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American Bankers Association (7)
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Arthur F. Burns Papers
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The original documents are located in Box B1, folder "American Bankers Association (7)"
of the Arthur F. Burns Papers at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
WILLIS ALEXANDER
Date 4-29-75
Dr. Burns -
this telegram was
delivered to each member
of Congress this morning.
Willin
FORD i LIBRARY GERALD
THE AMERICAN BANKERS ASSOCIATION
April 28, 1975
Please send following text to all members of U.S. House of Representatives
and all members of United States Senate:
Frankly, we are concerned. The confidence so necessary for economic
recovery and the resulting job creation we all seek requires a commitment
by the Congress to a return to budgetary balance when the nation's level of
economic activity recovers. This commitment would provide assurance that
expenditure priorities will be achieved within the limitations of revenues
available.
Thoughtful Americans were heartened when the 93rd Congress passed
the Congressional Budget and Impoundment Control Act. It provided reassuring
evidence that the Congress recognized the need for improving its procedures
for dealing with federal revenues and expenditures. The Act made it possible
for the Congress to take an annual look at the total amount of federal
revenues and expenditures for each fiscal year rather than considering each
appropriation separately with little thought as to the final total cost. And
even more significantly, the Act raised the prospect of a longer range commitment
to balancing expenditures with revenues.
While last year's rampant inflation was the result of several causes,
many monetary theorists have identified the federal deficits in 15 of the last
16 years as the major driving force behind the inflationary trend toward
excessive monetary expansion over the past decade. Your constituents no
doubt have communicated their concern with repeated budget deficits. We
feel the American public is gravely concerned that the current discussion
of federal revenue and expenditure estimates for the FY 1976 seems to center
solely on the size of the deficit which can be "safely" financed.
GERALD FORD LIBRARY
Page 2
Similarly, financial markets have begun to react negatively to the
borrowing needs forecast by the huge deficit. To frame this discussion
solely in terms of a deficit which can be accommodated by the market implies
that the only limit upon expenditure should be the ability to borrow.
It is rather widely recognized that sufficiently accommodative monetary
policy can in a given period make possible financing a very large deficit.
The risks of rekindling the inflationary spiral as this policy gradually
works its way through the economic system are equally well known -- and
equally feared.
Moreover, it is impossible to predict precisely how large a deficit
for FY 1976 can be accommodated without crowding out private sector credit
demands or unacceptably raising interest rates, because there are so many
variables.
What then do we propose?
We urge that the spending ceilings currently under discussion be further
reduced to lower the expected deficit. Such action will have a positive
psychological effect and will minimize the potentially disruptive market
impact. We believe a target spending ceiling of $350 billion should be
approved. In the absence of increased revenues this would result in a
deficit of no more than $55 billion for fiscal year 1976.
This action coupled with an expressed commitment to a balanced budget
when economic activity recovers will provide the necessary credibility for
the budget reform program the Congress is implementing and the Nation so
desperately needs.
George L. Whyel
President, American Bankers Association
Vice Chairman of the Board
Genesee Merchants Bank and Trust Co.
Flint, Michigan
BERALD FORD LIBRARY
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GOVERNORS
CHAIRMAN OF THE BOARD OF GOVERNORS
OF
SYSTEM
FEDERAL RESERVE SYSTEM
THE
WASHINGTON, D.C. 20551
RESERVE
May 5, 1975
Mr. Willis Alexander
Executive Vice President
American Bankers Association
1120 Connecticut Avenue, N.W.
Washington, D. C. 20036
Dear Mr. Alexander:
Your letter of April 17 and the accompanying copy of
Mr. Lowrie's letter to Chairman Bomar reflect your Association's
concern over the competitive effects of recent actions of the Federal
Home Loan Bank Board. As a means of reestablishing a competitive
balance, you urge the Board and the other bank regulators to remove
the present interest rate differential on time and savings deposits.
In addition, you request action to prescribe uniform interest rate
ceilings for Individual Retirement Accounts and to remove the long-
standing prohibition against commercial bank acceptance of corporate
savings accounts.
The Board recently rescinded its long-standing prohibition
on telephone withdrawals from savings deposits and issued for comment
proposed amendments to Regulation Q that would permit preauthorized
withdrawals from savings deposits. The Board's staff is currently
engaged in a review of the recent Individual Retirement Account
legislation in order to assist the Board in considering whether
changes in its regulations are appropriate to implement the purposes
of this legislation and to facilitate the offering of these accounts
by member banks. In addition, in response to recent requests, the
staff is also reviewing the legal and policy issues relevant to the
removal of the long-standing prohibition against corporate savings
accounts. Numerous comments on these issues have been received by
the Board in recent months, including your Association's letters of
September 27, 1974 and March 18, 1975.
The Board and the other Federal financial regulatory agencies
recently reviewed interest rate differentials among commercial banks
and thrift institutions during consideration of the status of public
unit deposits. As you know, in November 1974, interest rate differentials
GERALD FORD GBRARY
Mr. Willis Alexander
-2-
were removed on time deposits of governmental units. It is expected
that the appropriateness of maintaining interest rate differentials
will again be discussed by the agencies during their consideration
of possible regulatory amendments relating to Individual Retirement
Accounts.
Sincerely yours,
Arthur F. Burns
FORD & LIBRARY GERALD
Mr Allison
Mr. Axilred
TEA
(fx reply
AMERICAN BANKERS ASSOCIATION 1120 CONNECTICUT AVENUE, N. W., WASHINGTON, D.C. 20036
EXECUTIVE VICE PRESIDENT
WILLIS W. ALEXANDER
202/467-4211
April 17, 1975
'C: Partee
O'lonne
The Honorable Arthur F. Burns
#1570
Chairman
Board of Governors of the
Federal Reserve System
Washington, D. C. 20551
Dear Chairman Burns:
Attached is a copy of our letter addressed to Chairman Bomar of the
Federal Home Loan Bank Board documenting our judgment that the Board's
actions in significantly expanding the powers and authorities of savings and loan
associations is contrary to the goal of balanced financial reform and not in the
public interest.
The cumulative effect of the Federal Home Loan Bank Board's grants
of expanded powers capped now by this week's decision by the Board to permit
expanded entry into the consumer loan market (including unsecured lending
authority) and the granting of unrestricted third-party payment powers virtu-
ally eliminates, in the consumers' perception, the remaining substantive
differences between banks and savings and loan associations.
Our Association continues to believe that the proper approach for
effecting such far reaching changes in powers of competing depository institu-
tions is through congressional consideration of comprehensive reform. We
understand that the Federal Reserve Board subscribes to this approach. The
Financial Institutions Act offers this prospect. Desirable as this is in princi-
pal, reality forces the recognition that these changes in the powers of financial
institutions are being conferred by regulatory fiat.
The existence of interest rate differentials between banks and thrift
institutions on the rates they pay savers has long discriminated against bank
savers. Continuance of rate differentials is becoming increasingly inequitable
due to the changes in the relationship of powers between thrift institutions and
banks. As a matter of public policy, this inequity to the consumer is indefensi-
ble. We urge you to join with the other bank regulators, and hopefully Chairman
Bomar, in eliminating this unfair competitive disparity.
GERALD FORD CIBRARY
THE AMERICAN BANKERS ASSOCIATION
CONTINUING OUR LETTER OF April 17, 1975
SHEET No. 2
In the interim, while these discussions are under way, we request
affirmative action on the matters of prescribing uniform interest ceilings
for Individual Retirement Accounts, as outlined in our letter of March 18,
1975, and the removal of the archaic prohibition against commercial bank
acceptance of corporate savings accounts, as raised with the Board in our
letter of September 27, 1974.
Swift correction of these disparities would be an encouraging sign
that the Board recognizes the competitive significance of the Federal Home
Loan Bank Board's actions.
Sincerely yours,
Millis alexanch
Willis W. Alexander
Executive Vice President
CC: The Honorable George W. Mitchell
The Honorable Henry C. Wallich
The Honorable John E. Sheehan
The Honorable Robert C. Holland
The Honorable Jeffrey M. Bucher
The Honorable Philip E. Coldwell
Mr. Theodore E. Allison
GERALE FORD VIBRABIA
GOVERNMENT RELATIONS
AMERICAN BANKERS ASSOCIATION 1120 CONNECTICUT AVENUE, N.W., WASHINGTON, D.C. 20036
EXECUTIVE DIRECTOR
GERALD M. LOWRIE
202/467-4097
April 17, 1975
The Honorable Thomas R. Bomar
Chairman
Federal Home Loan Bank Board
320 First Street, N.W.
Washington, D. C.
20552
Dear Chairman Bomar:
The April 14 decision of the Federal Home Loan Bank Board to issue
regulations authorizing savings and loan associations, regulated by the Board,
to enter on a much-expanded basis -- the consumer lending market through
service corporations and multiple savings and loan holding companies, coupled
with the decision by the Board to allow unrestricted third-party transfer
powers to the same institutions, has, in our judgment, finally and completely
eroded any meaningful or significant differences between savings and loan
associations and banks as these institutions are perceived and understood by
the consumer.
The significant expansion in the consumer service powers of savings and
loan associations recently granted by the Board are, of course, a matter of
record. Such powers range from expansion of savings and loan lending authority
into unsecured consumer loans, mobile home financing, home appliance financing,
etc., to enhancement of deposit accounts through regulations authorizing
travelers' convenience withdrawals, negotiable certificates of deposit, and
service as trustees of pension funds.
Even as we are expressing these views on your April 14 decision, our
Association is in the process of formulating a response to an invitation by your
Board to comment on proposals which would further expand the powers of federal
associations to make unsecured loans. Here again is still further evidence of the
erosion of any justifiable reason for maintaining any differences between insti-
tutions you regulate and those represented by our Association.
On a number of occasions, our Association has suggested to the Board
that the proper vehicle for effecting major changes in the relative powers or
responsibilities of competing depository institutions is through congressional
passage of comprehensive reform such as proposed in the Financial Institutions
Act. The Board's decision to circumvent congressional consideration of finan-
cial reform by implementing through unilateral action, those changes suggested
THE AMERICAN BANKERS ASSOCIATION
CONTINUING OUR LETTER OF April 17, 19
WASHINGTON, D.C.
SHEET No.
by the Act that are most beneficial for savings and loan associations, is a deci-
sion that is not in the long term best interest of the American public or the
depository institutions chartered to serve the public.
Notwithstanding the view of this Association that the route the Board is
pursuing is contrary to the overall public interest, in light of the Board's recent
actions, we wish to suggest that the Board consider a companion action that we
feel would promote and serve the public's right for equity and fairness.
More specifically, we suggest that your Board actively support the elimina-
tion of the discriminatory interest differential now imposed on commercial banks
in the maximum rates they are permitted to pay their savers, as opposed to the
higher rates institutions under your supervision may pay their savers.
The historical reason for your Board's support of the maintenance of dif-
ferentials has been that savings and loan associations lack the full range of
consumer services offered by banks, and therefore need a rate advantage in order
to remain competitive in attracting savers to their institutions as opposed to
commercial banks.
Your actions on Monday of this week completely and finally invalidate this
argument which has, over the years, been used to justify and excuse the contin-
uance of interest rate differentials. Bank savers, however, continue to be
unfairly disadvantaged because the regulators involved -- your Board as well as
the federal banking agencies -- have not confronted old theories with new facts.
We suggest that failure to correct this abuse and denial of the rights and
privileges of bank savings customers would be a gross injustice.
We urge you, as the principal regulator behind the disruption of competitive
balance among financial institutions to now exert your recognized leadership in the
broader public interest -- savings depositors in all financial institutions -- rather
than maintaining a narrow interest focused only on those institutions you regulate.
We urge you to support, if not initiate, the removal of one of the few remaining
relics of difference between banks and savings and loan institutions as perceived by
most consumers interest rate differentials and allow the bank customer the
fairness of treatment he has long been denied in attempting to obtain the maximum
allowable rate of return on funds deposited in federally regulated financial insti-
tutions.
We look forward to your favorable consideration of our recommendation.
Sincerely,
CacaldLawnie
Gerald M. Lowrie
GERALD FORD LIBRARY
Executive Director
Government Relations
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
RELATIONS
202/467-4204
August 18, 1975
Mrs. Catherine Mallardi
Secretary to Chairman Burns
Board of Governors of the
Federal Reserve System
Washington, D. C. 20551
Dear Mrs. Mallardi:
There is enclosed for your information a copy of the agenda for the next
meeting of the Government Borrowing Committee. Please call to Chairman
Burns' attention that the Committee will be meeting in our offices at 1120
Connecticut Avenue, N.W. The Bender Building has another entrance on
L Street, near 18th Street. Our Board Room is on the 7th Floor.
The Committee will look forward, as usual, to meeting with Chairman Burns
at 4:00 p.m. on Tuesday, October 21, 1975.
I am also enclosing for Chairman Burns' information a list of the members
of the Government Borrowing Committee.
Sincerely,
John Jr J. Gill
GERALD FORD LIBRARY
AGENDA
GOVERNMENT BORROWING COMMITTEE
American Bankers Association
October 20, 21, & 22, 1975
Monday, October 20
6:00 p.m.
1/
Reception and Dinner
International Club of Washington
Wadsworth Room
Tuesday, October 21
9:15 a.m.
2/
Committee meeting in Board Room (7th Floor)
American Bankers Association
1120 Connecticut Avenue, N.W.
10:00 a.m.
3/
Committee to review slides in Room 2304
Treasury Building (15th Street Entrance)
11:00 a. m.
4/
Committee to meet with Undersecretary
for Monetary Affairs, Mr. Ed Yeo,
in Room 4426, Treasury Building, for
backgrounding
12:30 p.m.
2/
Luncheon
ABA Board Room
2:30 p.m.
2/
Committee to assemble in the ABA Board Room.
Chairman Burns (Federal Reserve Board) will
meet with the Committee at 4:00 p.m.
6:00 p.m.
