on the statutory factors that Wells Fargo, with total consolidated assets of approxi- it is charged with reviewing, the Board published notice of mately $93.2 billion, is the 11th largest commercial bank- the proposal and provided a period of time for public ing organization in the United States. Wells Fargo operates comment.9 The Board extended the initial period for public six subsidiary banks in ten states,6 and engages in a num- comment by 27 days to accommodate public interest. The ber of permissible nonbanking activities nationwide. extended public comment period provided interested par- The proposed transaction would create a combined orga- ties more than 56 days to submit written comments on the nization that, after accounting for proposed divestitures, proposal. would be the seventh largest commercial banking organiza- Because of public interest in the proposal—particularly tion in the United States. On a pro forma basis, the com- in Minnesota, where the combined organization would bined organization would have total consolidated assets of remain a significant competitor and where the merger approximately $188.4 billion, and would operate under the would result in the loss of the corporate headquarters of name "Wells Fargo & Company" ("New Wells Fargo"). Norwest—the Board also held a public meeting in Minneapolis, Minnesota, on September 17, 1998. The public Factors Governing Board Review of Transaction meeting gave interested persons an opportunity to present oral testimony on the various factors the Board is charged Under the BHC Act, the Board must consider a number of with reviewing under the BHC Act. Sixty people appeared specific factors when reviewing the merger of bank hold- and testified at the public meeting, and many of the coming companies or the acquisition of banks. These factors menters who testified also submitted written comments. are the competitive effects of the proposal in the relevant In total, approximately 150 organizations and individugeographic markets; the financial and managerial resources als submitted comments on the proposal through oral testiand future prospects of the companies and banks involved mony, written comments, or both. Commenters included in the transaction; the convenience and needs of the com- federal, state, and local government officials; community munity to be served, including the records of performance groups and nonprofit organizations; small business owners; union representatives and members; customers of Norwest and Wells Fargo; and other interested organizations and individuals from Arizona, California, Iowa, Minnesota, section 225.28(b)(l) of Regulation Y (12 C.F.R. 225.28(b)(l)) and prior Board precedent; and Crocker Life Insurance Company, Bris- New Mexico, Oregon, South Dakota, Texas, Wisconsin, bane, California, which underwrites optional credit life and disability and other states. Commenters filed information and insurance in connection with extensions of credit by affiliated lending expressed views supporting and opposing the merger. entities in accordance with section 225.28(b)(ll)(i) of Regulation Y In evaluating the statutory factors under the BHC Act, (12 C.F.R. 225.28(b)(ll)(i)). 3. Norwest also has requested the Board's approval to hold and the Board carefully considered the information and views exercise options to acquire up to 19.9 percent of Wells Fargo's voting presented by all commenters, including the testimony preshares, if certain events occur. The options would not be exercised if sented at the public meeting and the information submitted the merger is consummated. in writing. The Board also considered all the information 4. Rankings are based on financial data as of June 30, 1998. and presented in the application, notices, and supplemental reflect the merger of NationsBank Corporation with BankAmerica Coiporation, approved by the Board on August 17, 1998, the merger of Bane One Corporation with First Chicago NBD Corporation, approved by the Board on September 14, 1998, and the merger of 7. In cases involving a foreign bank, the Board also must consider Citicorp with Travelers Group, approved by the Board on Septem- whether the foreign bank is subject to comprehensive supervision or ber 23, 1998. All deposit data are as of June 30, 1997. regulation on a consolidated basis by appropriate authorities in the 5. Norwest's subsidiary banks are located in Arizona, Colorado, foreign bank's home country. Illinois, Indiana. Iowa, Minnesota, Montana, Nebraska, Nevada, New 8. Pub. L. No. 103-328, 108 Stat. 2338 (1994). Mexico, North Dakota. Ohio, South Dakota, Texas, Wisconsin, and 9. Notice of the proposal was published in the Federal Register Wyoming. (63 Federal Register 39,570 (1998)) and in local newspapers in 6. Wells Fargo's subsidiary banks operate in Arizona, California, accordance with the Board's Rules of Procedure. See 12 C.F.R. Colorado. Idaho, Nevada, New Mexico, Oregon, Texas, Utah, and 262.3(b). Notice of the proposal was also listed on the Board's Washington. Internet Home Page. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1090 Federal Reserve Bulletin • December 1998 filings by Norwest and Wells Fargo, as well as various All other requirements of section 3(d) of the BHC Act reports filed by the relevant companies, publicly available also would be met after consummation of the proposal.15 In information, and other reports. In addition, the Board re- view of all the facts of record, the Board is permitted under viewed confidential supervisory information, including ex- section 3(d) of the BHC Act to approve the proposal. amination reports on the bank holding companies and the depository institutions involved, and information provided Competitive Factor by the other federal banking agencies and the Department of Justice ("DOJ"). After a careful review of all the facts Section 3 of the BHC Act prohibits the Board from approvof record, and for the reasons discussed in this order, the ing a proposal that would result in a monopoly, or that Board has concluded that the statutory factors it is required would substantially lessen competition in any relevant to consider under the BHC Act and other relevant banking banking market if the anticompetitive effects of the prostatutes are consistent with approval of the proposal, sub- posal are not clearly outweighed in the public interest by ject to the conditions noted in this order. the probable eifect of the proposal in meeting the convenience and needs of the community to be served.16 The Interstate Analysis Board has carefully considered the competitive effects of the proposal in light of the facts of record, including public Section 3(d) of the BHC Act allows the Board to approve comments on the proposal. an application by a bank holding company to acquire A number of commenters expressed concern that the control of a bank located in a state other than the home proposed merger would have adverse competitive effects. state of the bank holding company if certain conditions are Many of these commenters expressed concern that large met. For purposes of the BHC Act, the home state of bank mergers in general, or this proposed merger in partic- Norwest is Minnesota,10 and Wells Fargo's subsidiary ular, would reduce competition for banking services and banks are located in California and other states." result in higher fees or reduced customer convenience. In Section 3(d) of the BHC Act provides that the Board addition, a number of commenters claimed that the promay not approve a proposal if, after consummation, the posed merger of Norwest and Wells Fargo would have applicant would control more than 10 percent of the total significantly adverse effects on competition in Arizona and deposits of insured depository institutions in the United Nevada where Norwest and Wells Fargo both compete.17 States.12 In addition, the Board may not approve a proposal In order to determine the effect of a particular transaction if, on consummation of the proposal, the applicant would on competition, it is necessary to designate the area of control 30 percent or more of the total deposits of insured effective competition between the parties, which the courts depository institutions in any state in which both the appli- have held is decided by reference to the relevant "line of cant and the organization to be acquired operate an insured commerce" or product market and a geographic market. depository institution, or such higher or lower percentage The Board and the courts have consistently recognized that established by state law.13 the appropriate product market for analyzing the competi- On consummation of the proposal, New Wells Fargo tive effects of bank mergers and acquisitions is the cluster would control approximately 3.6 percent of the total of products (various kinds of credit) and services (such as amount of deposits of insured depository institutions in the checking accounts and trust administration) offered by United States. New Wells Fargo would control less than 30 percent or the appropriate percentage established by applicable state law of total deposits held by insured depository institutions in Arizona, Colorado, Nevada, New Mexico, and Texas, the states in which Norwest and Wells Fargo both operate an insured depository institution.14 tions imposed by state law in the other states. See Ariz. Rev. Stat. § 6-328; Colo. Rev. Stat. § 11-6.4-103; N.M. Stat. Ann. § 58-1C-5; 10. A bank holding company's home state is that state in which the and Tex. Fin. Code § 38.002. operations of the bank holding company's banking subsidiaries were 15. Norwest is adequately capitalized and adequately managed as principally conducted on July 1, 1966, or the date on which the defined by applicable law. 12 U.S.C. § 1842(d)(l)(A). Wells Fargo's company became a bank holding company, whichever is later. subsidiary banks have been in existence and have been continuously 11. For purposes of the Riegle-Neal Act, the Board considers a bank operated for the period of time required by applicable state laws. to be located in the states in which the bank is chartered, headquar- See 12 U.S.C. § 1842(d)(l)(B). Wells Fargo has subsidiary banks that tered, or operates a branch. have been in existence for less than five years in California and 12. 12 U.S.C. § 1842(d)(2)(A). For this purpose, insured depository Arizona, but those states do not impose state age requirements appliinstitutions include all insured banks, savings banks, and savings cable to the proposed transaction. associations. 16. 12 U.S.C. §1842(c)(l). 13. 12 U.S.C. § 1842(d)(2)(B)-(D). 17. Several commenters argued that branch divestitures would be 14. Nevada law does not impose a limitation on deposit concentra- required in connection with this merger and objected that portions of tion in the state. As a consequence of the proposed merger, New Wells the divestiture proposal were not disclosed and subject to public Fargo would control more than 30 percent of the total deposits in comment. Release of this information is subject to the Freedom of Nevada. The applicant has committed to divest an amount of deposits Information Act and the Board's Rules Regarding Availability of sufficient to comply with the 30 percent limitation imposed by federal Information. 12 C.F.R. Part 261, and, in fact, the Board has considered law. The combined company would comply with the deposit limita- the objections under these procedures. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1091 banking institutions.18 The Board and the courts have con- 13 banking markets. These markets are discussed in sistently found that the geographic markets for analyzing Appendix B. In 11 of these markets, consummation of the the competitive effects of a proposal on the supply and proposal would increase market concentration, as meademand of the cluster of banking products and services are sured by the HHI, by less than half of the 200-point local in nature.19 threshold in the DOJ Guidelines.22 Seven of the markets The Board concludes, based on all the facts of record, also would remain unconcentrated or moderately concenthat the appropriate product market for considering the trated, as measured by the HHI, after consummation of the competitive effects of this case is the cluster of banking proposal. In each of these markets a large number of products and services, and that the appropriate geographic competitors relative to the size of the market would remain markets for considering the competitive effects of this after consummation of the proposal. proposal are the 30 local banking markets in the six states Consummation of the proposal would exceed the DOJ in which the subsidiary banks of Norwest and Wells Fargo Guidelines as measured by the HHI in the remaining operate and compete. The local banking markets are de- 17 banking markets. To mitigate the anticompetitive effects fined in Appendix A.20 of the proposal in these markets, Norwest has committed to divest a total of 26 branches, which account for a total of A. Analysis of Banking Markets approximately $1.18 billion in deposits.23 After accounting for the proposed divestitures, consummation of the pro- Consummation of the proposal, without divestitures, would posal would be consistent with the DOJ Guidelines and be consistent with the Department of Justice Merger Guide- prior Board precedent in at least nine of the 17 markets. In lines ("DOJ Guidelines")21 and prior Board precedent in addition, numerous competitors would remain in most of these banking markets after consummation of the proposal, and many of these markets are attractive for entry. These 18. See Chemical Banking Corporation, 82 Federal Reserve Bulle- banking markets are discussed in Appendix C. tin 230 (1996) ("Chemical"), and the cases and studies cited therein. In the eight remaining banking markets, consummation The Supreme Court has emphasized that it is the cluster of products of the proposal could increase the level of market concenand services that, as a matter of trade reality, makes banking a distinct line of commerce. See United States v. Philadelphia National Bank, tration, as measured by the HHI, to levels that exceed the 314 U.S. 321, 357 (1963) ("Philadelphia National"); accord United DOJ Guidelines. The Board has conducted a careful review States v. Connecticut National Bank, 418 U.S. 656 (1974); United of the competitive effects of the proposal in these markets, States v. Phillipsburg National Bank, 399 U.S. 350 (1969) ("Phillipsand considered whether other factors either mitigate the burg National"). competitive effects of the proposal in the market or indicate 19. See Philadelphia National, 374 U.S. at 357; Phillipsburg National; First Union Corporation, 84 Federal Reserve Bulletin 489 that the proposal would have a significantly adverse effect (1998) ("First Union"); Chemical; St. Joseph Valley Bank, 68 Fed- on competition in any of these markets.24 eral Reserve Bulletin 673 (1982) ("St. Joseph"). In determining the geographic scope of local banking markets, the Board considers a number of factors, including: population density; worker commuting patterns (as indicated by census data); shopping patterns; the availability and geographic reach of various modes of advertising; the presence least 1800 and the merger or acquisition increases the HHI by at least of shopping, employment, health care and other necessities; the avail- 200 points. The DOJ has stated that the higher than normal HHI ability of transportation systems and routes; branch banking patterns; thresholds for screening bank mergers or acquisitions for anticompetideposit and loan activity; and other indicia of economic integration tive effects implicitly recognize the competitive effect of limitedand the transmission of competitive forces among depository institu- purpose lenders and other non-depository financial institutions. tions that affect the pricing and availability of banking products and 22. The HHI for the Bullhead City market would increase services. See Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5 192 points on consummation of the proposal to 2010. The HHI for the (1995); Pennbancorp, 69 Federal Reserve Bulletin 548 (1983); South Lake Tahoe market would increase 204 points on consumma- St. Joseph. tion of the proposal, but the market would remain only moderately 20. As discussed in this order, the Board has considered the pro- concentrated, with a post-merger HHI of 1792. jected increase in the concentration of total deposits in depository 23. With respect to each market in which Norwest has committed to institutions in these banking markets ("market deposits" or "market divest offices to mitigate the anticompetitve effects of the proposal, share"). Market share data is based on calculations that include the Norwest has committed to execute sales agreements for the proposed deposits of thrift institutions at 50 percent. The Board previously has divestitures with a purchaser determined by the Board to be competiindicated that thrift institutions have become, or have the potential to tively suitable prior to consummation of the proposal, and to complete become, significant competition of commercial banks. See, e.g.. Mid- the divestiture within 180 days of consummation. Norwest also has west Financial Group, 75 Federal Reserve Bulletin 386 (1989); committed that, in the event it is unsuccessful in completing any National City Corporation, 70 Federal Reserve Bulletin 743 (1984). divestiture within 180 days of consummation, it will transfer the Thus, the Board has regularly included thrift deposits in the calcula- unsold branch(es) to an independent trustee that is acceptable to the tion of market share on a 50-percent weighted basis. See, e.g., First Board and will instruct the trustee to sell the branch(es) promptly to Hawaiian, Inc., 11 Federal Reserve Bulletin 52 (1991). one or more alternative purchasers acceptable to the Board. See 21. Under the DOJ Guidelines, 49 Federal Register 26,823 BankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992); (June 29, 1984), a market in which the post-merger Herfindahl- United New Mexico Financial Corporation, 11 Federal Reserve Bulle- Hirschman Index ("HHI") is less than 1000 is considered to be tin 484 (1991). unconcentrated, and a market in which the post-merger HHI is be- 24. The number and strength of factors necessary to mitigate the tween 1000 and 1800 is considered to be moderately concentrated. competitive effects of a proposal depend on the level of concentration The DOJ has informed the Board that a bank merger or acquisition and size of the increase in market concentration. See NationsBank generally will not be challenged (in the absence of other factors Corporation, 84 Federal Reserve Bulletin 129 (1998) ("NationsBank/ indicating anticompetitive effects) unless the post-merger HHI is at Barnett"). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1092 Federal Reserve Bulletin • December 1998 Arizona Banking Markets Fargo, would compete in this market, including one organization that would remain the largest depository institution Casa Grande. Norwest is the third largest of eight deposi- in the market, with 33.3 percent of market deposits, and tory institutions in the Casa Grande banking market, and another organization that would be the second largest with controls deposits of $38.1 million, representing 12.3 per- 29.8 percent of market deposits. The proposed divestiture cent of market deposits. Wells Fargo is the sixth largest of 1.1 percent of market deposits to a new entrant or a depository institution in the market, controlling $28.6 mil- smaller competitor would either add a new competitor or lion in deposits, representing 9.2 percent of market depos- would enhance the competitive presence of a smaller comits. On consummation of the proposal, New Wells Fargo petitor. would be the second largest depository institution in the In addition, the Phoenix banking market has characterismarket, controlling 21.5 percent of market deposits, and tics that make it attractive for entry. Phoenix is the sixth the HHI would increase by less than 228 points to a level largest city in the country by population and has had the that would not exceed a post-merger HHI of 2101. fifth largest increase in population of major American Seven depository institutions would remain in the bank- cities during the last decade. Maricopa County, the county ing market after consummation of the proposal. Moreover, containing the Phoenix market, is the fastest growing several large multistate banking organizations, other than county in the United States. The Phoenix unemployment New Wells Fargo, would compete in this market, including rate in May 1998 was 2.5 percent, which is less than the one organization that would remain the largest depository state and national rates of 4.1 percent and 4.3 percent, institution in the market with 33.2 percent of market depos- respectively. In general, unemployment in the Phoenix area its, and another organization that would control 12.2 per- over the last decade has been low and the increase in the cent of market deposits. After the proposed merger, four rate of employment has been high. The increase in the rate depository institutions in the market other than New Wells of employment from 1990 to 1997 was 24 percent, which Fargo would control market shares of 10 percent or more. is higher than the national rate of 14 percent. Recent entries In addition, the Casa Grande banking market has charac- by depository institutions appear to confirm that the Phoeteristics that make it attractive for entry. The market is in nix banking market is attractive for entry by depository Pinal County, which is an area of population and economic institutions. Since 1995, nine depository institutions have growth approximately 40 miles south of Phoenix and entered the market de novo. 60 miles north of Tucson. Since 1990, the market's popula- Prescott. Wells Fargo is the third largest of 12 depository tion has increased 26 percent, including a 15-percent in- institutions in the Prescott banking market, and controls crease in population in the town of Casa Grande. Employ- deposits of $111.6 million, representing 13.5 percent of ment in the market has increased by 16 percent since 1990, market deposits. Norwest is the fourth largest depository compared with a national rate of increase of 14 percent in institution in the market, controlling $100.2 million in employment during the same period. Recent entries by market deposits, representing 12.1 percent of market depository institutions also appear to confirm that the Casa deposits. On consummation of the proposal, New Wells Grande banking market is attractive for entry. One bank Fargo would be the second largest depository institution in entered the market de novo in 1996. and the second largest the market, controlling 25.5 percent of market deposits, depository institution in the market entered in 1997 by and the HHI would increase by less than 326 points to a acquiring two branches from the largest competitor in the level that does not exceed a post-merger HHI of 1890. market. Eleven depository institutions would remain in the bank- Phoenix. Wells Fargo is the third largest of 36 depository ing market after consummation of the proposal. Moreover, institutions in the Phoenix banking market, and controls several large multistate banking organizations, other than deposits of $3 billion, representing 12.5 percent of market New Wells Fargo, would compete in this market, including deposits. Norwest is the fourth largest depository institu- one organization that would remain the largest depository tion in the market, controlling $2.5 billion in deposits, institution in the market with 25.8 percent of market deposrepresenting 10.8 percent of market deposits. Norwest pro- its, and another organization that would rank third with poses to divest eight branches in this market, with 19.9 percent of market deposits. After the proposed merger, $256.8 million in deposits (representing 1.1 percent of three competitors other than New Wells Fargo would conmarket deposits), to an out-of-market commercial banking trol market shares 10 percent or more. organization or to an in-market commercial banking orga- In addition, the Prescott banking market has characterisnization that currently controls 2.1 percent or less of mar- tics that make it attractive for entry. The population of the ket deposits. After the proposed merger and divestiture, market increased by 48 percent from 1990 to 1997, making New Wells Fargo would be the third largest depository the Prescott area one of the fastest-growing regions by institution in the market, controlling 22.2 percent of market population in Arizona. Increase in employment in the deposits, and the HHI would increase by less than Prescott market since 1990 has been approximately 227 points to a level that would not exceed a post-merger 40 percent, significantly higher than the national rate of HHI of 2511. 14 percent. Recent entries by depository institutions also At least 35 depository institutions would remain in the appear to confirm that the Prescott banking market is market after consummation of the proposal. Nine large attractive for entry by depository institutions. One firm multistate banking organizations, other than New Wells entered the Prescott banking market de novo in 1996. Two Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1093 other firms entered the market by acquisition in 1997 and market deposits. After the proposed merger, three deposi- 1998, respectively. tory institutions other than New Wells Fargo would control Sierra Vista. Wells Fargo is the third largest of seven market shares of 10 percent or more and two depository depository institutions in the Sierra Vista banking market, institutions other than New Wells Fargo would control and controls $72.7 million of market deposits, representing market shares of 20 percent or more. 16.1 percent of market deposits. Norwest is the fourth In addition, the Tucson banking market has characterislargest depository institution in the market, controlling tics that make it attractive for entry. Tucson is the second $61 million in market deposits, representing 13.5 percent largest market in Arizona by population, and its population of market deposits. Norwest proposes to divest one branch has increased 13 percent since 1990. Population in the in this market, with $43.1 million in deposits (representing surrounding parts of Pima County have increased 18 perapproximately 9.6 percent of market deposits), to an out-of- cent during the same period. In May 1998, the unemploymarket commercial banking organization or an in-market ment rate in the Tucson area was 2.5 percent, lower than commercial banking organization that currently controls the national average of 4.3 percent. Two depository institu- 8.9 percent or less of market deposits. After the proposed tions entered the market de novo since 1994, and four more merger and divestiture, New Wells Fargo would be the depository institutions entered by acquisition. Also, anthird largest depository institution in the market, control- other group has applied to the Arizona Banking Departling 20.1 percent of market deposits, and the HHI would ment for permission to organize a de novo bank in the increase by less than 222 points to a level that does not Tucson banking market. exceed a post-merger HHI of 2428. At least six depository institutions would remain in the Nevada Banking Markets market after consummation of the proposal. Three large multistate banking organizations, other than New Wells Carson City. Norwest is the third largest of 11 depository Fargo, would compete in this market, including one organi- institutions in the Carson City banking market, and conzation that would remain the largest depository institution trols deposits of $160 million, representing 18.8 percent of in the market with 29.7 percent of market deposits, another market deposits. Wells Fargo is the largest depository organization that would remain the second largest deposi- institution in the market, controlling deposits of $204 miltory institution in the market with 28.2 percent of market lion, representing 24 percent of market deposits. Norwest deposits, and another organization with 8.9 percent of proposes to divest one branch in this market, with deposits market deposits. Norwest has committed to divest one of approximately $104.9 million (representing more than branch controlling 9.6 percent of market deposits to an 12 percent of market deposits), to an out-of-market comout-of-market firm or to a small in-market competitor. The mercial banking organization or to an in-market commerproposed divestiture of 9.6 percent of market deposits to a cial banking organization that currently controls 3.9 pernew entrant or a smaller competitor would either add a new cent or less of market deposits. After the proposed merger competitor or would enhance the competitive presence of a and divestiture, New Wells Fargo would be the largest depository institution in the market, controlling 30.5 persmaller competitor. cent of market deposits, and the HHI would increase by In addition, the Sierra Vista banking market has characless than 247 points to a level that does not exceed a teristics that make it attractive for entry. The population of post-merger HHI of 1886. the market increased by 17.1 percent from 1990 to 1997. In the past two years, two depository institutions have entered At least ten depository institutions would remain in the the market de novo. market after consummation of the proposal. Three large Tucson. Wells Fargo is the third largest of thirteen depos- multistate banking organizations, other than New Wells itory institutions in the Tucson banking market, and con- Fargo, would compete in the market, including one organitrols deposits of $762.5 million, representing 13.9 percent zation that would remain the second largest depository of market deposits. Norwest is the fifth largest depository institution in the market with 21.9 percent of market deposinstitution in the market, controlling $478.3 million in its, and another organization with 10.1 percent of market deposits, representing 8.7 percent of market deposits. On deposits. The proposed divestiture of 12.3 percent of marconsummation of the proposal, New Wells Fargo would be ket deposits to a new entrant or a smaller competitor would the second largest depository institution in the market, either add a new competitor or would enhance the competcontrolling 22.6 percent of market deposits, and the HHI itive presence of a smaller competitor. would increase by less than 244 points to a level that does In addition, the Carson City banking market has characnot exceed a post-merger HHI of 2007. teristics that make it attractive for entry. From 1990 to Twelve depository institutions would remain in the bank- 1996, the population of Carson City increased by 14 pering market after consummation of the proposal. Moreover, cent, approximately twice the rate of increase in population several large multistate banking organizations, other than nationally during that period. New Wells Fargo, would compete in this market, including Las Vegas. Wells Fargo is the second largest of one organization that would remain the largest depository 20 depository institutions in the Las Vegas banking market, institution in the market with 29.5 percent of market depos- and controls deposits of $1.53 billion, representing its, and another organization that would be the third largest 15 percent of market deposits. Norwest is the third largest depository institution in the market with 21.7 percent of depository institution in the market, controlling $1.51 bil- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1094 Federal Reserve Bulletin • December 1998 lion in deposits, representing 14.8 percent of market depos- institution in the market with 20.6 percent of market deposits. Norwest proposes to divest five branches in this mar- its, and another organization that would become the third ket, with $268.7 million in deposits, to an out-of-market largest depository institution in the market with 17.4 percommercial banking organization or to an in-market com- cent of market deposits. After the proposed merger and mercial banking organization that currently controls divestiture, at least three competitors in the market other 7.1 percent or less of market deposits. After the proposed than New Wells Fargo would control market shares of merger and divestiture, New Wells Fargo would be the 10 percent or greater. The proposed divestiture of second largest depository institution in the market, control- 7.4 percent of market deposits to a new entrant or a smaller ling 27.2 percent of market deposits, and HHI would competitor would either add a new competitor or would increase by less than 341 points to a level that would not enhance the competitive presence of a smaller competitor. exceed a post-merger HHI of 1978. In addition, the market has characteristics that make it At least 19 depository institutions would remain in the attractive to entry. According to the U.S. Bureau of the market after consummation of the proposal. Several large Census, Reno's population increased 16.2 percent from multistate banking organizations, other than New Wells 1990 to 1996. The unemployment rate for Reno in May Fargo, would compete in this market, including one organi- 1998 was 4.1 percent, slightly lower than the national rate zation that would remain the largest depository institution of 4.3 percent. Over the past three years, the Reno unemin the market with 31.4 percent of market deposits, and ployment rate has been consistently low relative to the another organization with a 8.8 percent of market deposits. national rate. Per capita income in the Reno-Sparks MSA After the proposed merger and divestiture, at least four in 1995 was $27,866, slightly above the average of $24,361 competitors in the market other than New Wells Fargo for Nevada and the national average of $22,788. Two large would control market shares of 5 percent or more. The banks have entered the market by acquisition since 1992 proposed divestiture of 2.6 percent of market deposits to a (including the fourth-ranked depository institution), and new entrant or a smaller competitor would either add a new one de novo bank is in the process of formation in the competitor or would enhance the competitive presence of a market. smaller competitor. In addition, the Las Vegas banking market has characteristics that make it attractive for entry. According to the U.S B. View of Other Agencies and Conclusion Bureau of the Census, the population of Las Vegas increased 46 percent from 1990 to 1996. Over the last decade, the Las Vegas unemployment rate has been consis- DOJ has conducted a detailed review of the proposal and tently low compared with the national rate. Seven of the advised the Board that, in light of the proposed divesti- 20 depository institutions in the market entered de novo tures, consummation of the proposal would not likely have since 1994. Two depository institutions have entered by a significantly adverse effect on competition in any releacquisition in the past five years, and one existing deposi- vant banking market. The Office of the Comptroller of the tory institution has expanded in the market by opening Currency ("OCC") and the Federal Deposit Insurance seven new branches since 1994. Three additional groups Corporation ("FDIC") also have been afforded an opportuhave applications to organize de novo banks pending be- nity to comment and have not objected to consummation of fore the state banking authority. the proposal. Reno. Wells Fargo is the second largest of ten depository As discussed in this order, the Board has considered the institutions in the Reno banking market, and controls de- competitive effects of the transaction in light of a number posits of $566.7 billion, representing 20.1 percent of mar- of factors that measure or affect the likely competitive ket deposits. Norwest is the third largest depository institu- effects of the proposal in each relevant banking market. tion in the market, controlling $536.8 million in deposits, These factors include the relative market share that would representing 19.1 percent of market deposits. Norwest pro- be controlled by New Wells Fargo in each relevant banking poses to divest two branches in this market, with market; the level of market concentration and change in $208.4 million in deposits (representing 7.4 percent of concentration that would result from this transaction; the market deposits), to an out-of-market banking organization number, size and relative resources of competitors remainor to an in-market banking organization that currently ing in each market; and the structure, characteristics and controls 3.8 percent or less of market deposits. After the attractiveness of each market. The Board also has carefully weighed the divestitures proposed by Norwest to address proposed merger and divestiture, New Wells Fargo would the potential competitive effects on various markets. be the largest firm in the market, controlling 31.8 percent of market deposits, and the HHI would increase by less After carefully reviewing these and all the other facts of than 353 points to a level that would not exceed a post- record, including public comments on the competitive efmerger HHI of 2001. fects of the proposal, and for the reasons discussed in this At least nine depository institutions would remain in the order and appendices, the Board concludes that consummamarket after consummation of the proposal. Three large tion of the proposal would not be likely to result in a multistate banking organizations, other than New Wells significantly adverse effect on competition or on the con- Fargo, would compete in this market, including one organi- centration of banking resources in any of the 30 banking zation that would become the second largest depository markets in which Norwest and Wells Fargo both compete Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1095 or in any other relevant banking market.25 Accordingly, factor.27 The Board notes that Norwest and Wells Fargo are based on all the facts of record and subject to completion well capitalized and New Wells Fargo would be well of the proposed divestitures, the Board has determined that capitalized on a pro forma basis after consummation of the competitive factors are consistent with approval of the proposal. The Board has considered that the proposed proposal.26 merger is structured as a stock-for-stock transaction and would not increase the debt service requirements of the Financial, Managerial, and Other Supervisory Factors combined company. The Board also has considered the managerial resources The Board has carefully considered the financial and man- of the entities involved and the proposed combined organiagerial resources and future prospects of Norwest, Wells zations. Norwest, Wells Fargo, and their subsidiary deposi- Fargo, and their respective subsidiary banks, and other tory institutions currently are well managed, with approprisupervisory factors in light of all the facts of record. In ate risk management processes in place. Senior considering the financial and managerial factors, the Board management of New Wells Fargo would draw from the has reviewed relevant reports of examination and other senior executives of Norwest and Wells Fargo, based on information prepared by the supervising Reserve Banks the individual management strengths of each company. and other federal financial supervisory agencies. The Board Senior executives of the two companies also would form a also has reviewed information on the programs that Nor- transition team to manage and plan the integration of the west and Wells Fargo have implemented to prepare their bank holding companies. Norwest and Wells Fargo have systems for the Year 2000, including confidential examina- experience with merger transactions and have indicated tion and supervisory information assessing the efforts of that they are devoting significant resources to address all the two banking organizations to ensure Year 2000 readi- aspects of the merger process. ness, both before and after the proposed transaction. In addition, the Board has considered other aspects of In evaluating financial factors in expansion proposals by the financial condition and managerial resources of the two bank holding companies, the Board consistently has con- organizations, including the Board's extensive supervisory sidered capital adequacy to be an especially important experience with Norwest and Wells Fargo, plans for integration of the two companies, plans for achieving Year 2000 readiness, and records of compliance with relevant banking laws. Based on all the facts of record, including careful review of the comments received, the Board concludes that considerations relating to the financial and 25. One commenter expressed concern about the method by which managerial resources and future prospects of Norwest, the Board determines the appropriate levels of divestitures and the Board's use of mitigating factors. The commenter presented an alter- Wells Fargo, and their respective subsidiaries are consisnative approach to assess the competitive effects of the merger pro- tent with approval of the proposal, as are the other superviposal, which the commenter has presented to the Board in other sory factors that the Board must consider under section merger proposals. For the reasons previously stated by the Board, the 3 of the BHC Act. Board concludes that its current approach provides a more complete economic analysis of the competitive effects in a local banking market than the approach suggested by the commenter. See NationsBank Convenience and Needs Considerations Corporation, 84 Federal Reserve Bulletin 129 (1998). 26. One commenter expressed concern that financial institutions In acting on the proposal, the Board also must consider the that operate very large numbers of automated teller machines (ATMs) convenience and needs of the communities to be served may decide to handle their own ATM transaction processing functions, rather than relying on an ATM network or third parties for such and take into account the records of the relevant depository processing, and that financial institutions that engage in significant institutions under the CRA. The CRA requires the federal levels of credit card lending may seek to establish a separate brand financial supervisory agencies to encourage financial instiidentity for the credit cards that they issue. Commenter has presented tutions to help meet the credit needs of local communities no evidence to demonstrate that, if such actions were to occur, they would significantly reduce competition in any relevant market or in which they operate, consistent with their safe and sound result in a violation of antitrust laws, and the Board notes that the operation, and requires the appropriate federal supervisory events discussed by the commenter could, in fact, increase competi- authority to take into account an institution's record of tion for ATM transaction processing or credit card lending by creating meeting the credit needs of its entire community, including a new competitor for such services. low- and moderate-income ("LMI") neighborhoods, in Commenter also expressed concern that combinations of large banking organizations that are significant members of separate re- evaluating bank expansion proposals. The Board has caregional ATM networks may lead to the merger of the ATM networks fully considered the convenience and needs factor and the and, thereby, result in a reduction in competition for ATM network CRA performance records of the subsidiary depository services. Under section 4 of the BHC Act, a bank holding company is institutions of Norwest and Wells Fargo in light of all the required to obtain the Board's approval before acquiring more than 5 percent of the voting shares of any company engaged in activities that are closely related to banking, including a company formed by the merger of two or more ATM networks. In the event that a merger of regional ATM networks controlled by bank holding companies is proposed at some time in the future, the Board would have the 27. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin opportunity to address the issues raised by the commenter in the 961 (1998); NationsBank Corporation, 84 Federal Reserve Bulletin context of the specific facts presented at that time. 858 (1998). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1096 Federal Reserve Bulletin • December 1998 facts of record, including public comments on the pro- Many community-based groups and nonprofit organizaposal. tions commended one or both banking organizations for their mortgage lending efforts in LMI and minority com- A. Summary of Public Comments Regarding the munities, or for their participation in other programs and Convenience and Needs Factor projects designed to increase affordable housing opportunities. Several groups praised the efforts of Norwest and The Board provided an extended public comment period Wells Fargo to meet the needs of specific underserved and convened a public meeting in Minneapolis to aid in the segments of the population and to participate in particucollection of information on the aspects of the proposed larly innovative projects. Other commenters praised the merger that the Board is required to consider under the records of Norwest and Wells Fargo in fulfilling their BHC Act and other relevant statutes. As noted above, commitments to communities, and some expressed apapproximately 150 interested persons submitted written proval of recent commitments made in California and New comments, testified at the public meeting, or both, on all Mexico. aspects of the proposal and, in particular, the effect of the Small business owners and groups supporting small busiproposal on the convenience and needs of the affected nesses reported favorably on the small business and agricommunities and the CRA performance records of the cultural lending of one or both banking organizations. depository institutions involved. Some commenters particularly emphasized the support that Approximately 70 commenters either expressed support Wells Fargo had provided to businesses owned by women for the proposal or commented favorably on the CRA- or minorities. Several commenters who generally suprelated activities of Norwest and Wells Fargo.28 Two com- ported the merger encouraged the merging organizations to menters who supported the proposal were community make additional CRA commitments and to continue their groups that have opposed other mergers of banking organi- current patterns of local lending and community support. zations in the past, and a number of others were former Approximately 80 commenters opposed the proposed First Interstate Bancorp customers who had been particu- merger.29 These commenters either expressed general conlarly impressed by Wells Fargo's performance after it cerns about the effects of large merger proposals on the acquired First Interstate. convenience and needs of the communities to be served or Commenters in support of the merger commended Nor- expressed specific concerns about the performance records west, Wells Fargo, or both for providing home mortgage of Norwest and Wells Fargo. products, offering financial and technical assistance for A number of commenters opposed to the merger consmall and rural businesses, sponsoring and supporting com- tended that Norwest and Wells have inadequate records of munity development activities and affordable housing initi- performance under the CRA, particularly with respect to atives, and participating in programs designed to assist serving the banking and credit needs of LMI and minority LMI and minority individuals and communities with pre- individuals and communities. Some commenters expressed dominantly LMI and minority residents ("LMI and minor- concern that Norwest inappropriately refers loan applicants ity communities"). The commenters also praised Norwest rejected by its subsidiary banks to its nonbank finance and Wells Fargo for the service and expertise bank officers companies, which generally charge higher rates of interest. and staff provide to community groups as volunteers, coun- Commenters opposing the merger also expressed conselors, and board members. cern about either Norwest's or Wells Fargo's denial rates and origination rates for loans to LMI and minority individuals. Other commenters criticized the amount and scope of rural and agricultural lending by Norwest or Wells Fargo, 28. The commenters included: (1) The Commissioner of the City of Portland, Oregon, and a representative from the Navajo Nation Council, Window Rock, Arizona; (2) A number of community groups, including the Greenlining 29. The commenters included: Institute, San Francisco, California; the Hmong American (1) Several members of the U.S. Senate and the U.S. House of Political Association and the Hmong American Community, Representatives; both of Fresno, California; the Twin Cities Neighborhood (2) State and local government officials, including the Minnesota Housing Services, the Minnesota Housing Partnership, and the Attorney General and a Minnesota State Representative; Development Corporation for Children, all of Minneapolis, (3) Various community-based groups and nonprofit organiza- Minnesota; the Oregon Corporation for Affordable Housing, tions, including representatives from the national and Minne- Portland, Oregon; sota offices of the Association of Community Organizations (3) A number of small businesses and groups that support busi- for Reform Now ("ACORN"); Inner City Press/Community nesses, including the Metropolitan Economic Development on the Move, Bronx, New York: the Wisconsin Rural Devel- Association, Minneapolis, Minnesota; the Latin Business As- opment Center, Mt. Horeb, Wisconsin; Citizens for Commusociation and the Black Business Association of Southern nity Improvement of Des Moines and Iowa Citizens for Com- California, both of Los Angeles, California; the Greater Phoe- munity Improvement, both of Des Moines, Iowa; nix Urban League, Phoenix, Arizona; and the Black State (4) Union members, including individuals from the United Steel- Employees Association of Texas, Dallas, Texas; and workers of America, Local Union 2101 and Local Union (4) Representatives of other community, civic, and nonprofit orga- 3267;and nizations based in Minnesota, California, Wisconsin, Arizona, (5) Individual bank customers describing their negative experi- Texas, and other states. ences with the organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1097 particularly Norwest's record of lending in rural LMI Norwest and Wells Fargo have indicated that the CRA areas. policies and programs of New Wells Fargo would draw on Several commenters alleged that Norwest and Wells the CRA policies and programs currently in effect at both Fargo had generally poor consumer service records. Some institutions. Wells Fargo has stated, for example, that New commenters expressed concern that post-merger branch Wells Fargo would honor all of Wells Fargo's current CRA closures could negatively affect LMI communities and pledges and continue the lending programs of Wells Fargo individuals. Many commenters expressed concern about that focus on lending to LMI and minority individuals and the fees charged for various services by Norwest and Wells small businesses owned by minorities. Fargo and about the decline in no-cost checking accounts Norwest states that the New Wells Fargo's CRA activioffered by their subsidiary banks. Some commenters ties would include local initiatives with community organiargued that such banking fees disproportionately affected zations with established records of community service. The persons likely to be on a fixed income, such as senior combined organization will continue to manage and solicit citizens, students, and individuals with disabilities. Other input from the community on its CRA activities at a local individuals claimed that Wells Fargo used high-technology level with some oversight functions conducted centrally so banking services, such as ATMs and Internet banking, to as to most effectively allocate resources. An annual CRA replace rather than enhance traditional banking services to plan will be prepared to direct activities that will have the detriment of LMI and minority consumers. measurable goals and quantifiable results at the local level. Many commenters from the Minneapolis area were con- Meetings with local community organizations will concerned about the effect of relocating Norwest's headquar- tinue at the local level. ters from Minneapolis to San Francisco after the merger. Norwest states that the New Wells Fargo will manage These commenters feared a decrease in the combined com- and direct CRA activities at the market level by evaluating pany's involvement in Minnesota, particularly the local needs identified through community contacts and Minneapolis-St. Paul area, and job losses. Some comment- market data. Community development lending and investers were concerned that the merger would result in loss of ment opportunities will continue to be identified and aslocal control over lending decisions. sessed locally. In addition, Norwest states the New Wells Fargo will continue to perform analyses of lending, ser- B. Overview of CRA Policies of New Wells Fargo vices, and investments at the market level using demographic and business data to ensure awareness of and In its consideration of the convenience and needs of the prompt attention to local issues.31 Norwest also indicates communities to be served by New Wells Fargo, the Board that local CRA programs, such as the portfolio mortgage has reviewed in detail the CRA performance records of program for LMI home buyers or participation in specific Norwest and Wells Fargo, including their mortgage and programs, will continue to be managed at the market or small business lending records, community development state level. and investment programs, and their initiatives to increase lending in LMI areas in states served by their subsidiary C. CRA Performance Examinations depository institutions.30 The Board has carefully reviewed the examinations conducted by the appropriate federal As provided in the CRA, the Board has evaluated the banking agencies under the Community Reinvestment Act convenience and needs factor in light of evaluations by the of 1977 of the performance records of the insured deposi- appropriate federal supervisors of the CRA performance tory institutions involved in this case. In addition, the records of the relevant institutions. An institution's most Board has reviewed substantial data regarding the lending recent CRA performance evaluation is a particularly imporand other activities of these institutions since the conclu- tant consideration in the applications process because it sion of these examinations. represents a detailed on-site evaluation of the institution's The Board also has considered the record and ability of overall record of performance under the CRA by the approthe organizations to adapt programs to special local credit priate federal financial supervisory agency. needs. In addition, the Board has considered the record of All Norwest's subsidiary banks that have been examined Norwest and Wells Fargo in implementing CRA programs for CRA performance since being acquired by Norwest and policies effectively after an expansion proposal, as well received "outstanding" or "satisfactory" ratings in the as the current plans of New Wells Fargo for implementing most recent examinations of their CRA performance.32 In CRA policies and programs after consummation of the particular, Norwest's lead bank, Norwest Bank Minnesota, proposal. 31. Norwest states that regulatory reporting, including data collec- 30. Some commenters claimed that evidence suggests that, as a tion, will be performed centrally as needed to ensure data integrity. general matter, large banks engage in less small business lending, 32. Norwest Bank Minnesota Fairbault N.A., Fairbault. Minnesota, relative to their size and total lending activities, than small banks. The is a special purpose bank engaged in cash management activities that Board has considered these comments in light of the specific records is not subject to CRA. In addition, Norwest Bank North Country N.A., of lending performance of Norwest and Wells Fargo, including their Brainard, Minnesota, was acquired by Norwest in October 1997, and records of assisting in meeting the credit needs of small businesses. has not been examined for CRA performance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1098 Federal Reserve Bulletin • December 1998 N.A., Minneapolis, Minnesota, received an "outstanding" rowers totaling $327.3 million and more than 7,100 HMDA performance rating from the OCC, as of October 17, 1996. loans in LMI census tracts totaling $200.5 million. In 1997, All Wells Fargo's subsidiary banks that are subject to Norwest's banks made more than 13,800 HMDA loans CRA also received "outstanding" or "satisfactory" ratings totaling $287.4 million to LMI borrowers and more than in the most recent examinations of their CRA perfor- 6,800 HMDA loans totaling $179.6 million in LMI census mance.33 For example, Wells Fargo Bank, N.A., Wells tracts. In the first five months of 1998, Norwest's subsid- Fargo's lead bank, and Wells Fargo Bank (Texas), N.A., iary banks made approximately 5,800 HMDA loans totalreceived "outstanding" ratings from the OCC, as of ing $129.6 million to LMI borrowers, and more than March 31, 1996. Wells Fargo Bank (Arizona), N.A., re- 2,900 HMDA loans totaling $79.7 million in LMI census ceived a "satisfactory" rating from the OCC, as of tracts. March 31, 1996. Norwest Mortgage, Inc. ("NMI"), a nonbank subsidiary of Norwest, and Norwest Funding, Inc., a nonbank subsid- D. Norwest's CRA Performance Record iary of Norwest Bank, account for the majority of Norwest's HMDA lending. In 1996, Norwest's mortgage sub- Overview. Norwest's banks offer several products that fo- sidiaries made approximately 109,200 HMDA loans cus on small businesses. In 1996, Norwest's banks re- totaling $8.4 billion to LMI borrowers and approximately ported more than 43,100 small business loans totaling 48,000 HMDA loans totaling $4.2 billion in LMI census $3.8 billion, with an average loan amount of approximately tracts. During the same period, Norwest's mortgage subsid- $90,000. During the same period, Norwest's banks made iaries made more than 83,900 HMDA loans totaling more than 9,300 small business loans totaling $896.1 mil- $9.1 billion to minority borrowers. In 1997, the Norwest lion in LMI census tracts and more than 28,800 small mortgage subsidiaries made more than 104,000 HMDA business loans totaling $1.6 billion to firms with less than loans totaling more than $8.3 billion to LMI borrowers and $1 million in revenues. In 1997, Norwest's banks reported approximately 45,000 HMDA loans totaling $4.2 billion in approximately 40,450 small business loans, totaling LMI census tracts. During the same period, Norwest's $3.7 billion, with an average loan amount of approximately mortgage subsidiaries made approximately 77,700 HMDA $94,000. During the same period, Norwest's banks re- loans totaling approximately $9 billion to minority borrowported more than 8,300 small business loans totaling ers. In the first five months of 1998, Norwest's mortgage $836 million in LMI census tracts and more than subsidiaries made more than 64,000 HMDA loans totaling 27,000 small business loans totaling $1.5 billion to firms $5.4 billion to LMI borrowers and approximately with less than $1 million in revenues. In the first five 31,000 HMDA loans totaling $3.3 billion in LMI census months of 1998, Norwest's banks reported approximately tracts. During the same period, Norwest's mortgage subsid- 16,000 small business loans totaling $1.6 billion with an iaries made over 38,000 HMDA loans totaling $4.8 billion average loan amount of $101,000. During the same period, to minority borrowers. Norwest made more than 3,200 small business loans total- Lending Record in General. CRA performance examinaing more than $347 million in LMI census tracts. tions of Norwest's subsidiary banks conducted by the In 1996, Norwest's banks made more than 18,700 small appropriate federal supervisory agencies generally found farm loans totaling more than $952 million, with an aver- that each bank, either directly or in conjunction with its age loan amount of approximately $51,000; in 1997, Nor- affiliates, offered a variety of housing-related loan products west's banks made more than 17,800 small farm loans with flexible credit terms and underwriting guidelines, totaling more than $982 million, with an average loan including mortgages with low down payment requirements amount of approximately $55,000; and in the first five and mortgages insured or guaranteed by the Federal Housmonths of 1998, Norwest's banks made more than ing Authority ("FHA") or the Veterans Administration 9,200 small farm loans totaling more than $613 million, ("VA"). The examinations also found that Norwest's subwith an average loan amount of approximately $66,000. sidiary banks affirmatively solicited loan applications from Norwest's banks offer all types of personal credit, includ- all segments of their communities, especially LMI neighing credit cards and secured and unsecured loans. In 1997, borhoods, and that the banks' lending activities had effec- Norwest's banks made more than 131,000 consumer loans tively reached LMI communities and individuals. In additotaling more than $855 million to LMI borrowers and, as tion, examiners determined that the loan originations and of May 31, 1998, made more than 46,000 consumer loans denials of Norwest's subsidiary banks were reasonably totaling more than $316 million to LMI borrowers. distributed throughout the banks' communities. With respect to home mortgage lending, in 1996, Nor- The examinations also concluded that Norwest's subsidwest's banks made approximately 14,200 loans reported iary banks had effectively identified potentially underunder the Home Mortgage Disclosure Act served areas in their communities and designated the areas (12 U.S.C. § 2801 et seq.) ("HMDA"), loans to LMI bor- for priority attention. Examiners noted that Norwest's subsidiary banks also maintained an ongoing dialogue with local government officials and community groups repre- 33. Wells Fargo Bank, Ltd. and Wells Fargo Central Bank are senting neighborhoods, small businesses and minorities to engaged only in controlled disbursements for business depositors of affiliates. They do not make loans and offer no other deposit services ascertain the credit needs of the local community and and, thus, are not subject to CRA. participated in loan pools and programs with local govern- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1099 ments and community development organizations to pro- Bank had $1.3 billion in loans outstanding to small busimote affordable housing opportunities in local communi- nesses and $5 million in loans outstanding to small farms. ties. By number, 59 percent of the small business and small Examiners concluded that Norwest's subsidiary banks farm loans were originated in amounts of less than continued to help meet the credit needs of small businesses $100,000. The examination report states that Norwest Bank in their communities, including LMI communities. The was an active Small Business Administration ("SBA") examiners also found that the banks actively participated in lender. As a "Preferred Lender," Norwest Bank had been community development activities in their communities ranked as the top SBA lender in Minnesota for three and noted that the banks frequently had taken a leadership consecutive years. According to the examination report, in role in corporate or local initiatives designed to promote 1995, Norwest Bank participated in the SBA's 504, 7(a), community development. and "Low Doc" loan programs, with loans in these pro- Examiners concluded that Norwest's subsidiary banks grams totaling more than $22 million. reasonably served the credit needs of all segments of their Norwest reports that, in 1996, Norwest's banks in Mincommunities, including LMI communities, through their nesota made approximately 9,000 small business loans branch structure, ATM networks, and alternative delivery totaling almost $950 million, with an average loan amount systems. The examinations reviewed the branch closing of approximately $105,000. During the same period, Norpolicies and record of branch closings of Norwest's subsid- west's banks made almost 1,150 small business loans iary banks and concluded that each of the banks had a good totaling almost $105 million in Minnesota LMI census record of opening, closing, and relocating branch offices tracts, with an average loan amount of approximately while providing all segments of its communities, including $91,000. During 1996, Norwest's banks in Minnesota also LMI areas, with reasonable access to bank services. made almost 6,000 small business loans totaling approxi- Importantly, examiners found no evidence of prohibited mately $290 million to firms with less than $1 million in discriminatory or other illegal credit practices by Nor- revenues. In 1997, Norwest's banks in Minnesota made west's subsidiary banks. In reaching this conclusion, exam- more than 8,000 small business loans totaling more than iners, in some cases, conducted a comparative analysis of $850 million, with an average loan amount of approxiloan applications submitted by minority and nonminority mately $102,000. During the period, Norwest's banks in applicants. Minnesota made approximately 1,100 small business loans CRA Performance in Home State. As noted above, Nor- totaling more than $108 million in LMI census tracts, with west's lead bank in Minnesota, Norwest Bank Minnesota, an average loan amount of approximately $97,000. During N.A. ("Norwest Bank"), received an "outstanding" rating 1997, Norwest's banks in Minnesota made more than from the OCC in its most recent CRA performance evalua- 5,700 small business loans totaling approximately tion. Norwest Bank represents approximately 23 percent of $280 million to firms with less than $1 million in revenues. Norwest's consolidated assets. In 1996, Norwest's banks in Minnesota made almost Examiners commended Norwest Bank for its role in 2,800 small farm loans totaling more than $145 million, making real estate loans, including purchase money mort- with an average loan amount of $52,000. In 1997, Norwest gages, refinancings, and home improvement loans during made more than 2,900 small farm loans totaling approxi- 1994 and 1995. In 1995, Norwest Bank, in conjunction mately $165 million in Minnesota, with an average loan with NMI, made HMDA loans totaling more than amount of $56,000. This represents more than twice as $1 billion. Examiners also stated that Norwest Bank, in many small farm loans for more than twice the dollar conjunction with NMI, was a market leader in originating volume of any other lender in 1996 and 1997. HMDA loans to LMI census tracts. Based on 1995 HMDA Examiners also found that Norwest Bank actively particdata, the examiners found that Norwest Bank and NMI had ipated in community development and redevelopment promade 23 percent of the total dollar volume of HMDA loans grams, providing leadership, technical expertise and finanin LMI census tracts. In addition, according to the examin- cial support throughout its community. For example, during ers, Norwest Bank/NMI HMDA originations to LMI appli- 1994 and 1995, Norwest Bank committed a total of cants constituted approximately 22 percent by number and $2 million to the National Equity Fund ("NEF"). by dollar volume of loans made to LMI applicants in 1995. Norwest states that it also has implemented several pro- Norwest reports that, in 1996, Norwest Bank made ap- grams to enhance its service to the communities in Minneproximately 10,000 HMDA loans totaling more than sota since its most recent CRA evaluation. These programs $270 million, with approximately 1,100 loans totaling more include affordable mortgage financing provided by NMI than $33 million in LMI census tracts and more than that is funded through the Community Activity Set-Aside 2,500 loans totaling more than $55 million to LMI borrow- Program ("CASA") sponsored by that Minnesota Housing ers. Norwest reports that, in 1997, Norwest Bank made a Finance Agency ("MHFA"). The CASA Program provides total of more than 9,500 HMDA loans totaling more than sellers, cities, and nonprofit housing providers with a set- $263 million, with almost 900 loans totaling more than aside of funds from MHFA mortgage revenue bond to $27 million in LMI census tracts and more than assist in meeting specific, project-oriented needs in com- 2,300 loans totaling more than $52 million to LMI munities. In addition, Norwest collaborates with Consumer borrowers. Credit Counseling Services ("CCCS") to provide financial Examiners also noted that, as of June 30, 1995, Norwest management seminars throughout the metropolitan com- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1100 Federal Reserve Bulletin • December 1998 munity. CCCS is a nonprofit organization that provides in 1996, its banks made more than 700 small business counseling and education to consumers on topics such as loans in Arizona totaling more than $81 million, with an debt repayment, budgeting, and money management. Nor- average loan amount of $116,000. During the period, Norwest reports that, since 1996, 26 seminars have been held west's banks made more than 230 small business loans for LMI individuals. Norwest also reports that Norwest totaling more than $30 million in Arizona LMI census Bank Minnesota North, N.A. is a SBA Preferred Lender tracts and more than 420 loans totaling more than and originated 16 SBA loans totaling $1.7 million and six $34 million to firms in Arizona with revenues of less than loans totaling $798,000 in 1996 and 1997, respectively. $1 million. In 1997, Norwest's banks made more Arizona. OCC examiners found that Norwest Bank Ari- than 900 small business loans in Arizona totaling more zona, N.A. ("Norwest-Arizona") and NMI oifered and than $108 million, with an average loan amount of originated a variety of conventional loan products to meet $115,000. During this period, Norwest's banks made more community credit needs, including housing-related, con- than 240 small business loans totaling more than sumer, small business, and small farm loans. In particular, $32 million in Arizona LMI census tracts and more than examiners noted that the bank had originated or purchased 590 loans totaling more than $47 million to firms in Arifrom NMI a significant number of home purchase loans to zona with revenues of less than $1 million. Norwest also LMI individuals and in LMI areas through its Community reports that, in 1997, Norwest's banks made 49 small farm Homeowners Program ("CHOP").34 Since the program's loans totaling more than $6 million in Arizona, with inception in 1994, through June 30, 1996, Norwest-Arizona 15 small farm loans totaling more than $1.8 million in and NMI originated 488 CHOP loans totaling $25 million. Arizona LMI census tracts. The examiners also noted that the Norwest-Arizona and Examiners noted that Norwest-Arizona frequently partic- NMI ranked third among HMDA reporting lenders in the ipated in government-related lending programs for small market in 1995, with 7.4 percent of all HMDA origina- business and affordable housing. According to the examitions. Norwest reports that, in 1996, its banks and NMI nation report, NMI made a significant amount of homemade 22,429 HMDA loans totaling approximately $2 bil- purchase and refinancing loans under programs sponsored lion in Arizona, with more than 3,000 loans totaling more by the FHA and VA, originating 11.3 percent of such loans than $206 million in LMI census tracts and more than made in Arizona's Metropolitan Statistical Areas 5,800 loans totaling more than $360 million to LMI bor- ("MSAs"). In the Phoenix MSA, Norwest-Arizona/NMI rowers. In 1997, Norwest's banks and NMI made more ranked first in government-sponsored loan originations, than 20,100 HMDA loans totaling more than $1.9 billion in with 11 percent of such loans. Examiners also noted that Arizona, with more than 2,500 loans totaling more than the bank supported SBA loan programs. Specifically, $180 million in LMI census tracts and more than 4,800 Norwest-Arizona was ranked ninth by the SBA Phoenix loans totaling more than $300 million to LMI borrowers. district office for the six months ending June 30, 1996, in Through May 31, 1998, Norwest's banks and NMI made total number of loans originated and fifteenth in total dollar more than 12,000 HMDA loans totaling more than amount of loans originated. $1.3 billion in Arizona, with more than 1,300 loans totaling Examiners also determined that Norwest Bank Arizona, more than $96 million in LMI census tracts and more than N.A., in cooperation with NMI, showed a reasonable distri- 3,100 loans totaling more than $220 million to LMI bor- bution of loans throughout its delineated communities, rowers. including LMI areas. In 1995, Norwest-Arizona and NMI The CRA performance examinations indicated that originated 9 percent of the total number of HMDA loans Norwest-Arizona also was actively engaged in consumer and 10 percent of the total dollar amount of loans to LMI lending. According to the examination record, the bank borrowers in Arizona's MSAs. made more than 19,900 direct and indirect consumer loans Examiners also found that Norwest-Arizona made intotaling $100 million in 1995, and made more than 11,700 vestments in community development and redevelopment direct and indirect consumer loans totaling $75 million programs, such as Norwest's contribution of $1.3 million through June 30, 1996. Norwest reports that, in 1996, its to capitalize the Arizona Multibank. The Multibank is a banks made more than 7,500 consumer loans totaling more nonprofit community development corporation that prothan $28 million to LMI borrowers in Arizona. vides financial and technical assistance to support small In addition, examiners noted that the bank was an active businesses, LMI housing, and economic development. lender to small businesses and small farms. The examina- Examiners found no practice intended to discourage tion report indicated that, as of June 30, 1996, Norwest- applicants for any type of credit listed in Norwest- Arizona had $183 million in loans outstanding to small Arizona" s CRA Statement and determined that the bank businesses and $202 million in loans outstanding to small solicited applications from all portions of its communities, farms, with 66 percent of the small business and small farm including LMI areas. Examiners also determined that loans in amounts less than $100,000. Norwest reports that, Norwest-Arizona met the substantive provisions of antidiscrimination laws and regulations. Norwest states that, since the completion of the most recent CRA performance evaluation, it has implemented 34. Examiners indicated that the CHOP program uses flexible several programs to enhance its service to its communities underwriting criteria to help LMI borrowers obtain home purchase mortgages. in Arizona. Norwest has formed, for example, a partner- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1101 ship with Neighborhood Housing Services of Phoenix and Examiners also noted that Norwest-Colorado actively Neighborhood Housing Services of America and makes participates in government-sponsored loan programs. For reduced rate mortgages to LMI families in Phoenix. example, examiners commended Norwest-Colorado for its Norwest-Arizona also serves as the shareholder bank for a strong support for SBA loan programs, noting that $150,000 subsidy under the Federal Home Loan Bank Norwest-Colorado had been designated as a SBA "Pre- Affordable Housing Program which is used to reduce the ferred Lender" and participated in the SBA's 7A and "Low interest rates on a borrower's home purchase mortgage to Doc" loan programs. Examiners also noted that, as of the 5.5 percent. In addition, Norwest indicates that Norwest- evaluation period, Norwest-Colorado had been the number Arizona is investing $1 million in the NEF Limited Partner- one SBA loan originator in Colorado for four consecutive ship to support the purchase of Low Income Housing Tax years. As of June 30, 1996, Norwest-Colorado had Credits and thereby financially assist affordable multifam- 411 SBA loans in its portfolio totaling $54 million. Acily housing projects in Arizona. cording to the examination report, based on 1995 HMDA Colorado. Examiners found that Norwest Bank Colo- data, Norwest-Colorado, in conjunction with NMI, made government-sponsored loans totaling $230 million in the rado, N.A. ("Norwest-Colorado") offered and originated a MSAs in Colorado served by the bank, representing variety of loan products to meet community credit needs, 8.78 percent of the total of such loans. including loans for housing-related, consumer, small business and small farm loans. Examiners commended Examiners also noted that Norwest-Colorado actively Norwest-Colorado for its participation in Norwest's CHOP engaged in extending credit to LMI consumers and in LMI mortgage program. From 1991 through August 30, 1996, neighborhoods. In 1994 and 1995, Norwest/NMI origi- Norwest-Colorado originated 2,649 CHOP loans totaling nated more HMDA loans in LMI tracts and to LMI borrow- $152 million. In addition, examiners noted that, based on ers than any other lender. In 1995, Norwest originated 1995 HMDA data for all lenders, Norwest-Colorado, in 36 percent of its HMDA loans to LMI applicants and conjunction with NMI, was the market leader in its six 26 percent in LMI census tracts. In 1995, Norwestdelineated MSA markets, with a total of 7,885 HMDA loan Colorado also had retail loans outstanding in 75 percent of originations in the MSA delineations representing 9 per- all LMI census tracts in its assessment area. In the first half cent of all conventional HMDA originations. Norwest re- of 1996, the bank had retail loans outstanding in 98 percent ports that, in 1996, its banks and NMI made more than of its LMI census tracts. 