1/
Reception and Dinner
International Club of Washington
Mediterranean Room
Wednesday, October 22
8:45 a.m.
4/
Committee to report its recommendations to
Secretary Simon and the Treasury Financing Group
in Room 4426 of the Treasury Building
1/ 1800 K Street, N.W. (approximately a 2 block walk from The Mayflower Hotel).
2/ This location is on Connecticut Avenue across from The Mayflower Hotel.
3/ Treasury will use the regular projection room on the second floor in the S. W. corner
corner of the building (corner facing the Mall and the White House).
4/ 4th floor Conference Room on west side of building near center elevators opposite
White House.
GERALD FORD LIBRARY
GOVERNMENT BORROWING COMMITTEE
Chairman: Robert M. Surdam
Chairman and Chief Executive Officer
National Bank of Detroit
RPA Box 116
Detroit, Michigan 48232
Andrew Benedict
Gabriel Hauge
Chairman of the Board
Chairman of the Board
First American National Bank
Manufacturers Hanover Trust
P. 0. Box 1351
350 Park Avenue
Nashville, Tennessee 37237
New York, New York 10022
Henry G. Blanchard
William M. Jenkins
Chairman of the Board
Chairman
Commercial National Bank of Kansas City
Seattle-First National Bank
P. 0. Box 1400
P.O. Box 3586
Kansas City, Kansas 66117
Seattle, Washington 98124
Alfred Brittain III
Ben F. Love
President
Chairman and Chief Executive Officer
Bankers Trust Company
Texas Commerce Bank, N. A.
P.O. Box 318, Church Street Station
P. O. Box 2558
New York, New York 10015
Houston, Texas 77001
Robert E. Bryans
C. Coleman McGehee
Vice Chairman of the Board
Chairman and Chief Executive Officer
Walker Bank & Trust Company
First and Merchants National Bank
P. O. Box 1169
P. O. Box 27025
Salt Lake City, Utah 84142
Richmond, Virginia 23261
Willard C. Butcher
Bruce M. Rockwell
President
President
The Chase Manhattan Bank, N.A.
Colorado National Bank of Denver
One Chase Manhattan Plaza
P.O. Box 5168, Terminal Annex Station
New York, New York 10015
Denver, Colorado 81217
A. W. Clausen
Ellmore C. Patterson
President and Chief Executive Officer
Chairman of the Board
Bank of America, N.T. & S.A.
Morgan Guaranty Trust Company
P.O. Box 37000
23 Wall Street
San Francisco, California 94137
New York, New York 10015
Richard P. Cooley
John H. Perkins
President and Chief Executive Officer
President
Wells Fargo Bank, N. A.
Continental Illinois National Bank and Trust Co.
P.O. Box 44000
231 South LaSalle Street
San Francisco, California 94144
Chicago, Illinois 60693
Gaylord Freeman
Howard C. Petersen
Chairman of the Board
Chairman of the Board
The First National Bank
The Fidelity Bank
P.O. Box A
Broad and Walnut Streets
Chicago, Illinois 60670
Philadelphia, Pennsylvania 19109
GERALD FORD LIBRARY
-2-
Government Borrowing Committee
Ex Officio
D. Thomas Trigg
Rex J. Morthland
Chairman and Chief Executive Officer
Chairman of the Board
National Shawmut Bank of Boston
The Peoples Bank and Trust Company of Selma
P.O. Box 2176
P.O. Box 799
Boston, Massachusetts 02106
Selma, Alabama 36701
(Past President, ABA)
ADVISORY MEMBERS
D. Dean Kaylor
George L. Whyel
Senior Vice President
Vice Chairman of the Board
National Bank of Detroit
Genesee Merchants Bank & Trust Company
P.O. Box 1041A
One East First Street
Detroit, Michigan 48232
Flint, Michigan 48502
(President, ABA)
Donald C. Miller
Executive Vice President
ABA Staff:
Continental Illinois National Bank & Trust Co.
231 South LaSalle Street
Hampton A. Rabon
Chicago, Illinois 60693
Consultant (202-467-4200)
Leland S. Prussia
John J. Gill
Executive Vice President and Cashier
Director (202-467-4204)
Bank of America, N.T. & S.A.
P.O. Box 37000
Lawrence Banyas
San Francisco, California 94137
Economic Consultant (202-467-4382)
James R. Sheridan
Gerald M. Lowrie, Executive Director
Senior Vice President
Government Relations (202-467-4097)
North Carolina National Bank
P.O. Box 120
William F. Ford, Executive Director
Charlotte, North Carolina 28201
Research and Planning (202-467-4018)
EX OFFICIO
Willis W. Alexander
Executive Vice President
The American Bankers Association
1120 Connecticut Avenue, N.W.
Washington, D. C. 20036
J. Rex Duwe
President and Chairman
The Farmers State Bank
P.O. Box 305
Lucas, Kansas 67648
(President-Elect, ABA)
W. Jarvis Moody
President
American Security & Trust Company
15th and Pennsylvania Ave. N.W.
Washington, D. C. 20013
(Chairman, ABA Savings Bonds Committee)
July 1975
GERALD FORD LIBRARY
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
1975OCT -6 AM 10: 38
THE AMERICAN BANKERS ASSOCIATION 1120 CONNECTICUT AVENUE, N. W., WASHINGTON, D.C. 20036
OFFICE OF THE CHAIRMAN
WILLIS W. ALEXANDER
EXECUTIVE VICE PRESIDENT
October 3, 1975
Dear Dr. Burns:
You are cordially invited to a reception honoring
our new President, J. Rex Duwe, of Lucas, Kansas, on
Tuesday evening, October 21, from 5:30 P.M. to 7:30 P.M.,
at the Decatur House, Jackson Place and H Streets, N.W.,
Washington (LaFayette Square entrance).
Please telephone your response to Miss Murray or
Miss McGowan at 467-4212.
Sincerely,
Willi Alexanch
The Honorable Arthur F. Burns
Chairman
Board of Governors of the
Federal Reserve System
Federal Reserve Board
Washington, D. C. 20551
FORD is LIBRARY GERALD
yes - if truible - Ad
no -
Called tent
October 28, 1975
Chairman Burns
Request of American Bankers
Association relating to new call
John D. Hawke, Jr.
report forms
ACTION REQUESTED: Approval of the attached letter (Attachment A)
responding to a request from the American Bankers Association
(Attachment B) asking for additional time to comment on the new
form of "call" report being proposed by the Board and the other
banking agencies. The ABA also asks that the Board abandon any
effort to make these new forms effective as of December 31, 1975.
DISCUSSION: On October 1, 1975, the Board, the FDIC and the
Comptroller of the Currency published for comment a new proposed
form of "call" report. The proposal covers both a "universal"
report of income and condition that would be filed by all banks,
as well as certain detailed supplemental schedules to be filed
only by large banks.
The Board's release stated that comments would be
received until November 1, 1975. This reflects the Board's
decision that the new form should be made effective as of
December 31, 1975. The ABA contends that this does not allow
them sufficient time to formulate comments on the proposal,
and has asked that the comment period be extended for an
additional 30 days.
The attached letter reiterates the Board's objective
of having the forms effective as of year end, and rejects the
request for an extension of the comment period. The draft
suggests the possibility, however, that certain of the detailed
supplemental schedules to be required from large banks may be
deferred. In addition, the draft indicates that the Board will
consider comments from the ABA after November 1, so long as they
are received prior to the final adoption of the new forms.
Governor Mitchell and Mr. Sigel participated in the
preparation of this draft.
Attachments
BERRAD FORD LIGRARY
October 28, 1975
Mr. Gerald M. Lowrie
Executive Director
Government Relations
American Bankers Association
1120 Connecticut Avenue, N. W.
Washington, D. C. 20036
Dear Mr. Lowrie:
I am writing in response to your letter of October 20,
1975, requesting an extension, until November 30, 1975, of the date
for submitting comments on the revised forms for income and condition
reports being proposed by the Board of Governors and the other Federal
banking agencies. You also request that the Board not attempt to
make the new forms effective for the 1975 year-end reports.
The new report forms are the result of joint efforts by
the banking agencies to resolve difficult questions of disclosure
relating to the condition and operations of banks. The Board believes
that it is important to afford some certainty with respect to these
disclosure questions at the earliest possible time. For that reason
the Board decided to have the new forms adopted in time to be used
for the December 31, 1975, call. In order to achieve this objective,
the Board found it necessary to provide that comments be submitted
by November 1. While we want to continue to strive to meet the
present schedule, I can assure you that the Board will consider
any comments the Association may submit, even after November 1, so
long as they are received before the Board takes action.
The Board recognizes that certain of the detailed schedules
that are being proposed for large banks, as supplements to the
"universal" income and condition reports, may present reporting banks
with immediate problems of information retrieval. While we do not
at present believe it is to delay the adoption of the
"universal" income and condition report forms, we would give serious
GERALD FORD LIBRARY
Mr. Gerald M. Lowrie
-2-
consideration to any suggestions that the American Bankers Association,
or its members, may have with respect to the filing date or the
effective date of certain of the large bank supplemental schedules.
Sincerely yours,
(signed)
Arthur F. Burns
JDH:red
FORD & QERALI LIBRARY
(Then
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
RELATIONS
202/467-4204
December 16, 1975
back
Mrs. Catherine Mallardi
Secretary to Chairman Burns
Board of Governors of the
Federal Reserve System
Washington, D. C. 20051
Dear Mrs. Mallardi:
There is enclosed for your information a copy of the agenda for
the next meeting of the Government Borrowing Committee. Please
call to Chairman Burns' attention that the Committee will be
meeting in our offices at 1120 Connecticut Avenue, N.W. The
Bender Building has another entrance on L Street, near 18th
Street. Our Board Room is on the 7th Floor.
The Committee will look forward, as usual, to meeting with
Chairman Burns at 3:30 p.m. on Monday, January 26, 1976.
I am also enclosing for Chairman Burns' information a list of
the members of the Government Borrowing Committee.
Sincerely,
Jan John J. Gill
BERALD FORD LIBRARY
AGENDA
GOVERNMENT BORROWING COMMITTEE
American Bankers Association
January 26, 1976
7:30 a.m.
Committee Meeting (7th Floor Board Room)
Continental Breakfast
American Bankers Association
1120 Connecticut Avenue, N.W.
8:00 a. m.
Committee to review slides
Treasury Building
15th and Pennsylvania Avenues, N.W.
8:45 a. m.
Committee briefing
Treasury Building
15th and Pennsylvania Avenues, N.W.
12:00 p.m.
Luncheon
ABA Board Room
5:00 p.m.
Committee to report its recommendations to
Secretary Simon and the Treasury Financing Group
Treasury Building
15th and Pennsylvania Avenues, N.W.
GENALD FORD LIBNARY
1975-1976 GOVERNMENT BORROWING COMMITTEE ROSTER
Chairman:
Willard C. Butcher
President
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10015
A. Robert Abboud
Richard P. Cooley
Deputy Chairman of the Board
President and Chief Executive Officer
The First National Bank of Chicago
Wells Fargo Bank, N.A.
One First National Plaza
Post Office Box 44000
Chicago, IL 60670
San Francisco, CA 94144
Andrew Benedict
Gabriel Hauge
Chairman of the Board
Chairman of the Board
First American National Bank
Manufacturers Hanover Trust
Post Office Box 1351
350 Park Avenue
Nashville, TN 37237
New York, NY 10022
Henry G. Blanchard
William M. Jenkins
Chairman of the Board
Chairman
Commercial National Bank of Kansas City
Seattle-First National Bank
Post Office Box 1400
Post Office Box 3586
Kansas City, KS 66117
Seattle, WA 98124
Guy W. Botts
D. Dean Kaylor
(Advisory Member)
Chairman of the Board
Senior Vice President
Barnett Bank of Jacksonville, N. A.
National Bank of Detroit
Post Office Box West Bay Station
Post Office Box 1041A
Jacksonville, FL 32203
Detroit, MI 48232
Alfred Brittain, III
Ben F. Love
President
Chairman and Chief Executive Officer
Bankers Trust Company
Texas Commerce Bank, N.A.
Post Office Box 318
Post Office Box 2558
Church Street Station
Houston, TX 77001
New York, NY 10015
C. Coleman McGehee
William A. Carpenter
Chairman and Chief Executive Officer
President
First and Merchants National Bank
Whitney National Bank of New Orleans
Post Office Box 27025
Post Office Box 61260
Richmond, VA 23261
New Orleans, LA 70161
Donald C. Miller
(Advisory Member)
A. W. Clausen
Executive Vice President
President and Chief Executive Officer
Continental Illinois National Bank & Trust Company
Bank of America, NT. & S. A.
231 South LaSalle Street
Post, Office Box 37000
Chicago, IL 60693
San Francisco, CA 94137
GERALD FORD LIBRABY
Ellmore C. Patterson
EX OFFICIO MEMBERS
Chairman of the Board
Morgan Guaranty Trust Company
Willis W. Alexander
23 Wall Street
Executive Vice President
New York, NY 10015'
American Bankers Association
1120 Connecticut Avenue, N.W.
John H. Perkins
Washington, DC 20036
President
Continental Illinois National Bank & Trust Company
231 South LaSalle Street
Hovey S. Dabney
President and Chairman of the Board
Chicago, IL 60693
National Bank and Trust Company
Post Office Box 711
Howard C. Petersen
Charlottesville, VA 22902
Chairman of the Board
The Fidelity Bank
(Chairman, ABA Savings Bond Committee)
Broad and Walnut Streets
Philadelphia, PA 19109
J. Rex Duwe
President and Chairman
J
Leland S. Prussia
(Advisory Member)
The Farmers State Bank
Executive Vice President and Cashier
Post Office Box305
Bank of America N. T. & S. A.