26,900 HMDA loans totaling more than $2.5 billion in Since the completion of the most recent CRA perfor- Colorado, with more than 3,800 loans totaling more than mance evaluation, Norwest states that it has implemented $252 million in LMI census tracts and more than 7,500 several programs to enhance service to its communities in loans totaling more than $492 million to LMI borrowers. In Colorado. Norwest-Colorado is participating, for example, 1997, Norwest's banks and NMI made more than 25,000 in Barrio Aztlan Homeownership Program, which provides HMDA loans totaling more than $2.6 billion in Colorado, mortgage lending, down payment assistance, and bilingual with more than 3,300 loans totaling more than $232 mil- prepurchase counseling to low-income families in Denlion in LMI census tracts and more than 6,300 loans ver's predominantly Latino neighborhoods. As of July 31, totaling more than $430 million to LMI borrowers. 1998, Norwest-Colorado has funded 18 loans totaling Examiners also noted that Norwest-Colorado was active $1.4 million through this program. In addition, Norwest in lending to small businesses and small farms. As of reports that in the City of Grand Junction, Norwest- June 30, 1996, Norwest-Colorado had $626 million in Colorado participates in the Self-Help program with the U.S. Department of Agriculture ("USDA"), a pilot proloans outstanding to small businesses and $66 million in gram that leverages government funds for the provision of loans outstanding to small farms. According to the examisubsidized mortgages to LMI borrowers. Under this pronation report, 82 percent of these small business and small gram, the USDA subordinates its subsidized second mortfarm loans were originated in amounts less than $100,000. gage to the bank's first mortgage, which is priced at, or Norwest reports that, in 1996, its banks made more than slightly below, market rates. This permits USDA to use 6,000 small business loans in Colorado totaling more than more of the Self-Help funds for additional first mortgages. $470 million, with more than 1,600 loans totaling more than $137 million in LMI census tracts and more than Nevada. Examiners concluded that Norwest Bank Ne- 4,500 loans totaling more than $256 million to firms with vada, N.A. ("Norwest-Nevada") and its predecessor instirevenues less than $1 million. In addition, Norwest reports tutions35 had a strong volume of lending over a broad range that, in 1996, its banks made more than 700 small farm of products, that the majority of its lending was in its loans in Colorado totaling more than $50 million, with delineated community, and that a formal structure was in 90 loans totaling approximately $6 million in LMI census place for CRA compliance. Examiners noted that the institracts and almost 700 loans totaling more than $47 million to farms with revenues less than $1 million. Norwest reports that, in 1997, its banks made more than 700 small 35. Norwest-Nevada was chartered as a federal thrift when it was farm loans in Colorado totaling approximately $35 million, acquired by Norwest in 1996. It was renamed Norwest Bank Nevada, F.S.B. and subsequently was merged with another Norwest federal with 75 loans totaling approximately $3 million in LMI thrift subsidiary. Norwest converted the thrift subsidiary to a national census tracts and more than 600 loans totaling more than bank in 1997. The most recent CRA evaluation of the institution $28 million to farms with revenues less than $1 million. occurred before its conversion to a national bank. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1102 Federal Reserve Bulletin D December 1998 tution was able to offer a broader range of products to assist Examiners also concluded that Norwest-Nevada had a LM1 customers after its acquisition by Norwest. high level of participation in community development and Examiners commented favorably on the broad range of redevelopment programs, often in a leadership role. The credit products offered by Norwest-Nevada and its affili- institution maintained two Community Outreach Centers in ates, including mortgage loans for the purchase or refi- or adjacent to underserved areas. The centers had a staff of nance of 1-4 unit and multiunit residential properties.36 three Community Outreach Managers, who were responsi- Examiners noted that although Norwest-Nevada did not ble for identifying credit and financial needs in LMI areas, underwrite and originate FHA and VA housing loans, NMI forming partnerships with communities and organizations, continued to do so. Based on HMDA data, the examiners and soliciting loans from LMI customers. Examiners noted also concluded that Norwest-Nevada had a reasonable geo- that the managers routinely worked with community-based graphic distribution of loan products throughout its delin- organizations and local governments, including the Fund eated community. Norwest reports that, in 1996, its banks Urban Northern Nevada Development, Southern Nevada and NMI made more than 10,000 HMDA loans totaling Reinvestment and Accountable Banking Committee, the more than $1.1 billion in Nevada, with more than City of North Las Vegas, and the City of Sparks, to assist 600 loans totaling more than $54 million in LMI census in developing special housing or credit programs. In additracts and more than 2,600 loans totaling more than tion, the managers provided financial education workshops $217 million to LMI borrowers. Norwest reports that, in for residents in the local communities. Examiners noted 1997, its banks and NMI made a total of more than that Norwest-Nevada, in conjunction with Volunteers of 6,900 HMDA loans totaling more than $753 million in America, had submitted a financing proposal that was Nevada, with approximately 530 loans totaling more than instrumental in obtaining a $750,000 grant to develop a $46 million in LMI census tracts and almost 1,700 loans small business loan guarantee program for a newly desigtotaling more than $128 million to LMI borrowers. nated Enterprise Zone in the Las Vegas MSA. Norwest- Examiners commented favorably on the commercial Nevada also cashed social assistance checks for noncuscredit products offered by Norwest-Nevada to businesses tomers without charge, waived fees for nonprofit and farms. Examiners also noted that the institution was an organizations, and offered a free checking account with no active SBA lender. According to the report, the institution monthly fee or minimum balance. received approval to offer loans under a number of SBA Norwest states that, since the most recent CRA perforprograms, including the SBA's 7A-Capline, "Low Doc", mance evaluation, it has implemented several programs to 7A, and 504 loans. In addition, the institution participated enhance services to its Nevada communities. Norwestin a program to lend to minority and small business owners Nevada has doubled its commitment to lend under the in an enterprise zone in Las Vegas under a $750,000 grant Affordable Loan Program to a total of $20 million per year. from the Department of Housing and Urban Development. Norwest reports that, since 1997, Norwest-Nevada has Norwest reports that, in 1996, its banks made a total of allocated portions of the total commitment to various local almost 250 small business loans totaling more than nonprofit community development organizations that pro- $25 million in Nevada, with more than 70 loans totaling vide down payment assistance, and that for 1998, approxiapproximately $9 million in LMI census tracts and approx- mately 90 percent of the total allocation has been reserved imately 180 loans totaling more than $15 million to firms for nonprofit organizations. In addition, in late 1997, with revenues less than $1 million. Norwest reports that, in Norwest-Nevada established a Community Business Bank- 1997, its banks made a total of more than 330 small ing Department to specifically address the needs of the business loans totaling almost $30 million in Nevada, with small business owner with a gross annual revenue of 80 loans totaling more than $9 million in LMI census tracts $500,000 to $3 million and credit needs of up to $250,000. and more than 250 loans totaling more than $14 million to Norwest also reports that Norwest-Nevada participates in firms with revenues of less than $1 million. the US DA Self-Help program for Nevada communities In addition, Norwest reports that, in 1996, its banks discussed above. made a total of 27 small farm loans totaling more than New Mexico. Examiners concluded that Norwest's sub- $1.5 million in Nevada, with 24 loans totaling $1.4 million sidiary banks in New Mexico generally met the credit in LMI census tracts and 25 loans totaling more than needs of the communities they served. Examiners noted $1.4 million to farms with revenues less than $1 million. that Norwest Bank New Mexico, N.A. ("Norwest-NM"), Norwest reports that, in 1997, its banks made a total of in conjunction with NMI, originated more conventional 71 small farm loans totaling approximately $7 million in home purchase loans, refinancings, and home improvement Nevada, with 34 loans totaling more than $3.4 million in loans in its delineated communities in 1995 than any other LMI census tracts and more than 60 loans totaling more lender, with 10.5 percent of the HMDA loans in the marthan $6.7 million to farms with revenues less than ket. Norwest-NM's volume of HMDA loans increased $1 million. from $291 million in 1995 to more than $328 million in 1996. During 1995 and 1996, 100 percent and 98 percent, respectively, of Norwest-NM's conventional real estaterelated loans were made in the bank's delineated communi- 36. The report noted that mortgage loans were processed and ties. Examiners also determined that Norwest-NM reasonoriginated by NMI, but that the loans were underwritten and immediately purchased by Norwest-Nevada. ably served LMI areas in its communities. According to the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1103 examination report, in 1996, Norwest-NM made 21 percent business and small farm loans reflected a significant numof its HMDA loans in LMI census tracts and 31 percent of ber of loans throughout its assessment area. Data for 1996 its HMDA loans to LMI applicants. Norwest reports that, showed that Norwest-El Paso made 31 percent of its small in 1997, its banks and NMI made a total of more than business and small farm loans to businesses in LMI census 6,100 HMDA loans totaling more than $480 million in tracts that had annual revenues of less than $1 million. In New Mexico, with more than 1,000 loans totaling more 1996, Norwest-El Paso also introduced the Small Business than $72 million in LMI census tracts and more than 1,400 Banking Center to assist in meeting the credit needs of loans totaling more than $65 million to LMI borrowers. small businesses. The center originated 91 loans totaling Examiners also noted that Norwest-NM was an active $2.7 million in 1996, with an average loan amount of lender to small businesses and small farms. In 1996, $30,000. Norwest states that, in 1996, its banks made more Norwest-NM made 2,969 small business loans totaling than 5,200 small business loans totaling more than approximately $208 million, with 83 percent by number $256 million in Texas, with approximately 1,100 loans and 38 percent by dollar amount in loan amounts of totaling more than $51 million in LMI census tracts and $100,000 or less. Norwest reports that, in 1997, its banks almost 3,500 loans totaling almost $150 million to firms made more than 3,500 small business loans totaling more with revenues less than $1 million. Norwest reports that, in than $330 million in New Mexico, with almost 1,000 loans 1997, its banks made more than 7,600 small business loans totaling more than $106 million in LMI census tracts and totaling more than $520 million in Texas, with more than more than 2,700 loans totaling more than $181 million to 1,600 loans totaling more than $138 million in LMI census firms with revenues less than $1 million. tracts and more than 4,700 loans totaling more than Examiners indicated that, in 1996, Norwest-NM made $243 million to firms with revenues less than $1 million. small farm loans totaling $36.1 million, with 88 percent in Norwest reports that, in 1996, its banks made a total of loan amounts of less than $100,000. Norwest reports that, approximately 2,000 small farm loans totaling almost in 1997, its banks made a total of more than 800 small farm $83 million in Texas, with 300 loans totaling more loans totaling more than $45 million in New Mexico, with than $12 million in LMI census tracts and more than more than 200 loans totaling more than $11 million in LMI 1,600 loans totaling almost $65 million to farms with census tracts and almost 800 loans totaling approximately revenues less than $1 million. Norwest also reports that, in $40 million to farms with revenues less than $1 million. 1997, its banks made a total of more than 1,600 small farm Examiners also noted that Norwest-NM, in conjunction loans totaling more than $84 million in Texas, with more with NMI, actively participated in government-related than 230 loans totaling more than $14 million in LMI lending programs for small business and housing. In 1996, census tracts and more than 1,300 loans totaling more than Norwest-NM originated 448 home purchase loans and $64 million to farms with revenues less than $1 million. refinancings totaling $40 million under programs spon- Examiners noted that Norwest Bank Texas, N.A. sored by government authorities, such as the FHA, the VA, ("Norwest-Texas") actively participated in development and the Farmers Home Administration ("FmHA"). Exam- and redevelopment programs in its communities by providiners also noted that Norwest-NM was an active SBA ing loans and financial expertise to the community. Examlender with "Preferred Lender" status. More than half the iners also commented favorably that Norwest-Texas had $10.2 million in SBA loans made by Norwest-NM in the been recognized by the Federal Home Loan Bank of Dallas 1996 fiscal year were originated in the Albuquerque area for its community support. Norwest reports that, in 1998, where Norwest-NM ranked first in SBA lending. Norwest-Texas became a sponsor of the Texas Capital Texas. Examiners noted that Norwest Bank El Paso, Access Program established by the Texas Economic Devel- N.A. ("Norwest-El Paso") used innovative products and opment Corporation. Under this program, state funds are flexible underwriting guidelines to assist in meeting the used to create a loan loss reserve account for bank loans to need for home mortgage loans in its assessment area. In small businesses that permits banks to use underwriting particular, the examiners noted that the bank offered afford- guidelines for qualifying applicants that are more flexible than conventional guidelines. able mortgages and home improvement loans designed specifically for LMI borrowers through programs like the Affordable Home Mortgage Loan Program. Norwest re- E. Wells Fargo's CRA Performance Record ports that, in 1996, its banks and NMI made a total of more than 20,000 HMDA loans totaling more than $1.8 billion in Overview. Wells Fargo offers a variety of products specifi- Texas, with more than 1,800 loans totaling more than cally designed for small business customers. Wells Fargo's $102 million in LMI census tracts and almost 3.500 loans Business Banking Group focuses on small businesses with totaling more than $182 million to LMI borrowers. Nor- annual revenues of less than $10 million in which the west also reports that, in 1997, its banks and NMI made a owner is the primary financial decision maker. Wells Fargo total of almost 30,000 HMDA loans totaling more than reports that, in 1996, its banks made more than 138,000 $2.7 billion in Texas, with more than 2,400 loans totaling small business and small farm loans totaling more than more than $140 million in LMI census tracts and more than $5.4 billion, with more than 33,000 small business and 4,800 loans totaling more than $254 million to LMI bor- small farm loans totaling more than $1.5 billion in LMI rowers. census tracts. In 1997, Wells Fargo reports that its banks Examiners stated that Norwest-El Paso's level of small made more than 195,000 small business and small farm Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1104 Federal Reserve Bulletin • December 1998 loans totaling more than $5.8 billion, with more than business lending during the evaluation period, evidenced 45,700 small business and small farm loans totaling the bank's commitment to small business lending. Examin- $1.7 billion in LMI census tracts. During 1996 and 1997, ers noted that, in 1995, WFB's loan growth was almost Wells Fargo reports that 95 percent of its small business evenly divided between loans less than and loans more and small farm loans were for amounts less than than $50,000. Examiners also noted that WFB made a $100,000, and that the average loan amount was approxi- significant number of small business loans in LMI census mately $33,000. Through June 30, 1998, Wells Fargo made tracts. a total of approximately 69,000 small business and small In 1996, WFB made approximately 72,600 small busifarm loans totaling $2.7 billion, with more than ness and small farm loans in California totaling $3.1 bil- 14,000 small business and small farm loans totaling ap- lion, with more than 18,800 small business and small farm proximately $668 million in LMI census tracts. loans totaling more than $960 million in California LMI In L996, Wells Fargo made more than 15,000 HMDA census tracts. In 1997, WFB made approximately 108,300 loans totaling approximately $960 million. During the small business and small farm loans in California totaling same period, Wells Fargo made approximately 1,900 $3.6 billion, with more than 27,000 small business and HMDA loans totaling $118 million in LMI census tracts, small farm loans totaling $1.1 billion in California LMI more than 5,200 HMDA loans totaling more than census tracts. Through June 30, 1998, WFB made approxi- $180 million to LMI borrowers, and more than 1,800 mately 32,700 small business and small farm loans in HMDA loans totaling approximately $96 million to minor- California totaling $1.7 billion, with approximately 8,000 ity borrowers. In 1997, Wells Fargo made approximately small business and small farm loans totaling more than 4,800 HMDA loans totaling $540 million. During this $451 million in California LMI census tracts. period, Wells Fargo made more than 600 HMDA loans Examiners stated that WFB was an active participant in totaling $10 million in LMI census tracts, approximately government-guaranteed or sponsored loan programs that 1,600 HMDA loans totaling more than $53 million to LMI addressed housing-related, consumer, and business credit borrowers, and more than 800 HMDA loans totaling more needs. According to the examination report, in 1994 and than $36 million to minority borrowers. Through June 30, 1995, WFB government-guaranteed loans totaled over 1998, Wells Fargo made a total of approximately 4,400 $1 billion. During the evaluation period, the SB A recog- HMDA loans totaling more than $220 million. During this nized WFB as California's leading originator of loans period, Wells Fargo made more than 490 HMDA loans under the SBA's 504 Program. Examiners also noted that, totaling more than $21 million in LMI census tracts, more during the evaluation period, WFB funded approximately than 1,400 HMDA loans totaling more than $53 million to 90 percent of all loans in the California Capital Access LMI borrowers, and more than 600 HMDA loans totaling Program. Wells Fargo reports that, as of year-end 1997, $25 million to minority borrowers. As of March 1998, WFB was the largest lender in the California Capital Wells Fargo reports that it has loaned more than Access Program, providing funding for approximately $14.5 billion or 33 percent of its lending goal under a 84 percent of the program's loans in the state. $44.5 billion, 10-year CRA pledge announced in Decem- Examiners found that WFB offered a variety of lending ber 1995. products, with many specifically designed to help meet the Lending Record in General. Examiners generally deter- credit needs of the LMI community. Examiners noted that, mined that Wells Fargo's banks had an effective program during the evaluation period, WFB was the leading lender to ascertain the credit needs of their communities. In addi- in LMI areas in the Los Angeles MSA. Based on 1994 tion, the examiners found that the banks' level of lending HMDA data, WFB made 33 percent of its home purchase reflected a responsiveness to the credit needs of their loans in Los Angeles's LMI census tracts and increased the communities. The banks were generally active participants percentage to 36 percent in 1995. Examiners commended in government-guaranteed or sponsored loan programs that WFB for its consumer loan products designed for LMI addressed housing, consumer, and small business credit borrowers, which included flexible underwriting or exneeds. Examiners also determined that Wells Fargo's geo- tended terms. In 1996, WFB and Wells Fargo Bank (Arizographic distribution of loan originations was reasonable na), N.A. ("WFBA"), its credit card bank affiliate, made and generally consistent with demographic patterns in the more than one million consumer loans in California totalcommunity, including LMI communities. Examiners gener- ing more than $4.3 billion, with approximately 214,200 ally found that Wells Fargo's banks participated in financ- consumer loans totaling $620 million in California LMI ing community development and redevelopment projects. census tracts. In 1997, WFB and WFBA made more than California. As noted above, Wells Fargo Bank, N.A. 655,000 consumer loans in California totaling more than ("WFB"), Wells Fargo's lead bank, received an "outstand- $4 billion, with more than 130,000 consumer loans totaling ing" rating from the OCC at its most recent CRA perfor- more than $490 million in California LMI census tracts. mance evaluation. WFB accounts for approximately Through the second quarter of 1998, WFB and WFBA 90 percent of Wells Fargo's consolidated assets. made approximately 184,200 consumer loans in California Examiners noted that the largest component of WFB's totaling $1.6 billion, with more than 37,000 consumer lending activities was small business loans. Examiners loans totaling $175 million in California LMI census tracts. found that WFB's record of making loans for less than Examiners also commended WFB for its leadership, $50,000, which accounted for 75 percent of WFB's small innovation, and participation in financing community de- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1105 velopment and redevelopment projects in its delineated affordable housing development had consistently exceeded community. Examiners noted WFB's use of a variety of $100 million. During the evaluation period, WFB made lending and investment opportunities to finance more than 193 business loans totaling $353 million to borrowers in $694 million in community development ventures during designated Enterprise Zones and 19 business loans totaling the evaluation period. WFB also committed to develop $33 million to nonprofit community organizations involved 57 LMI housing projects totaling $253 million during the in community development activity, businesses producing same period. In 1994, WFB made a $50 million loan affordable housing, and businesses sponsored by a public commitment for the construction of affordable housing agency to promote community development. In 1995, WFB through a partnership formed with Bridge, a California committed to invest $12 million in equity capital through nonprofit developer of affordable housing; the World Sav- the Local Initiatives Support Corporation's California Eqings Bank; and the California Public Employees Retire- uity Fund, and an additional $6 million through the federal ment System. tax-exempt credit program. Examiners noted that WFB's management decided in Wells Fargo reports that, since its most recent CRA 1995 to begin to phase-out direct mortgage lending. Wells performance evaluations WFB has taken several steps to Fargo primarily originates HMDA affordable mortgage enhance its service to its communities. Wells Fargo reports loans through Wells Resource Real Estate Services that, in 1996 and 1997, WFB's Real Estate Group provided ("WRRES"), a joint venture with PHH Mortgage Servic- more than $1.1 billion to 291 affordable housing and es.37 To maintain community access to mortgages, WFB economic development financing projects, and its Comestablished local loan centers in LMI communities in South mercial Banking Group made more than 2,000 loans total- Central Los Angeles, the Fruitridge community of Sacra- ing more than $4.4 billion to economic development mento, and Southeast San Diego to provide access and projects. During the same period, Wells Fargo reports that counseling through its joint venture partners and in partner- WFB financed 30 transactions totaling more than ship with nonprofit organizations providing credit counsel- $70 million for rural projects, including self-help housing ing and down payment assistance. Wells Fargo opened a projects. Wells Fargo also reports that, from 1996 through fourth home mortgage loan center in Fresno in 1998.38 June 30, 1998, it provided $39.3 million in contributions In 1996, WFB made approximately 4,400 HMDA loans that qualified as community development activity under the in California totaling more than $439 million. During this CRA. period, the bank made 575 HMDA loans totaling more Wells Fargo states that, in mid-1997, WFB introduced its than $50 million in California LMI census tracts, more "Business Center" program. The program's centers are than 1,500 HMDA loans totaling more than $80 million to smaller than traditional branches, but are full-service facil- California LMI borrowers, and more than 700 HMDA ities with business specialists trained to provide specialized loans totaling approximately $56 million to California mi- services to small businesses. By the end of 1997, WFB had nority borrowers. In 1997, WFB made a total of approxi- opened 30 Business Centers in California, Arizona, mately 2,100 HMDA loans in California totaling more than Nevada, and Oregon. $236 million. During this period, the bank made more than Wells Fargo also reports that, by September 1996, and 290 HMDA loans totaling more than $42 million in Cali- through an alliance with the National Association of fornia LMI census tracts, more than 700 HMDA loans Women Business Owners, WFB met its $1 billion goal in totaling more than $24 million to California LMI borrow- the Women's Loan Program designed for creditworthy and ers, and approximately 500 HMDA loans totaling more established women entrepreneurs. At that time, WFB exthan $24 million to California minority borrowers. Through panded its commitment to the program to $10 billion over June 30, 1998, WFB made a total of almost 1,500 HMDA ten years. In addition, in August 1998, Wells Fargo made a loans in California totaling more than $83 million. During $15 billion, three-year CRA-related lending and investthis period, the bank made almost 170 HMDA loans total- ment commitment for California, including a separate ing more than $6 million in California LMI census tracts, $100 million goal for CRA-related investment and contriapproximately 500 HMDA loans totaling more than butions in the state. This pledge also included a 35 percent $20 million to California LMI borrowers, and more than minority mortgage outreach goal for California. 300 HMDA loans totaling more than $12 million to Cali- Texas. Examiners commented favorably on the special fornia minority borrowers. efforts of Wells Fargo Bank (Texas), N.A. ("WFBT") in Examiners also noted that WFB, through the California 1995 to expand its small business lending and to address Community Reinvestment Corporation, committed more the needs of its small business customers through the than $30 million to a revolving loan pool to provide development of several new products. Examiners noted financing for the development or rehabilitation of LMI that WFBT introduced a "Business Advance" line of housing projects throughout California. Examiners noted credit for small businesses and the "Quick Step Small that, since 1990, WFB's annual financing activities for Business Loan," which includes an abbreviated application process for loans of less than $50,000. In addition, examiners noted that WFBT committed $550,000 to five programs 37. Wells Fargo has a 24 percent interest in WRRES and PHH offering below-market rate loans to promote initiatives to Mortgage Services has a 76 percent interest. help maintain a strong central business district. Wells Fargo 38. Wells Fargo operates the home loan centers in California in partnership with WRRES. reports that, in 1996, WFBT made a total of more 1,900 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1106 Federal Reserve Bulletin • December 1998 small business and small farm loans totaling more than develop aifordable housing. Examiners also noted that, $96 million in LMI census tracts in Texas. Wells Fargo during the evaluation period, WFBT made more than also reports that, in 1997, WFBT made more than 2,100 $1 million in charitable contributions to a variety of small business and small farm loans totaling more than community-based organizations.39 $168 million in LMI census tracts in Texas. Arizona. As mentioned above, Wells Fargo Bank (Arizo- Examiners also found that WFBT actively participated na), N.A. is a special purpose bank that extends credit to in government-guaranteed and sponsored loan programs. consumers and small businesses, primarily through credit Examiners noted that, for the fiscal year ended Septem- cards. WFBA has delineated its service community as the ber 30, 1995, WFBT was the most active lender in Texas Phoenix MSA, but has no branch offices in the area. In its under the SBA's 7A Program, and that it was ranked sixth most recent CRA performance evaluation, examiners stated nationally for number of loans and fifth nationally for that WFBA had a comprehensive program to ascertain the dollar amount of loans under this program. Examiners credit needs of its community. As part of this program, found that the number of SBA loans made by WFBT management initiated direct contact with a variety of local increased by 165 percent from 1994 to 1995. In addition, organizations. Examiners also found that WFBA's board of examiners stated that WFBT was also active in directors supported the bank's CRA efforts, which included government-guaranteed student loan programs. During the flexible and innovative underwriting guidelines designed to evaluation period, WFBT originated $89 million in student help meet the need for consumer credit in its delineated loans and, as a result, was the leading bank in Texas for community. Examiners also found that WFBA's board lending under the PLUS Student Loan Program. monitored the bank's CRA performance through WFB's Examiners determined that WFBT had a reasonable Corporate Community Development Group. number of consumer and small business loans in LMI Examiners noted that WFBA offered a variety of prodcensus tracts in 1994 and 1995. Examiners stated that, in ucts that were specifically designed to help meet the needs 1995, the bank originated 35 percent of its business loans of LMI communities, including a secured credit card for and 24 percent of its consumer loans in LMI census tracts low-income borrowers with little credit history. Examiners in its delineated communities that were the focus of the also noted that WFB had been working with community examination. Examiners also noted that, at the time of the organizations to develop sites in LMI communities to examination, 27 percent of WFBT's branches were located provide the use of computers so that individuals who do in LMI census tracts. Examiners also commended the bank not own computers can have Internet access. for conducting an analysis of credit distribution between Examiners noted that, in 1995. WFBA invested $3 mil- LMI and non-LMI census tracts for each area in its delin- lion in equity capital through LISC's National Equity Fund. eated community and for using the analysis in assessing Examiners also found that, during the evaluation period, the bank's CRA performance. Wells Fargo reports that, in WFBA contributed more than $161,000 to five community 1996, WFBT and WFBA made more than 13,000 con- groups involved in a variety of activities, including CDC sumer loans totaling more than $62 million in LMI census housing development training and predevelopment costs, tracts in Texas, and, in 1997, made more than 15,000 mortgage loan counseling for LMI home buyers, and the consumer loans totaling more than $55 million in LMI construction of a single-room-occupancy housing project. census tracts in Texas. Examiners also noted that WFBT had a high level of F. HMDA Data participation in community development and redevelopment activities and commended WFBT's use of innovative The Board also has carefully considered the lending solutions to assist in meeting community development records of Norwest and Wells Fargo in light of comments needs. Examiners noted that WFBT's total commitments to on the 1996 and 1997 HMDA data reported by the subsidcommunity development and redevelopment projects and iaries of the organizations. The data for 1996 and 1997 programs during the evaluation period exceeded $115 mil- generally show that Norwest adequately assisted in meetlion. As an example of WFBT's community development ing the credit needs of the communities it serves with investments, examiners noted WFBT's commitment of respect to HMDA-related loans, including minority and $1 million to the Greater Houston Small Business Equity LMI borrowers and borrowers in LMI census tracts. As Fund, a multibank community development corporation stated above, Wells Fargo began phasing out its direct that provides loan and equity financing to small businesses residential mortgage lending activities in 1995. Although in the greater Houston area to stimulate economic growth from 1996 to 1997, Wells Fargo's actual number of appliand create jobs. In addition, examiners stated that, in 1996, cations from and loan originations in LMI census tracts WFBT committed $1.5 million to MESBIC Venture Hold- decreased in Arizona, California, Idaho, Nevada, New ing Company, a small business investment corporation that Mexico, Oregon, and Texas, Wells Fargo was either consisprovides venture capital financing for small businesses tent with or exceeded lenders in the aggregate in the owned by minorities. Examiners also noted that WFBT made 59 loans totaling $3.6 million through its Community 39. In addition, Wells Fargo reports that, in 1997, it made a Assistance Program, which provides financing with flexi- $100,000 contribution to the National Council of La Raza Foundable underwriting standards to organizations that serve basic tion's credit counseling program for low-income Hispanic homeownsocial needs, create jobs, provide technical assistance, or ers in Arizona. Colorado, Texas, and California. 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Legal Developments 1107 percentage of LMI originations during the same period. review program for all denial recommendations on Wells Fargo's percentage of loan originations to LMI indi- HMDA-reportable loans. viduals also was either consistent with or exceeded lenders The examinations of Wells Fargo's subsidiary banks also in the aggregate in those states during the same period. found no illegal discrimination in the credit practices at the Similarly, while the number of applications received from banks. For example, in the CRA examination of WFB, and originations made to African-American and Hispanic examiners stated that compliance and credit officers perapplicants decreased from 1996 to 1997 in those states, formed a second-level review of declined residential loan Wells Fargo's percentage of loan originations to African- applications from minorities and low-income individuals, American and Hispanic borrowers was consistent with reviewed loan files to analyze primary reasons for denials, lenders in the aggregate in those states during the same regularly reviewed HMDA and comparable data for other period. The data also generally do not indicate that the types of credit to evaluate lending activity by census tract banking organizations are excluding any geographic areas and race, and implemented ongoing sensitivity and cultural or population segments on a prohibited basis. diversity training for all bank personnel. The data for 1996 and 1997 also reflect certain dispari- The Board notes that examiners reviewed the fair lendties in the rates of loan applications, originations, and ing policies, procedures, and training maintained by the denials among members of different racial groups and depository institutions of Norwest and Wells Fargo and persons at different income levels, both generally and in found them to be appropriate for monitoring compliance certain states and local areas. The Board is concerned with fair lending laws. The Board also has considered the when an institution's record indicates such disparities in HMDA data in light of the overall lending records of lending, and believes that all banks are obligated to ensure Norwest and Wells Fargo, which show that their subsidiary that their lending practices are based on criteria that assure depository institutions assist in meeting the credit needs of not only safe and sound banking, but also equal access to their entire communities, including LMI neighborhoods. credit by creditworthy applicants regardless of their race or income level. The Board recognizes, however, that HMDA G. Branch Closings data alone provide an incomplete measure of an institution's lending in its community because the data cover Several commenters contended that branch closings by only a few categories of housing-related lending. HMDA Norwest or Wells Fargo in their respective service areas, data, moreover, provide only limited information about the particularly in LMI neighborhoods, had adversely affected covered loans.40 HMDA data, therefore, have limitations local communities. These commenters and other commentthat make the data an inadequate basis, absent other inforers also expressed concern that this proposal would result mation, for concluding that an institution has not adein additional branch closings in LMI and other neighborquately assisted in meeting its communities' credit needs hoods. Norwest has stated that although it is expected that or has engaged in illegal discrimination in making lending some branches will be relocated, or consolidated as a result decisions. of the proposed merger, no determinations have been made Because of the limitations of HMDA data, the Board has as to which branches may be sold, consolidated, relocated carefully considered the data in light of other information, or closed over the next two years as a result of the proincluding examination reports that provide an on-site eval- posed transaction, other than branches that are proposed to uation of the compliance by the subsidiary banks of Nor- be divested for antitrust purposes. west and Wells Fargo with the fair lending laws and the The Board has carefully considered the branch closing overall lending and community development activities of policies of Norwest and Wells Fargo and the record of the the banks. The examinations revealed no evidence of pro- institutions in opening and closing branches. The Board hibited or illegal credit practices at the Norwest banks, and also has carefully considered the public comments regardthe banks were in compliance with the substantive provi- ing past and potential branch closings in light of all the sions of antidiscrimination laws and regulations, including facts of record. the Equal Credit Opportunity Act, the Fair Housing Act, Examiners reviewed the branch closing policies and and the Home Mortgage Disclosure Act. In the most recent record of opening and closing branches of Norwest's banks CRA examination report for Norwest Bank, examiners during the examination periods. Examiners concluded that stated that all employees involved in making lending deci- its subsidiary banks generally had good records of opening, sions received regular, comprehensive training on fair lend- closing, and relocating their offices while providing all ing practices, and the bank had an independent second segments of their communities with reasonable access to banking services. Examiners also reviewed the branch closing policies and record of opening and closing branches of WFB and WFBT during the CRA examination periods.41 40. The data, for example, do not account for the possibility that an Examiners concluded that the branches of both banks were institution's outreach efforts may attract a larger proportion of marginally qualified applicants than other institutions attract and do not readily accessible to all segments of their delineated comprovide a basis for an independent assessment of whether an applicant who was denied credit was, in fact, creditworthy. Credit history problems and excessive debt levels relative to income (reasons most frequently cited for a credit denial) are not available from HMDA 41. WFBA and Wells Fargo HSBC Trade Bank, N.A. do not operate data. branch offices in their delineated communities. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1108 Federal Reserve Bulletin • December 1998 munities, and that the closing of branches during the evalu- indicates that the proposed CDC will allow New Wells ation period did not adversely affect the banks' ability to Fargo to increase the amount of community development provide services to their communities, including LMI lending in all the communities it serves, engage in innovaneighborhoods.42 tive and flexible lending, develop new products, and work The Board also has considered that federal banking law with affordable housing developers and technical assisrequires a specific mechanism for addressing branch clos- tance providers to increase market opportunities for all ings. Federal law requires an insured depository institution segments of the communities it serves. to provide notice to the public and to the appropriate The proposed CDC will provide short- and longer-term federal regulatory agency before closing a branch.43 The financing for community development projects, such as law does not authorize federal regulators to prevent the financing for multifamily affordable housing for terms of closing of any branch. Any branch closings resulting from 15 to 30 years, and other types of nontraditional financing. the proposed transaction will be considered by the appro- The CDC also will invest in Low Income Housing Tax priate federal supervisor at the next CRA examination of Credits, purchase exempt housing debt instruments, and the relevant subsidiary bank. invest in other secondary community development funds, To permit the Board to monitor the effectiveness of the such as the NEF. In addition, the CDC will provide debt branch closing policies of New Wells Fargo, the Board and equity funding for organizations engaged in commuconditions its action on this proposal on the requirement nity development activities, including constructing affordthat New Wells Fargo report to the Federal Reserve Sys- able housing, financing small and very small businesses, tem, on a semiannual basis during the two-year period after providing services to LMI individuals, and revitalizing consummation, all branch closings, including consolida- LMI communities. tions, that occur as a result of this proposal. For branches closed in LMI census tracts, New Wells Fargo should indicate the proximity of the closed branch to the closest I. Norwest's Nonbank Lending Subsidiaries branch of New Wells Fargo and the steps New Wells Fargo took to mitigate the impact of the branch closure.44 NMI participates in more than 600 mortgage-related programs, including down payment assistance programs and H. Community Development Corporation Activities bond programs. A number of special products available through NMI are designed for LMI families. The Norwest Norwest states that New Wells Fargo intends to form a Homeownership Assistance Program ("NHAP"), for excommunity development corporation (the "CDC") as a ample, is designed to assist first-time buyers and LMI subsidiary of the parent holding company to engage in residents in purchasing a home. As discussed in this order, general community development activities. The CDC will Norwest's CHOP program is designed to meet the credit purchase at fair market value the existing CRA-related needs of LMI families. Loans made under the CHOP loans and investments of the combined company's subsid- programs typically feature flexible qualifying guidelines iaries. Thereafter, the CDC will work to source, package, with higher debt ratios and less stringent credit requireand structure loans and investments, which will be allo- ments, minimal down payment and higher loan-to-value cated geographically to the various New Wells Fargo sub- ratios, no cash reserve requirement, and no private mortsidiary banks for CRA examination purposes. Norwest gage insurance. The program also offers comprehensive education programs on home ownership and budget management. 42. According to examination reports, WFB's branch closing policy Some commenters contended that Norwest has smaller required that, prior to closing, management complete an in-depth percentages of originations to minority and low-income analysis of the closing's possible effect on the community. The policy home buyers than its competitors, has higher rejection also required bank management to assess potential CRA concerns and ratios for African-American and Hispanic applicants than required approval of the bank's board of directors before closure. 43. Section 42 of the Federal Deposit Insurance Act (12 U.S.C. its competitors, and lends minimally in LMI neighbor- § 1831r-l), as implemented by the Joint Policy Statement Regarding hoods and racially diverse census tracts. In addition, some Branch Closings (58 Federal Register 49,083 (1993)), requires that a commenters claimed that applicants who are denied a loan bank provide the public with at least 30 days notice and the appropriby a Norwest subsidiary bank are referred to one of Norate federal supervisory agency with at least 90 days notice before the date of the proposed branch closing. The bank also is required to west" s nonbank finance companies, but that qualified cusprovide reasons and other supporting data for the closure, consistent tomers of the finance companies are not referred to a with the institution's written policy for branch closings. Norwest bank subsidiary where they might obtain a lower 44. Several commenters contended that the merger of Norwest and interest rate. Wells Fargo would result in the loss of jobs, particularly in Minnesota. The effect of a proposed transaction on employment in a community is The Board has carefully considered the comments in not among the factors included in the BHC Act, and the federal light of all the facts of record, including the OCC's fair banking agencies, courts, and Congress consistently have interpreted lending examination findings and Norwest's fair lending the convenience and needs factor to relate to the effect of a proposal policies and procedures. As noted, these examinations on the availability and quality of banking services in the community. found no evidence of illegal discrimination by Norwest's See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445. 457 (1996). subsidiary banks, and examiners commented favorably on Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1109 Norwest's fair lending policies and procedures to prevent considered these concerns and weighed them against the illegal practices.45 overall CRA records of Norwest and Wells Fargo, reports NMI, Norwest's principal mortgage lender, originated of examinations of CRA performance, and information $5.3 billion in \^\ family mortgages to LMI families in provided by the two banking organizations, including their 1997, which includes loans under Norwest's CHOP pro- responses to comments.48 gram for LMI families. FHA has designated NMI as the As discussed in this order, the record in this case demonnation's top lender to minority first-time home buyers for strates that Norwest and Wells Fargo have established three consecutive years. In late 1996. NMI initiated an records of helping to meet the convenience and needs of Affordable Housing Program, which employs loan origina- the communities that each currently serves. Norwest has tors to focus on LMI and ethnically diverse communities indicated that New Wells Fargo will draw on the CRA by using nontraditional marketing techniques to reach un- policies and programs of both organizations. The Board derserved communities. Prepurchase counseling, through notes that, in 1997, the Norwest and Wells Fargo organizathe Norwest Homebuyers Club, and down payment assis- tions loaned and invested, in the aggregate, more than tance programs are important aspects of the Aifordable $20 billion in qualified community reinvestments, includ- Housing Program.46 In addition, the Norwest Housing ing more than $5.2 billion in single family mortgages to Foundation has committed $16 million over five years to LMI families and more than $10 billion in loans to small Habitat for Humanity. businesses and small farms. The Board expects that New Wells Fargo will demonstrate the same commitment to J. Conclusion on Convenience and Needs Factor helping to serve the banking needs of its communities, including LMI neighborhoods, that Norwest and Wells The Board recognizes that the proposal represents a signif- Fargo have demonstrated to date. The Board also expects icant increase in the size of the resulting institution and that New Wells Fargo will continue the policies of Norwest expansion of the geographic areas of the country the result- and Wells Fargo that give priority to addressing the banking institution would serve. Accordingly, an important ing needs of local communities, including LMI neighborcomponent of the Board's review of the proposal is consid- hoods through programs and policies that recognize the eration of the eifects of the proposal on the convenience needs of different communities. and needs of all communities served by Norwest and Wells Based on a review of the entire record, the Board con- Fargo. cludes that convenience and needs considerations, includ- In conducting its review, the Board has carefully consid- ing the CRA records of performance of both organizations' ered all the comments on the convenience and needs factor. subsidiary depository institutions, are consistent with ap- A significant number of commenters have expressed sup- proval of the proposal. port for the proposal based on the records of Norwest and Wells Fargo in helping serve the banking and, in particular, Nonbanking Activities the lending needs of their entire communities, including LMI areas. Other commenters have expressed concern Norwest also has filed a notice under section 4(c)(8) of the about specific aspects of Norwest's record of performance BHC Act to acquire Wells Fargo's nonbanking companies under the CRA in its current service areas and have ex- and thereby to engage in lending and making related equity pressed reservations about whether Norwest and Wells investments, and selling credit life and disability insur- Fargo have been, and New Wells Fargo would be, respon- ance.49 The Board has determined by regulation or order sive to the banking and credit needs of all their communities, particularly in the Midwest.47 The Board has carefully notes that New Wells Fargo will have a responsibility to help serve the credit needs of its entire community, including LMI neighborhoods, with or without private CRA agreements. 45. Written submissions alleging improper referrals of customers by 48. A number of commenters expressed concern about the current Norwest Bank to its finance affiliates have also been forwarded to the fee policies of one or both banking organizations. In addition, several OCC, the bank's primary supervisor. commenters expressed concern that the proposal would result in 46. The Homebuyers Club is a prepurchase counseling service that increased fees for banking services or in the loss of low-cost banking helps people solve credit problems that might prevent them from products, and some requested that the Board require the merging qualifying for a mortgage. entities to commit to preventing increases in banking fees and de- 47. A number of commenters criticized Norwest for not entering creases in banking services as a condition of the merger. Norwest and into agreements with community-based organizations that would pro- Wells Fargo offer a full range of banking products and services. vide separate monetary goals for CRA performance for a particular Moreover, although the Board has recognized that banks help serve geographic area. The Board recognizes that communications by depos- the banking needs of communities by making basic services available itory institutions with community groups provide a valuable method at nominal or no charge, neither the CRA nor the primary federal of assessing and determining how best to meet the credit needs of a supervisors of the banks involved in this case require an institution to community. Neither the CRA nor the CRA regulations of the federal limit the fees charged for its services or to provide any specific types supervisory agencies, however, require depository institutions to enter of banking products. into agreements with any organization. The Board, therefore, has 49. Norwest currently engages in insurance activities grandfathered viewed such agreements and their enforceability as private contractual under section 4(c)(8)(G) of the BHC Act (12 U.S.C. § 1843(c)(8)(G)) matters between the parties and has focused on the existing record of ("Exemption G"). Norwest will be the legal entity surviving the performance by the applicant and the programs that the applicant has merger with Wells Fargo and, based on the structure of the transaction in place to serve the credit needs of its communities. The Board also and all of the other facts of this case, the Board has determined that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1110 Federal Reserve Bulletin • December 1998 that the activities for which notice has been provided are In addition, as the Board has previously noted, there are closely related to banking for purposes of section 4(c)(8) of public benefits to be derived from permitting capital marthe BHC Act.50 kets to operate so that bank holding companies can make In order to approve Norwest's notice to engage in non- potentially profitable investments in nonbanking compabanking activities, the Board must determine that the acqui- nies and from permitting banking organizations to allocate sition of the nonbanking subsidiaries of Wells Fargo and their resources in the manner they consider to be most the performance of those activities by New Wells Fargo is efficient when such investments and actions are consistent, a proper incident to banking. That is, the Board must as in this case, with the relevant considerations under the determine that the proposed transaction "can reasonably be BHC Act.52 expected to produce benefits to the public . . . that out- The Board also believes that the conduct of the proposed weigh possible adverse effects, such as undue concentra- nonbanking activities within the framework of Regulation of resources, decreased or unfair competition, conflicts tion Y and prior Board precedent is not likely to result in of interests, or unsound banking practices."51 adverse effects, such as undue concentration of resources, As part of its evaluation of these factors, the Board decreased or unfair competition, conflicts of interests, or considers the financial condition and managerial resources unsound banking practices, that would outweigh the public of Norwest and its subsidiaries, including the companies to benefits of the proposal, such as increased customer convebe acquired, and the effect of the proposed transaction on nience and gains in efficiency. Accordingly, based on all those resources. For the reasons noted above, and based on the facts of record, the Board has determined that the all the facts of record, the Board has concluded that finan- balance of public interest factors that the Board must cial and managerial considerations are consistent with ap- consider under the proper incident to banking standard of proval of the notice. section 4(c)(8) of the BHC Act is favorable and consistent The Board also has considered the competitive effects of with approval of Norwest's notice. the proposed acquisition by Norwest of the nonbanking Norwest also has provided notice, in accordance with subsidiaries of Wells Fargo in light of all the facts of section 4(c)(13) of the BHC Act and section 211.5(c) of the record, including the public comments received. The mar- Board's Regulation K (12 C.F.R. 211.5(c)), to acquire kets in which the nonbanking subsidiaries of Norwest and Wells Fargo's foreign nonbanking subsidiaries. The Board Wells Fargo compete are national or regional and are concludes that all of the factors required to be considered unconcentrated. The Board concludes that consummation under the Federal Reserve Act, the BHC Act, and the of this proposal would have a de minimis effect on the Board's Regulation K in connection with the foregoing markets for lending and credit life and disability insurance. notices are consistent with approval of the proposal. The Board notes that numerous competitors would remain in each of these markets. Based on all the facts of record, Requests for Additional Public Meetings the Board concludes that it is unlikely that significantly adverse competitive effects would result from the nonbank- A number of commenters requested that the Board hold ing acquisitions proposed in this transaction. additional public meetings or hearings on the proposal in Norwest has indicated that the combined company will areas that may be affected by the merger, including Califorbe a stronger organization with increased capacity to serve nia, Texas, and other states. The Board has carefully conits customers' credit needs and will be better able to sidered these requests in light of the BHC Act, its Rules of provide existing and potential customers with a broader Procedure, and the substantial record developed in this range of services through an expanded delivery system and case.53 enhanced technology. Norwest states that significant cost As explained above, the Board held a public meeting on savings are expected to produce comparable incremental the proposal in Minneapolis to clarify issues related to the earnings and increased retained earnings, which will create application and notices and to provide an opportunity for additional lending capacity and thereby enable the com- members of the public to testify.54 More than 50 interested bined entity to provide additional credit to consumers and persons appeared and provided oral testimony at the public businesses. Norwest also states that the combined company meeting, including representatives and members of comwill have a more complete, efficient and effective delivery munity groups from cities and towns throughout the Midsystem in each of the markets where Norwest and Wells west and from a number of other states, including Califor- Fargo offer their products and services, thereby creating nia, Texas, and Oregon. In addition, the public comment greater convenience for customers and permitting the combined company to meet the needs of its communities more effectively and efficiently. 52. See, e.g., Bane One Corporation, 84 Federal Resen'e Bulletin 553 (1998); First Union Corporation, 84 Federal Reserve Bulletin 489(1998). 53. Section 3(b) of the BHC Act does not require that the Board hold a public hearing on an application unless the appropriate supervi- Norwest would retain its exemption to engage in Exemption G activi- sory authority for the bank to be acquired makes a timely written ties after consummation of the proposed merger and the change of its recommendation of denial of the application. 12 U.S.C. § 1842(b). In name to Wells Fargo & Company. this case, the Board has not received such a recommendation from any 50. See 12 C.F.R. 225.28(b)(l) and (1 l)(i). state or federal supervisory authority. 51. 12U.S.C. § 1843(c)(8). 54. See 12 C.F.R. 262.3(e) and 262.25(d). 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Legal Developments 1111 period provided 56 days for interested persons to submit The Board's approval is specifically conditioned on comwritten comments on the proposal, and the Board received pliance by Norwest with all the commitments made in and considered written comments from more than 90 inter- connection with this application and notice and with the ested persons who did not testify at the public hearing. conditions stated or referred to in this order, including In the Board's view, all interested persons have had Norwest's divestiture commitments. The Board's determiample opportunity to submit their views either in writing or nation on the nonbanking activities also is subject to all the orally at the public meeting. Numerous commenters have, terms and conditions set forth in Regulation Y, including in fact, submitted substantial materials that have been those in sections 225.7 and 225.25(c) of Regulation Y carefully considered by the Board in acting on the pro- (12 C.F.R. 225.7 and 225.25(c)), and to the Board's authorposal. Commenters requesting additional public meetings ity to require such modification or termination of the have failed to show why their written comments do not activities of a bank holding company or any of its subsidadequately present their views, evidence, and allegations. iaries as the Board finds necessary to ensure compliance They also have not shown why the public meeting in with, and to prevent evasion of, the provisions of the BHC Minneapolis and the 56-day comment period did not pro- Act and the Board's regulations and orders issued thereunvide an adequate opportunity for all interested parties to der. For purposes of this transaction, the commitments and present their views and voice their concerns. Moreover, the conditions referred to above are deemed to be conditions Board has carefully considered the lending records of imposed in writing by the Board in connection with its Norwest and Wells Fargo separately in many of the states findings and decision and, as such, may be enforced in where commenters requested public meetings, particularly proceedings under applicable law. California and Texas. For these reasons, and based on all The acquisition of Wells Fargo's subsidiary banks shall the facts of record, the Board has determined that addi- not be consummated before the fifteenth calendar day after tional public meetings or hearings are not required and are the effective date of this order, and the proposal may not be not necessary or warranted to clarify the factual record on consummated later than three months after the effective the proposal. Accordingly, the requests for additional pub- date of this order, unless such period is extended for good lic meetings or hearings on the proposal are hereby denied. cause by the Board or by the Federal Reserve Bank of San Francisco, acting pursuant to delegated authority. Conclusion By order of the Board of Governors, effective October 14, 1998. Based on the foregoing, and in light of all the facts of record, the Board has determined that the transaction Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and should be, and hereby is, approved. In reaching this conclu- Governors Meyer, Ferguson, and Gramlich. Absent and not voting: Governor Kelley. sion, the Board has carefully considered all oral testimony and the written comments regarding this proposal in light ROBERT DEV. FRIERSON of the factors that the Board is required to consider under Associate Secretary of the Board the BHC Act and other applicable statutes and concludes that the comments do not warrant a delay or denial of the Appendix A proposal.55 Banking Market Definitions A. Arizona Banking Markets 55. A number of commenters requested that the Board delay action, extend the public comment period on the proposal, or deny the The Bullhead City banking market is approximated by the proposal until: (i) The pending CRA examination of Wells Fargo is completed, towns of Bullhead City, Dolan Springs, Golden Valley, (ii) The Board conducts additional investigations on prices Kingman, Mohave Valley, and Riviera, Arizona; Laughlin, charged by subprime lenders in mega mergers, Nevada; and Needles, California. (iii) Norwest and Wells Fargo make additional CRA commitments, either throughout their market areas or in specific The Casa Grande banking market is approximated by the communities that would be affected by the merger, or towns of Arizona City, Casa Grande, Coolidge, Eloy, Flo- (iv) The banking organizations publicly disclose their complete rence, and Sacaton. divestiture plan. The Flagstaffbanking market is approximated by the towns of The requests for delay do not warrant postponement of the Board's consideration of the proposal. The Board has accumulated a signifi- Flagstaff and Williams. cant record in this case, including reports of examinations, supervi- The Lake Havasu City banking market is approximated by the sory information, public reports and information, and considerable towns of Havasu Lake and Lake Havasu City. public comment. In the Board's view, for the reasons discussed above, commenters have had ample opportunity to submit their views, and, in The Payson banking market is approximated by the towns of fact, have provided substantial written submissions and oral testimony Payson and Pine. that have been considered carefully by the Board in acting on the proposal. Based on a review of all the facts of record, the Board concludes that the record in this case is sufficient to warrant Board consideration and action on the proposal at this time, and that further period, or denial of the proposal on the grounds discussed above or on delay of consideration of the proposal, extension of the comment the basis of informational insufficiency is not warranted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1112 Federal Reserve Bulletin • December 1998 The Phoenix banking market is approximated by the Phoenix F. Texas Banking Markets Ranally Metropolitan Area ("RMA"). The Prescott banking market is approximated by the towns of The Austin banking market is approximated by the Austin Prescott, Prescott Valley, Chino Valley, and Mayer. RMA. The Show Low banking market is approximated by the towns The Brazos County banking market is approximated by Braof Pinetop, Show Low, Snowflake, and Taylor. zos County. The Sierra Vista banking market is approximated by the towns The Dallas banking market is approximated by Dallas County, of Bisbee, Douglas, Fort Huachara, Sierra Vista, and Tomb- the southeastern quadrant of Denton County, the southweststone. ern quadrant of Collins County, Rockwell County, and the The Tucson banking market is approximated by the Tucson towns of Forney, Terrell, Midlothian, Waxahachie, Fort RMA and the town of Green Valley. Ferria, Grapevine, and Arlington. The Winslow banking market is approximated by the towns of The Fort Worth banking market is approximated by Tarrant Holbrook and Winslow. County (excluding the towns of Grapevine and Arlington), The Yuma banking market is approximated by the Yuma RMA the northern half of Johnson County, the eastern half of and the town of Welton. Parker County, the southwestern quadrant of Denton County, and the towns of Boyd, Neward, and Rhome. The Houston banking market is approximated by the Houston B. California Banking Markets RMA. The San Antonio banking market is approximated by the San The Riverside banking market is approximated by the Antonio Metropolitan Statistical Area ("MSA") and Ken- Riverside-San Bernadino RMA and the towns of Banning, dall County. Beaumont, Blue Jay, Lake Arrowhead, Nuevo, Perris, and Running Springs. Appendix B The South Lake Tahoe banking market is approximated by the towns of South Lake Tahoe, California; and Stateline and Certain Banking Markets With No Divestitures Zephyr Cove, Nevada. The Truckee-Tahoe banking market is approximated by the A. Arizona Banking Markets towns of King's Beach, Tahoe City, and Truckee, California; and Incline Village, Nevada. Bullhead City: Norwest is the fifth largest depository institution in the market, controlling deposits of S47.6 million, C. Colorado Banking Market representing 7.4 percent of total market deposits. Wells Fargo is the third largest depository institution in the mar- The Denver banking market is approximated by the Denver ket, controlling deposits of $84.4 million, representing RMA, Boulder County, the towns of Erie, Fredrick, and 13 percent of total market deposits. On consummation of Keenesburg in Weld County, and the non-RMA portions of the proposal, New Wells Fargo would be the third largest of Adams and Arapahoe Counties. nine depository institutions in the market, controlling deposits of $132 million, representing approximately 20.4 percent D. Nevada Banking Markets of total market deposits. The HHI would increase 192 points to 2010. The Carson City banking market is approximated by the Winslow: Norwest is the second largest depository institution towns of Carson City, Dayton, Gardnerville, Minden, and in the market, controlling deposits of $29.4 million, repre- Virginia City. senting 28.4 percent of total market deposits. Wells Fargo is The Elko banking market is approximated by the towns of the third largest depository institution in the market, control- Carlin and Elko. ling deposits of $235 thousand, representing less than The Fallon banking market is approximated by the town of 1 percent of total market deposits. On consummation of the Fallon. proposal, New Wells Fargo would be the second largest of The Las Vegas banking market is approximated by the Las two depository institutions in the market, controlling depos- Vegas RMA. its of $29.6 million, representing approximately 28.6 per- The Reno banking market is approximated by the Reno RMA cent of total market deposits. The HHI would increase and the town of Fernley. 13 points to 5916. The Winnemucca banking market is approximated by the town of Winnemucca. B. California Banking Markets The Yerington banking market is approximated by the town of Yerington. Riverside: Norwest is the 26th largest depository institution in the market, controlling deposits of $27 million, representing E. New Mexico Banking Market less than 1 percent of total market deposits. Wells Fargo is the second largest depository institution in the market, The Santa Fe banking market is approximated by the Santa Fe controlling deposits of $594.3 million, representing RMA. 10.5 percent of total market deposits. On consummation of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1113 the proposal, New Wells Fargo would be the second largest trolling deposits of $176.4 million, representing 2.2 percent of 34 depository institutions in the market, controlling de- of total market deposits. On consummation of the proposal, posits of $621.2 million, representing approximately 11 New Wells Fargo would be the third largest of 44 deposipercent of total market deposits. The HHI would increase tory institutions in the market, controlling deposits of 10 points to 1469. $1.1 billion, representing 13.1 percent of total market de- South Lake Tahoe: Norwest is the eighth largest depository posits. The HHI would increase 48 points to 1181. institution in the market, controlling deposits of $16.8 mil- Brazos Country: Norwest is the largest depository institution lion, representing 5.3 percent of total market deposits. Wells in the market, controlling deposits of $234.9 million, repre- Fargo is the second largest depository institution in the senting 27.6 percent of total market deposits. Wells Fargo is market, controlling deposits of $61.8 million, representing the ninth largest depository institution in the market, con- 19.4 percent of total market deposits. On consummation of trolling deposits of $7.6 million, representing less than the proposal, New Wells Fargo would be the second largest 1 percent of total market deposits. On consummation of the of seven depository institutions in the market, controlling proposal, New Wells Fargo would be the largest of nine deposits of $78.6 million, representing approximately depository institutions in the market, controlling deposits of 24.7 percent of total market deposits. The HHI would $242.5 million, representing 28.5 percent of total market increase 204 points to 1792. deposits. The HHI would increase 49 points to 1836. Truckee-Tahoe: Norwest is the sixth largest depository institution in the market, controlling deposits of $20.9 million, Dallas: Norwest is the 39th largest depository institution in representing 4.2 percent of total market deposits. Wells the market, controlling deposits of $80.1 million, represent- Fargo is the fourth largest depository institution in the ing less than 1 percent of total market deposits. Wells Fargo market, controlling deposits of $53.4 million, representing is the eighth largest depository institution in the market, 10.8 percent of total market deposits. On consummation of controlling deposits of $596.9 million, representing the proposal, New Wells Fargo would be the third largest of 1.6 percent of total market deposits. On consummation of seven depository institutions in the market, controlling de- the proposal, New Wells Fargo would be the seventh largest posits of $74.3 million, representing 15 percent of total of 100 depository institutions in the market, controlling market deposits. The HHI would increase 91 points to 2522. deposits of $676.9 million, representing 1.7 percent of total market deposits. The HHI would increase 1 point to 1983. C. Colorado Banking Market Fort Worth: Norwest is the third largest depository institution in the market, controlling deposits of $ 1.1 billion, represent- Denver: Norwest is the largest depository institution in the ing 12.4 percent of total market deposits. Wells Fargo is the market, controlling deposits of $4.7 billion, representing eighth largest depository institution in the market, control- 21.7 percent of total market deposits. Wells Fargo is the ling deposits of $351.3 million, representing 3.8 percent of 13th largest depository institution in the market, controlling total market deposits. On consummation of the proposal, deposits of $350.4 million, representing 1.6 percent of total New Wells Fargo would be the third largest of 48 deposimarket deposits. On consummation of the proposal, New tory institutions in the market, controlling deposits of Wells Fargo would be the largest of 62 depository institu- $1.5 billion, representing 16.2 percent of total market detions in the market, controlling deposits of $5.1 billion, posits. The HHI would increase 95 points to 1046. representing 23.3 percent of total market deposits. The HHI Houston: Norwest is the 27th largest depository institution in would increase 69 points to 1135. the market, controlling deposits of $192.3 million, representing less than 1 percent of total market deposits. Wells D. New Mexico Banking Market Fargo is the third largest depository institution in the market, controlling deposits of $3.6 billion, representing Santa Fe: Norwest is the tenth largest depository institution in 9.4 percent of total market deposits. On consummation of the market, controlling deposits of $21.9 million, representthe proposal, New Wells Fargo would be the third largest of ing 2.4 percent of total market deposits. Wells Fargo is the 89 depository institutions in the market, controlling deposits fourth largest depository institution in the market, controlof $3.8 billion, representing 9.9 percent of total market ling deposits of $86.4 million, representing 9.3 percent of deposits. The HHI would increase 9 points to 979. total market deposits. On consummation of the proposal, New Wells Fargo would be the third largest of nine deposi- San Antonio: Norwest is the fourth largest depository institutory institutions in the market, controlling deposits of tion in the market, controlling deposits of $786.2 million, $108.3 million, representing 11.7 percent of total market representing 6.7 percent of total market deposits. Wells deposits. The HHI would increase 44 points to 2007. Fargo is the 16th largest depository institution in the market, controlling deposits of $82.9 million, representing less E. Texas Banking Market than 1 percent of total market deposits. On consummation of the proposal, New Wells Fargo would be the fourth Austin: Norwest is the third largest depository institution in largest of 37 depository institutions in the market, controlthe market, controlling deposits of $884.3 million, repre- ling deposits of $869.1 million, representing 7.5 percent of senting 11.6 percent of total market deposits. Wells Fargo is total market deposits. The HHI would increase 10 points to the ninth largest depository institution in the market, con- 1313. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1114 Federal Reserve Bulletin • December 1998 Appendix C 10.9 percent of market deposits. Wells Fargo is the third largest depository institution in the market, controlling deposits of $130.6 million, representing 18.7 percent of mar- Certain Banking Markets with Divestitures ket deposits. Norwest proposes to divest one branch controlling deposits of approximately $28.7 million. After the A. Arizona Banking Markets proposed merger and divestiture, New Wells Fargo would be the second largest of at least eight depository institutions Flagstaff: Norwest is the second largest depository institution in the market, controlling deposits of $177.8 million, reprein the market, controlling deposits of $77.3 million, repre- senting 25.4 percent of market deposits. The HHI would not senting 20 percent of market deposits. Wells Fargo is the increase more than 199 points or exceed a post-merger HHI third largest depository institution in the market, controlling of2112. deposits of $69.4 million, representing 17.9 percent of market deposits. Norwest proposes to divest one branch B. Nevada Banking Markets controlling deposits of approximately $50.4 million. After the proposed merger and divestiture, New Wells Fargo Elko: Norwest is the fifth largest depository institution in the would be the second largest of at least six depository market, controlling deposits of $28.2 million, representing institutions in the market, controlling deposits of 12.3 percent of market deposits. Wells Fargo is the largest $96.4 million, representing 24.9 percent of market deposits. depository institution in the market, controlling deposits of The HHI would not increase more than 157 points or $62.2 million, representing 27.1 percent of market deposits. exceed a post-merger HHI of 2135. Norwest proposes to divest one branch controlling deposits Lake Havasu City: Norwest is the fifth largest depository of approximately $28.2 million. After the proposed merger institution in the market, controlling deposits of $35.9 mil- and divestiture, New Wells Fargo would be the largest of at lion, representing 9.4 percent of market deposits. Wells least six depository institutions in the market, controlling Fargo is the third largest depository institution in the mar- deposits of $62.2 million, representing 27.1 percent of ket, controlling deposits of $52.4 million, representing 13.7 market deposits. The HHI would not increase more than percent of market deposits. Norwest proposes to divest one 90 points or exceed a post-merger HHI of 2034. branch controlling deposits of approximately $35.9 million. Fallon: Norwest is the second largest depository institution in After the proposed merger and divestiture, New Wells Fargo the market, controlling deposits of $52 million, representing would be the third largest of at least five depository institu- 25.3 percent of market deposits. Wells Fargo is the third tions in the market, controlling deposits of $52.4 million, largest depository institution in the market, controlling derepresenting 13.7 percent of market deposits. The HHI posits of $40 million, representing 19.5 percent of market would not increase more than 34 points or exceed a post- deposits. Norwest proposes to divest one branch controlling merger HHI of 2399. deposits of approximately $39.8 million. After the proposed Payson: Norwest is the fifth largest depository institution in merger and divestiture, New Wells Fargo would be the the market, controlling deposits of $29.5 million, represent- second largest of five depository institutions in the market, ing 12.3 percent of market deposits. Wells Fargo is the controlling deposits of $52.3 million, representing fourth largest depository institution in the market, control- 25.4 percent of market deposits. The HHI would increase ling deposits of $36.5 million, representing 15.2 percent of 2 points to 2405. market deposits. Norwest proposes to divest one branch Winnemucca: Norwest is the third largest depository institucontrolling deposits of approximately $29.5 million. After tion in the market, controlling deposits of $31.9 million, the proposed merger and divestiture, New Wells Fargo representing 24.2 percent of market deposits. Wells Fargo is would be the fourth largest of five depository institutions in the second largest depository institution in the market, the market, controlling deposits of $36.5 million, represent- controlling deposits of $38.7 million, representing 29.3 ing 15.2 percent of market deposits. The HHI would not percent of market deposits. Norwest proposes to divest one increase and would remain 2502. branch controlling deposits of approximately $31.9 million. Show Low: Norwest is the fifth largest depository institution in After the proposed merger and divestiture, New Wells Fargo the market, controlling deposits of $26.8 million, represent- would be the second largest of four depository institutions ing 12.6 percent of market deposits. Wells Fargo is the third in the market, controlling deposits of $38.7 million, reprelargest depository institution in the market, controlling de- senting 29.3 percent of market deposits. The HHI would not posits of $38.8 million, representing 18.2 percent of market increase and would remain 2641. deposits. Norwest proposes to divest one branch controlling Yerington: Norwest is the second largest depository institution deposits of approximately $12.8 million. After the proposed in the market, controlling deposits of $37.9 million, repremerger and divestiture, New Wells Fargo would become the senting 49.6 percent of market deposits. Wells Fargo is the second largest of at least four depository institutions in the largest depository institution in the market, controlling demarket, controlling deposits of $52.8 million, representing posits of $38.4 million, representing 50.4 percent of market 24.7 percent of market deposits. The HHI would increase deposits. Norwest proposes to divest one branch controlling 160 points to 2419. deposits of approximately $38.4 million. After the proposed Yuma: Norwest is the fifth largest depository institution in the merger and divestiture, New Wells Fargo would be the market, controlling deposits of $75.9 million, representing second largest of two depository institutions in the market, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1115 controlling deposits of $37.9 million, representing Interstate Analysis 49.6 percent of market deposits. The HHI would not increase and would remain 5000. Section 3(d) of the BHC Act allows the Board to approve an application by a bank holding company to acquire SunTrust Banks, Inc. control of a bank located in a state other than the home Atlanta, Georgia state of such bank holding company, if certain conditions are met. For purposes of the BHC Act, the home state of Order Approving the Acquisition of a Bank Holding SunTrust is Georgia, and Crestar controls a bank that Company operates in Virginia, Maryland, and the District of Columbia.4 All the conditions for an interstate acquisition enu- SunTrust Banks, Inc. ("SunTrust"), a bank holding com- merated in section 3(d) are met in this case.5 In view of all pany within the meaning of the Bank Holding Company the facts of record, the Board is permitted to approve the Act ("BHC Act"), has requested the Board's approval proposal under section 3(d) of the BHC Act. under section 3 of the BHC Act (12 U.S.C. § 1842(a)(3)) to acquire Crestar Financial Corporation ("Crestar"), and Competitive Considerations thereby acquire Crestar's subsidiary bank, Crestar Bank, both of Richmond, Virginia.1 SunTrust also has requested The BHC Act prohibits the Board from approving an the Board's approval under section 4(c)(8) of the BHC Act application under section 3 of the BHC Act if the proposal (12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board's would result in a monopoly or if the proposal would Regulation Y (12 CFR 225.24) to acquire the nonbanking substantially lessen competition in any relevant banking subsidiaries of Crestar and thereby engage in the nonbank- market and, in the latter case, the Board has not found that ing activities listed in the Appendix.2 the anticompetitive effects of the proposal are clearly out- Notice of the proposal, affording interested persons an weighed in the public interest by the probable effect of the opportunity to submit comments, has been published proposal in meeting the convenience and needs of the (63 Federal Register 47,499 and 49,358 (1998)). The time community to be served.6 SunTrust and Crestar do not for filing comments has expired, and the Board has consid- compete in any banking market. Based on all the facts of ered the application and notice and all comments received record, the Board concludes that consummation of the in light of the factors set forth in sections 3 and 4 of the proposal would not have a significantly adverse effect on BHC Act. competition or on the concentration of banking resources SunTrust, with total consolidated assets of approxi- in any relevant banking market. Accordingly, the Board mately $61.4 billion, operates banks in Florida, Georgia, has determined that competitive factors are consistent with Tennessee, and Alabama, and engages in a number of approval of the proposal. permissible nonbanking activities.3 SunTrust is the second largest commercial banking organization in Georgia, con- Financial, Managerial, and Other Supervisory Factors trolling deposits of approximately $10.3 billion, representing 12.6 percent of total deposits in commercial banking The Board has carefully considered the financial and manorganizations in the state ("state deposits"). Crestar, with agerial resources and future prospects of SunTrust and total consolidated assets of approximately $26.2 billion, Crestar, and their respective subsidiaries, and other supervioperates a bank with branches in Virginia, Maryland, and sory factors in light of all the facts of record. As part of this the District of Columbia. Crestar is the largest commercial consideration, the Board has reviewed relevant reports of banking organization in Virginia, controlling deposits of examination and other supervisory information prepared approximately $10.1 billion, representing 13.3 percent of by the Reserve Banks and other federal agencies. The Virginia state deposits. Crestar is the fourth largest com- Board notes that the bank holding companies and their mercial banking organization in Maryland, controlling deposits of approximately $4.9 billion, representing 8.9 percent of Maryland state deposits. In the District of 4. A bank holding company's home state is that state in which the Columbia, Crestar is the fifth largest commercial banking operation of the bank holding company's banking subsidiaries were principally conducted on July 1, 1966, or the date on which the organization, controlling deposits of approximately company became a bank holding company, whichever is later. $922.6 million, representing 9.1 percent of deposits in the 12 U.S.C. § 1841(o)(4)(C). District of Columbia. 5. See 12 U.S.C. §§ 1842(d)(l)(A) and (B) and 1842(d)(2)(A) and (B). SunTrust is adequately capitalized and adequately managed, as defined by applicable law. Crestar Bank has been in existence and 1. SunTrust proposes to acquire Crestar by merging its wholly continuously operated for the minimum period of five years. On owned subsidiary, SMR Corporation, formed solely for the purpose of consummation of the proposal, SunTrust would control less than effecting the acquisition, with and into Crestar. 10 percent of the total amount of deposits of insured depository 2. SunTrust also has requested the Board's approval to hold and institutions in the United States. SunTrust also would not exceed exercise an option to purchase up to 19.9 percent of the voting shares applicable state law deposit limitations, as calculated under state law, of Crestar if certain events occur. The option would expire on consum- in any state in which Crestar operates. See Md. Code Ann., § 5-1013 mation of the proposal. (1997). All other requirements of section 3(d) of the BHC Act would 3. Asset data are as of June 30, 1998, and state deposit and ranking be met on consummation of the proposal. data are as of June 30, 1997. 6. 12 U.S.C. §1842(c)(l). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1116 Federal Reserve Bulletin • December 1998 subsidiary banks are currently well capitalized and are including LMI households. The Board has given substanexpected to remain so after consummation of the proposal. tial consideration to the comments received in addition to The Board also has considered other aspects of the SunTrust's and Crestar's existing record of helping to financial condition and resources of the two organizations serve the convenience and needs of all their communities, and the structure of the proposed transaction. Based on as reflected in SunTrust's and Crestar's CRA and supervithese and other facts of record, the Board concludes that sory examinations and in their current programs and policonsiderations relating to the financial and managerial re- cies. sources and future prospects of SunTrust, Crestar, and their CRA Performance Examinations. The Board has long respective subsidiaries are consistent with approval of the held that consideration of the convenience and needs factor proposal, as are the other supervisory factors that the Board includes a review of the records of the relevant depository must consider under section 3 of the BHC Act. institutions under the CRA. As provided in the CRA, the Board evaluates the convenience and needs factor in light Convenience and Needs Factor of examinations of the CRA performance records of the relevant institutions by their appropriate federal financial The Board has carefully considered the effect of the pro- supervisory agencies. An institution's most recent CRA posed acquisition on the convenience and needs of the performance examination is a particularly important concommunities to be served in light of all the facts of record, sideration in the applications process because it represents including comments on the effect the proposal would have a detailed, on-site evaluation of the institution's overall on the communities to be served by the combined organiza- record of performance under the CRA by its appropriate tion. Overall, the Board received approximately 45 com- federal supervisor.9 The Board has reviewed the records of ments in favor of the proposal and nine opposed to, or performance of the subsidiary depository institutions of expressing concern about, the proposal. SunTrust and Crestar in light of their most recent CRA performance examinations and all other facts of record. Most of the comments supporting the proposal were submitted by public officials and community-based organi- The reports of these examinations indicate that the subzations and commented favorably on SunTrust's record of sidiary depository institutions of SunTrust and Crestar are performance under the Community Reinvestment Act helping to meet the convenience and needs of the commu- (12 U.S.C. § 2901 et seq.) ("CRA").7 These commenters nities they serve. All of SunTrust's 28 subsidiary banks, generally commended the assistance SunTrust provided in which operate in four states, received ratings of "satisfaccommunity redevelopment activities and praised SunTrust tory" or better from the appropriate federal supervisor at for reinvesting in various communities. The letters express- their most recent examinations for performance under the ing concern about the proposal urged SunTrust to make CRA. SunTrust's lead subsidiary bank, SunTrust Bank, commitments to lending in rural and small metropolitan Atlanta, Georgia, which accounts for approximately areas or criticized various aspects of the CRA performance 28 percent of SunTrust's consolidated assets, received a or home mortgage lending records of SunTrust and Crestar, "satisfactory" rating from the Federal Reserve Bank of including their lending records to minorities and in low- to Atlanta at its most recent examination for CRA performoderate-income ("LMI") areas, in part on the basis of mance, as of December 1996 (the "1996 Examination").10 data submitted under the Home Mortgage Disclosure Act Crestar Bank received an "outstanding" rating from the (12 U.S.C. § 2801 et seq.) ("HMDA").8 Federal Reserve Bank of Richmond at its most recent In reviewing the convenience and needs of the communi- examination for CRA performance, as of May 1996." ties to be served, the Board notes that SunTrust provides a full range of financial services through its bank and nonbank subsidiaries, including commercial and retail banking, trust and investment management, and corporate and 9. The Statement of the Federal Financial Supervisory Agencies Regarding the Community Reinvestment Act provides that a CRA investment banking services. SunTrust has stated that the examination is an important and often controlling factor in the considproposed acquisition would enhance and expand the bankeration of an institution's CRA record and that reports of these ing services available to all of its and Crestar's customers, examinations will be given great weight in the applications process. See 54 Federal Register 13,742 and 13,745 (1989); see also 62 Federal Register 52,105 (1997). 10. More than 25 percent of SunTrust's subsidiary banks received ratings of "outstanding" from the appropriate federal supervisors at 7. These commenters included nine public officials and the follow- their most recent examinations for CRA performance. ing community groups: Atlanta Neighborhood Development Partner- 11. Since that examination, Crestar Bank has merged with Crestar's ship, Inc., The College Fund/UNCF, Community Equity Investments, other subsidiary depository institutions, each of which also received Inc., Community Housing Resource Center, The Enterprise Founda- an "outstanding" rating from the appropriate federal supervisor at its tion, Florida Community Loan Fund, Greater Miami Neighborhoods, most recent CRA performance examination. Crestar Bank MD, Inc., Keystone Challenge Fund, and Tampa Bay Economic Develop- Bethesda, Maryland, received an "outstanding" CRA performance ment Corporation. rating from the Federal Reserve Bank of Richmond, as of August 8. These commenters were CANICCOR, Metropolitan Washington 1996; Crestar Bank, N.A., Washington, D.C., received an "outstand- Planning & Housing Association, Withlacoochee Regional Planning ing" CRA performance rating from the Office of the Comptroller of Council, Apalachee Regional Planning Council, CSRA Regional De- the Currency, as of November 1994; and Crestar Bank FSB, Baltivelopment Center, Southwest Tennessee Development District, South- more, Maryland, received an "outstanding" CRA performance rating east Georgia Regional Development Center, and two individuals. from the Office of Thrift Supervision, as of April 1996. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1117 The 1996 Examination concluded that the management flexible underwriting standards. In addition, SunTrust supof SunTrust Bank had taken an active and affirmative role ports efforts to provide affordable housing through its comin meeting credit needs throughout the bank's assessment munity development activities. During the review period of area, including the credit needs of LMI areas and individu- the 1996 Examination, SunTrust Bank originated loans of als and small businesses and small farms. Examiners found approximately $17.4 million to support the development of that SunTrust Bank's CRA-related investments exhibited a 437 affordable housing units in the Atlanta MSA. SunTrust high level of complexity and responsiveness to credit and has stated that, since the 1996 Examination, the bank has community development needs, that the bank's branch made approximately $29 million in construction loans for network was accessible to most segments of the communi- affordable single family homes. ties it served,12 and that the bank provided a significant Examiners also concluded that the lending records of number and variety of community development services.13 SunTrust's lead Florida and Tennessee banks, SunTrust Lending Record of SunTrust. The 1996 Examination Bank, Central Florida, Orlando, Florida ("STB-Central concluded that SunTrust Bank's level of lending within its Florida"), and SunTrust Bank, Nashville, N.A., Nashville, assessment area was excellent, and that the bank's level of Tennessee ("STB-Nashville"), respectively, reflected a requalified loans constituted a significant percentage of the sponsiveness to their communities' identified credit needs. bank's total assets and total loans. Examiners noted that the Examiners noted that STB-Central Florida had been active bank extended a large dollar volume of small business in meeting the primary community development lending loans during 1995 and the first two quarters of 1996. need in its assessment areas, which was affordable housing During this review period, the bank made 6,612 small for LMI individuals, and stated that the bank originated business loans, totalling $840 million. More than 80 per- $70.2 million in community development loans during the cent of these loans, totalling $291 million, were in amounts review period, most of which were for housing-related of less than $250,000. The bank also originated 27 Small projects for LMI individuals. Examiners further stated that Business Administration ("SBA") loans, totalling $56 mil- STB-Central Florida used innovative and flexible lending lion, during the review period, and an additional 12 SBA practices to serve the credit needs of its communities.15 loans, totalling $16.6 million, during the third quarter of Examiners of STB-Nashville also favorably noted the 1996. Examiners noted that the bank offered a variety of bank's flexible credit products designed for LMI individuflexible and innovative business products and participated als and described the bank as an active lender to small in several business development and microloan programs.14 businesses, explaining that the bank had made more than Examiners further noted that the bank's institutional com- 6,700 small business loans, totalling almost $800 million, munity development loans, primarily to nonprofit organiza- from January 1, 1994, to June 30, 1996.16 Examiners found tions and community service providers in the Atlanta Met- no evidence of prohibited discrimination or other illegal ropolitan Statistical Area ("MSA"), totalled $378 million credit practices and found no violations of fair lending in 1995 and $445 million in 1996. laws at STB-Central Florida or STB-Nashville. According to the 1996 Examination, the bank had an SunTrust has indicated that its subsidiary banks, during excellent record of extending home improvement, Federal 1997 and the first half of 1998, made 14,000 mortgage Housing Administration ("FHA") and Veterans Adminis- loans, totalling $679 million, to LMI borrowers, representtration ("VA") loans to LMI borrowers and in LMI census ing 21.3 percent of all mortgages made by the banks, and tracts. SunTrust Bank also offered numerous flexible home 6,500 mortgage loans, totalling $404 million, in LMI cenpurchase lending programs. The 1996 Examination found sus tracts. SunTrust also has asserted that its subsidiary that the bank assisted LMI borrowers to obtain affordable banks, during this same period, made 76,000 consumer housing through a variety of programs that featured re- loans, totalling $791 million, to LMI borrowers, representduced down payment and closing cost requirements and ing 34 percent of all consumer loans made by the banks, and 27,000 consumer loans, totalling $591 million, in LMI census tracts. Moreover, during this time period, Sun- Trust's subsidiary banks originated 41,000 small business 12. A commenter questioned whether the proposal would result in any branch closings or service reductions in the District of Columbia. loans, totalling $4.1 billion. Approximately 64 percent of SunTrust has indicated that it does not expect the transaction to result these loans were made to small businesses with annual in the closure of any branches and that it would make no immediate revenues of less than $ 1 million, 76 percent were made in changes in the terms and conditions of products and services offered by Crestar. 13. One commenter alleged, without providing any supporting facts, that SunTrust's subsidiary banks had dealt improperly with the com- 15. Examiners discussed the SunTrust Affordable Housing Promenter's SunTrust shares. The Board has provided copies of the gram, a proprietary program providing down payment assistance, comment to the appropriate federal supervisors of the relevant Sun- flexible debt ratios, below market interest rates, and no mortgage Trust subsidiary banks for their consideration. The Board retains insurance: the Community Home Buyers Program, a proprietary prosufficient authority to take appropriate supervisory action against gram offering flexible debt ratios and no discount points or origination SunTrust if the allegations can be substantiated. fees; and the Florida Housing Finance Agency Homeowner Mortgage 14. These programs included the Entrepreneurial Development Loan Revenue Bond Program, a statewide program that offers a below Fund, which makes loans to small businesses and businesses owned market interest rate and down payment assistance. by minorities in Atlanta, and the GRASP, Inc., Microloan Program, 16. Examiners also noted that approximately 23 percent of the which provides entrepreneurs access to loans in amounts of $500 to bank's small business loans in 1995 and the first half of 1996 were $25,000. made to borrowers in LMI census tracts. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1118 Federal Reserve Bulletin • December 1998 amounts of $100,000 or less, and 23 percent were made to borhoods, and that the banks' offices were reasonably businesses in LMI census tracts.17 accessible to all segments of their communities. SunTrust also has a strong record of small farm lending. During 1997 and the first half of 1998, Crestar made SunTrust and its subsidiaries originated more than 50 per- more than 13,600 mortgage loans, totalling approximately cent of the farm loans having an original principal amount $945 million, to LMI borrowers, representing approxiof $500,000 or less ("small loans to farms") and the loans mately 42 percent of all HMDA-reportable loans made by to farms having gross annual revenues of $1 million or less Crestar. During this same period, Crestar and its subsidiar- ("loans to small farms") made by all financial institutions ies made more than 36,200 consumer loans, totalling in the state of Florida in 1996 and 1997. In Georgia, $441 million, to LMI borrowers, representing 40 percent of SunTrust and its subsidiaries originated approximately all consumer loans made by Crestar, and more than 11,500 29 percent of the small loans to farms and approximately consumer loans, totalling $168 million, in LMI census 35 percent of the loans to small farms made by financial tracts, representing 32 percent of all consumer loans made institutions in the aggregate during the same period.18 by Crestar. Moreover, during this time period, Crestar originated approximately 14,800 small business loans, to- Lending Record of Crestar. The CRA performance extalling $1.4 billion; more than 80 percent of these loans aminations of Crestar's subsidiary depository institutions were made in amounts of $100,000 or less, and approxiindicated that Crestar's banks, thrift, and mortgage commately 20 percent were made to businesses in LMI census pany subsidiary, Crestar Mortgage Corporation, Richmond, tracts. Virginia, actively marketed mortgage products and actively solicited residential mortgage applications from LMI HMDA Data. The Board also has considered SunTrust's individuals. The examinations also noted that Crestar of- and Crestar's lending record in light of comments on the fered a number of affordable housing products and partici- HMDA data of the organizations' subsidiaries. The 1997 pated in a variety of government-sponsored loan programs, data indicate that Crestar Bank and Crestar Mortgage Corincluding those available through the FHA, VA, Virginia poration originated loans for a larger percentage of Housing Development Authority, the Maryland Commu- housing-related loan applications received from African nity Development Authority, and the D.C. Housing Fi- Americans, LMI individuals, and residents of census tracts nance Agency. Crestar also participates in an affordable with predominately minority and LMI residents ("minority housing program sponsored by the Federal Home Loan and LMI census tracts") in Virginia than did lenders in the Bank. Through this program, Crestar has helped develop aggregate. The 1997 data also generally indicate that Sun- 350 units of low-cost housing by providing $35 million in Trust's subsidiary banks originated loans for a significantly loans and grants. larger percentage of housing-related loan applications, and denied a significantly smaller percentage of such applica- In addition, Crestar has created special business loan tions, received from African Americans, Hispanics, LMI centers to underwrite credit to small businesses in its individuals, and residents of minority and LMI census service areas. Crestar also participates in several governtracts in Georgia, Florida, and Tennessee than did lenders ment programs to promote small business lending, includin the aggregate in those states. ing programs sponsored by the SBA, the Economic Development Administration, and the Virginia Small Business The data reflect, however, certain disparities in the rates Financing Authority. Examiners also concluded that Cre- of loan denials by racial group and income level. The star's depository institutions' delineations of their service Board is concerned when the record of an institution indiareas were reasonable and did not exclude any LMI neigh- cates disparities in lending, and believes that all banks are obligated to ensure that their lending practices are based on criteria that ensure not only safe and sound lending but also equal access to credit by creditworthy applicants regardless 17. Many of SunTrust's banks operate in rural and small metropoli- of their race or income level. The Board recognizes that tan areas and were recognized in their examinations for their small HMDA data alone provide an incomplete measure of an business and small farm lending. Several of these banks participated institution's lending in its community because these data in government-sponsored programs, such as those offered by the Rural Development Agency. cover only a few categories of housing-related lending. 18. Several commenters have urged SunTrust and Crestar to define HMDA data, moreover, provide only limited information their commitment to economic development investment and lending about the covered loans.19 HMDA data, therefore, have in rural and small metropolitan areas. SunTrust has indicated that the limitations that make them an inadequate basis, absent six SunTrust subsidiary banks whose communities include the service other information, for concluding that an institution has not areas of the commenters have average loan-to-deposit ratios of more than 104 percent and make the majority of their loans within their delineated communities. In addition, several of SunTrust's banks that operate in rural areas offer government-sponsored loan programs, including those of the Rural Development Agency, and were com- 19. The data, for example, do not account for the possibility that an mended in their most recent CRA performance examinations for the institution's outreach efforts may attract a larger proportion of marginvolume of their small business and small farm loan originations. ally qualified applicants than other institutions attract and do not Moreover, Crestar Bank offers Rural Housing and Community Devel- provide a basis for an independent assessment of whether an applicant opment Service loans and has invested in the Virginia Economic who was denied credit was, in fact, creditworthy. Credit history Development Corporation, a private organization that provides equity problems and excessive debt levels relative to income (reasons most and other forms of financing to small- and medium-sized businesses in frequently cited for a credit denial) are not available from HMDA rural areas throughout Virginia. data. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1119 adequately assisted in meeting its community's credit These subsidiaries, Crestar Insurance Agency, Inc. needs or has engaged in illegal lending discrimination. ("Crestar Insurance"), and Crestar Securities Corporation Because of the limitations of HMDA data, the Board has ("Crestar Securities"), both of Richmond, Virginia, enconsidered these data carefully in light of other informa- gage in insurance agency activities pursuant to Exemption tion. Examiners found no evidence of prohibited discrimi- G ("Exemption G") of Title VI of the Garn-St Germain nation or other illegal credit practices at the subsidiary Depository Institutions Act of 1982 ("Garn-St Germain depository institutions of SunTrust and Crestar at their Act"), which allows a bank holding company and its most recent completed examinations. Examiners reviewed subsidiaries to continue to engage in any insurance agency the fair lending policies and procedures maintained by the activity if the bank holding company or subsidiary was banks and found the policies and procedures to be compre- engaged in insurance agency activities prior to January 1, hensive and appropriate for monitoring compliance with 1971, as a consequence of approval by the Board prior to fair lending laws. The Board also has considered the that date.21 SunTrust argues that it should be permitted to HMDA data in light of SunTrust's and Crestar's lending acquire and engage in insurance agency activities through records, which show that the organizations' subsidiary Crestar Insurance and Crestar Securities on the basis of depository institutions assist significantly in helping to Exemption G rights that accrue to Crestar. meet the credit needs of their communities, including LMI The Board previously has determined that Exemption G areas. rights expire when the bank holding company possessing the Exemption G rights is acquired by another bank hold- Conclusion on Convenience and Needs Considerations ing company that does not independently qualify for Exemption G rights.22 In this case, SunTrust does not The Board has carefully considered all the facts of record, qualify for Exemption G rights because it was not engaged including the public comments received, responses to the in insurance activities prior to January 1, 1971, as a consecomments, and the CRA performance records of the subquence of Board approval. The Board does not believe that sidiary depository institutions of SunTrust and Crestar, the facts of this case justify a different conclusion.23 For the including relevant reports of examination. Based on a foregoing reasons, the Board concludes that Crestar's review of the entire record, and for the reasons discussed in Exemption G rights will expire when SunTrust acquires this order, the Board has concluded that convenience and Crestar, and SunTrust is not entitled to engage, directly or needs considerations, including the CRA performance through Crestar Insurance or Crestar Securities, in general records of the subsidiary depository institutions of Suninsurance agency activities pursuant to Exemption G. Trust and Crestar, are consistent with approval. In the alternative, SunTrust proposes to acquire and Nonbanking Activities conduct insurance agency activities through Crestar Insurance and Crestar Securities pursuant to Exemption D SunTrust also has filed notice under section 4(c)(8) of the ("Exemption D") of Title VI of the Garn-St Germain BHC Act to acquire the nonbanking subsidiaries of Crestar Act.24 Exemption D permits a bank holding company and and thereby engage in a number of nonbanking activities, any subsidiary of a bank holding company to continue to including extending credit and servicing loans, providing engage in any insurance agency activity in which the leasing services, providing financial and investment adcompany was engaged on May 1, 1982, or which the Board vice, providing agency transactional services (other than approved for such company on or before May 1, 1982. The acting as a futures commission merchant), underwriting Board previously has determined that a company with and dealing to a limited extent in debt and equity securities, Exemption D rights does not lose those rights on its acquibuying and selling bullion and related activities for the sition by a nongrandfathered bank holding company, proaccount of customers, insurance agency activities, commuvided that the grandfathered company retains its separate nity development activities, and data processing and mancorporate structure, its insurance activities are not conagement consulting activities through an automated teller ducted by other companies within the acquiring banking machine ("ATM") and point-of-sale network. The Board organization, and the company conducts its insurance acpreviously has determined by regulation or order that each tivities in accordance with the limits in Exemption D.25 of these activities is closely related to banking for purposes of section 4(c)(8) of the BHC Act.20 SunTrust proposes to conduct these activities in accordance with Regulation Y and all relevant Board interpretations and orders. 21. 12U.S.C. § 1843(c)(8)(G). 22. See Trustcorp, Inc., 73 Federal Reserve Bulletin 827, 829 A. Insurance Agency Activities (1987) ("Trustcorp"); C&S/Sovran Corporation, 76 Federal Reserve Bulletin 853 (1990) ("C&S/Sovran"). SunTrust also has applied to acquire and operate subsidiar- 23. SunTrust argues that, because Crestar would continue to exist after the proposed transaction, the language of Exemption G indicates ies of Crestar that engage in certain insurance activities. that Crestar Insurance and Crestar Securities would retain their Exemption G rights even after Crestar's acquisition by SunTrust. The Board previously has considered and rejected this interpretation of 20. See 12 C.F.R. 225.28 (b)(l), (3), (6), (7), (8). (9), (11), (12), and Exemption G. See Trustcorp, at 829. (14): United Virginia Bancshares, Inc., 73 Federal Reserve Bulletin 24. 12U.S.C. § 1843(c)(8)(D). 309 (1987); Bamett Banks, Inc., et al., 83 Federal Reserve Bulletin 25. See Sovran Financial Corporation, 73 Federal Reserve Bulletin 131 (1997). 672 (1987), aff'd, National Ass'n of Professional Insurance Agents v. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1120 Federal Reserve Bulletin • December 1998 Although SunTrust would not qualify for Exemption G The Board also has carefully considered the competitive rights after its acquisition of Crestar, the Board notes that effects of the proposed acquisition of Crestar's nonbanking Crestar Insurance and Crestar Securities may qualify for subsidiaries. Nonbank subsidiaries of SunTrust and Crestar Exemption D rights.26 SunTrust may provide additional compete in securities underwriting and dealing activities, evidence to the Board that Crestar Insurance or Crestar securities brokerage, asset management and investment Securities acted as agent in the sale of particular types of advisory activities, mutual fund advisory and share brokerinsurance in particular states on May 1, 1982.27 On such a age activities, credit card operations, mortgage origination showing, the relevant company would be permitted to and servicing activities, trust services, and selling insurcontinue to act as agent for those types of insurance in ance to the extent permissible for bank holding companies. Virginia, the states adjacent to Virginia, and the states in The Board notes that the market for each of the nonbankwhich the company was lawfully engaged in such activity ing services is unconcentrated, that there are numerous on May 1, 1982. providers of the services, and that there is minimal geographic overlap in the areas in which SunTrust and Crestar B. Proper Incident Considerations primarily offer these services. Consummation of the proposal, therefore, would have a de minimis effect on compe- In order to approve the proposal, the Board also must tition, and the Board has concluded that the proposal would determine that the performance of the proposed activities is not have a significantly adverse effect on competition in a proper incident to banking, that is, that the proposed any relevant market. transaction "can reasonably be expected to produce bene- The Board believes that the conduct of the proposed fits to the public . . . that outweigh adverse effects, such as activities within the framework established under Regulaundue concentration of resources, decreased or unfair com- tion Y and prior orders is not likely to result in adverse petition, conflicts of interests, or unsound banking prac- effects, such as undue concentration of resources, detices."28 creased or unfair competition, conflicts of interests, or The Board expects that the acquisition of Crestar by unsound banking practices, that would not be outweighed SunTrust would provide added convenience to customers by the public benefits of the proposal, such as increased of both institutions and is likely to result in increased convenience and gains in efficiency. Accordingly, based on operating efficiencies for the combined organization. Addi- all the facts of record, the Board has determined that the tionally, there are public benefits to be derived from permit- balance of public benefits that the Board must consider ting capital markets to operate so that bank holding compa- under the proper incident to banking standard of secnies can make potentially profitable investments in tion 4(c)(8) of the BHC Act is favorable and consistent nonbanking companies and from permitting banking orga- with approval of the proposal.30 nizations to allocate their resources in the manner they consider to be most efficient, when such investments and Conclusion actions are consistent, as in this case, with the relevant considerations under the BHC Act. Based on the foregoing and all the other facts of record, the As part of its evaluation of the statutory factors, the Board has determined that the application and notice Board considers the financial and managerial resources of should be, and hereby are, approved. The Board's approval the notificant, its subsidiaries, and any company to be is specifically conditioned on compliance by SunTrust with acquired; the effect the transaction would have on such all the commitments made in connection with the proposal resources; and the management expertise, internal control and all the conditions in this order. and risk management systems, and capital of the entity The Board's determination on the nonbanking activities conducting the activity.29 For the reasons discussed above, also is subject to all the terms and conditions set forth in and based on all the facts of record, the Board has con- Regulation Y, including those in sections 225.7 and cluded that financial and managerial considerations are 225.25(c) of Regulation Y (12 C.F.R. 225.7 and consistent with approval of the notice. 225.25(c)), and to the Board's authority to require such modification or termination of the activities of a bank holding company or any of its subsidiaries as the Board finds necessary to ensure compliance with, and to prevent Board of Governors of the Federal Reserve System, 856 R2d 282 evasion of, the provisions of the BHC Act and the Board's (D.C. Cir. 1988), cert, denied, 490 U.S. 1090 (1989). regulations and orders issued thereunder. For purposes of 26. The Board previously has determined that acquiring bank holding companies which did not qualify for Exemption G rights in connection with their acquisition of a grandfathered bank holding company could qualify for Exemption D rights. See Trustcorp; C&S/ Sovran. 30. SunTrust and Crestar each currently owns an approximately 27. This evidence should be consistent with the types of evidence 20 percent nonvoting equity interest in a company that engages in relied on by the Board in previous orders in which the Board found impermissible activities ("Company"). As part of this transaction, that a company met the requirements of Exemption D. See MidAmeri- SunTrust would acquire Crestar's 20 percent interest in Company. As can Corporation, 76 Federal Reserve Bulletin 559 (1990); Citicorp, a condition of the order, SunTrust is required to divest or reduce its 76 Federal Reserve Bulletin 70 (1990). interest in Company to comply with the Board's Policy Statement on 28. 12U.S.C. § 1843(c)(8). Nonvoting Equity Investments, 12 C.F.R. 225.143, within two years 29. See 12 C.F.R. 225.26. of consummation of the proposal. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1121 this order, the commitments and conditions relied on by the ORDERS ISSUED UNDER INTERNATIONAL BANKING Board in reaching this decision are deemed to be condi- ACT tions imposed in writing by the Board in connection with its findings and decisions, and, as such, may be enforced in Chinatrust Commercial Bank, Ltd. proceedings under applicable law. Taipei, Taiwan The acquisition of Crestar Bank may not be consummated before the fifteenth calendar day following the effec- Order Approving Establishment of a Branch tive date of this order, and the proposal may not be consummated later than three months after the effective date of Chinatrust Commercial Bank, Ltd. ("Bank"), Taipei, Taithis order, unless such period is extended for good cause by wan, a foreign bank within the meaning of the Internathe Board or by the Federal Reserve Bank of Atlanta, tional Banking Act ("IBA"), has applied under section 7(d) acting pursuant to delegated authority. of the IBA (12U.S.C. §3105(d)) to establish a state- By order of the Board of Governors, effective licensed branch in New York, New York. The Foreign October 28, 1998. Bank Supervision Enhancement Act of 1991 ("FBSEA"), which amended the IBA, provides that a foreign bank must Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and obtain the approval of the Board to establish a branch in Governors Meyer, Ferguson, and Gramlich. Absent and not voting: the United States. Governor Kelley. Notice of the application, affording interested persons an opportunity to submit comments, has been published in a ROBERT DEV. FRIERSON newspaper of general circulation in New York, New York Associate Secretary of the Board (New York Times, November 12, 1997). The time for filing comments has expired, and all comments have been con- Appendix sidered. Bank, with assets equivalent to approximately $16.9 billion, is the ninth largest bank in Taiwan.1 Bank's Crestar Financial Corporation's Nonbanking shares are publicly traded and widely held, with no single Subsidiaries shareholder directly owning more than 2 percent. Bank operates more than 30 branches in Taiwan and also has (1) Crestar Securities Corporation, Richmond, Virginia branches in Hong Kong, India, and Paraguay. In addition, ("Crestar Securities'"), and thereby engage in extending Bank operates an offshore banking unit in Taiwan and credit and servicing loans, providing leasing services, pro- commercial bank subsidiaries in the Philippines and viding financial and investment advisory services, provid- Indonesia. ing securities brokerage, riskless principal, and private Bank's primary purpose for establishing the proposed placement services, underwriting and dealing in bank- branch is to provide banking services to the U.S. subsidiareligible securities, entering into futures, forwards, and op- ies of Bank's existing customers in Taiwan, and to facilitions contracts for hedging puiposes, and buying and selling tate international trade between the United States and Asia. bullion and related activities for the account of customers Bank does not engage directly or indirectly in any nonpursuant to sections 225.28(b)(l), (3), (6), (7), and (8) of banking activities in the United States, and, after establish- Regulation Y (12 C.F.R. 225.28(b)(l), (3), (6), (7), and (8)); ing the proposed branch, would be a qualifying foreign and underwriting and dealing in. to a limited extent, certain banking organization within the meaning of Regulation K municipal revenue bonds, 1-4 family mortgage-related se- (12 C.F.R. 211.23(b)). curities, consumer receivable-related securities, and com- Bank has received approval to establish the proposed mercial paper, as previously approved by the Board in branch from the Taiwan authorities. The New York State Crestar Financial Corporation, 83 Federal Reserve Bulle- Banking Department also has approved Bank's application tin 512 (1997). to establish the proposed branch. (2) Crestar Insurance Agency, Inc., Richmond, Virginia, and In order to approve an application by a foreign bank to thereby engage in insurance agency activities, with Crestar establish a branch in the United States, the IBA and Regu- Securities, pursuant to section 225.28(b)(l l)(iv) of Regula- lation K require the Board to determine that the foreign tion Y (12 C.F.R. 225.28(b)(ll)(iv)), as discussed more bank applicant engages directly in the business of banking fully in the Order. outside of the United States, and has furnished to the Board (3) Crestar Community Development Corporation, Richmond, the information it needs to assess the application ade- Virginia, and thereby engage in community development quately. The Board also must determine that the foreign activities, pursuant to section 225.28(b)(12) of Regula- bank is subject to comprehensive supervision or regulation tion Y (12 C.F.R. 225.28(b)(12)). on a consolidated basis by its home country supervisor (4) Honor Technologies, Inc., Maitland, Florida, and thereby (12U.S.C. §31O5(d)(2); 12 C.F.R. 211.24)). The Board engage in data processing and management consulting ac- also may take into account additional standards as set forth tivities through the operation of an ATM and point-of-sale network, pursuant to sections 225.28(b)(9) and (14) of Regulation Y (12 C.F.R. 225.28(b)(9) and (14)). 1. All data are as of December 31, 1997, unless otherwise noted. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