Lucas, KS 67648
Post Office Box 37000
(President, ABA)
San Francisco, CA 94137
W. Liddon McPeters
Bruce M. Rockwell
President
President
The Security Bank
Colorado National Bank of Denver
Post Office Box 1439
Post Office Box 5168
Corinth, MS 38834
Terminal Annex Station
(President-Elect, ABA)
Denver, CO 81217
George L. Whyel
James R. Sheridan
(Advisory Member)
Vice Chairman of the Board
Senior Vice President
Genesee Merchants Bank & Trust Company
North Carolina National Bank
One East First Street
Post Office Box 120
Flint, MI 48502
Charlotte, NC 28255
(Past President, ABA)
D. Thomas Trigg
Chairman and Chief Executive Officer
National Shawmut Bank of Boston
Post Office Box 2176
Boston, MA 02106
FORD is LIBRARY 9ERALD
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ab
X
ASSOCIATION
20036
allergen
FEDERAL ADMINISTRATIVE COUNSEL
John J. Gill
202/467-4204
February 26, 1976
Mrs. Catherine Mallardi
Secretary to Chairman Burns
Board of Governors of the
Federal Reserve System
20th and Constitution Avenue, N.W.
Washington, D. C. 20551
Dear Mrs. Mallardi:
There is enclosed for your information a copy of the agenda
for the next meeting of the Government Borrowing Committee.
Please call to Chairman Burns' attention that the Committee
will be meeting in our offices at 1120 Connecticut Avenue, N.W.
The Bender Building also has an entrance on L Street, near 18th
Street. Our Board Room is on the 7th Floor.
The Committee will look forward, as usual, to meeting with
Chairman Burns at 4:00 p.m. on Tuesday, April 27, 1976.
330
I am also enclosing for Chairman Burns' information a roster
of the members of the Government Borrowing Committee.
Sincerely,
John John J. Gill
GERALD FORD LIBRARY
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
April 26-28, 1976
AGENDA
Monday, April 26
6:00 p.m.
Reception and Dinner
Wadsworth Room
International Club of Washington
Tuesday, April 27
9:00 a.m.
Business Meeting
ABA Board Room
10:00 a.m.
Slide Presentation
Treasury Building
11:00 a.m.
Briefing Session
Treasury Building
12:30 P. m.
Luncheon
ABA Board Room
4:00 p.m.
Briefing Session with Chairman Burns
Board of Governors of the Federal Reserve System
ABA Board Room
6:00 p.m.
Reception and Dinner
Mediterranean Room
International Club of Washington
Wednesday, April 28
9:45 a.m.
Presentation of Committee Report
Treasury Building
International Club 1800 K Street, N.W.; Washington - L Street entrance
ABA Board Room - 1120 Connecticut Avenue, N.W., Washington - 7th Floor
Treasury Building - 15th and Pennsylvania Avenue, N.W., Washington
Rooms to be announced at the meeting
FORD is GERALD LIBRARY
1975-1976 GOVERNMENT BORROWING COMMITTEE ROSTER
Chairman:
Willard C. Butcher
President
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10015
A. A. Robert Abboud
Chairman of the Board
D. Dean Kaylor (Advisory Member)
Senior Vice President
The First National Bank of Chicago
National Bank of Detroit
One First National Plaza
Post Office Box 1041A
Chicago, IL 60670
Detroit, MI 48232
Andrew Benedict
Chairman of the Board
Ben F. Love
First American National Bank
Chairman and Chief Executive Officer
Post Office Box 1351
Texas Commerce Bank, N.A.
Nashville, TN 37237
Post Office Box 2558
Houston, TX 77001
Henry G. Blanchard
Chairman of the Board
C. Coleman McGehee
Commercial National Bank of Kansas City
Chairman and Chief Executive Officer
Post Office Box 1400
First and Merchants National Bank
Kansas City, KS 66117
Post Office Box 27025
Richmond, VA 23261
Guy W. Botts
Chairman of the Board
Donald C. Miller (Advisory Member)
Barnett Bank of Jacksonville, N.A.
Executive Vice President
Post Office Box West Bay Station
Continental Illinois National Bank and
Jacksonville, FL 32203
Trust Company
231 South LaSalle Street
William A. Carpenter
Chicago, IL 60693
President
Whitney National Bank of New Orleans
Philip H. Nason
Post Office Box 61260
Chairman of the Board
New Orleans, LA 70161
The First National Bank of St. Paul
332 Minnesota Street
A. W. Clausen
St. Paul, MN 55101
President and Chief Executive Officer
Bank of America, N.T. & S.A.
Post Office Box 37000
Ellmore C. Patterson
San Francisco, CA 94137
Chairman of the Board
Morgan Guaranty Trust Company
Richard P. Cooley
23 Wall Street
President and Chief Executive Officer
New York, NY 10015
Wells Fargo Bank, N.A.
Post Office Box 44000
John H. Perkins
San Francisco, CA 94144
President
Continental Illinois National Bank and
William B. Eagleson, Jr.
Trust Company
Chairman of the Board and President
231 South LaSalle Street
Girard Bank
Chicago, IL 60693
Girard Plaza
Philadelphia, PA 19101
Howard C. Petersen
Chairman of the Board
The Fidelity Bank
Broad and Walnut Streets
FORD is LIBRARY 07VHF9
Philadelphia, PA 19109
Leland S. Prussia (Advisory Member)
ABA STAFF
Executive Vice President and Cashier
Bank of America, N.T. & S.A.
Post Office Box 37000
John J. Gill, Federal Administrative Counsel
(202) 467-4200
San Francisco, CA 94137
Bruce M. Rockwell
Lawrence Banyas, Senior Consultant
President
(202) 467-4382
Colorado National Bank of Denver
Post Office Box 5168
Gerald M. Lowrie, Executive Director
Terminal Annex Station
Government Relations (202) 467-4097
Denver, CO 81217
James R. Sheridan (Advisory Member)
Senior Vice President
EX OFFICIO MEMBERS
North Carolina National Bank
Post Office Box 120
Willis W. Alexander
Charlotte, NC 28255
Executive Vice President
American Bankers Association
D. Thomas Trigg
1120 Connecticut Avenue, N.W.
Chairman and Chief Executive Officer
Washington, D. C. 20036
National Shawmut Bank of Boston
Post Office Box 2176
Hovey S. Dabney
Boston, MA 02106
President and Chairman of the Board
National Bank and Trust Company
VTH Thomas R. Wilcox
Post Office Box 711
Chairman of the Board
Charlottesville, VA 22902
Crocker National Bank
(Chairman, Savings Bond Committee)
Post Office Box 38000
San Francisco, CA 94138
J. Rex Duwe
President and Chairman
The Farmers State Bank
Post Office Box 305
Lucas, KS 67648
(President, ABA)
W. Liddon McPeters
President
The Security Bank
Post Office Box 1439
Corinth, MS 38834
(President-Elect, ABA)
George L. Whyel
Vice Chairman of the Board
Genesee Merchants Bank & Trust Company
One East First Street
Flint, MI 48502
(Past President, ABA)
BERALD FORD LIBRARY
AMERICAN
1120 Connecticut Avenue. N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
ab
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John 1. Gill
RELATIONS
202/467-4204
June 25, 1976
Mrs. Catherine Mallardi
Secretary to Chairman Burns
Board of Governors of the
Federal Reserve System
20th & Constitution Avenue, N.W.
Washington, DC 20551
Dear Mrs. Mallardi:
There is enclosed for your information a copy of the agenda
for the next meeting of the Government Borrowing Committee.
Please call to Chairman Burns' attention that the Committee
will be meeting in our offices at 1120 Connecticut Avenue, N.W.
The Bender Building also has an entrance on L Street, near 18th
Street. Our Board Room is on the 7th floor.
The Committee will look forward, as usual, to meeting with
Chairman Burns at 3:30 p.m. on Tuesday, July 27, 1976.
I am also enclosing for Chairman Burns' information, a roster
of the members of the Government Borrowing Committee.
Sincerely,
JohnJ Giel John J. Gill
JJG:pl
Enclosure
Dev.
atterded
FORD 3 LIBRARY 038870
KCB
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
JULY 26-27, 1976
REVISED AGENDA
Monday, July 26, 1976
6:00 p.m.
Reception and Dinner
Wadsworth
International Club
Tuesday, July 27, 1976
8:30 a.m.
Business Meeting
ABA Board Room
9:00 a.m.
Slide Presentation
Room to be announced
Treasury Building
10:00 a.m.
Briefing Session
Room to be announced
Treasury Building
12:30 p.m.
Luncheon
ABA Board Room
5:00 p.m.
Presentation of Committee Report
Room to be announced
Treasury Building
International Club - 1800 K Street, NW, Washington, DC, L Street
entrance
ABA Board Room - 1120 Connecticut Avenue, NW, Washington, DC,
7th Floor
Main Treasury Building 15th Street & Pennsylvania Avenue, NW
Washington, DC - rooms to be announced at a later time
GERHAD FORD
1975-1976 GOVERNMENT BORROWING COMMITTEE ROSTER
Chairman: Willard C. Butcher
President
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10015
A. Robert Abboud
William B. Eagleson, Jr.
Chairman of the Board
Chairman of the Board & President
The First National Bank of Chicago
Girard Bank
One First National Plaza
Girard Plaza
Chicago, IL 60670
Philadelphia, PA 19101
Andrew Benedict
D. Dean Kaylor (Advisory Member)
Chairman of the Board
Senior Vice President
First American National Bank
National Bank of Detroit
P. 0. Box 1351
P. O. Box 1041A
Nashville, TN 37237
Detroit, MI 48232
Henry G. Blanchard
Ben F. Love
Chairman of the Board
Chairman & Chief Executive Officer
Commercial National Bank of Kansas City
Texas Commerce Bank, N.A.
P. 0. Box 1400
P. O. Box 2558
Kansas City, KS 66117
Houston, TX 77001
Guy W. Botts
C. Coleman McGehee
Chairman of the Board
Chairman & Chief Executive Officer
Barnett Bank of Jacksonville, N.A.
First & Merchants National Bank
P. 0. Box West Bay Station
P. O. Box 27025
Jacksonville, FL 32203
Richmond, VA 23261
William A. Carpenter
Donald C. Miller (Advisory Member)
President
Executive Vice President
Whitney National Bank of New Orleans
Continental Illinois National
P. 0. Box 61260
Bank & Trust Company
New Orleans, LA 70161
231 South LaSalle Street
Chicago, IL 60693
A. W. Clausen
President & Chief Executive Officer
Philip H. Nason
Bank of America, N.T. & S.A.
Chairman of the Board
P. O. Box 37000
The First National Bank of St. Paul
San Francisco, CA 94137
332 Minnesota Street
St. Paul, MN 55101
James H. Higgins
Chairman
Ellmore C. Patterson
Mellon Bank, N.A.
Chairman of the Board
Mellon Square
Morgan Guaranty Trust Company
Pittsburgh, PA 15230
23 Wall Street
New York, NY 10015
FORD
GERALD
LIBRARY
John H. Perkins
ABA Staff
President
Continental Illinois National
John J. Gill, Federal Administrative
Bank & Trust Company
Counsel
231 South LaSalle Street
202-467-4200
Chicago, IL 60693
Lawrence Banyas, Senior Consultant
Howard C. Petersen
202-467-4382
Chairman of the Board
The Fidelity Bank
Gerald M. Lowrie, Executive Director
Broad & Walnut Streets
Goverment Relations
Philadelphia, PA 19109
202-467-4097
Leland S. Prussia (Advisory Member)
Executive Vice President & Cashier
Bank of America, N.T. & S.A.
Ex Officio Members
P. O. Box 37000
San Francisco, CA 94137
Willis W. Alexander
Executive Vice President
Bruce M. Rockwell
American Bankers Association
President
1120 Connecticut Avenue, NW
Colorado National Bank of Denver
Washington, DC 20036
P. O. Box 5168
Terminal Annex Station
Hovey S. Dabney
Denver, CO 81217
President & Chairman of the Board
National Bank & Trust Company
James R. Sheridan (Advisory Member)
P. O. Box 711
Senior Vice President
Charlottesville, VA 22902
North Carolina National Bank
(Chairman, Savings Bond Committee
P. O. Box 120
Charlotte, NC 28255
J. Rex Duwe
President & Chairman
D. Thomas Trigg
The Farmers State Bank
Chairman & Chief Executive Officer
P. O. Box 305
National Shawmut Bank of Boston
Lucas, KS 67648
P. O. Box 2176
(President, ABA)
Boston, MA 02106
W. Liddon McPeters
Thomas R. Wilcox
President
Chairman of the Board
The Security Bank
Crocker National Bank
P. O. Box 1439
P. O. Box 38000
Corinth, MS 38834
San Francisco, CA 94138
(President-Elect, ABA)
George L. Whyel
Vice Chairman of the Board
Genesee Merchants Banks & Trust
Company
One East First Street
Flint, MI 48502
GERALD FORD ( BRARY
(Past President, ABA)
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
RELATIONS
202/467-4204
December 20, 1976
Mrs. Catherine Mallardi
Administrative Assistant
to Chairman Burns
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N. W.
Washington, D. C. 20551
Dear Mrs. Mallardi:
Enclosed for your information is a copy of the agenda for the next
meeting of the Government Borrowing Committee. Please call to Chairman
Burns' attention that the Committee will be meeting in our offices at
1120 Connecticut Avenue, N. W. The Bender Building also has an entrance
on L Street, near 18th Street. Our Board Room is on the 7th Floor.
The Committee will look forward to meeting with Chairman Burns, as usual,
at 3:30 p.m. on Tuesday, January 25, 1977.
Sincerely,
John Shel John J. Gill
se
JJG:bc
Encl.
GERALD R. FORD
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
JANUARY 24-25, 1977
AGENDA
Monday, January 24, 1977
6:00 p.m.
Reception and Dinner
Conference Room
International Club
Tuesday, January 25, 1977
8:30 a.m.
Business Meeting
ABA Board Room
9:00 a.m.
Slide Presentation
Projection Room, #2334
Treasury Building
10:00 a.m.
Briefing Session
Room 4426
Treasury Building
12:30 p.m.
Luncheon
ABA Board Room
3:30 p.m.
Committee Briefing with
Chairman Burns of the
Federal Reserve System
ABA Board Room
5:00 p.m.
Presentation of Committee Report
Room 4426
Treasury Building
International Club -- 1800 K Street, N. W., Washington, D. C., L Street entrance
ABA Board Room -- 1120 Connecticut Ave., N. W., Washington, D. C., 7th Floor
Main Treasury Building -- 15th Street & Pennsylvania Avenue, N.W., Washington, D. C.
GERALD AMERRIT R. FORD
AMERICAN
1120 Connecticut Avenue, N.W.,
BANKERS
Washington, D.C.
ASSOCIATION
20036
EXECUTIVE VICE PRESIDENT
Willis W. Alexander
202/467-4211
February 14, 1977
The Honorable Arthur F. Burns
Chairman
#
153
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Washington, D.C. 20551
Dear Dr. Burns:
Our officers join me in extending an invitation for you to address 350 banking leaders
assembled at the Capitol Hilton here in Washington on Thursday afternoon, February 24
at 2:30 P.M. It would be particularly appropriate if you could deal with the various
elements of change proposed by the Federal Reserve Staff Study recently forwarded to
the Congress. A talk of approximately thirty minutes duration with an opportunity for
questions for fifteen minutes would be ideal, if it is compatible with your inclina-
tion and time schedule.
A word about this group is, I think, appropriate. It includes ABA's 88-member Govern-
ment Relations Council (the group with primary responsibility for our legislative pos-
ture), ABA's Board of Directors, ABA's 150-member Governing Council (bankers elected
by their peers from the states) and finally, the President and staff executive of each
of the fifty state bankers associations. It should be noted that more than half of the
bankers assembled are from community banks.
The purpose of this meeting is to seek a consensus on the various elements of change in
the powers and regulation of America's financial institutions, which will place the
American Bankers Association in a position to help manage this change in the public in-
terest. This is a lofty goal but to seek less for banking and its customers would be
unfair to America's banks.
I hope this gives you a feel for the importance of this meeting and the objective we
have established. Your discussion of the realities of today's environment with these
banking leaders is most important.
Senator McIntyre will open this meeting with a luncheon address and we plan in addition
to the subjects raised by the Federal Reserve Staff Study, to consider the issues posed
by the National Commission on Electronic Fund Transfers preliminary report to the
Congress, as well as the credit unions' quest for expanded powers.
We all believe, Dr. Burns, that your presence at this meeting would significantly affect
its outcome. We look forward to hearing that you will accept this invitation.
Sincerely,
OFFICE
Willi
BERALD FORD
00 :2 Wd 11
SYSTEM HESERT FEDERAL
colled and
BOARD OF GOVERNORS
2/22/77
Outline for Talk by Chairman Burns
on February 24 before ABA Government Relations Committee
I. Our financial system has been moving toward payment of interest
on transactions balances. Process has accelerated in recent
years in large part through pressures originating with thrift
institutions and states.
A. Milestones in this process were:
1. September 1970--S&L's permitted to make preauthorized
non-negotiable transfers from savings accounts for
household-related expenditures.
2. June and September 1972--State-chartered mutual savings
banks first in Massachusetts and then in New Hampshire
w dad
began offering NOW accounts. - and alons wh. inter you
3. January 1974--Congress authorized all depository institu-
tions in Massachusetts and New Hampshire (except credit
dijn't
unions) to offer NOW accounts.
4. January 1974--First customer bank communication terminals
binter- win
installed in supermarkets by an S&L, permitting use of
savings account to pay for merchandise.
5. Early 1974 on--Money market funds became more important;
dirs
in many cases shareholders can write checks against
accounts.
6. August 1974--Credit union share drafts permitted
+
(similar to NOW accounts).
GERALD R. FORD
-2-
7. November 1974--Commercial banks authorized to accept
savings deposits from state and local governments
(matching authority at thrifts).
8. April 1975--Telephone transfer from savings accounts to
demand deposits authorized for commercial banks (matching
similar authority for thrift institutions).
9. April 1975-S&L's given authority to make preauthorized
third party non-negotiable transfers for any purpose.
10. September 1975--Similar authority granted to banks.
a
alms
11. November 1975--Banks authorized to offer savings accounts
to businesses, up to $150,000 per customer per bank.
12. February 1976--Federal legislation authorizing NOW
Tynan
accounts in remainder of New England
the
N.Y.
B. Banks have also competed by offering checking and other
z)
services below cost; thus pay implicit interest on demand
deposits.
wale
desmt
C. Movement toward explicit interest on transactions balances
store ,dn
has eroded old distinctions between demand and other deposits,
w
altered competitive relationship among institutions--more
so in some regions of the country than in others--and appears
to be gaining momentum. In practice, irreversible.
II. We have an opportunity to guide the evolution of the monetary
system, rather than to continue with piece-meal, costly, and
inequitable process by which interest is coming to be paid on
demand balances. Our thinking is going along the following line.
BERALD FORD
-3-
A. Extend NOW accounts nationwide.
1. Logical extension of recent innovations and developments.
2. Limit only to households (rather than households and
nonprofit as in New England).
3. Have lower reserve requirement than demand deposits, thus
easing cost burden.
bal
B. Establish an interest rate ceiling with no differential
between banks and other institutions--on NOW accounts (as
3
well as Credit Union share drafts).
1. Needed to moderate transitional pressures on financial
system.
2. Because of highly sensitive role of demand and other
transactions deposits in monetary policy, Federal Reserve
best given authority over ceiling rate, in consultation
with other interested agencies.
b
3. Ceiling should be somewhat lower than the 5 per cent
that currently prevails in New England.
C. Provide for a one or two year delay in the effective date
for nationwide NOW accounts following enactment.
2
1. Moderate transitional pressures by enabling banks to
plan more effectively such adjustments as may be
necessary in service charges on checks,
fees for other banking services, marketing strategy,
dirb
computer programs.
FORD is LIBRARY GERALD
-4-
2. Provide states with ample time to make complementary
regulatory or legislative changes.
D. Apply reserve requirements set by the Federal Reserve to
transactions balances at all institutions.
1.
Extends System reserve requirements to demand deposits
and NOW accounts at nonmember commercial banks, mutual
savings banks, S&L's, and credit unions.
2. Promotes competitive balance.
3. Helps assure effective implementation of monetary policy.
E. Permit interest to be paid on all required reserve balances
maintained at Federal Reserve Banks, with the interest rate
to be established by the Board.
b
1. Reduce competitive disadvantage of member banks.
a. Erosion in membership is potentially serious problem
for soundness of banking system.
b. In the absence of universal reserve requirements, member-
ship loss threatens effectiveness of monetary policy.
2. Helps offset cost of interest on transactions balances
(though would pay interest on all reserves of member banks,
whether held against demand or time and savings deposits).
3. Must consider level of interest rate on reserves carefully
in relation to impact on Treasury revenue, needs of small
and large banks, and pricing policy for Federal Reserve
services.
GERALD FORD F.
Lower ranges within which reserve requirements can be adjusted
and eliminate distinction between reserve city and other banks.
-5-
1. Permit us overtime to undo excessively complicated
graduated reserve requirement on demand deposits (with
average level of requirements substantially reduced as
move toward more uniform requirement by deposit size).
2. Permit lower requirements on time and savings deposits,
particularly those not closely involved in transactions.
III. I am not asking for your approval of this program at this time.
I am only asking that you do not jump to conclusions.
A. We are sensitive to potential effects on bank costs and
profitability, and therefore on the ability of banks to continue
financing our nation's economic growth.
B. But believe that we have balanced program that will minimize
transitional costs of inevitable movement toward payment
of interest on a broader range of deposits.
C. Would welcome your suggestions and comments on these difficult
and complex issues.
my Um thinking
wnu mismor
the JAY
but trught smithing mh- LBM - -
ab L layren
FORD is GERALD +
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
RELATIONS
202/467-4204
4200
March 16, 1977
Mrs. Catherine Mallardi
Administrative Assistant
to Chairman Burns
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D. C. 20551
Dear Mrs. Mallardi:
Enclosed for your information is a copy of the agenda for the next
meeting of the Government Borrowing Committee. Please call to
Chairman Burns' attention that the Committee will be meeting in the
Board Room on the 7th Floor of our offices at 1120 Connecticut Ave., N.W.
The Committee will look forward to meeting with Chairman Burns, as usual,
at 3:30 p.m. on Tuesday, April 26, 1977.
Sincerely,
John J. Gill
JJG:bc
Encl.
FORD is LIBRARY GERALD
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
April 25-26, 1977
AGENDA
Monday, April 25, 1977
6:30 p.m.
Reception and Dinner
Conference Room
International Club
Tuesday, April 26, 1977
8:30 a.m.
Business Meeting
ABA Board Room
9:00 a.m.
Slide Presentation
Treasury Building
(room to be announced)
10:00 a.m.
Briefing Session
Treasury Building
(room to be announced)
12:30 p.m.
Luncheon
ABA Board Room
3:30 p.m.
Committee Briefing with
Chairman Burns of the
Federal Reserve System
ABA Board Room
5:00 p.m.
Presentation of Committee Report
Treasury Building
(room to be announced)
International Club -- 1800 K Street, N.W., Washington, D.C., L Street entrance
ABA Board Room : - - 1120 Connecticut Ave., N.W., Washington, D.C., 7th Floor
Main Treasury Building -- 15th Street & Pennsylvania Ave., N.W., Washington, D.C.
FORD & LIBRARY GERALD
/
EXCERPT FROM
REPORT OF GOVERNMENT RELATIONS COMMITTEE
ASSOCIATION OF RESERVE CITY BANKERS
APRIL 4, 1977
GERALD LIBRARY FORD
At its meeting yesterday, the Committee dealt principally with the question of
interest on demand deposits.
The first question addressed by the Committee was the probability of legislation.
The consensus was that payment of interest on demand deposits as such is
inevitable in the long run; that proposals to provide for the payment of such
interest are almost certain to be introduced in the Congress in the near future;
that the most likely form of the proposed legislation is that set forth by Federal
Reserve Board Chairman Burns on various recent occasions (and confirmed at
Saturday evening's session); and that while the "package" advanced by Chairman
Burns should not be assumed to be certain of passage, the Committee should pro-
ceed to consider each specific element of that package in order to identify, and
form conclusions on, those which are likely to be of special concern to members
of the Association.
(continued)
Report of Government Relations Committee --3
ARCB, Phocnix, Arizona, April 4, 1977
The import of the Committee's decision to proceed in this fashion did not
reflect a formal approval, or disapproval, of the payment of interest on demand
deposits, or of the package anticipated from the Federal Reserve. Rather, it
reflected the pragmatic conclusion that to defer consideration, or to contem-
plate outright opposition to the strong trends now underway, would preclude.
the Association from playing the role it should in shaping the policy of the
American Bankers Association and the course of future legislation.
DERALD FORD CroRABY
The Committee focussed its attention on five key elements of the legislative
proposal anticipated from the Federal Reserve Board. The remainder of my
report, therefore, will present the views of the Committee on each of these
items.
FIRST "NOW" accounts will be proposed for all depository institutions,
including credit unions, with access to such accounts limited to "households".
The Committee recognized that the NOW account- a savings account against
which checks can be drawn--is in reality a special form of payment of interest
on demand deposits, and in itself is likely to be considered a transitional step
toward the payment of interest, eventually, on all demand accounts. A
minority of the Committee endorsed the idea of paying interest on all regular
checking accounts rather than devising a new instrument (i. e. the NOW) to
accomplish the same purpose. However, a majority of the Committee agreed
with the view that, if demand deposit interest were to become a reality, the
first and most probable step would be via the NOW account. This conclusion
by the Committee constituted neither approval or disapproval of the concept
of the NOW account, on which opinion was mixed but generally unfavorable,
but rather acceptance of the idea that the NOW constituted the most likely
transitional step.
The Committee was further of the view that NOW accounts should be the only
interest-bearing transactional account in any depository institution.
SECOND The anticipated legislation will include a provision for establishing
a uniform ceiling rate on all NOW accounts offered by all depository institutions,
at a level below that of the present passbook rate ceiling.
There was strong feeling among the members of the Committee that deposit
interest ceilings are not conducive to a free market. Some members of the
Committee suggested that a ceiling set considerably below the current passbook
ceiling of 5% would hamper the ability of commercial banks to compete with
thrift institutions, particularly so long as the latter institutions retained the
right to offer passbook savings at a 5 1/4% ceiling. However, the Committee
also concluded that the politics of the issue were almost certain to dictate
inclusion of the regulation of NOW interest rates, largely because of pressure
from smaller banks.
(continued)
Report of Government Relations Committee --4
ARCB, Phoenix, Arizona, April 4, 1977
After lengthy discussion of the rate ceiling question, the Committee concluded:
1. That it should reaffirm the traditional position of opposition
to interest ceilings;
2. Recognizing the concern of some parties that NOW interest
regulation is needed, the Federal Reserve should have
authority to apply ceilings on NOW account interest rates;
3. That if such ceilings are established, they should be uniform
for all depository institutions, regardless of type or size; and
4. That all deposit interest ceilings--on NOW accounts and on all
other savings and time accounts- should be removed not later
than five years from date of passage of the legislation.
THIRD -- The anticipated bill on NOW account legislation will provide for a
delay of one or two years (Chairman Burns mentioned "two years" at his
dinner speech) before the provisions become effective.
The Committee concluded that the interests of commercial banks would be best
served if the phase-in period could be held to one year. The reasons for this
are:
1. One year should be sufficient time for banks to prepare for NOW
accounts;
2. A longer period may give certain depository institutions an undue
competitive edge with respect to some instruments, such as the
offering of share-drafts by credit unions; and
3. A lengthy delay would penalize some New England commercial
banks--unless additional special legislation were enacted--
since they are already offering NOW accounts and thus need
immediately the regulatory safeguards anticipated in the
new legislation.