] 122 Federal Reserve Bulletin • December 1998 in the IBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4); the Central Bank on substantially the same terms and 12C.F.R. 2ll.24(c)). conditions as such other banks. Based on all the facts of As noted above, Bank engages directly in the business of record, the Board has determined that Bank is subject to banking outside the United States. Bank also has provided comprehensive supervision and regulation on a consolithe Board with the information necessary to assess the dated basis by its home country supervisors. application through submissions that address the relevant The Board also has taken into account the additional issues. standards set forth in section 7 of the IBA (see 12 U.S.C. Regulation K provides that a foreign bank will be con- § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above, sidered to be subject to comprehensive supervision or Bank has received the consent of its home country authoriregulation on a consolidated basis if the Board determines ties to establish the proposed state-licensed branch. that the bank is supervised and regulated in such a manner Bank must comply with the minimum capital standards that its home country supervisor receives sufficient infor- of the Basle Accord, as implemented by Taiwan. Bank's mation on the foreign bank's worldwide operations, includ- capital exceeds these minimum standards and can be coning the relationship of the foreign bank to any affiliate, to sidered equivalent to capital that would be required of a assess the overall financial condition of the foreign bank U.S. banking organization. Managerial and other financial and its compliance with law and regulation (12 C.F.R. resources of Bank are also considered consistent with approval, and Bank appears to have the experience and With respect to the issue of supervision by home country capacity to support the proposed branch. Bank has estabauthorities, the Board has considered the following infor- lished controls and procedures for the proposed branch in mation. Bank is supervised and regulated by the Ministry order to ensure compliance with U.S. law, as well as of Finance ("Ministry") and the Taiwan Central Bank controls and procedures for its worldwide operations gener- ("Central Bank"), which share responsibility for the super- ally. vision of banks in Taiwan. The Banking Law of Taiwan The Board has reviewed the restrictions on disclosure in grants the Ministry overall authority for the regulation and relevant jurisdictions in which Bank operates and has comsupervision of banks in Taiwan, including Bank.3 The municated with relevant authorities about access to infor- Ministry has delegated the authority to the Central Bank to mation. Bank has committed that it will make available to act as the primary examiner of banks in Taiwan, in which the Board such information on the operations of Bank and capacity the Central Bank conducts mandatory annual ex- any affiliate of Bank that the Board deems necessary to aminations. determine and enforce compliance with the IBA, the Bank The Board previously has determined, in connection Holding Company Act of 1956, as amended, and other with applications involving other banks in Taiwan, that applicable federal law. To the extent that the provision of these banks were subject to home country supervision on a such information is prohibited or impeded by law, Bank consolidated basis.4 Bank is supervised by the Ministry and has committed to cooperate with the Board to obtain any consents or waivers that might be required from third parties in connection with disclosure of such information. 2. In assessing this standard, the Board considers, among other In addition, subject to certain conditions, the Ministry and factors, the extent to which the home country supervisors: the Central Bank may share information on Bank's opera- (i) Ensure that the bank has adequate procedures for monitoring tions with other supervisors, including the Board. In light and controlling its activities worldwide; of these commitments and other facts of record, and sub- (ii) Obtain information on the condition of the bank and its ject to the condition described below, the Board concludes subsidiaries and offices through regular examination reports, audit reports, or otherwise; that Bank has provided adequate assurances of access to (iii) Obtain information on the dealings with and relationship any necessary information the Board may request. between the bank and its affiliates, both foreign and domestic; On the basis of all the facts of record, and subject to the (iv) Receive from the bank financial reports that are consolidated commitments made by Bank, and the terms and conditions on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide set forth in this order, the Board has determined that consolidated basis; Bank's application to establish a state-licensed branch (v) Evaluate prudential standards, such as capital adequacy and should be, and hereby is, approved. Should any restrictions risk asset exposure, on a worldwide basis. on access to information on the operations or activities of These are indicia of comprehensive, consolidated supervision. No single factor is essential and other elements may inform the Board's Bank or any of its affiliates subsequently interfere with the determination. Board's ability to obtain information to determine and 3. This authority permits the Ministry, among other things, to issue enforce compliance by Bank or its affiliates with applicable licenses, limit activities and expansion, conduct examinations, set federal statutes, the Board may require termination of any minimum capital and liquidity ratios, limit credit extensions, restrict of Bank's direct or indirect activities in the United States. director interlocks, define qualifications for management, and take enforcement actions. Approval of the application also is specifically conditioned 4. See Taipei Bank, 79 Federal Reserve Bulletin 143 (1993); United on compliance by Bank with the commitments made in World Chinese Commercial Bank, 79 Federal Reserve Bulletin 146 (1993); Bank of Taiwan, 79 Federal Reserve Bulletin 541 (1993); Chiao Tung Bank, 79 Federal Reserve Bulletin 543 (1993); The Farmers Bank of China, 81 Federal Reserve Bulletin 620 (1995); Bank of Taiwan, 83 Federal Reserve Bulletin 336 (1997); Bank Taiwan Business Bank, 81 Federal Reserve Bulletin 746 (1995); Land SinoPac, 83 Federal Reserve Bulletin 669 (1997). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1123 connection with this application, and with the conditions in services. International operations include branches, reprethis order.5 The commitments and conditions referred to sentative offices, and bank and nonbank subsidiaries above are conditions imposed in writing by the Board in located in Europe, Asia, and the United States. Bank is a connection with its decision, and may be enforced in qualifying foreign banking organization within the meanproceedings under 12U.S.C. § 1818 or 12U.S.C. § 1847 ing of Regulation K (12 C.F.R. 211.23(b)). against Bank, its offices, and its affiliates. Bank was formed as the result of the merger of Giro- By order of the Board of Governors, effective October 5, Credit Bank Aktiengesellschaft der Sparkassen AG ("Giro- 1998. Credit") into Die Erste osterreichische Spar-Casse Bank Aktiengesellschaft ("Die Erste"), both of Vienna, Austria. Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Before the merger, Die Erste had no banking operations in Governors Kelley, Meyer, Ferguson, and Gramlich. the United States. GiroCredit operated a federally licensed, uninsured branch in New York, which Bank seeks author- ROBERT DEV. FRIERSON ity to operate through the instant application. Pursuant to Associate Secretary of the Board Regulation K, the Board allowed the merger to proceed before an application to establish the office was filed and Erste Bank odersterreichischen Sparkassen acted on by the Board.3 Aktiengesellschaft The Austrian Federal Ministry of Finance (the "Minis- Vienna, Austria try"), which approved the merger of Die Erste and Giro- Credit, has no objection to the continued operation of the Order Approving Establishment of a Branch existing branch of Bank. In order to approve an application by a foreign bank to Erste Bank odersterreichischen Sparkassen Aktiengesellestablish a branch in the United States, the IBA and Reguschaft, Vienna, Austria ("Bank"), a foreign bank within lation K require the Board to determine that the foreign the meaning of the International Banking Act ("IBA"), has bank applicant engages directly in the business of banking applied under section 7(d) of the IBA (12 U.S.C. § 31O5(d)) outside of the United States and has furnished to the Board to establish a federally licensed branch in New York, the information it needs to assess the application ade- New York. The Foreign Bank Supervision Enhancement quately. The Board generally also must determine that the Act of 1991, which amended the IBA, provides that a foreign bank is subject to comprehensive supervision or foreign bank must obtain the approval of the Board to regulation on a consolidated basis by its home country establish a branch in the United States. supervisor (12 U.S.C. § 3105(d)(2)). The Board may also Notice of the application, affording interested persons an take into account additional standards as set forth in the opportunity to comment, has been published in a newspa- IBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4); per of general circulation in New York (The New York 12 C.F.R. 211.24(c)). Times, May 28, 1998). The time for filing comments has Bank engages directly in the business of banking outside expired, and the Board has considered the application and of the United States through its banking operations in all comments received. Austria and elsewhere. Bank also has provided the Board Bank, with total consolidated assets of approximately with the information necessary to assess the application $57 billion, is one of the largest banks in Austria.1 Die through submissions that address the relevant issues. Erste osterreichische Spar-Casse Anteilsverwal- Regulation K provides that a foreign bank will be contungssparkasse, Vienna, Austria ("AVS""), which owns sidered to be subject to comprehensive supervision or 43 percent of Bank's voting shares, is Bank's largest regulation on a consolidated basis if the Board determines shareholder.2 No other single shareholder holds 10 percent that the bank is supervised and regulated in such a manner or more of the outstanding voting shares of Bank. that its home country supervisor receives sufficient infor- In addition to its network of domestic branches, Bank mation on the foreign bank's worldwide operations, includoperates bank and nonbank subsidiaries that engage in a ing the relationship of the foreign bank to any affiliate, to number of activities in Austria, including commercial assess the overall financial condition of the foreign bank banking, finance, insurance, real estate, and travel-related and its compliance with law and regulation (12 C.F.R. 5. The Board's authority to approve the establishment of the proposed office parallels the continuing authority of the State of New York to license offices of a foreign bank. The Board's, approval of the application does not supplant the authority of the State of New York 3. 12 C.F.R. 211.24(a)(3). and the New York State Banking Department ("Department") to 4. In assessing this standard, the Board considers, among other license the proposed office of Bank in accordance with any terms or factors, the extent to which the home country supervisors: conditions that the Department may impose. (i) Ensure that the bank has adequate procedures for monitoring and controlling its activities worldwide; 1. All data are as of June 30, 1998. (ii) Obtain information on the condition of the bank and its 2. AVS, an inactive savings bank that acts as a holding company for subsidiaries and offices through regular examination reports, Bank, is controlled by Verein - Die Ersteosterreichische Spar-Casse audit reports, or otherwise; Anteilsverwaltungssparkasse ("Verein DE"), a savings bank associa- (iii) Obtain information on the dealings with and relationship tion. Verein DE engages in no activities other than controlling AVS. between the bank and its affiliates, both foreign and domestic; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1124 Federal Reserve Bulletin • December 1998 In this case, with respect to the issue of supervision by of 1956, as amended, and other applicable federal law. To home country authorities, the Board has considered the the extent that the provision of such information is prohibfollowing information. Bank is supervised and regulated ited or impeded by law, Bank and Verein DE have commitby the Ministry and the Austrian National Bank ("Central ted to cooperate with the Board to obtain any necessary Bank")- The Board previously has determined that another consents or waivers that might be required from third Austrian credit institution is subject to comprehensive su- parties in connection with disclosure of certain informapervision on a consolidated basis by the Ministry and the tion. In addition, subject to certain conditions, the Ministry Central Bank.5 The Board has determined that Bank is may share information on Bank's operations with other supervised on substantially the same terms and conditions supervisors, including the Board. In light of these commitas that other institution. Based on all the facts of record, the ments and other facts of record, and subject to the condi- Board concludes that Bank is subject to comprehensive tion described below, the Board concludes that Bank has supervision on a consolidated basis by its home country provided adequate assurances of access to any necessary supervisor. information the Board may request. The Board also has taken into account the additional On the basis of all the facts of record, and subject to the standards set forth in section 7 of the IBA {see 12 U.S.C. commitments made by Bank, as well as the terms and § 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above, conditions set forth in this order, the Board has determined the Ministry has not objected to Bank establishing the that Bank's application to establish a federally licensed proposed federally licensed uninsured branch. branch should be, and hereby is, approved. Should any Austria is a signatory to the Basle risk-based capital restrictions on access to information on the operations or standards, and Austrian risk-based capital standards meet activities of Bank and its affiliates subsequently interfere those established by the Basle Capital Accord and the with the Board's ability to obtain information to determine European Union. Bank's capital is in excess of the mini- and enforce compliance by Bank or its affiliates with mum levels that would be required by the Basle Capital applicable federal statutes, the Board may recommend Accord and is considered equivalent to capital that would termination of any of Bank's direct or indirect activities in be required of a U.S. banking organization. Managerial and the United States. Approval of this application is also other financial resources of Bank also are considered con- specifically conditioned on Bank's compliance with the sistent with approval, and Bank appears to have the experi- commitments made in connection with this application and ence and capacity to support the branch. Bank has estab- with the conditions in this order.6 The commitments and lished controls and procedures for the branch to ensure conditions referred to above are conditions imposed in compliance with U.S. law, as well as controls and proce- writing by the Board in connection with its decision, and dures for its worldwide operations in general. may be enforced in proceedings under 12 U.S.C. § 1818 or Finally, the Board has reviewed the restrictions on dis- 12 U.S.C. § 1847 against Bank, its offices, and its affiliates. closure in relevant jurisdictions in which Bank operates By order of the Board of Governors, effective and has communicated with relevant government authori- October 14. 1998. ties about access to information. Bank and Verein DE have committed to make available to the Board such informa- Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and tion on the operations of Bank and any affiliate of Bank Governors Meyer, Ferguson, and Gramlich. Absent and not voting: Governor Kelley. that the Board deems necessary to determine and enforce compliance with the IBA, the Bank Holding Company Act ROBERT DEV. FRIERSON Associate Secretary of the Board (iv) Receive from the bank financial reports that are consolidated on a worldwide basis, or comparable information that permits analysis of the bank's financial condition on a worldwide consolidated basis; (v) Evaluate prudential standards, such as capital adequacy and 6. The Board's authority to approve establishment of the proposed risk asset exposure, on a worldwide basis. branch office parallels the continuing authority of the Office of the These are indicia of comprehensive, consolidated supervision. No Comptroller of the Currency ("OCC") to license federal offices of a single factor is essential and other elements may inform the Board's foreign bank. The Board's approval of this application does not determination. supplant the authority of the OCC to license the proposed branch 5. See Creditanstalt-Bankverein, 82 Federal Reserve Bulletin 594 office of Bank in accordance with any terms or conditions that the (1996). OCC may impose. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1125 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 Compass Bancshares, Inc., Arizona Bank, October 23, 1998 Birmingham, Alabama Tucson, Arizona First Citizens Bancshares. Inc.. First Volunteer Corporation, October 29, 1998 Dyersburg, Tennessee Union City, Tennessee First Volunteer Bank, Union City, Tennessee Old National Bancorp, Southern Bancshares, Ltd., October 13, 1998 Evansville, Indiana Carbondale, Illinois First National Bank and Trust Company, Carbondale, Illinois Simmons First National Corporation, American Bancshares of Arkansas, Inc., October 5, 1998 Pine Bluff, Arkansas Charleston, Arkansas American State Bank, Charleston, Arkansas Section 4 Applicant(s) Bank(s) Effective Date The Chase Manhattan Corporation, CBC Holding (Delaware) Inc., October 14, 1998 New York, New York Wilmington, Delaware Chase Equity Holdings, Inc., PNC Bank, National Association, Wilmington, Delaware Pittsburgh, Pennsylvania PNC Trust Company, Delaware, National Association, Wilmington, Delaware Norwest Corporation, Edina Realty Mortgage, LLC, October 13, 1998 Minneapolis, Minnesota Edina, Minnesota Norwest Corporation, RELS, LLC, October 5, 1998 Minneapolis, Minnesota San Diego, California RELS Title, LLC, Edina, Minnesota State Street Corporation, Bridge Information Systems, Inc., October 16, 1998 Boston, Massachusetts St. Louis, Missouri Wall Street on Demand, Inc., Boulder, Colorado Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1126 Federal Reserve Bulletin • December 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 Area Bancshares Corporation, Broadway Bank and Trust, St. Louis October 8, 1998 Owensboro, Kentucky Paducah, Kentucky BancorpSouth, Inc., The First Corporation, St. Louis October 9, 1998 Tupelo, Mississippi Opelika, Alabama First National Bank of Opelika, Opelika, Alabama BancFirst Corporation, Kingfisher Bancorp, Inc., Kansas City October 7, 1998 Okalahoma City, Oklahoma Kingfisher, Oklahoma Baylake Corporation, Evergreen Bank, N.A., Chicago September 17, 1998 Sturgeon Bay, Wisconsin Poy Sippi, Wisconsin BOK Financial Corporation, Bank of Albuquerque, N.A., Kansas City September 29, 1998 Tulsa, Oklahoma Albuquerque, New Mexico The George Family Partnership, Bonifay Holding Company, Inc., Atlanta September 30, 1998 Ltd., Bonifay, Florida Bonifay, Florida Bonifay Holdings, L.L.C. Bonifay, Florida Business Holding Corporation, The Business Bank of Baton Rouge, Atlanta October 1, 1998 Baton Rouge, Louisiana Baton Rouge, Louisiana Central Bancshares, Inc., First Central Bank McCook, National Kansas City October 21, 1998 Cambridge, Nebraska Association, McCook, Nebraska Century Bancshares, Inc., State Bank of Schaller, Chicago October 15, 1998 Schaller, Iowa Schaller, Iowa Colonial BancGroup, Inc., InterWest Bancorp, Atlanta September 29, 1998 Montgomery, Alabama Reno, Nevada InterWest Bank, Reno, Nevada Colonial BancGroup, Inc., TB&T, Inc., Atlanta October 15, 1998 Montgomery, Alabama Dallas, Texas Texas Bank & Trust, Dallas, Texas Cortland First Financial Oneida Valley Bancshares, Inc., New York October 7, 1998 Corporation, Oneida, New York Cortland, New York Oneida Valley National Bank of Oneida, Oneida, New York Eggemeyer Advisory Corp., Peninsula Bank of San Diego, San Francisco October 16, 1998 Rancho Santa Fe, California San Diego, California Castle Creek Capital, L.L.C, Rancho Santa Fe. California Castle Creek Capial Partners Fund-I, L.P., Rancho Santa Fe, California First Beemer Corporation, Citizens Bank, Kansas City September 30, 1998 Beemer, Nebraska Bancroft, Nebraska Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1127 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date First Gilmer Bankshares, Inc., Security State Bank, Dallas August 27, 1998 Gilmer, Texas Ore City, Texas First Gilmer Delaware Holdings, Ltd., Wilmington, Delaware FLAG Financial Corporation, Heart of Georgia Bancshares, Inc., Atlanta September 30, 1998 LaGrange, Georgia Mount Vernon, Georgia Mount Vernon Bank, Mount Vernon, Georgia F&M Bancorp, Monocacy Bancshares, Inc., Richmond October 9, 1998 Frederick, Maryland Taneytown, Maryland Frontier Financial Corporation, Valley Bancorporation, San Francisco October 7, 1998 Everett, Washington Sumner, Washington Bank of Sumner, Sumner, Washington Grandview Bancshares, Inc., First State Bank, Dallas September 30, 1998 Grandview, Texas Grandview, Texas Grandview Delaware Financial, Inc.. Dover, Delaware Gold Bane Corporation, Citizens Bancorporation, Inc., Kansas City October 16, 1998 Leawood, Kansas Tulsa, Oklahoma Citizens Bank of Tulsa, Tulsa, Oklahoma Heritage Commerce Corp., Heritage Bank East Bay, San Francisco October 21, 1998 San Jose, California Fremont, California Intra Financial Corporation, Arizona Bancshares, Inc., Kansas City September 24, 1998 Clyde, Kansas Flagstaff, Arizona Lake Bank Shares, Inc., Employee Lake Bank Shares, Inc., Minneapolis October 15, 1998 Stock Ownership Plan, Emmons, Minnesota Emmons, Minnesota Legacy Bancorp, Inc., Legacy Bank, Chicago October 9, 1998 Milwaukee, Wisconsin Milwaukee, Wisconsin Marine Bancshares, Inc., Security State Bank of Marine, Minneapolis October 21, 1998 Marine on St. Croix, Minnesota Marine on St. Croix, Minnesota Marin National Bancorp, First National Interim Bank of Marin, San Francisco October 19, 1998 San Rafael, California Las Vegas, Nevada MetroCorp Bancshares, Inc., MetroBank, National Association, Dallas October 9, 1998 Houston, Texas Houston, Texas MetroCorp-Delaware, Inc., MetroBank, National Association, Dallas October 9, 1998 Wilmington, Delaware Houston, Texas Michigan Community Bancorp Lakeside Community Bank, Chicago October 9, 1998 Limited, Sterling Heights, Michigan Sterling Heights, Michigan North Oakland Community Bank, Rochester Hills, Michigan Morrill Bancshares, Inc., Morrill & Janes Bancshares, Inc., Kansas City September 24, 1998 Sabetha, Kansas Hiawatha, Kansas Mutual Bancorp of the Berkshires, Lenox Financial Services Corp., Boston October 16, 1998 Inc. Lenox, Massachusetts Pittsfield, Massachusetts Lenox Savings Bank, City Savings Bank of Pittsfield, Lenox, Massachusetts Pittsfield, Massachusetts United Financial Group, Inc., Pittsfield, Massachusetts Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1128 Federal Reserve Bulletin • December 1998 Section 3—Continued Applicant(s) Bank(s) Reserve Bank Effective Date National City Bancshares, Inc.. Progressive Bancshares, Inc., St. Louis October 5, 1998 Evansville, Indiana Lexington, Kentucky The Progressive Bank, N.A., Lexington, Kentucky Oconee Financial Corporation, Oconee State Bank, Atlanta October 15, 1998 Watkinsville, Georgia Watkinsville, Georgia Ottawa Bancshares, Inc., First State Management, Inc., Kansas City October 21, 1998 Ottawa, Kansas Salina, Kansas Pacific Coast Bankers' Bancshares, Pacific Coast Bankers' Bank, San Francisco October 15, 1998 San Francisco, California San Francisco, California Pepperell Bancshares Financial Pepperell Trust Company, Boston September 23, 1998 Group, Inc., Biddeford, Maine Biddeford, Maine Petefish, Skiles Bancshares, Inc., Petefish, Skiles & Co., Chicago October 15, 1998 Virginia, Illinois Virginia, Illinois PHS Bancorp, M.H.C., PHS Bancorp, Inc., Cleveland September 25, 1998 Beaver Falls, Pennsylvania Beaver Falls, Pennsylvania Provincial Corp., Provincial Bank, Minneapolis October 8, 1998 Lakeville, Minnesota LakeviJle, Minnesota Putnam County Bancorp, Inc., Bank of Ladd, Chicago September 25, 1998 Hennepin, Illinois Ladd, Illinois Republic First Bancorp, Inc., Republic First Bank Delaware, Philadelphia October 1, 1998 Philadelphia, Pennsylvania Brandywine, Delaware Robinson Bancshares, Inc., Bank of Lenox, Atlanta October 21, 1998 Lenox, Georgia Lenox, Georgia Seed Money Limited Partnership, Enterprise Bank, Cleveland October 8, 1998 Allison Park, Pennsylvania Allison Park, Pennsylvania Texas Financial Bancorporation, Walburg State Bank, Dallas August 31, 1998 Inc., Georgetown, Texas Minneapolis, Minnesota Delaware Financial, Inc., Wilmington, Delaware Travelers Rest Bancshares, Inc., Bank of Travelers Rest, Richmond October 22, 1998 Travelers Rest, South Carolina Travelers Rest, South Carolina United Financial Corp., Valley Bancorp, Inc., Minneapolis October 22, 1998 Great Falls, Montana Phoenix, Arizona Union Planters Corporation, LaPlace Bancshares, Inc., St. Louis September 24, 1998 Memphis, Tennessee LaPlace, Louisiana Union Planters Holding Corporation, Bank of LaPlace of St. John the Baptist Memphis, Tennessee Parish, Louisiana LaPlace, Louisiana Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1129 Section 4 Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Advance Bancorp, Inc., South Chicago Bank, Chicago October 15, 1998 Homewood, Illinois Chicago, Illinois ANB Corporation, American National Trust and Chicago October 8, 1998 Muncie, Indiana Investment Management Company, Muncie, Indiana, Indiana Trust & Investment Management Company, Mishawaka, Indiana The Bank of New York Company, BNY ESI & Co.. New York October 1, 1998 Inc., New York, New York New York, New York Alpha Management Inc., San Francisco, California Bank of the Ozarks, Inc., John R. Taylor Financial Group, Inc., St. Louis October 13, 1998 Little Rock, Arkansas Fort Smith, Arkansas Colonial BancGroup, Inc., InterWest Mortgage, Atlanta September 29, 1998 Montgomery, Alabama Reno, Nevada Davis Bancorporation, Inc., FBC Financial Corporation, Kansas City October 16, 1998 Davis, Oklahoma Claremore, Oklahoma First Bancorporation, Inc., Midwest Data Services, Inc., Minneapolis September 30, 1998 La Crosse, Wisconsin La Crosse, Wisconsin First Centralia Bancshares, Inc., FBC Financial Corporation, Kansas City, October 16, 1998 Centralia, Kansas Claremore, Oklahoma First Western Bancorp, Inc., Northern Hills Insurance, LLC. Minneapolis October 19, 1998 Huron, South Dakota Belle Fourche, South Dakota Imperial Bancorp, First Houston Financial Services, Inc., San Francisco October 5, 1998 Inglewood, California d.b.a., Altair Corporation, Houston, Texas Mellon Bank Corporation, Russell Mellon Analytical Services, Cleveland October 19, 1998 Pittsburgh, Pennsylvania LLC, Tacoma, Washington Morrill Bancshares, Inc., FBC Financial Corporation, Kansas City October 16, 1998 Sabetha, Kansas Claremore, Oklahoma Morrill & Janes Bancshares, Inc., FBC Financial Corporation, Kansas City October 16, 1998 Hiawatha, Kansas Claremore, Oklahoma New London Bancshares, Inc., To engage in general insurance agency St. Louis October 15, 1998 New London, Missouri activities Onaga Bancshares, Inc., FBC Financial Corporation, Kansas City October 16, 1998 Onaga, Kansas Claremore, Oklahoma Second Bancorp, Trumbull Financial Corporation, Cleveland October 7, 1998 Warren, Ohio Warren, Ohio Sherburn Bancshares, Inc., To engage de novo in the nonbank Minneapolis October 2, 1998 Sherburn, Minnesota activity of making loans and buying overlines TIB Financial Corporation, TIB Software and Services, Inc., Atlanta October 7, 1998 Key Largo, Florida Key Largo, Florida ERAS Joint Venture, Miami, Florida United Overseas Bank Limited, UOB Global Capital LLC, New York October 22, 1998 Singapore Delaware TeamCo Management Co., LLC, Delaware Westdeutsche Landesbank WestLB Securities Americas Inc., New York October 1, 1998 Girozentrale, New York, New York Duesseldorf, Federal Republic of Germany Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1130 Federal Reserve Bulletin • December 1998 Section 4—Continued Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date Wilmington Trust Corporation, WT Investments, Inc. Philadelphia September 25, 1998 Wilmington, Delaware Wilmington, Delaware Wilmington Trust Company, Wilmington, Delaware 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 AmSouth Bank, AmSouth Bank of Tennessee, October 22, 1998 Birmingham, Alabama Chattanooga, Tennessee Capital City Bank Group, Inc., First Union National Bank, October 20, 1998 Tallahassee, Florida Charlotte, North Carolina Security Bank, First State Bank, October 26, 1998 Rails, Texas Petersburg, Texas By Federal Reserve Banks Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request to the Reserve Banks. Applicant(s) Bank(s) Reserve Bank Effective Date BancFirst, Kingfisher Bank & Trust Company, Kansas City October 7, 1998 Oklahoma City, Oklahoma Kingfisher. Oklahoma Bank of Bentonville, State Bank of Noel, St. Louis October 9, 1998 Bentonville, Arkansas Noel, Missouri • Colonial Bank, InterWest Bank, Atlanta September 29, 1998 Montgomery, Alabama Reno, Nevada Colonial Bank, Texas Bank & Trust, Atlanta October 15, 1998 Montgomery, Alabama Dallas, Texas Comerica Bank, Comerica Bank & Trust, Chicago October 19, 1998 Detroit, Michigan F.S.B., Boca Raton, Florida Farmers State Bank of West Eagle Valley Bank, N.A., Minneapolis October 21, 1998 Concord, St. Croix Falls, Wisconsin West Concord, Minnesota Mercantile Bank Midwest, The Rock Island Bank National Chicago October 2, 1998 Des Moines, Iowa Association, Bettendorf, Iowa Mercantile Bank Midwest, First National Bank Iowa, Chicago October 2, 1998 Des Moines, Iowa Iowa City, Iowa People First Bank, City Bank, Kansas City October 8, 1998 Hennessey, Oklahoma Weatherford, Oklahoma Republic Security Bank, Newberry Bank, Atlanta October 21, 1998 West Palm Beach, Florida Newberry, Florida Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Legal Developments 1131 PENDING CASES INVOLVING THE BOARD OF GOVERNORS This list of pending cases does not include suits against the Board of Governors v. Carrasco, No. 98 Civ. 3474 (LAK) Federal Reserve Banks in which the Board of Governors is not (S.D.N.Y., filed May 15, 1998). Action to freeze assets of named a party. individual pending administrative adjudication of civil money penalty assessment by the Board. On May 26, 1998, the court issued a preliminary injunction restraining the Attorneys Against American Apartheid v. Board of Governors, transfer or disposition of the individual's assets and appoint- No. 98-1483 (D.C. Cir., filed October 21, 1998). Petition ing the Federal Reserve Bank of New York as receiver for for review of denial of reconsideration of a Board order those assets. dated August 17, 1998, approving the merger of NationsBank Corporation, Charlotte, North Carolina, and Board of Governors v. Pharaon, No. 98-6101 (2d Cir., filed BankAmerica. Corporation, San Francisco, California. May 4, 1998). Appeal of partial denial of Board's motion for summary judgment in action to freeze assets of individ- Independent Bankers Association of America v. Board of Govual pending administrative adjudication of civil money penernors, No. 98-1482 (D.C. Cir., filed October 21, 1998). alty assessment by the Board. On May 22, 1998, the appel- Petition for review of a Board order dated September 23, lee filed a cross-appeal from the partial final judgment. 1998, conditionally approving the applications of Travelers Group, Inc., New York, New York, to become a bank Research Triangle Institute v. Board of Governors, No. 97holding company by acquiring Citicorp, New York, 1719 (U.S. Supreme Court, filed April 28, 1998). Petition New York, and its bank and nonbank subsidiaries. for writ of certiorari to review dismissal by the United States Court of Appeals for the Fourth Circuit of a contract Jones v. Board of Governors, No. 98-30138 (5th Cir., filed claim against the Board. On October 5, 1998, the Supreme October 1, 1998). Appeal of district court dismissal of Court denied the writ. complaint alleging violations of the Fair Housing Act. Fenili v. Davidson, No. C-98-01568-CW (N.D. California, Cunningham v. Board of Governors, No. 98-1459 (D.C. Cir., filed April 17, 1998). Tort and constitutional claim arising filed September 30, 1998). Petition for review of a Board out of return of a check. On June 5, 1998, the Board filed its order dated September 23, 1998, conditionally approving motion to dismiss. the applications of Travelers Group, Inc., New York, Wilkins v. Warren, No. 98-1320 (4th Cir., filed March 2, New York, to become a bank holding company by acquir- 1998). Appeal of District Court dismissal of action involving Citicorp, New York, New York, and its bank and ing customer dispute with a bank. On June 10, 1998, the nonbank subsidiaries. court of appeals dismissed the appeal. Wasserman v. Board of Governors. No. 98-CIV-6017 Logan v. Greenspan, No. l:98CV00049 (D.D.C., filed Janu- (S.D.N.Y., filed August 24, 1998). Complaint alleging ary 9, 1998). Employment discrimination complaint. wrongful failure to investigate activities of a bank. On September 14, 1998, the Board filed its motion to dismiss Goldman v. Department of the Treasury, No. 1-97-CV-3798 the complaint, and on October 14 the court dismissed the (N.D. Ga., filed December 23, 1997). Declaratory judgment action on plaintiff's withdrawal of the complaint. action challenging Federal Reserve notes as lawful money, On March 2, 1998, the Board filed a motion to dismiss the Pharaon v. Board of Governors, No. 98-103 (U.S. Supreme action. Court, filed July 15, 1998). Petition for writ of certiorari seeking review of the decision of the Court of Appeals for Kerr v. Department of the Treasury, No. CV-S-97-01877the District of Columbia Circuit affirming the Board's order DWH (S.D. Nev., filed December 22, 1997). Challenge to dated January 31, 1997, imposing civil money penalties and income taxation and Federal Reserve notes. On Septeman order of prohibition for violations of the Bank Holding ber 3, 1998, a motion to dismiss was filed on behalf of all Company Act. On October 19, 1998, the Supreme Court federal defendants. denied the writ. Allen v. Indiana Western Mortgage Corp., No. 97-7744 RJK (CD. Cal., filed November 12, 1997). Customer dispute Inner City Press/Community on the Move v. Board of Goverwith a bank. On March 23, 1998, the district court disnors, No. 98-CIV-4608 (DLC) (S.D.N.Y., filed June 30, missed the action. 1998). Freedom of Information Act case. On July 1, 1998, the court denied plaintiff's motion for a temporary restrain- Patrick v. United States, No. 97-75564 (E.D. Mich., filed ing order extending the public comment period on the November 7, 1997). Action for damages arising out of tax application by Travelers Group Inc. to acquire Citicorp. On dispute. On August 20, 1998, the district court dismissed September 30, 1998, the court granted the Board's motion the action as to all defendants. for summary judgment. Patrick v. United States, No. 97-75017 (E.D. Mich., filed Clarkson v. Greenspan, No.98-5349 (D.C. Cir., filed July 29, September 30, 1997). Action for damages arising out of tax 1998). Appeal of district court order granting Board's mo- dispute. On August 20, 1998, the district court dismissed tion for summary judgment in a Freedom of Information the action as to all defendants. Act case. On September 14, 1998, the Board filed a motion Artis v. Greenspan, No. 97-5235 (D.C. Cir., filed Septemfor summary affirmance of the district court dismissal. ber 19, 1997). Appeal of district court order dismissing Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

1132 Federal Reserve Bulletin • December 1998 employment discrimination class action. On October 20, phin's banking and nonbanking subsidiaries. On August 14, 1998, the court of appeals affirmed the dismissal. 1998, the court of appeals denied the petition. Towe v. Board of Governors, No. 97-71143 (9th Cir, filed September 15, 1997). Petition for review of a Board order dated August 18, 1997, prohibiting Edward Towe and Thomas E. Towe from further participation in the banking FINAL ENFORCEMENT ORDERS ISSUED BY THE industry. BOARD OF GOVERNORS In re: Subpoena Duces Tecum Served on the Office of the Comptroller of the Currency, No. 97-5229 (D.C. Cir., filed Jerome C. Bechstein September 12, 1997). Appeal of district court order denying Perrysburg, Ohio motion to compel production of pre-decisional supervisory documents and testimony sought in connection with an The Federal Reserve Board announced on October 15, action by Bank of New England Corporation's trustee in 1998, the issuance of an Order of Prohibition against bankruptcy against the Federal Deposit Insurance Corpora- Jerome C. Bechstein, the former President, Chief Execution. On June 26, 1998, the court of appeals reversed and tive Officer, and a Director of the former Towne Bank, remanded the case to the district court. On August 10, 1998, Perrysburg, Ohio, and the bank's former bank holding the Board filed a petition for rehearing and suggestion for company, Towne Bancorp, Inc. rehearing in bane. On October 6, 1998, the court amended its opinion and denied the petition. Lois A. Brigham Bettersworth v. Board of Governors, No. 97-CA-624 (W.D. Perrysburg, Ohio Tex., filed August 21, 1997). Privacy Act case. Greeff v. Board of Governors, No. 97-1976 (4th Cir., filed The Federal Reserve Board announced on October 15, June 17, 1997). Petition for review of a Board order dated 1998, the issuance of an Order of Prohibition against Lois May 19, 1997, approving the application by Allied Irish A. Brigham, the former Senior Vice President and a Direc- Banks, pic, Dublin, Ireland, and First Maryland Bancorp, tor of the former Towne Bank, Perrysburg, Ohio, and the Baltimore, Maryland, to acquire Dauphin Deposit Corpora- bank's former bank holding company, Towne Bancorp, tion, Harrisburg, Pennsylvania, and thereby acquire Dau- Inc. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Al Financial and Business Statistics A3 GUIDE TO TABULAR PRESENTATION Federal Finance—Continued A27 Gross public debt of U.S. Treasury— DOMESTIC FINANCIAL STATISTICS Types and ownership A28 U.S. government securities Money Stock and Bank Credit dealers—Transactions A4 Reserves, money stock, liquid assets, and debt A29 U.S. government securities dealers— measures Positions and financing A5 Reserves of depository institutions and Reserve Bank A30 Federal and federally sponsored credit credit agencies—Debt outstanding A6 Reserves and borrowings—Depository institutions Securities Markets and Corporate Finance Policy Instruments A31 New security issues—Tax-exempt state and local governments and corporations A7 Federal Reserve Bank interest rates A32 Open-end investment companies—Net sales A8 Reserve requirements of depository institutions and assets A9 Federal Reserve open market transactions A32 Corporate profits and their distribution A32 Domestic finance companies—Assets and Federal Reserve Banks liabilities A3 3 Domestic finance companies—Owned and managed A10 Condition and Federal Reserve note statements receivables All Maturity distribution of loan and security holding Real Estate Monetary and Credit Aggregates A34 Mortgage markets—New homes A12 Aggregate reserves of depository institutions A35 Mortgage debt outstanding and monetary base A13 Money stock, liquid assets, and debt measures Consumer Credit A36 Total outstanding Commercial Banking Institutions— A36 Terms Assets and Liabilities A15 All commercial banks in the United States Flow of Funds A16 Domestically chartered commercial banks A17 Large domestically chartered commercial banks A37 Funds raised in U.S. credit markets A19 Small domestically chartered commercial banks A39 Summary of financial transactions A20 Foreign-related institutions A40 Summary of credit market debt outstanding A41 Summary of financial assets and liabilities Financial Markets A22 Commercial paper and bankers dollar DOMESTIC NONFINANCIAL STATISTICS acceptances outstanding A22 Prime rate charged by banks on short-term Selected Measures business loans A42 Nonfinancial business activity A23 Interest rates—Money and capital markets A42 Labor force, employment, and unemployment A24 Stock market—Selected statistics A43 Output, capacity, and capacity utilization A44 Industrial production—Indexes and gross value Federal Finance A46 Housing and construction A25 Federal fiscal and financing operations A47 Consumer and producer prices A26 U.S. budget receipts and outlays A48 Gross domestic product and income A27 Federal debt subject to statutory limitation A49 Personal income and saving Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A2 Federal Reserve Bulletin • December 1998 INTERNATIONAL STATISTICS Reported by Nonbanking Business Enterprises in the United States Summary Statistics A58 Liabilities to unaffiliated foreigners A50 U.S. international transactions A59 Claims on unaffiliated foreigners A51 U.S. foreign trade A51 U.S. reserve assets Securities Holdings and Transactions A51 Foreign official assets held at Federal Reserve A60 Foreign transactions in securities Banks A61 Marketable U.S. Treasury bonds and A52 Selected U.S. liabilities to foreign official notes—Foreign transactions institutions Interest and Exchange Rates Reported by Banks in the United States A61 Discount rates of foreign central banks A52 Liabilities to, and claims on, foreigners A61 Foreign short-term interest rates A53 Liabilities to foreigners A62 Foreign exchange rates A55 Banks' own claims on foreigners A56 Banks' own and domestic customers' claims on A63 GUIDE TO STATISTICAL RELEASES AND foreigners A56 Banks' own claims on unaffiliated foreigners SPECIAL TABLES A57 Claims on foreign countries—Combined domestic offices and foreign branches A64 INDEX TO STATISTICAL TABLES Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A3 Guide to Tabular Presentation SYMBOLS AND ABBREVIATIONS c Corrected G-10 Group of Ten e Estimated GNMA Government National Mortgage Association n.a. Not available GDP Gross domestic product P Preliminary HUD Department of Housing and Urban r Revised (Notation appears on column heading Development when about half of the figures in that column IMF International Monetary Fund are changed.) IO Interest only * Amounts insignificant in terms of the last decimal IPCs Individuals, partnerships, and corporations place shown in the table (for example, less than IRA Individual retirement account 500,000 when the smallest unit given is millions) MMDA Money market deposit account 0 Calculated to be zero MSA Metropolitan statistical area Cell not applicable NOW Negotiable order of withdrawal ATS Automatic transfer service OCD Other checkable deposit BIF Bank insurance fund OPEC Organization of Petroleum Exporting Countries CD Certificate of deposit OTS Office of Thrift Supervision CMO Collateralized mortgage obligation PMI Private mortgage insurance CRA Community Reinvestment Act of 1977 PO Principal only FFB Federal Financing Bank REIT Real estate investment trust FHA Federal Housing Administration REMIC Real estate mortgage investment conduit FHLBB Federal Home Loan Bank Board RP Repurchase agreement FHLMC Federal Home Loan Mortgage Corporation RTC Resolution Trust Corporation FmHA Farmers Home Administration SCO Securitized credit obligation FNMA Federal National Mortgage Association SDR Special drawing right FSLIC Federal Savings and Loan Insurance Corporation SIC Standard Industrial Classification G-7 Group of Seven VA Department of Veterans Affairs GENERAL INFORMATION In many of the tables, components do not sum to totals because of include not fully guaranteed issues) as well as direct obligarounding. tions of the Treasury. Minus signs are used to indicate (1) a decrease, (2) a negative "State and local government" also includes municipalities, figure, or (3) an outflow. special districts, and other political subdivisions. "U.S. government securities" may include guaranteed issues of U.S. government agencies (the flow of funds figures also Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A4 Domestic Financial Statistics • December 1998 1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES Percent annual rate of change, seasonally adjusted1 Monetary or credit aggregate Q4 Ql Q2 Q3 July Sept. Reserves of depositor}1 institutions 1 Total .' -2.8' -1.9 -3.8 -7.4 -9.6 -5.3 -15.3 4.9 10.9 2 Required -5.6 -1.8 -2.5 -9.0 -4.7 -18.1 -8.8 1.0' 16.1 3 Nonborrowed - 6r -4.3 -8.3 -11.7 -7.9 -15.5 4.6 -10.5 4 Monetary base1 6.9 4.1 6.9 4.7 6.2 5.0 8.9 11.5 Concepts of money, liquid assets, and debt 5 Ml .9 3.0 -2.7 -3.3 -3.6 -3.2 -3.6 3 4 6 M2 7.0 8.0 7.5 6.7 3.0 5.3 4.7 8.3 15.6 7 M3 10.0 11.0 10.3' 7.0 7.4' 6.8' 1.3' 11.5' 15.1 8 L 9.2 12.8' 8.0' n.a. 4.0' 7.2' -.5' 9.3 n.a. 9 Debt 6.0 6.2 6.2' n.a. 6.0' 5.5' 5.8' 5.9 n.a. Notitransattion components 10 In M25 9.3 9.8 10.1 10.0 5.2 8.4 7.5 12.4 19.7 11 In M3 only* 19.5 20.3 18.8' 8.0 20.4' 10.9' -8.6' 20.9' 13.8 Tune and savings deposits Commercial banks 12 Savings, including MMDAs 16.3 14.3 13.9 .4 10.9 16.8 14.9 21.5 13 Small time7 4.5 -1.0 .7 -4.4 -1.0' .0' 5.6' 1.5 14 Large time8'9 9.9 18.0 -2.4 15.4 16.8' -30.2' -1.6 Thrift institutions 15 Savings, including MMDAs 1.4 7.6 11.6 6.9 16.3 3.6 8.2 2.7 8.1 16 Smalftime7 -3.1 -4 -5.6 -4.9 -3.2 -1.1 -5.3' -12. V 1.1 17 Large time8 5.4 144 -.8 -4.0 -20.5 13.9 -9.6 -8.3' 2.8 Money market mutual funds 18 Retail 15.1 19.3 21.7 21.8 20.1 20.8 5.5 33.1 48.3 19 Institution-only 22.0 18.9 36.5 21.6 38.7 28.7 -5.3 36.5 38.4 Repurchase agreements and Eurodollars 20 Repurchase agreements10 39.5 34.1 14.5 10.3 7.9 -32.6 17.9 32.5' 32.1 21 Eurodollars10 24.3 7.6' -7.7' 9.9 35.7' 13.9' 17.2' 4.2' -33.7 Debt components4 22 Federal .4 .0 -1.4 n.a. -4.0 -.9 - 9 -.8 n.a. 23 Nonfedcral 7.9 8.3 8.7' n.a. 9.3' 7.6' 7.9' 8.0 n.a. 1. Unless otherwise noted, rates of change are calculated from average amounts outstand- amounts held by depository institutions, the U.S government, money market funds, and ing during preceding month or quarter. foreign banks and official institutions. Seasonally adjusted M3 is calculated by summing large 2. Figures incorporate adjustments for discontinuities, or "breaks," associated with time deposits, institutional money fund balances, RP liabilities, and Eurodollars, each regulatory changes in reserve requirements. (See also table 1.20.) seasonally adjusted separately, and adding this result to seasonally adjusted M2. 3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasury adjusted, break-adjusted total reserves (line I), plus (2) the seasonally adjusted currency securities, commercial paper, and bankers acceptances, net of money market fund holdings of component of the money stock, plus (3) (for all quarterly reporters on the "Report of these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term Transaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whose Treasury securities, commercial paper, and bankers acceptances, each seasonally adjusted vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference separately, and then adding this result to M3. between current vault cash and the amount applied to satisfy current reserve requirements. Debr 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 (slate and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonhnancial 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, arc breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the scries) 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—arc 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 daily figures Average of daily figures for week ending on date indicated July Sept. Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 479,603 481,257 486,639 479,828 480,993 U.S. government securities2 2 Bought outright—System account1 440,572 441,902 444,223 441,783 442,278 442,322 443,535 442,785 444,810 446,239 3 Held under repurchase agreements 4,662 3,072 6,303 1.949 2,812 5,050 6,150 8,038 5.675 5.441 Federal agency obligations 4 Bought outright 526 469 417 451 451 451 451 403 403 403 5 Held under repurchase agreements 838 3,013 1,923 2,932 3,638 3.425 2,959 1.729 1.521 1.170 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 55 27 56 45 4 63 27 11 138 8 Seasonal credit 215 247 177 256 254 234 184 167 174 172 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float 377 414 622 343 421 604 379 530 678 797 11 Other Federal Reserve assets 32,358 32,113 32,918 32,069 31.135 31.729 32,549 33,120 32,808 33,549 12 Gold stock 11,047 11,045 11,045 11,044 11,044 11,046 11,046 11,045 11.045 11,045 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 25,855 25,888 25.948 25,888 25,902 25,916 25,930 25.944 25,958 25.972 ABSORBING RESERVE FUNDS 15 Currency in circulation 485,999 487,890 492,780 8.159 487,775 488,715 492.825 493.787 492,395 492,771 16 Treasury cash holdings 120 93 132 93 94 92 92 94 93 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 5,430 5,130 6,296 5,450 4,905 5,400 5,396 5,869 7,144 6,989 18 Foreign 170 167 176 164 167 166 162 175 165 201 19 Service-related balances and adjustments . . . 6,919' 6,979 6,911 6,860 7,167' 6,870 6,875 6,827 6,946 7,009 20 Other 277 347 360 354 373 365 358 358 370 353 21 Other Federal Reserve liabilities and capital .. 16,832 16,922 17,160 16,846 17,077 17,135 17,25! 16.998 17,168 17.206 22 Reserve balances with Federal Reserve Banks4 9,891 9.836 9,057 7.996 9,582' 11.244 9.488 8.881 8,002 9.503 End-of-month figures Wednesday figures July Aug. Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 SUPPLYING RESERVE FUNDS 1 Reserve Bank credit outstanding 482,030 487,877' 496,372 478,560 488,228 494,426 491,427 496.372 U.S government securities 2 Bought outright—System account3 440,612 442.135 446,047 442.059 441,355 441 976 443,499 442,835 445,804 446.047 3 Held under repurchase agreements 7,266 7,942 12,135 1,986 9,272 5,110 10,965 9,106 8,630 12.135 Federal agency obligations 4 Bought outright 526 451 403 451 451 451 451 403 403 403 5 Held under repurchase agreements 760 3,566 2,099 3,148 4,964 3,076 4,104 795 2,075 2.099 6 Acceptances 0 0 0 0 0 0 0 0 0 0 Loans to depository institutions 7 Adjustment credit 2 66 896 0 1 4 31 9 8 Seasonal credit 239 226 159 261 259 217 182 173 177 159 9 Extended credit 0 0 0 0 0 0 0 0 0 0 10 Float -267 973' -1,229 220 271 668 1,776 142 836 -1.229 11 Other Federal Reserve assets 32.893 32,518 35,862 30.435 31,656 31.753 33,446 33.157 33.495 35.862 12 Gold stock 11,046 11,046 11,044 11,042 11,046 11.046 11,044 11.045 11,045 11,044 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 25,860 25,916 25,972 25,888 25,902 25,916 25,930 25.944 25,958 25,972 ABSORBING RESERVE FUNDS 15 Currency in circulation 486.038 488,577 494.221 488,912 489,033 491,008 494,609 493.960 493.325 494,221 16 Treasury cash holdings 141 94 92 93 94 92 92 94 93 92 Deposits, other than reserve balances, with Federal Reserve Banks 17 Treasury 4.648 6,704 4.952 4,372 4,331 5.372 4,940 6 265 7.508 4 952 18 Foreign 161 162 347 160 162 191 171 163 166 347 19 Service-related balances and adjustments 6,976 6,870' 7,009 6.860 7,167' 6,870 6,875 6,827 6.946 7,009 20 Other 264 332 349 378 365 362 354 357 388 349 21 Other Federal Reserve liabilities and capital 16,830 17,420 17,654 16,560 16,899 16,990 16,832 16,734 16,952 17,654 22 Reserve balances with Federal Reserve Banks4 . 13,078 13,881 17,965 7,355 16,323' 8,531 16,728 8.430 12.253 17,965 1. Amounts of cash held as reserves are shown in table 1.12, line 2. 3. Includes compensation that adjusts for the effects of inflation on the principal of 2. Includes securities loaned—fully guaranteed by U.S. government securities pledged inflation-indexed securities. with Federal Reserve Banks—and excludes securities sold and scheduled to be bought back 4. Excludes required clearing balances and adjustments to compensate for float under matched sale-purchase transactions. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A6 Domestic Financial Statistics • December 1998 1.12 RESERVES AND BORROWINGS Depository Institutions' Millions of dollars Prorated monthly averages of biweekly averages Reserve classification 1995 19% 1997 1998 Dec. Dec. Dec. Mar. Apr. May June July Aug.' Sept. 1 Reserve balances with Reserve Banks 20,440 13.395 10,673 10,138' 11.053 9.646 9,668 9.646 9,682 9,285 2 Total vault cash3 42.281 44,525 44,707 41.598 41,215 41,482 42,635 42,035' 42,121 42,579 3 Applied vault cash 37.460 37,848 37,206 35,370 35,423 35,159 35,427 34.954 35,025 34,910 4 Surplus vault cash5 4.821 6,678 7,500 6.228 5.792 6,323 7,208 7,081' 7.095 7.669 5 Total reserves6 57,900 51,242' 47.880 45.507' 46.475 44,805 45.095 44.600 44.707 44,195 6 Required reserves 56,622 49,819 46.196 44,193 45,131 43.655 43.475 43,235 43.194 42,509 7 Excess reserve balances at Reserve Banks7 1,278 1.423' 1,683 1.314' 1.345 1.150 1,620 1.365 1.513 1.686 8 Total borrowings at Reserve Bankss 257 155 324 41 72 153 251 258 271 251 9 Seasonal borrowings 40 68 79 22 41 94 159 215 242 178 10 Extended credit' 0 0 0 0 0 0 0 0 0 0 Biweekly averages of daily figures for two week periods ending on dales indicated 1998 June 3 June 17 July 1 July 15 July 29 Aug. 12 Aug. 26 Sept. 9' Sept. 23 Oct. 7 1 Reserve balances with Reserve Banks2 9,898 9.339' 9,969 10,225 8,933 10,428 8,800' 10,363 8.439 9,595 2 Total vault cash3 41,277 43.592 41,919 42,101 41 984' 41.984' 42 355' 41,793 42.900 42,948 3 Applied vault cash4 34,969 35,867 35,060 35.102 34.770 35,157 35,024 34.712 35.039 34.906 4 Surplus vault cash5 6,307 7,725 6,859 6.999 7.214' 6,827' 7,330' 7.081 7.862 8,042 5 Total reserves6 44,867 45,206 45,029 45,326' 41,703 45,585 43,824' 45.075 43,477 44,501 6 Required reserves 43,597 43,676 43,232 43,999 42.341 44,147 42,392 43.153 42.093 42.515 7 Excess reserve balances at Reserve Banks7 1,270 1,530 1,797 1,327' 1.362 1.437 1,431 1.922 1.384 1,985 8 Total borrowings at Reserve Banks* 178 236 285 198 314 271 280 247 190 379 9 Seasonal borrowings 123 145 184 196 233 241 255 209 171 152 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 S. 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 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 (thai similar to that of nonborrowed reserves. is, those whose required reserves exceed their vault cash) plus the amount of vault cash applied during the maintenance period by "nonbound" institutions (that is, those whose vault cash exceeds their required reserves) to satisfy current reserve requirements. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A 7 1.14 FEDERAL RESERVE BANK INTEREST RATES Percent per year Current and previous levels Adjustment credit1 Seasonal credit Extended credit Federal Reserve On Effective date Previous rate On On 11/27/98 11/27/98 11/27/98 Boston 11/18/98 4.75 11/19/98 5.15 11/19/98 5.65 New York 11/17/98 Philadelphia. . 11/17/98 Cleveland 11/19/98 Richmond . . 11/18/98 Atlanta 11/18/98 Chicago 11/19/98 St. Louis 11/19/98 Minneapolis . . 11/19/98 Kansas City . . 11/18/98 Dallas 11/17/98 San Francisco 11/17/98 4.75 5.05 11/19/98 5.65 Range of rates for adjustment credit in recent years 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 Effective date level)—All of F.R. Banks N.Y. F.R. Banks N.Y. F.R. Banks N.Y. In effect Dec. 31. 1977 6 6 1981— Nov. 2 13-14 13 1988—Aug. 9 6-6.5 6.5 6 13 13 11 6.5 6.5 1978—Jan. 9 6-6.5 6.5 Dec 4 12 12 20 6.5 6.5 1989—Feb. 24 6.5-7 7 May 11 6.5-7 7 1982—July 20 11.5-12 11.5 27 7 7 12 7 7 23 11.5 11.5 July 3 7-7.25 7.25 Aug. 2 11-11.5 11 1990 Dec 19 6.5 6.5 10 7.25 7.25 3 '.'. 11 11 Aug 7| 7.75 7.75 16 10 5 10.5 1991 Feb. 1 6-6.5 6 Sept. 22 8 8 27 10-10.5 10 4 6 6 Oct. 16 8-8.5 8.5 30 10 10 Apr. 30 5.5-6 5 5 20 8.5 8.5 Oct. 12 9.5-10 9.5 May 2 5.5 5.5 Nov. 1 8.5-9.5 9.5 13 9.5 9.5 Sept. ! 3 5-5.5 5 3 9.5 9.5 Nov. 22 9-9.5 9 17 5 5 26 9 9 Nov. 6 4.5-5 4.5 1979—July 20 10 10 Dec. 14 8.5-9 9 7 4.5 4.5 Aug. 17 10-10.5 10.5 15 8.5-9 8.5 Dec. 20 3.5^1.5 3.5 20 10.5 10.5 17 8.5 8.5 24 3.5 3.5 Sept. 19 10.5-11 11 21 11 11 1984—Apr. 9 8.5-9 9 1992—July 2 3-3 5 3 Oct. 8 11-12 12 13 9 9 7 3 3 10 12 12 Nov. 21 8 5-9 8.5 26 8.5 8.5 1994—May 17 3-3.5 3.5 1980—Feb. 15 12-13 13 Dec. 24 8 8 18 3.5 3.5 19 13 13 Aug. 16 3-5-4 4 May 29 12-13 13 1985—May 20 7.5-8 7.5 18 4 4 30 12 12 24 7.5 7.5 Nov. 15 4-4.75 4.75 June 13 11-12 11 17 4.75 4.75 16 11 11 1986—Mar. 7 7-7.5 7 July 28 10-11 10 10 7 7 1995—Feb. 1 4.75-5.25 5.25 29 10 10 Apr. 21 6.5-7 6.5 9 5.25 5.25 Sept. 26 11 11 23 6.5 6.5 Nov. 17 12 12 July 11 6 6 1996—Jan. 31 5.0O-5.25 5.00 Dec. 5 12-13 13 Aug. 21 5.5-6 5.5 Feb. 5 5.00 5.00 8 13 13 22 5.5 5.5 1981—May 5 13-14 14 1998—Oct. 15 4.75-5.00 4 75 8 14 14 1987—Sept. 4 5.5-6 6 Oct. 16 4.75 4.75 11 6 6 1998—Nov. 17 4.50-4.75 4.50 Nov. 19 4.50 4.50 In effect Nov. 27, 1998 4.50 4.50 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 al the borrower's facility. period, but it is never less than the discount rate applicable to adjustment credit plus 50 basis 2. Available to help relatively small depository institutions meet regular seasonal needs for points. funds that arise from a clear pattern of intrayearly movements in their deposits and loans and 4. For earlier data, see the following publications of the Board of Governors: Banking and that cannot be met through special industry lenders. The discount rate on seasonal credit takes Monetary Statistics, 1914-1941, and 1941-1970; and the Annual Statistical Digest, 1970into account rates charged by market sources of funds and ordinarily is reestablished on the 1979. first business day of each two-week reserve maintenance period; however, it is never less than In 1980 and 1981, the Federal Reserve applied a surcharge to short-term adjustment-credit the discount rate applicable to adjustment credit. borrowings by institutions with deposits of $500 million or more that had borrowed in 3. May be made available to depository institutions when similar assistance is not successive weeks or in more than four weeks in a calendar quarter. A 3 percent surcharge was reasonably available from other sources, including special industry lenders. Such credit may in effect from Mar. 17, 1980. through May 7, 1980. A surcharge of 2 percent was reimposed be provided when exceptional circumstances (including sustained deposit drains, impaired on Nov. 17. 1980; the surcharge was subsequently raised to 3 percent on Dec. 5, 1980, and to access to money market funds, or sudden deterioration in loan repayment performance) or 4 percent on May 5, 1981. The surcharge was reduced to 3 percent effective Sept. 22, 1981, practices involve only a particular institution, or to meet the needs of institutions experiencing and to 2 percent effective Oct. 12, 1981. As of Oct. 1. 1981, the formula for applying the difficulties adjusting to changing market conditions over a longer period (particularly at times surcharge was changed from a calendar quarter to a moving thirteen-week period. The of deposit disintermediation). The discount rale 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 • December 1998 1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS' Requirement Type of deposit Percentage of Effective date deposits Net transaction accounts 1 $0 million-$47.8 million3 3 1/1/98 2 More than $47.8 million4 10 1/1/98 3 Nonpersonal time deposits'* 0 12/27/90 4 Eurocurrency liabilities6 0 12/27/90 1. Required reserves must be held in the form of deposits with Federal Reserve Banks succeeding calendar year by 80 percent of the percentage increase in the total rcscrvable or vault cash. Nonmember institutions may maintain reserve balances with a Federal liabilities of all depositor)' 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 thai report quarterly, the unions, agencies and branches of foreign banks, and Edge Act corporations. exemption was raised from $4.4 million to $4.7 million. 2. Transaction accounts include all deposits against which the account holder is permitted 4. The reserve requirement was reduced from 12 percent to 10 percent on to make withdrawals by negotiable or transferable instruments, payment orders of with- Apr. 2, 1992, for institutions that report weekly, and on Apr 16, 1992. for institutions that drawal, or telephone or preauthorized transfers for the purpose of making payments to third report quarterly. persons or others. However, accounts subject to the rules thai permit no more than six 5. For institutions that report weekly, the reserve requirement on nonpersonal lime deposits preauthorized, automatic, or other transfers per month (of which no more than three may be wilh an original maturity of less than 1 l/z 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 lA 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 i '/> as of June 30 of each year. Effective with the reserve maintenance period beginning January 1, years or more has been zero since Oct. 6, 1983. 1998, for depository institutions that report weekly, and with the period beginning January \5, 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 nunpersonal time $47.8 million. deposits with an original maturity of less than 1 ]/l 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 [he Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Policy Instruments A9 1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1 Millions of dollars 1998 Typ a e n d o f m tr a a t n u s ri a t c y tion 1995 1996 1997 Feb. Mar. Apr. May June July Aug. U.S. TREASURY SECURITIES2 Outright transactions {excluding matched Treasury bills I Gross purchases 10.932 9.901 9.147 0 0 3,550 0 0 0 0 2 Gross sales 0 0 0 0 0 0 0 0 0 0 3 Exchanges 405,296 426.928 436,257 35,495 34,025 46,802 35,190 32,830 40 312 34,607 4 For new bills 405.296 426'928 435,907 35495 34.025 46^802 35J90 32,830 40312 34,607 5 Redemptions 900 0 0 0 0 0 0 0 0 0 Others within one year 6 Gross purchases 390 524 5,549 0 1,501 1,369 0 0 0 986 7 Gross sales 0 0 0 0 0 0 0 0 0 0 8 Maturity shifts 43,574 30,512 41,716 6,098 1,964 4.369 6,951 1.520 2,638 6,367 9 Exchanges -35.407 -41.394 -27,499 -6.128 -5.736 -2.601 -4,990 -5.084 -2,242 -8,964 10 Redemptions 1,776 2.015 1,996 0 0 286 0 0 1,311 0 One to five years ! 1 Gross purchases 5.366 3,898 19.680 0 2.262 2,993 0 0 0 535 12 Gross sales 0 0 0 0 0 0 0 0 0 0 13 Maturity shifts -34.646 -25,022 -37,987 -3,213 -1,964 -4,369 -6,620 -1,520 -2,638 -2.168 14 Exchanges 26,387 31,459 20.274 3,383 5,736 2,201 2,270 5.084 1.842 5.828 Five to ten years 15 Gross purchases 1,432 1,116 3.849 0 283 495 0 0 0 303 16 Gross sales 0 o 0 0 o o 0 0 0 0 17 Maturity shifts -3,093 -5,469 -1,954 -2,884 0 0 -331 0 0 -3,411 18 Exchanges 7,220 6.666 5,215 1.420 0 0 2.720 0 0 1,364 More than ten years 19 Gross purchases 2.529 1 65S 5,897 o 743 o o 0 0 1.769 20 Gross sales 0 ' ~0 0 0 0 0 0 0 0 0 21 Maturity shifts -2.253 -20 -1.775 0 0 0 0 0 0 -789 22 Exchanges 1,800 3,270 2,360 1,325 0 400 0 0 400 1,772 All maturities 23 Gross purchases 20,649 17,094 44,122 0 4.789 8,407 0 0 0 3,593 24 Gross sales 0 0 0 0 0 0 0 0 0 0 25 Redemptions 2,676 2,015 1,996 0 0 286 0 0 1,311 0 Matched transactions 26 Gross purchases 2,197.736 3.092,399 3,577,954 326.813 364,307 *54 756 367,934 369.358 373,285 346.245 27 Gross sales 2,202,0311 3.094.769 3,580,274 326.235 364,537 354.741 368,281 370,569 371,142 348,318 Repurchase agreements 28 Gross purchases .531.694 457,568 810,485 33,428 40,211 59,548 7,722 57,098 52,116 39.078 29 Gross sales 328.497 450.359 809,268 30,583 37,010 50.663 20,456 41.414 63.531 38,402 30 Net change in U.S Treasury securities 16 875 19.919 41,022 3.423 7,760 17.021 -13,081 14,473 -10,584 2,196 FEDERAL AGENCY OBLIGATIONS Outright transactions 31 Gross purchases 0 0 0 0 0 0 0 0 0 0 32 Gross sales 0 0 0 0 0 0 0 0 0 25 33 Redemptions 1,003 409 1.540 10 50 74 0 25 0 50 Repurchase agreements 34 Gross purchases 36,851 75,354 160,409 9,615 17,685 1 3,547 1,575 14 548 11 236 33.431 35 Gross sales 36J76 74^842 159369 8J76 18342 13^042 3300 12^913 12341 30.625 36 Net change in federal agency obligations -928 103 -500 829 -707 431 -1,725 1,610 -1,105 2,731 37 Total net change in System Open Market Account . . . 15,948 20,021 40,522 4,252 7,053 17.452 -14,806 16,083 -11,689 4.927 1. Sales, redemptions, and negative figures reduce holdings of the Syslem 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 • December 1998 1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1 Millions of dollars Wednesday End of month Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 July 31 Aug. 31 Sept. 30 Consolidated condition statement Gold certificate account 11,046 11,044 11,045 11,045 11,044 11,046 11.046 11,044 Special drawing rights certificate account 9,200 9,200 9,200 9,200 9,200 9,200 9,200 9,200 410 397 395 412 417 435 423 417 Loans 4 To depository institutions 221 186 203 185 1,055 241 293 1,055 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 451 451 403 403 403 526 451 403 8 Held under repurchase agreements 3,076 4.104 795 2,075 2,099 760 3,566 2,099 9 Total US. Treasury securities 447,086 454,464 451,941 454,434 458,182 447,878 450,077 458,182 10 Bought outright2 441,976 443,499 442,835 445,804 446,047 440,612 442,135 446,047 11 Bills 197.174 198,696 198,032 196,851 195,864 199,407 197,334 195,864 12 Notes 178.827 178.827 178,828 182,977 184,186 178,887 178,826 184,186 13 Bonds 65,975 65.975 65.975 65,976 65,996 62,318 65,975 65.996 14 Held under repurchase agreements 5,110 10.965 9,106 8,630 12,135 7,266 7,942 12.135 15 Total loans and securities . 450,833 459,204 453,342 457,096 461,738 449,404 454,386 461,738 Items in process of collection 8,311 10,537 7,676 7,187 6,454 4,677 2,465 6,454 Bank premises 1,293 1,296 1,297 1,297 1,295 1,289 1,293 1,295 Other assets Denominated in foreign currencies3 17,604 17,612 17,621 17,630 18,448 17,282 17,601 18,448 All other4 12,887 14,593 14,198 14,543 15,880 14,378 13,671 15.880 Total assets 511,585 523,883 514,774 518,410 524,476 507,711 510,087 524,476 LIABILITIES Federal Reserve notes 465,594 469,168 467,872 468.759 460,754 463,179 468,759 Total deposits 21,298 29,135 22,353 27,387 31,353 25,312 27,520 31,353 Depository institutions 15,373 23,670 15,567 19,325 25,706 20,239 20,321 25,706 U.S. Treasury—General account 5.372 4,940 6,265 7,508 4,952 4,648 6,704 4,952 Foreign—Official accounts 191 171 163 166 347 161 162 347 Other 362 354 357 388 349 264 332 349 Deferred credit items 7,702 8,748 7,182 6,200 6,711 4,816 1,968 6,711 Other liabilities and accrued dividends5 4.698 4,690 4,540 4,762 4,637 4,818 4,750 4,637 29 Total liabilities . 499,292 511,741 502,580 506,220 511,460 495,699 497,417 511,460 CAPITAL ACCOUNTS Capital paid in 5,865 5 945 5,950 5,912 5,910 5,822 5,866 5.910 Surplus 5,220 5.220 5,220 5,220 5,220 5,220 5,220 5,220 Other capital accounts 1,207 976 1,023 1,058 970 1,583 1,886 33 Total liabilities and capital accounts. 511,585 52.1,883 514,774 518,410 524,476 507,711 510,087 524,476 MEMO 34 Marketable U.S. Treasury securities held in cuslody for foreign and international accounts 566,887 553,835 564,692 564,692 Federal Reserve note statement 35 Federal Reserve notes outstanding (issued to Banks) 575,063 576.139 577,941 579,127 580,575 570,428 574,813 580,575 36 LESS: Held by Federal Reserve Banks 109,469 106.971 109,436 111,255 111,817 109,674 111,635 111,817 37 Federal Reserve notes, net 465,594 469,168 468,505 467,872 468,759 460,754 463,179 468,759 Collateral held against notes, net 38 Gold certificate account 11,046 11,044 11,045 11,045 11,044 11,046 11,046 11,044 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 445,348 448.924 448,260 447,626 448,515 440,508 442,932 448,515 42 Total collateral. 465,594 469,168 468,505 467,872 468,759 460,754 463,179 468,759 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 A11 1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding Millions of dollars Wednesday Type of holding and maturity 1998 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 July 31 Aug. 31 Sept. 30 1 Total loans 221 185 1,055 233 2 Within fifteen days' 60 46 189 173 973 107 176 155 161 140 15 12 82 134 117 78 3. Sixteen days to ninety days 447,086 454,464 451,941 454,434 458,182 447,878 442,135 458,182 4 Total U.S. Treasury securities2 . 13,326 20,087 24,463 17,677 20,310 13,538 15,104 20,310 5 Within fifteen days' 93.050 93,576 92,841 92,715 90,644 98,052 92,231 90,644 6 Sixteen days to ninety days 143,965 144,055 137.890 144,183 145,875 145,377 145,997 145.875 7 Ninety-one days to one year 101,535 101,535 101.535 104,646 105.789 96,711 101,535 105,789 8 One year to five years 41,276 41,276 41.276 41,276 41.628 43.018 41,276 41,628 9 Five years to ten years 53,934 53.935 53.935 53,935 53.936 51.181 53,935 53,936 10 More than ten years 11 Total federal agency obligations . 3,527 4,555 1,198 2,478 2,502 1,286 4,017 2,502 12 Within fifteen days' 3,124 4,152 795 2,075 2,099 810 3,614 2,099 13 Sixteen days to ninety days 5 5 50 50 50 48 5 50 14 Ninety-one days to one year 120 120 75 75 75 114 120 75 15 One year to five years 93 93 93 93 93 104 93 93 16 Five years to ten years 185 185 185 185 185 185 185 185 17 More than ten years n.a. n.a. n.a. 25 n.a. n.a. 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 • December 1998 1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1 Billions of dollars, averages of daily figures 1998 1994 1995 1996 1997 Dec. Dec. Dec. Dec. Apr. May June July Aug. Sept. Seasonally adjusted ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS: 1 Total reserves 59.41 56.40 50.08 46.67 45.72 46.05 45.96 45.59 45.39 44. Rl 45.00 44.59 2 Nonborrowed reserves4 59.20 56.14 49.93 46.35 45.66 46.00' 45.89 45.44 45.14 44.56 44.73 44.34 3 Nonborrowed reserves plus extended credit5 59.20 56.14 49.93 46.35 45.66 46.00' 45.89 45.44 45.14 44.56 44.73 44.34 4 Required reserves 58.24 55 12 48.66 44.99 44.20 44.73 44.61 44.44 43.77 43.45 43.48 42.90 5 Monetary base6 418.12 434.17 452.38 480.15 484.23 485.86 487.20 489.10 491.63 493.67 497.31 502.09 Not seasonally adjusted 6 Total reserves7 61.13 58.02 51.52 47.97 44.99 45.54' 46.53 44.87 45.17 44.69 44.81 44.31 7 Nonborrowed reserves 60.92 57.76 51.37 47.65 44.94 45.50 46.45 44.71 44.92 44.43 44.54 44.06 8 Nonborrowed reserves plus extended credit 60.92 57.76 51.37 47.65 44.94 45.50 46.45 44.71 44.92 44.43 44.54 44.06 9 Required reserves8 59.96 56.74 50.10 46.29 43.47 44.23 45.18 43.72 43.55 43.32 43.30' 42.63 10 Monetary base 422.51 439.03 456.72 485.11 481.35 484.00 487 36 488.28 491.18 495.32 497.49 500.98 NOT ADJUSTED FOR CHANGES IN RESERVE REQUIREMENTS'" 11 Total reserves1' 61.34 57.90 51.24 47.88 44.97 45.51 46.48 44.81 45.10 44.60 44.71 44.20 12 Nonborrowed reserves 61.13 57.64 51.09 47.56 44.92 45.47 46.40 44.65 44.84 44.34 44.44 4194 13 Nonborrowed reserves plus extended credit 61.13 57.64 51.09 47.56 44.92 45.47 46.40 44 65 44.84 44.34 44.44 41.94 14 Required reserves 60.17 56.62 49.82 46.20 43.45 44.19 45.13 43.66 43.48 43.24 43.19 42.51 15 Monetary base 427.25 444.45 463.49 491.92 488.41 490.96 494.11 494.95 497.93 502.17 504.39 507.79 16 Excess reserves13 1.17 1.28 1.42 1.68 1.52 1.31' 1.35 1.15 1.62 1.37 1.51' 1.69 17 Borrowings from the Federal Reserve .21 .26 .16 .32 .06 .04 .07 .15 .25 .26 .27 .25 1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weekly 8. To adjust required reserves for discontinuities that are due to regulatory changes in statistical release. Historical data starting in 1959 and estimates of the effect on required reserve requirements, a multiplicative procedure is used to estimate what required reserves reserves of changes in reserve requirements are available from the Money and Reserves would have been in past periods had current reserve requirements been in effecl. 