FOURTH -- It is expected that the Federal Reserve Board's proposal will ask
that reserve requirements be applied to all transactional balances in all
depository institutions, that such requirements be established solely by the
Federal Reserve, and that the reserve balances be lodged in Federal Reserve
Banks.
(continued)
BERALD FORD LIBRARY
Report of Government Relations Committee 5
ARCB, Phoenix, Arizona, April 4, 1977
The Committee recognized that full control of the nation's deposit reserve base
is a long-time and important goal of the Federal Reserve Board and many of
the members were sympathetic to this objective. However, the Committee
concluded that the inclusion of the kind of provision described by Chairman
Burns would arouse exceedingly strong opposition from non-member commercial
banks, as well as from many thrift institutions, and that such opposition would
in all likelihood be fatal to Chairman Burns' desire to assure an orderly transition
to payment of interest on demand deposits.
Accordingly, by unanimous vote, the Committee concluded that:
1. Provision should be made in the proposed legislation that
reserves be required against NOW accounts as distinguished
from all transactional balances, and that the percentage
requirements be uniform for all depository institutions
offering such accounts; and
BERALA FORD LIBRARY
2. Reserves against NOW accounts should be lodged with the
Federal Reserve by Federal Reserve member banks, and
should be lodged with the Federal Reserve or with member
banks of the Federal Reserve System by all other depository
institutions, at their option.
The question of how the level of reserves should be established, or by whom, was
not discussed at sufficient length to result in formal action by the Committee, but
the consensus view was that the uniform percentage requirement, whatever it may
be, would most appropriately be determined by the Federal Reserve Board.
FIFTH -- The anticipated legislation is expected to contain authorization for the
Federal Reserve to pay interest on required reserves.
The Committee recognized that the question of reserve interest is closely related
to the matter of a possible future unbundling of Federal Reserve services performed
for member banks, and the establishment of explicit charges for such services.
However, because of time constraints and, more importantly, because the
Committee wished to consider interest on reserves as an independent question, it
was decided to forego discussion of "unbundling" at this time.
Some members of the Committee favored payment of interest on reserves, noting
that this may be the only opportunity for Congressional approval of such payments.
Other members of the Committee felt that, to the extent that the proposal was
intended to assist bankers to bear the anticipated heavy transitional costs of
interest on demand deposits, a better solution was a reduction of reserve require-
ments. Proponents of this view argued that the present structure of reserve
requirements was archaic and inequitable; and, moreover, that if interest were
paid on reserve balances (in lieu of fundamentál reform of the present structure
(continued)
Report of Government Relations Committee --6 -
ARCB, Phoenix, Arizona, April 4, 1977
of reserve requirements), commercial banks were opening themselves up to
possible adverse legislation in the future, such as various asset allocation
schemes.
While the Committee did not take a formal vote on this issue, the consensus
view favored reform of the reserve requirement structure, through lower
and more equitable requirements, rather than the payment of interest on
reserves. In forming this conclusion, the Committee was cognizant of the
fact that payment of interest on reserves is important to the Federal Reserve
in its efforts to deal with its membership problem.
That concluded the Committee's deliberations on this matter and it is intended
that its views be carried to the upcoming meeting of the ABA Government
Relations Council to assist in forming an industry position on these proposals.
Respectfully submitted,
Gordon T. Wallis
Chairman
GERIAL FORD TORANT
This document
went out of
2
existence a Fter
April 27, 1977
WORKING DRAFT Do Floor discussion
Consensus Statement by Government Relations Council
FOR USE AT ABA BANKING LEADERSHIP MEETING ONLY
During its February meeting the Government Relations Council concluded that the indus-
try and the public would be best served by a willingness on the part of the ABA to work
constructively toward development of a proposal which would: 1) address a number of com-
petitive inequities affecting our customers; 2) provide the option of making consumer sav-
ings accounts more useful; and 3) make membership in the Federal Reserve System less bur-
densome.
It was stipulated in February that any acceptable proposal should meet all of our
criteria for determining policy, with strong emphasis on ensuring that all well-managed
banks, regardless of size, would be able to continue to serve their customers profitably
and effectively.
The Council and ABA staff have been pursuing the goals set forward in the February
meeting. We have made progress toward gaining acceptance of some of our ideas by the Fed
eral Reserve Board as it prepares legislation to be introduced very soon. For instance,
the Fed has shown a willingness to address the competitive inequities created by the credit
union share draft "experiment," as well as the gross inequity of the interest rate differ-
ential, which creates a competitive imbalance and thus limits the consumer's choice in the
marketplace. Its action on IRA and Keogh accounts is testimony to this point.
The Council's conclusion as a result of this meeting is that we should continue to
pursue banking's goal of achieving equitable treatment of its customers relative to those
of other financial institutions. To that end, we support legislation providing banks and
other depository institutions the option of offering consumers a "checkable savings
account" (we want to use a term customers will understand, rather than "NOW," a lawyers'
phrase) provided it meets the requirements outlined in the attachment.
Nationwide NOW accounts would not be an unmitigated blessing for all consumers, how-
ever. There could be some who would be disadvantaged. A full, public examination of the
impact of nationwide NOW accounts on consumers should therefore be a part of any legisla-
tive consideration of NOW accounts.
The Council further concluded that linking legislation authorizing the Federal Reserve
to pay interest on the required reserves of member banks to the so-called "NOW account"
proposal is premature. We recognize the membership problem of the Fed and want to con-
tribute to its solution. However, a decision on how to reduce the burden of Fed member-
ship should not be made until the Fed has stated its proposals relative to "unbundling"
the pricing of its services to members and nonmembers, followed by study and debate of
the total question of how to ease Fed membership burdens.
The Council, therefore, would not support legislation on this issue until the recom-
mended steps are taken. The Fed's preliminary proposals may stand the test of detailed
scrutiny, but the hazards of premature action are great.
GERALD FORD
Mr. Chairman- The ABA Accided
at would not be approprinte to
Carry This forward into Do Mc Peters
release -
(Attachment)
An acceptable plan for "checkable savings" (NOW accounts) which could be offered
by depository institutions as an optional service:
Such an account would be the only interest-bearing transaction account permitted
for all banks, thrifts and credit unions.
Parity of interest rate ceilings and reserve requirements must be established for
institutions which offer such accounts (including credit unions). Rates and re-
serve requirements would be set by the Federal Reserve System.
No class of Fed "membership" or affiliation would be compulsory.
Reserves of nonmember banks on NOW accounts may be held at any correspondent bank.
Uniform reserves on NOW accounts offered by other depository institutions would
be held by the Federal Reserve or other depositories by agreement with the Fed.
The statutory rate differential must be removed from the Interest Rate Control Act.
The rate differential must be removed by action of the regulators from all classes
of savings accounts for any institution which elects to offer consumer transaction
accounts.
The National Credit Union Administrator would become a member of the Interagency
Coordinating Committee, which would impose a discipline of rate ceilings upon
credit unions similar to that which exists for other types of financial institu-
tions.
The Fed should provide banks the additional option of offering pre-authorized
transfers from savings to checking accounts.
The "checkable savings" account must be limited to customers who meet the strict
definition of a household account. (The Connecticut law stipulates that only a
"natural person" may hold such an account. This, for example, excludes profes-
sional and farm business accounts.) This law is a potential model for the lan-
guage to be used.
A one-year preparation or transition period must be allowed between enactment
and implementation of the law.
The New England banks, however, would immediately gain the parities stipulated
in this legislation upon its enactment. That is, the legislation would take
effect immediately in the six New England states.
The public interest requires that effective regulation and examination be applied
to all financial institutions offering transaction account services.
###
BERALD FORD LIBRARY
3
May 2, 1977
To:
Board of Governors
Subject: President McPeters' Statement
Outlining the ABA's Decision
From: Ken Guenther
on Nationwide NOW Accounts-
Interest on Reserve Balances
Legislative Initiative
President McPeters' press release is attached.
FORD & LIBRARY GERALD
April 29, 1977
Statement
By W. Liddon McPeters
President
American Bankers Association
Last February, ABA's first Banking Leadership Meeting decided to preserve
its options to work toward development of a legislative proposal which would:
remove a number of inequities, including those which deprive bank customers of
a competitive rate of interest on their savings; allow banks the option of mak-
ing consumer savings accounts more useful; and make membership in the Federal
Reserve System less burdensome.
Yesterday, the same group of banking industry leaders met again and de-
cided that the questions of greatest concern to them all boil down to fair
treatment for bank customers and banks. Bankers want their customers to be
able to receive the same rates of interest available at other institutions.
Bankers also want to avoid imposing on their customers the added costs of un-
equal reserve requirements, service restrictions, regulation and taxation.
While we have been encouraged by the recent action of the Fed and the FDIC
allowing banks parity with other financial institutions in the rate ceilings
on Individual Retirement Accounts and Keogh Accounts, gross inequities in the
treatment of bank customers and banks remain.
The participants in the Banking Leadership Meeting directed the ABA to
make an all-out effort, on behalf of bank customers, to obtain full competitive
equity with thrift institutions. They further directed that as a part of this
effort, ABA should support legislation which would give banks and other deposi-
tory institutions the option of offering consumers the opportunity to write
checks on a new type of savings account. (Lawyers call this a NOW account; we
prefer to allow another name for this consumer service to evolve, one which con-
sumers can better understand.)
While recognizing that a clear link exists between this proposal and the
proposal to allow the Fed to pay interest on required reserves it holds, we
believe that neither part of the package should be acted upon before more de-
tailed expression and discussion of the second proposal have taken place and a
resolution has been reached. Our concern is to preserve the dynamic balance
between the Fed's ability to implement monetary policy and the dual banking sys-
tem's innovative strength.
Our primary goal is to achieve parity for bank customers and banks, and
our willingness to support legislation allowing this new type of account and
to participate in the search for a way to make Fed membership less onerous for
banks is dependent upon the achievement of that objective.
(more)
GERALD FORD LIBRARY
Statement by W. Liddon McPeters
Page two
The participants in the Banking Leadership Meeting therefore spelled out
the basic elements of an acceptable legislative and regulatory plan which would
first achieve parity and then allow financial institutions to offer this new
type of account as an optional service to their customers. Those elements are:
Parity OF interest rate ceilings, reserve requirements and treatment @E
reserves on such new accounts must be established for the benefit of
customers of all institutions which offer such accounts.
The statutory interest rate differential must be removed from the Interest
Rate Control Act. The advantage of the rate differential must be removed
by regulatory action from all classes of savings accounts for any institu-
tion which elects to offer check-like accounts. The National Credit Union
Administrator must become a member of the Interagency Coordinating Committee;
thus, the same rate ceilings which exist for other. types of financial insti-
tutions would apply to credit unions.
The new type of account must be the only interest-bearing transaction account
permitted for all banks, thrifts and credit unions -- or for any other insti-
tutions which now or in the future offer such accounts. The new account
would be an alternative to, and not a replacement for, conventional checking
and savings accounts. This would apply also to any interest-bearing accounts
on which demand-type withdrawals via electronic terminals are permitted.
Reserves on this type of account at banks which are not Fed members could be
held at any correspondent bank. Uniform reserves on those accounts offered
by depository institutions other than banks would be held by the Fed or by
other depositories by agreement with the Fed. No class of Fed membership or
affiliation would be compulsory for any financial institution.
The new type of account must be limited to customers who meet the strict
definition of a household account. (The Connecticut NOW account law stipu-
lates that only a "natural person" may hold such an account. This, for
example, excludes professional and farm business accounts. This law is a
potential model for the language to be used.)
FORD LIBRARY
A one-year preparation or transition period must be allowed between enact-
ment and implementation of the law. In the six New England states, however,
the law would take effect immediately, giving banks in those states the
parity provided in the legislation.
Full, effective regulation and examination must be applied to all financial
institutions offering this new type of account. The public interest demands
this.
The Fed and the FDIC should provide banks the additional option of offering
pre-authorized transfers from savings to checking accounts.
We believe that this proposal meets all of ABA's criteria for policy-setting.
Particularly, it ensures that all well-managed banks, regardless of size, would be
able to continue to serve their customers profitably and effectively.
###
te to Editors: Attending this year's second Banking Leadership Meeting were the leaders O
1 50 state bankers associations and of most of the other banking trade associations, as we
the ABA's Board of Directors, Governing Council, Government Relations Council, Communication
ncil, Education Policy and Development Council and Economic Advisory Committee.)
May 3, 1977
Catherine:
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Helen McAnulty from ABA called with the list of names who
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.8
will be attending a meeting tomorrow at 5 p.m. with Dr. Burns.
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10
1. Tom C. Frost, Jr. (Tom)
Chairman
Frost National Bank
San Antonio, Texas
2. Richard D. Hill (Dick)
Chairman
The First National Bank of Boston
3. Gilbert F. Bradley (Gil)
Chairman
The Valley National Bank
Phoenix, Arizona
4. Thomas I. Storrs (Tom)
Chairman of Executive Committee
North Carolina National Bank
Charlotte, North Carolina
5. Ronald A. Terry (Ron)
Chairman of the Board
The First Tennessee Banks
Memphis, Tennessee
6. Stuart A. Lewis (Stu)
Director, Government Relations
Association of Reserve City Bankers
Washington, D. C.
7. W. Liddon McPeters (Liddon)
President, ABA also
President
The Security Bank
Corinth, Mississippi
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FORD : LIBRARY GERALD
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May 4, 1977
Mr. Chairman:
Bits and Pieces Which May be Useful for 5:00 P.M.
Meeting with Reserve City Bankers and ABA
A. Stu Lewis (Washington representative) of the Reserve City
Bankers called to say that the group meeting with you will seek reassur-
ance re the political viability of the proposal to pay interest on
reserve balances. They fear that it cannot be sold politically and
that it will leave the banks open to political attack.
I told Stu that the political battle that seems to be
shaping up is not over the principle of paying interest on reserve
balances; rather over the authority of the Federal Reserve to set
the rate of interest, etc. (i.e., the recent Proxmire letter indicating
that "Congress would be wise to insist upon a clear and specific under-
standing of exactly how the authority would be used before considering
any legislation."
B. I reviewed my notes from the Greenbriar meeting last
night and came across the following:
(1) Jerry Lowrie advises that we not sell NOW accounts as a
step
transition/looking towards the eventual payment of interest on demand
deposits. That this scares small bankers silly.
(2) In Greenbriar Ron Terry stated at the meeting--
"We are after parity--not NOW accounts. If we lose on
getting the differential back to the regulators, we go
against the legislative package."
GERALD FORD LIBRARY
-2-
Ron Terry and others in public comments--
"We all recognize that many member banks and many
State associations oppose what we have decided this
morning. We must undertake a massive education
process--a massive sales job--otherwise, the posi-
tion we have adopted will not be transmitted by
our members to the Hill."
C. Miscellaneous
Jerry Lowrie--John Hieman, the Comptroller of the
Currency Designate, testified in support of the Proxmire Single
Bank Regulatory bill. (last year)
Jerry Lowrie-Some member banks are leaving the Fed to
get away from the Comptroller of the Currency as a regulator. Since
the departure of Jim Smith, it is an unbelievable mess over there."
K
Ken Guenther
FORD & LIBRARY 0ERALD
Mr. Chairman-- Re- Meeting with Reserve City Bankers and ABA Officials
For your handy reference, three documents are attached.
(1) The paper that came out of the Phoneix meeting of the
Reserve City Bankers which puts forward their concerns with the concept
of paying interest on reserve balances.
(2) The consensus statement by the Government Affairs Council
which was put forward to the ABA membership at the Greenbriar meeting.
Based upon discussions with Govn. Jackson and myself, McPeters and Ron
Terry (Chairman of the Government Relations Council) changed this
statement to substantially strengthen the linkage between NOW accounts
and interest on reserve balances. Note that the original statement
flatly stated:
11 The Guncil further concluded that linking legislation authorizing
the Federal Reserve to pay interest on the required reserves of
member banks to the so-called NOW account proposal is premature"
(3) The McPeters press release which reflects the new ABA
consensus namely:
" While recognizing that a clear link exists between this
proposal (nationwide NOW accounts) and the proposal to allow the FED
to pay interest on required reserves it holds, we believe that neither
part of the package should be acted upon before more detailled expression
and discussion of the second proposal have taken place and a resolution
has been reached."
to
Tomorrow then looks/this detailled expression and discussion
which hopefully will lead to support of the linked legislative package.
FORD LIBRARY is
K
Ken G.
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
202/467-4200
RELATIONS
June 8, 1977
Mrs. Catherine Mallardi
Administrative Assistant
to Chairman Burns
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D. C. 20551
Dear Mrs. Mallardi:
Enclosed for your information is a copy of the agenda for the next
meeting of the Government Borrowing Committee. Please call to
Chairman Burns' attention that our Committee will be meeting in the
Board Room on the 7th Floor of our offices at 1120 Connecticut Ave., N. W.
The Committee will look forward to meeting with Chairman Burns, as usual,
at 3:30 p.m. on Tuesday, July 26, 1977.
Sincerely,
John J. Gill
JJG:bc
Encl.
for
FORD i LIBRARY GERALD
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
July 25-26, 1977
AGENDA
Monday, July 25, 1977
6:30 p.m.
Reception and Dinner
Conference Room
International Club
Tuesday, July 26, 1977
8:30 a.m.
Business Meeting
ABA Board Room
9:00 a.m.
Slide Presentation
Room 2334
Treasury Building
10:00 a.m.
Briefing Session
Room 4121
Treasury Building
12:30 p.m.
Luncheon
ABA Board Room
3:30 p.m.
Committee Briefing with
Chairman Burns of the
Federal Reserve System
ABA Board Room
5:00 p.m.
Presentation of Committee Report
Room 4121
Treasury Building
International Club -- 1800 K Street, N.W., Washington, D.C., L Street Entrance
ABA Board Room -- 1120 Connecticut Avenue, N.W., Washington, D.C., 7th Floor
Main Treasury Building -- 15th St. & Pennsylvania Ave. ,N.W., Washington, D. C.
FORD & LIBRARY GERALD
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
BOARD OF GOVERNORS
ASSOCIATION
20036
OF THE
FEDERAL RESERVE SYSTEM
1977 JUN 13 AM 11: 00
EXECUTIVE DIRECTOR
GOVERNMENT RELATIONS
OFFICE OF RECEIVED THE CHAIRMAN
Gerald M. Lowrie
202/467-4097
June 9, 1977
Attached for your use and review is the draft of the ABA
bill that is now in the hands of the staff of the Senate
Banking Committee. It is our expectation that this bill
will be introduced at the time the Administration-Fed
bill is introduced. I thought you might want an early
copy.
FORD 3 LIBRARY GERALD
SECTION-BY-SECTION SUMMARY OF ABA DRAFT BILL
1. Ceilings and reserve requirements for savings accounts used
to pay bills. Federal law now prohibits depository institutions from
paying interest on accounts that may be used as checking accounts, except
in New England. The first section of the bill lifts this prohibition,
allowing institutions throughout the United States to pay interest on
accounts from which transfers to third parties may be made, subject to
three conditions.
First, the depositor must be an individual. Payments to others
must be for his personal purposes, and not for any business or other
organization.
Second, interest payments on the account and advertising must
comply with rules prescribed by the FRB.
Third, if the institution is a Federal Reserve member bank, a
Federally-chartered thrift institution, or a member of a Federal Home
Loan Bank, it must maintain reserves against such account in the
percentage applied to such accounts by the FRB.
2. Amendments to Federal Reserve Act. Subsection (a) of section
2 authorizes the Federal Reserve Board to fix reserve requirements of
not less than 2% nor more than 12% against interest-bearing deposits or
accounts from which transfers to third parties may be made. These
requirements apply to members of the Federal Reserve System or the
Federal Home Loan Bank System, and to Federal credit unions. The
FORD is LIBRARY GERALD
statutory range of reserve requirements on other time and savings
deposits at Fed member banks (now 3% to 10%) is lowered to not less
than 1% nor more than 7%. For demand deposits at Fed member banks, the
range (now 10% to 22% in reserve cities and 7% to 14% elsewhere) becomes
5% to 20%. All institutions that offer accounts subject to reserve
- 2 -
requirements must make reports to the Federal Reserve regarding their
liabilities on such accounts and the reserves required against them.
Subsection (b) requires members of the Federal Home Loan Bank
System and Federal credit unions to hold reserves against their third-
party-payment accounts in vault cash or at Federal Reserve Banks (the
same as Fed member banks must do), except that Federal Home Loan Bank
members may hold their reserves at a Federal Home Loan Bank if it, in
turn, holds them as vault cash or at a FRBank.
Subsection (b) also authorizes the Federal Reserve System to pay
interest on required reserves it holds for member banks and nonmember
thrift institutions. The rate paid will be the same for all institutions,
and for all reserve balances, regardless of size. Interest paid in any
fiscal year must not exceed 10% of required reserves held at the
beginning of the year.
Subsection (c) authorizes the Federal Reserve Board to regulate
payment and advertising of interest on third-party-payment accounts
at nonmember depository institutions that are subject to rate ceilings.
The FRB now has this authority for Fed member banks; the bill transfers
rule-making authority over interest-bearing third-party-payment accounts
to the FRB from the FDIC (for insured nonmember banks) and the FHLBB
(for savings and loan associations) and creates new authority in the
FRB and NCUA for insured credit unions. The FRB rules will be enforced
by FDIC, FHLBB, and NCUA for institutions under their jurisdictions. If
any nonmember institution that is not otherwise subject to Federal rate
ceilings accepts third-party-payment accounts, all of its deposits become
subject to FRB regulation as to interest and advertising.
BERRAD FORD LIBRARY
Section 19 of the Federal Reserve Act already authorizes the FRB
to define terms used in the section and prescribe regulations to prevent
- 3 -
evasions; this authority would also apply to the new provisions regarding
third-party-payment accounts that are added by the bill.
3. Amendments to the Federal Deposit Insurance Act. Section 3 transfers
from the FDIC to the FRB rule-making authority over payment and
advertising of interest on third-party-payment accounts at nonmember
insured banks. It also includes the Administrator of the National Credit
Union Administration among the officials FDIC must consult before fixing
rate ceilings on other deposits.
4. Savings and loan associations. Subsection (a) of section 4
transfers from the Federal Home Loan Bank Board to the FRB rule-making
authority over payment and advertising of interest on third-party-payment
accounts at savings and loan associations. It also includes the
NCUAdministrator among the officials the FHLBB must consult before fixing
rate ceilings on other accounts.
Subsection (b) authorizes Federal savings and loan associations to
allow transfers from savings accounts to third parties, provided rate
ceilings, advertising rules, and reserve requirements are complied with.
5. Credit Unions. Section 5 authorizes Federal credit unions to
offer interest-bearing third-party-payment accounts and the Administrator
FORD i LIBRARY 074870
of the National Credit Union Administration to prescribe rate ceilings
for all accounts at insured credit unions other than third-party-payment
accounts (which will be subject to FRB rules). The authority is the same
as the FRB, FDIC, and FHLBB have as to interest paid by institutions under
their jurisdictions ( and so covers advertising about interest, as well).
Before setting rate ceilings, the Administrator must consult with the other
agencies.
6. Uniform rate ceilings for institutions offering third-party-
payment accounts. Section 6 provides that every institution that maintains
checking accounts or other accounts from which transfers to third parties may
- 4 -
be made (whether it is a commercial bank or any other kind of institution)
shall be subject to the same rate ceilings on all of its time and savings
deposits as any other institution that offers such third-party-payment
accounts. Ceilings may still differ for different types of deposits
(ceilings may be higher for 4-year certificates than for passbook accounts,
for example), but for any one type of deposit the same ceiling will apply
at all such institutions.
7. Extension of rate ceiling authority. Under present law authority
to fix rate ceilings will revert to its pre-1966 form on December 15, 1977.
Section 7 of the bill extends this date to December 15, 1980, at which
time the new rate ceiling authority for credit unions will also expire.
Subsection (c) repeals the present statutory requirement that rate
differentials in effect on December 10, 1975, between commercial banks and
thrift institutions must be continued unless they are eliminated or reduced
with the approval of both Houses of Congress.
8. Effective dates. To allow time for preparation, the effective
date of the bill is delayed for one year in States where NOW accounts are
prohibited. But in New England the bill takes effect 60 days after enactment.
DERALD FORD
A BILL
To provide for equitable regulation of savings accounts used to make payments to
third parties, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That subsections (a) and (b) of section 2 of
Public Law 93-100 (12 U.S.C. 1832(a) and (b)) are amended to read as follows:
"Sec. 2. (a) No depository institution shall allow the owner of any
deposit or other account on which interest or dividends are paid to transfer
funds from the account (by check, negotiable order of withdrawal, pre-authori-
zation, electronic instruction, or any other means) to third parties unless--
"(1) the account is owned by one or more natural persons and
transfers from the account to third parties are made for personal
purposes of the owner and not to make payments on behalf of any
business or other organization;
"(2) payment and advertisement of interest or dividends on the
account comply with applicable provisions of section 19(j) of the
Federal Reserve Act; and
"(3) if the institution is a member of the Federal Reserve
System, a member of the Federal Home Loan Bank System, or a Federal
credit union, reserves against the account are maintained, and reports
are made, in accordance with applicable provisions of section 19 of
the Federal Reserve Act.
"(b) For the purposes of this section, 'depository institutions' means a bank
(including a savings bank or industrial bank), a savings and loan association
(including any other type of institution eligible for membership in a Federal Home
BERALD FORD LIBRARY
- 2 -
Loan Bank), a credit union, or any other institution that accepts deposits or
other accounts from which the owner is allowed to make withdrawals on demand or
after notice of thirty days or less. The Board of Governors of the Federal
Reserve System is authorized for the purposes of this section to define further
the terms used in this section."
Sec. 2. (a) The last sentence of subsection (b) of section 19 of the Federal
Reserve Act (12 U.S.C. 461) is designated as paragraph (5) and that part of sub-
section (b) that precedes that sentence is amended to read as follows:
"(b) (1) Every member bank shall maintain reserves against its demand deposits
in such average ratio, not less than 5 per centum nor more than 20 per centum, as
shall be determined by the Board.
"(2) Every member bank, every member of a Federal Home Loan Bank, and every
Federal credit union shall maintain reserves against its savings deposits from
which transfers to third parties may be made in such average ratio, not less
than 2 per centum nor more than 12 per centum, as shall be determined by the
Board.
"(3) Every member bank shall maintain reserves against its time and savings
deposits other than those referred to in paragraph (2), in such average ratio,
not less than 1 per centum nor more than 7 per centum, as shall be determined by
the Board.
"(4) Every depository institution that maintains reserves pursuant to this
section shall make reports concerning its deposit liabilities and required
reserves at such times and in such manner and form as the Board may require."
(b) Section 19(c) of the Federal Reserve Act (12 U.S.C. 461) is amended to
read as follows:
GERALO FORD LIBRARY
- 3 -
(c) Reserves held by any depository institution to meet the requirements
imposed pursuant to subsection (b) of this section shall be in the form of--
"(1) balances maintained for such purpose by such institution
at a Federal Reserve Bank, and
"(2) the currency and coin held by such institution, and
"(3) balances maintained by a depository institution in a Federal
Home Loan Bank of which it is a member, if the Federal Home Loan Bank
holds such balances in the form of currency and coin or at a Federal
Reserve Bank.
Interest may be paid on required reserve balances maintained at Federal Reserve
Banks, at a single, uniform rate to be prescribed by the Board, regardless of the
size of the balance or the type of institution for which it is held. In deter-
mining the rate, the Board shall consider such factors as the effect on the
Treasury of the United States, safety and soundness of depository institutions,
and competitive balance among depository institutions. The interest paid by all
Federal Reserve Banks on such balances in any fiscal year shall not exceed 5 per
centum of total required reserve balances maintained at Federal Reserve Banks at
the beginning of that fiscal year."
(c) The first sentence of section 19(j) of the Federal Reserve Act (12 U.S.C.
371b) is amended to read as follows: "The Board may from time to time, after
consulting with the Board of Directors of the Federal Deposit Insurance Corporation,
the Federal Home Loan Bank Board, and the Administrator of the National Credit
Union Administration, prescribe rules governing the payment and advertisement of--
"(1) interest on time and savings deposits at member banks, and
"(2) interest or dividends on deposits from which transfers to
third parties may be made at nonmember institutions that are insured
GERALD FORD LIBRARY
- 4 -
by the Federal Deposit Insurance Corporation, the Federal Savings and
Loan Insurance Corporation, or the National Credit Union Administration,
or are otherwise subject to section 18 (g) of the Federal Deposit Insurance
Act (12 U.S.C. 1828 (g)) or section 5B of the. Federal Home Loan Bank Act
(12 U.S.C. 1425b), and
"(3) interest or dividends on all deposits at any other nonmember
depository institution that allows the owner of any deposit to transfer
funds from the deposit to third parties,
including limitations on the rates of interest or dividends that may be paid on
such deposits."
(d) Section 19(j) of the Federal Reserve Act is further amended by adding at
the end thereof the following new sentences: "Compliance by nonmember institutions
with rules prescribed under this subsection shall be enforced under--
"(1) section 8 of the Federal Deposit Insurance Act, by the Board
of Directors of the Federal Deposit Insurance Corporation, in the case
of any institution insured under that Act;
"(2) sections 6(i) and 17 of the Federal Home Loan Bank Act,
section 5(d) of the Home Owners Loan Act of 1933, and section 407 of
the National Housing Act, by the Federal Home Loan Bank Board (acting
directly or through the Federal Savings and Loan Insurance Corporation),
in the case of any institution subject to any of those provisions;
"(3) the Federal Credit Union Act, by the Administrator of the
National Credit Union Administration, in the case of any institution
insured under that Act; and
"(4) section 8 of the Federal Deposit Insurance Act, by the Board
of Governors of the Federal Reserve System, in the case of any other
nonmember institution.
FORD is LIBRARY GERALD
- 5 -
The authority of the Board to prescribe rules under this subsection does not
impair the authority of the Board of Directors of the Federal Deposit Insurance
Corporation, the Federal Home Loan Bank Board, or the Administrator of the
National Credit Union Administration to make rules respecting their own procedures
in enforcing compliance with such rules. For the purpose of their exercise of
power under any Act referred to in this subsection, a violation of any rule
prescribed under this subsection shall be deemed to be a violation of a require-
ment imposed under that Act. In addition to its powers under any such Act, each
such agency may exercise, for the purpose of enforcing compliance with any rule
prescribed under this subsection, any other authority conferred on it by law."
Sec. 3. The second sentence of section 18 (g) of the Federal Deposit In-
surance Act (12 U.S.C. 1828 is amended (1) by striking "The" and inserting
"Except as otherwise provided in section 19(j) of the Federal Reserve Act, the"
and (2) by striking "and the Federal Home Loan Bank Board" and inserting a comma
and the following: "the Federal Home Loan Bank Board, and the Administrator of
the National Credit Union Administration".
Sec. 4. (a) The first sentence of subsection (a) of section 5B of the Federal
Home Loan Bank Act (12 U.S.C. 1425b(a)) is amended (1) by striking "The" and in-
serting "Except as otherwise provided in section 19(j) of the Federal Reserve
Act, the" and (2) by striking "and the Board of Directors of the Federal Deposit
Insurance Corporation" and inserting a comma and the following: "the Board of
Directors of the Federal Deposit Insurance Corporation, and the Administrator of
the National Credit Union Administration".
(b) The last sentence of paragraph (1) of section 5(b) of the Home Owners
Loan Act of 1933 (12 U.S.C. 1464(b)(1)) is amended to read as follows: "Transfers
to third parties may be made from any savings account on which interest or dividends
GERALD
LIBRARY
- 6 -
are paid provided the requirements of section 2(a) of Public Law 93-100 (12 U.S.C.
1832(a)) are met."
Sec. 5. (a) Paragraph (6) of section 107 of the Federal Credit Union Act,
as amended, (12 U.S.C. 1757) is amended by striking the period at the end thereof
and inserting in lieu thereof a semicolon and the following: "transfers to third
parties may be made from share accounts provided the requirements of section 2 (a)
of Public Law 93-100, as amended (12 U.S.C. 1832(a)), are met."
(b) Section 201 (b) of the Federal Credit Union Act (12 U.S.C. 1781 (b)) is
amended by redesignating paragraphs (7), (8), and (9) as paragraphs (8), (9), and
(10), respectively, and by inserting after paragraph (6) the following new para-
graph:
"(7) to comply with rules prescribed by the Board of Governors
pursuant to section 19(j) of the Federal Reserve Act and by the
Administrator pursuant to section 209 of this Act regarding payment
and advertisement of interest and dividends;"
(c) Section 209 (a) of the Federal Credit Union Act (12 U.S.C. 1789 is
amended by adding at the end thereof the following new sentences: "Such rules
may contain provisions governing the payment and advertisement of interest and
dividends (including limitations on the rates of interest and dividends that may
be paid) on any accounts of any insured credit union other than accounts subject
to regulation by the Board of Governors of the Federal Reserve System pursuant to
section 19(j) of the Federal Reserve Act. The Administrator may prescribe different
rate limitations for different classes of accounts, for accounts of different amounts
or with different maturities or subject to different conditions regarding with-
drawal or repayment, or according to such other reasonable bases as he deems
desirable in the public interest. Before prescribing rules governing payment
FORD i LIBRARY GERALD
- 7 -
and advertisement of interest or dividends, the Administrator shall consult with
the Board of Governors of the Federal Reserve System, the Board of Directors of
the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board. "
Sec. 6. For all institutions that maintain any account (whether interest
bearing or not) from which the owner is allowed to make transfers to third
parties, limitations on rates of interest and dividends prescribed under section
19(j) of the Federal Reserve Act, section 18 (g) of the Federal Deposit Insurance
Act, section 5B of the Federal Home Loan Bank Act, and section 209(a) of the
Federal Credit Union Act shall be the same. Different rate limitations may be
prescribed for different classes of deposits at such institutions, but the
limitation for any one class of deposit shall be the same for each such institu-
tion, whether it is a commercial bank, a savings and loan association, or another
type of institution.
Sec. 7. (a) Effective December 15, 1980--
(1) So much of section 19 (j) of the Federal Reserve Act as precedes the third
sentence thereof is amended to read as it would without the amendments made by
this Act and by section (c) of the Act of September 21, 1966 (Public Law 89-597)
(2) the second and third sentences of section 18(g) of the Federal Deposit
Insurance Act are amended to read as they would without the amendments made by
this Act and by section 3 of the Act of September 21, 1966 (Public Law 89-597)
(3) sections 201 (b) and 209(a) of the Federal Credit Union Act are amended
to read as they would without the amendments made by this Act;
(4) the last four sentences of section 19(j) of the Federal Reserve Act, as
added by this Act, are repealed; and
(5) section 5B of the Federal Home Loan Bank Act is repealed.
(b) Section 7 of the Act of September 21, 1966 (Public Law 89-597) is repealed.
BERALD R. FORD
- 8 -
(c) Effective on the date of enactment of this Act, section 102 of Public
Law 94-200 (12 U.S.C. 46lnote) is repealed.
Sec. 8. The first six sections of this Act shall take effect on the last
day of the twelfth month that begins after this Act is enacted, except that with
respect to institutions in Connecticut, Maine, Massachusetts, New Hampshire,
Rhode Island, and Vermont they shall take effect on the sixtieth day that begins
after this Act is enacted.
BERALD FORD LIBRARA
AMERICAN
1120 Connecticut Avenue, N.W.,
BANKERS
Washington, D.C.
BOARS OF ORVERNORS TEL
ASSOCIATION
20036
REDERAL RESERVE OF SYSTEM
1977 AUG -3 PM 1: 07
EXECUTIVE VICE PRESIDENT
OFFICE OF RECEIVED THE CHAIRMAN
Willis W. Alexander
202/467-4211
August 2, 1977
The Honorable Arthur F. Burns
Chairman
Board of Governors of the
Federal Reserve System
Federal Reserve Building
Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Dr. Burns:
We are deeply grateful for your taking the time late Thursday afternoon to
visit with the nearly 300 bankers assembled at the Washington Hilton. As
is always the case, you were impressive in sharing with them your perspec-
tive, and I hope their response and demeanor adequately conveyed to you the
high respect in which they hold you.
As the issues involved in these proposals make their way through the laby-
rinth which is our legislative process, I hope that we may continue to avail
ourselves of opportunities in the future for similar dialogues with you and
our leadership group.
Sincerely,
Willis
FORD & LIBRARY GERALD
AMERICAN
1120 Connecticut Avenue.
BANKERS
Washington. D.C.
ASSOCIATION
20036
1977 NOY
ECONOMIC
CHAIRMAN
ADVISORY
Leif H. Olsen
COMMITTEE
Senior Vice President and
OFFICE
Economist
Citibank
November 10, 1977
H1642
399 Park Avenue
New York. New York 10022
212/559-4278
DIRECTOR
P. Michael Laub. Ph.D.
202/467-4021
The Honorable Arthur F. Burns
ASSOCIATE DIRECTOR
Charles F. Hoffman, Ph.D.
Chairman
202/467-4014
Board of Governors of the
Federal Reserve System
Washington, D.C. 20551
Dear Arthur:
The American Bankers Association is most interested in continuing a
dialogue with the Federal Reserve on the burden of Federal Reserve
membership. Bankers are particularly concerned about suggestions to
discriminate against particular size classes of banks in the payment
of interest on reserves, and the role of the Federal Reserve vis-a-
vis the private sector in the provision of payments services. We
are certain this will be one of the major issues before Congress next
year, and feel that such a dialogue would be useful to both our
organizations.
As Chairman of the Association's Economic Advisory Committee, I would
to
be pleased if you could attend a dinner meeting of our Committee on
Sunday, December 4. Our Committee is composed of 13 senior economist
representing a cross section of leading American bankers. I have
attached a list of the members. We plan to include a few guests from
the Association's Government Relations Council. While this is a smal
group, the Advisory Committee's primary responsibility is to advise
Pans
the Government Relations Council of the ABA on the economic content o
public issues affecting the banking industry. For example, we have
circulated the Federal Reserve's "The Burden of Federal Reserve Membe
ship, NOW Accounts, and the Payments of Interest Reserves" among memb
of our Committee for comments. A summary of those comments is also
enclosed.
The meeting will begin with cocktails at 6 p.m. in the Danube Room of
the International Club at 1800 K Street, N.W., Washington, D.C.
Following dinner we would invite you to make whatever comments you
would wish about the Federal Reserve's membership problem to be
followed by general discussion and questions. We would be pleased
to welcome other Governors of the Federal Reserve and/or staff member
that you might like to have attend with you if you think it is
appropriate.
Called
will
GERALD FORD LIBRARA
The Honorable Arthur F. Burns
Page 2
November 10, 1977
Discussions need not be confined to the matter of Federal Reserve
membership. We would be prepared to share with you concerns we
might have about the general state of the economy, the attitudes of
the banking community regarding monetary policy and other subjects
which might be of interest to you.
Mike Laub of the ABA staff will call your office in a few days to
get your response to this invitation. I hope you will be able to
accept.
Best personal wishes.
Sincerely yours,
Day Leif H. Olsen
LHO:tra
FORD is LIBRARY GERALD
VIEWS OF THE ECONOMIC ADVISORY COMMITTEE & OTHER BANKERS ON THE
FEDERAL RESERVE'S STAFF STUDY, "THE BURDEN OF FEDERAL RESERVE
MEMBERSHIP, NOW ACCOUNTS, & THE PAYMENT OF INTEREST ON RESERVES"
The Economic Advisory Committee is skeptical of the view
that reserve requirements are a necessary tool for monetary
control. Even if they are, we believe there is still room
for a lowering of reserve requirements without any significant
dimunition in the ability of the Federal Reserve to exercise
adequate monetary control. This is an easy and straightforward
way of relieving the Federal Reserve's membership burden.
The Federal Reserve Staff Study implicitly assumes, by
reason of its research design, that the burden of Federal Re-
serve membership varies uniformly with size of bank, and,
therefore, that measures to relieve this burden can be imple-
mented equitably by giving different amounts of relief to
different size classes of banks. While it is true that more
and more large banks are withdrawing from the Fed, in general,
this assumption is invalid. Product mix, market orientation,
and management policies frequently swamp both commonality of
size among some banks and extreme size differences among others.
One example of how this assumption led the Federal Reserve
FORD is LIBRARY GERALD
Staff astray is in their analysis of ratio of before tax
earnings to total assets by size of bank. The study draws an
implicit conclusion from the fact that "the differences between
member and non-member bank earnings (relative to assets) tend
to decline with bank size, as does the rate of attrition" (of
Federal Reserve membership). There are several problems with
- 2 -
this conclusion which were not investigated in the Staff
Study. For example, before tax income as a measure of pro-
fitability involves substantial variability among banks of
comparable after-tax earnings because of the varying proportion
of tax-free income, such as interest on state and local secu-
rities, and depreciation and investment tax credits on leased
property. The inclusion of foreign earnings and assets is a
further problem. Foreign operations are generally associated
with larger banks although the relationship is far from con-
sistent. In any case, large amounts of foreign deposits are
not subject to reserve requirements, and, for this type of
business, Federal Reserve membership poses few problems.
This is hardly a justifiable reason for discriminating against
larger banks in relieving the burden that Federal Reserve
membership imposes on domestic business. During the years
1974 - 1976 many banks increased provisions for credit losses
by amounts which dwarfed the cost of meeting Federal Reserve
reserve requirements. Without prejudging the incidence of
these increases by bank size or membership status, one must
look askance on an analysis which takes no account of them.
Finally, any conclusions reached from this study about the
relationship between membership burden and size would implicitly
apply to banks over $1 billion in size. Yet, the study admits
that the number of non-member banks in this category is so
small as to make any conclusions tenuous.
FORD is LIBRARY GERALD
- 3 ---
Another part of the study attempts to measure the burden
of membership by looking at "the amount of cash in excess of
operating requirements that must be held by member banks
because of reserve requirements. " It attempts to do this by
looking at the ratio of vault cash to "total deposits plus
Fed funds purchased plus other liabilities for borrowed money. "
Since larger banks generally make greater use of non-deposit
sources of funds, such a ratio creates a false impression that
the membership burden is lesser for larger banks. Non-deposit
sources of funds generally do not require increments to vault
cash, they do not increase required reserves or balances at
Federal Reserve banks, they do not affect balances due from
domestic banks, and their only effect on demand balances due to
other banks is to cause reductions in such balances to the
extent that purchases are made from a respondent bank, pre-
sumably out of funds that are in excess of balance targets for
services provided and which would otherwise be lost as deposits
through sale to some other purchaser. The fact that a member
bank does or does not conduct a part of its business with non-
deposit sources of funds is irrelevant in measuring the burden
of maintaining reserves against deposits at the Federal Reserve,
as opposed to maintaining reserves against deposits in some
other form.
The study makes an attempt to estimate "nonproductive re-
serves by size of bank. These estimates suffer from several
FORD is LIBRARY GERALD
- 4 -
defficiencies. For example, it assumes that 56 per cent of
balances due to and due from other banks are collected funds,
a figure based on a survey of correspondent banks by the
Kansas City Federal Reserve Bank. Bankers tell us that this
figure varies widely from bank to bank, and also varies sig-
nificantly over time at any particular bank.
The study makes the rather tenuous assumption that the
return on correspondent balances, after the expense of servicing
those balances, is about 25 per cent. The Staff Study refers
to a Kansas City Federal Reserve Bank study to support the 25
per cent figure. In fact, that study says that "25 per cent
is the most common amount" of before-tax profit margin reported
by 50 per cent of reporting banks as a factor in analyzing
correspondent accounts. Thus, it appears that there is sub-
stantial variation in this factor among banks as well.
The Study also makes the erroneous assumption that the
entire return on these balances is due to the existence of
Federal Reserve facilities. This is simply not true. Corres-
pondent services for which balances are used in compensation
cover an array which includes check collection, provision or
currency, investment advice, credit analyses, overline partic-
ipation in credits, foreign exchange and financing, operational
analysis and planning, market research, financial planning and
reporting, personnel training, and new business referral. A
significant portion of check collection activities are carried
GERALD FORD LIBRARY
- 5 -
on without the use of Federal Reserve facilities. In addition,
many of the other activities mentioned above have nothing to
do with the existence of Federal Reserve facilities. Since
most correspondent services are provided by larger banks, the
erroneous attribution of the entire profit from the provision
of these services to the existence of Federal Reserve facilities
biases the measurement of the burden of Federal Reserve member-
ship against larger banks.
The Staff Study attempts to measure the value of the
discount window to member banks. It states that Fed
membership reduces the cost of acquiring managed liabilities
because "immediate access to the discount window might serve
as a form of insurance for suppliers of large time deposits
and Fed funds." The measurement of the value of the discount
window is based on discussions which indicate that CDs of non-
member banks sometimes sell for 5 - 10 basis points above
those of member banks. Recent years have revealed no consistent
patterns of such a differential for non-member domestic or
foreign banks. However, there have been protracted periods in
which the CDs of certain member banks have consistently carried
higher rates than those of their peer group because of concern
with specific credit features of the obligations, including
the continued access of the issuer to the market. In such
cases Federal Reserve membership and access to the discount
FORD LIBRARY j GERALD
window did not provide adequate insurance to offset the worries
- 6 -
of the market. On the other hand, Federal Reserve membership
is one of the factors taken into account in the decision as to
whether or not to approve a bank for Federal funds lines or
CD purchases, but it is only rarely decisive. In the vast
majority of cases it would be impossible to place a value on
it since it has little weight as compared to factors inherent
in the debtor banks.
The value of the discount window privilege in lender of
last resort situations is assumed to be reflected only in the
interest rate on marketable CDs -- a very tenuous assumption.
The value of the seasonal borrowing privilege from the discount
window is not considered at all.
In general the value of the discount window privilege is
extremely difficult to quantify, yet very important to all
member banks. Recent surveys indicate that the discount window
privilege is important to member banks of all sizes, with smaller
banks ($0 - $10 million in deposits) listing it as the pre-
dominant advantage of Federal Reserve membership. Yet, such
banks typically do not sell CDs in the open market, and, if
FORD is LIBRARY GERALD
the implicit assumption of this study were correct, they would
receive no value at all from access to the discount window.
The type of adjustment for the value of the dicount window
used in this paper is highly speculative yet, it is clearly
biased against larger banks, given their predominant membership
in the Federal Reserve System, and large usage of purchased
funds.
ECONOMIC ADVISORY COMMITTEE
1977 - 1978
Chairman
Leif II. Olsen
(Leif)
Senior Vice President and Economist
Citibank, N. A.
399 Park Avenue
New York, New York 10022
(212) 559-4278
Members
Eugene A. Birnbaum
(Gene)
Vice President and Chief Economist
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
(312) 732-3770
William G. Colby
(Bill)
Senior Vice President and Treasurer
First and Merchants Corporation
P. 0. Box 27025
Richmond, Virginia 23261
(804) 788-2246
James R. Gibbs
(Jim)
Senior Vice President
Texas Commerce Bank
P. 0. Box 2558
Houston, Texas 77001
(713) 236-5483
A. Gilbert Heebner
(Gil)
Executive Vice President and Economist
The Philadelphia National Bank
P. 0. Box 7618
Philadelphia, Pennsylvania 19101
(215) 629-3803
Walter E. Hoadley
(Walter)
Executive Vice President and Chief Economist
Bank of America, NT & SA
P. 0. Box 37000
San Francisco, California 94137
(415) 622-6092
FORD i LIBRARY GERALD
- 2 -
Lee J. Nash
(Lee)
Senior Vice President
Shawmut Bank of Boston, NA
P. 0. Box 2176
Boston, Massachusetts 02106
(617) 292-2613
Robert T. Parry
(Bob)
Senior Vice President and Chief Economist
Security Pacific National Bank H8-2
P. 0. Box 2097, Terminal Annex
Los Angeles, California 90051
(213) 613-5372
Richard S. Peterson
(Dick)
Senior Vice President and Economist
Continental Illinois National Bank and Trust
Company of Chicago
231 South LaSalle Street
Chicago, Illinois 60693
(312) 828-7840
Gordon Pye
(Gordon)
Vice President
Irving Trust Company
One Wall Street
New York, New York 10015
(212) 487-6416
Alfred G. Smith
(A1)
Senior Vice President
North Carolina National Bank
One NCNB Plaza
Charlotte, North Carolina 28255
(704) 374-5896
Sung Won Son
(Sung)
Vice President and Chief Economist
Northwestern National Bank
7th and Marquette Streets
Minneapolis, Minnesota 55480
(612) 372-7498
Thomas D. Thomson
(Tom)
Vice President and Chief Economist
Detroit Bank and Trust Company
P. 0. ,OX 59
GERALD FORD LIBRARY
Detroit, Michigan 48231
(313) 222-3535
AMERICAN
1120 Connecticut Avenue, N.W.
BANKERS
Washington, D.C.
ASSOCIATION
20036
FEDERAL
FEDERAL ADMINISTRATIVE COUNSEL
AGENCY
John J. Gill
202/467-4200
RELATIONS
December 13, 1977
Mrs. Catherine Mallardi
Administrative Assistant
to Chairman Burns
Board of Governors of the
Federal Reserve System
20th Street & Constitution Avenue, N.W.
Washington, D.C. 20551
Dear Mrs. Mallardi:
Enclosed for your information is a copy of the agenda for the next
meeting of the Government Borrowing Committee. Please call to
Chairman Burns' attention that our Committee will be meeting in the
Board Room on the 7th Floor of our offices at 1120 Connecticut Ave., N.W.
The Committee will look forward to meeting with Chairman Burns, as usual,
at 3:30 p.m. on Tuesday, January 24, 1978.
Sincerely
Jo John J. Gill
JJG:dk
Enclosure
FORD & LIBRARY GERALD
GOVERNMENT BORROWING COMMITTEE
AMERICAN BANKERS ASSOCIATION
January 23-24, 1978
AGENDA
Monday, January 23, 1978
6:30 p.m.
Reception and Dinner
Conference Room
International Club
Tuesday, January 24, 1978
8:30 a.m.
Business Meeting
ABA Board Room
9:00 a.m.
Slide Presentation
(room to be announced)
Treasury Building
10:00 a.m.
Briefing Session
(room to be announced)
Treasury Building
12:30 p.m.
Luncheon
ABA Board Room
3:30 p.m.
Committee Briefing with
Chairman Burns of the
Federal Reserve System
ABA Board Room
5:00 p.m.
Presentation of Committee Report
(room to be announced)
Treasury Building
International Club -- 1800 K Street, N.W., Washington, D.C., L Street Entrance
ABA Board Room - -- 1120 Connecticut Avenue, N.W. Washington, D.C., 7th Floor
Main Treasury Building -- 15th & Pennsylvania Ave., N.W., Washington, D.C.
FORD & GERALD LIBRARY
GOVERNMENT BORROWING COMMITTEE
American Bankers Association
Report to the Secretary of the Treasury
The Honorable W. Michael Blumenthal
Washington, D. C.
January 24, 1978
The Committee once again benefitted from the Treasury Department's
briefings and noted the confidence expressed in the economic growth rate
for 1978. The Committee recognizes that the large deficits of the past
three years and the projected deficits of fiscal 1978 and fiscal 1979 impose
a burden on the financial markets. The Committee feels the Treasury should
continue its current policies on debt extension and avoid dependence on
the short markets whenever possible. The Committee's recommendations are as
follows:
1. To refund approximately $5.0 billion privately held 6-1/4% notes
maturing on February 15, 1978 and raise $2.25 to $2.75 billion in new
cash we recommend the following:
a) offer up to $6.0 billion 7-year 8% notes at par and announce that
the Treasury may overallot up to 10 percent of the total amount
offered;
b) offer $1.25 billion 27-1/4-year 8-1/4% bonds due May 15, 2005,
first callable May 15, 2000, constituting the reopening of an
existing issue, at price auction.
2. To finance the remaining $12.75 to $13.25 billion of cash needs through
March 1978, sell (excluding foreign add-ons):
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a) $3.5 billion 2-year cycle notes due February 28, 1980 to raise
$1.4 billion new cash;
b) $3.5 billion 2-year cycle notes due March 31, 1980 to raise
$.7 billion new cash;
c) $3.0 billion 4-year cycle notes due March 31, 1982 all new cash.
d) Assuming foreign add-ons will raise an average of $.5 billion through
each of the above cycle notes, sell approximately $6.25 to $6.75
billion cash management bills with $2.0 billion to be issued in
late February and $4.25 to $4.75 to be issued in mid-March, both due
in June 1978.
3. To limit the reduction in the operating cash balance to a low point in
mid-April of $2 billion from $8 billion on March 31 ($6 billion), sell:
a) $2.5 billion 5-year cycle notes due May 15, 1983, dated early April,
all new cash;
b) Up to $4.5 billion short cash management due April 20, 1978.
4. To retire the $6.25 to $6.75 billion of June cash management bills issued
in February and March use $5 billion available for debt paydown and add
the $1.25 to $1.75 billion remainder to the cycle notes.
This recommendation is a departure from the usual package submitted by
this Committee. It is designed to provide a maximum of debt extension at a time
when market conditions seem to be appropriate. Looking beyond the first
quarter, the combination of accumulating cash needs and the prospect of tighter
market conditions suggest a more aggressive debt management posture at this time.
In addition, the Treasury must sooner or later face up to the problem in
debt structure resulting from the maturation of its previously successful
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note cycle program. This has inevitably occurred as a consequence of continued
heavy deficit financing. The above package is one way to deal with this
problem in today's market, which we believe is more favorable than at a later
date.
We recognize disintermediation will occur to some extent with an 8 percent
coupon at subscription, but the 7-year maturity has approximately the same
terms as are available in competing thrift instruments. It will thus tend to
minimize this process.
Moreover, the reliance on a longer maturity will also act to hold down
rates among shorter maturities where the effects of disintermediation would
be more pronounced.
Although the subscription technique will tend to increase disintermedia-
tion, it will also enable the Treasury to raise a substantially larger amount
in an extended maturity. Furthermore, looking to cash needs later in the year,
the recommended approach will provide a wider range of future short-term
options.
In the long term area, the Committee again opted for the reopening of
an outstanding issue at auction in continuation of efforts to establish issues
of sufficient size to facilitate trading. The Committee feels that offering
new issues with maturities in excess of thirty years would not meet this test.
The obvious alternative to this financing proposal would be the offering
of a conventional package consisting of a 3-1/4-year note for $3.25 billion, a
seven year note for $2.25 billion, and the reopening of the 8-1/4% bonds of
2005 for $1.25 billion. Our strong preference is for the two-pronged package.
GERALD FORD TIGRAPY