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 (I) break-adjusted total reserves (line 6), plus changes in reserve requirements. (See also table 1.10.) (2) the (unadjusted) currency component of (he 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 (U total 6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonally reserves (line 1 I), plus (2) required clearing balances and adjustments to compensate for floai adjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currency at Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (for component of the money stock, plus (3) (for all quarterly reporters on the "Report of all quarterly reporters on the "Report of Transaction Accounts, Other Deposits and Vault Transaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporters Cash" and for all those weekly reporters whose vault cash exceeds their required reserves) the whose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusted difference between current vault cash and the amount applied to satisfy current reserve difference between current vault cash and the amount applied to satisfy current reserve requirements. Since the introduction of contemporaneous reserve requirements in February requirements. 1984, currency and vault cash figures have been measured over [he computation periods 7. Break-adjusted total reserves equal break-adjusied required reserves (line 9) plus excess ending on Mondays. reserves (line 16). 13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Monetary and Credit Aggregates A13 1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1 Billions of dollars, averages of daily figures 1998 1994 1995 1996 1997 Dec. Dec. Dec. Dec. June July Aug. Sept. Seasonally adjusted Measures' 1 Ml 1,150.7 1.128.7 1,082.8 1,076.0 1,074.5 1,071.6 1,068.4 1,071.4 2 M2 3,503.0 3,651.2 3,826.1 4,046.4 4,196.1 4,212.7 4,242.0 4,297.1 3 M3 4,333.6 4,595.6 4,931.1 5,376.8 5,645.9' 5,652.1' 5,706.5' 5,778.4 4 L 5,315.8 5,702.3 6,083.6 6,611.3 6,927.8' 6,925.0' 6,978.9 n.a. 5 Debt 13 697 6 14 425 2 15 167 8 15 633 lr 15 708 4' 15 785 3 Ml componenis 6 Currency1 354.3 372.4 394.9 425.5 438.2 441.2 443.7 449 5 8.5 8.9 8.6 8.2 7.8 7.7 7.8 7.9 384.0 391.0 403.6 397.1 383.1 377.9 373.9' 373.1 9 Other checkable deposits6 403.9 356 4 275.9 245.2 245.4 244.7 243.1 241.0 NoHtrtinsaction components 10 In M27 2,352.3 2,522.6 2.743.2 2,970.4 3,121.6 3,141.1' 3,173.6' 3.225.6 II In M^ only" 944 4 1 105 0 1 330 4 1 449 81 1 439 4r 1 464 5' 1 481 3 Commercial banks 12 Savings deposils, including MMDAs 752.6 775.0 904.8 1,020.9 1,088.4 1,103.6 1.117.3 1.137.3 13 Small time deposits9 503.2 575.8 594.5 625.7 623.5 623.5' 626.4 627.2 345 4 413 2 487 5 536 0' 522 5' 527 5' 526 8 Thrift institutions !5 Savings deposits, including MMDAs 397.3 359.7 366.9 376.6 396.4 399.1 400.0 402 7 16 Small time depositsy 314.2 357.2 354.3 343.9 338.9 337.4' 334.0 334.3 17 Large time deposits'" 64.7 74.2 78.0 85.4 87.5 86.8 86.2' 86.4 Money market mutual funds 18 Retail' ' 385.0 454.9 522.8 603.2 674.3 677.4 696.1 724.1 19 Institution-only 203.1 253.9 310.3 376.2 432.1 430.2 443.3 457.5 Repurchase agreements and Eurodollars 20 Repurchase agreements12 183.3 182.4 194.2 236.1 254.3 258.1 265.1' 272.2 88 6 109 2 145 3 139 9' 141 9' 142 4' 138 4 Debt (omp-onenls 22 Federal debt 1,492.4 3,638.9 3,780.6 3.798.4 3,775.7 1.772.9 3,770.3 n.a 23 Nonfederal debt 9,507.0 10,058.7 10,644.7 11,369 4 11,857.4' 11,935.5' 12,015.0 n.a. Not seasonally adjusted Measures 24 Ml 1.174.4 1,152.4 1.104.9 1,097.6 1,073.8 1,072.5 1,067.1 1.068.2 25 M2 3.523.4 3,672.0 3,845.4 4,065.3 4.191.2 4,213.2' 4.246.5 4.288.3 26 M3 4.353.2 4.615.2 4.948.9 5,394.0 5.635.8' 5,644.0' 5.707.6' 5,762.8 27 L 5,344.6 5.732.8 6,111.6 6.636.7' 6,909.8' 6,910.3' 6,980.5 n.a. 28 Debt 13.002.0 13,699 1 14,425.5 15,167.4 15,599.4' 15.660 4' 15,740.0 n.a. Mi components 29 Currency3 357.5 376.2 397.9 429.0 438.3 442.6 444.3 448 2 8 I 8.5 8.3 7.9 80 8.2 8.2 8.1 31 Demand deposits5 400.3 407.2 419.9 413.0 382.5 378.7 373.9' 372.1 32 Other checkable deposits6 408.6 360.5 278.8 247.7 245.0 243.0 240.8 239 7 Noniransartion components 33 In M27 : 2.W.0 2,519.6 2,740.5 2,967.8 3,117.4' 3,140.7 3.179.3' 3,220.2 34 In M3 only1* 829 7 943.2 1.103.5 1.328.6 1,444.6' 1.430.8' 1.461.2' 1.474.4 Commercial banks 35 Savings deposits, including MMDAs 751.7 774.1 903.3 1,019.0 1,091.6 1,106.1 1,119.6 1,135.5 36 Small time deposits9 501.5 573.8 592.7 624.1 623.9 624.2' 626.5 626.8 345 8 413 6 488 0 534 9 521 6' 527 6' 529 2 Thrift institutions 38 Savings deposits, including MMDAs 396.8 359.2 366.4 375.9 397.6 400.0 400.8' 402.1 39 Small time deposits'* 313.2 355.9 353.2 343.0 339.1 337.8 334.0 334.1 40 Large lime deposits10 64.8 74.3 78.1 85.4 87.3 86.7 86.2 86.8 Monex market mutual funds 41 Retail 385.9 456.4 524.8 605.8 665.2 672.6 698.4 721.6 42 Institution-only 204.6 255.8 312.7 378.9 424.5 425.3 441.1 451.3 Repurchase agreements and Eurodollars 179.6 178.0 188.8 229.4 259.4 258.4' 265.6' 270.3 44 Eurodollars12 81.8 89.4 110.3 146.9 138.4' 138.8' 140.8' 136.8 Debt components 45 Federal debt 3.499.0 3,645.9 3.787.9 3,805.8 3,755.2 3,740.8 3,749.6 n.a. 46 Nonfederal debt 9.503.1 10,053.1 10,637.6 11,361.6 11.844.2' 11,919.6' 11.990.4 n.a. Footnotes appear on following page Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A14 Domestic Financial Statistics • December 1998 NOTES TO TABLE 1.21 1. Latest monthly and weekly figures are available from the Board's H.6 (508) weekly these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-term statistical release Historical data starting in 1959 are available from the Money and Reserves Treasury- securities, commercial paper, and bankers acceptances, each seasonally adjusted Projections Section, Division of Monetary Affairs, Board of Governors of the Federal Reserve separately, and then adding this result to M3. System, Washington, DC 20551. Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancial 2. Composition of the money stock measures and debt is as follows' sectors—the federal sector (U.S. government, not including government-sponsored enter- Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of prises or federally related mortgage pools) and the nonfederal sectors (state and local depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at all governments, households and nonprofit organizations, nonfinancial corporate and nonfarm commercial banks other than those owed to depository institutions, the U.S. government, and noncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt and foreign banks and official institutions, less cash items in Ihe process of collection and Federal corporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data, Reserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order of which are derived from the Federal Reserve Board's flow of funds accounts, are breakwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, adjusted (that is, discontinuities in the data have been smoothed into the series) and credit union share draft accounts, and demand deposits at thrift institutions. Seasonally month-averaged (that is, the data have been derived by averaging adjacent month-end levels). adjusted Ml is computed by summing currency, travelers checks, demand deposits, and 3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of depository OCDs, each seasonally adjusted separately. institutions. M2: Ml plus (1) savings deposits (including MMDAs), (2) small-denomination time 4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers. deposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3) Travelers checks issued by depository institutions are included in demand deposits. balances in retail money market mutual funds (money funds with minimum initial invest- 5. Demand deposits at commercial banks and foreign-related institutions other than those ments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keogh owed to depository institutions, the U.S. government, and foreign banks and official institubalances at depository institutions and money market funds. Seasonally adjusled M2 is tions. les;> 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 (I) savings deposits (including MMDA.s). (2) small time deposits, and (3) retail M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more) money fund balances. issued by all depository institutions, (2) balances in institutional money funds (money funds 8. Sum of (1) large time deposits. (2) institutional money fund balances, (3) RP liabilities with minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term) (overnight and term) issued by depository institutions, and (4) Eurodollars (overnight and issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S. term) of US. 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 accounis at commercial banks and thrift institutions are ment, money market funds, and foreign banks and official institutions. Seasonally adjusted subtracted from small time deposits M3 is calculated by summing large time deposits, institutional money fund balances, RP 10. Large time deposits are those issued in amounts of $100,000 or more, excluding those liabilities, and Eurodollars, each seasonally adjusted separately, and adding this result to booked ai 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. AH commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1998 1998 Sept. Mar. Apr. May June July Aug. Sept Sept. 9 Sept. 16 Sept 23 Sept 30 Seasonally adjusted Assets 1 Bank credit 4,006.6 4.222.9 4,220.3 4,248.7 4.260.0 4,278.1 4,338.3 4.394.4 4,375.7 4,387.4 4,399.4 4,418.9 2 Securities in bank credit 1.036.3 1.129.6 1,109.8 1.125.7 1.119.9 1,127.9 1,153.3 1.173.7 1,168.5 1.167.2 1.176.3 1,184.2 3 U.S. government securities .... 724.5 782.0 766.1 773.3 756.6 759.5 769.7 766.5 766.5 755.8 766.0 774.2 4 Other securities 311.8 347.6 343.6 352.4 363.2 368.5 383.6 407.2 402.0 411.4 410.3 409.9 5 Loans and leases in bank credit- . . 2.970.3 3.093.2 3,110.5 3,123.0 3,140.1 3,150.1 3,185.0 3,220.6 3,207.3 3,220.3 3,223.1 3,234.7 6 Commercial and industrial 838.1 872.7 870.4 878.6 888.4 893.9 901.5 912.8 907.6 915.2 916.5 913.1 7 Real estate 1,214.6 1,264.6 1.273.1 1,274.9 1,274.0 1,275.4 1.285.0 1.285.9 1,289.8 1,287.1 1,282.5 1,283.0 8 Revolving home equity .... 95.4 98.3 98.4 97.9 97.7 97.4 97.4 97.8 97.9 97.9 98.4 96.9 9 Other 1,119.2 1.166.3 1,174.7 1,176.9 1,176.3 1,178.0 1.187.6 1,188.1 1,191.9 1.189.2 1,184.2 1,186.1 10 Consumer 515.5 502.1 505.5 505.9 502.7 496.7 494.3 497.3 495.3 497.3 501.6 495.7 11 Security-' 95.8 116.9 115.8 120.9 127.7 131.1 138.4 144.3 138.4 138.5 141.3 160.0 12 Other loans and leases 306.3 337.0 345.7 342.8 347.2 353.0 365.9 380.4 376.2 382.1 381.2 382.9 13 Interbank loans 196.5 218.3 214.6 202.2 217.3 213.6 208.1 222.0 221.8 213.6 220.7 235.1 14 Cash assets4 253.3 275.9 268.8 250.7 250.8 243.7 251.9 252.8 267.7 247.8 242.4 257.6 15 Other assets5 288.9 295.8 308.8 313.4 313.3 310.9 312.0 317.5 317.1 313.2 313.7 324.9 16 Total assets6 4.688.8 4,955.7 4,955.0 4,957.4 4,983.9 4,988.8 5,053.4 5,129.4 5,1253 5,105.0 5,118.9 5,178.5 Liabilities 17 Deposits 3.O48.0 3,198.8 3,211.9 3,205.5 3,223.0 3.197.1 3,228.8 3 249.8 3,258.8 3,249.4 3.229.4 3,263.7 18 Transaction 687.6 698.3 696.6 687.5 682.8 667.0 667.6 677.2 669.3 668.5 666.9 711.7 19 Nontransaction 2,360.4 2,500.5 2,515.3 2,518.0 2,540.2 2,530.1 2,561.3 2.572.7 2389.4 2,580.9 2,562.5 2,552.0 20 Large time 612.6 677.3 674.5 674.9 685.1 667.4 679.2 684.2 686.4 687.3 686.0 676.1 21 Other 1,747.8 1,823.1 1,840.7 1.843.1 1.855.1 1,862.8 1,882.1 1.888.5 1,903.0 1,893.6 1,876.5 1,875.9 22 Borrowings 770.2 856.9 870.7 861.8 857.3 856.8 861.6 889.6 885.6 868.6 883.4 922.6 23 From banks in the U.S 295.2 306.8 305.9 282.2 287.6 289.3 293.9 303.7 308.8 298.1 291.7 317.1 24 From others 475.0 550.1 564.8 579.6 569.7 567.5 567.7 585.9 576.7 570.5 591.7 605.6 25 Net due to related foreign offices 198.2 205.4 179.8 174.4 170.6 186.1 201.1 200.2 203.2 207.7 199.9 191.4 26 Other liabilities 268.0 296.1 295.2 299.1 308.2 317.9 325.4 335.1 333.0 328.2 336.9 343.6 27 Total liabilities 4.2*4.4 4357.2 4357.6 4340.7 4359.1 4358.0 4,617.0 4,674.7 4,6803 4,653.9 4,649.6 4,7213 28 Residual (assets less liabilities)7 404.3 398.6 397.4 416.7 424.8 430.8 436.5 454.7 444.9 451.2 469.4 457.2 Not seasonally adjusted Assets 29 Bank credit 3,998.9 4.213.9 4,225.4 4,243.6 4,261.4 4.272.1 4,324.8 4.381.4 4.357.4 4,375.7 4.381.6 4.413.0 30 Securities in bank credit 1,027.8 1,131.4 1,120.9 1,130.4 1,122.9 1,122.3 1,144.8 1,161.7 1,159.6 1,152.1 1,160.9 1,173.0 31 U.S. government securities 720.5 785.3 774.5 777.9 759.1 755.6 764.9 761.4 762.8 750.9 759.6 768.1 32 Other securities 307.4 346.1 346.5 352.5 363.8 366.7 379.9 4O0.3 396.9 401.2 401.3 404.9 33 Loans and leases in bank credit2 . . . 2,971.1 3,082.4 3,104.4 3,113.3 3,138.6 3,149.8 3,180.1 3,219.7 3.197.7 3,223.6 3,220.7 3,240.0 34 Commercial and industrial 833.0 876.2 878.0 884.1 891.2 893.5 895.5 907.3 897.5 909.8 912.0 912.0 35 Real estate 1.219.2 1.258.0 1,266.6 1,268.6 1.271.6 1,277.6 1,288.6 1.290.8 1,294.8 1,293.0 1,286.0 1,289.0 36 Revolving home equity 96.0 97.2 97.5 97.6 97.4 97.5 97.5 98.4 98.4 98.6 99.1 97.9 37 Other 1 123.1 1 160.8 1,169.1 1,171.0 1,174.2 1,180.1 1,191.1 1,192.4 1,196.4 1,194.4 1.186.9 1 191 1 38 Consumer 518.2 495.6 500.5 500.6 499.9 494.7 495.9 5O0.I 497.6 500.6 504.6 498.2 39 Security1 93.7 117.8 117.3 120.5 127.7 129.0 133.9 140.9 131.9 138.8 138.9 155.3 40 Other loans and leases 307.0 334.8 342.1 339.5 348.2 355.0 366.2 380.5 375.9 381.4 379.2 385.5 41 Interbank loans 191.9 217.8 217.3 197.8 214.0 207.2 201.0 216.4 222.1 208.6 208.2 228.7 42 Cash assets4 251.4 264.4 264.1 246.3 245.8 239.3 239.6 250.8 270.5 244.6 233.1 255.7 13 Other assets* 290.0 295.6 307.2 312.8 311.7 312.1 314.0 318.7 320.8 313.6 312.7 325.8 44 Total assets' 4.675J 4,934.7 4,956.8 4,943.1 4,975.4 4,973.2 5,022.2 5.109.6 5,113.4 5,085.1 5,078.2 5,165.1 Liabilities 45 Deposits 3,050.5 3,189.5 3,211.3 3,189.0 3,215.0 3,189.6 3,218.6 3,254.0 3.282.4 3,258.8 3,203.5 3.267.8 46 Transaction 682.8 685.9 701.7 675.6 677.8 662.1 654.1 672 5 675.7 667.8 640.3 708.4 47 Nontransaction 2,367.7 2,503.6 2,509.6 2,513.4 2.537.2 2,527.5 2,564.5 2.581.5 2,606.7 2,591.1 2.563.2 2,559.4 48 Large time 614.3 674.8 669.0 675.2 682.8 664.1 678.2 685.9 686.8 688.2 688.4 679.7 49 Other 1,753.4 1.8288 1.840 6 1,838.2 1,854.4 1,863.4 1,886.3 1.895.6 1,919.8 1,902.9 1.874.8 1,879.7 50 Borrowings 772.3 848.6 870.1 867.3 867.1 861.4 854.6 893.1 870.7 872.0 905.2 928.3 51 From banks in the U.S 294.2 304.3 305.0 283.4 290.6 289.6 289.9 302.6 301.6 297.0 296.9 316.0 52 From others 478.2 544.3 565.1 583.9 576.5 571.8 564.7 590.5 569.1 575.1 608.3 612.3 53 Net due to related foreign offices .... 197.6 203.9 1790 183.0 176.5 188.2 201.6 200.3 199.9 204.1 204.7 193.3 54 Other liabilities 267.8 296.3 2944 298.6 307.4 317.2 325.4 334.8 333.0 327.6 336.3 343.5 55 Total liabilities 4,288.2 4338.4 4354.8 4337.9 4366.0 4356.4 4,6003 4,682.1 4.686.0 4,662.6 4,649.7 4,733.0 56 Residual (assets less liabilities)7 387.1 396.3 402.0 405.2 409.4 416.9 421.9 427.5 427.4 422.5 428.4 432.1 MEMO 57 Revaluation gains on off-balance-sheet items* 80.8 87.8 83.8 85.8 92.7 92.7 95.7 109.5 108.0 107.9 113.2 111.3 58 Revaluation losses on off-balancesheet items* 81.7 89.4 84.4 84.9 90.7 90.5 96.4 110.2 107.5 109.2 115.1 112.0 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A16 Domestic Financial Statistics • December 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued B. Domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1998 1998 Sept Mar. Apr. May June Jul> Aug. Sept. Sept. 9 Sept. 16 Sept. 23 Sept. 3(1 Seasonally adjusted Assets 1 Bank credit 3,469.9 3.656.7 3,663.4 3,685.7 3,693.9 3,706.0 3,748.5 3,787.0 3,775.5 3,776.7 3,794.9 3,803.9 2 Securities in bank credit 857.4 929.5 915.6 928.6 920.8 928.1 942.6 959.4 955.6 953.6 965.6 964.8 3 U.S. government securities 641.8 693.2 676.9 684.2 669.3 669.3 676.8 684.3 683.7 676.6 686.5 690.0 4 Other securities 215.6 236.3 238.7 244.5 251.6 258.8 265.8 275.1 271.9 277.1 279.1 274.8 5 Loans and leases in bank credit2 .... 2,612.6 2,727.2 2,747.8 2,757.0 2,773.1 2,778.0 2,805.9 2,827.6 2.819.9 2,823.1 2,829.3 2,839.1 6 Commercial and industrial 615.8 653.0 657.3 666.8 675.5 677.8 684.4 691.3 688.5 691.2 692.7 693.8 7 Real estate 1,186.5 1,238.7 1,248.2 1,250.5 1,249.9 1,251.6 1,261.3 1,262.5 1,266.2 1,263.6 1,259.3 1,260.0 8 Revolving home equity 95.4 98.3 98.4 97.9 97.7 97.4 97.4 97.8 97.9 97.9 98.4 96.9 9 Other 1.091.2 1,140.4 1.149.8 1,152.6 1.152.1 1,154.1 1,163.9 1,164.7 1.168.3 1.165.7 1,160.9 1,163.1 10 Consumer 515.5 502.1 505.5 505.9 502.7 496.7 494.3 497.3 495.3 497.3 501.6 495.7 11 Security3 52.3 67.8 63.6 61.8 67.5 69.6 73.3 75.2 70.0 68.9 74.2 87.5 12 Other loans and leases 242.5 265.6 273.2 272.0 277.5 282.3 292.6 301.3 299.7 302.1 301.6 302.0 13 Interbank loans 178.0 195.1 192.0 180.4 193.4 191.6 185.6 190.7 190.0 188.2 188.6 197.0 14 Cash assets4 219.1 241.3 233.2 215.9 215.5 208.5 217.9 218.6 233.7 212.9 207.0 224.7 15 Other assets5 245.3 259.3 272.7 279.3 279.1 276.7 276.3 279.4 279.8 275.4 275.0 286.3 16 Total assets" 4,056.2 4,295.7 4,304.0 4,304.0 4.324.7 4,325.6 4,371.6 4,418.6 4.422.4 4,396.5 4,408.4 4,454.2 Liabilities 17 Deposits 2,784.8 2 907.5 2,917.9 2,910.2 2,920.3 2 899.9 2,922.6 2,934.6 2 942.0 2 933 0 2,911.5 2 953.5 18 Transaction 676.5 686.4 684.4 676.0 671.7 653.6 655.8 662.0 654.4 '653.6 650.8 696.5 19 Nontransaction 2,108.2 2.221.2 2.233.5 2,234.2 2,248.6 2,246.2 2.266.8 2.272.7 2.287.6 2,279.4 2,260.7 2,257.0 20 Large time 361.0 400.8 394.5 391.7 393.2 384.5 384.0 382.9 382.5 384.0 383.1 380.9 21 Other . . . 1 747 2 1,820.4 1.839.0 1 842.6 1 855 5 1.861.7 1,882.8 1.889.8 1,905.1 1 895.4 1.877.6 1,876.1 22 Borrowings 625.6 704,1 704.7 698.4 690,2 686.9 691.6 705.4 709.4 690.8 705.3 716.3 23 From banks in the U.S 260.4 279.8 279.2 259.8 258.0 262.5 269.8 271.2 280.6 270.3 265.8 268.0 24 From others 365 2 424 3 425 4 438.6 432.2 424.5 421.8 434.2 428.7 420.4 439.5 448.3 25 Net due to related foreign offices 72.6 82.8 77.4 73.3 73.4 79.3 92.8 105.1 102.0 106.0 107.5 109.2 26 Other liabilities 173.8 207.1 210.1 211.8 218.1 224.9 226.8 230.6 232.3 224.7 231.6 233.4 27 Total liabilities 3,656.8 3,901.5 3,910.0 3,893.6 3,902.0 3,891.0 3.933.8 3,975.7 3,985.7 3,954.4 3,956.0 4,012.4 28 Residua! (assets less liabilities)7 399.4 394.3 394.0 410.3 422.7 434.6 437.8 442.9 436.7 442.1 452.5 441.8 Nol seasonslly adjusted Assets 29 Bank credit 3,465.4 3 647.5 3,668.2 ).678.9 3.692.3 1 697.2 3.732.6 3.779.1 3.764.3 3.772.5 3,782.3 3.8O0.1 30 Securities in bank credit 850.5 932.8 924.8 929.4 920.6 919.7 929.8 950.6 949.0 943.5 953.5 957.9 31 U.S. government securities 637.6 695.8 686.7 688.2 671.6 665.8 671.2 679.3 679.9 671.4 680.4 684.8 32 Other securities 212.8 237.0 238.1 241.2 249.0 253.9 258.7 271.4 269.1 272.1 273.1 273.2 33 Loans and leases in bank credit2 .... 2,615.0 2,714.7 2,743.4 2.749.5 2.771.7 2.777.5 2,802.7 2,828.5 2,815.3 2.829.0 2.828.8 2,842.2 34 Commercial and industrial 611.8 655.9 664.8 672.9 678.3 677.7 679.5 686.9 681.0 687.6 689.1 691.6 35 Real estate 1,191.2 1,232.1 1 241.9 1,244.3 1,247.6 1,253.9 1,265.0 1,267.5 1.271.3 1,269.5 1,262.7 1,265.8 36 Revolving home equity 96.0 97.2 97.5 97.6 97.4 97 5 97.5 98.4 98.4 98.6 99.1 97.9 37 Other 1.095.1 1,134.8 1,144.4 1.146.7 1.150.2 1.156.4 1.167.5 1,169.0 1.173.0 1.170.9 1,163.6 1.168.0 38 Consumer 518.2 495.6 500.5 500.6 499.9 494.7 495.9 500.1 497.6 500.6 504.6 498.2 39 Security' 50.4 67.9 65.7 61.9 67.6 68.0 69.6 72.1 65.4 69.2 71.6 82.1 40 Other loans and leases 243.4 263.2 270.5 269.8 278.3 283.1 292 7 302.0 299.9 302.1 300.8 304.5 41 Interbank loans 173.5 194.6 194.7 176.0 190.1 185.2 178.6 185.0 190.3 183.2 176.0 190.6 42 Cash assets4 217.1 231.0 230.2 211.9 209.5 204.2 205.6 216.4 236.9 210.4 197.4 221.6 43 Other assets5 246.3 259.2 273.0 278.3 278.4 278.3 277.4 280.6 282.6 275.9 274.6 287.8 44 Total assets6 4,045.7 4,275.7 4,309.2 4,288.0 4,313.0 4,307.7 4.337.0 4.403.8 4,417.0 4,384.8 4,373.1 4.442.3 Liabilities 45 Deposits . • . 2 786.0 2 897.1 2,919 0 2,891.0 2,910.6 2,894.2 2.913.7 2.937.2 2.966.7 2.942.9 2.882.3 2,952.3 46 Transaction '671.3 674.1 689.9 664.4 666.7 648.6 642.4 656.6 660.6 652.5 623.3 '691.7 47 Nontransaction 2.114.7 2,223.0 2,229.1 2,226.6 2,243.9 2 MS .5 2,271.3 2,280.6 2.306.1 2,290.4 2,259.0 2,260.6 48 Large time 363.8 396.2 390.3 389.9 390.8 383.4 386.4 386.3 387.6 388.8 385.6 382.2 49 Other 1,750.9 1,826.8 1,838.8 1,836.7 1,853.1 1,862.1 1,884.9 1.894.3 1,918.5 1.901.6 1.873.5 1.878.4 50 Borrowings 627.7 695.8 704.1 703.9 699.9 691.5 684.7 708.8 694.5 694.2 727.1 722.0 51 From banks in the US 259.3 277.3 278.4 261.0 261.0 262.7 265.9 270.0 273.4 269.2 271.0 266.9 52 From others 368.4 418.5 425.7 443.0 439.0 428.7 418.8 438.8 421.1 425.0 456.1 455^0 53 Net due to related foreign offices .... 73.5 82.1 78.0 80.9 80.1 84.9 96.7 106.7 104.3 106.9 110.7 109.1 54 Other liabilities 173.8 207.1 210.1 211.8 218.1 224.9 226.8 230.6 232.3 224.7 231.6 233.4 55 Total liabilities 3,661.0 3,882.1 3,911.1 3,887.6 3,908.7 3,895.4 3,921.8 3,983.4 3,997.8 3,968.7 3,951.7 4,016.7 56 Residual (assets less liabilities)7 384.6 393.6 398.1 400.3 404.3 412.3 415.2 420.4 419.1 416.2 421.3 425.6 MEMO .57 Revaluation gains on off-balance-sheet items* 37.5 47.2 43.9 45.6 50.5 51.0 51.9 61.5 61.1 60.3 64.6 61 7 58 Revaluation losses on off-balancesheet items* 39.9 49.6 45.3 46 1 50 1 50.4 54.2 65.0 63.3 64.3 69.1 65.2 59 Mortgage-backed .securities9 259.0 300.7 295.6 298.0 291.2 294.4 301.9 314.0 310.8 308.2 314.2 323.5 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A17 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued C. Large domestically chartered commercial banks Billions of dollars Monthly averages Wednesday figures Account 1997 1998 1998 Sept. Mar. Apr. May June July Aug. Sept. Sept. 9 Sept. 16 Sept. 23 Sept. 30 Seasonally adjusted Assets 1 Bank credit 2,089.4 2,227.6 2.228.0 2,240.9 2,239.0 2,238.8 2,269.2 2,300.1 2,290.8 2,291.6 2,307.0 2,313.9 2 Securities in bank credit 458.5 523.9 511.2 520.1 512.1 513.9 524.7 539.5 538.0 536.0 545.2 540.3 3 U.S. government securities 325.4 374.0 360.9 364.4 350.4 347.8 353.8 360.4 361.4 354.4 362.0 363.1 4 Trading account 23.5 27.5 23.7 24.5 24.3 20.2 21.1 21.8 21.5 18.5 23.5 23.5 5 Investment account 302.0 346.6 337.2 339.9 326.1 327.6 332.7 338.6 339.9 335.9 338.4 339.6 6 Other securities 133.1 149.9 L50.3 155.7 161.7 166.1 170.9 179.1 176.6 181.5 183.2 177.2 7 Trading account 61.7 70.9 69.4 74.4 78.5 81.1 83.1 89.3 87.0 91.2 942 87.1 8 Investment account 71.4 79.0 80.9 81.4 83.2 85.0 87.7 89.8 89.6 90.3 89.0 90.1 9 Slate and local government . 22.2 22.8 23.0 22.8 22 2 22.4 22.6 23.2 23.2 23.1 23.1 23.3 10 Other 49.2 56.2 58.0 58.6 60.9 62.6 65.1 66.6 66.4 67.2 65.9 66.8 11 Loans and leases in bank credit2 . . . 1,630.9 1,703.7 1.716.8 1,720.8 1,726.9 1,724.8 1.744.5 1,760.7 1,752.8 1,755.7 1.761.9 1,773.5 12 Commercial and industrial 438.5 467.8 470.6 477.7 484.2 485.0 488.4 493.4 490.8 493.4 494.9 495.5 13 Bankers acceptances 1.5 1.3 1.2 1.3 1.2 1.3 1.3 1.3 1.3 1.3 1.3 1.3 14 Other 437.0 466.5 469.4 476.4 483.0 483.7 487.2 492.1 491.3 493.9 495.3 496.0 15 Real estate 660.7 681.7 686.1 685.8 679.0 675.1 677.7 675.9 679.8 677.3 672.8 673.0 16 Revolving home equity 67.3 69.1 69.4 68.8 68.3 67.8 67.7 68.0 68.1 68.1 68.5 67.3 17 Other 593.4 612.7 616.7 617.1 610.7 607.3 610.0 607.9 611.6 609.1 6042 605.7 18 Consumer 306.9 297.0 301.2 300.8 297.4 292.0 292.8 295.8 294.4 295.2 298.2 295.9 19 Security3 47.6 61.7 57.3 55.9 61.3 63.4 66.9 68.5 63.1 62.1 67.9 81.0 20 Federal funds sold to and repurchase agreements with broker-dealers 30.9 43.8 39.8 37.6 42.8 44.8 47.9 50.0 43.6 43.6 48.7 64.3 21 Other 16.7 17.9 17.6 18.3 18.6 18.6 19.0 18.5 19.5 18.6 19.2 16.7 22 State and local government .... 12.2 11.2 11.2 11.3 11.2 11.1 11.2 11.3 11.3 11.4 11.4 11.2 23 Agricultural 9.5 9.8 9.9 9.9 9.9 9.8 9.8 9.8 9.8 9.8 9.9 9.8 24 Federal funds sold to and repurchase agreements with others 7.6 7.2 7.2 5.6 5.5 8.7 9.7 12.1 11.2 12.0 13.4 12.1 25 All other loans 70.3 79.8 82.7 81.0 84.7 84.8 89.9 94.3 93.2 95.0 94.1 94.8 26 Lease-financing receivables 77.7 87.4 90.5 92.7 93.6 95.0 97.9 99.6 99.2 99.4 99.5 100.3 27 Interbank loans 126.1 132.5 127.8 115.5 124.9 120.4 112.5 114.3 114.4 109.7 112.4 121.6 28 Federal funds sold to and repurchase agreements with commercial banks 82.6 82.2 76.1 65.1 74.5 67.7 60.4 62.0 61.9 56.2 60.3 70.5 29 Other 43.5 50.3 51.7 50.3 50.4 52.7 52.1 52.3 52.5 53.5 52.1 51.1 30 Cash assets4 150.2 174.9 165.8 148.3 147.0 141.6 148.9 148.9 162.9 145.0 139.3 151.1 31 Other assets5 185.5 197.4 209.1 214.1 211.3 208.8 208.4 208.1 210.1 208.0 205.9 206.5 32 Total assets* 2,5142 2,695.1 2,693.2 2,681.1 2,684.7 2,6722 2,702.2 2,7343 2,741.5 2,717.6 2,727.6 2,7553 Liabilities 33 Deposits 1,547.1 1,626.6 1,629.3 1.613.4 1,610.1 1,586.3 1,593.9 1.594.1 1,604.3 1.594.4 1,575.0 1,601.7 34 Transaction 383.1 391.4 390.8 382.8 376.6 361.7 363.2 366.6 366.1 361.8 355.5 387.4 35 Nontransaction 1,164.0 1,215.1 1,238.5 1,230.6 1,233.5 1,224.6 1.230.7 1.227.5 1.238.2 1,232.7 1,219.5 1.214.3 36 Large time 200.6 229.7 222.0 217.3 218.7 212.4 211.2 206.1 207.1 206.8 204.9 203.9 37 Other 963.5 1,005.5 1,016.5 1,013.3 1,014.8 1,012.2 1,019.5 1021 3 1031.1 1,025.8 1.014.6 1,010.4 38 Borrowings 474.1 548.0 546.4 537.6 528.3 522.0 527.2 540.0 541.9 524.2 540.8 553.4 39 From banks in the U.S 186.6 210.3 209.6 189.6 187.2 188.9 195.9 197.0 204.5 195.6 193.5 194.5 40 From others 287.5 337.7 336.7 348.0 341.1 333.2 331.2 343.0 337.4 328.6 MIA 358.8 41 Net due to related foreign offices 67.8 78.7 73.9 69.4 69.5 75.6 89.1 101.3 98.4 102.7 103.8 104.9 42 Other liabilities 147.0 176.7 179.5 181.4 187.8 193.9 196.0 199.6 201.3 194.4 200.6 201.9 43 Total liabilities 2,235.9 2,430.0 2.429.1 2,401.8 2,395.8 2377.9 2,406.1 2,435.1 2,445.9 2,415.7 2,420.2 2,461.9 44 Residual (assets less liabilities)7 278.3 265.1 264.1 279.3 289.0 294.3 296.0 299.3 295.6 302.0 307.4 293.3 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A18 Domestic Financial Statistics • December 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued C. Large domestically chartered commercial banks—Continued Monthly averages Wednesday figures Account 1997 1998 1998 Sept. Mar. Apr. May June July Aug. Sept. Sept. 9 Sept. 16 Sept. 23 Sept. 30 Not seasonally adjusted Assets 45 Bank credit 2.082.4 2,222.0 2,227.1 2.227.1 2.232.6 2.231.8 2.253.7 2.290.1 2,279.7 2.284.2 2,289.1 2.309.3 46 Securities in bank credit 452.1 525.8 514.9 516.7 508.8 506.9 513.0 531.4 532.5 526.1 532.5 535.5 47 U.S. government securities 321.5 375.4 365.6 365.1 350.1 345.6 349.0 355.7 358.3 349.3 355.1 359.3 48 Trading account 23.4 28.3 23.9 23.7 23.4 196 20.9 21.7 22.3 18.8 22.9 23.0 49 Investment account 298.1 347.1 341.7 341.4 326.7 325.9 328.1 334.0 336.0 3.30.5 332.3 336.4 50 Mortgage-backed securities . 193.9 228.8 222.5 222.3 213.8 215.2 221.8 232.2 230.9 228.6 232.9 241.4 51 Other 103.0 116.8 117.8 117.7 111.6 109.4 104.9 100.3 105.1 101.9 99.3 95.0 52 One year or less 28.8 30.4 31.7 30.2 30.2 29.1 27.7 26.5 27.3 26.4 26.8 25.5 53 One to five years 50.9 52.2 51.6 50.2 47.0 49.8 46.8 42.3 44.7 43.2 41.4 39.0 54 More than five years . .. 23.3 34.2 34.5 37.3 34.3 30.5 30.4 31.5 33.1 32.3 31.1 30.4 55 Other securities 130.6 150.4 149.3 151.6 158.7 161.3 164.0 175.7 174.2 176.8 177.3 176.2 56 Trading account 59.4 71.4 69.0 70.9 75.7 77.0 76.8 86.3 85.0 86.7 89.1 86.1 57 Investment account 71.2 79.0 80.3 80.7 82.9 84.3 87.2 89.4 89.2 90.0 88.2 90.1 58 State and local government . . 22.3 22.7 22.9 22.7 22.4 22.3 22.7 23.2 23.2 23.2 23.2 23.4 59 Other 49.0 56.3 57.3 58.0 60.6 62.1 64.6 66.2 66.0 66.9 65.0 66.7 60 Loans and leases in bank credit2 . . 1,630.3 1,696.2 1,712.2 1,710.4 1,723.8 1,724.9 1,740.7 1,758.7 1,747.2 1.758.2 1,756.6 1.773.8 61 Commercial and industrial 435.9 469.7 475.7 481.3 485.3 485.1 485.1 490.5 485.2 491.1 492.1 494.9 62 Bankers acceptances 1.5 1.2 1.2 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.3 1.3 63 Other 434.4 468.5 474.5 480.1 484.1 483.8 483.8 489.2 483.9 489.8 490.8 493.6 64 Real estate 663.6 677.5 680.2 678.0 676.1 677.4 681.0 679.2 684.0 681.4 673.8 676.9 65 Revolving home equity . . . 67.8 68.1 68.4 68.3 68.0 68.0 68.0 68.6 68.5 68.7 69.0 68.1 66 Other 365.2 376.0 377.1 374.6 374 2 375.5 377.9 374.6 382.1 378.3 369.9 373.5 67 Commercial 227.5 230.2 231.5 231.9 230.7 230.7 231.3 232.6 233.4 234.4 234.9 235.2 68 Consumer 308.7 292.5 297.1 296.8 296.2 291.7 294.4 297.7 296.2 297.4 299.9 297.8 69 Security3 45.7 61.8 59.4 56.0 61.4 61.8 63.2 65.4 58.5 62.5 65.3 75.6 70 Federal funds sold to and repurchase agreements with broker-Kiealers 29.4 44.0 41.7 37.6 42.4 43.8 45.0 47.5 40.4 43.8 46.4 59.5 71 Other 16.3 17.8 17.7 18.4 19.0 18.1 18.3 18.0 18.1 18.7 18.9 16.1 72 State and local government . . . 12.2 11.2 11.1 11.2 11.2 11.1 11.3 11.4 11.3 11.4 11.4 11.3 73 Agricultural 9.7 9.4 9.5 9.7 10.0 10.1 10.1 10.1 10.1 10.1 10.1 10.1 74 Federal funds sold to and repurchase agreements with others 7.6 7.2 7.2 5.6 5.5 8.7 9.7 12.1 11.2 12.0 13.4 12.1 75 All other loans 69.9 78.9 81.7 79.8 84.9 84.5 89.2 93.8 92.5 94.0 92.4 95.4 76 Lease-financing receivables 76.9 88.0 90.3 92.0 93.2 94.5 96.7 98.5 98.1 98.3 98.1 99.7 77 Interbank loans 124.7 128.2 128.5 114.8 125.3 119.4 110.0 113.1 112.2 109.2 109.9 121.5 78 Federal funds sold to and repurchase agreements with commercial banks .... 81.7 78.8 77.3 64.8 74.9 67.0 58.6 61.5 59.9 56.8 58.9 70.8 79 Other 43.0 49.4 51.2 50.0 50.5 52.4 51.4 51.6 52.3 52.4 51.0 50.7 80 Cash assets4 148.8 166.1 163.4 144.3 141.9 138.0 138.9 147.4 164.0 143.8 133.0 149.7 81 Other assets5 185.5 197.4 209.1 214.1 211.3 208.8 208.4 208.1 210.1 208.0 205.9 206.5 82 Total assets6 2304.0 2,676.7 2,690.9 2,662.9 2,673.6 2,660.5 2,673.8 2,7213 2,728.8 2,707.9 2,700.8 2,749.0 Liabilities 83 Deposits 1,551.8 1.614.5 1,622.1 1.593.6 1,603.8 1,586.1 1,591.5 1,600.2 1,621.1 1,606.7 1,559.2 1,608.8 84 Transaction 380.1 382.2 392.8 373.3 373 2 359.5 354.0 363.5 366.5 361.9 338.8 387.7 85 Nontransaction 1.171.7 1,232.3 1,229.3 1,220.3 1.230.6 1,226.8 1,237.5 1,236.7 1.254.5 1.244.8 1,220.4 1,221.1 86 Large time 203.3 225.1 217.8 215.5 216.3 211.3 213.6 209.6 212.2 211.6 207.4 205.2 87 Other 968.3 1,007.2 1.011.6 1.004.8 1.014.3 1,015.5 1,023.9 1,027.1 1,042.4 1.033.2 1,013.0 1,015.9 88 Borrowings 473.2 543.0 547.6 542.9 537.6 526.5 518.9 540.1 528.6 525.8 554.1 553.8 89 From banks in the U.S 184.4 209.0 209.1 190.1 189.6 188.9 191.3 194.8 198.2 194.1 195.3 191.8 90 From nonbanks in the U.S 288.8 334.0 338.5 352.7 348.0 337.6 327.6 345.3 330.4 331.7 358.9 362.0 91 Net due to related foreign offices . . . 68.6 78.0 74.5 77.1 76.2 81.2 92.9 103.0 100.7 103.6 106.9 104.8 92 Other liabilities 147.0 176.7 179.5 181.4 187.8 193.9 196.0 199.6 201.3 194.4 20O.6 201.9 93 Total liabilities 2,240.6 2.412.2 2,423.7 2395.0 2,405.4 2388.0 2399.4 2,442.9 2,451.7 2,430.4 2,420.9 2,4693 94 Residual (assets less liabilities)7 263.4 264.5 267.2 267.9 268.2 272.6 274.4 278.4 277.1 277.5 279.9 279.8 MEMO 95 Revaluation gains on off-balancesheet items8 37.5 47.2 43.9 45.6 50.5 51.0 51.9 61.5 61.1 60.3 64.6 61.7 96 Revaluation losses on off-balancesheet items8 39.9 49.6 45.3 46.3 50.1 50.4 54.2 65.0 63.3 64.3 69.1 65.2 97 Mortgage-backed securities9 211.9 248.6 242.3 243.0 235.1 237.6 244.2 254.8 253.5 250.7 255.5 264.3 98 Pass-through securities 145.0 169.9 165.3 164.7 156.8 156.9 160.2 166.3 163.3 161.1 167.1 174.1 99 CMOs, REMICs, and other mortgage-backed securities . . 66.9 78.8 77.0 78.3 78.2 80.7 84.0 88.5 90.2 89.6 88.4 90.2 100 Net unrealized gains (losses) on available-for-sale securities10 . . . 1.8 2.9 3.0 2.8 3.2 3.5 3.1 3.8 3.5 3.4 3.5 4.6 101 Offshore credit to U.S. residents" . . 34.1 35.2 35.5 36.0 36.1 35.3 35.6 36.8 36.7 36.9 36.7 37.3 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Commercial Banking Institutions—Assets and Liabilities A19 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued D. Small domestically chartered commercial banks hllions of dollars Monthlyaverages Wednesdly figures Account 1997 1998 1998 Sept. Mar. Apr. May June July Aug. Sept. Sept. 9 Sept. 16 Sept. 23 Sept. 30 Seasonally adjusted Assets 1 Bank credit 1.380.5 1,429.1 1,435.4 1.444.8 1,454.9 1,467.3 1.479.3 1.486.9 1,484.7 1,485.1 1.487.8 1,490.0 2 Securities in bank credit 398.8 405.6 404.4 408.5 408.7 414.1 417.9 420.0 417.6 417.7 420.4 424.4 3 U.S. government securities 316.3 319.2 316.0 319.8 318.8 321.5 323.0 323.9 322.3 322.2 324.5 326.8 4 Other securities 82.5 86.4 88.4 88.7 89.9 92.6 94.9 96.0 95.3 95.5 95.9 97.6 5 Loans and leases in bank credit- .... 981.7 1,023.5 1,031.0 1,036.3 1,046.2 1.053.2 1,061.5 1,066.9 1,067.1 1.067.4 1.067.4 1,065.6 6 Commercial and industrial 177.2 185.2 186.7 189.1 191.2 192.8 196.0 197.9 197.8 197.8 197.8 198.4 7 Real estate 525.9 556.9 562.0 564.7 570.9 576.5 583.6 586.6 586.5 586.3 586.5 587.0 8 Revolving home equitv 28.1 29.2 29.0 29.1 29.4 29.6 29.7 29.7 29.7 29.7 29.8 29.6 9 Other " 497.8 527.7 533.0 535.5 541.4 546.8 553.9 556.9 556.7 556.5 556.7 557.5 10 Consumer 208.6 205.1 204.3 205.1 205.3 204.7 201.5 201.5 200.9 202.1 203.3 199.8 11 Security-5 4.7 6.1 6.2 5.9 6.2 6.2 6.4 6.6 7.0 6.7 6.3 6.5 12 Other loans and leases 65.3 70.2 71.7 71.4 72.6 72.9 74.0 74.3 75.0 74.5 73.4 73.9 13 Interbank loans 51.9 62.6 64.1 64.9 68.5 71.1 73.1 76.4 75.7 78.5 76.2 75.4 14 Cash assets'* 68.9 66.4 67.4 67.7 68.5 66.9 69.0 69.7 70.8 67.9 67.8 73.6 15 Other assets5 59.8 61.9 63.6 65.1 67.8 67.9 67.9 71.3 69.7 67.4 69.1 79.9 16 Total assets6 1,541.9 1,600.6 1,610.8 1,622.8 1,640.0 1,653.4 1,669.4 1.684.2 1.680.9 1,678.9 1,680.8 1,698.9 Liabilities 17 Deposits 1,237.7 1,281.0 1,288.5 1,296.8 1,310.2 1 3135 1.328.8 1,340.5 1,337.7 1,338.6 1,336.5 1,351.8 [ 8 Transaction 293.5 294.9 293.6 293.2 295.1 291.9 292.6 295.3 288.3 291.8 295.3 309.1 19 Non trans act ion 944.2 986.0 995.0 1,003.6 1.015.1 1,021.6 1,036.1 1,045.2 1,049.4 1.046.8 1,041.2 1,042.7 20 Large time 160.5 171.1 172.5 174.4 174.5 172.1 172.8 176.7 175.4 177.2 178.2 177.0 21 Other 783.8 814.9 822.5 829.2 840.6 849.5 863.3 868.5 874.0 869.6 863.0 865.8 22 Borrowings 151.5 156.1 158.3 160.7 161.9 164.9 164.5 165.3 167.5 166.6 164.5 162.9 23 From banks in the U.S 73.8 69.5 69.6 70.2 70.8 73.6 73.9 74.1 76.2 74.7 72.4 73.5 24 From others 77.7 86.6 88.7 90.6 91.1 91.3 90.6 91.2 91.3 91.8 92.1 89.4 25 Net due to related foreign offices .... 4.9 4.1 3.5 3.8 3.9 3.7 3.7 3.7 3.6 3.3 3.7 4.3 26 Other liabilities 26.8 30.3 30.6 30.4 30.3 31.0 30.7 31.0 31.0 30.3 31.1 31.5 27 Total liabilities 1,420.9 1,471.5 1,480.9 1,491.8 1306.2 1313.1 1327.7 1340.6 1339 X 1338.8 1335.8 13503 28 Residual (assets less liabilities)7 .... 121.1 129.1 129.9 131.0 133.7 140.3 141.8 143.7 141.1 140.1 145.1 148.4 Not seasonally adjusted Assets 29 Bank credit 1,383.0 1,425.5 1,441.1 1,451.8 1.459.7 1,465.4 1.478.8 1,489.0 1,484.6 1,488.2 1,493.2 1,490.8 30 Securities in bank credit 398.3 407.0 409.9 412.7 411.9 412.8 416.8 419.3 416.5 417.5 421.0 422.4 31 U.S. government securities 316.1 320.4 321.1 323.1 321.5 320.2 322.2 323.6 321.7 322.1 325.3 325.4 32 Other securities 82.1 86.6 88.8 89.6 90.3 92.6 94.7 95.7 94.9 95.4 95.8 97.0 33 Loans and leases in bank credit2 .... 984.7 1.018.5 1,031.1 1,039.2 1,047.8 1,052.6 1,062.0 1,069.8 1.068.1 1,070.8 1,072.1 1,068.4 34 Commercial and industrial 175.9 186.2 189.1 191.7 193.0 192.6 194.4 196.4 195.8 196.5 196.9 196.6 35 Real estate 527.6 554.6 561.7 566.3 571.5 576.5 584.0 588.3 587.3 588.1 588.9 589.0 36 Revolving home equity ... . 28.3 29.1 29 2 29.3 29.4 29.5 29.5 29.9 29.8 29.9 30.1 29.8 37 Other . ". 499.3 525.5 532.5 537.0 542.1 547.0 554.5 558.4 557.5 558.2 558.8 559.2 38 Consumer 209.5 203.2 203.4 203.9 203.7 203.0 201.6 202.4 201.4 203.2 204.7 200.4 39 Security1 47 6.1 6.2 5.9 6.2 6.2 6.4 6.6 7.0 6.7 6.3 6.5 40 Other loans and leases 67.1 68.4 70.7 71.4 73.5 74.2 75.6 76.1 76.6 76.3 75.3 75.9 41 Interbank loans 48.8 66.4 66.2 61.2 64.7 65.8 68.6 72.0 78.1 74.0 66.1 69.2 42 Cash assets4 68.3 64.9 66.8 67.6 67.6 66.3 66.7 69.0 73.0 66.7 64.3 71.9 43 Oiher assets'* 60.8 61.8 63.9 64.2 67.1 69.5 69.0 72.5 72.5 67.9 68.8 81.3 44 Total assets'1 1341.7 1399.0 1,618.3 1.625.1 1,639.4 1,6477 1,663.3 1,6823 1,688.2 1,676.9 1,6723 1.693.3 Liabilities 45 Deposits 1,234.3 1,282.6 1,296.9 1,297.3 1,306.8 1,307.9 1 322.2 1,337.1 1 345 7 1,336 3 1,323.1 1,343.5 46 Transaction 291.2 291.9 297.1 291.1 293.5 289.1 288.4 293.1 294.1 290.6 284.5 304.1 47 Nontransaction 943.0 990.7 999.7 1,006.2 1,013.3 1,018.7 1,033.8 1,044.0 1,051.5 1,045.6 1,038.6 1,039.5 48 Large time 160.5 171.1 172.5 174.4 174.5 172.1 172.8 176.7 175.4 177.2 178.2 177.0 49 Other 782.6 819.6 827.2 831.8 838.8 846.6 861.0 867.2 876.1 868.4 860.4 862.5 50 Borrowings 154.5 152.9 1565 161.1 162.3 164.9 165.8 168.7 165.9 168.4 173.0 168.1 51 From banks in the U.S 74.9 68.4 69.3 70.9 71.4 73.8 74.6 75.2 75.2 75.1 75.8 75.1 52 From others 79.7 84.5 87.2 90.2 91.0 91.2 91.1 93.5 90.7 93.3 97.2 93.0 53 Net due to related foreign offices 4.9 4.1 3.5 3.8 3.9 3.7 3.7 37 3.6 33 3.7 4.3 54 Other liabilities 26.8 30.3 30.6 30.4 30.3 31.0 30.7 31.0 31.0 30.3 31.1 31.5 55 Total liabilities 1.420.5 1,469.9 1,487.4 1,492.6 1303.3 13073 13214 13403 1346.1 1338.2 1330.9 1347.4 56 Residual (assets less liabilities)7 .... 121.2 129.1 130.9 132.5 136.1 139.7 140.9 142.1 142.1 138.6 1414 145.8 MEMO 57 Mortgage-backed securities'1 47.1 52.1 53.3 55.0 56.1 56.8 57.8 59.2 57.3 57.4 58.7 59.2 Footnotes appear on p. A21. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A20 Domestic Financial Statistics • December 1998 1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued E. Foreign-related institutions Billions of dollars Monthly averages Wednesday figures Account 1997 1998 1998 Sept. Mar. Apr. May June July Aug. Sept. Sept. 9 Sept. 16 Sept. 23 Sept. 30 Seasonally adjusted Assets 1 Bank credit 536.6 566.1 556.9 563.0 566.0 572.0 589.8 607.4 600.3 610.7 604.5 615.1 2 Securities in bank credit 178.9 200.1 194.1 197.0 199.0 199.9 210.7 214.3 212.9 213.5 210.7 219.4 3 U.S. government securities 82.7 88.8 89.2 89.1 87.4 90.2 92.9 82.2 82.8 79.2 79.5 84.2 4 Other securities 96.2 111.3 105.0 107.9 111.7 109.7 117.8 132.1 130.1 134.3 131.2 135.2 5 Loans and leases in bank credit2 . . . 357.7 366.0 362.8 166.0 367.0 372.2 379.1 393.1 387.4 397.2 393.8 395 7 6 Commercial and industrial 222.3 219.6 213.1 211.8 213.0 216.1 217.1 221.5 219.1 223.9 223.8 219.3 7 Real estate 28.0 25.9 15.0 24.4 24.2 23.9 23.7 23.4 23.6 23.6 23.3 23.0 8 Security3 43.6 49.1 52.2 59.1 60.2 61.5 65.1 69.2 68.4 69.6 67.1 72.5 9 Other loans and leases 63.8 71.3 72.5 70.8 69.7 70.7 73.2 79.1 76.4 80.0 79.6 80.8 10 Interbank loans 18.4 23.1 22.6 21.8 23.9 22.0 22.5 31.4 31.8 25.4 32.2 38.1 11 Cash assets4 34.2 34.5 35.6 34.8 35.3 35.2 34.0 34.3 34.0 34.9 35.4 32.9 12 Other assets5 43.6 36.4 36.2 34.1 34.1 34.2 35.8 38.1 37.3 37.8 38.7 38.5 13 Total assets6 632.6 660.0 651.0 653.4 659.2 663.2 681.8 710.8 703.1 708.5 710.5 7243 Liabilities 14 Deposits 263.2 291.2 294.0 295.3 302.6 297.2 306.2 315.2 316.8 316.4 317.9 310.2 15 Transaction 11.0 12.0 12.3 11 5 11 1 134 11.8 15.2 14.9 14.9 16.1 15.2 16 Nontransaction 252.1 279.3 281.8 283.7 291.6 283.9 294.4 300.0 301.8 301.5 301.8 295.0 17 Borrowings 144.6 152.8 166.0 163.4 167.1 169.9 169.9 1843 1762 177.9 178 1 206.4 18 From banks in the US 34.9 27.0 26.6 22.4 29.6 26.8 24.0 32.6 28.2 27.8 25.9 49.1 19 From others 109.7 125.8 139.4 141.0 137.5 143.1 145.9 151.7 148.0 150.1 152.2 157.3 20 Net due to related foreign offices 125.6 122.6 102.5 101.2 97.2 106.8 108.3 95.1 101.2 101.7 92.3 82.1 21 Other liabilities 94.2 89.1 85.1 87.3 90.1 93.0 98.7 104.5 100.7 103.5 105.2 110.2 22 Total liabilities 627.7 655.7 647.6 647.1 657.1 667.0 683.2 699.0 694.9 699.4 693.6 708.9 23 Residua] (assets less liabilities)7 4.9 4.3 3.4 6.4 2.1 -3.8 -1.3 11.8 8.2 9.1 16.9 15.4 Not seasonally adjusted Assets 24 Bank credit 533.5 566.3 557.2 564.7 569.1 574.9 592.3 602.2 593.0 603.2 599.3 612.9 25 Securities in bank credit 177.4 198.6 196.1 201.0 202.2 202.6 214.9 211.0 210.6 208.6 207.4 215.1 26 U.S. government securities 82.9 89.5 87.8 89.7 87.4 89.8 93.7 82.1 82.8 79.5 79.2 83.4 27 Trading account 17.0 17.5 18.5 20.8 18.9 24.9 30.7 21.5 22.0 20.0 19.6 20.9 28 Investment account 65.9 72.1 69.3 68.9 68.5 64.9 63.1 60.6 60.8 59.5 59.7 62.5 29 Other securities 94.5 109.1 108.3 111.3 114.8 112.8 121.2 128.9 127.8 129.0 128.2 131.7 30 Trading account 56.6 65.8 64.8 66.6 70.2 70.1 75.2 83.1 82.3 83.2 82.5 85.2 31 Investment account 37.9 43.3 43.6 44.7 44.6 42.7 46.0 45.8 45.5 45.8 45.7 46.4 32 Loans and leases in bank credit2 .. . 356.1 367.7 361.0 363.7 366.9 372.3 377.3 391.2 382.5 394.7 391.9 397.8 33 Commercial and industrial 221.2 220.3 213.1 211.2 212.9 215.8 216.0 220.4 216.5 222.3 222.9 220.4 34 Real estate 28.0 25.9 24.7 24.3 24.0 23.6 23.6 23.3 23.5 23.5 23.3 23.1 35 Security3 43.3 49.9 51.6 58.6 60.1 60.9 64.3 68.9 66.5 69.6 67.3 73.3 36 Other loans and leases 63.6 71.6 71.6 69.7 70.0 71.9 73.5 78.6 76.1 79.3 78.4 81.0 37 Interbank loans 18.4 23.1 22.6 21.8 23.9 22.0 22.5 31.4 31.8 25.4 32.2 38.1 38 Cash assels-l 34.3 33.4 33.9 34.4 36.3 35.1 34.1 VIA 33.6 34.2 15.7 34.1 39 Other assets5 43.6 36.4 34.2 34.5 33.4 33.8 36.6 38.1 38.3 37.7 38.1 38.0 40 Total assets* 629.6 659.0 647.6 655.2 662.4 665.5 685.2 705.8 696.4 700.2 705.1 722.8 Liabilities 41 Deposits 264.5 292.5 292.3 298.0 304.4 295 4 304.9 316.8 315.6 315.9 321.2 315.5 42 Transaction 11.5 11.9 11.8 11.2 11.1 13.5 11.8 15.8 15.1 15.2 17.0 16.7 43 Nontransaction 253.0 280.6 280.5 286.8 293.3 282.0 293.2 300.9 300.6 300.6 304.2 298.8 44 Borrowings 144.6 152.8 166.0 163.4 167.1 169.9 169.9 184.3 176.2 177.9 178.1 206.4 45 From banks in the U.S 34.9 27.0 26.6 22.4 29.6 26.8 24.0 32.6 28.2 27.8 25.9 49.1 46 From others 109.7 125.8 139.4 141.0 137.5 143.1 145.9 151.7 148.0 150.1 152.2 157.3 47 Net due to related foreign offices 124.1 121.7 101.0 102.1 96.5 103.3 105.0 93.5 95.6 97.3 94.1 84.2 48 Other liabilities 94.0 89.3 84.3 86.8 89.3 92.3 98.7 104.2 100.8 102.9 104.6 110.2 49 Total liabilities 627.2 656.3 643.7 650.3 6573 660.9 678.5 698.7 688.2 693.9 698.0 7163 50 Residual (assets less liabilities)7 .... 2.5 2.7 3.9 4.9 5.1 4.6 6.7 7.0 8.2 6.3 7.1 6.5 MEMO 51 Revaluation gains on off-balance-sheet items8 43.3 40.6 39.9 40.2 42.2 41.7 43.8 47.9 46.9 47.6 48.6 49.6 52 Revaluation losses on off-balancesheet items* 41.8 39.8 39.0 38.6 40.6 40.2 42.2 45.3 44.2 44.9 46.0 46.8 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 Stales, all of which are included in "Interbank loans." domestically chartered banks have been included in table 1.26, parts C and D. Data are both 3. Consists of reverse RPs with brokers and dealers and loans to purchase and carry merger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S. securities. branches and agencies of foreign banks have been replaced by balance sheet estimates of all 4. Includes vault cash, cash items in process of collection, balances due from depository foreign-related institutions and are included in table 1.26, part E. These data are break- institutions, and balances due from Federal Reserve Banks. adjusted. 5. Excludes the due-from position with related foreign offices, which is included in "Net The not-seasonally-adjusted data for ail 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 I. Covers the following types of institutions m 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 Acl 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 ratu 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 quarler-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. AI7-19 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 ijuantities 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 • December 1998 1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING Millions of dollars, end of period Year ending December D 19 e 9 c 3 . D 19 e 9 c 4 . D 19 e 9 c 5 . D 19 e 9 c 6 . D 19 e 9 c 7 . Apr. May July Commercial paper (seasonally adjusted unless noted otherwise) 1 All issuers 555,075 595,382 674,904 775,371 966,699 1,049,222 1,041,681 1,053,995 1,091,554 1,102,307 1,119,816 Financial companies1 2 Dealer-placed paper , total. . 218,947 223,038 275,815 361,147 513,307 550,670 558,817 569.065 597,193 616,382 606,355 3 Directly placed paper3, total. 180,389 207,701 210,829 229,662 252,536 282,083 275,415 274,469 276,476 266,022 281.927 4 Nonfinancial companies 155,739 188,260 184,563 216,469 207,449 210,460 219,904 231,534 Bankers dollar acceptances (not seasonally adjusted) 5 Total 32,348 29,835 29,242 25,832' 25,774 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 Allother 14,838 13,417 1. Institutions engaged primarily in commercial, savings, and mortgage banking; sales, 5. Data on bankers dollar acceptances are gathered from approximately 100 institutions. personal, and mortgage financing; factoring, finance leasing, and other business lending; The reporting group is revised every January. Beginning January 1995, data for Bankers insurance underwriting; and other investment activities. dollar acceptances are reported annually in September. 2. Includes all financial-company paper sold by dealers in the open market. 6. In 1977 the Federal Reserve discontinued operations in bankers dollar acceptances for 3. As reported by financial companies that place their paper directly with investors. its own account. 4. Includes public utilities and firms engaged primarily in such activities as communications, construction, manufacturing, mining, wholesale and retail trade, transportation, and services. 1.33 PRIME RATE CHARGED BY BANKS Short-Term Business Loans1 Percent per year Date of change Rate Period Av r e a r t a e ge Period Av r e a r t a e ge Period Av r e a r t a e ge 1995—Jan. 1 8.50 1995 8.83 1996—Jan 8.50 1997-Jan 8.25 Feb. 1 9.00 1996 8.27 Feb 8.25 Fcb 8.25 July 7 8.75 1997 8.44 Mar 8.25 Mar. 8.30 Dec. 20 8.50 Apr. 8.25 Apr 8.50 1995—Jan 8.50 May 8.25 May 8.50 1996—Feb. 1 8.25 Feb 9.00 June 8.25 June 8.50 Mar. 9.00 July 8.25 July 8.50 1997—Mar 26 8.50 Apr. 9.00 Aug 8.25 Aug 8.50 May 9.00 Sept 8.25 Sept 8.50 1998—Sept. 30 8.25 June 9.00 Oct 8.25 Oct 8.50 Oct. 16 8.00 My 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 Sept 8.49 Oct 8.12 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-rive largest banks by asset size, based on the most recent Call Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Financial Markets A23 1.35 INTEREST RATES Money and Capital Markets Percent per year; figures are averages of business day data unless otherwise noted 1998 1998, week ending 1997 July Aug. Sept. Sept. 4 Sept. II Sept. 18 Sept. 25 MONEY MARKET INSTRUMENTS 1 Federal funds1'2-3 5.83 5.30 5.46 5.56 5.54 5.55 5.51 5.48 5.61 5.47 5.54 5.42 2 Discount window borrowing2"4 5.21 5.02 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 Commercial paper' '6 Nonfinancial 3 1-month n.a. 5.57 5.51 5.51 5.50 5.44 5.50 5.50 5.49 5.49 5.45 4 2-month n.a. 5.57 5.50 5.50 5.50 5.37 5.49 5.48 5.44 5.40 5.34 5 3-month n.a. 5.56 5.48 5.48 5.48 5.31 5.47 5.42 5.39 5.32 5.27 Financial 6 1-month . n.a. 5.59 5.53 5.52 5.51 5.45 5.50 5.50 5.50 5.50 5.44 7 2-month n.a. n.a. 5.59 5.52 5.51 5.51 5.38 5.50 5.48 5.44 5.43 5.35 8 3-month n.a. n.a. 5.60 5.50 5.50 5.50 5.32 5.49 5.42 5.40 5.34 5.28 Commercial paper (historical)3-5"6"7 9 1-month 5.93 5.43 5.54 n.a. n.a. 10 3-month 5.93 5.41 5.58 n.a. n.a. n.a. n.a. 11 6-month 5.93 5.42 5.62 n.a. n.a. n.a. n.a. Finance paper, directly placed (historical)^1 x 12 1-month 5.81 5.31 5.44 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. 14 6-month 5.68 5.21 5.48 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Bankers acceptances ' ' 15 3-month 5.81 5.31 5.54 5.50 5.50 5.49 5.38 5.49 5.47 5.47 5.38 5.34 16 6-month 5.80 5.31 5.57 5.47 5.46 5.46 5.27 5.45 5.41 5.40 5.24 5.20 Certificates of deposit, secondary marker1'1® 17 1-month 5.87 5.35 5.54 5.57 5.57 5.56 5.49 5.56 5.55 5.53 5.53 5.48 18 3-month 5.92 5.39 5.62 5.60 5.59 5.58 5.41 5.57 5.52 5.46 5.42 5.37 19 6-month 5.98 5.47 5.73 5.65 5.65 5.61 5.33 5.58 5.50 5.41 5.33 5.27 20 Eurodollar deposits, 3-month3'11 5.93 5.38 5.38 5.33 U.S. Treasury bills Secondary market3'5 21 3-month 5.49 5.01 5.06 4.98 4.96 4.90 4.61 4.89 4.76 4.73 4.62 4.53 22 6-month 5.56 5.08 5.18 5.12 5.03 4.95 4.63 4.91 4.79 4.71 4.69 4.52 23 1-year 5.60 5.22 5.32 5.13 5.08 4.94 4.50 4.85 4.68 4.55 4.54 4.40 Auction average""' 24 3-month 5.51 5.02 5.07 4.99 4.96 4.94 4.74 4.92 4.80 4.79 4.74 4.64 25 6-month 5.59 5.09 5.18 5.12 5.03 4.97 4.75 4.94 4.83 4.79 4.76 4.62 26 1-year 5.69 5.23 5.36 5.13 5.10 5.00 4.51 n.a. 4.51 n.a. U.S. TREASURY NOTES AND BONDS Constant maturities^ 27 1-year 5.94 5.52 5.63 5.41 5.36 5.21 4.71 5.10 4.91 4.76 4.76 4.61 28 2-year 6.15 5.84 5.99 5.52 5.46 5.27 4.67 5.09 4.91 4.74 4.70 4.53 29 3-year 6.25 5.99 6.10 5.52 5.47 5.24 4.62 5.05 4.84 4.67 4.65 4.51 30 5-year 6.38 6.18 6.22 5.52 5.46 5.27 4.62 5.07 4.92 4.72 4.62 4.48 31 7-year 6.50 6.34 6.33 5.56 5.52 5.36 4.76 5.19 5.04 4.87 4.77 4.61 32 10-year 6.57 6.44 6.35 5.50 5.46 5.34 4.81 5.20 5.05 4.90 4.83 4.67 33 20-year 6.95 6.83 6.69 5.80 5.78 5.66 5.38 5.57 5.47 5.41 5.38 5.34 34 30-year 6.88 6.71 6.61 5.70 5.68 5.54 5.20 5.42 5.32 5.26 5.21 5.14 Composite 35 More than 10 years (long-term) 6.93 6.80 6.67 5.78 5.76 5.64 5.34 5.54 5.44 STATE AND LOCAL NOTES AND BONDS Moody's series14 36 Aaa 5.80 5.52 5.32 4.97 5.01' 5.01 4.84 4.92 4.92 4.84 4.85 4.75 37 Baa 6.10 5.79 5.50 5.08" 5.12' 5.15 5.11 5.13 5.15 5.08 5.10 5.10 38 Bond Buyer series'5 5.95 5.76 5.52 5.12 5.14 5.10 4.99 5.03 5.03 5.00 4.97 4.94 CORPORATE BONDS 39 Seasoned issues, all industries16 Rating group 40 Aaa 7.59 7.37 7.27 6.53 6.55 6.52 6.40 6.52 6.47 6.43 6.42 6.37 41 Aa 7.72 7.55 7.48 6.78 6.78 6.77 6.68 6.78 6.74 6.70 6.70 6.66 42 A 7.83 7.69 7.54 6.89 6.89 6.82 6.91 6.87 6.84 6.83 6.79 43 Baa 8.20 8.05 7.87 7.13 7.15 7.14 7.09 7.15 7.12 7.08 7.10 7.07 44 A-rated, recently offered utility bonds17 7.86 7.77 7.71 6.98 6.93 7.02 6.93 7.08 7.00 6.93 6.90 6.89 MEMO Dividend-price ratio 45 Common stocks 1.39 1.48 1.59 1.48 1.64 1.61 1.56 1.53 1. The daily effective federal funds rate is a weighted average of rates on trades through 13. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Depart- New York brokers. ment of the Treasury. 2. Weekly figures are averages of seven calendar days ending on Wednesday of the 14. General obligation bonds based on Thursday figures; Moody's Investors Service. current week; monthly figures include each calendar day in the month. 15. State and local government general obligation bonds maturing in twenty years are used 3. Annualized using a 360-day year for bank interest. in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys' 4. Rate for the Federal Reserve Bank of New York. Al rating. Based on Thursday figures. 5. Quoted on a discount basis. 16. Daily figures from Moody's Investors Service. Based on yields to maturity on selected 6. An average of offering rates on commercial paper for firms whose bond rating is AA or long-term bonds. the equivalent. 17. Compilation of the Federal Reserve. This series is an estimate of the yield on recently 7. Series ended August 29, 1997. offered, A-rated utility bonds with a thirty-year maturity and five years of call protection. 8. An average of offering rates on paper directly placed by finance companies. Weekly data are based on Friday quotations. 9. Representative closing yields for acceptances of the highest-rated money center banks. 18. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks in 10. An average of dealer offering rates on nationally traded certificates of deposit. the price index. 11. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Data are for NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly and Digitizedin dfiocart ioFnR pAurpSoEsesR o nly. G.13 (415) monthly statistical releases. For ordering address, see inside front cover. 12. Auction date for daily data; weekly and monthly averages computed on an issue-date http://frabsaseisr..stlouisfed.org/ Federal Reserve Bank of St. Louis

A24 Domestic Financial Statistics • December 1998 1.36 STOCK MARKET Selected Statistics Feb. Mar. Apr. May June July Aug. Sept Prices and trading volume (averages of daily figures)' Common stock prices (indexes) 1 New York Stock Exchange (Dec. 31, 1965 - 50) 291.18 357.98 456.99 504.13 532.15 560.70 578.05 574.46 569.76 586.39 539.16 506.56 2 Industrial 367.40 453.57 574.97 624.61 660.91 693.13 711.89 712.39 731.01 718.54 665.66 629.51 3 Transportation 270.14 327.30 415.08 458.49 485.73 508.06 523.73 505.02 492.98 503.89 441.36 408.75 4 Utility 110.64 126.36 143.87 146.25 170.96 191.67 207.32 198.25 188.26 189.95 186.24 186.17 5 Finance 238.48 303.94 424.84 479.81 508.97 539.47 563.07 551.28 548.57 579.67 511.22 454.28 6 Standard & Poor's Corporation (1941-43 - 10)2 541.72 670.49 873.43 963.36 1,023.74 1,076.83 1,112.20 1,108.42 1,108.39 1.156.58 1.074.62 1,020.64 7 American Stock Exchange (Aug. 31, 1973 = 5O)3 498.13 570.86 628.34 665.72 685.73 722.37 742.33 735.02 704.59 724.83 655.67 621.48 Volume of trading (thousands of shares) 8 New York Stock Exchange 345,729 409,740 523,254 632,895 610,958 619,366 647,110 569,239 605,576 639,744 712,710 790,238 9 American Stock Exchange 20,387 22,567 n.a. 28.199 26,808 28.943 29,544 27.004 25.447 26,473 32,721 33,331 Customer financing (millions of dollars, end-of-period balances) 10 Margin credit at broker-dealers4 76,680 97,400 126,090 127,790 135,590 140,340 140,240 143,600 147,700 147,800 137,540 Free credit balances at brokers* 11 Margin accounts6 16,250 22,540 31,410 29,480 27,450 27,430 28,160 26,200 29.840 31,820 38,460' 41.970 12 Cash accounts 34,340 40,430 52,160 48,620 48,640 51,340 51,050 47,770 51,205 53,780 53.850' 54,240 Margin requirements (percent of market value and effective date)7 Mar. 11. 1968 May 6, 1970 Nov. 24, 1972 13 Margin stocks .. . 70 80 65 55 65 50 14 Convertible bonds 50 60 50 50 50 50 15 Short sales 70 80 65 55 65 50 1. Daily data on prices are available upon request to the Board of Governors. For ordering 6. Series initiated in June 1984. address, see inside front cover. 7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant 2. In July 1976 a financial group, composed of banks and insurance companies, was added to the Securities Exchange Act of 1934, limit the amount of credit that can be used to to the group of stocks on which the index is based. The index is now based on 400 industrial purchase and carry "margin securities" (as defined in the regulations) when such credit is stocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and collateralized by securities. Margin requirements on securities are the difference between the 40 financial. market value (100 percent) and the maximum loan value of collateral as prescribed by the 3. On July 5, 1983, the American Stock Exchange rebased its index, effectively cutting Board. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1, previous readings in half. 1936; Regulation G, effective Mar. 11, 1968; and Regulation X. effective Nov. 1, 1971. 4. Since July 1983, under the revised Regulation T, margin credit at broker-dealers has On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T the included credit extended against stocks, convertible bonds, stocks acquired through the initial margin required for writing options on securities, setting it at 30 percent of the current exercise of subscription rights, corporate bonds, and government securities. Separate report- market value of the stock underlying the option. On Sept. 30. 1985, the Board changed the ing of data for margin stocks, convertible bonds, and subscription issues was discontinued in required initial margin, allowing it to be the same as the option maintenance margin required April 1984. by the appropriate exchange or self-regulatory organization; such maintenance margin rules 5. Free credit balances are amounts in accounts with no unfulfilled commitments to must be approved by the Securities and Exchange Commission. brokers and are subject to withdrawal by customers on demand. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance A25 1.38 FEDERAL FISCAL AND FINANCING OPERATIONS Millions of dollars Fiscal year Calendar year Type of account or operation 1998 Apr. May June July Sept. US. budget' 1 Receipts, total 1,453.062 1,579,292 261,002 95,278 187,860 119,723 111.741 180,947 2 On-budget 1,000,751 1.085,570 1,187,302 216,988 61,790 144,973 87,820 79,135 149,737 3 Off-budget 351,079 367,492 391,990 44,014 33,488 42,887 31,903 32,606 31,210 4 Outlays, total 1,515,729 1,560,512 1,601,235 136,400 134,057 136,754 143,807 122,907 142,725 5 On-budget 1,227,065 1,259,608 1,290,609 108,569 102,381 125,606 115,714 92,555 107,911 6 Off-budget 288,654 300,904 310,626 27,830 31.676 11,148 28,094 30,352 34.814 7 Surplus or deficit (-), total -163.899 -107.450 -21.943 124,603 -38.779 51,106 -24.084 -11,166 38,222 8 On-budget -226,314 -174,038 -103.307 108,419 -40,591 19,367 -27,894 -13.420 41,826 9 Off-budget 62,415 66,588 81,364 16,184 1,812 31,739 3,809 2,254 -3,604 Source of financing {total} 10 Borrowing from the public 171,288 129,712 38,171 -60.587 -8,597 -12,618 -16,370 33,989 -46,413 11 Operating cash (decrease, or increase (—t). . . -2,007 -6,276 604 -60.398 51,899 -36,144 36,210 -362 -2,451 12 Other2 -5,382 -15,986 -16,832 -3,618 -4,523 -2,344 4,244 -22,461 10,642 MEMO 13 Treasury operating balance (level, end of period) 37,949 44,225 43,621 88,030 36,131 72,275 36,065 36,427 38,878 14 Federal Reserve Banks 8,620 7,700 7,692 28,014 5,693 18,140 4,648 6,704 4,952 15 Tax and loan accounts 29,329 36,525 35,930 60,016 30,438 54,135 31,417 29,722 33,926 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 sate 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 US Government. liability (including checks outstanding) and asset accounts, seigniorage; increment on gold; Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A26 Domestic Financial Statistics • December 1998 1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1 Millions of dollars Fiscal year Calendar year Source or type 1998 Aug. Sept. [ All sources 1,453,062 1,579,292 707,552 845,527 773,812 922,632 119,723 111,741 180,947 2 Individual income taxes, net 656.417 737,466 121.884 400,436 354,072 447,514 58,969 55,300 90,479 3 Withheld 533,080 580,207 279.988 292,252 306,865 316,309 57,486 51,881 53,353 4 Nonwithheld 212,168 250,753 53,491 191,050 58,069 219,136 4,001 4,944 39,853 5 Refunds 88.897 93,560 9,604 82,926 10.869 87,989 2,520 1,525 2.729 Corporation income taxes 6 Gross receipts 189,055 204,493 95,364 106,451 104.659 109,353 5,808 2,952 38,928 7 Refunds 17,231 22,198 10,053 9,635 10.135 14,220 1.736 1,484 2,128 8 Social insurance taxes and contributions, net 509,414 539,371 240,326 288,251 260.795 312,713 43,817 45,806 43.079 9 Employment taxes and contributions'" 476,361 506,751 227,777 268,357 247,794 293,520 41,130 41,973 42.540 10 Unemployment insurance 28,584 28,202 10,302 17,709 10.724 17,080 2,301 3,502 206 11 Other net receipts3 4,469 4,418 2.245 2.184 2,280 2,112 385 331 333 12 Excise taxes 54,014 56,924 27,016 28,084 31,133' 29,922 6,127 3,181 2,961 13 Customs deposits 18,670 17,928 9,294 8,619 9,679 8,546 1,777 1,732 1,701 14 Estate and gift taxes 17,189 19,845 8,835 10,477 10,262 12,971 1,825 1,718 2,356 15 Miscellaneous receipts4 25,534 25,465 12,889 12,866 13.348 15.837 3,135 2.535 3,572 OUTLAYS 16 All types 1,560,512 1,601,235 800,177 797,418 824,370 815,886 143.807 122,907 142.725 17 National defense 265,748 270,473 139,402 132,698 140,873 129,351 25,865 18,502 24,748 18 International affairs 13.496 15,228 8,532 5,740 9,420 4,610 815 443 1,123 19 General science, space, and technology 16.709 17,174 8,260 8,938 10,040 9.426 1.711 1.581 1.824 20 Energy 2,844 1,483 695 803 411 957 122 -113 892 21 Natural resources and environment 21,614 21,369 10,307 9,628 11,106 10,051 2,217 1,855 2,115 22 Agriculture 9,159 9,032 11,037 1,465 10.590 2,387 176 1,656 2,780 23 Commerce and housing credit -10,472 -14,624 -5,899 -7,575 -3,526 -2,483 -1,223 -1,423 8,147 24 Transportation 39.565 40,767 21,512 16,847 20,414 16,196 3.327 3,218 3.997 25 Community and regional development 10,685 11,005 5,498 5.678 5.749 4.863 917 770 1.115 26 Education, training, employment, and social services 52.001 53,008 27,524 26.851 25,928 27 Health 119,378 123,843 61,595 61,809 63,552 65,053 11,033 10,704 11,293 28 Social security and Medicare . . . 523.901 555,273 269.412 278,863 283,109 286,305 51,109 44,240 47,555 29 Income security 225,989 230,886 107.631 124,034 106,353 125.196 21,198 14,281 17,309 30 Veterans benefits and services . . 36,985 39,313 21,109 17,697 22.077 19,615 4,958 1,749 3,432 31 Administration of justice 17,548 20,197 9,583 10,670 10.212 11,287 2,256 2,012 1,675 32 General government 11,892 12,768 6,546 6,623 7.302 6,139 308 579 2,199 33 Net interest5 241,090 244,013 122.573 122,655 122.620 122,345 20,791 21,366 15,976 34 Undistributed offsetting receipts6 -37,620 -49,973 -25,142 -24,235 -22,795 -21,340 -5.416 -3,221 -7.909 1. Functional details do not sum 10 total outlays for calendar year data because revisions to 4. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts. monthly totals have not been distributed among functions. Fiscal year total for receipts and 5. Includes interest received by trust funds. outlays do not correspond to calendar year data because revisions from the Budget have not 6. Rents and royalties for the outer continental shelf. U.S. government contributions for been fully distributed across months. employee retirement, and certain asset sales. 2. Old-age, disability, and hospital insurance, and railroad retirement accounts. SOURCE. Fiscal year totals: U.S. Office of Management and Budget, Budget of the US. 3. Federal employee retirement contributions and civil service retirement and Government, Fiscal Year 1999, monthly and half-year totals: U.S. Department of the Treadisability fund. sury, Monthly Treasury Statement of Receipts and Outlays of the US. Government. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Federal Finance All 1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION Billions of dollars, end of month 1996 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 1 Federal debt outstanding .. 5,260 5,357 5,415 5,410 5,446 5,536 5,573 5,578 5,556 2 Public debt securities 5,225 5,323 5,381 5,376 5,413 5,502 5,542 5,548 5,526 3 Held by public 3,778 3,826 3,874 3,805 3,815 3,847 3,872 3,790 n.a. 4 Held by agencies I Ml 1.497 1.507 1,572 1.599 1,656 1,670 1,758 n.a. 5 Agency securities 35 34 34 34 33 34 31 30 6 Held by public 27 27 26 26 26 27 26 26 7 Held by agencies 8 8 8 7 7 7 5 4 8 Debt subject to statutory limit . 5,137 5,237 5,294 5,290 5,328 5,417 5,457 5,460 5,440 9 Public debt securities 5,137 5,237 5.294 5,290 5,328 5,416 5,456 5,460 5,439 10 Other debt1 0 0 0 0 0 0 0 0 0 MEMO 11 Statutory debt limit 5,500 5,500 5,500 5,500 5,950 5,950 5,950 5,950 1. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specified SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of the participation certificates, notes to international lending organizations, and District of Colum- United 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 1994 Q4 Ql Q2 Q3 1 Total gross public debt ... 4,800.2 4,988.7 5,323.2 5,502.4 5,502.4 5,542.4 5447.9 5,526.2 By type 2 Interest-bearing 4,769.2 4,964.4 5,317.2 5,494.9 5,494.9 5,535.3 5,540.2 5,518.7 3 Marketable 3,126.0 3,307.2 3,459.7 3,456.8 3,456.8 3,467.1 3.369.5 3,331.0 4 Bills 733.8 760.7 777.4 715.4 715.4 720.1 641.1 637.7 5 Notes 1,867.0 2,010.3 2,112.3 2,106.1 2,106.1 2,091.9 2,064.6 2.009.1 6 Bonds 510.3 521.2 555.0 587.3 587.3 598.7 598.7 610.4 7 Inflation-indexed notes and bonds' n.a. n.a. n.a. 33.0 33.0 41.5 50.1 41.9 8 Nonmarketable 1,643.1 1,657.2 1,857.5 2,038.1 2.038.1 2,068.2 2,170.7 2,187.7 9 State and local government series . 132.6 104.5 101.3 124.1 124.1 139.1 155.0 164.4 10 Foreign issues1 42.5 40.8 37.4 36.2 36.2 35.4 36.0 35.1 11 Government 42.5 40.8 47.4 36.2 36.2 36.4 36.0 35.1 12 Public .0 .0 .0 .0 .0 .0 .0 .0 13 Savings bonds and notes 177.8 181.9 182.4 181.2 181.2 181.2 180.7 180.8 14 Government account series 1,259.8 1,299.6 1,505.9 1.666.7 1,666.7 1.681.5 1,769.1 1,777.3 15 Non-interest-bearing . .. 31.0 24.3 6.0 7.5 7.5 7.2 7.7 7.5 By holder* 16 U.S. Treasury and other federal agencies and trust funds 1,257.1 1,304.5 1,497.2 1,655.7 1,655.7 1,670.4 1,757.6 17 Federal Reserve Banks 374.1 391.0 410.9 451.9 451.9 400.0 458.4 18 Private investors . 3,168.0 3.294.9 3,411.2 3,393.4 3,393.4 3,430.7 3,330.6 19 Commercial banks 290.4 278.7 261.8 269.8 269.8 279.2 275.0 20 Money market funds .. . 67.6 71.5 91.6 88.9 88.9 84.8 82.9 21 Insurance companies .. . 240.1 241.5 214.1 224.9 224.9 225.5 228.0 22 Other companies 224.5 228.8 258.5 265.0 265.0 268.1 267.2 23 State and local treasuries' 541.0 469.6 482.5 493.0 493.0 442.4 441.0 Individuals 24 Savings bonds 180.5 185.0 187.0 186.5 186.5 186.3 186.0 25 Other securities 150.7 162.7 169.6 168.4 168.4 165.8 165.0 26 Foreign and international' 688.7 862.2 1,135.6 1,278.0 1,278.0 1,240.2 1,247.4 27 Other miscellaneous investor;s»• 784.6 794.9 610.5 418.8 418.8 538.4 438.0 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 States; data by holder, Treasury Bulletin. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A28 Domestic Financial Statistics • December 1998 1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions' Millions of dollars, daily averages 1998 1998, week ending June July Aug. Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 OUTRIGHT TRANSACTIONS By type of security 1 U.S. Treasury bills 30,868 25,889 32,286 26,401 26,841 28,263 33,499 35,909 40,148 31,762 28,504 Coupon securities, by maturity 2 Five years or less 111,622 82,094 137,256 115,476 120,628 116,569 157,479 187,693 120,894 151,592 141,650 130,825 3 More than five years 78,005 59,741 77,455 64,454 72,437 58,072 93,119 105,015 74,135 85,936 84,597 85,452 4 Inflation-indexed 585 Federal agency 651 1,205 717 301 761 968 862 1,212 1,657 817 1,140 5 Discount notes 37,638 Coupon securities, by maturity 37,154 35,439 37,530 37,020 37,479 34,649 42,747 39,628 45,984 48,277 50,771 6 One year or less 1,195 7 More than one year, but less than 1,746 1,325 1,095 777 1,302 1,093 905 517 1,544 1,378 1,036 or equal to five years 2,948 4,049 4,908 8 More than five years 3,196 2,892 4,118 4,748 4,505 3,046 5,026 5,058 6,093 5,078 4,466 4,003 9 Mortgage-backed 3,330 2,700 3,583 2,455 2,468 63,047 59,351 77,327 2,561 2,569 2,817 2,769 71,310 61,434 72,609 67,380 95,734 111,619 103,767 83,919 71,093 By type of counterparty With interdealer broker 10 U.S. Treasury 122,408 92,782 135,577 113,694 121,193 112,826 155,714 185,792 130,450 156,360 143,203 135,153 11 Federal agency 2,250 1,904 3,012 2,511 2,752 2,377 3,559 4,094 2,696 2,768 3,556 3,264 12 Mortgage-backed 20,149 19,316 22,350 20,538 26,766 19,705 20,044 25,054 31,866 37,391 29,255 26,631 With other 13 U.S. Treasury 98,737 76,148 112,136 92,938 99,474 90,663 129,351 159,536 101,700 122,973 115,623 110,769 14 Federal agency 43,176 40,451 43,314 42,489 43,003 42,450 41,257 49,524 46,102 52,406 53,382 55,315 15 Mortgage-backed 51,161 42,118 50,258 46.843 68,967 43,342 39,307 52,272 79,753 66,375 53,271 44,462 FUTURES TRANSACTIONS3 By type of deliverable security 16 U.S. Treasury bills 65 50 Coupon securities, by maturity 17 Five years or less 2,666 1,764 5,907 3,023 5,031 3,780 7,777 10,680 3,498 5,087 3,506 2,724 18 More than five years 16,057 11,813 18,177 15,079 12,194 13,845 23,221 30,063 16,714 22,287 20.808 15,948 19 Inflation-indexed 0 0 Federal agency 0 0 0 0 0 0 0 0 0 0 20 Discount notes 0 0 Coupon securities, by maturity 0 0 0 0 0 0 0 0 0 0 21 One year or less 0 0 22 More than one year, but less than 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 0 23 More than five years 0 0 0 0 0 0 0 0 0 0 0 0 24 Mortgage-backed 0 0 0 0 0 0 0 0 0 0 0 0 OPTIONS TRANSACTIONS4 By type of underlying security 25 U.S. Treasury bills Coupon securities, by maturity 26 Five years or less 1,627 1,856 1,790 1,272 1,230 1,701 2,468 2,263 1,723 2,691 1,407 1,950 27 More than five years 4,943 5,124 6,496 4,488 5,613 6,005 9,382 5,986 6,421 6,440 5,485 6,383 28 Inflation-indexed 0 Federal agency 0 0 0 0 0 0 0 0 0 0 0 29 Discount notes Coupon securities, by maturity 0 0 0 0 0 0 0 0 0 0 0 30 One year or less 31 More than one year, but less than 0 0 0 0 0 O 0 0 0 0 0 or equal to five years 0 0 32 More than five years 0 0 0 0 0 0 0 0 0 0 0 0 33 Mortgage-backed 0 0 0 0 0 541 0 0 0 0 0 975 768 623 793 697 1,110 633 1,050 815 786 348 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 cotpus. 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 June July Aug. Aug. 5 Aug. 12 Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Positions NET OUTRIGHT POSITIONS3 fiv type of security 1 US Treasury bills 2.012 1,766 3,981 4,030 2,786 6,322 2,185 4,845 6,948 -896 -1,168 Coupon securities, by maturity 2 Five years or less -22,489 -16,440 -18,708 -21,834 -26,511 -29,451 -7,988 -4,625 -7,456 -6,121 -7,093 3 More than five years -11,405 -17,653 -11.060 -15,890 -13,915 -12.806 -10,324 -820 597 -3,598 -2,644 4 Inflation-indexed 1,306 2,671 2,305 2.725 2,603 2,187 2,196 1.786 1,883 1,536 1,327 Federal agency 5 Discount notes 16.758 19,296 16,408 18,105 18,803 14,783 13,975 17,042 19,191 20,889 17,117 Coupon securities, by maturity 2,098 2,782 2.756 2,809 2,692 2,278 2,833 3,355 3,211 2,961 2,653 7 More than one year, but less than or equal to five years 7.043 7,435 5,821 6,793 7,717 6,232 4,565 3,378 5,033 5,992 4,906 8 More than five years 10,934 10,759 8,784 9,054 8,831 10,414 7,990 7,280 6,512 6,371 7,344 9 Mortgage-backed 69,961 64,705 61,657 61,216 71.517 63,422 52,505 58,637 62,539 66,404 55,797 NET FUTURES POSITIONS4 By type of deliverable security 10 US. Treasury bills 139 596 1,144 809 878 1,172 1,385 1,474 1,617 287 151 Coupon securities, by maturity -1,530 -4,346 -4,879 -2,889 -4,360 -4,629 -6,374 -5,851 -6,506 -10,554 -9,681 12 More than five years -32,350 -26.100 -32,741 -31,268 -33,884 -33,411 -33,309 -30,879 -29,025 -26,815 -23,089 0 0 0 0 0 0 0 0 0 0 0 Federal agency 0 0 0 0 0 0 0 0 0 0 0 Coupon securities, by maturity 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 -2,063 -1,050 -827 -577 -645 -627 -1,294 -957 -1,878 -911 267 21 More than five years -343 -3,065 -2,842 -3,397 -3,409 -3,859 -880 -2,815 -3,497 -1,015 -2,398 0 0 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 0 0 0 0 0 0 0 0 0 0 0 25 More than one year, but less than n.a. 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 1,750 2,332 1,954 3,092 1,696 2,229 1,649 1,222 1,692 1,706 2,517 Financing5 Reverse repurchase agreements 28 Overnight and continuing 341,684 320,143 333,413 323,805 327,992 337,894 332,826 345,156 305,452 309.408 336,627 29 Term 824,391 895,133 829,365 959,264 1,002,726 702,978 734,912 765,937 778.038 798,530 820,842 Securities borrowed 30 Overnight and continuing 221,331 218,172 221,150 212,332 218,696 221,834 225,402 226,495 223,820 231,670 232,824 31 Term 98.054 95,894 95,383 97,037 95,627 95,116 94,232 95,375 99,144 103,598 101,204 Securities received as pledge 3,043 3,140 2,770 2,748 2,617 2,983 2,820 2,641 3,120 3.413 3,470 33 Term n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a n.a. Repurchase agreements 34 Overnight and continuing 740,876 720,678 735,478 711,604 729,503 747,609 729,867 758,591 726,556 747,092 735,625 35 Term 744,206 799,633 728,531 856,968 886,939 606,000 646,966 664,056 675,410 718,248 746,038 Securities loaned 11,164 10,999 12,518 12,389 12,904 13,197 12,992 10,495 10,932 10,016 10,007 37 Term 3 625 3 623 3 830 3 497 4 100 3 771 3 876 3 803 3 808 3 936 3 897 Securities pledged 38 Overnight and continuing 56,175 54.477 49,094 49,034 47,835 49,230 51,485 47,376 46,482 52,344 55,635 39 Term 5,471 6,425 5,612 5.851 5.853 4,867 5,861 5,732 5,794 5.560 5,878 Collaleralized loans 40 Total 11.177 16,787 21,580 21,562 24,137 21,570 21,434 18,238 13.879 14.678 16,520 1. Data for positions and financing are obtained from reports submitted to the Federal securities are included when the time to delivery is more than five business days. Forward Reserve Bank of New York by the U.S. government securities dealers on its published list of contracts for mortgage-backed agency securities are included when the time to delivery is primary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendar more than thirty business days. days of the report week are assumed to be constant. Monthly averages are based on the 4. Futures positions reflect standardized agreements arranged on an exchange. All futures number of calendar days in the month. positions are included regardless of time to delivery. 2. Securities positions are reported at market value. 5. Overnight financing refers to agreements made on one business day that mature on the 3. Net outright positions include immediate and forward positions. Net immediate posi- next business day; continuing contracts are agreements that remain in effect for more than one tions include securities purchased or sold (other than mortgage-backed agency securities) that business day but have no specific maturity and can be terminated without advance notice by have been delivered or are scheduled to be delivered in five business days or less and either party; term agreements have a fixed maturity of more than one business day. Financing "when-issued" securities that settle on the issue date of offering. Net immediate positions for data are reported in terms of actual funds paid or received, including accrued interest. mortgage-backed agency securities include securities purchased or sold that have been NOTE, "n.a." indicates that data are not published because of insufficient activity. delivered or are scheduled to be delivered in thirty business days or less. Major changes in the report form filed by primary dealers induced a break in the dealer data Forward positions reflect agreements made in the over-the-counter market that specify series as of the week ending January 28, 1998. 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 • December 1998 1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding Millions of dollars, end of period Agency 1996 1997 Apr. May July 1 Federal and federally sponsored agencies 738,928 844,611 925,823 1,022,609 1,059,043 1,048,661 1,044,575 1,061,253 2 Federal agencies 39.186 37,347 29,380 27,792 27,227 27,104 26,995 26,817 26,990 3 Defense Department1 6 6 6 6 6 6 6 6 6 4 Export-Import Bank23 3,455 2.050 1,447 552 549 542 542 1,295 0 5 Federal Housing Administration4 116 97 84 102 97 102 108 144 156 6 Government National Mortgage Association certificates of participation5 n.a. n.a. n.a. n.a. n.a. 7 Postal Service6 8,073 5,765 n.a. n.a. n.a. n.a. n.a. 8 Tennessee Valley Authority 27,536 29,429 27,853 27,786 27,221 27,098 26,989 26,811 26,984 9 United States Railway Association6 n.a. 10 Federally sponsored agencies7 699,742 807,264 896,443 994,817 1,031,816 1,021,557 1,017,580 1,034,436 n.a. 11 Federal Home Loan Banks 205,817 243,194 263,404 313,919 317,967 323,208 322,155 328,514 328,009 12 Federal Home Loan Mortgage Corporation 93,279 119,961 156,980 169,200 193,300 200,800 204,751 200,314 208,800 13 Federal National Mortgage Association 257,230 299,174 331,270 369,774 381,093 395,977 399,489 406,162 415,229 14 Farm Credit Banks8 53,175 57,379 60,053 63,517 62,327 62,799 63,744 64,717 64,528 15 Student Loan Marketing Association9 50,335 47,529 44,763 37,717 36,310 36,256 35,952 33,231 n.a. 16 Financing Corporation 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8,170 8,170 17 Farm Credit Financial Assistance Corporation" 1,261 1.261 1,261 1,261 1,261 1,261 1,261 1,261 1,261 18 Resolution Funding Corporation 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 29,996 MEMO 19 Federal Financing Bank debt13 103,817 78,681 58,172 49,090 45,487 44,893 44,223 136,892 42,610 Lending to federal and federally sponsored agencies 20 Export-Import Bank 3,449 2,044 1,431 1,295 t 21 Postal Service6 8,073 5,765 n.a. n.a. n.a. 22 Student Loan Marketing Association n.a. n.a. n.a. n.a. n.a. 2 2 3 4 T U e n n it n e e d s s S e t e a t V es a l R le a y i l A w u ay th o A ri s t s y ociation6 n 3 . , a 2 . 00 n 3 . , a 2 . 00 n n . . a a . . n n . . a a . . Other lending14 25 Farmers Home Administration 33,719 21,015 18,325 13,530 13,030 12,380 11,955 13,530 10,900 26 Rural Electrification Administration 17,392 17,144 16,702 14,898 14,315 14,203 14,207 14,819 14,126 27 Other 37,984 29,513 21,714 20,110 17,593 17,768 17,519 107,248 17,584 1. Consists of mortgages assumed by the Defense Department between 1957 and 1963 10. The Financing Corporation, established in August 1987 to recapitalize the Federal under family housing and homeowners assistance programs. Savings and Loan Insurance Corporation, undertook its first borrowing in October 1987. 2. Includes participation certificates reclassified as debt beginning Oct. 1, 1976. 11. The Farm Credit Financial Assistance Corporation, established in January 1988 to 3. On-budget since Sept. 30, 1976. provide assistance to the Farm Credit System, undertook its first borrowing in July 1988. 4. Consists of debentures issued in payment of Federal Housing Administration insurance 12. The Resolution Funding Corporation, established by the Financial Institutions Reform, claims. Once issued, these securities may be sold privately on the securities market. Recovery, and Enforcement Act of 1989, undertook its first borrowing in October 1989. 5. Certificates of participation issued before fiscal year 1969 by the Government National 13. The FFB, which began operations in 1974, is authorized to purchase or sell obligations Mortgage Association acting as trustee for the Farmers Home Administration, the Department issued, sold, or guaranteed by other federal agencies. Because FFB incurs debt solely for the of Health, Education, and Welfare, the Department of Housing and Urban Development, the purpose of lending to other agencies, its debt is not included in the main portion of the table to Small Business Administration, and the Veterans Administration. avoid double counting. 6. Off-budget. 14. Includes FFB purchases of agency assets and guaranteed loans; the latter are loans 7. Includes outstanding noncontingent liabilities: notes, bonds, and debentures. Includes guaranteed by numerous agencies, with the amounts guaranteed by any one agency generally Federal Agricultural Mortgage Corporation, therefore details do not sum to total. Some data being small. The Farmers Home Administration entry consists exclusively of agency assets, are estimated. whereas the Rural Electrification Administration entry consists of both agency assets and 8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, which is guaranteed loans. shown on line 17. 9. Before late 1982, the association obtained financing through the Federal Financing Bank (FFB). Borrowing excludes that obtained from the FFB, which is shown on line 22. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Markets and Corporate Finance A31 1.45 NEW SECURITY ISSUES Tax-Exempt State and Local Governments Millions of dollars Type of issue or issuer, or use Apr. May June July Sept. 1 All issues, new and refunding 145,657 171,222 214,694 21,306 27,859 20,271 22,862 29,665 22,599 20,344 17,526 By type of issue 2 General obligation 56,980 60,409 69,934 9,893 9,597 8,154 4,827 10,135 6,515 5,812 5,619 3 Revenue 88,677 110,813 134,989 11,413 18,261 12,117 18,035 19,530 16,084 14,532 11,907 By type of issuer 4 State , 14,665 13,651 18,237 2,420 2,375 3,548 1,146 2,809 1,972 1,483 1,280 5 Special district or statutory authority 93,500 113,228 134,919 14,228 19,629 12,504 16,865 18,099 16,244 14,233 12,490 6 Municipality, county, or township .. 37,492 44,343 70,558 4,658 5,859 4,219 4,851 7,220 5,673 4,628 3,756 7 Issues for new capital 102,390 112,298 135,519 12,538 15,134 12,616 15,281 19,341 15,895 11,258 9,106 By use of proceeds 8 Education 23,964 26,851 31,860 3,525 4,297 4,080 2,819 4,911 2,733 2,435 2,041 9 Transportation 11,890 12,324 13,951 1,760 771 1,089 1,043 2,962 3,677 1,982 918 10 Utilities and conservation 9,618 9,791 12,219 687 1,866 749 5,971 2,368 795 1,179 831 11 Social welfare 19,566 24,583 27,794 2,903 3,104 n.a. n.a. n.a. n.a. n.a. n.a. 12 Industrial aid 6,581 6,287 6,667 581 1,236 678 576 563 1,002 709 315 13 Other purposes 30.771 32,462 35,095 3,082 3.860 3,255 2,482 5,279 4.674 2,764 2,726 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 Type of issue, offering, or issuer May July 1 All issues1 673,779' 668,687 771,135 81,465 76,178 116,594 84,399 85,013 36,944 70,306 53,628 2 Bonds2 572,998 548,922 641,069 73,798 64,996 97,323 71,929 70,313 19,833 60,534 49,903 By type of offering 3 Public, domestic 408,707 465,489 537,880 55,647 50,453 81,778 55,452 56,965 78,280r 54,266 4 Private placement, domestic 87,492 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 5 Sold abroad 76,799 83,433 103.188 10,551 6,943 7,946 8,878 5,748 7.363' 6,267 By industry group 6 Nonfinancial 156,763 119,765 130,116 21,039 12,133 17,301 16,985 12,856 16,844 17,221 12,799 7 Financial 416,235 429,157 510,953 45,159 45,263 72,422 47,345 49,857 10,344 43,313 37,104 8 Stocks2 105,323 122,006 117,880 7,667 11,182 19,271 14,700 17,111 9,772 3,725 By type of offering 9 Public 73,223 122.006 117,880 7,667 11.182 19,271 12,470 14,700 9,772 3,725 10 Private placement^ . 32,100 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 1,761 5,737 10,756 5,551 9,271 10,248 6,390 2,560 12 Financial 20.516 41.546 57.494 5,906 5.445 8.515 6,919 5,429 6,863 3,382 1,165 1. Figures represent gross proceeds of issues maturing in more than one year; they are the 2. Monthly data cover only public offerings. principal amount or number of units calculated by multiplying by the offering price. Figures 3. Monthly data are not available. exclude secondary offerings, employee stock plans, investment companies other than closed- SOURCE. Beginning July 1993, Securities Data Company and the Board of Governors of end, intracorporate transactions, and Yankee bonds. Stock data include ownership securities the Federal Reserve System. issued by limited partnerships. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A32 Domestic Financial Statistics • December 1998 1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets' Millions of dollars 1998 Item 1996 1997 Feb. Mar. Apr. May June July Aug.' Sept. 1 Sales of own shares2 934,595 1,190,900 114,219 128,348 128,828 113,593 122,288 134,801 111,587 118,640 2 Redemptions of own shares 702,711 918,728 81,688 97,248 97,087 84,421 97,899 107,368 118,812 106,942 3 Net sales3 231,885 272,172 31,100 31,741 29,172 24,389 27,433 11,697 32,532 -7,225 4 Assets4 2,624,463 3,409,315 3,843,971 3,909,932 3,882,061 3,986,952 3,957,093 3,628,812 3,675,392 3,479,401 5 Cash5 138,559 174,154 174,058 170,045 171,425 199,135 195,966 210,226 6 Other 2,485,904 3.235,161 3,419840.,947175 3,669,913 3,739,887 3,710,636 3,787,817 3,761,127 3,218944,,946357 3,418,586 1. Data include stock, hybrid, and bond mutual funds and exclude money market mutual 4. Market value at end of period, less current liabilities. funds. 5. Includes all U.S. Treasury securities and other short-term debt securities. 2. Excludes reinvestment of net income dividends and capital gains distributions and share SOURCE. Investment Company Institute. Data based on reports of membership, which issue of conversions from one fund to another in the same group. comprises substantially all open-end investment companies registered with the Securities and 3. Excludes sales and redemptions resulting from transfers of shares into or 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 1995 Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 1 Profits with inventory valuation and capital consumption adjustment 672.4 750.4 817.9 755.4 762.0 794.3 815.5 840.9 820.8 829.2 820.6 2 Profits before taxes 635.6 680.2 734.4 681.9 685.7 712.4 729.8 758.9 736.4 719.1 723.5 3 Profits-tax liability 211.0 226.1 246.1 227.7 224.2 238.8 241.9 254.2 249.3 239.9 241.6 4 Profits after taxes 424.6 454.1 488.3 454.2 461.5 473.6 487.8 504.7 487.1 479.2 481.8 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 219.3 192.3 213.2 185.1 187.9 199.5 213.2 229.5 210.6 201.8 203.7 7 Inventory valuation -22.6 -1.2 6.9 1.2 3.0 8.1 10.3 4.8 4.3 25.3 7.8 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 Account 1995 1996 1997 Q4 Ql Q2 Q3 Q4 Ql Q2 ASSETS 1 Accounts receivable, gross2 607.0 637.1 663.3 637.1 648.0 651.6 660.5 663.3 667.2 676.0 233.0 244.9 256.8 244.9 249.4 255.1 254.5 256.8 251.7 251.3 301.6 309.5 318.5 309.5 315.2 311.7 319.5 318.5 325.9 334.9 72 4 82 7 87 9 82 7 83 4 84 8 86 4 87 9 89 6 89 9 5 LESS: Reserves for unearned income 60.7 55.6 52.7 55.6 51.3 57.2 54.6 52.7 52.1 53.2 6 Reserves for losses 12.8 13.1 13.0 13.1 12.8 13.3 12.7 13.0 13.1 13.2 7 Accounts receivable, net 533.5 568.3 597.6 568.3 583.9 581.2 593.1 597.6 601.9 609.6 8 All other 250 9 290 0 3124 290 0 289 6 306 8 289 1 3124 329 7 340 1 9 Total assets 784.4 858.3 910.0 858.3 873.4 887.9 882.3 910.0 931.6 949.7 LIABILITIES AND CAPITAL 15.3 19.7 24.1 19.7 18.4 18.8 20.4 24.1 22.0 22.3 11 Commercial paper 168.6 177.6 201.5 177.6 185.3 193.7 189.6 201.5 211.7 225.9 Debt 12 Owed to parent 51.1 60.3 64.7 60.3 61.0 60.0 61.6 64.7 64.6 60.0 13 Not elsewhere classified 300.0 332.5 328.8 332.5 324.6 345.3 322.8 328.8 338.2 348.7 14 All other liabilities 163.6 174.7 189.6 174.7 189.2 171.4 190.1 189.6 193.1 188.9 15 Capital, surplus, and undivided profits 85.9 93.5 101.3 93.5 94.9 98.7 97.9 101.3 102.1 103.9 16 Total liabilities and capital 784.4 858.3 910.0 858.3 873.4 887.9 882.3 910.0 931.6 949.7 1. Includes finance company subsidiaries of bank holding companies but not of retailers 2. Before deduction for unearned income and losses. and banks. Data are amounts carried on the balance sheets of finance companies; securitized pools are not shown, as they are not on the books. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Market and Corporate Finance A3 3 1.52 DOMESTIC FINANCE COMPANIES Owned and Managed Receivables1 Billions of dollars, amounts outstanding Type of credit Apr. May July Seasonally adjusted 819.0 2 Consumer. .. . 283.1 307.7 327.7 328.7 328.9 330.2 332.5 336.6' 339.1 3 Real estate . . . 72.4 111.9 121.1 121.6 121.9 124.2 120.9 125.2 127.1 4 Business 326.8 342.4 361.0 368.7 374.5 378.6 377.9 378.7 379.2 Not seasonally adjusted 689.5 769.7 818.1 825.3 832.2 836.0 835.2r 841.6 Consumer 285.8 310.6 330.9 326.7 329.4 335.4 338.5" 340.5 Motor vehicles loans 81.1 86.7 87.0 90.6 89.6 89.9 91.7 95.3 Motor vehicle leases 92.5 96.8 95.2 95.9 95.9 97.0 97.3 96.9 Revolving 28.5 32.5 38.6 36.6 30.4 30.5 29.9 29.6' 30.2 Other1 42.6 33.2 34.4 33.0 33.4 33.5 34.4 35.0 34.7 Securitized assets4 Motor vehicle loans 34.8 36.8 44.3 45.0 42.8 45.7 49.3 50.2 49.2 12 Motor vehicle leases 3.5 8.7 10.8 10.5 10.4 10.8 10.9 10.8 10.7 13 Revolving n.a. 0.0 0.0 0.0 5.3 5.3 5.3 5.3 5.3 14 Other 14.7 20.1 19.0 18.2 18.1 18.1 18.6 18.5 18.2 15 Real estate 72.4 111.9 121.1 121.6 121.9 124.2 120.9 125.2 127.1 16 One- to four-family n.a. 52.1 59.0 61.5 62.4 65.2 62.3 65.9 68.6 17 Other n.a. 30.5 28.9 28.1 28.1 28.1 27.5 28.5 28.7 Securitized real estate assets4 18 One- to four-family n.a. 28.9 33.0 31.8 31.2 30.7 30.9 30.6 29.7 19 Other n.a. 0.4 0.2 0.2 0.2 0.2 0.1 0.1 0.1 20 Business 331.2 347.2 366.1 372.7 376.7 378.6 379.7 371.5 374.0 21 Motor vehicles 66.5 67.1 63.5 67.8 68.2 69.1 68.4 61.1 62.5 22 Retail loans 21.8 25.1 25.6 27.3 28.3 29.3 29.2 29.2 29.6 23 Wholesale loans5 36.6 33.0 27.7 30.2 29.5 29.5 28.2 21.0 22.0 24 Leases 8.0 9.0 10. 10.2 10.4 10.4 11.0 10.9 10.9 25 Equipment 8.0 9.0 10. 206.5 207.8 209.3 212.8 212.8 212.0 26 Loans 8.0 9.0 10. 50.8 51.2 51.3 52.7 51.6 51.8 27 Leases 8.0 9.0 10. 155.7 156.7 158.0 160.2 161.2 160.2 28 Other business receivables6 8.0 9.0 10.2 51.6 54.0 54.3 53.7 54.5 57.0 Securitized assets 29 Motor vehicles 8.0 9.0 10.2 32.1 31.6 31.0 29.1 26.3 25.9 30 Retail loans 8.0 9.0 10.2 2.0 1.9 1.9 2.3 2.2 2.1 31 Wholesale loans 8.0 9.0 10.2 30.0 29.6 29.2 26.7 24.1 23.8 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 10.5 10.3 10.2 10.5 11.5 11.4 34 Loans 8.0 9.0 10.2 4.2 4.1 4.0 4.1 5.1 4.9 35 Leases 8.0 9.0 10.2 6.3 6.2 6.2 6.4 6.4 6.4 36 Other business receivables 8.0 9.0 10.2 4.2 4.7 4.7 5.3 5.4 5.2 NOTE. This table has been revised to incorporate several changes resulting from the before deduciions 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 olher 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 • December 1998 1.53 MORTGAGE MARKETS Mortgages on New Homes Millions of dollars except as noted 1998 Item 1995 1996 1997 Mar. Apr. May June July Aug. Sept. Terms and yields in primary and secondary markets PRIMARY MARKETS Terms1 1 Purchase price (thousands of dollars) 175.8 182.4 180.1 191.7 189.5 195.6 193.7 208.7 191.5 192.7 2 Amount of loan (thousands of dollars) 134.5 139.2 140.3 149.5 147.1 150.2 151.0 160.1 150.4 150.8 3 Loan-to-price ratio (percent) 78.6 78.2 80.4 81.0 80.4 79.1 81.0 78.7 81.3 80.9 4 Maturity (years) 27.7 27.2 28.2 28.3 28.4 28.3 28.3 28.5 28.6 28.7 5 Fees and charges (percent of loan amount) 1.21 1.21 1.02 0.95 0.87 0.85 0.85 0.90 0.87 0.85 Yield (percent per year) 6 Contract rate1 7.65 7.56 7.57 7.03 7.05 7.05 7.03 6.99 6.95 6.85 7 Effective rate13 7.85 in 7.73 7.17 7.19 7.18 7.16 7.13 7.09 6.98 8 Contract rate (HUD series)4 8.05 8.03 7.76 7.16 7.20 7.11 7.08 7.05 6.86 6.64 SECONDARY MARKETS Yield (percent per year) 9 FHA mortgages (Section 203)5 8.18 8.19 7.89 7.09 7.37 7.07 7.07 7.05 7.03 6.53 10 GNMA securities6 7.57 7.48 7.26 6.66 6.63 6.63 6.54 6.48 6.42 6.05 Activity in secondary markets FEDERAL NATIONAL MORTGAGE ASSOCIATION Mortgage holdings (end of period) 11 Total 253.511 287,052 316,678 327,025 133,571 343,922 349,249 359,827 366,890 375,665 12 FHA/VA insured 28,762 30,592 31,925 31,965 32,734 32,771 32,896 33,036 32,929 32,903 13 Conventional 224.749 256,460 284,753 295,060 300,837 311,151 316,353 326,791 333,961 342,762 14 Mortgage transactions purchased (during period) 56,598 68,618 70.465 12.095 14,668 17.423 11.916 17.326 14,316 15,681 Mortgage commitments (during period) 15 Issued7 56,092 65,859 69,965 14.057 17,556 10,612 16,921 13.217 17,016 16,282 16 To sell8 360 130 1.298 92 0 0 0 419 233 249 FEDERAL HOME LOAN MORTGAGE CORPORATION Mortgage holdings (end of periodf 17 Total 107,424 137,755 164,421 185,928 189,471 192,603 196,634 202.582 206,856 216,522 18 FHA/VA insured 267 220 177 166 162 158 422 456 489' 490 19 Conventional 107,157 137.535 164,244 185,762 189,309 192,445 196,212 202,126 206,367' 216,032 Mortgage transactions (during period) 20 Purchases 98,470 125,103 117,401 21,011 25,132 23,743 22,394 22,605' 21.507 25,365 21 Sales 85,877 119,702 114,258 19,085 24,479 23,338 21,133 22,263 20.634' 24,294 22 Mortgage commitments contracted (during period)9 .... 118,659 128,995 120,089 23,060 24,468 26,100 20,008 23,528 24,694 23,375 1. Weighted averages based on sample surveys of mortgages onginated by major institu- 6. Average net yields to investors on fully modified pass-through securities backed by tional lender groups for purchase of newly built homes; compiled by the Federal Housing mortgages and guaranteed by the Government National Mortgage Association (GNMA), Finance Board in cooperation with the Federal Deposit Insurance Corporation assuming prepayment in twelve years on pools of thirty-year mortgages insured by the 2 Includes all fees, commissions, discounts, and ""points'* paid (by the borrower or the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. seller) to obtain a loan. 7. Does not include standby commitments issued, but includes standby commitments 3 Average effective interest rate on loans closed for purchase of newly built homes, converted. assuming prepayment at the end of ten years. 8. Includes participation loans as well as whole loans. 4. Average contract rate on new commitments for conventional first mortgages; from U.S. 9. Includes conventional and government-underwritten loans. The Federal Home Loan Department of Housing and Urban Development (HUD). Based on transactions on the first Mortgage Corporation's mortgage commitments and mortgage transactions include activity day of the subsequent month. under mortgage securities swap programs, whereas the corresponding data for FNMA 5. Average gross yield on thirty-year, minimum-downpayment first mortgages insured exclude swap activity. by the Federal Housing Administration (FHA) for immediate delivery in the private secondary market. Based on transactions on first day of subsequent month. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Real Estate A35 1.54 MORTGAGE DEBT OUTSTANDING1 Millions of dollars, end of period 1998 Type of holder and property Q2 Q3 04 Ql 1 All holders 4,393,545 4,604,609 4,930,487 5,062,766 5,180,917 5,279333 5,380,907 5,505,783 By type of property 2 One- to four-family residences 3.355,868 3,530,400 3,761,560 3,860,763 3,956,815 4,029,268 4,102,830 4,195,738 3 Multifamily residences 271,823 281,788 300,665 305,963 308,418 314,590 320,237 326,527 4 Nonfarm, nonresidential 682,883 707,861 781,129 807,361 825,923 845,058 866,414 890,538 5 Farm 82.971 84,561 87,134 89,760 90,417 91,425 92,980 By type of holder 6 Major financial institutions 1,819,806 1,894,420 1.979,114 2,033,599 2,068,002 2,086,721 2,119,279 2,124,259 7 Commercial banks2 1,012,711 1,090,189 1,145,389 1,196,461 1,227,131 1,244,108 1,270,032 1,280,732 8 One- to four-family 615,861 669,434 698,508 733,694 752,323 762,531 779,927 784,929 9 Multifamily 39,346 43,837 46,675 49,116 49,166 50,642 51,790 52,175 10 Nonfarm, nonresidential 334,953 353.088 375,322 387,588 398,841 403,957 410,859 415.311 11 Farm 22,551 23.830 24,883 26,063 26,801 26,978 27,456 28,316 12 Savings institutions3 596,191 596,763 628,335 629,062 631,444 631,822 637,012 629,882 13 One- to four-family 477,626 482,353 513,712 516,521 519,564 520,672 527,036 520,276 14 Multifamily 64,343 61,987 61,570 60.070 60,348 59,543 59,074 58,704 15 Nonfarm, nonresidential 53,933 52,135 52,723 52,132 51,187 51,252 50,532 50,519 16 Farm 289 288 331 338 346 354 369 383 17 Life insurance companies 210,904 207,468 205,390 208,077 209,426 210.792 212,235 213,645 18 One- to four-family 7,018 7,316 6,772 6,842 7,080 7,186 7,321 7,488 19 Multifamily 23,902 23,435 23.197 23,499 23,615 23,755 23,902 24.038 20 Nonfarm, nonresidential 170,421 167,095 165,399 167,548 168,374 169,377 170,423 171,393 21 Farm 9,563 9,622 10,022 10,188 10,358 10,473 10,589 10,726 22 Federal and related agencies 315,580 306,774 300,935 292.966 291,410 292,581 293,499 294,547 23 Government National Mortgage Association . . 6 2 7 7 24 One- to four-family 6 2 2 7 7 25 Multifamily 0 0 0 0 0 0 0 0 26 Farmers Home Administration4 41,781 41,791 41,596 41,400 41,332 41,195 40,972 40,921 27 One- to four-family 18,098 17,705 17,303 17.239 17,458 17,253 17,160 17,059 28 Multifamily 11,319 11,617 11,685 11.706 11,713 11,720 11,714 11,722 29 Nonfarm, nonresidential 5,670 6,248 6,841 7,135 7,246 7,370 7,369 7,497 30 Farm 6,694 6,221 5,768 5,321 4,916 4,852 4,729 4,644 31 Federal Housing and Veterans' Administrations 10,964 9,809 6,244 4,200 3,462 3,821 3,694 3,631 32 One- to four-family 4,753 5,180 3,524 2,299 1.437 1,767 1,641 1,610 33 Mullifamily 6,211 4.629 2.719 1,900 2,025 2,054 2,053 2,021 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 1.816 1,476 724 786 564 40 One- to four-family 1,049 492 365 272 221 109 118 85 41 Mullifamily 1,595 428 413 309 251 123 134 96 42 Nonfarm, nonresidential 5,177 3,383 1,653 1,235 1,004 492 534 384 43 Farm 0 0 0 0 0 0 0 0 44 Federal National Mortgage Association 174.312 176,824 174,556 170,386 168,458 167,722 166,670 167.202 45 One- to four-family 158,766 161,665 160,751 157,729 156,363 156,245 155,876 156,769 46 Multifamily 15.546 15,159 13.805 12,657 12,095 11.477 10,794 10.433 47 Federal Land Banks 28,555 28,428 29,602 29,963 30,346 30,657 31,005 31,352 48 One- (o four-family 1,671 1,673 1,742 1,763 1,786 1,804 1,824 1,845 49 Farm 26,885 26.755 27,860 28.200 28,560 28,853 29,181 29,507 50 Federal Home Loan Mortgage Corporation 41,712 43.753 46,504 45,194 46,329 48,454 50,364 50,869 51 One- to four-family 38,882 39,901 41,758 40,092 40,953 42.629 44,440 44.597 52 Multifamily 2,830 3,852 4,746 5,102 5.376 5,825 5,924 6,272 53 Mortgage pools or trusts5 1,730,004 1,863,210 2,064,882 2,145,995 2,202,549 2,272,999 2,330,674 2,442,603 54 Government National Mortgage Association 450.934 472,283 506,340 520,938 529,867 536,810 533,011 537,586 55 One- to four-family 441,198 461,438 494,158 507,618 516,217 523,156 519,152 523,243 56 Multifamily 9.736 10,845 12,182 13,320 13,650 13,654 13,859 14,343 57 Federal Home Loan Mortgage Corporation . . 490,851 515.051 554,260 567,187 569,920 579.385 583,144 609,791 58 One- to four-family 487,725 512,238 551,513 564,445 567,340 576,846 580,715 607,469 59 Multifamily 3,126 2,813 2,747 2,742 2,580 2,539 2,429 2,322 60 Federal National Mortgage Association 530,343 582,959 650,780 673,931 690,919 709,582 730,832 761,359 61 One- to four-family 520,763 569,724 633,210 654.826 670,677 687,981 708,125 737,631 62 Multifamily 9,580 13,235 17.570 19,105 20,242 21,601 22,707 23,728 63 Farmers Home Administration11 19 3 2 2 2 2 2 64 One- to four-family 3 0 0 0 0 0 0 65 Multifamily 0 0 0 0 0 0 0 0 66 Nonfarm. nonresidential 9 5 0 0 0 0 0 0 67 Farm 7 4 3 2 2 2 2 -> 68 Private mortgage conduits 257,857 292,906 353,499 383,937 411.841 447,219 483,685 533,865 69 One- to four-family6 208,500 227.800 261,900 279,450 299,400 318,000 336,824 364,316 70 Multifamily 11,744 15.584 21,967 24,355 25,655 29,264 33,477 38,144 71 Nonfarm, nonresidential 37,613 49.522 69,633 80.132 86,786 99,955 113.384 131,405 72 Farm 0 0 0 0 0 0 0 0 73 Individuals and others 528,155 540,206 585,556 590,206 618,955 627,033 637,455 644,375 74 One- to four-family 368,749 372,786 376,341 377,966 405,990 413,082 422,663 428,413 75 Multifamily 69,686 73,719 81,389 82,081 81,702 82,392 82,379 82,529 76 Nonfarm. nonresidential 72,738 75,859 109,558 111,591 112,486 112.655 113,312 114,031 77 Farm 16,983 17,841 18,268 18,567 18,777 18,904 19,100 19.402 1. Multifamily debt refers to loans on structures of five or more units 6. Includes secuntized 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, nomnsured 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 El December 1998 1.55 CONSUMER CREDIT1 Millions of dollars, amounts outstanding, end of period 1998 Holder and type of credit 1995 1996 1997 Mar. Apr. May June July' Aug. Seasonally adjusted ] Total 1,095,711 1,181,913 1,233,099 1,246,016 1,249,950 1,251,874 1,260,676 1,266,189 1,270,809 364,209 392,321 413,369 419,811 421,378 422,806 425,736 427,949 431,789 443,183 499,486 531,140 539,674 542,213 541,656 545,920 543,723 545,918 4 Other2 288,319 290,105 288,590 286.530 286.359 287.412 289,020 294,517 293,102 Not seasonally adjusted 5 Total 1,122,828 1,211,590 1,264,103 1,234,714 1,239,310 1,240,755 1,253,893 1,259328 1,271,013 By major holder 6 Commercial banks 501,963 526,769 512,563 492,213 500,207 497,389 491,509 491,777 498,775 152,123 152,391 160,022 156,480 154,328 153,556 154,275 156,366 160,151 8 Credit unions 131,939 144,148 152,362 149,334 149,119 149,784 149,383 150,667 151,203 40,106 44,711 47,172 47,087 47,500 47.915 48,329 48,744 49,158 10 Nonfinancial business" 85,061 77,745 78,927 72,754 65,102 65.238 65,278 65,495 66,026 11 Pools of securitized assets4 211,636 265,826 313,057 316,846 323,054 326,873 345,119 346,279 345,700 By major type of credit 367.069 395.609 416.962 415,524 416,138 418,425 425,453 429,551 434,470 13 Commercial banks 151,437 157,047 155,254 153,926 151.278 151,677 150,877 153,203 155,508 14 Finance companies 81,073 86,690 87,015 86,834 90,564 89,569 89,948 91,741 95,257 15 Pools of securitized assets4 44,635 51,719 64,950 65,057 63,737 65,988 71,615 72,470 70,766 464,134 522,860 555,858 534,420 535,976 536,043 540,147 537,458 542,751 17 Commercial banks 210,298 228,615 219,826 201,316 209,171 207,318 200,901 197,646 200,424 18 Finance companies 28,460 32,493 38,608 36,613 30,398 30,495 29,893 29,605 30,155 19 Nonfinancial business3 53,525 44,901 44,966 41,246 33,487 33,412 33,544 33,807 34,009 20 Pools of securitized assets4 147,934 188,712 221,465 226.226 233,668 235,347 245,635 246,031 247,422 21 Other 291,625 293,121 291,283 284,770 287.196 286,287 288,293 292,319 293,792 22 Commercial banks 140,228 141,107 137,483 136,971 139.758 138,394 139,731 140,928 142,843 23 Finance companies 42,590 33,208 34,399 33,033 33,366 33,492 34,434 35,020 34,739 24 Nonfinancial business 31,536 32,844 33,961 31,508 31,615 31,826 31,734 31,688 32,017 25 Pools of securitized assets4 19,067 25,395 26,642 25,563 25,649 25,538 27,869 27,778 27,512 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 baJances statistical release. For ordering address, see inside front cover. are no longer carried on the balance sheets of the loan originator. 2. Comprises mobile home loans and all other loans that are not included in automobile or 5. Totals include estimates for certain holders for which only consumer credit totals are revolving credit, such as loans for education, boats, trailers, or vacations. These loans may be available. secured or unsecured. 1.56 TERMS OF CONSUMER CREDIT1 Percent per year except as noted 1998 Item 1995 1996 1997 Feb. Mar. Apr. May June July Aug. INTEREST RATES Commercial banks 1 48-month new car 9.57 9.05 9.02 8.87 n.a. n.a. 8.69 n.a. n.a. 8.71 2 24-month personal 13.94 13.54 13.90 14.01 n.a. n.a. 13.76 n.a. n.a. 13.45 Credit card plan 3 All accounts 15.90 15.63 15.77 15.65 n.a. n.a. 15.67 n.a. n.a. 15.83 4 Accounts assessed interest 15.64 15.50 15.57 15.33 n.a. n.a. 15.62 n.a. n.a. 15.85 Auto finance companies 11.19 9.84 7.12 6.98 5.94 6.20 6.07 6.02 6.25 6.00 6 Used car 14.48 13.53 13.27 12.87 12.79 12.76 12.73 12.63 12.51 12.68 OTHER TERMS3 Maturity (months) 54.1 51.6 54.1 52.6 51.5 50.7 50.8 50.9 51.7 53.0 8 Used car 52.2 51.4 51.0 52.5 52.6 52.9 52.9 54.0 54.1 54.1 Loan-to-value ratio 92 91 92 92 92 91 93 91 92 93 10 Used car 99 100 99 97 97 98 99 100 100 101 Amount financed (dollars) 11 New car 16,210 16,987 18,077 18.825 18.932 18,922 18,793 18,878 19,084 19,068 12 Used car 11.590 12,182 12,281 12,356 12,431 12,716 12,607 12,698 12,733 12,407 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 US. CREDIT MARKETS1 Billions of dollars; quarterly data at seasonally adjusted annual rates Transaction category or sector Q4 Ql Q2 Q3 04 Qi 02 Nonfinancial sectors 1 Total net borrowing by domestic nonfinancial sectors 588.0 572.2 701.6 725.8 768.4 642.2 674.5 614.4 829.6 954.9 919.1 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 26 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 21.2 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 By borrowing sector 17 Household 207.8 311.4 349.0 372.8 351.6 306.6 324.7 317.3 368.3 396.2 435.9 476.7 18 Nonfinancial business 57.9 151.3 259.6 214.8 337.6 177.7 268.0 298.2 358.4 425.7 420.2 463.0 19 Corporate 52.1 143.6 232.7 165.5 267.8 108.6 215.2 223.6 287.1 345.1 334.9 363.4 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 66.2 -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 657.8 558.2 772.7 802.7 825.3 735.8 705.7 676.1 922.2 997.2 987.9 1,003.5 Financial sectors 29 Total net borrowing by financial sectors . 294.4 468.4 456.4 556.2 644.4 674.1 336.5 659.0 594.0 987.9 840.3 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 4134 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 U.S. 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 85.8 122.7 224.7 385.0 255.0 363.5 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 49 Real estate investment trusts (REITs) 3.4 13.7 5.7 11.0 24.8 15.2 15.1 19.8 32.0 32.1 36.3 33.9 50 Brokers and dealers 120 .5 -5.0 -2.0 8.1 4.9 -2.9 34.9 -6.9 7.0 -1.0 20.0 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

A38 Domestic Financial Statistics • December 1998 1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1—Continued 1997 Transaction category or sector Q4 Qi Q4 Qi Q2 52 Total net borrowing, all sectors 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 2,019.6 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 127.3 183.2 211.1 325.9 348.8 336.4 257.7 302.6 422.0 413.1 442.3 495.8 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 -«.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 - 1 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.I (780) quarterly statistical release, tables F.2 through F.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A39 1.58 SUMMARY OF FINANCIAL TRANSACTIONS' Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates 1996 Transaction category or sector Q4 Ql Q2 Q3 Q4 Ql NET LENDING IN CREDIT MARKETS' 1 Total net lending 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 Nonfinancial 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 1,049.1 942.4 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.-affiliated areas 2.4 3.3 4.2 .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 estates 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 (REITs) .6 4.7 2.2 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 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 Other financial sources 35 Official foreign exchange -5.8 8.8 -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 -2.4 .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 52.2 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 41.2 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 2,083.6 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 -.5 -.9 -.6 -3.1 -.3 -.5 .7 -2.4 -.2 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 -6.0 .5 -2.7 -12.4 -4.6 -8.3 10.0 -7.9 7.5 63 Other checkable deposits -1.3 -2.8 -3.8 -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 2,429.9 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 • December 1998 1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING' Billions of dollars, end of period 1996 Transaction category or sector Q4 Ql Q2 Q3 Q4 Ql Q2 Nonfinancial sectors 1 Total credit market debt owed by domestic nonfinancial sectors 13,014.5 13,716.0 14,441.8 14,441.8 14,608.9 14,727.4 14,931.4 15,208.7 15,439.6 15,634.4 By 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 3,803.5 3.734.3 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 10.660.1 10,779.1 10.966.8 11.403.8 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 12 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 4,029.3 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 5,505.2 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 4,902.4 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 Nonfarm 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 nonfinancial sectors, domestic and foreign 13,385.3 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 sectors 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 5,085.3 5,205.4 5,448.7 5,653.7 5,912.5 By 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 2,775.8 2,931.3 35 Open market paper 441.6 486.9 579.1 745.7 579.1 623.0 642.5 684.7 745.7 804.9 838.9 36 Corporate bonds 1,008.8 1.205.4 1,385.1 1,560.1 1.385.1 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 83.3 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 31.4 28.3 29.2 30.3 31.6 30.2 51 Real estate investment trusts (RETTs) 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 53 Total credit market debt, domestic and foreign 17,207.5 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. 1 (780) quarterly statistical release, table, L.2 through L.4. For ordering address, see inside front cover. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Flow of Funds A41 1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES' Billions of dollars except as noted, end of period Transaction category or sector Q4 Ql Q2 Q3 Q4 Ql Q2 CREDIT MARKET DEBT OUTSTANDING"1 1 Total credit market assets 17.207.5 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 Domestic nonfedera] noniinancia) 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 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 Nonfinancial corporate business 289.2 280.4 2S6.0 300.9 286.0 286.8 276.9 285.9 300.9 280.0 286.9 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 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 Federal government 203.4 203.2 195.5 200.4 195.5 195.9 197.3 198.2 200.4 204.3 207.5 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 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 Monetary authority 368.2 380.8 393.1 431.4 393.1 397.1 412.4 412.7 431.4 433.8 440 3 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 U.S.-chartered banks 2,869.6 3.056.1 3,175.8 '.450.7 3,175.8 3,218.1 3,295.2 3,351.9 3.450.7 3,505.1 3.546.8 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 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 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 Savings institutions 920.8 913.3 933.2 928.5 933.2 931.9 937.8 929.0 928.5 931.0 928.1 Credit unions 246.8 263.0 288.5 305.3 288.5 291.2 299.9 303.9 305.3 307.5 316.4 Bank personal trusts and estates 248.0 239.7 232.0 239.5 232.0 232.8 235.5 237.1 239.5 240.1 240.9 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 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 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 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 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 Mutual funds 718.8 771.3 820.2 901.1 820.2 838.5 861.3 890.4 901.1 939.3 968.5 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 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 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 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 Finance companies 476.2 526.2 544.5 566.4 544.5 552.4 553.1 564.4 566.4 572.0 579.0 Mortgage companies 36.5 33.0 41.2 57.6 41.2 40.9 34.8 55.5 57.6 60.2 57.4 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 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 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 20,351.9 20,694.5 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 14,556.1 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 i —) 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 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. 1 (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 • December 1998 2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures Monthly data seasonally adjusted, and indexes 1992= 100, except as noted 1998 1996 1997 Apr. May July' Aug.r Sept. 1 Industrial production1... 114.5 118.5 127.3 128.4 128.8 127.5 127.0 Market groupings 2 Products, total 110.6 113.7 118.5 121.3 120.6 121.3 121.8 122.2 121.2 120.5 122.6 122.0 3 Final, total 111.3 114.6 119.6 122.6 121.5 122.6 123.2 123.3 122.3 121.2 124.0 123.4 4 Consumer goods 109.9 111.8 114.4 116.6 115.1 116.0 116.5 116.7 115.3' 114.4 116.6 116.1 5 Equipment 113.8 119.6 128.8 133.1 133.1 134.3 135.0 135.2 134.7' 133.4 137.2 136.3 6 Intermediate 108.3 110.8 115.1 117.4 117.6 117.3 117.5 118.6 117.9' 118.1 118.3 118.0 7 Materials 120.8 126.2 134.1 138.2 138.2 138.7 139.1 139.6 137.5 137.5 139.4 139.3 Industry groupings 120.2 127.0 130.0' 129.5 131.9 8 Manufacturing 82.8 81.4 81.7 82.1 81.4 79.1 80.3 9 Capacity utilization, manufacturing (percent)2. 10 Construction contracts3 122.1' 130.8 141.9' 146.0' 147.0' 142.0' 148.0' 148.0' 145.0' 147.0 140.0 136.0 11 Nonagricultura) employment, total4 1 9 1 8 4 . . 3 9 1 9 1 9 7 . . 0 2 1 1 0 1 0 9 . . 3 9 1 1 0 2 2 2 . . 5 3 1 1 0 2 2 2 . . 6 4 1 1 0 2 2 2 . . 4 5 1 1 0 2 2 2 . . 7 8 1 1 0 2 2 3 . . 5 2 1 1 0 2 2 3 . . 6 3 1 1 0 2 1 3 . . 9 5 1 1 0 2 2 3 . . 4 8 1 1 0 2 2 3 . . 2 8 12 Goods-producing, total 97.5 97.2 97.6 99.1 99.1 99.1 99.1 99.0 98.9 97.9 98.4 98.3 13 Manufacturing, total 99.0 98.4 98.9 100.5 100.6 100.5 100.4 100.1 99.9 98.4 99.1 99.3 14 Manufacturing, production workers 120.2 123.0 126.2 128.6 128.8 128.9 129.3 129.7 130.0 130.4 130.6 130.7 15 Service-producing 156.1 165.2 174.5 179.2 180.2 180.9 181.4 182.2 182.7 183.5 184.4 n.a. 16 Personal income, total 150.9 159.8 171.2 177.8 178.9 179.5 180.3 181.5 181.8 182.8 184.2 n.a. 17 Wages and salary disbursements 130.3 135.7 144.7 150.6 151.0 151.2 151.0 151.5 150.5 149.5 151.3 n.a. 18 Manufacturing 156.4 164.0 171.7 175.2 176.0 176.7 177.0 177.5 177.9 178.6 179.5 n.a. 19 Disposable personal income 151.5 159.6 166.9 170.8 172.2 172.4 173.7 175.8 176.0 174.8 174.9 175.4 20 Retail sales' Prices" 21 Consumer (1982-84=100) 152.4 156.9 160.5 161.6 161.9 162.2 162.5 162.8 163.0 163.2 163.4 163.6 22 Producer finished goods (1982= 100) 127.9 131.3 131.8 130.3 130.2 130.1 130.4 130.6' 130.6 130.9 130.6 130.6 1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. For 4. Based on data from U.S. Department of Labor, Employment and Earnings. Series covers the ordering address, see the inside front cover. The latest historical revision of the industrial employees only, excluding personnel in the armed forces. production index and the capacity utilization rates was released in December 1997. The recent 5. Based on data from U.S. Department of Commerce, Sun'ey of Current Business. annual revision is described in an article in the February 1998 issue of the Bulletin. For a 6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price description of the aggregation methods for industrial production and capacity utilization, see indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics, "Industrial Production and Capacity Utilization: Historical Revision and Recent Develop- Monthly Labor Review. ments," Federal Reserve Bulletin, vol. 83 (February 1997). pp. 67-92. For details about the NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for series construction of individual industrial production series, see "Industrial Production: 1989 mentioned in notes 3 and 6, can also be found in the Survey of Current Business Developments and Historical Revision.'" Federal Reserve Bulletin, vol 76 (April 1990), pp. Figures for industrial production for the latest month are preliminary, and many figures for 187-204. the three months preceding the latest month have been revised. See "Recent Developments in 2. Ratio of index of production to index of capacity. Based on data from the Federal Industrial Capacity and Utilization." Federal Reserve Bulletin, vol. 76 (June 1990), pp. Reserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources. 411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987," 3. Index of dollar value of total construction contracts, including residential, nonresiden- Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605. tial, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. Dodge Division. 2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT Thousands of persons; monthly data seasonally adjusted 1998 Category 1995 1996 1997 Feb. Mar Apr. May June July' Aug.' Sept. HOUSEHOLD SURVEY DATA1 1 Civilian labor force- 132,304 133,943 126,297 137,557 137,523 137,242 137.364 137,447 137,296 137,415 138,075 Employment 2 Nonagricultural industries3 121,460 123,264 126,159 127,829 127,862 128,033 128.118 127,867 127,626 127,640 128,247 3,440 3,443 3,399 3.335 3,132 3,350 3,335 3,343 3,441 3,529 3,518 Unemployment 7,404 7,236 6,739 6,393 6,529 5.859 5,910 6,237 6.230 6,247 6,310 5 Rate (percent of civilian labor force) 5.6 5.4 4.9 4.6 4.7 4.3 4.3 4.5 4.5 4.5 4.6 ESTABLISHMENT SURVEY DATA 6 Nonagricultural payroll employment4 117,191 119,523 122,257 124,832 124,914 125,234 125,562 125,751 125,869 126,178 126,247 7 Manufacturing 18,524 18,457 18,538 18,822 18,829 18,827 18,805 18,780 18.594 18.693 18,677 581 574 573 590 587 582 579 578 571 571 571 9 Contract construction 5,160 5,400 5,627 5,902 5,860 5.930 5,917 5,946 5,970 5,991 5,971 10 Transportation and public utilities 6,132 6,261 6,426 6,494 6,504 6,513 6,534 6,538 6,550 6,572 6,578 27,565 28,108 28,788 29,052 29,042 29,133 29,238 29,269 29.374 29,371 29,422 12 Finance 6,806 6,899 7,053 7,232 7,258 7,289 7.311 7,333 7.370 7,372 7,395 13 Service 33.117 34,377 35,597 37,020 37,106 37,196 37,350 37,494 37,614 37,693 37,717 14 Government 19.305 19,447 19,655 19,720 19,728 19,764 19,828 19,813 19,826 19,915 19,916 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, seasonably does not exist in time. population figures. SOURCE. Based on data from U.S. Department of Labor. Employment and Earnings 3. Includes self-employed, unpaid family, and domestic service workers Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A43 2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1 Seasonally adjusted 1997 1998 1997 1998 1997 1998 Series Q4 Ql Q2' Q3 Q4 Ql Q2 Q3 Q4 Ql Q2 Q3 Output (1992=100) Capacity (percent of 1992 output) Capacity utilization rate (percent)2 1 Total industry 127.3 127.7 128.2 128.2 153.0 154.8 156.5 158.1 83.2 82.5 82.0 81.1 2 Manufacturing 130.1 130.8 131.1 130.9 158.3 160.4 162.4 164.2 82.2 81.6 80.7 79.7 3 Primary processing3 119.8 120.2 119.9 119.5 139.2 140.4 141.4 142.5 86.0 85.6 84.8 83.9 4 Advanced processing4 135.3 136.2 136.7 136.6 168.1 170.7 173.1 175.5 80.4 79.8 79.0 77.9 5 Durable goods 147.2 148.2 149.1 149.8 180.6 184.1 187.6 190.9 81.5 80.5 79.5 78.5 6 Lumber and products 114.7 115.7 117.3 118.0 141.3 142.2 142.6 143.1 81.2 81.3 82.2 82.5 7 Primary metals 127.8 128.2 125.4 122.7 138.5 140.1 141.8 143.5 92.3 91.5 88.5 85.5 8 Iron and steel 126.5 127.2 123.4 118.5 137.9 139.4 141.3 143.1 91.8 91.3 87.4 82.8 9 Nonferrous 129.4 129.3 127.8 127.7 138.9 140.6 142.1 143.6 93.2 92.0 89.9 88.9 10 Industrial machinery and equipment 177.6 181.2 188.3 192.5 210.0 215.8 221.4 226.7 84.6 84.0 85.1 84.9 11 Electrical machinery 246.0 254.0 257.5 260.0 301.9 315.4 328.6 341.8 81.5 80.5 78.4 76.1 12 Motor vehicles and parts 144.0 137.2 132.9 133.5 186.7 188.8 190.8 192.8 77.1 72.7 69.7 69.2 13 Aerospace and miscellaneous transportation equipment 98.6 101.3 101.1 102.3 124.8 125.5 126.3 127.2 79.0 80.7 80.0 80.4 14 Nondurable goods 112.6 113.1 112.7 111.7 135.7 136.4 137.0 137.6 82.9 82.9 82.2 81.2 15 Textile mill products 111.5 110.1 109.6 109.6 132.3 132.8 133.2 133.4 84.3 82.9 82.3 82.1 16 Paper and products 113.5 113.1 112.7 113.9 126.7 127.4 128.1 128.7 89.6 88.8 88.0 88.5 17 Chemicals and products 117.1 118.0 118.1 116.8 147.5 148.6 149.4 150.2 79.4 79.4 79.1 77.8 18 Plastics materials 131.4 130.8 131.0 132.2 141.9 143.6 145.0 146.3 92.6 91.1 90.4 90.4 19 Petroleum products 109.8 113.0 113.5 113.7 115.7 116.2 117.2 118.2 94.9 97.2 96.8 96.2 20 Mining 105.9 108.4 107.3 105.6 118.2 118.4 118.6 119.0 89.6 91.6 90.5 88.8 21 Utilities 115.5 110.4 115.3 118.7 127.1 127.4 127.7 128.0 90.9 86.6 90.3 92.7 22 Electric 115.7 112.1 117.8 120.9 125.4 125.7 126.1 126.4 92.3 89.2 93.5 95.7 1973 1975 Previous cycle5 Latest cycle6 1997 1998 High Low High Low High Low Sept. Apr. May June' July' Aug. Sept.p Capacity utilization rate (percent) 1 Total industry 89.2 72.6 87.3 71.1 85.4 78.1 82.7 82.4 82.4 81.2 80.6 81.6 81.1 2 Manufacturing 88.5 70.5 86.9 69.0 85.7 76.6 81.6 81.4 81.1 79.7 79.1 80.3 79.6 3 Primary processing3 91.2 68.2 88.1 66.2 88.9 77.7 85.7 85.4 84.9 84.0 84.3 84.1 83.3 4 Advanced processing4 87.2 71.8 86.7 70.4 84.2 76.1 79.7 79.6 79.4 77.8 76.9 78.7 78.0 5 Durable goods 89.2 68.9 87.7 63.9 84.6 73.1 81.0 80.3 80.1 78.2 77.1 79.7 78.7 6 Lumber and products 88.7 61.2 87.9 60.8 93.6 75.5 80.7 81.9 82.3 82.5 82.4 83.4 81.6 7 Primary metals 100.2 65.9 94.2 45.1 92.7 73.7 91.5 90.8 88.6 86.0 85.7 86.7 84.2 8 Iron and steel 105.8 66.6 95.8 37.0 95.2 71.8 90.8 89.9 87.8 84.5 84.0 84.2 80.2 9 Nonferrous 90.8 59.8 91.1 60.1 89.3 74.2 92.5 92.1 89.7 87.9 87.9 89.7 89.0 10 Industrial machinery and equipment 96.0 74.3 93.2 64.0 85.4 72.3 84.2 84.9 85.0 85.3 85.5 85.1 84.2 11 Electrical machinery 89.2 64.7 89.4 71.6 84.0 75.0 81.0 79.4 78.4 77.3 76.9 76.0 75.3 12 Motor vehicles and parts 93.4 51.3 95.0 45.5 89.1 55.9 76.2 72.7 73.5 62.8 54.5 77.9 75.2 13 Aerospace and miscellaneous transportation equipment 78.4 67.6 81.9 66.6 87.3 79.2 77.9 79.9 80.3 79.9 80.4 80.7 80.2 14 Nondurable goods 87.8 71.7 87.5 76.4 87.3 80.7 82.3 82.7 82.4 81.6 81.7 81.1 80.8 15 Textile mill products 91.4 60.0 91.2 72.3 90.4 77.7 84.5 82.1 83.5 81.3 81.7 81.9 82.7 16 Paper and products 97.1 69.2 96.1 80.6 93.5 85.0 90.1 88.5 88.0 87.4 89.4 87.8 88.1 17 Chemicals and products 87.6 69.7 84.6 69.9 86.2 79.3 78.8 79.5 78.9 78.7 78.5 77.9 76.9 18 Plastics materials 102.0 50.6 90.9 63.4 97.0 74.8 93.6 91.8 90.2 89.1 92.3 90.7 88.3 19 Petroleum products 96.7 81.1 90.0 66.8 88.5 85.1 95.4 97.9 96.3 96.3 97.5 96.8 94.3 20 Mining 94.3 88.2 96.0 80.3 88.0 87.0 90.1 90.6 91.4 89.4 89.5 88.7 88.2 21 Utilities 96.2 82.9 89.1 75.9 92.6 83.4 90.8 87.6 90.4 92.8 92.0 92.4 93.8 22 Electric 99.0 82.7 88.2 78.9 95.0 87.1 92.5 90.7 94.3 95.5 94.7 95.2 97.2 3. Primary processing includes textiles; lumber; paper; industrial chemicals; syndietic materials; fertilizer materials; petroleum products; rubber and plastics; stone, clay, and glass; primary metals; and fabricated metals. 4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printing and publishing; chemical products such as drugs and toiletries; agricultural chemicals; leather and products; machinery; transportation equipment; instruments; and miscellaneous manufactures. _ D , e J, v ,. e ,. l , o l, p ,_ m l,u e , n . ts v , a , n . d i .w H . is u t u o u ri , c a . l . . R ^ e s v tn is a i i o n p ," r o F d e u d ct e i r o a n l R s e e s r e ie r s v , e s B e u e llet r i n n u , u v s o in l. a 7 i 6 r r (A ou p u ri c l u 1 o 9 n 9 : 0) i , y ] 5 6 . . M M o o n n t t h h l l y y h h i i g g h h s s , , 1 1 9 9 7 8 8 8 - - 8 8 0 9 : ; m m o o n n t t h h l l y y l l o o w w s s , , 1 1 9 9 8 9 2 0 . -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 • December 1998 2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1 Monthly data seasonally adjusted 1992 pro- 1997 Group por- avg. tion Sept. Oct. Feb. Mar. Apr. May June' July' Aug. Sept.p Index (1992 = 100) MAJOR MARKETS 1 Total index 100.0 124.5 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.4 128.8 127.5 127.0 129.0 128.7 2 Products 60.5 118.5 119.1 120.2 121.2 121.0 121.3 120.6 121.3 121.8 122.2 121.2 120.5 122.6 122.0 3 Final products 46.3 119.6 120.3 121.5 122.5 122.2 122.6 121.5 122.6 123.2 123.3 122.3 121.2 124.0 123.4 4 Consumer goods, total 29.1 114.4 114.5 115.9 116.7 115.9 116.6 115.1 116.0 116.5 116.7 115.3 114.4 116.6 116.1 5 Durable consumer goods 6.1 131.3 131.9 131.4 136.5 134.7 135.6 134.3 135.2 136.3 138.0 130.4 124.0 139.6 137.4 6 Automotive products 2.6 129.9 132.8 131.2 138.4 133.8 132.6 131.0 132.4 134.5 136.7 122.1 107.1 142.2 138.5 7 Autos and trucks 1.7 136.5 140.9 139.7 147.8 142.7 139.9 137.2 137.7 140.2 142.4 117.6 92.5 151 1 143.8 8 Autos, consumer .9 115.2 119.9 115.2 120.3 113.9 116.0 105.7 107.4 108.3 109.3 94.6 76.5 125.6 129.5 9 Trucks, consumer .7 159.1 166.5 168.6 179.8 175.7 168.2 172.7 172.0 176.0 179.4 144.1 111.6 181.5 163.6 10 Auto parts and allied goods .9 119.3 120.1 117.9 123.8 120.1 120.9 121.0 123.7 125.3 127.5 127.1 125.8 129.2 130.4 11 Other 3.5 132.3 131.1 131.5 135.0 135.3 138.0 136.9 137.4 137.8 139.0 1.37.1 137.8 137.1 136.2 12 Appliances, televisions, and air conditioners 1.0 168.6 166.0 169.4 177.2 178.7 186.4 188.6 192.5 193.8 192.5 188.6 199.1 199.3 193.2 13 Carpeting and furniture .8 117.0 116.2 116.5 122.1 116.8 122.5 117.7 116.5 117.1 122.3 119.3 118.5 119.6 119.6 14 Miscellaneous home goods 1.6 120.0 119.4 118.6 119.2 122.1 121.0 120.7 120.8 120.7 120.6 120.2 118.4 116.7 117.0 15 Nondurable consumer goods 23.0 110.2 110.2 112.1 111.8 111.3 112.0 110.4 111.3 111.6 111.5 111.5 111.8 111.1 111.0 16 Foods and tobacco 10.3 109.3 108.6 109.7 110.7 110.0 113.0 111.8 111.3 111.9 112.0 110.1 110.6 109.9 110.0 17 Clothing 2.4 95.9 96.0 96.4 95.1 95.1 95.2 93.5 94.7 94.8 93.3 93.6 93.2 91.4 92.0 18 Chemical products 4.5 119.1 119.4 123.0 121.3 121.8 122.9 121.8 122.2 124.1 123.3 123.6 122.5 121.7 120.5 19 Paper products 2.9 109.3 110.1 111.3 111.7 110.1 110.2 107.8 106.2 106.7 105.8 105.3 107.1 106.7 106.9 20 Energy 2.9 111.3 112.4 116.2 113.9 113.5 107.4 104.6 112.6 110.2 111.6 117.4 118.1 118.1 118.0 21 Fuels .8 109.3 110.8 112.0 106.7 109.3 110.5 110.0 111.3 111.7 111.0 111.9 113.3 112.8 109.8 22 Residential utilities 2.1 112.0 112.8 117.8 117.1 115.1 105 4 101.5 112.8 109.0 111.5 119.7 120.0 120.2 121.6 23 Equipment 17.2 128.8 130.6 131.3 132.8 133.4 133.1 133.1 134.3 135.0 135.2 134.7 133.4 137.2 136.3 24 Business equipment 13.2 141.9 144.4 145.5 147.5 I486 147.3 146.8 148.7 150.2 150.4 150.7 149.1 154.3 153.4 25 Information processing and related. 5.4 168.1 172.9 174.3 174.7 176.0 175.4 178.0 179.7 182.9 184.2 184.9 184.8 186.9 186.7 26 Computer and office equipment . 1.1 385.6 414.6 420.3 427.3 440.1 457.1 476.1 499.2 518.2 532.4 546.4 559.6 577.7 592.6 27 Industrial 4.0 133.3 133.8 135.9 136.3 137.8 136.4 134.2 137.4 137.6 136.3 140.2 141.1 141.5 138.4 28 Transit 2.5 111.2 114.2 113.0 119.9 121.2 119.8 117.9 117.8 118.9 120.5 114.4 105.6 1277 126.5 29 Autos and trucks 1.2 119.7 120.2 117.0 128.2 124.6 121.1 116.4 117.1 119.4 120.1 107.1 85.9 131.6 128.9 30 Other 1.3 135.0 135.1 137.5 137.3 136.2 133.6 132.7 135.2 136.2 134.7 136.3 139.8 128.6 134.2 31 Defense and space equipment 3.3 75.2 74.7 74.7 74.5 74.5 75.7 75.9 75.3 75.1 75.4 75.0 74.9 75.5 75.2 32 Oil and gas well drilling .6 149.7 153.1 149.1 150.0 145.9 154.0 158.9 158.6 150.5 148.1 137.5 132.1 128.1 124.7 33 Manufactured homes .2 139.1 137.2 136.9 138.1 132.4 144.0 148.6 145.4 146.9 148.6 142.9 153.2 149.0 145.0 34 Intermediate products, total . 14.2 115.1 115.2 116.3 117.3 117.4 117.4 117.6 117.3 117.5 118.6 117.9 118.1 118.3 118.0 35 Construction supplies 5.3 121.8 120.4 121.3 123.6 123.2 125.2 126.2 124.2 124.7 126.7 126.5 127.6 128.5 127.6 36 Business supplies 8.9 111.1 112.2 113.4 113.5 113.9 112.9 112.6 113.2 113.2 113.7 112.9 112.5 112.3 112.3 37 Materials 39.5 134.1 136.1 136.7 137.7 138.9 138.2 138.2 138.7 139.1 139.6 137.5 137.5 139.4 139.3 38 Durable goods materials 20.8 158.2 161.3 163.2 165.0 166.5 166.2 165.8 166.4 167.6 167.7 164.1 163.5 168.3 167.8 39 Durable consumer parts .... 4.0 139.2 140.7 141.8 142.3 146.9 138.5 139.3 139.3 141.0 143.2 129.2 126.7 145.0 143.5 40 Equipment parts 7.6 221.9 229.6 233.3 237.9 240.9 245.5 245.7 247.7 249.6 250.3 249.3 250.3 252 5 253.6 41 Other 9.2 125.5 126.6 127.8 128.8 128.3 128.8 127.7 127.8 128.4 127.5 126.8 126.3 126.7 125.9 42 Basic metal materials .... 3.1 120.6 121.7 122.5 124.9 122.2 125.0 125.4 122.8 122.8 121.4 119.2 118.7 120.6 118.0 43 Nondurable goods materials.. . 8.9 113.0 113.3 113.1 114.4 116.0 114.5 114.8 113.5 113.9 113.2 113.0 114.1 113.0 112.6 44 Textile materials 1.1 109.3 111.4 111.9 111.0 112.5 107.9 108.5 107.6 107.6 107.6 106.9 107.2 107 4 107.9 4 4 4 4 4 5 6 5 7 8 9 0 En C O P P C er a r h o t g i h p e m n y e e m v r r a e m i r r m c y t a a e a t l e d e t n e r m i e r f a u i r a a l g e t s l e l y s ri m al a s terials. . . . 3 2 9 6 3 1 . . . . . . 9 7 1 3 3 8 1 1 1 1 1 1 1 1 1 0 0 0 2 5 0 3 1 8 . . . . . . 6 2 3 9 7 3 1 1 1 1 1 1 1 0 0 1 0 1 2 9 5 5 2 1 . . . . . . 7 5 5 6 2 8 1 1 1 1 1 1 1 1 0 0 1 0 3 5 4 9 0 1 . . . . . . 4 0 7 0 6 7 1 1 1 1 1 1 1 1 1 0 0 0 2 3 6 3 8 1 . . . . . . 2 7 5 9 6 4 1 1 1 1 1 1 1 1 1 0 1 0 9 3 3 4 0 0 . . . . . . 1 7 3 2 9 7 1 1 1 1 1 1 1 0 0 1 0 0 9 3 9 2 5 2 . . . . . . 2 7 4 3 5 8 1 1 1 1 1 1 0 1 1 0 0 1 3 2 4 3 5 7 . . . . . 7 0 5 0 0 .6 1 1 1 1 1 1 0 1 1 0 1 0 6 1 6 9 1 4 . . . . . . 8 6 0 6 5 0 1 1 1 1 1 1 1 1 1 0 0 0 1 7 1 5 3 8 . . . . . . 2 9 7 0 3 3 1 1 1 1 1 1 0 1 0 1 1 1 7 1 4 1 2 6 . . . . . 2 1 4 6 6 .2 1 1 1 1 1 1 1 1 0 1 0 1 2 5 6 1 3 1 . . . . . . 0 7 2 0 2 9 1 1 1 1 1 1 0 1 1 1 0 0 7 6 3 1 4 9 . . 0 . . . 1 8 6 2 4 I 1 1 1 1 1 1 1 1 0 0 0 5 0 1 5 9 3 .< . . . . . 4 6 9 8 8 ) 1 1 I 1 1 1 1 1 0 0 1 1 2 1 6 4 0 4 . . . . . 7 . 3 8 8 7 2 SPECIAL AGGREGATES 51 Total excluding autos and trucks 97.1 124.3 125.4 126.5 127.2 127.7 127.7 127.3 128.0 128.4 128.8 127.9 128.1 128.6 128.4 52 Total excluding motor vehicles and parts 95.1 123.8 124.8 125.9 126.6 127.0 127.3 126.9 127.5 127.9 128.3 127.8 128.1 128.0 127.8 53 Total excluding computer and office equipment 98.2 121.9 122.9 123.8 124.8 125.1 124.9 124.3 124.8 125.2 125.6 124.1 123.6 125.5 125.1 54 Consumer goods excluding autos and trucks 27.4 113.2 113.0 114.6 115.0 114.4 115.4 113.9 114.8 115.2 115.3 115.0 115.3 114.8 114.7 55 Consumer goods excluding energy 26.2 114.8 114.7 115.9 117.0 116.2 117.9 116.5 116.4 117.3 117.3 115.0 113.9 116.4 115.9 56 Business equipment excluding autos and trucks 12.0 147.3 149.0 149.7 151.5 150.5 150.5 152.6 153.9 154.1 156.0 157.1 156.8 57 Business equipment excluding computer and office equipment 12.1 129.1 130.8 131.8 133.5 134.4 132.7 131.7 133.0 134.0 133.8 133.7 132.0 136.6 135.5 58 Materials excluding energy 29.8 143.7 145.8 147.0 148.6 150.2 149.4 149.3 149.2 150.1 150.0 147.5 147.6 150.2 149.7 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 SIC pro- 1997 code por- avg. tion Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June' July' Aug. Sept.p Index (1992 =100) MAJOR INDUSTRIES 59 Total index 100.0 124.5 125.6 126.5 127.5 127.9 127.8 127.3 128.0 128.4 128.8 127.5 127.0 129.0 128.7 60 Manufacturing 85.4 127.0 128.0 129.1 130.4 130.9 131.1 130.6 130.8 131.6 131.7 130.0 129.5 131.9 131.3 26.5 118.1 118.6 118.9 120.0 120.5 120.6 120.1 119.8 120.5 120.1 119.1 119.9 119.8 119.0 62 Advanced processing 58.9 131.4 132.7 134.1 135.5 136.1 136.4 135.8 136.3 137.2 137.5 135.4 134.3 138.0 137.5 63 Durable goods 45.0 142.3 144.4 145.5 147.7 148.6 148.3 147.8 148.6 149.7 150.2 147.6 146.3 152.1 151.1 64 Lumber and products 24 2.0 114.9 113.3 112.9 117.0 114.4 114.8 116.7 115.6 116.7 117.3 117.9 117.8 119.3 116.8 65 Furniture and fixtures 25 1.4 122.5 122.0 123.0 124.1 124.4 122.5 120.4 123.0 122.3 121.9 123.1 121.4 120.9 120.8 66 Stone, clay, and glass 32 2.1 120.5 121.2 121.0 122.1 123.4 122.3 121.4 120.7 120.2 120.4 119.2 120.7 122.8 122.5 67 Primary metals 33 3.1 124.5 125.9 127.4 128.9 127.2 129.3 128.1 127.1 128.2 125.5 122.4 122.5 124.4 121.3 331,2 1.7 122.8 124.5 126.4 127.0 126.1 127.9 127.0 126.7 126.4 124.0 119.9 119.7 120.6 115.3 69 Raw steel 331 FT .1 115.9 119.2 117.7 120.9 119.2 122.8 123.7 119.5 122.8 122.3 115.9 117.2 120.4 112.8 70 Nonferrous 333-6,9 1.4 126.4 127.7 128.6 131.1 128.5 131.0 129.4 127.5 130.4 127.4 125.4 125.8 128.9 128.3 71 Fabricated metal products.. . 34 5.0 122.9 122.7 124.4 124.7 126.7 125.6 124.3 125.0 125.6 126 A 125.7 125.5 124.3 124.8 72 Industrial machinery and 35 8 0 173 7 177 7 178 6 180 3 179 4 183 8 186 3 188 2 190 5 192 3 192 9 192 3 73 Computer and office 357 1.8 382.3 412.0 418.0 425.7 438.3 457.1 476.6 500.5 520.1 535.1 550.0 563.9 582.9 598.3 74 Electrical machinery 36 7.3 231.5 237.5 240.8 247.4 249.9 252.9 254.1 254.9 257.5 257.5 257.4 259.5 259.8 260.6 75 Transportation equipment. . . 37 9.5 115.6 118.8 118.3 121.6 123.4 119.9 118.8 118.7 119.4 120.7 110.8 103.8 126.1 123.7 76 Motor vehicles and parts . 371 4.9 137.2 141.2 139.6 145.9 146.6 138.3 136.7 136.6 138.3 140.2 120.2 104.7 150.2 145.5 77 Autos and light trucks . 371PT 2.6 128.3 132.3 130.4 137.7 132.5 130.8 126.7 127.4 129.5 131.4 109.4 86.5 141.5 136.7 78 Aerospace and miscellaneous transportation equipment 372-6,9 4.6 94.4 96.8 97.3 97.9 100.6 101.8 101.1 101.0 100.7 101.4 101.1 102.1 102.6 102.2 79 Instruments 38 5.4 108.0 108.9 109.7 109.5 109.0 109.0 109.6 109.9 110.4 110.6 109.3 108.6 109.4 109.3 80 Miscellaneous 39 1.3 125.9 126.1 126.5 126.2 128.5 128.0 128.4 128.5 129.1 127.3 126.8 127.0 125.5 125.5 81 Nondurable goods 40.4 111.1 111.3 112.2 112.6 112.9 113.6 113.0 112.6 113.2 112.9 112.0 112.2 111.6 111.3 82 Foods 20 9.4 109.6 108.6 109.2 110.9 110.9 112.9 112.0 111.4 112.2 112.3 110.5 110.8 109.8 110.3 83 Tobacco products 21 1.6 112.7 112.0 118.8 115.9 110.1 116.9 115.9 114.7 114.0 114.0 112.5 113.9 115.0 112.3 84 Textile mill products 22 1.8 109.6 111 4 111.6 112.5 110.4 111.8 109.6 108.9 109.2 111.2 108.3 109.0 109.3 110.4 85 Apparel products 23 2.2 99.6 99.1 99.3 98.6 99.3 99.3 97.7 98.2 98.3 97.0 97.4 97.2 95.5 95.8 86 Paper and products 26 3.6 112.9 113.7 112.8 113.6 114.1 112.4 114.6 112.4 113.2 112.7 112.1 114.9 113.1 113.7 87 Printing and publishing 27 6.7 104.9 105.1 106.7 107.4 107.1 106.5 105.6 105.0 104.8 104.5 103.2 102.4 101.9 102.1 88 Chemicals and products .... 28 9.9 115.3 115.6 116.7 116.5 118.2 118.7 117.6 117.7 118.7 118.0 117.8 117.7 117.0 115.7 89 Petroleum products 29 1.4 109.4 110.1 1112 108.6 109.7 112.3 111.9 114.8 114.4 112.8 113.1 114.9 114.4 111.7 90 Rubber and plastic products . 30 3.5 126.4 127.6 127.4 129.6 129.3 129.3 129.4 129.7 131.9 131.5 130.9 130.9 131.4 131.4 91 Leather and products 31 .3 73.7 70.9 72.4 71.0 71.3 69.4 70.8 69.4 67.7 67.3 66.3 66.3 66.0 66.3 92 Mining 6.9 106.0 106.5 105.9 106.1 105.7 108.4 108.8 108.0 107.4 108.4 106.1 106.4 105.5 105.0 93 Metal 10 .5 106.9 105.3 111.1 113.2 103.8 105.3 119.5 105.5 103.0 104.7 105.3 101.7 105.5 104.1 94 Coal 12 1.0 109.9 109.5 109.6 111.2 117.4 116.0 108.4 109.4 110.6 118.2 112.0 116.3 112.7 116.0 13 4.8 103.2 104.3 103.1 102.6 101.7 105.0 105.9 106.5 105.3 104.6 102.3 102.3 101.2 100.3 96 Stone and earth minerals 14 .6 118.8 117.7 116.2 119.2 120.2 124.3 122.6 117.2 120.8 125.6 127.7 127.0 128.9 126.9 7.7 112.5 115.1 116.9 115.3 114.3 108.7 108.2 114.3 111.8 115.5 118.6 117.6 118.3 120.2 98 Electric 491.493PT 6.2 113.1 115.7 118.1 114.7 114.2 110.2 110.6 115.6 114.2 118.8 120.5 119.5 120.3 123.0 99 Gas 492.493PT 1.6 111.0 112.7 111.9 117.8 115.0 103.0 99.0 109.5 102.4 102.4 111.2 110.2 110.6 109.6 SPECIAL AGGREGATES 100 Manufacturing excluding motor vehicles and parts 80.5 126.4 127.3 128.4 129.4 130.0 130.7 130.2 130.5 131.2 131.2 130.6 131.0 130.8 130.5 101 Manufacturing excluding office and computing machines . .. 83.6 124.1 124.9 125.9 127.2 127.6 127.8 127.1 127.2 127.9 127.9 126.1 125.5 127.8 127.2 Gross vilue (billions of 1992 dollars, annual ates) MAJOR MARKETS 102 Products, total 2,001.9 2,373.2 2,396.9 2,416.1 2,442.2 2,435.3 2,442.8 2,427.7 2,442.6 2,454.7 2,461.1 2,431.2 2,405.8 2,484.7 2,468.5 103 Final 1,552.1 1.855.8 1,875.6 1,890.6 1,911.0 1,904.9 1,911.9 1,895.0 1,911.5 1,922.9 1,924.5 1,896.7 1,868.8 1,948.5 1,934.9 104 Consumer goods 1,049.6 1,195.5 1,203.3 1,215.9 1,224.1 1,215.7 1,224.6 1,209.6 1,219.2 1,225.3 1,224.8 1,202.8 1,188.3 1,230.1 1,221.9 105 Equipment 502.5 660.0 672.3 674.5 686.9 689.4 687.3 685.5 692.6 697.9 700.1 694.5 680.8 719.3 713.9 106 Intermediate 449.9 518.1 522.2 526.5 532.3 531.4 532.0 533.3 532.1 533.0 537.4 534.9 536.5 537.9 535.1 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 • December 1998 2.14 HOUSING AND CONSTRUCTION Monthly figures at seasonally adjusted annual rates except as noted 1997 1998 Item 1995 1996 1997 Nov. Dec. Jan. Feb. Mar. Apr. May June July' Aug. Private residential real estate activity (thousands of units exceptis noted) NEW UNITS 1 Permits authorized 1,333 1,426 1,442 1,475 1,467 1,553 1,635 1,569 1,517 1,543 1,517 1,581 1,618 2 One-family 997 1,070 1,056 1,102 1,094 1,142 1,176 1,136 1.145 1,152 1,128 1,173 1,180 3 Two-family or more 335 356 387 373 373 411 459 433 372 391 389 408 438 4 Started 1,354 1,477 1,474 1,523 1,540 1,545 1,616 1,585 1,546 1,538 1,620 1,704 1,616 5 One-family 1,076 1,161 1,134 1,167 1,130 1,225 1,263 1,239 1,237 1,224 1,269 1,300 1,253 278 316 340 356 410 320 353 346 309 314 351 404 363 7 Under construction at end of period1 776 820 834 862 872 888 907 911 911 917 930 938 944 8 One-family 554 584 570 575 580 593 609 616 619 627 639 643 646 9 Two-family or more 222 235 264 287 292 295 298 295 292 290 291 295 298 10 Completed 1,319 1,405 1,407 1,432 1,413 1.314 1,461 1,486 1,509 1,458 1,484 1.547 1,507 1,073 1,123 1,122 1,145 1,094 1.007 1,142 1,130 1,198 1,112 1.166 1,216 1,160 12 Two-family or more 247 283 285 287 319 307 319 356 311 346 318 331 347 13 Mobile homes shipped 341 361 354 352 353 362 377 374 370 374 362 380 368 Merchant builder activity in one-family units 14 Number sold 667 757 803 875 805 853 878 836 892 892' 922 877 838 15 Number for sale at end of period' 374 326 287 280 282 281 281 285 286 287' 287 286 289 Price of units sold (thousands of dollars)2 16 Median 133.9 140.0 145.9 145.0 145.9 148.0 156.0 152.0 148.0 153.2' 146.7 149.3 151.0 17 Average 158.7 166.4 175.8 175.4 175.8 178.6 181.6 178.9 176.7 183.5 175.4 176.6 183.1 EXISTING UNITS (one-family) 18 Number sold 3,812 4,087 4,215 4,390 4,370 4,370 4.770 4,890 4,770 4,830 4,740 4,910 4,730 Price of units sold (thousands of dollars)2 19 Median 113.1 118.2 124.1 124.3 125.9 126.1 124.5 127.1 128.2 130.5 134.0 133.8 132.9 20 Average 139.1 145.5 154.2 155.0 157.5 156.8 153.9 157.2 159.7 162.3 169.2 168.4 165.9 Value of new construction (millions of dollars)3 CONSTRUCTION 21 Total put in place 538,158 581,813 618,051 623,068 626,290 633,714 638,180 639,913 645,974' 635,396' 650^41 650,897 651,607 22 Private 408,012 444,743 470,969 475,340 478,363 487,807 490,896 494,333 500,078' 496,495' 503,592 503,938 503,725 23 Residential 231,191 255,570 265,536 268,893 273,020 278,956 282,496 286,045 289,666' 288,003' 291,907 296,635 296,182 24 Nonresidential 176,821 189,173 205,433 206,447 205,343 208,851 208,400 208,288 210,412' 208,492' 211,685 207,303 207,543 25 Industrial buildings 32,535 32,563 31,417 30,075 29,794 31,055 30,936 31,474 31,457' 29,642r 30,067 27,891 28,596 26 Commercial buildings 68,245 75,722 83,727 83,601 83,214 85,807 84,152 83,981 86,064' 86,321' 88,480 85,598 83,786 27 Other buildings 27,084 30,637 37,382 38,341 39,275 37,694 39,151 37,812 39,168' 37,678' 37,334 37,453 38,039 28 Public utilities and other 48,957 50,252 52,906 54,430 53,060 54,295 54,161 55,021 53,723' 54.851' 55,804 56,361 57,122 29 Public 130,147 137,070 147,082 147,728 147,927 145,907 147,284 145,580 145,896' 138,901' 146,749 146,958 147,881 30 Military 2.983 2,639 2.625 2,889 2,342 2,474 2,916 2,818 2,85Or 2,471' 2,659 3,309 2,871 31 Highway 38.126 41,326 45,246 47.416 45,306 46.067 45,561 45,559 46,175' 42,030' 44,541 44,105 44,828 32 Conservation and development 6.371 5,926 5,628 5,068 6,422 5,281 6,305 5,488 4,985' 5.146' 5.989 5.485 5,428 33 Other 82,667 87,179 93,583 92,355 93,857 92.085 92,502 91,715 91,886' 89,254' 93.560 94,059 94,754 1. Not at annual rates. SOURCE. Bureau of the Census estimates for all series except (1) mobile homes, which are 2. Not seasonally adjusted. private, domestic shipments as reported by the Manufactured Housing Institute and season- 3. Recent data on value of new construction may not be strictly comparable with data for ally adjusted by the Census Bureau, and (2) sales and prices of existing units, which are previous periods because of changes by the Bureau of the Census in its estimating techniques. published by the National Association of Realtors. All back and current figures are available For a description of these changes, see Construction Reports (C-30-76—5), issued by the from the originating agency. Permit authorizations are those reported to the Census Bureau Census Bureau in July 1976. from 19.000 jurisdictions beginning in 1994. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Selected Measures A47 2.15 CONSUMER AND PRODUCER PRICES Percentage changes based on seasonally adjusted data except as noted Change from 12 Change from 3 months ea ier Change from 1 month earlier months earlier (annual rate) Index level, Item 1997 1998 1998 Sept 1997 1998 1998' Sept. Sept. Dec. Mar. June Sept. May June July Aug. Sept. CONSUMER PRICES2 (1982-84=100) 1 All items 2.2 1.5 1.5 .2 2.5 1.5 .3 .1 2 .2 .0 163.6 2 Food 2.1 2.0 1.5 1.3 3.0 2.0 .6 1 .2 .2 .0 161.1 3 Energy items 2.0 -9.8 -7.7 -21.1 -1.9 -8.7 .3 - 7 .0 -1.0 -1.3 102.7 4 All items less food and energy 2.2 2.5 2.4 2.4 2.6 2.3 2 .1 •) .2 174.2 5 Commodities .4 .8 .6 .8 1.1 I.I .1 .0 .1 _ i 143.2 6 Services 2.9 3.1 3.3 3.0 3.2 3.0 .3 .2 .2 3 3 191.8 PRODUCER PRICES (1982=100) 7 Finished goods .0 -.9 -1.2 -3.0 .0 .6 .1' -.2' .2 -.4 .3 130.6 H Consumer foods -.7 5 1.5 -1.8 .6 2.1 -.4 .0' .4 -.4 .4 135.4 9 Consumer energy .0 -11.6 -5.7 -27.0 -3.1 -8.3 .8 -1.7 .3 -2.3 -.1 75.4 10 Other consumer goods .6 2.1 -.3 3.9 1.4 3.3 .r .0' .3 .0 .5 147.4 11 Capital equipment - 1 -.5 -2.0 .0 -.9 .6 .0 .1 -.3 .4 136.5 Intermediate materials 12 Excluding foods and feeds - 2 -2.1 -.6 -4.4 -1.6 -1.6 -A' -A' .0 -.2 123.5 -.8 .0 -.9 -1.2 -1.5 -.1 -.1 .0 -.1 133.2 Crude materials 14 Foods -11.4 -8.8 4.1 -14.3 -3.0 -20.9 -.9' .0' -2.8 -1.1 -1.9 100.9 15 Energy 2.7 -22.8 5.4 -53.5 -2.3 -25.9 .0' -4.8' -.6 -5.1 -1.7 64.2 16 Other 1.6 -11.5 -8.2 -13.6 -5.0 -18.8 r -.3' -1.8 -2.0 -1.3 138.1 1 Not seasonally adjusted. SOURCE. U.S. Department of Labor, Bureau of Labor Statistics. 2. Figures for consumer prices are for all urban consumers and reflect a rental-equivalence measure of homeownership. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A48 Domestic Nonfinancial Statistics • December 1998 2.16 GROSS DOMESTIC PRODUCT AND INCOME Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates Q2 03 Q4 Ql Q2 GROSS DOMESTIC PRODUCT 7,269.6 7,661.6 8,063.4 8,170.8 8,254.5 8^84.2 8,440.6 By source Personal consumption expenditures 4,953.9 5,215.7 5,493.7 5.438.8 5,540.3 5 593 2 5,676.5 5,773 7 Durable goods 611.0 643.3 673.0 659.9 681.2 682.2 705.1 720.1 Nondurable goods 1,473.6 1,539.2 1,600.6 1.588.2 1,611.3 1.613.2 1.633.1 1.655.2 Services 3,033.2 3,220.1 3.190.7 3.247.9 3.297.8 3.338.2 3.398 4 Gross private domestic investment . . 1.043.2 1.131.9 1,256.0 1,259.9 1.265.7 1.292.0 1,356.6 1,345.0 Fixed investment 1,012.5 1.099.8 1,188.6 1,176.4 1,211.1 1.220.1 1.271.1 1,305.8 Nonresidential 727.7 787.9 860.7 850.5 882.3 882.8 921.3 941.9 Structures 201.3 216.9 240.2 234.3 243.8 246 4 245.0 245.4 Producers' durable equipment . 526.4 571.0 620.5 616.2 638.5 636.4 676.3 696.6 Residential structures 311.8 327.9 325.9 328.8 337.4 349.8 363.8 Change in business inventories 30.7 32.1 67.4 83.5 54.6 71.9 95.5 39.2 Nonfarm 40.1 24.5 63.1 77.2 47.3 66.9 90.5 31.5 Net exports of goods and services -83.9 -91.2 -93.4 -86.8 -94.7 -98.8 -123.7 -159.3 Exports 819.4 873.8 965.4 961.1 981.7 988.6 973.3 949.6 Imports 903.3 965.0 1.058.8 1.047.9 1,076.4 1,087.4 1.097.1 1,108.9 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 1,481.2 Federal 509.1 518.4 520.2 522.9 521.0 520.1 511.6 520.7 State and local 847.3 9.14 4 928.6 938.5 947.9 953.3 960.4 By major type of product Final sales, total 7,238.9 7,629.5 8,043.5 7,979.9 8,116.2 8,182.6 8.288.7 8,401.3 Goods 2,644.9 2,780.3 2,911.2 2,883.6 2,944.3 2,948.7 3.005.8 3,025.3 Durable 1,143.4 1.228.8 1,310.1 1.293.6 1,337.1 1,334.3 1,376.9 1,380.8 Nondurable 1.501.5 1,551.6 1.601.0 1,589.9 1,607.2 1,614.4 1.628.8 1,644.4 Services 3,974.9 4.179.5 4.414.1 4,386.9 4,448.0 4.501.2 4,538.4 4,619.5 Structures 619.1 669.7 718.3 709.4 723.9 732.7 744.6 756.6 Change in business inventories 30.7 32.1 67.4 83.5 54.6 71.9 95.5 39.2 Durable goods 32.4 20.8 33.6 48.8 19.9 34.0 49.9 4.5 Nondurable goods -1.7 11.4 33.8 34.6 34.7 37.9 45.6 34.7 MEMO 6,761.7 6,994.8 7,269.8 7,236.5 7,311.2 7,364.6 7,464.7 7,498.6 Total GDP in chained 1992 dollars NATIONAL INCOME 5,923.7 6,256.0 6,646.5 6,604.5 6,704.8 6,767.9 6,875.0 6,945.5 Total 4,208.9 4,409.0 4,687.2 4,649.2 4,715.5 4,798.0 4.882.8 4,945.2 Compensation of employees 3.441.9 3,640.4 3,893.6 3,859.2 3,919.3 3,993.6 4.065.9 4,121.6 Wages and salaries 622.7 640.9 664.2 661.6 666.7 671.4 679.5 685.8 Government and government enterprises 2,819.2 2,999.5 3,229.4 3,197.6 3,252.6 3,322.2 3.386.4 3,435.8 Other 767.0 768.6 793.7 790.0 796.2 804.4 816.8 823.5 Supplement to wages and salaries 365.3 381.7 400.7 398.4 402.7 407.4 414.1 417.9 Employer contributions for social insurance 401.6 387.0 392.9 391.5 393.6 397.0 402.8 405.7 Other labor income Proprietors' income' 488.1 527.7 551.2 549.9 556.5 558.0 564.2 571.7 Business and professional1 465.6 488.8 515.8 512.1 520.2 526.6 536.8 544.0 Farm1 22.4 38.9 35.5 37.8 36.3 31.4 27.4 111 Rental income of persons2 133.7 150.2 158.2 158.0 158.6 158.8 158.3 Corporate profits' 672.4 750.4 8179 815.5 840.9 820.8 829.2 820.6 Profits before tax3 635.6 680.2 734.4 729.8 758.9 736.4 719.1 723.5 Inventory valuation adjustment -22.6 -1.2 6.9 10.3 4.8 4.1 25.3 7.8 Capital consumption adjustment 59.4 71.4 76.6 75.5 77.2 80.1 84.9 Net interest 420.6 418.6 432.0 431.8 433.3 432.4 440.5 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. SOURCH. 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 Q2 Q3 Q4 Ql Q2 PERSONAL INCOME AND SAVING 1 Total personal income 6,072.1 6,425.2 6,784.0 6,743.6 6,820.9 6,904.9 7,003.9 7,081.9 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 4,117.6 3 Commodity-producing industries 863.9 909.0 975.0 965.4 979.4 1,003.7 1.019.0 1,023.2 4 Manufacturing 647.9 674.6 719.5 712.0 722.3 741.3 750.4 750.8 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 1,476.4 7 Government and government enterprises 622.7 640.9 664.2 661.6 666.7 6714 679.5 685.8 8 Other labor income 401.6 387.0 392.9 391.5 393.6 397.0 402.8 405.7 9 Proprietors' income1 488.1 527.7 551.2 549.9 556.5 558.0 564.2 571.7 10 Business and professional1 465.6 488.8 515.8 512.1 520.2 526.6 536.8 544.0 11 Farm1 ^ 22.4 38.9 35.5 37.8 36.3 31.4 27.4 27.7 12 Rental income of persons'" 133.7 150.2 158.2 158.0 158.6 158.8 158.3 161.0 13 Dividends 192.8 248.2 260.3 259.9 260.4 261.3 261.6 262.1 14 Personal interest income 704.9 719.4 747.3 745.7 750.5 753.0 757.0 763.0 15 Transfer payments 1,015.9 1,068.0 1,110.4 1,106.8 1,114.0 1,120.5 1.H9.0 1,145.8 16 Old-age survivors, disability, and health insurance benefits 507.8 538.0 565.9 563.9 568.3 572.2 581.6 585.0 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 7,081.9 19 LESS: Personal tax and nontax payments 795.0 890.5 989.0 975.8 999.0 1,025.5 1,066.8 1,092.9 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 5.988.9 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 5,963.3 22 EQUALS: Personal saving 179.8 158.5 121.0 151.9 98.5 98.2 73.0 25.6 MEMO Per capita (chained 1992 dollars) Gross domestic product 25,690.5 26,335.7 27.136.2 27,052.3 27,260.4 27,398.2 27,718.8 27,783.0 Personal consumption expenditures . . 17,498.4 17,893.0 18,340.9 18,215.6 18,445.2 18,530.5 18.771.1 19,007.8 Disposable personal income 18,640.0 18,989.0 19.349.0 19,315.0 19.385.0 19,478.0 19.632.0 19,719.0 Saving rate (percent) 1.2 GROSS SAVING Gross saving 1,187.4 1,274.5 1,406.3 1,416.3 1,427.0 1,428.0 1,482.5 1,448.5 Gross private saving 1,106.2 1,114.5 1,141.6 1,169.5 1.139.0 1.131.6 1.130.1 1,079.0 Personal saving 179 8 158.5 121.0 151.9 98.5 98.2 73.0 25.6 Undistributed corporate profits' 256.1 262.4 296.7 299.0 311.5 295.0 312.0 300.9 Corporate inventory valuation adjustment -22.6 -1.2 6.9 10.3 4.8 4.3 25.3 7.8 Capital consumption allowances Corporate 431.1 452.0 477.3 473.7 480.8 487.7 492.5 497.8 Noncorporate 225.9 232.3 242.8 241.3 244.4 247.0 248.6 250.7 Gross government saving 81.2 160.0 264 7 246.9 288.0 296.4 352.4 369.4 Federal ." -103.7 -39.6 49.5 36.1 70.0 72.3 128.7 143.9 Consumption of fixed capital 70.7 70.6 70.6 70.9 70.3 70.2 69.9 69.5 Current surplus or deficit (—), national accounts. . -174.4 -110.3 -21 1 -34.8 -.3 2.2 58.8 74.4 Slate and local 184.8 199.7 215.2 210.7 218.0 224.1 223.7 225.6 Consumption of fixed capital 73.2 77.1 81.1 80.6 81.4 82.7 83.5 84.3 Current surplus or deficit (—), national accounts. . 111.7 122.6 134.1 130.1 136.6 141.4 140.2 141.3 41 Gross investment 1,160.9 1,242.3 1,350.5 1,368.6 1,361.9 1,360.7 1.428.4 1,362.7 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 1.345.0 43 Gross government investment 218.4 229.7 235.4 232.6 237.3 236.5 237.4 232.5 44 Net foreign investment -100.6 -119.2 -140.9 -123.9 -141.0 -167.8 -175.6 -214.8 45 Statistical discrepancy -26.5 -32.2 -55.8 -85.7 1. With inventory valuation and capital consumption adjustments. SOURCE. U.S. Department of Commerce, Survey of Current Business. 2. With capita] consumption adjustment. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A50 International Statistics • December 1998 3.10 US. INTERNATIONAL TRANSACTIONS Summary Millions of dollars; quarterly data seasonally adjusted except as noted1 Item credits or debits Q2 Q3 Q4 Qi Q2P 1 Balance on current account -115,254 -134,915 -155,215 -35,090 -38,094 -45,043 -46,735 -56,525 2 Merchandise trade balance -173,729 -191,337 -197,954 -49,096 -49,296 -49,839 -55,698 -64,831 3 Merchandise exports 575.845 611,983 679,325 169,240 172,302 174,284 171,469 164,666 4 Merchandise imports -749,574 -803,320 -877,279 -218,336 -221,598 -224,123 -227,167 -229,497 5 Military transactions, net 4,769 4,684 6,781 2,191 1,945 1,103 1,527 1,036 6 Other service transactions, net 69,069 78,079 80,967 20,390 20,246 20,277 19,164 19,842 7 Investment income, net 19,275 14,236 -5,318 460 -1,544 -4,247 -2,248 -3,238 8 U.S. government grants -11,170 -15,023 -12,090 -2,274 -2,362 -5,213 -2,266 -2,060 9 U.S. government pensions and other transfers -3,433 -4.442 -4,193 -1,055 -1,056 -1,069 -1,126 -1,130 10 Private remittances and other transfers -20,035 -21,112 -23,408 -5,706 -6,027 -6,055 -6,088 -6,144 11 Change in U.S. government assets other than official reserve assets, net (increase, -) -589 -708 174 -269 436 29 -496 12 Change in U.S. official reserve assets (increase, —) -9,742 6,668 -1,010 -236 -730 -4,524 -444 -1,945 13 Gold 0 0 0 0 0 0 0 0 14 Special drawing rights (SDRs) -808 370 -350 -133 -139 -150 -182 72 15 Reserve position in International Monetary Fund -2,466 -1,280 -3,575 54 -463 -4,221 -85 -1,031 16 Foreign currencies -6,468 7,578 2.915 -157 -128 -153 -177 17 Change in U.S. private assets abroad (increase, -) -317,122 -374,761 -477,666 -86,101 -123,021 -118,946 -44,816 -95,049 18 Bank-reported claims3 -75,108 -91,555 -147,439 -26,625 -29,577 -27,539 3,074 -24,979 19 Nonbank-reported claims -45,286 -86,333 -120,403 -9,825 -24.791 -47,907 -6,596 20 U.S. purchases of foreign securities, net -100,074 -115,801 -87,981 -23,263 -41,167 -8,030 -6,973 -23,446 21 U.S. direct investments abroad, net -96,654 -81,072 -121,843 -26,388 -27,488 -35,470 -34,321 -40,261 22 Change in foreign official assets in United States (increase, f) 109,768 127,344 15,817 -5,411 21,258 -26,979 11,324 -10,483 23 U.S. Treasury securities 68,977 115,671 -7,270 -11,689 6,686 -24,578 11,336 -20,317 24 Other U.S. government obligations 3,735 5.008 4,134 827 2,667 86 2,610 254 25 Other U.S. government liabilities4 -217 -362 -2,521 -523 -1,167 -244 -1,059 -422 26 Other U.S. liabilities reported by U.S. banks3 34,008 5,704 21.928 5,043 12.439 -3,250 -607 9,170 27 Other foreign official assets5 3,265 1,323 -654 931 633 1,007 -956 832 28 Change in foreign private assets in United States (increase, +) 355,681 436,013 717,624 155,184 160,180 247,470 84,205 173,908 29 U.S. bank-reported liabilities3 30,176 16,478 148,059 28,067 12,606 89,643 -50,497 40,888 30 U.S. nonbank-reported liabilities 59,637 39,404 107,779 5,274 26,275 47,390 32,707 31 Foreign private purchases of U.S. Treasury securities, net 99,548 154,996 146,710 42,614 35,432 35,301 -1,701 25,715 32 Foreign purchases of other U.S. securities, net 96,367 130,151 196,845 54,258 60,327 36,783 77,019 69,531 33 Foreign direct investments in United States, net 57,653 77,622 93,449 20,149 18,964 28,453 25,931 22,036 34 Allocation of special drawing rights 0 0 0 0 0 0 0 0 35 Discrepancy -22,742 -59.641 -99.724 -28.077 -20,027 -52,007 -3,146 -9,410 36 Due to seasonal adjustment 685 -10,018 3,528 6,217 1,562 37 Before seasonal adjustment -59,641 -99,724 -28,762 -10,009 -55,535 -9,363 -10,972 MEMO Changes in official assets 38 U.S. official reserve assets (increase, —) -9,742 6,668 -1,010 -236 -730 -4,524 -444 -1,945 39 Foreign official assets in United States, excluding line 25 (increase, +) 109,985 127,706 18,338 -4,888 22,425 -26,735 12,383 -10,061 40 Change in Organization of Petroleum Exporting Countries official assets in United States (part of line 22) 4,239 14,911' 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 stocks and in debt securities of private merchandise trade data and are included in line 5. corporations and state and local governments. 3. Reporting banks include all types of depository institutions as well as some brokers and SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current dealers. Business. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Summary Statistics A51 3.11 U.S. FOREIGN TRADE1 Millions of dollars; monthly data seasonally adjusted 1998 Item 1995 1996 1997 Feb.' Mar.' Apr.' May' June' July Aug.p 1 Goods and services, balance -101,857 -111,040 -113,684 -11,614 -13,497 -14,148 -15,777 -13,639 -14,547 -16,775 2 Merchandise -173,560 -191,170 -198,975 -18,120 -20,503 -21,335 -22,578 -20,530 -21,029 -23,202 3 Services 71,703 80,130 85,291 6,506 7.006 7,187 6,801 6,891 6,482 6,427 4 Goods and services, exports 794,610 848,833 931,370 77,813 79,058 77,515 76.399 76,375 75,101 74,839 5 Merchandise 575,871 612,069 678,150 56,350 57,217 55,335 54,719 54,767 53,825 53,698 6 Services 218,739 236,764 253,220 21,463 21,841 22,180 21,680 21,608 21,276 21,141 7 Goods and services, imports -896,467 -959,873 -1,045,054 -89,427 -92,555 -91,663 -92,176 -90,014 -89,648 -91,614 8 Merchandise -749,431 -803.239 -877,125 -74,470 -77.720 -76,670 -77,297 -75,297 -74,854 -76,900 9 Services -147.036 -156,634 -167,929 -14.957 -14,835 -14,993 -14,879 -14.717 -14.794 -14,714 1. Data show monthly values consistent with quarterly figures in the U.S. balance of SOURCE. FT900, U.S. Department of Commerce, Bureau of the Census and Bureau of payments accounts. Economic Analysis. 3.12 U.S. RESERVE ASSETS Millions of dollars, end of period 1998 Asset 1995 1996 1997 Feb. Mar. Apr. May June July Aug. Sept.p 1 Total 85,832 75,090 69,954 70,632 69,354 70,328 70,723 71,161 72,264 73,544 75,676 2 Gold stock, including Exchange Stabilization Fund1 11.050 11,049 11,050 11,050 11,050 11,048 11,049 11,047 11,046 11,046 11,044 3 Special drawing rights 11.037 10,312 10,027 10.217 10.108 10,188 10,296 10,001 9,586 9,891 10,106 4 Reserve position in International Monetary Fund2 14,649 15,435 18,071 18,135 17,976 18,218 18,957 18,945 20,780 21,161 21,644 5 Foreign currencies4 49,096 38,294 30.809 31.230 30,220 30,874 30,421 31,168 30,852 31,446 32,882 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. I 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. 313 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1 Millions of dollars, end of period 1998 Asset 1995 1996 1997 Feb. Mar. Apr. May June July Aug. Sept.p 1 Deposits 386 167 457 243 167 162 156 200 161 161 347 Held in custody 2 U.S. Treasury securities 522,170 638,049 620,885 621,956 630,602 622,220 622,557 616,569 613,893 588.337 578,403 3 Earmarked gold3 11,702 11,197 10,763 10,705 10,664 10,651 10,641 10,617 10,586 10,510 10,457 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 • December 1998 3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS Millions of dollars, end of period 1998 Item 1996 1997 Feb. Mar. Apr. May June July Aug.' 1 Total1 758,624 778,538 780,393 790,921 788,310 786,184 781,067 775,154 760,245 By type 2 Liabilities reported by banks in the United States" 113,098 135,326 139,739 134,719 144,929 142,658 144,097 142.157 143,501 3 U.S. Treasury bills and certificates3 198,921 148,301 144,324 153,335 138,418 137,652 134,324 131.089 130,398 U.S. Treasury bonds and notes 379,497 423,456 423,509 429,642 430,804 431,702 428,216 428,685 411,765 5 Nonmarketable 5.968 5,994 6,069 6.110 6,149 6,189 6,229 6,269 6,311 6 U.S. securities other than U.S. Treasury securities5 61,140 65,461 66,752 67,115 68,010 67,983 68,201 66,954 68,270 By area 7 Europe1 257,915 263,103 261.133 259,053 268,848 269,178 264,637 270,175 266,605 8 Canada 21,295 18,749 19.065 20,280 20,254 20,122 19,396 19,963 16,387 9 Latin America and Caribbean 80,623 97,616 99.381 98,028 101,191 101,792 100,829 100,801 98,450 10 Asia 385,484 382,423 385.378 397,283 382,027 379,188 378,154 367,752 363,969 11 Africa 7,379 10,118 10.518 11,440 11,281 10,574 11.552 11,901 11,498 5,926 6,527 4,916 4,835 4.707 5,328 6,497 4,560 3,334 1. Includes the Bank for International Settlements. Venezuela, beginning December 1990, 30-year maturity issue; Argentina, beginning April 2. Principally demand deposits, time deposits, bankers acceptances, commercial paper, 1993, 30-year maturity issue. negotiable time certificates of deposit, and borrowings under repurchase agreements. 5. Debt securities of U.S. government corporations and federally sponsored agencies, and 3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official U.S. corporate stocks and bonds. institutions of foreign countries. SOURCE. Based on U.S. Department of the Treasury data and on data reported to the 4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of department by banks (including Federal Reserve Banks) and securities dealers in the United zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginning States, and on the 1989 benchmark survey of foreign portfolio investment in the United March 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue; States. 3.16 LIABILITIES TO, AND CLAIMS ON, FOREIGNERS Reported by Banks in the United States' Payable in Foreign Currencies Millions of dollars, end of period 1997 1998 Item 1994 1995 1996 Sept. Dec. Mar. June 1 Banks' liabilities 89,258 109,713 103,383 120,105 117,524 100,342 90,119 60,711 74,016 66,018 91,158 83,038 81,977 68,095 3 Deposits 19,661 22,696 22,467 32,154 28,661 27,934 27,213 41,050 51,320 43.551 59,004 54,377 54,043 40,882 10,878 6,145 10,978 10,090 8,191 7,926 7,354 1. Data on claims exclude foreign currencies held by U.S. monetary authorities. 2, Assets owned by customers of the reporting bank located m 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 1998 Item 1995 1996 1997 Feb. Mar. Apr. May June July Aug.? BY HOLDER AND TYPE OF LIABILITY t 1 Total, all foreigners 1,099,549 1,162,148 1,283,686 1,283,675 1,255,075 1,270,626 1,260,273 l,287,968r 1,305,757 1,340,871 753,461 758,998 883,639 879,686 843,906 861,727 852,052 884,741' 896.872 928,048 3 Demand deposits 24,448 27,034 32,104 29,691 32,588 32,107 31,201 36,246' 30,928 32,997 4 Time deposits2 192,558 186,910 198,470 183,285 183,109 185,948 185,160 186,693' 187,956 183,469 5 Other1 140,165 143,510 168,013 189,527 188,425 204.294 192,167 183,451 192,536 190,531 6 Own foreign offices4 396,290 401.544 485.052 477.183 439.784 439,378 443.524 478.351' 485,452 521,051 7 Banks' custodial liabilities 346,088 403,150 400.047 403,989 411,169 408,899 408,221 403.227' 408.885 412,823 8 US. Treasury bills and certificates6 197,355 236,874 193,239 186,564 191,571 174,256 173,873 169,225' 164,274 163,598 9 Other negotiable and readily transferable instruments7 52,200 72,011 93,641 99,402 96.364 111,398 107,797 112,527 116,802 121,351 10 Oiher 96,533 94,265 113,167 118,023 123,234 123,245 126,551 121,475 127,809 127,874 11 Nonmonetary international and regional organizations8 11,039 13,972 11,690 16,184 15,246 14,894 14,186 14,079 14,181 15,052 10.347 13,355 11,486 15,855 14,925 14,478 13,559 13,441 12,088 13,584 13 Demand deposits 21 29 16 74 98 365 229 226 19 59 14 Time deposits" 4,656 5,784 5,466 5,316 5,957 6,646 7,029 6,784 6,254 6,152 15 Other3 5,670 7,542 6,004 10,465 8,870 7,467 6,301 6,431 5,815 7,373 692 617 204 329 321 416 627 638 2,093 1.468 17 U.S. Treasury bills and certificates6 350 352 69 149 247 344 359 338 349 490 18 Other negotiable and readily transferable instruments 341 265 133 180 72 72 268 298 1,744 976 19 Other 1 0 2 0 2 0 0 2 0 2 20 Official institutions' 275,928 312,019 283,627 284,063 288,054 283,347 280,310 278,421 273,246 273.899 21 Banks' own liabilities 83,447 79,406 101,910 109,959 104,006 105,731 104,358 102,256 102,040 100.973 22 Demand deposits 2,098 1,511 2,314 1,910 2,051 2,532 2,052 2,582 3,560 3,452 23 Time deposits" 30,717 33,336 41.420 37,242 40,265 38,865 36,060 36,068 36,358 35,618 24 Other1 50,632 44,559 58.176 70,807 61,690 64,334 66,246 63.606 62,122 61,903 25 Banks' custodial liabilities5 192,481 232,613 181,717 174.104 184,048 177,616 175,952 176.165 171.206 172,926 26 U.S. Treasury bills and certificates'1 168,534 198,921 148,301 144,324 153,335 138,418 137,652 134.324 131,089 130,398 27 Other negotiable and readily transferable instruments 23,603 33,266 33,211 29.643 30,183 38,745 38,010 41,178 39,809 41,773 28 Other 344 426 205 137 530 453 290 663 308 755 29 Banks'" 691,412 694,835 816,064 799,943 763,349 776,269 782,828 809,206' 825,175 853,855 567,834 562,898 642,324 623,213 585,083 596,509 601,967 633,032' 643,982 673,792 31 Unaffiliated foreign banks 171,544 161,354 157,272 146,030 145,299 157,131 158,443 154,681 158,530 152,741 }2 Demand deposits 11,758 13,692 17,527 16,084 18,350 17,152 16,111 20,772' 15,097 16,045 103,471 89,765 83,433 75,255 70,060 72,703 74,018 75,231' 78,252 74,219 34 Other' 56,315 57,897 56,312 54,691 56,889 67,276 68,314 58,678 65,181 62,477 35 Own foreign offices4 396,290 401,544 485,052 477,183 439,784 439,378 443,524 478,351' 485,452 521.051 36 Banks' custodial liabilities5 123,578 131,937 173,740 176,730 178,266 179,760 180,861 176,174' 181,193 180,063 37 U.S. Treasury bills and certificates6 15,872 23,106 31,915 30,620 28,499 26,650 26,920 25,337r 22,929 20,694 38 Other negotiable and readily transferable instruments7 13,035 17,027 35.333 35,107 34,962 37,942 38,186 38,077 39,133 40,110 39 Other 94,671 91,804 106,492 111,003 114,805 115,168 115,755 112,760 119.131 119.259 40 Other foreigners 121,170 141,322 172,305 183,485 188,426 196,116 182,949 186,262' 193.155 198,065 91,833 103,339 127,919 130,659 139.892 145.009 132,168 136.012' 138,762 139,699 42 Demand deposits 10.571 11,802 12.247 11,623 12,089 12,058 12,809 12,666 12,252 13,441 43 Time deposits2 53,714 58,025 68,151 65,472 66,827 67,734 68,053 68,610' 67,092 67,480 44 Other' 27,548 33,512 47,521 53,564 60,976 65,217 51,306 54,736 59,418 58,778 45 Banks" custodial liabilities5 29,337 37,983 44,386 52.826 48,534 51,107 50,781 50,250 54,393 58,366 46 U.S. Treasury bills and certificates6 12,599 14,495 12,954 11,471 9.490 8,844 8,942 9,226 9,907 12,016 47 Other negotiable and readily transferable instruments 15,221 21,453 24.964 34,472 31,147 34,639 31,333 32,974 36,116 38,492 48 Other 1 517 2 035 6 468 6 883 7 897 7 624 10 506 8 050 8 370 7 858 MEMO 49 Negotiable time certificates of deposit in custody fot foreigners 9,103 14,573 16,083 20.823 22,416 22,503 23,440 21,229 22.847 24,712 1. Reporting banks include all types of depository institutions as well as some brokers and 6. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official dealers. Excludes bonds and notes of maturities longer than one year. institutions of foreign countries. 2. Excludes negotiable time certificates of deposit, which are included in "Other negotia- 7. Principally bankers acceptances, commercial paper, and negotiable time certificates of ble and readily transferable instruments." deposit, 3. Includes borrowing under repurchase agreements, 8. Principally the International Bank for Reconstruction and Development, the Inter- 4. For U.S. banks, includes amounts owed to own foreign branches and foreign subsidiar- American Development Bank, and the Asian Development Bank. Excludes "holdings of ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory dollars" of the International Monetary Fund. agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists 9. Foreign central banks, foreign central governments, and the Bank for International principally of amounts owed to the head office or parenl foreign bank, and to foreign Settlements. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. 10. Excludes central banks, which are included in "Official institutions." 5 Financial claims on residents of the United States, other than long-term securities, held by or through reporting banks for foreign customers. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A54 International Statistics • December 1998 3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1—Continued Feb. Mar. Apr. May July Aug.p 50 Total, all foreigners 1,099,549 1,162,148 1,283,686 1,283,675 1.255,075 1,270,626 1,260,273 1,287,968' 1,305,757 1,340,871 51 Foreign countries . . 1,088,510 1,148,176 1,271,996 1,267,491 1,239,829 1,255,732 1,246,087 l,273,889r 1,291,576 1,325,819 52 Europe 362,819 376,590 420,438 420,018 390,750 406,391 405,348 402,090' 431,763 457,467 53 Austrii 3,537 5,128 2,717 2,774 2,375 2,957 3,012 2,268 2,602 2,671 54 Belgium and Luxembourg 24,792 24,084 41,007 38,178 33,244 38,530 35.518 35,454 33,845 35,086 55 Denmark 2,921 2,565 1,514 1,215 1,094 2,588 1,443 1,989 2,013 2,128 56 Finland 2,831 1,958 2,246 2,136 1,549 1,768 1,365 1,438 1,211 1,350 57 France 39,218 35,078 46,607 44,990 44,027 48,468 47,869 46,162' 47,140 48,328 58 Germany 24,035 24,660 23,737 23,290 20,971 24,895 26,452 25,470 23,730 28,751 59 Greece 2,014 1,835 1,552 1,695 2,020 2,383 2,610 2,429 2,784 2,941 60 Italy 10,868 10.946 11,378 9,804 9,631 10,600 11,127 11,509' 11,114 10,625 61 Netherlands 13,745 11,110 7,385 7,043 8,208 8,051 7,265 6,845 7,097 9,239 62 Norway 1,394 1,288 317 845 346 514 774 607 1,179 1,469 63 Portugal 2,761 3,562 2,262 1,437 1,426 2 279 2,160 2,334 2,823 2,424 64 Russia 7,948 7,623 7,968 6,118 6,466 5,381 3,952 4,654 6,398 2,718 65 Spain 10,011 17,707 18,989 20,137 16,315 18,071 15,520 11,649' 12,079 14,283 66 Sweden 3,246 1,623 1,628 2,055 1,967 1,785 2,197 3,148 2,198 1,769 67 Switzerland 43,625 44,538 39,172 37,157 35,463 32,341 33,893 39,078' 44,861 39,362 Turkey 4,124 6,738 4,054 4.047 4,154 4,340 4,467 4,875 5,058 4,298 69 United Kingdom 139,183 153,420 181,904 191,181 174,198 172,829 178,185 176.703' 196,859 219.147 70 Yugoslavia 177 206 239 244 236 246 270 234 322 242 71 Other Europe and other former U.S.S.R. 26,389 22,521 25,762 25,672 27,060 28,365 27,269 25,244' 28,450 30,636 72 Canada 30,468 38,920 28,341 29,470 27,121 27,398 26,021 28,864' 29,526 27,844 73 Latin America and Caribbean . . 440,213 467,529 536,365 533,907 529,446 552,896 550,714 568,208r 563,818 556,482 74 Argentina 12,235 13,877 20,199 18,278 18,835 17,766 16,938 18,501' 21,009 21,654 75 Bahamas 94,991 88,895 112,217 110,900 109,041 112,510 114,222 116.435' 115,309 113,543 76 Bermuda 4,897 5,527 6,911 8,283 8,273 6,657 7,142 7,769 7,216 7,332 77 Brazil 23,797 27,701 31,037 33,026 34,017 36,777 38,463 35,343' 34,290 27.824 78 British West Indies 239,083 251,465 276,389 273,464 261,542 273,565 277,929 295,321' 289,797 290,900 79 Chile 2,826 2,915 4,072 4,450 3,975 4,330 4,230 4,349 4,981 4,719 80 Colombia 3,659 3,256 3,652 3,908 4,200 4,212 4,383 4,805' 4,023 4,104 81 Cuba 8 21 66 58 55 57 59 63 63 62 82 Ecuador 1,314 1,767 2,078 1,998 1.814 1,737 1,783 1,606 1,756 1,588 83 Guatemala 1.276 1,282 1,494 1,382 1,438 1,478 1,353 1.363 1,273 1.239 84 Jamaica 481 628 450 437 431 449 438 522 519 550 85 Mexico 24,560 31,240 33,972 33,611 35,708 37,623 37,682 38,044' 38,554 38,087 86 Netherlands Antilles 4,673 6,099 5,085 5,417 11,351 17,569 7,447 6,861 8,922 8.340 87 Panama 4,264 4,099 4,241 4,087 3,958 4,211 4,106 3,723 3,596 3,676 88 Peru 974 834 893 912 878 878 964 925 984 900 89 Uruguay 1,836 1,890 2,382 2,247 2,228 2,097 1,991 1,982 2,097 2,091 90 Venezuela 11,808 17,363 21,601 21,891 21,474 20,696 21,600 20.442 19,492 20,127 91 Other 7,531 8,670 9,626 9.558 10,228 10.284 9.984 10.154' 9,937 9.746 92 Asia 240,595 249.083 269,299 267,957 275,173 251,423 244,779 254,408' 247,947 266,482 China 93 Mainland 33,750 30,438 18,252 18,575 20,701 20,122 20,209 21,558 18,919 18,506 94 Taiwan 11,714 15,995 11,760 12,942 13,619 13,776 12,648 11,619 11,333 11,290 95 Hong Kong 20,197 18,789 17,722 17,797 17,825 19,762 18,106 19,720 15,826 18,349 96 India 3,373 3,930 4,567 5,265 5.586 4,813 4,882 4,821 4,678 6,437 97 Indonesia 2,708 2,298 3,554 2,989 4,015 4,266 3,197 3,848' 3,938 5,645 98 Israel 4,041 6,051 6,281 7,197 7,589 7,348 6,251 6,095 5,969 5,296 99 Japan 109,193 117,316 143,401 140,426 137,700 113,283 111,623 118.669 123,167 131,376 100 Korea (South) 5,749 5,949 13,060 12,530 11,233 13,711 14,010 13,269 12,713 12,498 101 Philippines 3,092 3,378 3,250 2,872 3,009 2,870 2,802 3,418 2,609 2.777 102 Thailand .^ 12,279 10,912 6,501 4,676 9,073 7,928 8,876 7,148 6,780 7,869 103 Middle Eastern oil-exporting countries 15,582 16,285 14,959 15,952 16.217 17,095 15,296 13,825 13,897 14,535 104 Other 18,917 17,742 25,992 26,736 28,606 26,449 26.879 30,418' 28.118 31.904 105 Africa 7,641 8,116 10,347 9.670 11,385 11,160 10,965 10,732 10,785 10.559 106 Egypt 2,136 2,012 1,663 1.670 1,449 1.236 1,460 1,523 1,319 1,459 107 Morocco 104 112 138 73 88 131 115 84 74 76 108 South Africa 739 458 2,158 1,825 2,547 2,556 2,465 2,642 2.446 2.428 109 Zaire 10 10 10 4 10 3 5 5 7 35 110 Oil-exporting countries14 1,797 2,626 3.060 3,479 4,275 4,332 4,079 3,552 3,893 3,684 111 Other 2,855 3,318 2,619 3,016 2,902 2,841 2,926 3,046 2.877 112 Other .... 6,774 7,938 7,206 6,469 5,954 6,464 8,260 9,587 7,737 6,985 113 Australia 5,647 6,479 6,304 5,466 4,989 5,450 7.416 8,510 6,490 5,931 114 Other . . 1,127 1,459 902 1,003 965 1,014 844 1,077 1.247 1,054 115 Nonmonetary international and regional organizations 11,039 13,972 11,690 16,184 15,246 14,894 14,186 14,079 14,181 15,052 116 International15 9,300 12,099 10,517 14,591 14,331 13,431 12.509 12.548 11,120 12,725 117 Latin American regional 893 1,339 424 1,217 536 762 830 670 717 685 118 Other regional17 846 534 749 376 379 701 847 861 2,344 1,642 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 19% Mar. Apr. May July Aug.p 1 Total, all foreigners 532.444 599,925 708,272 703,988 687,648 700,035 703,532 728,673' 740,258 764,033 2 Foreign countries 530,513 597,321 705,809 701,233 684,700 696,742 701,140 725,758r 735,848 759,643 3 Europe 132,150 165,769 199,880 212,307 205,528 207,154 208,567 223,986' 229,928 226,830 4 Austria 565 1,662 1,354 1,934 1,566 1,827 2,130 1,259 1,892 1,856 5 Belgium and Luxembourg 7,624 6,727 6,641 6,021 6,148 5,482 6,115 7,782 8,459 6,779 6 Denmark 403 492 980 907 895 968 1,286 1,198 933 1.374 7 Finland 1.055 971 1,233 1,554 1,686 1,018 931 1,146 1,032 1,161 8 France 15,033 15,246 16.239 18.963 18,206 17,383 16.276 15.474 14,421 17,314 9 Germany 9,263 8,472 12,676 10.752 13,047 16,931 15,301 15.751 11,327 12,029 10 Greece 469 568 402 504 503 442 428 364 450 530 11 Italy 5.370 6,457 6,230 5.974 6.601 6,938 6,533 6.435 6,345 8,617 12 Netherlands 5,346 7,117 6,141 5.447 6,618 5,851 3,980 5,763 5,642 4,321 13 Norway 665 808 555 1.296 850 662 736 680 553 1,110 14 Portugal 888 418 777 533 589 935 1,496 888 1.156 725 15 Russia 660 1,669 1,248 1.143 1,115 1,133 1,117 1,057 1,345 1,207 16 Spain 2,166 3,211 2,942 6,255 5,778 7,458 6,218 5,560 6,424 5,233 17 Sweden 2,080 1,739 1,854 2,184 2,798 2,975 3,181 3,069 4,553 4,456 18 Switzerland 7,474 19,798 28,846 29,006 31,306 25,069 29,317 34,970 49,359 49,258 19 Turkey 803 1,109 1,558 1,675 1,914 2,324 2,386 2,414 2,010 1,990 20 United Kingdom 67,784 85.234 103,143 110,357 97,588 101,772 102.889 110.464' 104,397 98,308 21 Yugoslavia2 147 115 52 53 61 59 19 53 79 53 22 Other Europe and other former U.S.S.R.' 4,355 3.956 7,009 7,749 8,259 7,927 8.228 9,659 9,551 10,509 23 Canada 20,874 26,436 27,176 24,872 29,827 25,785 24,961 32,703 36,007 41,402 24 Latin America and Caribbean 256,944 274,153 343,820 345,643 338,909 354,302 361,082 365,836' 359.299 379,087 25 Argentina 6,439 7,400 8,924 9,402 8,726 8,540 8,207 8,518' 8.421 8,707 26 Bahamas 58.818 71,871 89,379 84,982 77,585 82,711 78,083 77,595' 78,770 77.895 27 Bermuda 5.741 4,129 8,782 8,917 8,997 9,462 8,890 9,452' 10,622 9,629 28 Brazil 13.297 17,259 21,696 23,987 25,283 26,033 25,354 24,552 24,187 23,541 29 British West Indies 124,037 105,510 145.471 149,520 147,910 159,649 168.124 176,825 166,203 192,036 30 Chile 4,864 5,136 7.913 8.249 8,171 8,444 8,482 8,497 8,434 8,305 31 Colombia 4,550 6,247 6.945 6.729 6,783 6,772 7,208 7,102 6,914 6,915 32 Cuba 0 0 0 0 0 0 0 0 0 0 33 Ecuador 825 1,031 1,311 1.398 1,476 1,522 1,498 1.430 1,649 1,519 34 Guatemala 457 620 886 868 904 955 955 932 911 950 35 Jamaica 323 345 424 401 364 373 385 320 335 318 36 Mexico 18,024 18,425 19,518 21.107 20,680 20,913 21,215 20,393 20,084 20,099 37 Netherlands Antilles 9,229 25,209 17,838 15,594 17,618 14,073 17,352 14,294 16,278 12,939 38 Panama 3,008 2,786 4,364 4,232 4,108 4,422 4,393 4,233 4,308 4,157 39 Peru 1,829 2.720 3,491 3,550 3,538 3.644 3,792 3,965 4,009 4,111 40 Uruguay 466 589 629 594 920 773 807 959 1,154 1,055 41 Venezuela 1,661 1,702 2,129 2,334 2,169 2,194 2,381 2,495 2,436 2,648 42 Other 3,376 3,174 4.120 3,779 3,677 3,822 3,956 4,274 4,584 4,263 43 Asia 115,336 122,478 125.063 109,045 101,353 99,183 96,813 94.804r 100,196 102,378 China 44 Mainland 1,023 1,401 1,579 1,988 2,762 2,921 2,934 1,989 1.679 2,703 45 Taiwan 1,713 1,894 921 820 740 939 723 835 595 661 46 Hong Kong 12,821 12,802 13,990 13,520 12.628 10,162 12,884 12,871 11,045 13.821 47 India 1,846 1,946 2,200 2,172 1.927 1,807 1,913 1,972 1,822 1,878 48 Indonesia 1,696 1,762 2,634 2,270 2,291 2,210 2,099 2,098' 2,010 2,031 49 Israel 739 633 768 987 812 874 893 954 1,116 907 50 Japan 61,468 59,967 59.540 51,891 46,660 44,970 42.071 43,010 45.566 44,813 51 Korea (South) 13,975 18,901 18.162 12.812 11,520 10,852 11,936 11.001 12,863 11,508 52 Philippines 1,318 1,697 1,689 1.645 1,813 1,561 1,614 1.541 1,243 1,258 53 Thailand 2,612 2,679 2,259 2.138 2,144 1,971 1,906 1.889 1,820 1,883 54 Middle Eastern oil-exporting countries"1 9,639 10,424 10,790 9.101 8,921 11,028 9,338 8,448 11,207 12,136 55 Other 6,486 8.372 10,531 9.701 9,135 8,502 8,196 9,230 8,779 56 Africa 2,742 2,776 3,530 3.403 3,567 3,337 .3,693 2.484 3,497 3,575 57 Egypt 210 247 247 304 289 294 281 283 294 279 58 Morocco 514 524 511 514 518 483 490 430 471 426 59 South Africa 465 584 805 573 559 490 859 653 630 653 60 Zaire 1 0 0 0 0 0 0 0 0 0 61 Oil-exporting countries5 552 420 1.212 1.219 1,364 1,194 1,078 308 1,331 1.046 62 Other 1,000 1,001 755 793 837 876 985 810 771 1,171 63 Other 2,467 5,709 6,340 5,963 5,516 6,981 6,024 5,945 6,921 6,371 64 Australia 1,622 4,577 5,299 5,139 5,011 6,513 5,704 5,439 6.067 5.999 65 Other 845 1,132 1,041 824 505 468 320 506 854 372 66 Nonmonelary international and regional organizations6. 2,463 2,755 2.948 3,293 2,392 4,410 I Reporting banks include all types of depository institutions as well as some brokers and 4. Comprises Bahrain. Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab dealers. Emirates (Trucial States). 2. Since December 1992, has excluded Bosnia, Croatia, and Slovenia. 5. Comprises Algeria, Gabon, Libya, and Nigeria. 3. Includes the Bank for International Settlements. Since December 1992, has included all 6. Excludes the Bank for International Settlements, which is included in "Other Europe." pans of the former U.S.S.R. (except Russia), and Bosnia. Croatia, and Slovenia. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A56 International Statistics • December 1998 3.19 BANKS' OWN AND DOMESTIC CUSTOMERS' CLAIMS ON FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1998 Type of claim 1995 1996 1997 Feb. Mar. Apr. May Juner July Aug.p 1 Total 655,211 743,919 852,899 842,461 881,949 532,444 599,925 708,272 703,988 687,648 700,035 703,532 728,673 740,258 764,033 3 Foreign public borrowers 22,518 22,216 20,660 27,041 28,232 32,465 28,986 27,802 35,656 29,779 4 Own foreign offices2 307,427 341,574 431,685 421,733 402,387 409,955 415,175 435,201 446,536 465,153 5 Unaffiliated foreign banks 101,595 113,682 109,224 106,600 107,794 104,622 105,501 108,234 101,777 105,906 37,771 33,826 31,042 26,559 25,657 24,324 21,282 22,843 23,283 24,593 7 Other 63,824 79,856 78,182 80,041 82,137 80,298 84,219 85,391 78,494 81,313 8 All other foreigners 100,904 122,453 146,703 148,614 149,235 152,993 153,870 157,436 156,289 163,195 9 Claims of banks' domestic customers3 122,767 143,994 144,627 154,813 153,276 10 Deposits 58,519 77,657 73,110 85.406 86,408 11 Negotiable and readily transferable 44,161 51,207 53,967 51,594 52,171 12 Outstanding collections and other 20,087 15.130 17.550 17,813 14,697 MEMO 13 Customer liability on acceptances 8,410 10,388 9,624 7,496 6,604 14 Dollar deposits in banks abroad, reported by nonbanking business enterprises in the 30,717 39,661 34,046 36,741 31,958 31,633 32,172 25,287 30,067 26,196 1. For banks' claims, data are monthly; for claims of banks' domestic customers, data are principally of amounts due from the head office or parent foreign bank, and from foreign for quarter ending with month indicated. branches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank. Reporting banks include all types of depository institution as well as some brokers and 3. Assets held by reporting banks in the accounts of their domestic customers. dealers. 4. Principally negotiable time certificates of deposit, bankers acceptances, and commercial 2. For U.S. banks, includes amounts due from own foreign branches and foreign subsidiar- paper. ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatory 5. Includes demand and time deposits and negotiable and nonnegotiable certificates of agencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists deposit denominated in U.S. dollars issued by banks abroad. 3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States1 Payable in U.S. Dollars Millions of dollars, end of period 1997 Maturity, by borrower and area 1994 Sept. 1 Total 202,282 224,932 258,106 281,000 276,597 285,518 293,055 By borrower 2 Maturity of one year or less . . 170,411 178,857 211,859 217,981 205,859 214.822 211,029 3 Foreign public borrowers . . . 15,435 14,995 15,411 20,123 12,069 16,952 17,023 4 All other foreigners 154,976 163,862 196,448 197,858 193,790 197,870 194,006 5 Maturity of more than one year 31,871 46,075 46,247 63,019 70,738 70,696 82,026 6 Foreign public borrowers . . . 7,838 7,522 6,790 8,752 8,525 11,310 10,673 7 All other foreigners 24,033 38,553 39,457 54,267 62,213 59.386 71.353 By area Maturity of one year or less 8 Europe 56,381 55,622 55,690 69,204 58,294 69,245 73,787 9 Canada 6,690 6,751 8,339 8,460 9,917 9,304 8,766 10 Latin America and Caribbean 59,583 72,504 103,254 99,929 97,277 101,013 99,294 11 Asia 40,567 40,296 38,078 34,650 33,972 28,748 23.569 12 Africa 1,379 1,295 1,316 2,157 2,211 2,228 1,116 13 All other3 5,811 2,389 5,182 3,581 4,188 4.284 4,497 Maturity of more than one year 14 Europe 4,358 4,995 6,965 11,202 13,240 15,118 16,315 15 Canada 3,505 2,751 2,645 3,842 2,512 2,752 2,573 16 Latin America and Caribbean 15,717 27,681 24,943 34,988 42,069 39,337 47,903 17 Asia 5,323 7,941 9,392 10,393 10,198 10,731 12,569 18 Africa 1,583 1,421 1,361 1,236 1,236 1,254 1,259 19 All other3 1,385 1.286 941 1,358 1,483 1.504 1,407 1. Reporting banks include all types of depository institutions as well as some brokers and 2. Maturity is time remaining until maturity. dealers. 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Bank-Reported Data A57 3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. and Foreign Offices of U.S. Banks1 Billions of dollars, end of period Area or country Sept. Sept. 1 Total 499.5 551.9 612.8 586.2 645.3 647.5 678.8 711.0 725.9 739.2r 2 G-10 countries and Switzerland . . 191.2 206.0 226.9 220.0 228.3 231.4 250.0 247.7 242.8 249.1' 3 Belgium and Luxembourg 7.2 13.6 11.4 11.3 11.7 14.1 9.4 11.4 11.0 11 2 4 France 19.1 19.4 18.0 17.4 16.6 19.7 17.9 20.2 15.4 15.6 5 Germany 24.7 27.3 31.4 33.9 29.8 32.1 34.1 34.7 28.6 25.5 6 Italy 11.8 11.5 14.9 15.2 16.0 14.4 20.2 19.3 15.5 19.7 7 Netherlands 3.6 3.7 4.7 5.9 4.0 4.5 6.4 7.2 6.2 7.3 8 Sweden 2.7 2.7 2.7 3.0 2.6 3.4 3.6 4.1 3.3 4.8 9 Switzerland 5.1 6.7 6.3 6.3 5.3 6.0 5.4 4.8 7.2 5.6 10 United Kingdom 85.8 82.4 101.6 90.5 104.7 99.2 110.6 108.3 113.4 120.1' 11 Canada 10.0 10.3 12.2 14.8 14.0 16.3 15.7 15.1 13.7 13.5 12 Japan 21.1 28.5 23.6 21.7 23.7 21.7 26.8 22.6 28.6 25.8 13 Other industrialized countries .... 45.7 50.2 55.5 62.1 65.7 66.4 71.7 73.8 64.5 74.3 14 Austria 1.1 .9 1.2 1.0 1.1 1.9 1.5 1.7 1.5 1.7 15 Denmark 1.3 2.6 3.3 1.7 1.5 1.7 2.8 3.7 2.4 2.0 16 Finland .9 .8 .6 .6 .8 .7 1.4 1.9 1.3 1.5 17 Greece 4.5 5.7 5.6 6.1 6.7 6.3 6.1 6.2 5.1 6.1 18 Norway 2.0 3.2 2.3 3.0 8.0 5.3 4.7 4.6 3.6 4.0 19 Portugal 1.2 1.3 1.6 1.4 .9 1.0 1.1 1.4 .9 .7 20 Spain 13.6 11.6 13.6 16.1 13.2 14.4 15.4 13.9 11.7 16.5 21 Turkey 1.6 1.9 2.3 2.8 2.7 2.8 3.4 4.4 4.5 4.9 22 Other Western Europe 3.2 4.7 3.4 4.8 4.7 6.3 5.5 6.1 8.2 9.9 23 South Africa 1.0 1.2 2.0 1.7 2.0 1.9 1.9 1.9 2.2 3.7 24 Australia 15.4 16.4 19.6 22.8 24.0 24.4 27.8 28.1 23.1 23.2 25 OPEC" 24.1 22.1 20.1 19.2 19.7 21.8 22.3 22.9 26.0 25.7 26 Ecuador .5 .7 .9 .9 1.1 1.1 .9 1.2 1.3 1.3 27 Venezuela 3.7 2.7 2.3 2.3 2.4 1.9 2.1 2.2 2.5 3.3 28 Indonesia 3.8 4.8 4.9 5.4 5.2 4.9 5.6 6^5 6.7 5.5 29 Middle East countries 15.3 13.3 11.5 10.2 10.7 13.2 12.5 11.8 14.4 14.3 30 African countries .9 .6 .5 .4 .4 .7 1.2 I.I 1.2 1.4 31 Non-OPEC developing countries . 96.0 112.6 126.5 128.1 137.0 138.7 147.4' Latin America 32 Argentina 11.2 12.9 14.1 15.0 14.3 14.3 16.4 17.1 18.4 19.3 33 Brazil 8.4 13.7 21.7 17.8 20.7 22.0 27.3 26.1 28.6 32.4 34 Chile 6.1 6.8 6.7 6.6 7.0 6.8 7.6 8.0 8.7 9.0 35 Colombia 2.6 2.9 2.8 3.1 4.1 3.7 3.3 3.4 3.4 3.3 36 Mexico 18.4 17.3 15.4 16.3 16.2 17.2 16.6 16.4 17.4 17.7 37 Peru 5 .8 1.2 1.3 1.6 1.6 1.4 1.8 2.0 2.1 38 Other 2.7 2.8 3.0 3.0 3.3 3.4 3.4 3.6 4.1 4.0 Asia China Mainland 1.1 1.8 2.6 2.5 2.7 3.6 4.3 3.2 4.2 Taiwan 9.2 9.4 9.8 10.4 10.3 10.5 10.6 9.7 9.0 11.7 India 4.2 4.4 4.2 3.8 4.3 4.9 5.3 4.9 4.9 5.0 Israel .4 .5 .6 .5 .5 .6 .8 1.0 .7 .7 Korea (South) . . 16.2 19.1 21.7 21.9 21.5 14.6 16.3 16.2 15.6 16.2' Malaysia 3.1 4.4 5.3 5.5 6.0 6.5 6.4 5.6 5.1 4.5 Philippines 3.3 4.1 4.7 5.4 5.8 6.0 7.0 5.7 5 7 5.0 Thailand 4.9 5.4 4.8 5.7 6.8 7.3 6.2 5.4 5.5 Other Asia 4.5 4.8 4.1 4.1 4.3 4.7 4.5 4.3 4.2 Africa 48 Egypt .3 .4 .6 .9 .9 49 Morocco .6 .7 .7 .6 .7 .7 .6 50 Zaire .0 .0 .0 .0 .0 .0 .0 .0 51 Other Africa-' . . . .8 .9 .8 1.0 .9 .9 .9 1.1 52 Eastern Europe. . . . 2.7 4.2 5.1 5.3 6.9 8.9 7.1 9.8 9.1 12.0' 53 Russia4 .8 i.O 1.0 1.8 3.7 3.5 4.2 5.1 5.1 7.5' 54 Other 1.9 3.2 4.1 3.5 3.2 5.4 2.9 4.7 4.0 4.6 55 Offshore banking centers 72.9 99.2 106.1 105.2 134.7 131.3 129.6 138.9 145.7 129.3 56 Bahamas 10.2 11.0 17.3 14.2 20.3 20.9 16.1 19.8 29.9 29.2 57 Bermuda 8.4 6.3 4.1 4.0 4.5 6.7 7.9 9.8 9.8 9.0 58 Cayman Islands and other British West Indies 21.4 32.4 26.1 32.0 37.2 32.8 35.1 45.7 43.4 24.9 59 Netherlands Antilles 1.6 10.3 13.2 11.7 26.1 19.9 15.8 21.7 14.6 14.0 60 Panama5 1.3 1.4 1.7 1.7 2.0 2.0 2.6 2.1 3.1 3.2 61 Lebanon .1 I .1 .1 .1 .1 .1 .1 .1 .1 62 Hong Kong, China 20.0 25.0 27.6 26.0 27.9 30.8 35.2 27.2 32.2 33.8 63 Singapore 10.1 13.1 15.9 15.5 16.7 17.9 16.7 12.7 12.7 15.0 64 Other* .1 .1 .1 .1 .1 .1 .3 .1 .1 .1 65 Miscellaneous and unallocated7 66.9 57.6 72.7 50.0 59.6 59.6 57.6 80.8 99.1 101.3' 1. The banking offices covered by these data include U.S. offices and foreign branches of 2. Organization of Petroleum Exporting Countries, shown individually; other members of U.S. banks, including U.S. banks that are subsidiaries of foreign banks. Offices not covered OPEC (Algeria, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and United include U.S. agencies and branches of foreign banks. Beginning March 1994, the data include Arab Emirates); and Bahrain and Oman (not formally members of OPEC). large foreign subsidiaries of U.S. banks. The data also include other types of U.S. depository 3. Excludes Liberia. Beginning March 1994 includes Namibia. institutions as well as some types of brokers and dealers. To eliminate duplication, the data 4. As of December 1992. excludes other republics of the former Soviet Union. are adjusted to exclude the claims on foreign branches held by a U.S. office or another foreign 5. Includes Canal Zone. branch of the .same banking institution. 6. Foreign branch claims only. These data are on a gross claims basis and do not necessarily reflect the ultimate country 7. Includes New Zealand. Liberia, and international and regional organizations. risk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banks are available in the quarterly Country Exposure Lending Survey published by the Federal Financial Institutions Examination Council. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A58 International Statistics • December 1998 3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period 1997 Type of liability, and area or country Mar. June Sept. Dec. Mar. Junep 54,309 46,448 54,798 58,667 56,501 55,891 59,618 56,741 52,022 Payable in dollars 38,298 33,903 38,956 39,861 38,651 39,746 41,888 42,237 40,914 Payable in foreign currencies 16,011 12,545 15,842 18,806 17,850 16,145 17,730 14.504 11,108 fly type Financial liabilities 32,954 24,241 26,065 29,633 28,263 26,461 29,113 26.751 22,669 Payable in dollars 18.818 12,903 11,327 11.847 11,442 11,487 12,975 13.547 12,634 Payable in foreign currencies 14,136 11.338 14.738 17,786 16,821 14.974 16.138 13.204 10,035 Commercial liabilities 21,355 22,207 28.733 29,034 28,238 29,430 30,505 29,990 29,353 Trade payables 10,005 11.013 12.720 11,432 11,040 10,885 10.904 10,107 9,842 Advance receipts and other liabilities 11,350 11,194 16,013 17,602 17,198 18,545 19.601 19,883 19,511 Payable in dollars 19,480 21,000 27.629 28,014 27,209 28,259 28.913 28,690 28,280 Payable in foreign currencies 1,875 1,207 1,104 1,020 1,029 1,171 1,592 1,300 1,073 By area or country Financial liabilities Europe 21,703 15,622 16,195 20,081 18,530 18,019 19,238 19,008 15,722 Belgium and Luxembourg 495 369 632 769 238 89 186 127 75 France 1,727 999 1,091 1,205 1,280 1,334 1,684 1,795 1,965 Germany 1,961 1,974 1,834 1,589 1.765 1,730 2,018 2,578 2.441 Netherlands 552 466 556 507 466 507 494 472 484 Switzerland 688 895 699 694 591 645 776 345 189 United Kingdom 15,543 10,138 10,177 13,863 12.968 12,165 12,318 11,846 8,463 629 632 1,401 602 1,616 651 2,392 1,045 539 20 Latin America and Caribbean 2,034 1,783 1,668 1,876 1,285 1,067 1,386 965 1,320 21 Bahamas 101 59 236 293 124 10 141 17 6 22 Bermuda 80 147 50 27 55 64 229 86 49 23 Brazil 207 57 78 75 97 52 143 91 76 24 British West Indies 998 866 1.030 965 775 669 604 517 845 25 Mexico 0 12 17 16 15 76 26 21 51 26 Venezuela 5 1 1 1 I 1 1 27 Asia 8,403 5,988 6.423 6,370 6,248 6,239 5,394 5,024 4,408 28 Japan 7,314 5,436 5,869 5,794 5,668 5,725 5,085 4,767 3,869 29 Middle Eastern oil-exporting countries' 35 27 25 72 39 23 32 23 0 30 Africa 135 150 38 29 29 33 60 33 29 31 Oil-exporting countries . . 123 122 0 0 0 0 0 0 0 32 All other' 340 676 Commercial liabilities 33 Europe 6,773 7,700 9,767 9,524 8,683 9,343 10,228 9.951 9,924 34 Belgium and Luxembourg 241 331 479 639 736 703 666 565 557 35 France 728 481 680 679 708 782 764 840 612 36 Germany 604 767 1,002 1,043 845 945 1,274 1,068 1,219 37 Netherlands 722 500 766 551 288 452 439 443 485 38 Switzerland 327 413 624 480 429 400 375 407 349 39 United Kingdom 2,444 3,568 4,303 4,158 3.818 3,829 4,086 4,041 3,743 1,037 1.040 1.090 1,068 1,136 1,150 1.175 1,347 1,511 41 Latin America and Caribbean 1,857 1,740 2.574 2,562 2,500 2,224 2.176 2,051 2,285 42 Bahamas 19 1 63 43 33 38 16 27 14 43 Bermuda 345 205 297 479 397 180 203 174 209 44 Brazil 161 98 196 200 225 233 220 249 246 45 British West Indies 23 56 14 14 26 23 12 5 27 46 Mexico 574 416 665 633 594 562 565 520 557 47 Venezuela 276 221 328 318 304 322 261 219 196 48 Asia 10,741 10,421 13,422 13,915 13,875 14,628 14,966 14,672 13,611 49 Japan 4,555 3,315 4,614 4,465 4,430 4,553 4,500 4,372 3,995 50 Middle Eastern oil-exporting countries'. . 1,576 1,912 2,168 2,495 2,420 2,984 3,111 3,138 3,194 51 Africa 428 619 1,040 1,037 941 929 874 833 921 52 Oil-exporting countries 256 254 532 479 423 504 408 376 354 53 Other1. . . 1,103 1,086 I. Comprises Bahrain, Iran, Iraq, Kuwait. Oman. Qatar, Saudi Arabia, and United Arab 2. Comprises Algeria, Gabon, Libya, and Nigeria. Emirates (Trucial States). 3. Includes nonmonetary international and regional organizations. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Nonbank-Reported Data A59 3.23 CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises in the United States Millions of dollars, end of period Type of claim, and area or country 1996 Sept. 1 Total 57,888 52,509 63,642 68,102 68,266 70,760 70,077 72,837 64,020 2 Payable in dollars 53.805 48,711 58,630 62,126 62,082 64,144 62,173 65,359 58,463 3 Payable in foreign currencies 4,083 3,798 5,012 5,976 6,184 6,616 7,904 7,478 5,557 By type 4 Financial claims 33,897 27,398 35,268 40,547 40,717 42,059 38,908 42,134 33,120 5 Deposits 18.507 15,133 21,404 22,150 24,308 24,125 23,139 21,030 15,922 6 Payable in dollars 18.026 14,654 20,631 20,499 22,817 22,566 21,290 19,322 14,244 7 Payable in foreign currencies 481 479 773 1,651 1,491 1,559 1,849 1,708 1,678 8 Other financial claims 15,390 12,265 13,864 18,397 16,409 17,934 15,769 21,104 17,198 9 Payable in dollars 14,306 10,976 12,069 15,381 13,152 14.621 11,576 16,814 14,567 10 Payable in foreign currencies 1,084 1,289 1,795 3.016 3,257 3,313 4,193 4,290 2,631 11 Commercial claims 23,991 25,111 28,374 27,555 27,549 28.701 31,169 30,703 30,900 12 Trade receivables 21,158 22,998 25,751 24,801 24,858 25,110 27,536 26,888 26,817 13 Advance payments and other claims 2,833 2,113 2,623 2,754 2,691 3,591 3.633 3,815 4,083 14 Payable in dollars 21,473 23,081 25,930 26,246 26,113 26.957 29,307 29,223 29,652 15 Payable in foreign currencies 2.518 2,030 2,444 1,309 1,436 1,744 1,862 1,480 1,248 ov area or country Financial claims 16 Europe 7,936 7,609 9,282 13.076 12.904 15.862 16,948 16,020 14,047 17 Belgium and Luxembourg 86 193 185 119 203 360 406 378 518 18 France 800 803 694 760 680 1,112 1,015 902 796 19 Germany 540 436 276 324 281 352 427 393 290 20 Netherlands 429 517 493 567 519 764 677 911 975 Switzerland 523 498 474 570 447 448 434 401 403 United Kingdom 4,649 4,303 6,119 9,837 9,814 11,254 12.286 11,122 9.595 3,581 2,851 3,445 4,917 6,422 4,279 3,313 4,688 3,035 24 Latin America and Caribbean 19,536 14,500 19,577 19,742 18,725 19,176 15,543 18,207 12,775 25 Bahamas 2,424 1,965 1,452 1,894 2.064 2.442 2,459 1,316 1,310 26 Bermuda 27 81 140 157 188 190 108 66 48 27 520 830 1,468 1,404 1,617 1,501 1.313 1,408 1,394 28 British West Indies 15,228 10.393 15.182 15,176 13,553 12,957 10,311 13,551 8,153 29 Mexico 723 554 457 517 497 508 537 967 1,089 30 Venezuela 35 32 31 22 21 15 36 47 57 31 Asia 1,87! 1,579 2,221 2,068 1,934 2.015 2,133 2,174 2,376 32 Japan 953 871 1,035 831 766 999 823 791 886 33 Middle Eastern oil-exporting countries' 141 3 22 12 20 15 11 9 12 34 Africa 373 276 174 182 179 174 319 325 155 35 Oil-exporting countries 0 5 14 14 15 16 15 16 15 36 All other'.. . 583 553 Commercial claims 37 Europe 9,540 9.824 10,443 9,863 9,603 10.486 12.120 12,854 12,935 38 Belgium and Luxembourg 213 2.31 226 364 327 331 328 232 216 39 France 1,881 1,830 1,644 1,514 1,377 1,642 1,796 1,939 1,955 40 Germany 1.027 1.070 1.337 1,364 1.229 1,395 1,614 1.670 1,757 41 Netherlands 311 452 562 582 613 573 597 534 492 42 Switzerland 557 520 642 418 389 381 554 476 418 43 United Kingdom 2,556 2,656 2.946 2,626 2,836 2.904 3.660 4.828 4,654 1.988 1,951 2,165 2,381 2,464 2.649 2.660 2,882 2,779 45 Latin America and Caribbean 4,117 4.364 5.276 5,067 5.241 5,028 5,750 5,481 6,082 46 Bahamas 9 30 35 40 29 22 27 13 12 47 Bermuda 234 272 275 159 197 128 244 238 359 48 Brazil 612 898 1,303 1,216 1,136 1,101 1,162 1,128 1,183 49 British West Indies 83 79 190 127 98 98 109 88 110 50 Mexico 1,243 993 1.128 1.102 1,140 1,219 1.392 1,302 1.462 51 Venezuela 348 285 357 330 451 418 576 441 585 52 Asia 6,982 7,312 8,376 8,348 8.460 8,576 8,713 7,638 7.367 53 Japan 2,655 1,870 2,003 2,065 2,079 2,048 1,976 1,713 1.757 54 Middle Eastern oil-exporting countries' 708 974 971 1,078 1,014 987 1,107 987 1,127 55 Africa 454 654 746 718 618 764 680 613 657 56 Oil-exporting countries 67 87 166 100 81 207 119 122 116 57 Other1 1.006 1,178 1,163 1,198 1,080 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 • December 1998 3.24 FOREIGN TRANSACTIONS IN SECURITIES Millions of dollars Transaction, and area or country 1996 J A a u n g .- . Apr. May July Aue.p U.S. corporate securities 1 Foreign purchases 590,714 1,097,958 1,047,705 106,988 136,184 134,177 129,528 146,147 152,833 141,566 578,203 1,028,361 998,030 97,501 122,769 130,628 121,355 142,591 150,308 139,722 2 Foreign sales 12,511 69,597 49,675 9,487 13,415 3,549 8,173 3,556 2,525 1,844 3 Net purchases, or sales ( —) . 12,585 69,754 50,000 9,477 13,419 3,570 8,193 3,581 2,739 1,843 4 Foreign countries 5 Europe 5,367 62,688 63,569 9.088 11,144 5,511 10,670 7,227 6,983 5,459 6 France -2,402 6,641 6,218 -40 1,480 -260 650 1,734 199 988 7 Germany 1,104 9,059 9,077 768 627 1,453 1,834 1,020 1,503 1,326 8 Netherlands 1,415 3,831 4,293 140 557 161 564 830 1,265 163 9 Switzerland 2,715 7,848 9,284 1.132 1,956 974 2,234 1,490 1,092 -277 10 United Kingdom 4,478 22,478 17,948 4,576 3,402 595 2,968 695 1,154 1,740 11 Canada 2,226 -1,406 -2,919 -461 566 55 -506 -1,600 -443 -276 1 1 2 3 M La i t d in d le A m Ea e s r t i 1 ca and Caribbean . . . -1 5 , , 6 8 0 1 0 6 5,2 3 0 83 3 3 -5 ,7 0 1 0 0 2 -2 ,1 7 8 3 3 2 -1 ,1 7 1 0 0 -3,6 3 8 4 9 6 -1 - , 2 3 3 3 4 3 1, 2 7 8 9 6 8 - - 6 1 1 3 4 4 -1 6 5 1 7 0 14 Other Asia 918 2,072 -13,846 -944 -202 1,563 -611 -3,949 -2,905 -4,112 15 Japan -372 4,787 -3,486 -667 -1,422 555 -208 -540 -306 214 16 Africa -85 472 882 13 83 128 275 204 -14 159 17 Other countries -57 342 -896 -129 -112 -344 -68 -385 -134 160 18 Nonmonetary international and -74 regional organizations .... BONDS2 393.953 610.116 550,538 67,420 70,079 76,452 65,495 74,100 72.850 66.594 19 Foreign purchases 268,487 475,958 423.460 49,991 50,208 52,225 53,167 62,213 58,678 52.584 20 Foreign sales 125,466 134,158 127,078 17,429 19,871 24,227 20,933 10,637 7,916 12,911 21 Net purchases, or sales (-) ... 125,295 133,595 126,590 17,360 19,732 24,097 20.834 10,714 7,878 12,853 2223 FEourreoipgen countries 77,570 71,631 76,410 8,253 12,669 19,024 12,117 8,489 4,878 24 France 4,460 3,300 2,440 272 727 33 5,555 667 451 233 25 Germany 4,439 2,742 3,804 419 249 1,727 -17 302 812 139 26 Netherlands 2,107 3,576 1,669 199 364 523 -133 344 108 32 27 Switzerland 1,170 187 3,688 266 358 772 532 404 234 100 28 United Kingdom 60,509 54,134 55,304 6,194 9,833 14,346 794 8,696 4,489 2,989 29 Canada 4,486 6,264 4,600 114 400 363 4,585 607 640 439 3 3 0 1 L M a i t d in d l A e m Ea e s ri t c 1 a and Caribbean , . . 17 1 , ,6 7 7 3 9 7 3 2 4 , , 1 7 5 3 5 3 34 1 , , 6 74 3 3 9 5,5 8 1 2 4 0 4,8 5 3 2 5 2 2,25 6 6 9 6,7 6 0 28 3 6,3 1 7 6 1 2 2, 1 0 7 2 1 9 - 1, 1 5 8 9 8 2 32 Other Asia 23,762 16,996 8,438 2,428 1,166 2,078 109 1,266 -588 1,709 33 Japan 14,173 9,357 4,040 886 742 2,904 -106 527 -511 -10 34 Africa 624 1,005 137 36 -72 45 460 82 -48 -17 35 Other countries -563 811 623 195 212 262 -31 229 21 -535 -5 36 Nonmonetary international and regional organizations . . 171 -77 Foreign securities 37 Stocks, net purchases, or sales (-) -59,268 -40,942 -1,419 -1,209 -1.689 -137 -3,393 2,535 -3,166 5,552 38 Foreign purchases 450,365 756,015 620,441 68,832 81,360 80,736 80,941 88,508 82,074 74,358 39 Foreign sales 509,633 796,957 621,860 70,041 83,049 80,873 84,334 85,973 85,240 68,806 40 Bonds, net purchases, or sales (-) -51,369 -48,171 -31,973 -5,003 -4,559 -12,158 -1,882 -12,355 3,065 1,018 41 Foreign purchases 1,114,035 1,451,704 967,558 100.043 128,396 118,296 110,403 151,477 118,890 139,341 42 Foreign sales 999,531 105,046 132,955 130,454 112,285 163,832 115,825 138,323 1,165,404 1,499.875 43 Net purchases, or sales (—), of stocks and bonds -33,392 -6,212 -6,248 -12,295 -5,275 -9,820 -101 6,570 -110,637 -89,113 44 Foreign countries -33,323 -6,170 -6,220 -12,331 -5,443 -9,794 -30 6,587 -109,766 -88,921 45 Europe -10,601 -2,587 2,898 -1,457 -2,035 -7,240 2,678 1,211 46 Canada -57,139 -29,874 3,219 742 -1,783 -475 -1,335 214 2,195 2,631 47 Latin America and Caribbean -7,685 -3,085 -13,797 527 618 -6,108 -1,092 -2,548 -4,864 -1,205 48 Asia -11,507 -25,258 -10,033 -4,800 -7,902 -3,520 -779 516 -64 4,227 49 Japan -27,831 -25,123 -5,770 -3,584 -7,118 1,265 -681 -38 -316 1,741 50 Africa -5,887 -10.001 -1,201 -146 -152 -302 -79 -32 -269 -122 51 Other countries -1,517 -3,293 -910 94 101 -469 -123 -704 294 -155 -4.087 -2,288 52 Nonmonetary international and regional organizations -69 -42 -28 36 168 -26 -71 -17 1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, 2, Includes state and local government securities and securities of U.S. government Saudi Arabia, and United Arab Emirates (Trucial States). agencies and corporations. Also includes issues of new debt securities sold abroad by U.S. corporations organized to finance direct investments abroad. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Securities Holdings and Transactions/Interest and Exchange Rates A61 3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions1 Millions of dollars; net purchases, or sales ( —) during period 1998 Area or country Jan.- Aug. Apr. May July Aug.? 1 Total estimated 232,241 184,171 21,045 9,959 -4,091 6,078 21,267 1,674' -3,578 -15,776 2 Foreign countries 234,083 183,688 20,252 10,093 -5,287 6,769 21,116 1,978' -3,631 -15,776 3 Europe 118,781 144,921 23,482 6,798 -857 6,530 715' -5,903 -2,804 4 Belgium and Luxembourg 1,429 3,427 1,640 252 704 -165 176 -513 215 667 5 Germany 17,980 22,471 -1,962 1,096 1,897 -829 -143 -1,181 82 -1,799 6 Netherlands -582 1,746 -4,266 -792 -1,733 130 341 731 -265 -3,081 7 Sweden 2,242 -465 456 -430 400 -202 184 335 239 -152 8 Switzerland 328 6,028 1,360 1,690 170 -483 44 -973r -827 -680 9 United Kingdom 65,658 98,253 17,938 5,875 -3,705 5,785 -2,720 -1,426 -5,769 8,019 10 Other Europe and former US.S.R 31,726 13,461 8,316 -893 1,410 2,294 2,906 3,742 422 -5,778 i 1 Canada 2,331 -811 -1,741 266 -517 1,457 -223 -66 -569 -2,088 12 Latin America and Caribbean 20,785 -2,554 -238 2,125 -8,383 -7,981 20,033 2,578' 949 -5,940 13 Venezuela -69 655 -515 99 -128 14 -339 693 450 -1,308 14 Other Latin America and Caribbean 8,439 -549 13,414 2,949 -11 -632 -335 3,513' 2,305 3,914 15 Netherlands Antilles 12,415 -2,660 -13,137 -923 -8,244 -7,363 20,707 -1,628 -1,806 -8,546 16 Asia 89,735 39,567 1,852 1,348 3,522 7,966 1,455 -1,153 1,327 -3,856 17 Japan 41,366 20,360 626 764 -168 6,301 1,582 -2,442 774 299 18 Africa 1,083 1,524 466 176 154 -18 13 145 -23 62 19 Other 1,368 1,041 -3,569 -620 794 -1,185 -950 -241 -1,150 20 Nonmonetary international and regional organizations -1,842 483 793 -134 1,196 -691 151 -304 53 0 21 International -1,390 621 354 -223 900 -715 136 -226 47 -10 22 Latin American regional -779 170 208 -29 10 -4 -1 0 192 MEMO 23 Foreign countries 234,083 183,688 20,252 10,093 -5,287 6,769 21,116 1,978' -3,631 -15,776 24 Official institutions 85,807 43,959 -11,691 1,242 6,133 1,162 898 -3,486 469 -16,920 25 Other foreign 148,276 139,729 31,943 8,851 -11,420 5,607 20,218 5,464' -4,100 1,144 Oil-exporting countries 26 Middle East2 10,232 7,636 -8,232 409 1,325 -380 951 -1,388 -2,578 -4,160 27 Africa3 1 -12 2 0 0 0 0 0 0 1 1. Official and private transactions in marketable U.S. Treasury securities having an 2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab original maturity of more than one year. Data are based on monthly transactions reports. Emirates (Trucial States). Excludes nonmarketable U.S. Treasury bonds and notes held by official institutions of foreign 3. Comprises Algeria, Gabon, Libya, and Nigeria. countries. 3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS' Percent per year, averages of daily figures Rate on Oct. 31, 1998 Rate on Oct. 31, 1998 Country Country Month Month effective effective Austria . . 2.5 Apr. 1996 Germany . .. 2.5 Apr. 1996 Belgium . 2.75 Oct. 1997 Italy 4.0 Oct. 1998 Canada . . 5.5 Oct. 1998 Japan .5 Sept. 1995 Denmark . 4.25 Sept. 1998 Netherlands 2.5 Apr. 1996 France 3.3 Oct. 1997 Switzerland 1.0 Sept. 1996 1. Rates shown are mainly those at which the central bank either discounts or makes 2. Since February 1981, the rate has been that at which the Bank of France discounts advances against eligible commercial paper or government securities for commercial banks or Treasury bills for seven to ten days. brokers. For countries with more than one rate applicable to such discounts or advances, the rate shown is the one at which it is understood that the central bank transacts the largest proportion of its credit operations. 3.27 FOREIGN SHORT-TERM INTEREST RATES1 Percent per year, averages of daily figures 1998 Type or country 1995 1996 1997 Apr. May June July Aug. Sept. Oct. 5.93 5.38 5.61 5 56 5.57 5 57 5.57 5.56 5.39 5.17 2 United Kingdom 6.63 5.99 6.81 7.41 7.37 7.61 7.67 7.61 7.35 7.11 7.14 4.49 3.59 4.94 5.09 5.10 5.10 5.35 5.66 5.43 4.43 3.21 3.24 3.56 3.55 3.49 3.46 3.42 3.40 3.50 5 Switzerland 2.94 1.92 1.58 1.39 1.52 1.81 1.98 1.68 1.43 1.20 4.30 2.91 3.25 3 52 3.53 3 51 3.46 3.43 3.33 3.28 7 France 6.43 3.81 3.35 3.50 3.50 3.47 3.44 3.44 3.43 3.45 8 Italy 10.43 8.79 6.86 5.09 4.98 4.99 4.75 4.78 4.86 4.40 9 Belgium 4.73 3.19 3 40 3 69 3 67 3 62 3.59 3.48 3.42 3.41 10 Japan 1.20 .58 .58 .66 .56 .57 .67 .69 .45 .49 1. Rates are for three-month interbank loans, with the following exceptions: Canada, linance 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 • December 1998 3.28 FOREIGN EXCHANGE RATES AND INDEXES OF THE FOREIGN EXCHANGE VALUE OF THE U.S. DOLLAR1 Currency units per dollar except as noted 1998 1995 May- Sept. Oct. Exchange Rates COUNTRY/CURRENCY UNIT 1 Australia/dollar2 74.07 78.28 74.37 63.12 60.46 61.80 58.88 58.89 61.79 2 Austria/schilling 10.076 10.589 12.206 12.491 12.615 12.650 12.574 11.955 11.524 3 Belgium/franc 29.47 30.97 35.81 36.62 36.98 37.07 36.85 35.05 33.81 4 Brazil/real 0.9162 1.0051 1.0779 1.1475 1.1543 1.1614 1.1717 1.1805 1.1889 5 Canada/dollar 1.3725 1.3638 1.3849 1.4452 1.4655 1.4869 1.5346 1.5218 1.5452 6 China, P.R./yuan 8.3700 8.3389 8.3193 8.3084 8.3100 8.3100 8.3100 8.3055 8.2778 7 Denmark/krone 5.5999 5.8003 6.6092 6.7662 6.8294 6.8499 6.8067 6.4717 6.2294 8 Finland/markka 4.3763 4.5948 5.1956 5.3966 5.4503 5.4653 5.4340 1.1734 4.9845 9 France/franc 4.9864 5.1158 5.8393 5.9528 6.0118 6.0280 5.9912 5.6969 5.4925 10 Germany/deutsche mark 1.4321 1.5049 1.7348 1.7753 1.7928 1.7976 1.7869 1.6990 1.6381 11 Greece/drachma 231.68 240.82 273.28 307.22 304.24 299.35 301.21 292.47 281.64 12 Hong Kong/dollar 7.7357 7.7345 7.7431 7.7490 7.7471 7.7483 7.7494 7.7480 7.7483 13 India/rupee. . 32.42 35.51 36.36 40.47 42.37 42.61 42.84 42.58 42.39 14 Ireland/pound 160.35 159.95 151.63 141,74 140.51 139.88 140.37 147.24 152.21 15 Italy/lira 1,629.45 1,542.76 1.703.81 1,750.79 1,766.32 1,772.42 1,763.01 1,678.92 1,620.96 16 Japan/yen 93.96 108.78 121.06 134.90 140.33 140 79 144.68 134.48 121.05 17 Malaysia/ringgit 2.5073 2.5154 2.8173 3.8204 4.0006 4.1591 4.2036 3.8050 3.8000 18 Mexico/peso 6.447 7.600 7.918 8.585 8.920 8.899 9.371 10.219 10.159 19 Netherlands/guilder 1.6044 1.6863 1.9525 2.0005 2.0208 2.0267 2.0148 1.9169 1.8479 20 New Zealand/dollar2 65.63 68.77 66.25 53.88 51.23 51.85 50.11 50.44 52.13 21 Norway/krone 6 1355 6.4594 7.0857 7.4539 7.5785 7.6246 7.7248 7.5564 7.4294 22 Portugal/escudo 149.88 154.28 175.44 181.87 183.58 183.93 182.99 174.19 168.01 23 Singapore/dollar 1.4171 1.4100 1.4857 1.6374 1.6941 1.7085 1.7571 1.7226 1.6378 24 South Africa/rand 3.6284 4.3011 4.6072 5.0927 5.3910 6.2285 6.3198 6.0966 5.7991 25 South Korea/won 772.69 805.00 950.77 1.399.05 1.397.77 1,295.76 1,314.29 1.375.54 1.344.14 26 Spain/peseta 124.64 126.68 146.53 150.81 152.18 152.58 151.72 144.33 139.23 27 Sri Lanka/rupee 51.047 55.289 59.026 64.261 65.150 65.908 66.642 66.260 66.345 28 Swcden/krona 7.1406 6.7082 7.6446 7.7026 7 9174 7.9942 8.1282 7.8816 7.8395 29 Switzerland/franc 1.1812 1.2361 1.4514 1.4790 1.4949 1.5136 1 4933 1.4000 1.3373 30 Taiwan/dollar 26.496 27.468 28.775 33.466 34.553 34.387 34.731 34.646 33.121 31 Thailand/baht 24.921 25.359 31.072 39.198 42.332 41.300 41.720 40.402 38.118 32 United Kingdom/pound . 157.85 156.07 163.76 163.82 165.04 164.37 163.42 168.23 169.44 33 Venezuela/bolivar 174.85 417.19 488.39 537.26 543.82 558.47 571.88 583.85 570.68 Indexes3 NOMINAL 34 G-10 (March 1973 = 10O)4 84.25 87.34 96.38 99.61 100.90 101.38 101.80 97.17 93.69 35 Broad (January 1997=100)5 92.52' 97.43' 104.47 115.16 117.87 118.17 120.14 118.85 115.46 36 Major currencies (March 1973=100)6. . . . 81.40 85.22 91.85 96.88 98.68 99.31 100.96 96.99 93.46 37 Other important trading partners (January 1997=100)' 131.38 REAL 38 Broad (March 19-73= 100)5 88.66 90.70 95.56 103.10 105.49 105.86 107.47 105.66 102.55 39 Major currencies (March 1973= 100)6. . . . 80.78 85.83 93.20 98.40' 100.42' 101.41' 103.21' 99.05' 95.55 40 Other important trading partners (March 1973=100)' 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 lo the issuing country and of a table 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 35.. Froorr mmoorree linnifoorrmmaaitiioonn oonn mthee iinnddeexxeess 0o1f mthee lfoorreeiiggnn exchange value of the dollar, see currency is its broad index weight scaled so that the weights of the subset of currencies in the Feod/iefirrnail RR/e>sHeHrI-v\)eP BRuullllpettinin , vvnoll . X844 ((DOrcttnohbeerr 11 9Q9Q8R), \ pnpn. XKI111--118X. 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 the other G-10 countries. The weight for each of the ten countries is the 1972-76 average broad index currencies that 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 broad 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). currencies in the index sum to one. p. 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 December 1998 A72 SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference Title and Date Issue Page Assets and liabilities of commercial banks September 30, 1997 February 1998 A64 December 31, 1997 May 1998 A64 March 31, 1998 August 1998 A64 June 30, 1998 November 1998 A64 Terms of lending at commercial banks November 1997 February 1998 A68 February 1998 May 1998 A66 May 1998 August 1998 A67 August 1998 November 1998 A66 Assets and liabilities of U.S. branches and agencies of foreign banks September 30, 1997 February 1998 A72 December 31, 1997 May 1998 A70 March 31, 1998 August 1998 A72 June 30, 1998 November 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 Federal Reserve Bulletin • December 1998 Index to Statistical Tables References are to pages A3-A62 although the prefix "A" is omitted in this index ACCEPTANCES, bankers (See Bankers acceptances) FARM mortgage loans, 35 Assets and liabilities (See also Foreigners) Federal agency obligations, 5, 9, 10, 11. 28, 29 Commercial banks, 15-21 Federal credit agencies, 30 Domestic finance companies, 32, 33 Federal finance Federal Reserve Banks, 10 Debt subject to statutory limitation, and types and ownership Foreign-related institutions, 20 of gross debt, 27 Automobiles Receipts and outlays, 25, 26 Consumer credit, 36 Treasury financing of surplus, or deficit, 25 Production, 44, 45 Treasury operating balance, 25 Federal Financing Bank, 30 Federal funds, 23, 25 BANKERS acceptances, 5, 10, 22, 23 Federal Home Loan Banks, 30 Bankers balances, 15-21. (See also Foreigners) Federal Home Loan Mortgage Corporation, 30, 34, 35 Bonds (See also U.S. government securities) Federal Housing Administration, 30, 34, 35 New issues, 31 Federal Land Banks, 35 Rates, 23 Federal National Mortgage Association, 30, 34, 35 Business activity, nonfinancial, 42 Federal Reserve Banks Business loans (See Commercial and industrial loans) Condition statement, 10 Discount rates (See Interest rates) U.S. government securities held, 5, 10, 11, 27 CAPACITY utilization, 43 Federal Reserve credit, 5, 6, 10, 12 Capital accounts Federal Reserve notes, 10 Commercial banks, 15-21 Federally sponsored credit agencies, 30 Federal Reserve Banks, 10 Finance companies Central banks, discount rates, 61 Assets and liabilities, 32 Certificates of deposit, 23 Business credit, 33 Commercial and industrial loans Loans, 36 Commercial banks, 15-21 Paper. 22, 23 Weekly reporting banks, 17, 18 Float, 5 Commercial banks Flow of funds, 37—41 Assets and liabilities, 15-21 Foreign currency operations, 10 Commercial and industrial loans, 15-21 Foreign deposits in U.S. banks, 5 Consumer loans held, by type and terms, 36 Foreign exchange rates, 62 Real estate mortgages held, by holder and property, 35 Foreign-related institutions, 20 Time and savings deposits, 4 Foreign trade, 51 Commercial paper, 22, 23, 32 Foreigners Condition statements (See Assets and liabilities) Claims on, 52, 55, 56, 57, 59 Construction, 42, 46 Liabilities to, 51, 52, 53, 58, 60, 61 Consumer credit, 36 Consumer prices, 42 GOLD Consumption expenditures, 48, 49 Certificate account. 10 Corporations Stock. 5, 51 Profits and their distribution, 32 Government National Mortgage Association, 30, 34, 35 Security issues, 31,61 Gross domestic product, 48, 49 Cost of living (See Consumer prices) Credit unions, 36 HOUSING, new and existing units, 46 Currency in circulation, 5, 13 Customer credit, stock market, 24 INCOME, personal and national, 42, 48, 49 Industrial production, 42, 44 Insurance companies, 27, 35 DEBT (See specific types of debt or securities) Interest rates Demand deposits, 15-21 Bonds, 23 Depository institutions Consumer credit, 36 Reserve requirements, 8 Federal Reserve Banks, 7 Reserves and related items, 4, 5, 6, 12 Foreign central banks and foreign countries, 61 Deposits (See also specific types) Money and capital markets, 23 Commercial banks, 4, 15-21 Mortgages, 34 Federal Reserve Banks, 5, 10 Prime rate, 22 Discount rates at Reserve Banks and at foreign central banks and International capital transactions of United States, 50-61 foreign countries (See Interest rates) International organizations, 52, 53, 55, 58, 59 Discounts and advances by Reserve Banks (See Loans) Inventories, 48 Dividends, corporate, 32 Investment companies, issues and assets, 32 Investments (See also specific types) Commercial banks, 4, 15-21 EMPLOYMENT, 42 Federal Reserve Banks, 10, 11 Eurodollars, 23, 61 Financial institutions, 35 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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

A66 Federal Reserve Bulletin • December 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 KAREN H. JOHNSON, Director DONALD J. WINN, Assistant to the Board LEWIS S. ALEXANDER, Deputy Director THEODORE E. ALLISON, Assistant to the Board for Federal PETER HOOPER III, Deputy Director Reserve System Affairs DALE W. HENDERSON, Associate Director WINTHROP P. HAMBLEY, Special Assistant to the Board DAVID H. HOWARD, Senior Adviser BOB STAHLY MOORE, Special Assistant to the Board EDWIN M. TRUMAN, 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 DAVID S. JONES, Assistant Director ROBERT DEV. FRIERSON, Associate Secretary STEPHEN D. OLINER, Assistant Director BARBARA R. LOWREY, Associate Secretary and Ombudsman STEPHEN A. RHOADES, Assistant Director JANICE SHACK-MARQUEZ, Assistant Director CHARLES S. STRUCKMEYER, Assistant Director DIVISION OF BANKING ALICE PATRICIA WHITE, Assistant Director SUPERVISION AND REGULATION JOYCE K. ZICKLER, Assistant Director RICHARD SPILLENKOTHEN, Director GLENN B. CANNER, Senior Adviser STEPHEN C. SCHEMERING, Deputy Director JOHN J. MINGO, Senior Adviser HERBERT A. BIERN, Associate Director ROGER T. COLE, Associate Director DIVISION OF MONETARY AFFAIRS WILLIAM A. RYBACK, Associate Director GERALD A. EDWARDS, JR., Deputy Associate Director DONALD L. KOHN, Director STEPHEN M. HOFFMAN, JR., Deputy Associate Director DAVID E. LINDSEY, Deputy Director JAMES V. HOUPT, Deputy Associate Director BRIAN F. MADIGAN, Associate Director JACK P. JENNINGS, Deputy Associate Director RICHARD D. PORTER, Deputy Associate Director MICHAEL G. MARTINSON, Deputy Associate Director VINCENT R. REINHART. Deputy Associate Director SIDNEY M. SUSSAN, Deputy Associate Director WILLIAM C. WHITESELL, Assistant Director MOLLY S. WASSOM, Deputy Associate Director NORMAND R.V. BERNARD, Special Assistant to the Board HOWARD A. AMER, Assistant Director NORAH M. BARGER, Assistant Director DIVISION OF CONSUMER BETSY CROSS, Assistant Director AND COMMUNITY AFFAIRS RICHARD A. SMALL, Assistant Director DOLORES S. SMITH, Director WILLIAM SCHNEIDER, Project Director, GLENN E. LONEY, Deputy Director National Information Center SANDRA F. BRAUNSTEIN, Assistant Director MAUREEN P. ENGLISH, Assistant Director ADRIENNE D. HURT, Assistant Director IRENE SHAWN MCNULTY, Assistant Director Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A67 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 JOHN R. WEIS, Adviser DAVID L. ROBINSON, Deputy Director (Finance and Control) LOUISE L. ROSEMAN, Associate Director MANAGEMENT DIVISION PAUL W. BETTGE, Assistant Director JACK DENNIS, JR., Assistant Director S. DAVID FROST, Director STEPHEN J. CLARK, Associate Director, Finance Function EARL G. HAMILTON, Assistant Director DARRELL R. PAULEY, Associate Director, Human Resources JOSEPH H. HAYES, JR., Assistant Director Function JEFFREY C. MARQUARDT, Assistant Director SHEILA CLARK, EEO Programs Director MARSHA REIDHILL, Assistant Director DIVISION OF SUPPORT SERVICES OFFICE OF THE INSPECTOR GENERAL BARRY R. SNYDER, Inspector Genera! 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

A68 Federal Reserve Bulletin El December 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 STEPHEN G. CECCHETTI, Associate Economist NORMAND R.V. BERNARD, Deputy Secretary WILLIAM G. DEWALD, Associate Economist LYNN S. FOX, Assistant Secretary CRAIG S. HAKKIO, Associate Economist GARY P. GILLUM, Assistant Secretary DAVID E. LINDSEY, Associate Economist J. VIRGIL MATTINGLY, JR., General Counsel MARK S. SNIDERMAN, Associate Economist THOMAS C. BAXTER, JR., Deputy General Counsel THOMAS D. SIMPSON, Associate Economist MICHAEL J. PRELL, Economist DAVID J. STOCKTON, Associate Economist LYNN E. BROWNE, Associate Economist PETER R. FISHER, Manager, System Open Market Account FEDERAL ADVISORY COUNCIL THOMAS H. JACOBSEN, President CHARLES T. DOYLE, Vice President WILLIAM M. CROZIER, JR., First District NORMAN R. BOBINS, Seventh District DOUGLAS A. WARNER III, Second District THOMAS H. JACOBSEN, Eighth District WALTER E. DALLER, JR., Third District RICHARD A. ZONA, Ninth District ROBERT W. GILLESPIE, Fourth District C. Q. CHANDLER, Tenth District KENNETH D. LEWIS, Fifth District CHARLES T. DOYLE, Eleventh District STEPHEN A. HANSEL, Sixth District VACANCY, Twelfth District JAMES ANNABLE, Co-Secretary WILLIAM J. KORSVIK, Co-Secretary Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A69 CONSUMER ADVISORY COUNCIL WILLIAM N. LUND, Augusta, Maine, Chairman YVONNE S. SPARKS, St. Louis, Missouri, Vice Chairman RICHARD S. AMADOR, LOS Angeles, California MARTHA W. MILLER, Greensboro, North Carolina WALTER J. BOYER, Garland, Texas DANIEL W. MORTON, Columbus, Ohio WAYNE-KENT A. BRADSHAW, LOS Angeles, California CHARLOTTE NEWTON, Springfield, Virginia JEREMY EISLER, Biloxi, Mississippi CAROL PARRY, New York, New York ROBERT F. ELLIOT, Prospect Heights, Illinois PHILIP PRICE, JR., Philadelphia, Pennsylvania HERIBERTO FLORES, Springfield, Massachusetts DAVID L. RAMP, Minneapolis, Minnesota DWIGHT GOLANN, Boston, Massachusetts MARILYN ROSS, Omaha, Nebraska MARVA H. HARRIS, Pittsburgh, Pennsylvania MARGOT SAUNDERS, Washington, D.C. KARLA IRVINE, Cincinnati, Ohio ROBERT G. SCHWEMM, Lexington, Kentucky FRANCINE C. JUSTA, New York, New York DAVID J. SHIRK, Eugene, Oregon JANET C. KOEHLER, Jacksonville, Florida GAIL SMALL, Lame Deer, Montana GWENN KYZER, Allen, Texas GREGORY D. SQUIRES, Milwaukee, Wisconsin JOHN C. LAMB, Sacramento, California GEORGE P. SURGEON, Chicago, Illinois ERROL T. LOUIS, Brooklyn, New York THEODORE J. WYSOCKI, JR., Chicago, Illinois THRIFT INSTITUTIONS ADVISORY COUNCIL CHARLES R. RINEHART, Santa Ana, California, President WILLIAM A. FITZGERALD, Omaha, Nebraska, Vice President GAROLD R. BASE, Piano, Texas F. WELLER MEYER, Falls Church, Virginia DAVID A. BOCHNOWSKI, Munster, Indiana EDWARD J. MOLNAR, Harleysville, Pennsylvania DAVID E. A. CARSON, Bridgeport, Connecticut GUY C. PINKERTON, Seattle, Washington RICHARD P. COUGHLIN, Stoneham, Massachusetts TERRY R. WEST, Jacksonville, Florida STEPHEN D. HAILER, Akron, Ohio FREDERICK WILLETTS, III, Wilmington, North Carolina Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A70 Federal Reserve Bulletin • December 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.federalreserve.gov). When a charge is indicated, pay- and include additional air mail costs: ment should accompany request and be made payable to the Federal Reserve Regulatory Service, $250.00 per year. Board of Governors of the Federal Reserve System or may be Each Handbook. $90.00 per year. ordered via Mastercard, Visa, or American Express. Payment from FEDERAL RESERVE REGULATORY SERVICE FOR PERSONAL foreign 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

A71 STAFF STUDIES: Only Summaries Printed in the 165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OF BULLETIN MOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, by Gregory E. Elliehausen and John D. Wolken. September Studies and papers on economic and financial subjects that are of 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. 111 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

A72 Federal Reserve Bulletin • December 1998 ANTICIPATED SCHEDULE OF RELEASE DATES FOR PERIODIC RELEASES OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (PAYMENT MUST ACCOMPANY REQUESTS) Annual Annual Approximate Corresponding Period or date to Release number and title USPS fax release which data refer Bulletin rate rate days' itl I1V11 VllLVvl J- ^* Ivl table numbers2 Weekly Releases H.2. Actions of the Board: $55.00 n.a. Friday Week ended Applications and Reports previous Received Saturday H.3. Aggregate Reserves of $20.00 n.a. Thursday Week ended 1.20 Depository Institutions and previous the Monetary Base3 Wednesday H.4.1. Factors Affecting Reserve Balances $20.00 n.a. Thursday Week ended 1.11, 1.18 of Depository Institutions and previous Condition Statement of Wednesday Federal Reserve Banks3 H.6. Money Stock, Liquid Assets, $35.00 n.a. Thursday Week ended 1.21 and Debt Measures3 Monday of previous week H.8. Assets and Liabilities of $30.00 n.a. Friday Week ended 1.26A-E Commercial Banks in the previous United States3 Wednesday H.10. Foreign Exchange Rates3 $20.00 $20.00 Monday Week ended 3.28 previous Friday H.I 5. Selected Interest Rates3 $20.00 $20.00 Monday Week ended 1.35 previous Friday Monthly Releases G.5. Foreign Exchange Rates3 $ 5.00 $ 5.00 First of month Previous month 3.28 G.13. Selected Interest Rates $ 5.00 $ 5.00 First Tuesday of Previous month 1.35 month G.15. Research Library—Recent No charge n.a. First of month Previous month Acquisitions G.17. Industrial Production and $15.00 n.a. Midmonth Previous month 2.12,2.13 Capacity Utilization' G.I 9. Consumer Credit3 $ 5.00 $ 5.00 Fifth working day Second month 1.55,1.56 of month previous G.20. Finance Companies $ 5.00 n.a. Fifth working day Second month 1.51, 1.52 of month previous Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A73 Annual Annual Approximate Corresponding Period or date to Release number and title USPS fax release Bulletin rate rate days1 which data refer table numbers2 Quarterly Releases E.2. Survey of Terms of Bank $ 5.00 •ft.-a. Midmonth of February, May, 4.23 Lendingto Business ' March, June, August, and September, and November December E.7. List of OTC Margin Stocks No charge n.a. January, April, February, May, July, and August, and October November E. 11. Geographical Distribution of S 5.00 n.a. 15th of March, Previous quarter Assets and Liabilities of June, Major Foreign Branches of September, and U.S. Banks December E.I5. Agricultural Finance Databook $ 5.00 n.a. End of March, January, April, June, July, and September, and October December E. 16. Country Exposure Lending $ 5.00 n.a. January, April, Previous quarter Survey July, and October Z. 1. Flow of Funds Accounts $25.00 n.a. Second week of Previous quarter 1.57, 1.58, of the United States: March, June, 1.59, 1.60 Flows and Outstandings3 September, and December Annual Release C.2. Aggregate Summaries of Annual $ 5.00 n.a. February End of previous Surveys of Securities Credit June Extension 1. Please note that for some releases there is normally a certain variability in the release date because of reporting or processing procedures. Moreover, for all series unusual circumstances may, from time to time, result in a release date being later than anticipated. 2. The data in some releases are also reported in the Bulletin statistical appendix. 3. These releases are also available on the Board's World Wide Web site (http://www.federalreserve.gov) under Domestic and International Research, Statistical releases. n.a. Not available. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A74 Federal Reserve Bulletin • December 1998 Maps of the Federal Reserve System EW YORK 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 2-B 3-C 4-D 5-E Pittsburgh Baltimore MD NY \ ) % 1 CT PA / / Boll ilo icinnati NY NJ NEW YORK PHILADELPHIA CLEVELAND RICHMOND 6-F 7-G 8-H TN—»- •Nashxilk' n . Birniingham^J' Ml V.1 GA 1A 1>otroit • MO ! sville • Memphis New Orleani y Miami ATLANTA CHICAGO ST. LOUIS 9-1 MINNEAPOLIS 10-J 12-L -,"-' ok KANSAS CITY 11-K r-«arft* r \ntonio • HAWAII i|. DALLAS SAN FRANCISCO Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A76 Federal Reserve Bulletin • December 1998 Federal Reserve Banks, Branches, and Offices FEDERAL RESERVE BANK Chairman President Vice President branch, ox 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 Peter G. Peterson Vacancy 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. Tignanelli' Charlotte 28230 Dennis D. Lowery DanM. Bechter1 ATLANTA 30303 David R. Jones Jack Guynn John F. Wieland Patrick K. Barron James M. Mckee Birmingham 35283 Patricia B. Compton FredR. Herr1 Jacksonville 32231 Judy Jones James D. Hawkins1 Miami 33152 R. Kirk Landon James T. Curry III Nashville 37203 Frances F. Marcum Melvyn K. Purcell New Orleans 70161 Lucimarian Roberts Robert J. Musso CHICAGO* 60690 Lester H. McKeever, Jr. Michael H. Moskow Arthur C. Martinez William C. Conrad Detroit 48231 Florine Mark David R.AUardice1 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. Gay lord Robert Smith. Ill' San Antonio 78295 H. B. Zachry, Jr. James L. Stull' SAN FRANCISCO 94120 Gary G. Michael Robert T. Parry Cynthia A. Parker John F. Moore Los Angeles 90051 Anne L. Evans MarkL. Mullinix1 Portland 97208 Carol A. Whipple Raymond H. Laurence1 Salt Lake City 84125 Richard E. Davis Andrea P. Wolcott Seattle 98124 Richard R. Sonstelie Gordon R. G. Werkema- *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

A77 Index to Volume 84 GUIDE TO PAGE REFERENCES IN MONTHLY ISSUES Issue Text "A" Pages Issue Text "A" pages Index to Index to tables tables January .. 1- 76 1-76 66 July 517- 584 1-80 66 February . 77-154 1-86 76 August 585- 702 1-86 76 March ... 155-240 1-78 66 September . 703- 810 1-96 80 April 241-308 1-80 64 October 811- 896 1-78 66 May 309-390 1-90 74 November . 897-1024 1-92 76 June 391-516 1-78 64 December . 1025-1132 1-88 64 The "A" pages consist of statistical tables and reference information. Statistical tables are indexed separately (see p. A64 of this issue). Pages Pages Agricultural loans 1-21 Bank holding companies Alexander, Lewis S., appointed Deputy Director, Elimination of duplicative approval requirements 727 Division of International Finance 941 Index of orders and actions taken by the Board .. 69, 297-9, 566, Allison, Theodore E., Assistant to the Board, Federal 887, 889 Reserve note and Euro bank note, statement 1054-56 Small shell, revision in supervisory policy 37 Annual Report, 84th. 1997 455 Tier 1 and 2 leverage capital standard 538, 673, 833^14 Annual Report, Budget Review, 1998-99 455 Bank Holding Company Act of 1956 Anti-money-laundering efforts, statement 639^43 Applications approved under Antitrust issues 619-27, 705 1855 Bancorp 568, 801 Articles 1st Brookfield, Inc., Employee Stock Ownership Plan ... 694 Bank merger policy and the new CRA data 703-15 1 st Choice Financial Corporation 373 Credit risk rating at large U.S. banks 897-921 ABN AMRO Bank, N.V., Amsterdam, Industrial production and capacity utilization: the Netherlands 513 Annual revision and 1997 developments 77-91 ABN AMRO Holding, N.V., Amsterdam, the Netherlands 512, 513 Monetary policy reports to the Congress 155-73, 585-603 ABN AMRO Incorporated 513 New information on lending to small businesses ABN AMRO North America, Inc 512 and small farms: The 1996 CRA data 1-21 Acadiana BancShares, Inc 1020 New summary measures of the foreign exchange Advance Bancorp, Inc 1129 value of the dollar 811-18 Alabama National Bancorporation 70, 568, 890 Open market operations during 1997 517-32 Albert J. Ortte Family Limited Partnership 803 Profits and balance sheet developments at U.S. Alliance Bancorporation, Inc 301 commercial banks in 1997 391^119 Alliance Bancshares, Inc 801 Recent changes to the Federal Reserve's Survey of Allied Irish Banks, P.L.C., Dublin, Ireland 567 Terms of Business Lending 604-15 Amador Merger Corporation 71 Recent developments in home equity lending 241-51 Ambank Company, Inc 303 Thrift involvement in commercial and industrial AMCORE Financial, Inc 237 lending 1025-37 AmCorp Financial. Inc 801 Treasury and Federal Reserve foreign Ameribanc, Inc 145, 509, 694, 800 exchange operations 174-9,420-25, America's First Bancorp, Inc 509 716-21, 1038-43 American State Bank Holding Company, Inc 146 U.S. international transactions in 1997 309-21 American State Financial Corporation 235 Asia, financial crisis 175, 186, 257-62, 310,405 American State Financial Corporation of Delaware 235 Audit outsourcing, sound practices for 97 Amerigroup, Inc 150 Automated clearinghouse 25 AmTrust, Inc 568 Automobile leasing 940, 948 ANB Corporation 1129 Anchor Financial Corporation 801 BALANCE sheet developments, U.S. commercial banks .. 391-400 Androscoggin Bancorp, Inc 1020 Banca Serfin, S.A., cease and desist order 539, 573 Androscoggin Bancorp, MHC 1020 Banco Industrial de Venezuela, cease and desist order 539. 573 Anson Bancorp, Inc 568 Banco Internacional, S.A., cease and desist order 539, 573 Archer, Inc 890 Banco Nacional de Mexico, cease and desist order 539, 573 Area Bancshares Corporation 303, 1126 Banco Santander, cease and desist order 539, 573 Arizona Bancshares, Inc 801 Bancomer, S.A., cease and desist order 539, 573 Arvest Bank Group, Inc 891, 893 Bank Examination Report Privilege Act (BERPA) 725, 727 Associated Banc-Corp 1017 Bank examiners, risk-based capital guidelines 668 Automated Technology Machines, Inc 1020 Bank for International Settlements, Committee Avon State Bank Employee Stock Ownership on Banking Supervision 28 Plan and Trust 694 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A78 Federal Reserve Bulletin December 1998 Pages Pages Bank Holding Company Act of 1956—Continued Bank Holding Company Act of 1956—Continued Applications approved under—Continued Applications approved under—Continued Bane Corporation 1017 Chambers Bancshares, Inc 370 Bane Ed Corp 146 Chase Equity Holdings, Inc 1125 BancFirst Corporation 370, 890, 1126 Chase Manhattan Corporation 1125 BancorpSouth, Inc 1126 C1TBA Financial Corporation 697 Bancshares of Jackson Hole, Inc 891 Citizens & Northern 512 Bancshares of Missouri, Inc 511 Citizens Bancorp. Inc 568 Bank Capital Corporation 570 Citizens Bancshares Company 71 BankofLadd 1127 Citizens Bancshares Corporation 146 Bank of Montreal, Montreal, Ontario, Canada 73, 146 Citizens Bancshares. Inc.. Crawfordville, Florida 890 Bank of Montreal, Toronto, Ontario, Canada 570, 892 Citizens Bancshares, Inc., Edmond, Oklahoma 890 Bank of New York Company, Inc 303, 1129 Citizens Bancshares, Inc., Salineville, Ohio 146, 801, 893 Bank of Nova Scotia New York Trust Company 697 Citizens Banking Company 146 Bank of Nova Scotia, Toronto, Ontario, Canada 149, 697 Citizens Effingham Bancshares. Inc 71 Bank of the Ozarks, Inc 237, 1129 Citizens Financial Corporation 370 Bankers Trust New York Corporation 511 Citizens National Bancshares, Inc 568 BankFirst Corporation 693 City Holding Company 373 Bankmont Financial Corporation 73, 146, 570, 892 City National Corporation 71 Banque Nationale de Paris, Paris, France 303. 1017, 1020 City Savings Bank of Pittsfield 1127 Baraboo Bancorporation 568 Clover Community Bankshares, Inc 568 Barclays Bank PLC. London, England 892 CNB Bancshares. Inc 304, 568 Barclays California Corporation 892 CNB Holdings, Inc 694 Barclays Capital, Inc 892 Coddle Creek Financial Corp 71 Barclays PLC, London, England 892 Colonial BancGroup, Inc 146, 890, 892, 1126, 1129 Barclays USA 892 ComBanc, Inc 694 Bayerische Vereinsbank, AG, Munich. Commerce Bancorp, Inc 695 Federal Republic of Germany 237, 571 Commerce Bancshares, Inc., Albertville, Alabama 235 Baylake Corporation 1126 Commerce Bancshares, Inc., BB&T Corporation 303, 509, 694, 697, 804 Kansas City, Missouri 235,890, 1017 BB&T Financial Corporation of Virginia 509 Commerce Financial Corporation 892 Belvedere Capital Partners, Inc 568 Commercial BancShares, Incorporated 146 Bethany Bankshares, Inc 509 Commercial Guaranty Bancshares, Inc 147 Blackhawk Bancorp, Inc 805 Community Bancshares of Mississippi, Inc 235 BNY Capital Markets, Inc 303 Community Bancshares of Mississippi, Inc., BOC Financial Corp 509 Employee Stock Ownership Plan 301 Bodcaw Bancshares. Inc 1017 Community Bancshares of West Plains. Inc 71 BOK Financial Corporation 892, 1126 Community Bank Capital Corporation 509 Bolivar Banking Corporation 301 Community Bank Minnesota Employee Stock Bonifay Holdings, L.L.C 1126 Ownership Plan 890 BOR Bancshares, Inc 146 Community Bank Shares of Indiana, Inc 301 Boston Private Bancorp, Inc 73 Community Banks of Florida, Inc 510 Brookline Bancorp. Inc 301 Community Banks, Inc 370 Brookline Bancorp, N.H.C 301 Community Bankshares, Inc 71. 695 Buckhead Community Bancorp, Inc 235 Community Financial Group, Inc 1017 Buena Vista Bancorp, Inc 568 Community Financial Services, Inc 571 Builders Financial Corporation 71 Community First Banking Company 147 Busby Holdings, Inc 372 Community First Bankshares, Inc 370, 695, 801 Business Holding Corporation 1126 Community Group, Inc 370 Cache Bank Financial Corporation 370 Community National Bancorporation 149 Cambridge Financial Group, Inc 694 Community National Bank Corporation Employee Capital Community Bancorporation, Inc 301 Stock Ownership Plan 301 Capitol Bancorp, Ltd 71, 146, 509, 1017 Community Trust Bancorp, Inc 507 Capitol City Bancshares, Inc 890 Community Trust Financial Services Corporation 373 Cardinal Financial Corporation 568 Community West Bancshares 147, 1020 Carolina First BancShares. Inc 890 Compass Bancorporation of Texas, Inc 145 Carolina First Corporation 511, 892 Compass Bancshares, Inc 145, 693, 1125 Carrollton Bancorp 301 Compass Banks of Texas, Inc 145 Castle Creek Capital Partners Fund I, L.P., Concord EFS, Inc 149, 373 La Jolla, California 150 Connor Trusts 890 Castle Creek Capital Partners Fund-I, L.P., Cornhusker Growth Corporation 373 Rancho Santa Fe, California 801, 1018, 1126 Cortland First Financial Corporation 1126 Castle Creek Capital, L.L.C, La Jolla, California 150 CountryBanc Holding Company 370, 568 Castle Creek Capital, L.L.C, Countryside Bancshares, Inc 370 Rancho Santa Fe, California 801, 1018, 1126 Covenant Bancgroup, Inc 71 CBI-Kansas, Inc 235, 890, 1017 Credit Commercial de France S.A.. Paris, France 149 CBOT Financial Corporation 697 CSB Bancshares, Inc 71. 301 CBOT Financial Corporation of Delaware 697 Cullen/Frost Bankers, Inc 145, 508 CCB Bancorp, Inc 890 Cumberland Bancorp, Inc 510 CCF Holding Company 890 Dakota Bancshares, Inc 370 Central Bancompany, Inc 694 Danvers Bancorp, Inc 890 Central Bancshares. Inc 149, 805. 1126 Dauphin Bancorp, Inc 695 Central Illinois Bancorp, Inc 235 Davis Bancorporation, Inc 512, 1129 Central Iowa Bancorporation 509 Delaware Community Group, Inc 370 Central Trust Company 694 Delaware Financial, Inc 1128 Centura Banks, Inc 299 Deposit Guaranty Corp 369 Century Bancshares. Inc 1126 Deutsche Bank, AG, Frankfurt am Main, Century Bank Corp 235 Federal Republic of Germany 303, 512, 805, 892 CGB Acquisition Corporation 147 Deutsche Morgan Grenfell, Inc 303 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index to Volume 84 A79 Pages Pages Bank Holding Company Act of 1956—Continued Bank Holding Company Act of 1956—Continued Applications approved under—Continued Applications approved under—Continued DeWitt First Bankshares Corporation 373 First United Bancshares, Inc 235, 371, 373 Diamond Bancorp, Inc 695 First Western Bancorp, Inc 237, 1129 DRH Mortgage, LLC 1016 First Western Bancshares Employee Stock Eagle Lake Bancshares, Inc 1017 Ownership Plan 147 Eastern Virginia Bankshares, Inc 147 First York Ban Corp 510 Eggemeyer Advisory Corp 150,801, 1018, 1126 Firstand Company 510 El Paso Bancshares, Inc 801 FirstFederal Financial Services, Corp 571 Emigrant Bancorp, Inc 890 FirstMerit Corporation 697 Employee Stock Ownership Trust of People's Firstrust Corporation 235, 1020 Bank and Trust Company of Pickett County 569 Fishback Financial Corporation 1020 Equitable Financial Corporation 1018 Fisher Bancorp, Inc 71 Exchange Bancshares, Inc 695 Flag Financial Corporation 374, 510, 1018, 1020, 1127 F.N.B. Corporation 147, 569, 890 Fleet Financial Group, Inc 73 F&M Bancorp 1127 Florida Banks, Inc 695 F&M Bancorporation, Inc 235, 371 FMB Bankshares, Inc 698 F&M Bancshares, Inc 71 FMCB Holdings, Inc 371 F&M Merger Corporation 235. 371 FNB Financial Services, Inc., Employee Stock F&M National Corporation 237 Ownership Plan 301 Farmers Bancshares, Inc 695, 805 Forstrom Bancorporation, Inc 371 Farmers State Corporation 149, 510 Fort Madison Financial Company 802 FBOP Corporation 71, 235 Founders Financial Corporation 510 FCB Bancorp, Inc 569 Frandset Financial Corporation 695 Fidelity Ban Corporation 71 Franklin Bancorp, Inc 1020 Fidelity Company 301 Frontier Financial Corporation 1127 Fifth Third Bancorp 73,571 Fryburg Banking Company, Inc 569 Fifth Third Bank 149 FSBO Holdings, Inc 890 FINABEL Corporation 1017 Fulton Financial Corporation 234 Financial Bancshares, Inc 801 GB&T Bancshares, Inc 510 Financial Investors of the South, Inc 1020 GEBSCO,Inc 147 First American Bankshares, Inc 802 George Family Partnership, Ltd 1126 First American Corporation 300, 369, 693, 889 George Washington Bancorp, Inc 71 First Azle Bancshares, Inc.. Employees Gifford Bancorp, Inc., Employee Stock Stock Ownership Plan 370 Ownership Plan 235 First Bancorp 1018 Giltner Investment Partnership II, Ltd 571 First Bancorporation, Inc 1129 Glacier Bancorp, Inc 236, 371 First Bancshares, Inc 891 GNB Bankshares Corporation 147 First Banks America, Inc., Clayton, Missouri 147 Gold Bane Acquisition Corp., Inc., II 301 First Banks America, Inc., Houston, Texas 71 Gold Bane Acquisition Corporation VII, Inc 802 First Banks, Inc 71, 147, 890 Gold Bane Corporation, Inc 301, 695, 802, 1127 First Beemer Corporation 1126 Governor and Company of the Bank of Ireland, First Belmond Bancorporation 1018 Dublin 2, Ireland 73 First Busey Corporation 235 Grandview Bancshares. Inc 1127 First Business Bancshares, Inc 237 Grandview Delaware Financial, Inc 1127 First Capital Bancshares, Inc 370 Great Southern Bancorp, Inc 697 First Centralia Bancshares, Inc 512, 1129 Greater Bay Bancorp 71, 510 First Charter Corporation 892 Greater Community Bancorp 373 First Chicago NBD Corporation 508 Greater Southern Capital Corporation 72 First Citizens Bane Corp 510 Greater Southern Capital Corporation Employee First Citizens Bancshares, Inc 1125 Stock Ownership Trust 72 First Commerce Bancshares, Inc 695 Guaranty Capital Corporation 695 First Commercial Corporation 304 GV Bancorp Employee Stock Ownership Plan 371 First Empire State Corporation 233 GV Bancorp. Inc 371 First Financial Bancorporation 800 Habersham Bancorp 802 First Gilmer Bancshares, Inc 569, 1127 Halbur Bancshares, Inc 569 First Gilmer Delaware Holdings, Inc 569, 1127 Hall Properties, LP 569 First Hawaiian, Inc 1018 Hancock Holding Company 802 First Jermyn Corp 371 Harlingen Bancshares, Inc 302 First Lansing Bancorp, Inc 1020 Harris Bancorp, Inc 73, 146 First National Bancorp, Inc 71 Heartland Financial USA. Inc 510, 805 First National Bancshares, Inc 1018 Henderson Bancshares, Inc 73 First National Bank at St. James, ESOP 71, 695 Heritage Bancorp, Inc 802 First National Bank of Artesia Employee Heritage Capital Corporation 510 Stock Ownership Plan 147 Heritage Commerce Corp 1127 First National Bank of Nevada Holding Company 890 Heritage Financial Corporation 72, 695 First National Corporation 301, 1020 Heritage Group, Inc 892 First National of Nebraska. Inc 800 Hibernia Corporation 147, 371, 569 First Nebraska Banes, Inc 301 Highlands Independent Bancshares, Inc 147 First Neighborhood Bancshares, Inc., Employee Hogan Investments, Limited 236 Stock Ownership Plan 510 Hogan Investments, Inc 236 First Pecos Bancshares, Inc 1018 Holland Financial Corporation 1018 First Place Financial Corporation 371 Home Valley Bancorp 569 First Region Bancshares, Inc 802 Homeside Lending, Inc 571 First Savings Bank of Washington Bancorp, Inc 371 Hometown Bancorp, Ltd 147 First Security Corporation 146, 234, 567 Hometown Bancshares, Inc 371, 695 First State Financial Corporation 71 Hoosac Financial Services, Inc 302 First Telebanc Corporation 695 Horizon Bank of Florida Employee Stock First Union Corporation 373, 571, 890 Ownership Plan 147 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A80 Federal Reserve Bulletin December 1998 Pages Pages Bank Holding Company Act of 1956—Continued Bank Holding Company Act of 1956—Continued Applications approved under—Continued Applications approved under—Continued Horizons Bancorp. Inc 802 Mid-America Bancorp, Inc 510 HUBCO.Inc 303 Mid-America Mortgage Services, Inc 150 Huntington Bancshares, Incorporated 73, 303 Mid-Atlantic Community BankGroup, Inc 512 Imperial Bancorp 1129 Mid-Penn Bancorp, Inc 569 Independent Bank Corporation 512 Middle Georgia Corporation 237 Independent Mutual Holding Company 302 Midland Bancshares, Inc 236 Independent Southern Bancshares, Inc., Midland First Financial Corporation 72 Employee Stock Ownership Trust 147 Midwest Bancorporation. Inc. & Affiliates Industry Bancshares, Inc 236 Employee Stock Ownership Plan 803 Inland Northwest Bancorporation, Inc 373 Midwest Bankers' Bancorporation, Inc 374 Integrion Financial Network, LLC 512 Millbrook Bank System, Inc 236 Interchange Financial Services Corporation 510 Minnwest Corporation 805 International Brotherhood of Boilermakers, Mississippi Valley Bancshares. Inc 236 Iron Ship Builders, Blacksmiths, Forgers. MNB Bancshares, Inc 148 and Helpers 372 Montana First National Bancorporation 72 InterWest Bancorp. Inc 147. 695, 891 Montana Security, Inc 148 Intra Financial Corporation 1127 Morgantown Bancshares, Inc 148 Inver Grove Bancshares, Inc 302 Morrill & Janes Bancshares, Inc 512, 1129 Investors Financial Services Corp 697 Morrill Bancshares, Inc 512, 1127, 1129 ISB Financial Corp 510 Mutual Bancorp of the Berkshires, Inc 1127 J.R. Montgomery Bancorporation 236 Mystic Financial, Inc 148 James River Bankshares, Inc 372 N.A. Corporation 803 JDOB, Inc 802 Narragansett Financial Corp 236 JJ&B Capital, L.P. 372 NatBC Holding Corporation 72 K&Z Company. LLC 695 NATCOM Bancshares, Inc 511 Kanbanc, Inc 510 National Australia Bank, Limited, Keene Bancorp, Inc. 40 Hk) Employee Melbourne. Australia 304, 571 Stock Ownership Plan 1018 National Bank of Canada, Montreal, Killbuck Bancshares 1018 Quebec, Canada 72, 149 Koss-Winn Bancshares, Inc., Employee National City Bancshares, Inc 372, 803, 892, Stock Ownership Plan with 401(k) Provision 148 1018, 1128 Krum Holdings, L.L.C 372 National City Corporation 234, 300, 508. 567 Lake Bank Shares, Inc., Employee Stock National City Mortgage Co 300 Ownership Plan 1127 National Commerce Bancorporation 150, 236. 803, 1018 Lakeland Bancorp. Inc 236 National Commerce Community Bancorp, Inc. I 236 Larch Bancorporation. Inc 802 National Commerce Community Bancorp, Inc. II 236 Laurens Bancshares, Inc 236 National Processing, Inc 234, 567 LB Bancorp, Inc 510 NationsBanc Montgomery Securities, LLC 805 LCNB Bancorporation of Delaware, Inc 569 NationsBank Corporation 148, 805 LCNB Bancorporation, Inc 569 NB Holdings Corporation 148 Legacy Bancorp, Inc 1127 NCB Holdings, Inc 1018 LeMars Acquisition Corp 802 Neighborhood Bancorp 512 Lenox Financial Services Corp 304 New England Community Bancorp. Inc 148, 569 Light Bancshares Corporation 148 New Galveston Company 508 Lincoln Interim Corporation 302 New Independent Bancshares, Inc 512 Lino Lakes Bane Shares, Inc 569 New London Bancshares, Inc 1129 Little Sioux Bancshares, Inc 372 New Millennium Bankshares, Inc 891 Louisville Development Bancorp, Inc 74 Newton Financial Management Company, LLC 236 M.I.F. Limited 696 Niagara Bancorp, MHC 300 Magna Group, Inc 373 North Shore Bancorp 148 MainBancorp, Inc 372 Northern Trust Corporation 511, 892 Maincorp Intermediate Holding Company, Inc 372 Northwest Bancorporation, Inc 1018 Mainline Bancorp, Inc 569 Norwest Corporation 74, 148, 234, 237, MainStreet BankGroup, Incorporated 302, 569 369, 508, 567, 568, Marfa Bancshares, Inc 891 693, 694, 800, 801, Marfa Delaware Bancshares, Inc 891 1016, 1125 Marin National Bancorp 1127 Norwest Financial Services. Inc 74, 694 Marine Bancshares, Inc 1127 Norwest Financial, Inc 74, 694 Marquette Bancshares, Inc 802 Norwest Mortgage, Inc 800 Marshall & Ilsley Corporation 237 Norwest Ventures. LLC 800 Marshall Community Bancshares, Inc 372 NSB Bancorp, Inc 150 Maryland Permanent Capital Corporation 1021 NW Bancorp, Inc 696 Mason-Dixon Bancshares, Inc 304 Oconee Financial Corporation 1128 Matson Financial, Inc 72 Ohnward Bancshares, Inc 372 MBC Investments Corporation 805 Old Kent Financial Corporation 800 MBNA Corporation 72 Old National Bancorp 1125 MBT Bancshares, Inc 372 Olympia Financial Corp 234 McCurtain County Bancshares, Inc 302 Onaga Bancshares, Inc 512, 1129 McLaughlin Bancshares, Inc 800 One Valley Bancorp, Inc 374, 803 Mellon Bank Corporation 236, 237, 805, 1129 Orchard Valley Financial Corporation 697 Mercantile Bancorp, Inc 72, 1020 Osceola Bancorporation 569 Mercantile Bancorporation, Inc 145, 237, 509, 694, 800 Ottawa Bancshares, Inc 1128 Merchants Holding Company 695, 891 Owen-Curtiss Financial Corporation 72 MetBank Holding Corp 803 Pacific Coast Bankers' Bancshares 1128 Metrocorp Bancshares, Inc 1 127 Palm Desert Investments 698 Metrocorp-Delaware. Inc 1127 Panhandle BancShares, Inc 148 Michigan Community Bancorp, Limited 1127 Paramount Bancorp, Inc 302 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index to Volume 84 A81 Pages Pages Bank Holding Company Act of 1956—Continued Bank Holding Company Act of 1956—Continued Applications approved under—Continued Applications approved under—Continued PASL Holding Corp 803 South Branch Valley Bancorp, Inc 149 Pedcor Bancorp 148 South Tulsa Financial Corporation 511 Penns Woods Bancorp, Inc 72 South Valley Bancorp, Inc 302 Penseco Financial Services Corporation 150 Southeast Capital Corporation 571 Peoples Bancorporation, Inc 72, 803 Southeast Capital Corporation, ESOP 571 Peoples BancTrust Company, Inc 372, 511 Southern Bancshares. Inc 372 Peoples Heritage Financial Group, Inc 74 Southern Development Bancorporation, Inc 570 Peoples Holding Company, Inc 569 Southern Heritage Bancorp, Inc 570 Peoples Service Company 803 Southern Missouri Bancshares, Inc 149 Peoples Trust of 1987 148 Sparta Union Bancshares, Inc 73 Peoples, Inc 148 Spring Hill (Delaware), Corporation 696 Pepperell Bancshares Financial Group, Inc 1128 Spring Hill Holdings Corporation 696 Petefish, Skiles Bancshares, Inc 1128 SSB Investments, Inc 694 PHS Bancorp, M.H.C 1128 Standard Mutual Holding Company 302 Pilot Grove Savings Bank Employee Stock Star Bane Corporation 696 Ownership Plan 891 State Financial Services Corporation 150 Ploetz Investments, Limited Partnership 696 State National Bancshares, Inc 302, 1019 Plymouth Bancorp, Inc 803 State of Franklin Bancshares, Inc 511 Popular International Bank, Inc 1019 State Street Corporation 694, 1125 Popular North America, Inc 1019 Sterling Bancorporation, Inc 1019 Popular, Inc 1019 Sterling Bancshares, Inc 1019 Portage Bancshares, Inc 696 Stichting Administratiekantoor ABN AMRO Holding, Porter Holdings, Ltd 372 Amsterdam, The Netherlands 512 Premier Bancorp, Inc 569 Stichting Prioriteit ABN AMRO Holding, Premier Bancshares, Inc 148,570, 1019 Amsterdam, The Netherlands 512 Premier Financial Bancorp, Inc 148, 696 Stockmens Financial Corporation 237 Premier Financial Corp 891 Strasburg Bancorp, Inc 149 Premier Holdings-Nevada, Inc 511 Summit Bancorp 1021 Prosperity Bancshares, Inc 891 Summit Bankshares, Inc 571 Provincial Corp 1128 Sun Community Bancorp, Limited 509, 1017 PSB BancGroup, Inc 372 Sundance Bankshares, Inc 149 PSB Bancorp, Inc 696 Sundowner Corporation 71, 147 Putnam County Bancorp, Inc 1128 SunTrust Banks of Florida, Inc 891 Redstone Bancorporation, Inc 1019 SunTrust Banks, Inc 891 Regions Financial Corporation 236, 237, 238, 302, 696 SW Financial, Inc 73 Republic Bancshares, Inc 148, 698. 805 SWB Bancshares, Inc 73 Republic First Bancorp, Inc 1128 Swiss Bank Corporation, Basel, Switzerland 304 Rigler Investment Co 696 Synovous Financial Corp 804 Riverside Banking Company 149 Tarpon Coast Bancorp, Inc 302 Riverside Gulf Coast Banking Company 72 TB&C Bancshares, Inc 804 Robinson Bancshares, Inc 1128 Tennessee Central Bancshares, Inc 149 Rockhold Bancorp 149 Texas Capital Bancshares, Inc 891 Roscoe Community Bankshares, Inc 72 Texas Financial Bancorporation, Inc 1128 Roseau Realty Co., Inc 74 Texas United Bancshares, Inc 511 Royal Bank of Canada, Montreal. Quebec, Canada 512 TIB Financial Corporation 1129 RSI Bancorp, Inc 803 Timberland Bancorp, Inc 149 RSI Bancorp. MHC 803 Tippins Bankshares Inc 302 RSNB Bancorp 1016 Toronto-Dominion Bank, Toronto, Ontario, Canada 74, 571 RVB Bancshares, Inc 696 Town Bankshares, Ltd 696 RW Bancorp.. Ltd 149 Traditional Bancorporation, Inc 511 Salisbury Bancorp, Inc 696 TransPecos Financial Corp 372 San Juan Bank Holding Company 804 Travelers Rest Bancshares, Inc 1128 Sandy Spring Bancorp, Inc 1019 Tri-County Financial Group, Inc 511 Savannah Bancorp, Inc 1019 Triangle Bancorp, Inc 696 Second Bancorp 1129 Trust No. 3 under the Will of Charles Henderson 73 Second Bancorp, Incorporated 891 U.S. Bancorp 74 Second National Financial Corporation 1019 U.S.B. Holding Co., Inc 892 Security Bancshares, Inc 302 UB&T Financial Services Corporation 696 Security Bank Holding Company 72, 511, 804 UCBH Holdings, Inc 804 Security Bank Holding Company Employee Union Bankshares Corporation 697 Stock Ownership Plan 72, 511 Union Bankshares, Inc 1019 Security State Bancshares, Inc 72, 570 Union City Corporation 149 Seed Money, Limited Partnership 1128 Union Planters Corporation 303, 373, 508, 513, Sequatchie Valley Bancshares, Inc 1020 571, 697, 804, Service Bancorp, MHC 804 1020, 1128 Shamrock Delaware Financial, Inc 372 Union Planters Holding Corporation 373, 508, 513, 571, Sherburn Bancshares, Inc 1129 697, 804, 1128 Sherwood Bane Corporation 804 UnionBancorp, Inc 805, 1020 Shorebank Corporation 511 United Bancorp, Inc 570 Shorebank Detroit Corporation 511 United Bankshares, Inc 303, 1020 Signature Bancshares, Inc 570 United Community Bancshares 570 Simmons First National Corporation 1125 United Community Bancshares, Inc 698 SIS Bancorp, Inc 73 United Financial Corp 891, 893, 1128 SJNB Financial Corporation 571 United Financial Holdings, Inc 150 SNB Bancorp 236 United Overseas Bank, Limited, Singapore 1129 SNB Bancshares, Inc 804 United Security Bancorporation 697 South Alabama Bancorporation, Inc 234, 1016 Unity Bancshares, L.L.C 373 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A82 Federal Reserve Bulletin December 1998 Pages Pages Bank Holding Company Act of 1956—Continued Bank Holding Company Act of 1956—Continued Applications approved under—Continued Orders issued under—Continued Unity Holdings, Inc 570 Regions Financial Corporation 354-6, 558-63 Upson Bankshares, Inc 1020 Royal Bank of Canada, Montreal, USAL Bancorp, Inc 570 Quebec, Canada 855-8 UST Corp 805, 893 Sanwa Bank Limited, Osaka, Japan 120 Vail Banks. Inc 891 Shore Financial Corporation 288 Val Cor Bancorporation, Inc 374 Societe Generale, Paris, France 680—3 Valley National Corporation 570 Star Bane Corporation 121-6 Verona Bancshares, Limited 73 SunTrust Banks, Inc 126-9, 1115-21 VIB Corp 236 Travelers Group, Inc 985-1016 Violeta Investments, Ltd 891 U.S. Bancorp 62^1,483-6, 1073-5 Virginia Bank Bankshares, Inc 73 UBS AG, Zurich and Basel, Switzerland 684-93 Voyager Financial Services Corporation 1021 Union Bank of Switzerland, Zurich, Wachovia Corporation 70, 145, 234, 508, 568 Switzerland 684-93 Warren Bancorp, Inc 891 WesBanco, Inc 366-9 Warwick Community Bancorp, Inc 73 Bank Holding Company Supervision Manual 98, 339, 670 Washington Bancorp 73 Bank income data adjustments 408 Waterhouse Investor Services, Inc 74, 571 Bank Merger Act Wayne Bancorp, Inc 303 Applications approved under West Burlington Bancorporation 804 1st United Bank 305 Westdeutsche Landesbank Girozentrale, Alabama Exchange Bank 74 Duesseldorf, Federal Republic of Germany 513, 1129 Alpha Community Bank 699 Western Sierra Bancorp 1019 American Bank of Montana 513 WFC, Inc 1019 AmSouth Bank 1130 Whitney Holding Corporation 804 Atlanta Bank 151 Wilber Company 570 Atlantic Bank 572 Williams Partners, L.P. 236 BancFirst 151, 806, 894, 1130 Wills Point Financial Corporation 149 BankofBelton 699 Wilmington Trust Corporation 1130 Bank of Bentonville 1130 Winter Trust of 12/3/74 804 Bank of Casa Grande Valley 894 Winter-Park Bancshares, Inc 73 Bank of Commerce 513 Wintrust Financial Corporation 1020 Bank of Cushing and Trust Company 698 WTSB Bancorp, Inc 697 Bank of Greenville 151 WTSB Delaware Bancorp, Inc 697 Bank of Lancaster 238 Zions Bancorporation 149, 373, 374 Bank of Marion 806 Orders issued under Bank of Monroe 1021 Bane One Corporation 553-8, 961-85 Capital City Bank Group, Inc 1130 Banco Bilbao Vizcaya, S.A., Bilbao, Spain 356-8 Capital One Bank 238 BankAmerica Corporation 858-84 Centura Bank 305 BankBoston Corporation 849-52 Citizens Bank 806 Charter One Financial, Inc 1079-83 Citizens Banking Company 806 Citicorp 985-1016 Citizens Trust Bank 238 Commerce Bancorp, Inc 358-60, 798 Colonial Bank 74, 151, 513, 572, Cooperatieve Centrale Raiffeisen-Boerenleenbank, 699, 894, 1130 B.A., Rabobank Nederland Utrecht, Comerica Bank 1130 the Netherlands 852-5 Commercial & Savings Bank Company 1021 Dresdner Bank AG, Frankfurt, Germany 361—3 Commercial Bank 894 Eagle Bancorp, Inc 673 Community Bank and Trust 74 Fifth Third Bancorp 677-80 Community First Bank and Trust 374 First American Corporation 845—7 Compass Bank 150, 698, 893 First Chicago NBD Corporation 961-85 Eaton Bank 1021 First Financial Corporation 279 Exchange Bank & Trust Company 806 First Mariner Bancorp 956-9 F&M Bank-Blakeley, Inc 374 First Midwest Bancorp, Inc 486-9 F&M Bank-Northern Virginia 513 First National Bank Group, Inc 959-61 F&M Bank-Richmond 374 First of Waverly Corporation Ill Farmers and Merchants Bank 151 First Union Corporation 59, 489-507 Farmers Bank of Maryland 151, 238 Firstar Corporation 1083-8 Farmers State Bank 305, 572 FirstMerit Corporation 363-6 Farmers State Bank of West Concord 1130 Fleet Financial Group, Inc 227-30 Farmers Trust Bank 305 Fuji Bank, Limited, Tokyo, Japan 674 FCNB Bank 572, 1021 HUBCO, Inc 547-51 Fifth Third Bank 572 Indiana United Bancorp 280 Fifth Third Bank of Central Kentucky, Inc 513 J.P. Morgan & Co., Inc 113-5 Fifth Third Bank of Cincinnati 572 KeyCorp 1075-89 Fifth Third Bank of Columbus 572 Lloyds TSB Group, pic, London, England 116-20 Fifth Third Bank of Southern Ohio 572, 1021 National City Corporation 281-8 Fifth Third Bank of Western Ohio 572 NationsBank Corporation 129^5, 858-84 First Bank 75 NB Holdings Corporation 129-45 First Banking Center-Burlington 374 North Fork Bancorporation, Inc 290-94, 477-81 First Community Bank 894 Norwest Corporation 552, 676, 847-52, First Farmers Bank & Trust Company 374 1088-115 First Interstate Bank 75 Norwest Investment Services, Inc 552 First Security Bank 699 Oechsle International Advisors, L.P. 361-3 First State Bank and Trust Company of Larned 151 PAB Bankshares, Inc 474-7 First Virginia Bank of Tidewater 151 Peoples Heritage Financial Group, Inc 351^4 George Mason Bank 305 Popular, Inc 481-3 Hanmi Bank 894 RCM Capital Management. L.L.C 361-3 Hanover Bank 806 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index to Volume 84 A83 Pages Pages Bank Merger Act—Continued Board of Governors—Continued Applications approved under—Continued Staff changes—Continued Huron Community Bank 699 Bowen, Brent L 456 Isabella Bank and Trust 374 Braunstein, Sandra F. 456 Jersey Bank for Savings 513 Clark, Stephen J 39 Johnson Bank 572, 894 Coyne, Joseph R 455 Laurel Bank 1021 Fox, Lynn S 455 Lindell Bank & Trust Company 894 Frierson, Robert de V. 455 M&I Bank of Burlington 375 Frost, David S 39 M&I Bank of Racine 375 Garwood, Griffith L 456 M&I Bank of Shawano 806 Hannan, Maureen 749 M&I Marshall & Ilsley Bank 375 Hooper. Peter 941 Manufacturers and Traders Trust Company 238 Horowitz, Fred 39, 456 Mercantile Bank 572 Hurt, Adrienne D 456 Mercantile Bank Midwest 1130 Johnson. Jennifer J 455 Mercantile Bank of Western Iowa 894 Johnson, Karen H 941 Northern Neck State Bank 151 Livingston, George E 39, 456 Old Kent Bank 805 Loney, Glenn E 456 Omni Bank 75 Mann, Catherine L 39 One Valley Bank of Summersville. Inc 894 Oliner, Stephen D 99 Peninsula Trust Bank 699 Pauley, Darrell R 39 People First Bank 894, 1130 Promisel, Larry 456 Peoples Bank and Trust Company 375, 894 Reidhill, Marsha 340 Pointe Bank 460 Reinhart, Vincent R 749 Premier Bancorp, Inc 75 Shack-Marquez, Janice 99 RCB Bank 699 Shannon, David L 39, 456 Republic Security Bank 460,699,894, 1130 Siegman, Charles J 456 Richwood Banking Company 513 Smith, Dolores S 456 Savina Bank 151 Snyder, Barry R 540 Security Bank 1130 Stevens, Richard C 748 Sentinel Interim Bank 806 Thompson, Portia W. 39 ShoreBank 513 Tinsley, Peter A 1061 Southern California Bank 75 Truman, Edwin M 941 Triane Bank 699 Weis, John R 39 Triangle Bancorp. Inc 375 Triangle Bank 375 Whitesell, William C 749 Valley Independent Bank 375 Wiles, William W. 455 Virginia Heartland Interim Bank 1021 Young, Florence M 340 Wesbanco Bank Wheeling 699 Thrift Institutions Advisory Council, new members 95 Western Bank of Cody 699 World Wide Web site, new address 748 WestStar Bank 699 Bonanca, Jason J., article 1038 Orders issued under Bonds, U.S. Treasury 531 Centura Bank 64. 67 Borrowers of Securities Credit (Reg. X) 96, 197, 338, 469, WestStar Bank 294, 884 791, 1060, 1069 Bank merger issues 438-51, 619-27, Bostic, Raphael W., article 1 643-7,703-15 Bowen, Brent L., Inspector General, Office of the Bank regulation, staff study summary 252 Inspector General, retirement 456 BankAmerica Corporation 669. 748, 858-84 Brady, Thomas F., article 604, 615 Banking antitrust policy 705 Braunstein, Sandra F., promoted to Associate Banking structure 620, 621, 897-921 Director, Division of Consumer Affairs 456 Basle Accord, amendment and proposal 454 Brigham, Lois A., enforcement action 1060 Basle Committee on Banking Supervision 38, 268, 454, Business equipment, output of 82 940, 1059 Business sector 161, 167,591 Basle Framework for Capital Adequacy, interpretation 1059 Businesses, small, lending to 1-21, 707 Bechstein, Jerome C, enforcement action 1060 Bethea, Martha, Associate Director, Division of CANNER, Glenn B., articles 1, 241 Research and Statistics, retirement 456 Capital adequacy guidelines 673, 822 Biern, Herbert A., Associate Director, Division Capital holdings 164, 319, 398, 595 of Banking Supervision and Regulation, Carey, Mark S., article 897 statement 639-43 Cash shipments, interstate 338 Board of Governors (See also Federal Reserve System) Cease and desist orders Antitrust standards, application of 622-6 Banca Serfin, S.A., Mexico 539, 573 Commodity Exchange Act and derivatives Banco Industrial de Venezuela, Caracas, Venezuela 539, 573 transactions, statement 636-9 Banco Internacional, S.A., Bital, Mexico 539, 573 Consumer Advisory Council Banco Nacional de Mexico, Banamex, Mexico 539, 573 Meetings 268, 939 Banco Santander, Spain 539, 573 New members 191-3 Bancomer, S.A., Mexico 539, 573 Nomination procedures 538 Century Date Change (CDC) project 26, 1058 Division mergers 39 Cheng, Virginia, article 517 Index of orders and actions taken 69, 297-9, 566, 887-9 Circuit breakers for equity-related markets, statement 184 Management Division 39 Citicorp, public meeting scheduled 669 Members Clark, Stephen J., promoted to Assistant Director, Ferguson, Roger W. appointed chairman, Management Division 39 Year 2000 Council 746 Commercial and industrial loans 392, 1025-37 Lists, 1913-98 701 Commercial banks Phillips, Susan M., resignation 454 Balance sheet developments 391^19 Staff changes Capital 398 Alexander, Lewis S 941 Derivatives 398 Bethea, Martha 456 Income and expenses, tables 401, 409-19 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A84 Federal Reserve Bulletin December 1998 Pages Pages Commercial banks—Continiued Exchange rates Letters of credit 398 Articles 174-9,420-5, Liabilities 397 716-21, 1038^3 Loan and lease losses 404 Indexes 170, 811-18 Loans 392, 394 Expenses, 1994 401-3 Securities holdings 396 Exports 164, 312 Commodity Exchange Act of 1936 636-9, 742, 743, 744 Extensions of Credit by Federal Reserve Banks Communications equipment, production of 79 (Reg. A) 1069 Community development lending 1, 20 External sector, economic developments 594 Community Reinvestment Act of 1977 (CRA) Bank mergers, effect on 443, 703-15 FARMS, loans to 1-21 Federal expenditures 162 H.R. 10 657 Federal Financial Institutions Examination Council 3 Performance tests 3 Federal funds rate 517, 525 Small businesses and small farms, lending data 1 Federal Open Market Committee Computers, production of 79 1999 meeting schedule 939 Condition statement. Federal Reserve Banks 575 Meeting minutes Conglomerates, supervision of 268 1992 transcripts, available 338 Congressional Budget Office 183 Sept. 30, 1997 40-5 Construction supplies, production of 82 Nov. 12, 1997 100-6 Consumer Advisory Council Dec. 16, 1997 273-8 Meetings 268, 939 Feb. 3-4, 1998 457-68 New members 191-3 Mar. 25, 1998 541-6 Nomination procedures 538 May 19, 1998 750-6 Consumer disclosures on home-secured loans, June 30-July 1, 1998 824-31 joint report 746 Aug. 18, 1998 1062-8 Consumer goods, sales and production 81 Monetary policy stance 939 Consumer leasing (Reg. M) 338, 940, 948 Open market operations 517-32 Consumer price index, statement 451-3 Federal Reserve Banks Consumer spending 159, 589 Chairs and deputy chairs, appointed 36, 95, 1057 Coyne, Joseph R., Assistant to the Board, Directors, list 377-89 Office of Board Members, retirement 455 Financial statements 575—84 Credit, financial developments 597 Holiday schedule, 1999 194 Credit by Banks for Purchasing and Carrying Income and expenses 194 Margin Stocks (Reg. U) 96, 197, 338 Statements Credit by Brokers and Dealers (Reg. T) 96, 197, 338, 469, Change in capital 578 791, 1060, 1069 Condition 576 Credit ratings at US. banks, article 897-921 Income 577 Cyrnak, Anthony W., article 703 Federal Reserve note and Euro bank note, statement 1054-6 Federal Reserve Regulatory Service, CD-ROM available 539 DEMAND deposits, interest on, S. 1405, statement 326 Federal Reserve System (See also Board of Governors) Depository institutions Anti-money-laundering efforts, statement 639—43 Credit extended by 167 Fees for services 37 Disclosure statements 337, 338 Interest payments on demand deposits 726 Payment services from Federal Reserve 193 Payment services to depository institutions 193 Transactions, proposed action 668 Year 2000 readiness 25-31 Derivatives activities 38, 398, 636-9 Fedwire funds transfer system 25, 668 Directory: Community Development Investments 670 Fees for Federal Reserve services to depository Discount rate 1057 institutions 37 Durkin, Thomas A., article 241 Ferguson, Governor Roger W., Jr. Dutch government securities 1058 Appointed chairman, Year 2000 Council 746 Electronic payments services, statement 628-32 ECONOMIC developments Finance, global, statements 30-2, 186-90, Business sector 161, 591 325, 536 Financial 168, 597 Financial institutions, examination cycle 337, 341, 822 Foreign exchange 164, 170 Financial Regulatory Relief and Economic Government sector 162, 593 Efficiency Act of 1997, S. 1405, statements .... 326-30, 332-6 Financial Services Act of 1998, H.R. 10, statement 647-59 Household sector 159, 589 Financial statements, Federal Reserve Banks 575-84 Labor markets 165, 595 Fisher, Peter R., articles 174, 420, 517, 716, 1038 Economy, U.S. Foreign exchange Monetary policy, statements 155-73, 262-7, Dollar values 811-18 585-603, 735-8 Reserves 424 Outlook, statements 183, 330-32, 632-6 Treasury and Federal Reserve operations 174-9, 420-5, Performance, monetary policy reports 159, 586 716-21, 1038-43 Electronic Fund Transfers (Reg. E) 337, 939, 947 Foreign stocks, lists of marginable 194, 221-7, 455, Electronic payment services (See also 469-74, 748, 791-7, Regulations: E) 37, 628-32 1060, 1069-72 Elliehausen, Gregory, staff study summary 252 Foreign transactions in 1997, article 309-21 Employment 165 Fox, Lynn S., appointed Assistant to the Board, English, William B., article 604 Office of Board Members 455 Enhancing Bank Transparency, Basle Framework for Internal Control Systems of Committee paper 940 Banking Organisations, Basle Committee paper 940 Equal Credit Opportunity (Reg. B) 95, 107, 338, Framework for the Evaluation of Internal 343-50, 454 Control Systems, Basle Committee paper 268 Equity prices 170 Frierson, Robert de V., appointed Associate Euro bank notes, statement 1054-6 Secretary of the Board, Office of the Secretary 455 European Economic and Monetary Union (EMU) 811 Frost, David S., Staff Director for Management, Examination cycles for financial institutions 337, 341, 822 appointed Director, Management Division 39 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index to Volume 84 A85 Pages Pages GARWOOD, Griffith L., Director, Division Interstate branching 338 of Consumer Affairs, retirement 456 Investments 160, 316, 591 Global financial system, statements 30-2, 186-90, 325, Issue and Cancellation of Bank Capital Stock (Reg. I) 788-90 536, 926-9, 936-8 Global Year 2000 Round Table 660 JEWELL, Andrew, article 174 Government 162, 163, 593 Johnson, Jennifer J., appointed Secretary of the Board, Gramlich, Governor Edward M., statements Office of the Secretary 455 Consumer price index 451-3 Johnson, Karen H., appointed Director, Division Social security reform 627, 925 of International Finance 941 Truth in Lending Act and RESPA, reform 730-35 Joint Year 2000 Council 659, 661 Greenspan, Chairman Alan, statements Justice, U.S. Department of 625, 704, 706. 712, 713 Asia financial crisis 257-62 Bank mergers 643-7 KELLEY, Edward W., Jr.. Federal Reserve Death of William McChesney Martin 746 and Year 2000, statements 25, 433-8, 929-35 Edwin M. Truman nomination, statement 941 Keys to Vehicle Leasing, brochure 98 Financial Services Act of 1998, H.R. 10. statement 647-59 Know Your Customer policy 641 Global financial system 30-2, 186-90, 325, 536, 926-9, 936-8 LABOR market, US 165, 595 Long-Term Capital Management hedge fund 1046-50 Leahy, Michael P., article 811 Medicare program 429-33 Letters of credit, commercial banks 398 Monetary policy 735-42 Leverage Capital Standards 673, 833-^-4 Old-Age, Survivors and Disability Insurance Litigation benefits program (OASDI) 32-5 Final enforcement decisions issued by Board of Governors Over-the-counter derivatives 742 Bank of America, N.T. & S.A 1022-4 U.S. economy and monetary policy 183, 262-7, Bank of the Desert 807-9 330-2, 632-6 Espiritu, Elena 1022 Group of Ten (G-10) governors 28 Locci, Massimiliano 152 Salmon, Richard 807-9 H.R. 10 444, 449, 647-59 Final enforcement orders issued by Board of Governors Hannan, Maureen, appointed Assistant Director, Al-Fulaij, Faisal Saud 700 Division of Information Resources Altman, Robert A 306 Management 749 Banca Serfin, S.A., Mexico 539, 573 Hedge fund 1046, 1050 Banco Industrial de Venezuela, Herfindahl-Hirschman index (HHI) 704, 712, 713 Caracas. Venezuela 539, 573 Hilton, Spence, article 517 Banco Internacional, S.A., Bital, Mexico 539, 573 Home equity lending, article 241-51 Banco Nacional de Mexico, Home Mortgage Disclosure (Reg. C) .... Ill, 268, 338, 939, 943-7 Banamex, Mexico 539, 573 Home sales 160 Banco Santander, Spain 539, 573 Hooper, Peter, appointed Deputy Director, Bancomer, S.A., Mexico 539, 573 Division of International Finance 941 Bechstein, Jerome C 1132 Horowitz, Fred 39, 456 Brigham, Lois A 1132 Household finances 159, 160, 589, 590 Carrizo, Luis 76 Housing and Urban Development, Department of 730 Clifford. Clark M 306 Humphrey-Hawkins reports (Monetary policy Colbourn, Patti 154 reports to the Congress) 155-73, 585-603 Colley.JohnE 306 Hurt, Adrienne D., promoted to Assistant Director, Dill, Eric C 76 Division of Consumer Affairs 456 Habib Bank AG Zurich, Zurich, Switzerland, 376 Koury, Stephen R 306 IMPORTS 313 Lindahl, Michael A 306 Income, commercial banks 315, 401, 402 Muniz, Jose E. Romero 76 Income statement, Federal Reserve Banks 575 OmniBank 376 Index of foreign exchange value 811-18 PanAmerican Bank 376 Individual Accounts Plan (IA) 627, 925 Putnam-Green Financial Corporation 76 Industrial production and capacity utilization Towne Bank 307 Annual data revision and 1997 developments 77-91 Wachs, Michael 307 Releases , 22-5, 92-5, 180-2, 254-6, Index of orders and actions taken 69, 297-9, 566, 887-9 322-4, 426-8, 533-5, 616-8, Pending cases involving the Board of 722^4, 819-21, 922^1, 1043-5 Governors, lists of 75, 151, 239, 305, Tables 86-91 375, 460, 514, 572, Information security 96 699, 806, 894, 1021, 1131 Information systems readiness, 1999-2000 1058 Termination of enforcement actions Interest 169, 401, 600, 726 Bank of Versailles 376 Interim rule, risk-based capital guidelines 96 Millennium Bank 376 Internal credit risk models, report 538 Security State Bank of Pecos 376 International Written agreement approved by Federal Reserve Banking operations 97, 406, 659-67 Banks, ShoreBank, Cleveland 1024 Developments, monetary policy 164, 174, 601 Livingston, George E 39, 456 Transactions, 1997, article 309-21 Loan and lease losses, commercial banks 404 International Banking Act of 1978, orders issued under Loan Application Register 268 Bank of Cyprus, Ltd., Nicosia, Cyprus 67 Loan-to-deposit ratios 822 Bank of Scotland, Edinburgh, Scotland 230 Loans Caha de Ahorros de Valencia Castellon Commercial and industrial 392 y Alicante, Bancaja, Valencia, Spain 231 Home equity, article 241 -51 Chinatrust Commercial Bank, Ltd., Taipei, Taiwan 1121—23 Household 394 Erste Bank derosterreichischen Sparkassen Mortgage, disclosure requirements 268 Aktiengesellschaft, Vienna, Austria 1123 Small business and small farm 1-21 Hong Kong Special Administrative Region, Loney, Glenn E., promoted to Deputy Director, People's Republic of China 886 Division of Consumer Affairs 456 HSBC Equator Bank, pic, London, England 564 Long-Term Capital Management hedge fund, statement ... 1046-54 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

A86 Federal Reserve Bulletin December 1998 Pages Pages Luckett, Charles A., article . 241 Point-in-time grading 899 Policy statements, internal audits, sound practices for 97 MANN, Catherine L., Assistant Director, Division Prager, Robin A., article 1025 of International Finance, resignation 39 Prices 166, 596 Marginable stock Primary dealers 1058 Foreign and over-the-counter 469—74, 791-6, Profits and balance sheet developments at U.S. 1060-5, 1069-74 commercial banks in 1997, article 391^119 Regulation, amendment to merge Promisel, Larry, Senior Associate Director, Regs. GandU 96, 197-221, 338-62 Division of International Finance, retirement 456 Martin, William McChesney, Chairman Proposed actions Greenspan's statement 746 Consumer Leasing (Reg. M) 338 McDonough, William J., President, Federal Equal Credit Opportunity (Reg. B) 338 Reserve Bank of New York, Long-Term Fedwire funds transfer 668 Capital Management, statement 1050-4 Home Mortgage Disclosure (Reg. C) 268, 338 Medicare program, statement 429-33 Insured depository institutions 668 Members, Board of Governors, lists 701 International Banking Operations (Reg. K) 97 Membership of State Banking Institutions Management interlocks 823 in the Federal Reserve System (Reg. H) 746, 757, 833-44 Private small-dollar clearing and settlement systems 38 Meyer, Governor Laurence H., statements Privately operated large-dollar multilateral Antitrust issues, related to mergers and acquisitions 619-27 netting systems 38 Bank mergers 438-51 Privately operated multilateral settlement systems 38 Regulatory relief bill 725-9 Reserve requirements 38 S. 1405 326-30, 332-6 Risk-based capital standards 38 Minimum Security Devices and Procedures Rules Regarding Delegation of Authority 97 for Federal Reserve Banks and Same-day settlement rule 338 State Member Banks (Reg. P) 746, 791 Truth in Lending (Reg. Z) 97, 268, 338 Mining equipment, output of 82 Truth in Savings (Reg. DD) 338 Monetary aggregates 598 Publications (See also Videotapes) Monetary policy Annual Report, 84th, 1997 455 Economic projections 155. 156 Annual Report, Budget Review, 1998-99 455 External sector 594 Bank Holding Company Supervision Manual 98, 339, 670 Price developments 166, 596 Directory: Community Development Investments 670 Reports to the Congress 155-73, 585-603 Federal Reserve Regulatory Service, CD-ROM 539 Statements 262-7, 735^2 Keys to Vehicle Leasing 98 Money laundering, statement 639^13 Trading and Capital-Markets Activities Manual, 1998 339 Money stock data, revision 269—72 Ways to Simplify Consumer Disclosures in Moody's bond rating scale 900 Home-Secured Loans, joint report 746 Mortgage loans 268, 396, 747 Moynihan, Senator Daniel P. 627, 925 RADDOCK, Richard, article 77 Real Estate Settlement Procedures Act (RESPA) 268, 730, 746 NATIONAL bank charter 653 Regulations (Board of Governors, See also Rules) National Commission on Retirement Policy 627, 925 A, Extensions of Credit by Federal Reserve NationsBank Corporation 669, 748, 858-84 Banks; Change in Discount Rate 1069 Nelson, William R., article 604 B, Equal Credit Opportunity 95, 107, 338, Netherlands debt market 98 343-50, 454 Netting systems 38 C, Home Mortgage Disclosure Ill, 268, 338, New information on lending to small businesses 939, 943-7 and small farms: The 1996 CRA data, article 1-21 D, Reserve Requirements of Depository Norwest Corporation 823 Institutions 37, 47, 337, 350 E, Electronic Fund Transfers 337, 939, 947 OFF bank premises, operation standards 350 G, Securities Credit by Persons Other Than Official staff commentaries, open-end credit plans 337 Banks, Brokers, or Dealers 96, 197-221 Oil importation 313 H, Membership of State Banking Institutions Old-Age, Survivors, and Disability Insurance in the Federal Reserve System 746, 757-88, 833-44 benefits program (OASDI), statement 32—5 I, Issue and Cancellation of Federal Reserve Oliner, Stephen D., appointed Assistant Director, Bank Capital Stock 788-90 Division of Research and Statistics 99 M, Consumer Leasing 338, 940, 948 Open market operations, 1997, article 517-32 P. Minimum Security Devices and Procedures Operation Casablanca 639, 642 for Federal Reserve Banks and Operational Risk Management. Basle Committee State Member Banks 746, 791 paper 940 T, Credit by Brokers and Dealers 96, 197-221, 338-62, 469, Orders and actions by Board of Governors 69, 297-9, 566 791-3, 1060, 1069-72 Osborne, Daniel, articles 420, 716 U, Credit by Banks for Purchasing or Over-the-counter margin stocks Carrying Margin Stocks 96. 197-221. 338-62 Derivatives 636-9, 742 X, Borrowers of Securities Credit 96, 197-221, 338-62, Lists of marginable 194, 221-7, 455, 469-74, 469, 791-7, 1060, 1069-72 748,791-7, 1060, 1069-72 Y, Bank Holding Companies and Change Lists of marginable, discontinuation 96 in Bank Control 337, 350, 673, 833^4 Z, Truth in Lending 37, 47, 96, 97, 337, 338 PATRIKIS, Ernest T, First Vice President, DD, Truth in Savings 338, 746, 797, Federal Reserve Bank of New York, 940, 949-55 Year 2000 and computer systems, statement 659-67 Regulatory burden 326-30, 332-6 Pauley, Darrell R., promoted to Assistant Director, Reidhill, Marsha, appointed Assistant Director, Management Division 39 Division of Reserve Bank Operations and Payments services from Federal Reserve 193 Payment Systems 340 Philadelphia National Bank 705, 706 Reinhart, Vincent R., promoted to Deputy Associate Phillips, Governor Susan M. Director, Division of Monetary Affairs 749 Circuit breakers for equity-related markets, statement 184 Reserve requirements 37, 47, 326—30 Resignation 454 Reserve Requirements of Depository Institutions Pilloff, Steven J., article 1025 (Reg. D) 37,47, 337, 350 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Index to Volume 84 A87 Pages Pages Reserves, patterns in and management Stock prices 601 strategies for 519. 523, 524 Survey of Terms of Business Lending 604-15 Residential assets and investments 160 Survey of U.S. Ownership of Foreign Long-Term RESPA (See Real Estate Settlement Procedures Act) Securities, Treasury Department 318 Risk-based capital 38, 96, 668. 822 Surveys of Consumers 250 Rules, home mortgage disclosure Ill System Open Market Account holdings .... 519, 521, 530, 531, 532 Rules Regarding Availability of Information 52, 105 Rules Regarding Delegation of Authority 97 TECHNICAL Committee of the International Organisation of Securities Commissions (IOSCO) 38 S. 1405, statements 326-30, 332-6 Terms of Business Lending, Survey of, article 604—15 Same-day settlement rule 338 Thompson, Portia W., EEO Programs Adviser, Saving rate 159 Office of Board Members, retirement 39 Section 20 subsidiaries 337, 350 Thrift Institutions Advisory Council, new members 95 Securities holdings 396, 529, 530 Thrift institutions, C&l lending 1025-37 Self-testing privilege 95, 107 Through-the-cycle grading 899 Semiconductors, production of 79 Tier 1 leverage capital standard 538, 673, 833—4-1 Settlement systems 38 Tier 2 leverage capital standard 841-4 Shack-Marquez, Janice, appointed Assistant Director, Tinsley, Peter A., Deputy Associate Director, Division Division of Research and Statistics 99 of Research and Statistics, retirement 1061 Shannon, David L 39, 456 To Their Credit: Women-Owned Businesses, videotape 1060 Siegman, Charles J., Senior Adviser, Division of Towne Bancorp, Inc., enforcement action 1060 International Finance, retirement 456 Towne Bank, enforcement action 1060 Small businesses, loans to 707 Trade deficit, US 311 Smith, Dolores S., appointed Director, Division of Trading activities, report 38 Consumer and Community Affairs 456 Trading and Capital-Markets Activities Manual, 1998 339 Snyder, Barry R., appointed Inspector General, Transportation equipment, production of 80 Office of the Inspector General 540 Travelers Corp., public meeting scheduled 669 Social security reform, statement 627, 925 Treacy, William F., article 897 SOMA (System Open Market Account) ... 519, 521, 530, 531, 532 Treasury and Federal Reserve foreign exchange Sound Practices for Loan Accounting, Credit operations, articles 174-9, 420-25, Risk Disclosure and Related Matters, 716-21, 1038-43 Basle Committee paper 1059 Treasury. U.S. Department of the, Benchmark Survey Staff Study summary, Cost of bank regulation: of U.S. Ownership of Foreign Long-Term Securities 318 A review of the evidence 252 Truman, Edwin M. Standard & Poor's bond rating scale 900 Appointed Senior Adviser, Division of State and local governments, expenditures 163 International Finance 941 Statements to the Congress (including reports and letters) Nomination to Assistant Secretary for International Anti-money-laundering efforts (Herbert H. Biern) 639^3 Affairs, U.S. Treasury, Chairman Greenspan's Antitrust issues related to mergers and statement 941 acquisitions (Governor Meyer) 619-27 Truth in Lending (Reg. Z) Asia financial crisis (Chairman Greenspan) 257-62 Amendment 37, 47, 96 Bank mergers (Governor Meyer) 438-51 Official staff commentary 337 Circuit breakers for equity-related markets Proposed actions 97, 338 (Governor Phillips) 184 Reform 730-5,746 Commodity Exchange Act and derivatives Truth in Lending Act 268 transactions (Board of Governors of the Truth in Savings (Reg. DD) 338, 746. 797, 940, 949-55 Federal Reserve System) 636-9 Tulpan, Ted, article 517 Consumer price index (Governor Gramlich) 451-3 Developments in world finance (Chairman Greenspan) 30-2 U.S. current account balance 309 Electronic payment services (Governor Ferguson) 628-32 U.S. economy and monetary policy, statements 183, 262-7 Federal Reserve and Year 2000 U.S. international transactions in 1997, article 309-21 (Governor Kelley) 25-31, 433-8, 929-35 U.S. trade deficit 311 Federal Reserve note and Euro bank note (Theodore E. Allison) 1054-6 Financial Services Act of 1998, H.R. 10 VARIABLE-rate loans, disclosure regulation 96 (Chairman Greenspan) 647-59 Videotape, To Their Credit: Women-Owned Businesses 1060 Global financial system (Chairman Greenspan) 186-90, 325, 536, 926-9, 936-8 WAGES and compensation 165 Home mortgage loans, streamlining disclosure Ways to Simplify Consumer Disclosures in requirements (Governor Meyer) 725-7 Home-Secured Loans, joint report 746 Long-Term Capital Management, hedge fund Weighting scheme for indexes 815 Chairman Greenspan 1046—50 Weis, John R., appointed Adviser to the Staff Director for William J. McDonough 1050-54 Management 39 Medicare program (Chairman Greenspan) 429—33 Wells Fargo & Company 823 Over-the-counter derivatives (Chairman Greenspan) 742 Whitesell, William C., appointed Assistant Director, S. 1405 (Governor Meyer) 326-30, 332-6 Division of Monetary Affairs 749 Social security reform (Governor Gramlich) 627, 925 Wiles, William W., Secretary of the Board. Office Social Security's Federal Old-Age. Survivors, of the Secretary, retirement 455 and Disability Insurance benefits program World finance, statement 30-2 (Chairman Greenspan) 32-5 World Wide Web site, Board's new address 748 Truth in Lending Act and RESPA, reform (Governor Gramlich) 730-5 YEAR 2000 U.S. economy and monetary policy Council, Governor Ferguson appointed chairman 746 (Chairman Greenspan) 183, 262-7, 330-2, Federal Reserve readiness, statements 25-31, 433-8, 632-6, 643-7, 735^2 659-67, 929-35 Year 2000 (Y2K), computer systems, and Information systems readiness 1058 international finance (Ernest T. Patrikis) 659-67 Public awareness program 29 Stekler, Lois E., article 309 Young, Florence M., Assistant Director, Division of Stevens, Richard C, promoted to Deputy Director, Reserve Bank Operations and Payment Systems, Division of Information Resources Management 748 retirement 340 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis