frb_121998

VOLUME 84 j NUMBER 12 !_, DECEMBER 1998

FEDERAL RESERVE

BULLETIN

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM, WASHINGTON, D.C.

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Table of Contents

1025 THRIFT INVOLVEMENT IN COMMERCIALAND INDUSTRIAL LENDING

How important a role do thrift institutions playin local banking market competition? Thisarticle looks at a key aspect of that issue byexamining the commercial and industrial lend-ing of commercial banks and thrifts during the1990s. Generally, thrifts were far less involvedin C&I lending than banks during the period,but their involvement varied considerably withsuch factors as local deposit market concentra-tion and institution size, charter type, and own-ership status.

1038 TREASURY AND FEDERAL RESERVEFOREIGN EXCHANGE OPERATIONS

During the third quarter of 1998, the dollardepreciated 1.7 percent against the Japaneseyen and 7.8 percent against the German mark.Against the mark, the dollar continued to tradein relatively narrow ranges during the first halfof the period. Subsequently, however, the dol-lar dropped sharply amid increasing turmoil inglobal financial markets and shifting expecta-tions for economic growth and interest ratepolicy. Against the yen, the dollar steadilyappreciated throughout the first half of thequarter, reaching new eight-year highs, asmarket participants reacted pessimistically topolitical uncertainty and financial-sector diffi-culties in Japan. Later in the period, however,the dollar's gains against the yen were morethan reversed. The U.S. monetary authoritiesdid not intervene in the foreign exchange mar-kets during the quarter.

1043 INDUSTRIAL PRODUCTION AND CAPACITYUTILIZATION FOR OCTOBER 1998

Industrial production edged down 0.1 percentin October, held down by a 3.4 percent drop inthe output of utilities. At 128.3 percent of its1992 average, industrial production in Octoberwas 1.4 percent higher than it was in October1997. Capacity utilization fell 0.4 percentage

point, to 80.6 percent, Wi percentage pointsbelow its 1967-97 average.

1046 STATEMENTS TO THE CONGRESS

Alan Greenspan, Chairman, Board of Gover-nors, reports on the Federal Reserve's role infacilitating the private-sector refinancing of thelarge hedge fund Long-Term Capital Manage-ment (LTCM) and testifies that officials of theFederal Reserve Bank of New York facilitateddiscussions in which the private parties arrivedat an agreement that both served their mutualself-interest and avoided possible serious mar-ket dislocations. Chairman Greenspan statesfurther that the efforts were limited to facilitat-ing a private-sector agreement and had noimplications for Federal Reserve resources orpolicies. (Testimony before the House Com-mittee on Banking and Financial Services,October I, 1998)

1050 William J. McDonough, President, FederalReserve Bank of New York, describes the roleof the Federal Reserve Bank of New York inthe events leading up to the recent private-sector recapitalization of Long-Term CapitalManagement and its fund Long-Term CapitalPortfolio and says that it is far too early to statecategorically the lessons to be learned fromLong-Term Capital. He further testifies that theFederal Reserve is focused on three specificissues, all relating to leverage and how theFederal Reserve can observe it through theeyes of bank examiners, but emphasizes thatthe Federal Reserve has no regulatory authorityover hedge funds and no regulatory authorityover Long-Term Capital. (Testimony before theHouse Committee on Banking and FinancialServices, October I, 1998)

1054 Theodore E. Allison, Assistant to the Board ofGovernors, comments on the implications forthe demand for Federal Reserve notes that arelikely to follow from the issuance of euro banknotes, which will replace the national currencynotes of eleven participating nations in Europeearly in the next decade, and testifies that the


availability of euro notes will reduce the use ofdollars outside the United States to someextent. Mr. Allison further testifies that twoaspects of the foreign demand for hard cur-rency notes could hasten somewhat a substitu-tion of euro notes for dollars: The first wouldbe the availability of higher-denomination euronotes, and the second would be a publicperception that dollar notes are significantlyless secure against counterfeiting. (Testimonybefore the Subcommittee on Domestic andInternational Monetary Policy of the HouseCommittee on Banking and Financial Services,Octobers, 1998)

1057 ANNOUNCEMENTS

Reduction in the discount rate.

Appointments of chairmen and deputy chair-men of the Federal Reserve Banks for 1999.

Designation of a primary dealer controlled by aDutch firm.

Development of procedures for managingchanges to Federal Reserve information sys-tems in 1999 and the first quarter of 2000.

Issuance of an interpretation of the Basleframework for capital adequacy.

Issuance of a policy paper by the BasleCommittee.

Issuance of Orders of Prohibition in enforce-ment actions.

Availability of revised lists of over-the-counterstocks and of foreign stocks subject to marginregulations.

Availability of a videotape on resources forbusinesses owned by women.

Change in Board staff.

1062 MINUTES OF THE FEDERAL OPENMARKET COMMITTEE MEETING HELDON AUGUST 18, 1998

At its meeting on August 18, 1998, the Com-mittee adopted a directive that called for main-

taining conditions in reserve markets that wereconsistent with an unchanged federal fundsrate of about 5]A percent. The directive did notinclude a presumption about the likely direc-tion of any adjustments to policy during theintermeeting period.

1069 LEGAL DEVELOPMENTS

Various bank holding company, bank servicecorporation, and bank merger orders; and pend-ing cases.

AI FINANCIAL AND BUSINESS STATISTICS

These tables reflect data available as ofOctober 28, 1998.

A3 GUIDE TO TABULAR PRESENTATION

A4 Domestic Financial StatisticsA42 Domestic Nonfinancial StatisticsA50 International Statistics

A63 GUIDE TO STATISTICAL RELEASES ANDSPECIAL TABLES

A64 INDEX TO STATISTICAL TABLES

A66 BOARD OF GOVERNORS AND STAFF

A68 FEDERAL OPEN MARKET COMMITTEEAND STAFF; ADVISORY COUNCILS

A70 FEDERAL RESERVE BOARD PUBLICATIONS

A72 SCHEDULE OF RELEASE DATES FORPERIODIC RELEASES

A74 MAPS OF THE FEDERAL RESERVE SYSTEM

A76 FEDERAL RESERVE BANKS, BRANCHES,AND OFFICES

A77 INDEX TO VOLUME 84


PUBLICATIONS C O M M I T T E E

Lynn S. Fox, Chairman L • S. David Frost ' ! Karen H. Johnson I " Donald L. Kohn) . Virgil Mattingly, Jr. _J Michael J. Prell ~! Dolores S. Smith '" Richard Spillenkothen

The Federal Reserve Bulletin is issued monthly under the direction of ihe staff publications committee This committee is responsible for opinions expressedexcept in olticial sLifcments and signed articles. It i\ assisted by the bconomic Editing Section headed by S. Ellen Dykes, the Multimedia Technologies Centerunder the direction 'i' (."hristinc S. Griffith, and Publications Services supervised bv Linda C. Kvles.


Thrift Involvement in Commercialand Industrial Lending

Steven J. Pilloff and Robin A. Prager, of the Board'sDivision of Research and Statistics, prepared thisarticle. Michael Howell provided research assistance.

The rapid pace of mergers and acquisitions amongfinancial institutions in recent years has heightenedthe need to understand competition in banking mar-kets. Questions often arise as to the most appropriateways to measure competition. One particular issuethat has received attention from the bank regulatorsand antitrust officials who analyze the competitiveeffects of proposed bank mergers is the weight thatshould be given to thrift institutions as actual orpotential competitors of commercial banks in theprovision of financial services. The question arisesbecause, historically, the menu of financial servicesoffered by thrift institutions has been more limitedthan that offered by commercial banks.

Thrift institutions (savings and loan associationsand savings banks) are financial intermediaries thatraise funds primarily through time and savings depos-its and invest principally in residential mortgages andconsumer loans. Their focus on consumer accountsand loans, as opposed to business accounts and loans,is largely attributable to historical factors. Thrift insti-tutions arose in the early nineteenth century to satisfyan unmet demand for small savings accounts andhome mortgages in an era when commercial bankshad little interest in these lines of business.

Savings and loan associations (originally calledbuilding and loan societies) were established toenable wage earners to obtain funds to build orpurchase homes. Their balance sheets consisted pri-marily of residential mortgages on the asset side andsavings shares on the liability side. Savings bankswere established to encourage savings by poorermembers of the working class. Their liabilities con-sisted mainly of savings deposits, and their assetswere somewhat more diversified than those of sav-ings and loan associations, including consumer loansin addition to residential mortgages. Subsequent regu-lations, at both the state and federal levels, limited thetypes of deposit accounts that thrifts were permittedto offer and the extent to which they were allowed toinvest in non-mortgage assets. The relaxation of fed-

eral restrictions (particularly those affecting commer-cial and industrial lending) starting in the early 1980shas led to greater portfolio diversification by manythrift institutions; however, few thrifts have taken fulladvantage of their expanded powers.1

The limited range of financial services typicallyoffered by thrift institutions compared with commer-cial banks raises a challenging question for thoseresponsible for assessing the competitive effectsof proposed bank mergers and acquisitions.2 Shouldthrifts and commercial banks be treated as equalcompetitors in local banking markets, or should therole of thrifts be discounted because of their lessextensive involvement in the provision of commer-cial and industrial (C&I) loans and other businessservices?3 Although the degree of actual competition

1. Several key pieces of legislation included provisions thaiexpanded the commercial lending powers of federally chartered thriftinstitutions. The Depository Institutions Deregulation and MonetaryControl Act of 1980 permitted federally chartered savings banks toengage in commercial and industrial (C&I) lending, up to 5 percent oftheir assets. The Garn-St Germain Act of 1982 empowered federallychartered savings and loan associations to engage in C&I lending, upto 10 percent of their assets, and increased the limit on federallychartered savings banks' C&I lending authority to 10 percent of theirassets. More recently, the Economic Growth and Regulatory Paper-work Reduction Act of 1996 increased the C&I lending limits forfederally chartered thrift institutions to 20 percent of assets, with thestipulation that all C&I lending in excess of 10 percent of assets mustbe small business loans.

For a discussion of changes over lime in thrift activities, see JimBurke and Stephen A. Rhoades. "Commercial and Consumer Lendingby Thrift Institutions." Journal of Commercial Bank Lending (May1991), pp. 15-24; and Peter S. Rose, The Changing Structure ofAmerican Banking (Columbia University Press, 1987), pp. 303-24.

2. All proposed bank mergers and acquisitions must be approvedby one of three federal banking regulators—the Office of the Comp-troller of the Currency (OCC), the Federal Deposit Insurance Corpora-tion (FDIC), or the Federal Reserve. The charter type and FederalReserve System membership status of the resulting institution and thetype of acquiring firm (whether or not it is a bank holding company)determine which federal regulator has jurisdiction. In addition, allproposed bank mergers and acquisitions are subject to review by theDepartment of Justice, whose antitrust authority applies to mostindustries.

3. Federal regulators do no! take a uniform approach to the treat-ment of thrift institutions in antitrust analysis. Whereas the FDIC andthe OCC tend to treat thrifts and commercial banks equally, theFederal Reserve and the Justice Department in many instances dis-count the role of thrifts as competitors in the market for bankingservices. For example, in analyzing the competitive effects of pro-posed bank mergers, the Federal Reserve constructs measures of


1026 Federal Reserve Bulletin L : December 1998

provided by thrifis in the area of C&I lending may bemodest, their role as potential competitors could beimportant. A thrift institution that is actively involvedin residential mortgage and consumer lending in alocal market could, at least in theory, quickly shiftresources into commercial lending if it determinesthat the risk-adjusted profits to be derived from com-mercial lending exceed those associated with moretraditional thrift activities. Likewise, a thrift that isinvolved in commercial lending to a very limitedextent could increase its involvement in response toprofitable lending opportunities. In practice, however,the specialized expertise needed to engage in C&Ilending and the perceived need to offer a broad menuof financial services to commercial banking custom-ers may inhibit thrifts from aggressively pursuingcommercial lending opportunities.

This article assesses the role played by thrift insti-tutions as competitors of commercial banks in theprovision of commercial and industrial loans byexamining variations in bank and thrift involvementin C&I lending both over time and across institutionsand markets having different characteristics. Twoaspects of insulvement are examined. "Participa-tion" is examined by looking at the proportions ofcommercial banks and thrifts that have some of theirassets in C&I loans, as well as the proportions whoseC&I loan-to-asset ratios are above 1 percent andabove 5 percent. And '"extent of involvement" isexamined by looking at the average ratios of C&Iloans to assets for banks and thrifts that engage inC&I lending. Also examined are the ways in whichthe change between 1991 and 1997 in an institution'sinvolvement in C&I lending is related to certaininstitutional characteristics.

!'\III:K\\ CS-.I L/:\niX(; ACTIVITY

To examine patterns of commercial and industriallending, we looked at variations in lending activityover the period 1991 through 1997 and at the relation-ship between 1997 lending activity and such vari-ables as institution size, ownership status, and geo-graphic location.4 The initial sample consisted ofcommercial banks and thrift institutions that filed

IIMI!M.'1 structure based mi Liu1 Glares of deposi ts held b_\ institutions ina local L'cugraphic market . l i » « : measures include 100 percent ofcommercia l bank deposits , but lypicativ (inly 50 p e u v n i oi l imitdeposits ( though in certain cases , they include 100 percent til Ihritldepo-.it';i.

4. I lie choice ol' lime period was dictated by concerns about thedata. The thrill crisis ol the 1980s adversely affected the quantity andquality of data available lor thrift Institutions' for several years before199 I

either a midyear Report of Condition and Income(Call Report) or a midyear Thrift Financial Report.With certain exceptions, an institution that filed areport was included in the sample if its total assetswere reported to be greater than zero and an amountwas reported for total loans. Institutions that heldmore than 25 percent of their assets in credit cardloans were excluded because institutions that a?eheavily involved in such lending often specialize inthat activity and do not provide, and therefore do notcompete for, many of the retail banking products andservices typically provided by commercial banks.(The Federal Reserve typically excludes credit cardbanks from its analysis of the competitive effects ofproposed bank mergers.) Data are as of June 30 ofeach year.

The two types of thrift institutions included in theanalysis, savings banks and savings and loan associa-tions (S&Ls), were examined separately because dif-ferences in their origins and in the regulatory restric-tions applied to them might have caused them tobeha\e differently with respect to C&I lending.^

\'tiri;i!inii\ in CSil linx Artivilv nvrr Tinit'

O U T the period 1991-97, the number of commercialbanks and thrift institutions declined substantially asa result of mergers, acquisitions, and, particularly inthe early part of the period, failures.6 Each year,banks were four to five times as numerous as thrifts(table 1). Within the thrift population, the number ofsavings banks remained virtually unchanged but thenumber of savings and loan associations declinedmore than 60 percent, with many S&Ls converting tosavings banks.

Nearly all banks (more than 98 percent) had someof their assets in C&I loans each year, and at least96 percent had more than I percent of their assets insuch loans. The share of banks with at least 5 percentof their assets in C&I loans exhibited cyclical behav-ior, declining from 72 percent in 1991 to less than69 percent in 1993 as the economy slowed, and thenrising during the recovery to reach a level of nearly76 percent in 1997.

.Y Al though cicdil unions niu MHuetmiLS included in the t.fetiiutn•nol thrift in-.liliitions. they wcic c\cUuted Inim [lie analysis frceausc ottheir specialized nature. Credit unions :i:e ics tncted to serving a proupol people with a '"common bond." such as membersh ip in a fraternalorganization or emploMtient by the same employer . As such. ti?cirability to compete with commerc ia l banks , savings banks, and savingsand loan associat ions is somewhat limited.

6. For brevity, we hereafter icier to commerc ia l banks as " b a n k s " ;when the subject is savings banks, we use the lull term.


Thrift Involvement in Commercial and Industrial Lending 1027

I. C & l l e n d i n g b \ b a n k s anU Lliiil't l n s i i l u l w i i s . l ' W I - l J 7

Type ef inslitaiiwi and yew Number ofC&I loan*

ih wiihmure shall

>n C&l loans

in iUJUUGtik witfrmore than5 percent

in C&l tome.

I luuju in a percent of aistta'

Simpleaverage

s!fi9.10.29.59.«

10. i

3.6112.02.11.3142.7

1.61.4141.31.3i.41.6

Asset-weightedoverage

ISi!l-*.2\4Q[5313.315.7

,1,4

1.5! , • *

t.71.92.0

1,61,1.8,7.6.8

1.0

CnMtwtciM. BANKS

IWI

nw!!!;;*."!!!;!;!!;!!!!!!IW41895 , . . ,

1W7 ^""['.'.'.'.'.'.".'.'.'.'.'.

SAVINGS BANKS

1991IW2

m*.'.^ '.,..'/..'.',....'..'.'.1995 -.IV961997

S*v<va» AND LOAN

mi'..'.'.'.'.'..'.'.'.'.'.'..

ms ... ..'.'....-.19961997

11.9,1311.4IH11,(12110.557[ 0,0089,5269.15ft

.S3JIB.28!!.30*.289.244,17K

1.51(1.2.W.00182?M9542

1W.099,099.199.199.199.0

74.771.169.771.574.977.3

51.94S.449.54R.648.451.153.:

96.4

97.097.397.0

41.73H.4.14.935.538.34t.445 J

20.718.3IS.Ilfi.616.719-322.5

72Jw.a6S.J69.973.!74.5753

1.1.(19.07.9«.()9.1

4.4173.22,3

\i4.1

it' simpk- .intl .is^L-l-uL-iylHL\J .

Although the proportion of thrift institutionsengaged in C&I lending was smaller than the propor-tion of banks, it was still substantial (approximatelythree-quarters of the savings banks and half the S&Lsengaged in some C&l lending). However, many ofthese institutions had only a small share of theirassets invested in C&l loans: In each year, only abouthalf the thrifts that engaged in some C&I lending hadratios of C&I loans to assets greater than I percent. Incontrast, the vast majority of banks that engaged inC&I lending had ratios greater than I percent. More-over, the share of thrifts having ratios greater than5 percent was quite low (less than 15 percent ofsavings banks and less than 5 percent of S&Ls).

Each of the three C&I lending participation mea-sures for thrift institutions generally followed a pat-tern of declining and then rising over the studyperiod, in most cast's reaching the highest levd forthe period in 1997, This pattern may simply reflectthe cyclical nature of business borrowing. However,the increase in thrift participation in the mid-to-late1990s may, to some degree, reflect a change in thriftstrategy toward greater involvement in such lending,which some analysts attribute to rising competitionin residential mortgage lending from nondepositoryinstitutions. Support for the latter interpretation of thedata is provided by the observation that many thriftshave in recent years eliminated the word "savings"

from their organizations' names so as to convey totheir current and potential customers the message thatthey now offer a broader array of products than hastraditionally been offered by "savings'" institutions.7

Of those institutions that engaged in some C&Ilending, banks had annual simple average ratios ofC&I loans to assets of 9.1 percent to 10.2 percentover the 1991-97 period, whereas savings banks andS&Ls had simple average ratios of only 2.0 percentto 2.7 percent and 1.2 percent to 1.6 percent respec-tively.x Like the participation ratios, the simple aver-age ratios of C&l loans to assets first declined andthen increased over the period. The annual asset-weighted average ratios of C&I loans to assets forbanks were typically about 50 percent higher thanthe simple average ratios, while the weighted aver-

7, Mall Andrejczak. ' 'Thrills. Shilling financial Ruiv.-,. Find aNLIIIII- L'lumtlv f k in s ihtr TrinisilliMi." Aim-rii'iin Bunker. Ally f>. I S><38.

S. Two tjp'.'s. ul" uverajl'.'s. tin" Ihc ra*iu oi C&.I ki;«\s to aswJls ui;rei \ i lcubled—a simple jncrasit'. and an asMM-weighled aserjiic. Theiinip.lt avcrajii;: is the mean of tJn; ralim of O S I loans to assets for allillMil'Jlions of c i d l d i i i r w Up.: lhat hud •.nine ;isscK in C&l loans; ilcLin be viewed a> an unweighted av iu i : i : be^vuise the Cfcl lendingralio o] each insuiulion receipt's u-qiuiil wei^hi in Us computation. The;issc't-v.vj!!hied a v e r s e is toiafl C&l loans Ion' afll msU'lutiions o( eachcharier type divided by «H;il aswi-s for all instituliuns of each charterlypc lhat had some sssccs m C&I loans; it is a weighted averagebecause an mstilulion's influence on the average is proportional to iJss w . as measured by asscis.


1028 Federal Reserve Bulletin • December 1998

2. Cifei k'nilinu hv and thrill inst i tut ions, by size ol inst i tut ion. I9')7

Type of in.stitu(ionand level of as&ett

(millions of dollars)

Number ofirtstiLuuoiwi

Institutions wiihsome asscis in

C&I loons(percent)

Institutions withmore than1 percentol' assets

in C&l loan*(percent)

Lnstilution^ withmore than5 percentof ussws

in Cfel loans(percent)

C&I loans as « percsnt

Simple

COMMERCIAL BANKS

O~2526-5051-100101-250251-1.000More than 1.000

SAVINGS BANKS

0-2526-5051-100101-250251-1,000More than 1.000

SAVINGS A M ) L O A N ASSOCIATIONS

0-2526-5051-100101-250251-1.000More than 1.000

1. See note 1 lo lable 1

1.5102.1502,3341.975

856.331

70I2S211.122311

70

1531458119

96.799.399.399.498.59S.S

42.968.073.978.383.991.2

21.442..152.962.172.BS4.2

92.897.597.998.198.197.3.

24.J43.047.444.447.950.0

12.917.125.526.923.526.3

73.477.079.684.389.4

11.419-513.7117in19,1

4.35.44.62.14.95.3

B.29.4

10310.711.615.4

3.53.43.0143.42.S

2.81.81.61.51.11.6

8.39.4

10.210.711.6I7J

3,83.43.62.52.41.8

1.91.71.51.0.7

age ratios for thrifts were typically below the simpleaverage ratios. This pattern suggests that amongbanks engaged in C&I lending, larger institutions aremore heavily involved in commerciaJ lending thansmaller ones, while the opposite is true for thrifts.

Cross-Sectional Variationsin C&I Lending Activity

To get a clearer picture of commercial and industriallending by thrift institutions, lending activity in 1997was examined in greater detail. Of interest wereseveral factors that might be expected to be associ-ated with cross-sectional variations in lendingactivity—institution size and ownership status, geo-graphic region, local banking market concentrationand type, and firm market share.

lustilulion Size

Institution size might be expected to influence thriftinvolvement in C&I lending, though the direction ofinfluence is unclear. Larger thrifts might be morelikely than smaller ones to diversify into nontradi-tional activities such as C&I lending, partly becausethey may have the financial resources needed to incurthe substantial fixed costs often associated with enter-ing a new line of business. Larger thrifts may also be

more visible than smaller thrifts, so that businessesview them as more likely sources of commercialloans. However, though participation and the abso-lute level of involvement may increase with thriftsize, C&I lending may not increase proportionally toother aspects of an institution's business. Thus, if theextent of involvement is measured as C&I loans asa share of assets, C&I lending may not be seen toincrease with size. Indeed, the data do show thatalthough thrift participation in C&I lending increaseswith size, average ratios of C&I loans to assets (forthose institutions engaged in C&I lending) generallydecrease with size (table 2).

For banks having assets of more than $25 million,participation in C&I lending does not vary signifi-cantly with institution size; participation is slightly(but statistically significantly) lower for banks havingassets of $25 million or less. The proportion withmore than 1 percent of their assets in C&l loans alsodoes not vary with size for banks having assets ofmore than $25 million; however, the proportion withmore than 5 percent of assets in such loans increasesmonotonically with size, from a low of 63 percent toa high of 89 percent.

Thrift participation in C&I lending varies far morewith institution size than bank participation does. Theproportion of savings banks participating in C&Ilending rises with size, from a low of 43 percent forthose having assets of $25 million or less to a high of



3. C&l I milling b> bunks ;md lliril'i institutions, hy invncrship status, IW7

Type of institutionand ownership status

COMMBBCIAL BAWKS

IndependentOwned by tjank holding company

(no thrifts)QwQtsd by hank holding company

(with thrifts)

SAVINOS BANKS

IndependentOwned by thrift holding company . . .Owned by bank holding company . . .

SAVINGS A N D L O A N ASSOCIATIONS

IndependentOwned by thrift holding company . . .Owned by bank holding company . . .

Number ofinstitutions

Institutions withsome assets in

C & l louns(perwnif

institutions withmore than1 percentof assets

in C & I loans(percent)

Institutions withmore than.i percentof assets

in C&I loans(percent)

C&I louns as y percent of U.KHCIS1

Simpleaverage

Axset'Weighiedaverage

2.048 98.1 94.6 65.1 « 10.0

6.645 99.2 97.9 78.5 10.4 15.0

4-63 95.9 94.6 ?S.2 1(1.9 17,5

885 74.7 4.1.S 12.0 2.5 1.6186 80.6 48,4 15.1 2.7 1,6107 92.5 67.3 28. [t 4,1 3.9

547 51.ft 21,9 4.0 1.6 1,020 75.0 20.0 .0 .U .912 91,7 jn .d 16.7 2.5 1.6

I. See note I to table 1.

91 percent for those having assets of more than$1 billion. A similar monotonic relationship betweenparticipation in C&I lending and institution sizeexists for S&Ls, with the participation rate risingfrom 21 percent to 84 percent with increasing size.For both types of thrifts, differences in the participa-tion rate between the largest and smallest institutionsare highly statistically significant, as are many of thedifferences between adjacent size categories. Theshare of thrifts with C&l loan-to-asset ratios greaterthan 1 percent and 5 percent varies somewhat irregu-larly with institution size.

For banks involved in C&I lending, average ratiosof C&I loans to assets (both simple and weighted)increase with size, with the ratios for the largestinstitutions (simple average of 15.4 percent, weightedaverage of 17.3 percent) being approximately doublethose for the smallest institutions (simple average of8.2 percent, weighted average of 8.3 percent). (Thedifference in simple averages between the smallestand largest size categories is significant at the 0.01level.) In contrast, for thrifts involved in C&I lend-ing, average ratios of C&I loans to assets tend todecrease with size, with the simple average ratioranging from 3.5 percent to 2.4 percent for savingsbanks and from 2.8 percent to 1.1 percent for savingsand loan associations. (For savings banks, the differ-ence in simple averages between the smallest andlargest size categories is significant at the 0.10 level,but for S&Ls the difference is not statistically signifi-cant.) Thus, whereas the extent of bank involvementin C&I lending (as a share of assets) is positivelyrelated to institution size, the extent of thrift involve-ment is, for the most part, negatively related to size.

Ownership

Ownership status may also influence thrift involve-ment in C&I lending. Thrifts owned by bank holdingcompanies might be expected to behave more likebanks, and thus to be more heavily involved in C&Ilending, than independent thrifts or those owned bythrift holding companies. Managers of thrifts affili-ated with bank holding companies are likely either tohave commercial lending expertise themselves or tohave access to others in the holding company whohave such expertise.9

Bank participation in C&I lending does not varymuch with ownership status, except that independentbanks are less likely than banks owned by holdingcompanies to have more than 5 percent of their assetsin C&I loans (table 3). Nearly all banks, regardless oftheir ownership status, hold at least 1 percent of theirassets in such loans.

Thrift participation in C&I lending, in contrast,does vary with ownership status. Independent thriftsare less likely than those owned by holding compa-nies to engage in some C&I lending; and thriftsowned by thrift holding companies are substantiallyless likely than those owned by bank holding compa-nies to engage in C&I lending at each of the three

9. In competitive analyses of proposed bank mergers, the FederalReserve typically treats, thrift institutions owned by bank holdingcompanies [he same as commercial banks because the expertise ofmanagers of bank holding companies is likely to make thrifts affiliatedwith them strong potential competitors lor many bank products andservices.


1030 Federal Reserve Bulletin!.. December 1998

participation levels.10 Thus, the data suggest thatthrift institutions that are owned by bank holdingcompanies tend to behave more like commercialbanks than those under other types of ownership.

The simple average ratio of C&I loans to assets forbanks operating under a holding company structureis unaffected by the presence or absence of thriftsubsidiaries; the weighted average is slightly higherfor banks owned by holding companies that also ownthrifts than for banks owned by holding companiesthat do not own any thrifts. Independent bankshave lower average C&I loan-to-asset ratios (simpleand weighted) than do banks owned by holdingcompanies.

Average C&I loan-to-asset ratios (both simple andweighted) are higher for thrifts under a bank holdingcompany structure than for independent thrifts andthose under a thrift holding company structure. Thesimple average ratios for thrills owned by bank hold-ing companies—4.1 percent for savings banks and2.8 percent for S&Ls— are substantially greater thanthose for similar institutions not owned by bankholding companies. (Except for the differencebetween S&Ls owned by bank holding companiesand independent S&Ls. these differences are statisti-cally significant at the 0.05 level.) This finding pro-vides further evidence that thrifts owned by bankholding companies behave more like commercialbanks than other thrift institutions do.

C&I lending by thrift institutions might be expectedto vary across regions of the country as a result ofcultural, historical, or regulatory differences thatinfluence the behavior of depository institutions ortheir customers. For example, the New England statesbegan to expand the range of activities permissiblefor state-chartered thrifts in the early 1970s, almost adecade before federal legislation granted expandedpowers to thrifts nationwide." This difference mightcause New England thrifts to behave more like

10. Among swings banks, differences between independent institu-tions and those owned by bank holding companies are, for Iwo of thethree participation nujsiires. statistically significant at the 0.01 level:the same is true for diflorencvs between savings banks owned by thriftholding companies and those owned by bank holding companies, butdifferences belueen independent savings banks and those owned bythrift holding companies generally ate not significant. For S&Ls.differences between independent institutions and those owned by bankholding companies are. for two of the participation measures, statisti-cally significant at the 0.05 level, but differences between othercategories of S&Ls arc not statistically significant.

I I. For a detailed examination of C&I lending by New Englandsavings banks, see Constance Dunham. "Mutual Savings Banks: AreThey Now or Will They Ever Be Commercial Banks?" New EnglandEconomic Review QMay/June 1982), pp. 51-72.

commercial banks than thrifts in other parts of thecountry.

For banks, participation in C&I lending varies littleacross geographic regions (table 4).12 Althoughregional differences in C&I lending participationare more pronounced among thrift institutions thanamong banks, the differences are not consistentacross the three participation measures. For example,whereas S&Ls headquartered in the Pacific region arethe most likely to engage in some C&I lending, theyare the least likely to have C&I loan-to-asset ratiosgreater than 1 percent and greater than 5 percent.

For banks, the simple average C&I loan-to-assetratio is around 9 percent or 10 percent everywhereexcept the Mountain (12.1 percent) and Pacific(15.3 percent) regions. The weighted average ratiois more variable, ranging from just over 11 percentin the Mountain states to nearly 20 percent in NewEngland.

For thrift institutions, simple average C&I loan-to-asset ratios are highest in the East South Central andWest North Central regions. Both types of averagesare lowest in the Pacific and Middle Atlantic regions.For savings banks, the weighted average ratio for theNew England region (4.6 percent) far exceeds thatfor any other region, with the East South Centralregion having the second highest (2.6 percent); forS&Ls, it is highest for the East South Central region.

Overall, analysis reveals no consistent pattern ofregional differences in the degree to which thriftinstitutions are involved in commercial lending.Although the weighted average ratio of C&I loans toassets suggests that New England savings banks dosubstantially more C&I lending than thrift institu-tions headquartered in other regions of the country,other measures of involvement do not support thatconclusion. The unusually high weighted averageratio for New England savings banks appears to beattributable to the behavior of a smal I number of verylarge institutions.13 This finding is particularly inter-esting, given that previous research on C&I lendingby thrift institutions has focused on the weightedaverage ratio and concluded that New England thriftsbehave substantially more like commercial banksthan thrifts in other parts of the country do.14

12. The regions are equivalent to the divisions used by the Bureauof the Census. Each institution was assigned to the region in which itwas headquartered. For a list of states included in each region, sec thegeneral note to table 4.

13. The weighted average ratio for the 23 New England savingsbanks with assets of more than $1 billion is 6.2 percent, comparedwith 2.6 percent for the 189 New England savings banks with assetsof $1 billion or less.

14. See, for example, Jim Burke and Stephen A. Rhoades, "Com-mercial and Consumer Lending by Thrift Institutions." Journal ofCommercial Bank Lending (May 1991), pp. 15-24.



•4. C&\ ieiuiititi hy hanks and thrift institutions, by iieo^rii

Type of irittituUnfland jjcogwphk nîac

COHMEEHIAL BAKKSNew EnglBK) .Middle AtlanticSODih AtlanticEast North CentralEnsi South CinlralWen North Ceni/aiWest StHtth CeWrtlMountain . . . . ,Pacific

SAVINGS BANKS

New EnglandMiddle AtlanticSouth AtlanticHim North GenualEiut South CcmnilWon NarftCenifal . .Wau South Oaural

Pacific

SAVINGS ANO Lo*f» AssoctAiiONjMew England ..Middle AllantH!South AtlanticEitf Ntwh CHUinlEast South CentralWesi North CemralWest South CcnlndMuunttJn

Number ofwsiiiiitioca

liutiUiliofiB widiaoBB aswJi in

(percent}

itoUtntSoits wilhmore Lhan1 percentof KOCtt

inC&l humfpcram)

innimijons with•note than5 penxntof assets

in C&i loniBtjKccem)

CHI lotat u a pencew «f ««PWt'

SimflfeBVerage

AMet-MMghitd

!44 93.R 92.4 7S.7 K>.6 IAS444 96 j 912 65.5 $A 14.7

i.l2S 9fL4 95,9 74.5 Ifc3; 14.11.768 99,0 97.2 74.4 10.3 t92

791 98:9 973 73.4 9 JO 1332,336 9&S WtJ 77,4 9.S [J3IJ79 99.6 97,3 73.fi 9.4. V6.I

529 97,5 94.9 80.9 12.1 11.2440 97.5 96.8 87.7 15.3 f$4

212 90,6 62.7 17.0 3.0 4.6210 70.0 28.1 7.6 -W \A204 76.0 49.0 14.2 19 ZS261 66.7 35,6 103 23: i.t« £5.9 64.1 20.3 3,1 1.681 82.7 49.4 35.9 3.4 1.864 B9.1 57.8 20.3 X0 2.0J9 59J 51.7 13.8 2.7 1.953 69 jt 26.4 9.4 1.6 1.2

IS 60.0 24,0 4:0 1.4 1.398 592 18.4 3,1 1,1 .787 483 27,6 3.4 (.7 (.1

173 49.7 22,0 19 15 1.429 41.4 20,7 3.4 2.} 3.658 56.9 27.6 103 2.4 l.fi50 34.0 28!> 6.(1 2.0 .917 47.1 17.6 5.9 t,6 1.842 643 11.9 3.4 1.0 ,7

NLMi . Cicn rjphiL- rkj jon> jrr (he; divisions used b\ Ihc Burciu ol thi:C'LI>MI\. Ilii: latCN in i::it:h ili\!suin :irc j \ lollov.?.: ACu LnÛmtl: Con-necticut. Maine. Mavsddlu.'k.'ttv New H: mp^^me. Rhode Isljnd. Vennont:Mitlitir .\tluntu: Neu Jersey. New ^'oik. Pennsylvania: Somli Atlunitc:Dclnv-Lue. District tit CoUimbw. F'loritla, Gi'dftlin. Maryland. North Carolina.South Carolina, Virginia. West Virginia: /"- v/ Ninth d'tural: Illinois. Indiana,Michigan. Ohio. Wisconsin: /:tnv South Central: Alabama. Kentucky. Missis-

sippi. Tennessee; Hwf North Central: loua, Kansas. Minnesota, Mis.soLtri.Nchra.ska. North Dakota. South Dakota; Mo/ South Central: Arkansas.LouisiaiKi, Oklalionia, Te\a.s; Mountain: Arizona. Colorado. Idaho. Montana.Nevada. New Mexico, Utah. Wyoming: Pacific: Alaska, California. Hawaii,Oregon. Washington.

I. See note I to table 1

Market Conconlralion

The generally low level of thrift institution involve-ment in C&I lending (compared with banks) suggeststhat there may be significant costs associated withthrift diversification into this line of business, even inmarkets in which thrifts already do a considerableamount of mortgage and other lending. If this is true,thrifts would be more likely to incur the costs asso-ciated with C&I lending in markets in which suchlending is especially profitable. One source of highprofitability would be high interest rates on commer-cial loans. Numerous empirical studies have foundbank profits or loan interest rates to be positivelyrelated to market concentration.'3 To the extent that

15. Sec. tor example. Timothy H. Hannan. "Bank CommercialLoan Markets and the Role ol' Market Structure: Evidence fromSurveys ol Commercial Lending." Journal of Banking and Finance(February 1991). pp. 133-49: Timothy H. Hannan and J. Nellie Liang."The Influence of Thrift Competition on Bank Business Loan Rales."Journal of Financial Services Research (June 1995). pp. 107-22:

commercial loan rates are higher (and commerciallending is more profitable) in highly concentratedmarkets than in less concentrated markets, we wouldexpect to find a positive relationship between marketconcentration and thrift involvement in C&I lending.

For this analysis, the level of market concentrationwas measured by the Herfindahl-Hirschman index(HHI).16 The HHI was calculated as the sum of thesquares of the deposit market shares of all banksoperating in a particular geographic market.17 Ideally,

Stephen A. Rhoades. Slruciurr-t'eiformance Studies in Bunking: ASummary and Evaluation. StalT Studies 92 (Board of Governors of theFederal Reserve System. 1977); and Stephen A. Rhoades. Sinicture-Perjormance Studies in Banking: An Updated Summary and Evalua-tion. Staff Studies I 19 (Board of Governors of the Federal ReserveSystem. 1982).

16. For a discussion of the HHI. see Stephen A. Rhoades. "TheHerfindahl-Hirschman Index." Federal Reserve Bulletin, vol. 79(March 1993). pp. 188-89.

17. Banking markels were defined as metropolitan statistical areas(MSAs) or non-MSA counties. Considering markets to be local inextent is appropriate because many banking customers, including


1032 Federal Reserve Bulletin LJ December 1998

C&\ lending b\ bunk-, and thrift institutions. h> deposit market cortixnuatiun, 1997

Type of innritulion noditTd of deposit

mwtoet conccnuacon'

COMMERCIAL BANKS

MtKferattty concentrated -

V«y fughly toneentnted

5AYIN<W BANKSUnconanHfBiedMa*riitaly cohEenitsitdHighly conranlniwdVery highly eonwnirBied

SAVWCSAP*D LOW* ASSOCIATIONSUrtconcentraiedModemlely coDcoatraledHjjWy concentratedVeryhfehlyewicentreied

NomberofIjutuutkins withsome assets in

(percent)

[asi iuil tons wilhmore then1 percentor assets

in C&t lonns(percent)

liwiiiukms withmore fluuiS perceniof nsstls

iaC&llttra(percent)

C&I foam as i percent of asitts-

Siinpleavexige

Asset-wash tcti

SS8 99.4 9S.2 7S.D 11.9 21,72<R60 98,6 96.7 75,3 10.6 I5J1.726 98.3 96:8 77.S. 10,9 16.33 $ » 99.3 97.4 74J 9.1 14.4

75 52:0 25.3 5,3 2B .33S3 73J 37,9 i l l 2.3 1.728) 80,1 44.3 11.0 2,3 1.44J5 812 55.4 JS.6 3J 3J

}7 29,7 S.I 3.7 1.0 -5222 52.0 20.J i j U .8105 54.3 21.0 19 12 .42)5 58.1 27.9 if) 10 1,9

I. Conccntraiion ca tônHerrindahl-Hirschman index

s are hilled on bank-only deposii-Kiscllies, as follows: I'nconcenlralcd. HHI value

of 0-1 OIK): MIMJLT;IIJI> L1801-2^00: Vur> hi»hl> eoi

2. See noie 1 to lable 1.

. I(H)l- I SiXI; HighU eonc201-in.(Hll)

the HHI would measure concentration on the basisof C&I lending rather than deposits and would becalculated using shares of the C&I lending mar-ket. However, market-level data on each institution'sC&] lending activity were nol available.1H Therefore,deposit market shares were used as a proxy for C&Ilending shares. Because thrift institutions generallydo far less C&I lending than banks, thrift depositswere excluded from the calculation of the HHI.iy

many commercial borrowers, are dependent on local insluulions. Forevidence supporting the local nature of retail banking markets, .seeMyron L. Kvvast. Martha Slarr-McCluer. and John D. Wolken, "Mar-ket Definition and the Analysis of Antitrust in Banking," AntitrustBulletin, vol. 42 (Winter 1997). pp. 973-95; Gregory H. Elliehausenand John D. Wolken. "Banking Markets and the Use of FinancialServices by Small and Medium-Sized Businesses," Federal ReserveBulletin, vol. 76 (October 1990), pp. 801-17: and Gregory E. Ellie-hausen and John D. Wolken, "Banking Markets and the Use ofFinancial Services by Households," hederal Reserve Bulletin, vol. 7S(March 1992). pp. 169-81. For firms operating in more than one localbanking market, the HHI was calculated as a deposit-weighted aver-age of the HHIs in the markets they served.

18. Geocoded data on the small-business-lending activities ofdepositors institutions reporting under the Community ReinvestmentAct have recently become available for analysis. Although these datado permit the calculation of HHIs based on commercial lending, theyarc of limited value in analyzing cross->octional patterns of Cisi\lending behavior because they reflect the activities of a small fractionof depository institutions (1.460 commercial banks and 41 I thriftsin I99fi> and include only C&I loans of SI million or less. SeeAnthony W. Cyrnak. "Bank Merger Policy and the New CRA Data."federal Reserve Bulletin, vol. 84 (September 1998). pp. 703-15. for adetailed analysis employing these data.

19. When HHIs were calculated including thrift deposits—firstincluding 50 perceni of thrift deposits (as is often done in FederalReserve Board analysis of the competitive implications of proposedbank mergers) and then 100 percent of thrift deposits—the resultswere similar.

Commercial bank participation in C&I lending isunrelated to local banking market concentration, butparticipation by both savings banks and S&Ls (ateach of the three measured participation levels) tendsto rise as market concentration increases (table 5).?0

Extent of involvement (as measured by ratios ofC&I loans to assets) generally declines with increas-ing market concentration for banks and rises wilhincreasing concentration for thrifts. (Differences inthe simple average ratio of C&I loans to assetsbetween institutions in markets with an HHI above1800 and those in markets with an HHI of 1800 orless are statistically significant at the 0.01 level for allthree types of institutions.) These findings are consis-tent with our expectations, given the well-establishedempirical relationship between market concentrationand profits.

Urban vs. Rural Markets

Thrift involvement in C&I lending might be expectedto differ between urban and rural markets. On the onehand, urban markets are likely to provide greatercommercial lending opportunities than rural markets,leading to greater C&I lending activity. On the other

20. fhe analyses involving market-level variables uahles .1 and 6)are based on data on institutions that reported branch-lc\el depositdala to the FDIC (Summary of Deposits) or the Office nl' ThrillSupervision (Branch Office Survey). Because branch-level dala werenol available for all institutions that filed Call Reports or ThrillFinancial Reports, the number of institutions included in these analy-ses is slightly smaller than the number in the preceding analyses.



6 . C&\ l a n d i n g b y hiirtks a n d lliril ' t i n s i m i l i u n s , h \ \\ p c it! i i i i i i 'kcl :m i ! iiKirkc.1! s h a r e . I 1 W7

T « x of inilu type of matter

Number tifCAI

KnsIilLHumv withniurt- lhan

orSiTw"' Itn C&l loans i

(.7&I loans a> a ptnveni of ass

in OS I l(i j If.Simple A v\i't -

BANKSt/riunAll ituiimtkins . . .By market stwc (perixni)

0.0-0.50.6-1,(1LI~5.1I5.1-10.0Grower itian 10.0

Hum!Ail institutionsBy mniiei share (permit)

O.IK10S.I-JfUl

Grcoier item

BANKS

UrbanAD tintilglioilsBy maffcet share rpcrecnt)

\M1

I .(ItiT

422

6H2

1.3413.1731

B57

W.9

7S.6 4 1 M

1VA 16.5

•M.4

W.I(JQ J

(JM 1

47.7

95.097.498.59H. 1

76.97<i,S7K.2MS.?90.5

72.7

63.171.775. a74.1)

12.711.811 ^11413-5

K.6

K.IS.69.0S.6

15.1I.1)."IJJi

17.1

M.4

X.fiK.'Jy.7y.4

QJi-LO11-5 0 .s.t-iaoGreater than 100

Hunii

By (UBiket share (perecnl)0.0-5.0-i.l-10.0to 1-20nOreaier Ihm 20,0

SAVitsoi Atm Lo*^ ASMK-IMIONSUrimnAll institulionsBy markcl sliflre (percent I

0.5-1.01.1-5.05-1-10.0 . - - -Greater lhan 10.0

KuralAll in^tiuttionHBy irarkci iihun tpsn-eni I

0.0-S.Os i mo

.160

5K

4476.

74

191S.I

To

4.1

4K

63,17VB7S.7s»5-3.slb.h

Sft.X

9U.5

51.1.7

.16 .(t

fi'J.W71.1so.o

"57 8

1(1.254.275.0ftt.7

ft 94 2 . •>

52.4

519

5(1.(1S4.466.2

tS.2

14.115.124.7

5(1.0

.1(1 1

1 1.0

15 7.15.4

S £i10 114.715.227 b

1.1.0

IS.425 7

2.7

l.fi.11

5.47.7

.0

6.X

5.410.4

2.1272.4J.4

12

J.I2JX 14.0

I J

.71.4l.fi1.7

•> I

2.1i 1

1 0

1.72.11 I1.42.K

12

' 1I.S.1.0J.4

S

J.4..1

I.S

1.8

1.2

l.h2.U

N u n . Inheld in hr.ni

s u i h . i n IT i l v n u j o n i \ n l ' i l K - ii l . in \Ml i s l iL ' : i l . L U M S J I U I i m . i l . l i . u e is I U M - J . i n

I S t v i i u k - 1 i,

n k.v.ilL\! in tuui-MSA cnnnlio

hand, concentration le\cls lend to be lower in urbanmarkets than in rural markets, rendering thriftinvolvement in C&l lending in urban markets lessattractive (because of lower profitability).

The data indicate that thrifts are more extensivelyinvolved in C&l lending in rural markets than inurban markets, while the opposite is generally truefor banks (table 6). '•' Although most of the differ-

21 Local b a n k i n g m a r k e l s urn . - c o n s i d e r e d urb.m it' they were

M S A s and rural if they were n o n - M S A c o u n t i e s . l o r an n is t i lu i ion

operal insi in hulh t> |Vs of m a r k e t s , the p ropur t i on of depos i t s held in

each type was ca l cu l a t ed ami the insl i lul ion was classif ied as o p e r a t i n g

ences between urban and rural markets apparent intable 6 are statistically significant, they may be drivenby systematic differences in concentration levels or inmarket shares. : :

in the l>pe in wliich H liekl llie larger share of its ttepusil-.. Assiyniui'instiuitioiK to one type ol market when lhe\ had deposits in both type-,should nut ha \e inllueneed the result-. Kviiuse most institutions oper-ated primarily in a sinyle niarkei. The market in which an institutionhad the greater sliaie oi its deposits was home, on averago. ID92 peict'in ol' its total deposits.

22. Regression results reported in the technical appendix indicatethat when variations in concentration levels and market shares arccontrolled lor. dillcrences between urban and rural markets disappear


1034 Federal Reserve Bulletin . December 1998

Market Share

A firm's share of market deposits provides a measureof the strength of its presence in the market(s) inwhich it operates. A thrift institution that captures alarge share of market deposits, and hence is locallyprominent, may have greater commercial lendingopportunities than a similar institution having onlya small market share because it is more visible tocommercial borrowers. Thus, we would expect tofind a positive relationship between a thrift's marketshare and its C&I lending activity.2-1

For this analysis, institutions in urban and ruralmarkets were treated separately because the numberof firms, and hence the "typical'" market share, tendsto be quite different in these two settings. Bankparticipation in C&I lending does not vary much withmarket deposit share (table 6). For both savings banksand S&Ls, and in both urban and rural markets,participation is higher among firms having largershares of market deposits than among those hav-ing smaller shares. For banks and S&Ls, extent ofinvolvement is not related to market share; amongsavings banks, involvement is substantially greaterfor those in the largest market share category than forthose in any other category, with the difference beingstatistically significant within urban banking markets.

Simnmiry u\ Cn»i--S<.vnunu] Variations

In summary, although more than two-thirds of allthrift institutions engage in some C&l lending, theirlevel of involvement is generally quite low relativeto that of banks. Their participation generallyincreased over the mid-to-late 1990s after havingtrended downward earlier in the decade. For bothbanks and thrifts, participation rates and levels ofinvolvement appear to vary with institution size,ownership status, geographic region, local bankingmarket concentration, and firm market share andbetween urban and rural areas. Larger thrifts, thriftsowned by bank holding companies, those operatingin more concentrated banking markets, those thathave captured a larger share of local market deposits,and those operating in rural areas are most likely tobe involved in C&I lending.

For those thrift institutions that do engage in C&Ilending, the extent of their involvement, as measuredby the proportion of their assets invested in C&I

23. For firms operating in more than one local banking market, themarket share was calculated as a deposit-weighted average of thelinn's market shares in all markets lhat it served.

loans, tends to decrease with institution size, toincrease with market concentration, and to be unre-lated to deposit market share; involvement tendsto be greater for thrifts owned by bank holding com-panies and for those operating in rural markets.

('H,\\iu:s ix ,w ixsnn Titty's (\K-f f.i:M>f.\<;MllYllY OVI-R TlMK

Cross-sectional analysis of the C&I lending behaviorof banks and thrift institutions leads naturally to somequestions about the dynamic aspects of thrift involve-ment in such lending. For instance, are changes overtime in charter type or ownership status associatedwith changes in an institution's level of C&I lendingactivity? To address such questions, we examined theaverage change between 1991 and 1997 in the ratioof C&I loans to assets for firms with different typesof ownership and charters.

The sample consisted of all organizations thatexisted in 1991 as thrifts and were still operating in1997, either as thrifts or as commercial banks. Of the2,664 thrifts that reported both financial and branch-level deposit data in 1991, 1,688 were still operatingin 1997. Data for !23 of these 1,688 institutions weremerger-adjusted, to make the 1991 and 1997 figurescomparable.24 Sixty-four of the surviving institutionswere dropped from the sample because they hadengaged in at least one acquisition in which only partof an organization was purchased (data for the partialinstitution could not be obtained, so adjusted 1991data that would be comparable with the 1997 datacould not be constructed). The change in the ratio ofC&l loans to assets from 1991 to 1997 was calculatedfor each of the 1,624 institutions in the final sample.The institutions were then grouped according to theirownership status and charter type in 1991 and 1997,and the (simple) average change in the ratio for eachsubgroup was calculated.

For most subgroups of thrift institutions, the ratioof C&I loans to assets increased over the period(table 7). Thrifts that converted to bank chartersbetween 1991 and 1997 showed, on average, thelargest increases. Although the direction of causalitycannot be determined (that is, whether charterchanges prompted increases in C&I lending orwhether a desire to do more C&I lending led to

24. For each of the merger-adjusted institutions, the procedureinvolved aggregating financial data for the 1991 institution and for allinstitutions that were merged into it between 1991 and 1997. Forexample, if thrift A acquired thrift B in 1993, the 1997 data forthrift A were compared with the 1991 data for the hypotheticalcombination of thrifts A and B.



C h u n g i : I r o m to I W 7 in r a t i o <if C i t l l o a n s to y s s t t s . h \ iliril'l i n s i i t u i i o n o u i i f r s h i p M;itus <iml I\|V

Owntrsh ip status and chartertype in 1991

Independent savings hank

Savings bunk owned bythrift holding company

Savings bank owned bybank holding company

Independent savings andloan association (S&L)

Savings and loan associationowned by thriftholding company

Savings and loan associationowned hy bankholding company

Independentsavings hank

gowned by

thriftholding

company

. 6 6 "(497)

-.85(3)

(0)

. S I *(2901

111)

(0)

.71*(48)

.77(28)

(0)

.8.1"C5S1

1.33(51

.02III

Ownership status and charter typo in 1997

Saving* hankowned by

bankholding

company

3(35)

,05(51

2.65

3.16 '(ID

-1 .2*!(3 )

13)

nl IS&L I

(01

(III

(0)

.26"(536)

(0.1

S&Lowned bv

Ihrjnholding

company

S&Lowned bv

hankholding

company

Independentcumnwjciai

bank

Commercialbank owned

bv hunkliuiding

company

(0)

(Ol

(0)

. 1 1 ' :

(10)

.50(9)

(01

(Oi

(Oi

CO!

2.36(ft)

-1.7.2(3)

2.00(.1)

(4)

(111

(I!)

6.96*(6)

5 71-122)

l.'W13)

(5)

4,40- »"(17)

(0)

12.80(I )

N o t K Each table enu>. consisting of a pair ol' figures, represents a unique1

cnmbinaiion ol ' 1991 and 19*17 ownership smus .ind charier ispe- The topnumber in each pair of figures is the <^(.'rac.e change in [he ratio uf ( & l loans[o asseis. in percentage [Hnni.s. across .7]! institutions in th:u sifoup; (he ntimtiL-r"in parentheses is the number of instiluiinns in that croup. For example, four

(hrif i institutions in the sample thai wure indepcnJcnt savings bunks in 1991comertc'd to indepvndeni commercial banks during the study period; the- aver-atiC ratio ol C & i loans to assets tor this group of inshtuttons increased9.35 jx.'reeilU[£i-' poifiis over the f>en"d.

-. •. • Significantly different Ironi zero at the 0.10. 0.05. and l l . i l l ICM'IS.

charter conversion), inspection of the annual C&Iloan-to-asset ratios of individual thrifts undergoingcharter conversion suggests that increased C&I lend-ing generally followed rather than preceded charterconversion. Thrifts that in 1991 were independent orowned by a bank holding company and in 1997were owned by a bank holding company also showedfairly large average increases in C&I loan-to-assetratios.

CONCIA :S!ON

Our analysis confirms that thrift institutions are lesslikely than commercial banks to engage in commer-cial and industrial lending and that the extent ofinvolvement of thrifts that do engage in such lendingis generally low compared with that of banks. Wealso identified several factors that are related either tothe level of thrift involvement in C&I lending at agiven time or to the change over time in the level ofsuch involvement.

Among thrift institutions, savings banks are muchmore heavily involved in C&I lending than sav-ings and loan associations. Ownership status is alsostrongly associated with the C&I lending activityof thrifts: Involvement is greater among those ownedby bank holding companies than among either inde-pendent thrifts or those owned by thrift holdingcompanies.

Although larger thrifts are more likely than smallerthrifts to be involved in C&I lending, for those thatare involved in such lending, the proportion of assetsinvested in C&I loans tends to decline with increas-ing institution size. Thrifts operating primarily inrural markets tend to be more heavily involved inC&I lending than those operating primarily in urbanmarkets.

Perhaps our most interesting finding is that higherlevels of market concentration are associated withgreater thrift involvement in C&I lending. This find-ing has potential implications for antitrust policy. Itsuggests that a merger that substantially increasesconcentration in a local banking market may leadto greater C&I lending activity by thrifts operatingin that market, thereby mitigating, to some degree,the potential competitive harm (to business custom-ers) resulting from the merger. The effect may beparticularly important if the market and the thriftsoperating in it have other characteristics associatedwith greater thrift involvement in C&I lending.

Charter type and ownership status also influencethe growth of C&I lending activity over time: Con-version from a thrift charter to a bank charter isassociated with a large, statistically significantincrease in C&I lending relative to institutions thatretain their thrift charters. Among thrifts that retainedtheir thrift charters, those that changed from indepen-dent status to bank holding company ownership dur-ing the study period and those that were under bank


1036 Federal Reserve Bulletin Li December 1998

holding company ownership throughout the periodshowed significantly greater growth in C&I lendingactivity than did thrifts that were independent or wereunder thrift holding company ownership at the end ofthe period.

Our findings indicate that thrift institutions in gen-eral are far less involved in commercial and indus-trial lending than commercial banks but that theextent of involvement varies considerably and sys-tematically with characteristics of the thrift institu-tion and the market(s) it serves. If thrift involvementin C&J lending is taken to be a reasonable indicatorof the extent to which thrifts should be treated asequal competitors of commercial banks for purposesof antitrust analysis, our findings support an approachto merger analysis that generally gives reducedweight to thrifts as competitors but allows the weightto be increased for thrift institutions that are unusu-ally active in C&I lending.

M'f/:.\n ix: Hi-. ( ;RI-:SS IO.\ A ,\A L YSIS

In addition to the univariate analysis presented intables 1-6, we ran ordinary least squares (OLS) re-gressions to further examine the relationship betweencommercial and industrial lending by thrift institu-tions and various market and firm characteristics.Regression analysis makes it possible to determinewhether the relationships observed in the univari-ate analysis persist when the influence of otherco-varying factors is taken into account. The regres-sion equation was estimated for two groups—the1,755 thrift institutions that reported both branch(Summary of Deposits or Branch Office Survey) andfinancial (Call Report or Thrift Financial Report) datain 1997 and the 1,217 thrifts in that group that hadsome assets in C&I loans. Variables were measuredas of June 30, 1997, and correspond to those exam-ined in the univariate analysis.

The results of the regression analysis (table A.I)are generally consistent with those of the univariateanalysis. In every instance but one, the sign of thecoefficient estimate indicates a relationship betweenthe variable and C&I lending similar to that indicatedby the univariate analysis. The exception is thatregression analysis yields a positive (but statisticallyinsignificant) coefficient on the urban market vari-able, indicating that thrifts operating primarily inurban areas are more involved in C&l lending thanthose operating primarily in rural areas, whereasunivariate analysis (table 6) indicates the opposite.This discrepancy may be due to the fact that regres-sion analysis controls for other factors that are typi-

A . l . I'Atim.ik-il t/iiL-riiiJtcnK l ion i [L '^rvî : \pki imMy i-Liliii nl ' t ' & l lo; in\ in ;I

L\|U;IUI)U

lor thrill

Variahle

Intercept

Inxiiiutron characteristicsSavings bank' . . . , .

S\?e2

Ownership statusThrift holding company-' .,

Bank holding company' . . .

Market "share5 .

Geographic Location *Middle Atlantic

South Atlantic

East North Central

East South Central

West North Central

West South Central

Mountain

Pacific

Market chiinicreriilicxMarket concentration1

Urban market"

Adjusted R-squarcNumber o f observations

AH thrifts

-.0041-01)

. 9 3 5 * "(6.59)

017(.67)

.282(1.37)1 .763 ' "

(6.87)0 4 1 * "

(3.58)

- . 7 2 5 " *(2.9ftl-.291

(1.14)- .620**

(2.57)-.257(.76).264

(.85).004

(.01)—.570

(1.30)- 1 069***(3.24)

""O1 x I D - 1 " *(2.99)

.1861.84)

.1191.755

Thrifts with someasKK in

C&I loam

,924««(4.50)- . 1 8 6 "12.461

.362(13851 . 5 4 2 ' "

15.05}014**

12.26)

-.4&S<1.55>

.0491.15)

- . 3 4 0 "11.10)-.083(.19).679*

(1.71).123

(.30)- 4 0 S(.72)-.766*

11.74)

2.47 x I D - 1 * "(2.S4)

.31311.01)

.0831.2.17

No IT.. Numbers in parentheses are / statistic...1. Dummy variable equal to I if the thrill is a savings bank, and 0 if it is a

savings: and loan association.2. As measured by the natural log of total assets held by the thrift.3. Dummy variable equal to I if the thrift is owned by a thrift holding com-

pany, and 0 otherwise.4. Dummy variahle equal to 1 if the thrift is owned by a bank holding com-

pany, and 0 otherwise.5. Deposit-weighted average of trie thrift's market share in the market(s) in

which it operates.6. Dummy variable equal to I if the thrift is headquartered in the named

region (bused on divisions used by the Bureau of me Census), and 0 otherwise.New England! K the omitEed region.

7. Deposit-wcijzhicd average of the bank-only deposit-bnscdHcrlindahl- Hir^chrnun index in the market (si in which the thrift operate.

8. Shnre uf thrift's total deposits held in banks located in metropolitanstatistical areas.

*. **, K" Significantly different from zero at the 0.10. 0.05, and 0.01 levels.

cally higher in rural markets than in urban marketsand are positively related to the extent of C&I lend-ing by thrifts, such as market concentration and thethrift's share of deposits in the market(s) in which itoperates (tables 5 and 6). Therefore, the differencesbetween thrift C&I lending in urban and rural areasshown in table 6 may be largely attributable to thriftsin rural markets having larger market shares and



operating in more concentrated markets than thrifts in These findings are consistent with the univariateurban areas. analysis, which found that participation in C&I lend-

Interestingly, the estimated coefficient on the thrift ing increases with size but that for those thriftssize variable is positive (but statistically insignifi- engaged in C&I lending, the extent of involvement,cant) for the full sample and negative for the sample as measured by the ratio of C&I loans to assets,of thrifts having at least some assets in C&f loans. declines with size. i


1038

Treasury and Federal ReserveForeign Exchange Operations

This quarterly report describes U.S. Treasury andSystem foreign exchange operations for the periodfrom July through September 1998. It was presentedby Peter R. Fisher, Executive Vice President, FederalReserve Bank of New York, and Manager, SystemOpen Market Account. Jason J. Bonanca was pri-marily responsible for preparation of the report.

During the third quarter of 1998, the dollar depreci-ated 1.7 percent against the Japanese yen and 7.8 per-cent against the German mark (charts 1 and 2).Against the mark, the dollar continued to trade inrelatively narrow ranges during the first half of theperiod. Subsequently, however, the dollar droppedsharply amid increasing turmoil in global financialmarkets and shifting expectations for economicgrowth and interest rate policy. Against the yen. thedollar steadily appreciated throughout the first half ofthe quarter, reaching new eight-year highs, as marketparticipants reacted pessimistically to political uncer-tainty and financial-sector difficulties in Japan. Laterin the period, the dollar's gains were more thanreversed as market participants unwound short yenpositions in an environment of increasing risk aver-sion. The U.S. monetary authorities did not intervenein the foreign exchange markets during the quarter.

I, Spu'i L'XtiliiiiiL'i.' rait lit ihi.' (ioJiyf iijwiJiisi ilk* JapancM;

imil Vit'luiiSily HKfj'iik'JJn o n o m u n i h ivpiron p i i t w

.1. Spur. i.j\djYiiiiL;t: rate el tliu Jo l lu r a ^ m s l [lit- (k' iTiW\ iif.-i

and volatility implied hv "'.i^-'.rKxii!'. option IU'IL-ON.

IApr. Max. Ivyno July Aujv Sep i ,

I\D-II [->t-la in this chart and- ihosc ih-ar I'olJow are d:ii-v1"y-Soi «-l-s J P. Moruiin: BliHimbori: L.P.

Murkv per iliitlai

I.X5 ^

1.80 — » \ ^

1.75 -

1.70 »AA

Apr.

Dollar-mark

JDiilifar-inart. imiplifi]

July Amg.

rPETSc-w per j t sa

jl " ''

Stpi.

Soi RCIS, J.P. Morpin: BlovA'jh'drt1 l.V.

HEIGHitNED RISK AVLRSIOK RESCUING FROMTURMOIL IN EMERGING MARKETS

During the first half of the quarter, market partici-pants expected that near-term U.S. interest rate policywould remain unchanged. The economic slowdownin Asia was expected to counterbalance ongoing,if moderating, strength in U.S. domestic demand.However, continued financial and economic weak-ness in Japan and developments in emergingmarkets—particularly the deteriorating financial situ-ation in Russia—helped to support U.S. Treasuryprices during the first weeks in the quarter. Until themiddle of August, the thirty-year Treasury bond yieldtraded consistently below 5.80 percent, near the bot-tom of its 1998 range (chart 3).

Investor aversion to risk intensified sharply afterRussia's declaration of a debt moratorium and aneffective devaluation of the ruble on August 17.Losses in Russian markets and a dramatic wideningof risk premiums led to successive waves of sellingin emerging-market assets. Dollar-denominated,emerging-market yield spreads over Treasuries roseto their highest levels since early 1995, and sales ofemerging-market currencies ensued as investorsshed positions in local markets. These outflows led


1039

U.S. TI-LMMJI-Y yk-kls, 4. J.P. Morgan EiiiiLTgiu;: Markets Bnud Iiuk-x, 1 'J'>8:Ql*

TMrty-ywr

— 5.5

5.0

— 4,5

July Aug.1998

Sept.

SOURCF. Bloomberg L.P.

to increasing pressures on other markets, particularlythose with fixed exchange rate regimes. Mountingstrains on the Hong Kong dollar led to speculationregarding another series of currency devaluations inAsia. Meanwhile, increasing capital outflows fromBrazil, as well as devaluations in Colombia and Ecua-dor, raised concerns about stability in Latin America.Sensitivity to the risk of sovereign events wasexacerbated by Malaysia's announcement of capitalcontrols and a new fixed exchange rate regime onSeptember 1, as well as Hong Kong's decision tointervene in its equity market. In this environment,demand for U.S. Treasuries soared, with the thirty-year bond yield declining, to as low as 4.96, onSeptember 30. Meanwhile, U.S. equities began topost sharp declines, responding to mounting turmoilin emerging markets and weaker-than-expected cor-porate earnings. European shares also weakened; theGerman DAX declined 24.2 percent over the period.

The sharp downward adjustment in asset prices inemerging markets accelerated as leveraged investorswere forced to liquidate positions to meet margincalls. Risk aversion grew, as market participantsanticipated that rapidly accruing losses might lead toa contraction of credit within the investment commu-nity. Further, the speed of the declines led to substan-tially illiquid trading conditions, which exacerbatedvolatility in already unsteady markets. Anxiety overthe health of the financial sector intensified as marketparticipants began to speculate that Long-Term Capi-tal Management, a major hedge fund, had incurredlarge losses.

During the final weeks of the period, tension inglobal financial markets eased somewhat in responseto growing expectations for official policy responses(chart 4). The September 14 statement by the Groupof Seven (G-7) Finance Ministers and Central BankGovernors, in addition to President Clinton's speech

July

Noii , Daia arc (he stripped sovereign >p[v;<d o\er TreasuriesSol tu i . J.P. Morgan.

to the Council on Foreign Relations, promptedincreased market talk about plans for internationalfinancial stabilization and possible coordinated inter-est rate cuts. On September 29. the Federal OpenMarket Committee (FOMC) cut its federal funds ratetarget 25 basis points, to 5.25 percent.

DECLINE OF THE. DOf.fAR ACAMST THE MARK

Early in the period, the dollar traded in its year-to-date range of DM 1.75-1.85, guided by stable expec-tations for gradual but steady growth in both theUnited States and Germany. Market expectationsregarding monetary policy in the two countriesreflected anticipation of steady policy in the UnitedStates and the possibility of a rate increase in Ger-many before the beginning of the European Eco-nomic and Monetary Union (EMU) in January 1999.After the events of mid-August, however, marketparticipants became increasingly persuaded thai theturmoil in emerging markets and ongoing weaknessin Asia would have a more significant effect on theU.S. economic outlook than had previously beenexpected. The concomitant tumble in U.S. equityprices served as an initial catalyst for dollar salesagainst marks; between August 26 and 31. the dollardeclined from DM 1.8068 to DM 1.7547 against themark as the Dow Jones Industrial Average Tell11.6 percent.

The dollar's decline coincided with the emergenceof expectations that the Federal Reserve would casemonetary policy in an effort to address the possibleconsequences for U.S. growth prospects posed by thestrain on financial markets. In an address on Septem-ber 4, Chairman Greenspan said, ". . . it is just not


1040 Federal Reserve Bulletin L December 1998

credible that the United States can remain an oasis ofprosperity unaffected by a world that is experiencinggreatly increased stress." Many market participantsinterpreted the Chairman's speech as a signal that theFOMC had abandoned its bias toward a tighteningand was leaning toward an ease as its next move.Over the following week the implied rate on theOctober federal funds contract declined 17 basispoints and subsequently reached a period low onSeptember 25. of 5.15 percent.

During the period, the increasing scope of globalfinancial stress helped to reduce expectations that theBundesbank would raise rates as part of the processof European convergence; the implied yield on theDecember 1998 Euromark contract declined 37 basispoints, to 3.55 percent. However, market participantsappeared increasingly convinced that the Bundes-bank was relatively less likely to ease policy thanthe Federal Reserve. Continued signs of Europeangrowth, the Bundesbank's call for the gradual conver-gence of European interest rates, and perceptions thatthe European economy was relatively insulated fromweakness in Latin America all contributed to thisbelief. The implied yield spread between the Decem-ber Eurodollar and Euromark contracts narrowedfrom a high of 195 basis points to a low of 146 basispoints, illustrating the degree to which interest rateexpectations had shifted against the dollar; during thesame period, the dollar declined more than 12 pfen-nigs against the mark, falling from DM 1.7993 toDM 1.67 18 (chart 5).

Throughout the period, the dollar-mark exchangerate also reflected steady demand for selected Euro-pean financial assets stemming from expectations forlow regional inflation and confidence in the EMU.

(k'niKin government ien-\e;ir benchmark tiunii weld.

— 4,0

July Aug. Sepl.

Soi K<. J . Bloombeig L..I1.

These flows helped to push the benchmark Germanbond yield to a record low on September 30, of3.87 percent (chart 6). In addition, anxiety amongsome market participants regarding prospects forimpeachment proceedings against President Clintonappeared to weigh on the dollar.

During the final weeks of the period, the pace ofthe dollar's depreciation subsided amid mountinganticipation of G-7 aid to Latin America and increas-ing evidence that expectations for a Federal Reserverate cut had become largely discounted by marketparticipants. These factors partially fueled a rally inU.S. share prices; The Dow Jones Industrial Averagerose 4.0 percent from a low of 7539.07 to finish theperiod at 7842.62, helping to reinforce improvedsentiment toward the dollar (chart 7).

5. Implied yield spread between Reuemhci' Fiumdolbr andtimiiiliirk I'uuirw IWi^yl

200

Sept.

Noll-. Data arc Ihc I'.urodollur implied yield minus Ibe I'.urontark impliedyield.

Soi RI i . RliMimlvri! t..P.

7 Global benchmark equity MILIOXO.

Index:Julv I • 10(1

UnitedJapan S t a ( e s

— 100

— so

— 60

Brazil

July Aug.

1998

Sept.

SOIKCF. Bloomberg L.P.


Treasury and Federal Reserve Foreign Exchange Operations 1041

K l I HI., \ I t >1 I i l l . } ) i '!.f \ i< i /,•< n j 1 . 1 < , ! i / • ) / \ A

/ • / / ( , 7 - / . S . W , . l / \ W / 1 1 1 Yi \

Despite reaching fresh eight-year highs against theyen on August 11, the dollar declined more than2 yen against the Japanese currency during the quar-ter. Over the same period, one-month volatilityimplied by option prices rose from 18 to 18.85 per-cent. Initially, market participants sold yen on doubtsthat a new financial reform package introduced onJuly 2 would be sufficient in scope or timeliness todeal with Japan's banking crisis. The lack of anyfurther fiscal stimulus measures also weighed on theyen. Moreover, the defeat of Japan's ruling party inparliamentary elections on July 12 and the subse-quent uncertainty regarding the direction of Japa-nese economic and foreign exchange policy deflatedhopes for an early resolution of Japan's problems.Lastly, Japanese economic data that were weakerthan expected contributed to negative sentimentthroughout the period; second-quarter gross domesticproduct declined 1.6 percent year-over-year.

In the aftermath of the Russian devaluation, how-ever, investors increasingly took profits on long dol-lar positions against the yen in a bid to offset lossesin emerging markets or simply to reduce risk in anincreasingly volatile financial environment. Manybelieved that the climb in volatility had led to aslower pace of capital outflows from Japan than hadbeen expected previously, a development that lentfurther support to the yen. This trend was reinforcedby perceptions of Japanese investor repatriation flowsbefore the September 30 end of the fiscal half-year inJapan. Finally, growing anticipation that the FederalReserve would ease policy also contributed to thedollar's decline. The dollar reached a low of ¥130.65on September 11, after having fallen 11.1 percentfrom its intraperiod high of ¥147.33.

In the final weeks of the period, the dollar partiallyretraced its losses, rising to finish the quarter at

¥136.50. Market pessimism regarding Japan's eco-nomic and financial prospects remained in place afterthe September 4 meeting in San Francisco betweenTreasury Secretary Rubin and Japanese Finance Min-ister Miyazawa. The Bank of Japan's September 9announcement of a monetary ease and renewed un-certainty regarding the prospects for banking reformin Japan also contributed to yen softness.

/ A 1 / . I ,S !'!<)'. \ \ I) !'/• h i AM / A 7 . t.R \ T f'< >l:\CII.\X<;i: A Y . M A ' W A

i IV

The U.S. monetary authorities did not undertake anyintervention operations during this quarter. At the endof the quarter, the current values of the German markand Japanese yen reserve holdings totaled $13.4 bil-lion for the Federal Reserve System and $14.6 billionfor the Exchange Stabilization Fund. The U.S. mone-tary authorities invest all of their foreign currencybalances in a variety of instruments that yield market-related rates of return and that have a high degree ofliquidity and credit quality. A significant portion ofthese balances is invested in German and Japanesegovernment securities held directly or under repur-chase agreement. As of September 30, outright hold-ings of government securities by U.S. monetaryauthorities totaled $7.3 billion.

Japanese and German government securities heldunder repurchase agreement are arranged eitherthrough transactions executed directly in the marketor through agreements with official institutions. Gov-ernment securities held under repurchase agreementby the U.S. monetary authorities totaled $11.7 billionat the end of the quarter. Foreign currency reservesare also invested in deposits at the Bank for Interna-tional Settlements and in facilities at other officialinstitutions. D


1042 Federal Reserve Bulletin l~l December 1998

ngL1 in)Uliiii?s oi U.S. moni_-Utp, authorities \\[scd on L'urrent exchange rales.

Millions of

ItemBalance.

June 30. 1<W

Quarterly changes in balances by source

iM purehus.esand (.ales'

Impact olsalts1

Currencyvaluation

adjustments *

Imcrw) accrualI nel) and other

Balance,Sept. .10. 1998

Deutsche marks . . . . .

interest recctvitrtlesJ

Other cash (low. Irani rnvv-stinems1 • •.

Total

11.652.05.5S9.S

1.0.5

17J32.8

0

un0

102.24.2

106.4

U.S. TREASURY

FxtHANGE Sl'ABIIJ/.tTHW FlJNIJDeutsche marksJapanese yen

Interest receivables1'Other cash fl'ow frami snvestnteaK *

Total

SJOCIO.1

42.017.9

1X958.2

52.35.7

58.0

9.14.4

1,004.2

4719100.2

573.1

00

14.610.5

4.1

I2.688.&5.663.8

95.1

18.447.5

00

fi.fi

-17.9

-11.3

6.42.14S.I 06.0

4S.6

14.578.0

1. Purchj.ves and vjtus jn.clu.de fcrcixw currcne)- sales ;jnJ purchLiM.'s pjlatcd looEfteial activily, sviap iâwings and repaj-mcnls. and v.iiichousinQ.

2. Calculated tisinp markeef -to-nrt;iirkec exchange rales; represents the (.Itt't'er-ecice Ix-tween [he sale e\ch.irKsj!t rate .tnd ihi; most recent n.'v.ilu.ition exchangenite. Realized pro!t^ and losses on sales oi~ foreign currencies computed :is theditierei>ce hetween the hisiooic cost-ol-Licquisition exchange rate and the saleexchange rate are shown in table 2.

3. I'^rdgn currency, Kiilartces are muaked to market rnonthU at month -etuiexchange rates.

•4. Interest receivables for the ESF are revalued at month-end exchange rates.Interest receivable* tor the 1-ederal Reserve System are earned at aveiajre costof acquisition and are not marked (o market until interest is pnid.

5. Cash flow dillenjiices from payment and collection of funds betweenquarters.

Nui fir kisses i—i nil 1\.S. T tvasury

nil 11i-s.

Millions nl dollars

Period and itcnn

Valuation profits tind /fv.TfT cm(/ittttaiutirtH US.\-LJ!\ ami ffahttiurx.June M IV9HDeutsche mcuksJapanese yen

Total

Rt.'it[i:.i'it profits iiltd hyifm/n frneizn timvfti v jwJune 30. IW8-Seiir.'.W.Deutsche: nurks

Total

\hhui[it:m profits and hiHiisttmJini; rt.viri.v andSept. 30, I9>JHDeulsche marksJapanese yen

"II

Total

FederalReserve

.19.9-18.2

21.7

974.351.7

11,(126.0

I US. Trea:

SrabiliiaiKinFund

-20.2

^108,8

84.180.0

3. Ctinvncy nrvangcMillions of dollars

L'iils. S<j])k'iiihor 3<!.

hislilution

Austrian Nittional Bunk . . . .National Bank of Belgium .Hank of CanadaNational Bank of DenmarkBank of EnglandBank of FranceDeutsxhc Bundesbank

Bank of ItalyBant of JapanBank of MexicoNetherlands Bank ..Bank of Norway . . . .Bunk of SwedenSwiss Niinonnl Btuik

Bank far huernttfwTKtt SeftlaOaWars- againsi Swiss francsDollar* against other authorized

European currencies

Total

DeutscheR-tnk of Mexico

Amnuni o!'facility Sept. 50. 1998

Federal ReserveRevipmcal Cuircncy

Arrangemenu;

2501.0002.000

2503.0002.0006.000

3.0005.0003.000

500250500

4.000

0

600

1.250

32.400 I)

U.S. TreasuryExchange Stabilization Fund

Currency Arrangements

1.000.VOW)


1043

Industrial Production and Capacity Utilizationfor October 1998

Released for publication November 16

Industrial production edged down 0.1 percent inOctober, held down by a 3.4 percent drop in theoutput of utilities. Utility output, which had been atelevated levels over the summer, fell back as tem-peratures returned to more normal levels. Manu-facturing output bounced back 0.3 percent, regain-ing only some of September's 0.6 percent loss. At128.3 percent of its 1992 average, industrial produc-

Industrial production and capacity utilization

130

120

110

100

tion in October was 1.4 percent higher than it was inOctober 1997. Capacity utilization fell 0.4 percentagepoint, to 80.6 percent, 1 Vi percentage points below its1967-97 average.

MARKET GROUPS

The output of consumer goods edged down 0.1 per-cent in October after having dropped a downward-

Industrial production

~~ Manul'acturini>

Ratio scale. 1992 =

Total industry

1 1 1 1

100

_

-

-

Cap

/f

acity

A

i

utili

To

v&

1

/ation

tal industry

V*V

Perccn

Manufacturing

1 1 1 1

oi

%\

i

capacity

- 80

1990 1992 1994 1996 1998 1988 1990 1992 1994 1996 1998

Industrial

_ Consumer

—

I r

production, market

goods

Durable .

S\l Nondurable

1 1 1 1

groupsRatio scale.

1 1

1992 =

11i—\^

100

_

—

—

135

125

115

105

__ Intermediate products

Construction supplies A '

Vy^vC^ Business

I I

Ratio scale.

y

supplies

1 1

1992 =

y

1

100

-

-

125

115

105

95

Equipment

— Business

Def :nse arid spa*.

Ratio scale. 1992

s—,1

= 100

-

-

Ratio scale. 1992= 100

Materials

Nondurable uoods and cneruv

175

160

145

130

115

100

85

1990 1992 1994 1996 1998 1990 1992

AH scries are seasonally adjusted. Latest series. October. Capacity is an index of potential industrial production.

1994 1996 1998Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


Industrial production and capacity utilization. October 1998

Cateeorv

Total

Previous estimate

Major nutrkrt ^rouj'sProducts. lolal :

Consumer aoodsBusiness equipmentConslruccum supplies

TMaierials

Maji>r iiulustrx t,'/v;//nMamifaeliuinn

DurableNondurable

ViuiiimUtilities

Total

Previous estimate

ManufacturingAdvanced processingPrimarv processing

Miniimtililnies

July1

127.2

127.0

120.7114.4149.3128.0137.6

129.6146.41 12.3106.3118.5

Averase,1967-97

8 1 1

81.180.582.487.587.3

Aug.1

129.1

129.0

122.71 16.3154.5129.1139.2

131.8152.311 1.3105.9118.9

Low.1982

71 1

69.070.466.280.375 9

1998

Sept.'

128.4

128.7

121.8115.4153.3127.5139.1

131 0150.9110.9104.8120 7

High.1988-89

85 4

85.784.288.988.092.6

Industrial

Oct.''

128.3

121.6115.21 53.6128.0159.0

131.4151.8110.9103.6116 6

Japacitv u

1997

Oct.

8 1 0

81 980.285.789.692.0

production, index.

"1 "

July

_ 2

i

- .4- .8-.91.2

.0

- . 3- .8

.3

ilization. percent

rJuly'

80 7

80.6

79 277.084.389.592.6

1992 =

Aug.

1.5

1.6

1.71.73.5

.91.2

1.7-V0- .9- .4

.4

Aug

81 7

81.6

80.378.783.989.092 9

00

Percentage change

I9981

Sept.'

-.5

-.3

- . 8- .8- . 8

-1.2- .1

- . 6- .9- .3

-1.01.5

1998

Sept.'

81 0

81.1

79 577.983.088.094.2

Oct. r

-.1

T

- I

A.0

.3

.6-.1

- I . I-3.4

Oct. r

80 6

79 477.982.886.990.9

Oct. 1997

Oct. 1998

1.4

1.2- .65.55.61.7

1.84.3

-1.2-2.1

-.2

Ml: MOCapacity.

pci-centagechange.

Oct. 1997

Oct. 1998

4 . :

5.05.83.1

91.0

Noi h. Data seasonally adjusted or calculated from seasonally adjustedmonthly data.

I Change from preceding month.

2. Contains components in addition to those shown,i Revised,p Preliminary.

revised 0.8 percent in September. The production ofdurable consumer goods in October was buoyed by a2.9 percent increase in automotive products as wellas an increase in appliances that recovered a bit ofSeptember's 7 percent loss. The output of nondura-ble goods (excluding energy for consumers) wasunchanged in October; consumer energy products fell3.7 percent, a drop that reflected lower residentialdemand for electricity.

The production of business equipment edged up inOctober, with another drop in the output of industrialequipment offset by increases in information process-ing equipment and motor vehicles. The production offarm equipment fell again and is down almost 6 per-cent from a year ago. Commercial aircraft produc-tion, which had been nearly flat at a high level duringthe first part of the year, rose again last month.

The output of construction supplies increased0.4 percent, regaining some of its September loss.Production in this category had climbed rapidlybetween December of last year and August, buoyed

by the strength in homebuilding activity. The produc-tion of materials has been nearly flat over the pasttwo months. The production of basic metals fellagain after having dropped nearly 3 percent in Sep-tember: iron and steel production has tumbled morethan 8 percent over the past two months. In contrast,production of semiconductors and other electroniccomponents picked up noticeably in October; semi-conductor output had decelerated earlier this year,and October's increase is the largest since January.

INDUSTRY GROUPS

Manufacturing output increased 0.3 percent in Octo-ber after having dropped 0.6 percent in September.An increase in motor vehicle assemblies from12.7 million units (annual rate) in September to13 million units (annual rate) in October accountedfor part of the gain. But increases were fairly wide-spread within other durable goods industries, espe-


Industrial Production and Capacity Utilization 1045

cially furniture, fabricated metal products, comput-ers, and semiconductors. A notable exception was theiron and steel industry in which output fell again inOctober after having contracted sharply in Septem-ber. The recent weakness in nondurables—productionhas fallen almost 1V2 percent in the past threemonths—has been widespread, including the apparel,chemical, paper, and petroleum industries. In Octo-ber, mining production declined for the third straightmonth, pulled down by decreased oil and gas drillingand extraction resulting from weak crude oil prices.

The factory operating rate fell 0.1 percentage pointin October, to 79.4 percent—more than 2Vi percent-age points below the level it had reached in January.Utilization rates for both primary- and advanced-processing industries have fallen this year. Industriesthat have experienced especially large declinesinclude primary metals, petroleum products, andmining.

REVISION OF INDUSTRIAL PRODUCTION ANDCAPACITY UTILIZATION

On November 24, the Federal Reserve will publishrevisions to its measures of industrial production(IP), capacity, capacity utilization, and industrial useof electric power. The revisions will begin with 1992and will incorporate updated source data for morerecent years.

This regular updating of source data for IP willinclude annual data from the Bureau of the Census's

1996 Annual Survey of Manufactures and fromselected editions of its 7997 Current IndustrialReports. Annual data from the Department of theInterior on metallic and nonmetallic minerals (exceptfuels) for 1996 and 1997 will also be introduced. Theupdating will also include revisions to the monthlyindicators for each industry (physical product data,production-worker hours, or electric power usage)and revised seasonal factors. In addition, the revisionwill introduce improved measures of production forsemiconductors, coal, lawn and garden equipment,and aircraft.

Capacity and capacity utilization will be revisedto incorporate preliminary data from the CensusBureau's 1997 Survey of Plant Capacity. The statis-tics on the industrial use of electric power will incor-porate more complete reports received from utilitiesfor the past few years as well as data from the 1996Annual Survey of Manufactures.

Once the revision is published, the revised datawill be available on the Board's web site, http://www.federalreserve.gov/releases/gl7, and on disk-ettes from Publications Services (telephone 202-452-3245). The revised data will also be available throughthe Economic Bulletin Board of the Department ofCommerce; for information about the Bulletin Board,call 202-482-1986. Further information on these revi-sions is available from the Board's Industrial OutputSection (telephone 202-452-3197). •


1046

Statements to the Congress

Statement by Alan Greenspan, Chairman, Board ofGovernors of the Federal Reserve System, before theCommittee on Banking and Financial Services, U.S.House of Representatives, October 1, 1998

I thank you for this opportunity to report on theFederal Reserve's role in facilitating the private-sector refinancing of the large hedge fund, Long-Term Capital Management (LTCM). In my remarksthis morning, I will attempt to put into some perspec-tive the events of the past few weeks and discusssome questions of importance to public policymakersthat they raise.

The Federal Reserve Bank of New York's effortswere designed solely to enhance the probability ofan orderly private-sector adjustment, not to dictatethe path that adjustment would take. As PresidentMcDonough just related, no Federal Reserve fundswere put at risk, no promises were made by theFederal Reserve, and no individual firms were pres-sured to participate. Officials of the Federal ReserveBank of New York facilitated discussions in whichthe private parties arrived at an agreement that bothserved their mutual self-interest and avoided possibleserious market dislocations. Financial market partici-pants were already unsettled by recent global events.Had the failure of LTCM triggered the seizing upof markets, substantial damage could have beeninflicted on many market participants, including somenot directly involved with the firm, and could havepotentially impaired the economies of many nations,including our own. With credit spreads already ele-vated and the market prices of risky assets underconsiderable downward pressure, Federal Reserveofficials moved more quickly to provide their goodoffices to help resolve the affairs of LTCM thanwould have been the case in more normal times. Ineffect, the threshold of action was lowered by theknowledge that markets had recently become fragile.Moreover, our sense was that the consequences ofa fire sale triggered by cross-default clauses, shouldLTCM fail on some of its obligations, risked a severedrying up of market liquidity. The plight of LTCMmight scarcely have caused a ripple in financial mar-kets or among federal regulators eighteen monthsago—but in current circumstances it was judged towarrant attention.

What is remarkable is not this episode but therelative absence of such examples over the past fiveyears. Dynamic markets periodically engender largedefaults.

EVENTS OF THE PAST FEW WEEKS

LTCM is a hedge fund, or a mutual fund that isstructured to avoid regulation by limiting its clien-tele to a small number of highly sophisticated, verywealthy individuals and that seeks high rates of returnby investing and trading in a variety of financialinstruments. Since its founding in 1994, LTCM hashad a prominent position in the community of hedgefunds, in part because of its assemblage of talent inpricing and trading financial instruments as well asits large initial capital stake. In its first few years ofbusiness, it earned an enviable reputation by rackingup a string of above-normal returns for its investors.

LTCM appears principally to have garnered thosereturns by making judgments on interest rate spreadsand the volatilities of market prices. In its search forhigh return, LTCM levered its capital through securi-ties repurchase contracts and derivatives transactions,relying on sophisticated mathematical models ofbehavior to guide those transactions. As long as theconfiguration of returns generally mimicked theirhistorical patterns, LTCM's mathematical models ofasset pricing could be used to ferret out temporarymarket price anomalies. Their trading both closedsuch price gaps and earned an extra bit of return oncapital for them. But it is the nature of the competi-tive process driving financial innovation that suchtechniques would be emulated, making it ever moredifficult to find market anomalies that provided share-holders with a high return. Indeed, the very efficien-cies that LTCM and its competitors brought to theoverall financial system gradually reduced the oppor-tunities for above-normal profits. Indeed, LTCMacknowledged this when returning $2% billion ofcapital to investors at the end of 1997. To counterthese diminishing opportunities, LTCM apparentlyreached further for return over time by employingmore leverage and increasing its exposure to risk, astrategy that was destined to fail. Unfortunately forits shareholders, LTCM chose this exposure just


1047

as financial market uncertainty and investor risk-aversion began to rise rapidly around the world.

In that environment—so at variance with the expe-rience built into its models—LTCM's embrace of riskon a large scale produced stunning losses. As we nowknow, by the end of August the firm had lost half itscapital base. And as September unfolded, the bleed-ing continued. The firm, however, apparently did notunwind its positions significantly.

In our dynamic market economy, investors andtraders, at times, make misjudgments. When marketprices and interest rates adjust promptly to evidenceof such mistakes, their consequences are generallyfelt mostly by the perpetrators and, thus, rarely cumu-late to pose significant problems for the financialsystem as a whole. Indeed, the operation of an effec-tive market economy necessitates that investmentfunds committed to capital projects that do not accu-rately reflect consumer and business preferencesshould incur losses and ultimately be liquidated.What value is left needs to be redirected to profitableuses—those that more accurately reflect market pref-erences. By such winnowing of inefficiencies, pro-ductivity is enhanced and standards of living expandover time.

Financial markets operate efficiently only whenparticipants can commit to transactions with reason-able confidence that the risk of nonpayment can berationally judged and compensated for. Effective andseasoned markets pass this test almost all of thetime. On rare occasions, they do not. Fear, whetherirrational or otherwise, grips participants, and theyunthinkingly disengage from risky assets in favor ofthose providing safety and liquidity. The subtle dis-tinctions that investors make, so critical to the effec-tive operation of financial markets, are abandoned.Assets, good and bad, are dumped indiscriminatelyin circumstances of high uncertainty and fear thatare not conducive to planning and investment. Suchcircumstances, were they generalized and persistent,would be wholly inconsistent with the functioningof sophisticated economies supported by long-termcapital investment.

Quickly unwinding a complicated portfolio thatcontains exposure to all manner of risks, such as thatof LTCM, in such market conditions amounts toconducting a fire sale. The prices received in a timeof stress do not reflect longer-run potential, adding tothe losses incurred. Of course, a fire sale that trans-fers wealth from one set of sophisticated marketplayers to another, without any impact on the finan-cial ' ='em overall, should not be a concern for theceniuu Dank. Moreover, creditors should reasonablybe expected to put some weight on the possibility of a

large market swing when making their risk assess-ments. Indeed, when we examine banks we expectthem to have systems in place that take account ofoutsized market moves. However, a fire sale may besufficiently intense and widespread that it seriouslydistorts markets and elevates uncertainty enoughto impair the overall functioning of the economy.Sophisticated economic systems cannot thrive in suchan atmosphere.1

The scale and scope of LTCM's operations, whichencompassed many markets, maturities, and curren-cies and often relied on instruments that were thinlytraded and had prices that were not continuouslyquoted, made it exceptionally difficult to predict thebroader ramifications of attempting to close out itspositions precipitately. That its mistakes should beunwound and losses incurred was never open toquestion. How they should be unwound and whenthose losses incurred so as to foster the continuedsmooth operation of financial markets was muchmore difficult to assess. The price gyrations thatwould have evolved from a fire sale would havereflected fear-driven judgments that could onlyimpair effective market functioning and generatelosses for innocent bystanders.

While the principle that fire sales undermine theeffective functioning of markets may be clear, decid-ing when a potential market disruption rises to a levelof seriousness warranting central bank involvementis among the most difficult judgments that ever con-fronts a central banker. In situations like this, there isno reason for central bank involvement unless thereis a substantial probability that a fire sale would resultin severe, widespread, and prolonged disruptions tofinancial market activity.

It was the judgment of officials at the FederalReserve Bank of New York (FRBNY), who weremonitoring the situation on an ongoing basis, that theact of unwinding LTCM's portfolio in a forced liqui-dation would not only have a significant distortingimpact on market prices but also in the process couldproduce large losses, or worse, for a number ofcreditors and counterparties, and for other marketparticipants who were not directly involved withLTCM. In that environment, it was the FRBNY'sjudgment that it was to the advantage of allparties—including the creditors and other marketparticipants—to engender if at all possible an orderly

1. At the same time, not all fire sales are without merit. TheResolution Trust Corporation earlier this decade chose to offer com-mercial real estate in what might be termed a fire sale because it wasthe only way an otherwise seized-up market could be galvanized.Some level of market prices had to be established—even if below"intrinsic" or longer-run value in order to reestablish a two-waymarket. This was a special case.



resolution rather than let the firm go into disorderlyfire-sale liquidation after a set of cascading crossdefaults.

As President McDonough has detailed, officers ofthe Federal Reserve Bank of New York contacted anumber of creditors and asked if there were alterna-tives to forcing the firm into bankruptcy. At the sametime, FRBNY officers informed some of their col-leagues at the Federal Reserve Board, the Treasury,and other financial regulators of their ongoing activi-ties. The troubles of LTCM were not a completesurprise to its counterparties. After all, LTCM's ear-lier statements regarding its August losses were wellknown, and sophisticated counterparties understoodthe difficulties in closing out large losing positions. Inaddition, the commercial banks among its creditorshad already begun taking normal precautionary mea-sures associated with exposure to counterpartieswhose condition is deteriorating. Still, creditors as awhole most likely underestimated the size and scopeof the market bets that LTCM was undertaking, anissue that is currently under review.

On September 23, the private-sector parties arrivedat an agreement providing a capital infusion of about$31/2 billion in return for substantially diluting exist-ing shareholders' stake in LTCM. Control of the firmpassed from the current management to a committeedetermined from the outside by the new investors.Those investors intend to shrink LTCM's portfolio soas to reduce risk of loss and return the remainingcapital to the investors as soon as practicable. I do notrule out the possibility that the new owners of what isleft of LTCM may decide to keep part of it in busi-ness. That is their judgment to make.

This agreement was not a government bailout inthat Federal Reserve funds were neither provided norever even suggested. Agreements were not forcedupon unwilling market participants. Creditors andcounterparties calculated that LTCM and, accord-ingly, their claims, would be worth more over time ifthe liquidation of LTCM's portfolio was orderly asopposed to being subject to a fire sale. And withmarkets currently volatile and investors skittish, put-ting a special premium on the timely resolution ofLTCM's problems seemed entirely appropriate as amatter of public policy.

Of course, any time that there is public involve-ment that softens the blow of private-sector losses—even as obliquely as in this episode—the issue ofmoral hazard arises. Any action by the governmentthat prevents some of the negative consequences tothe private sector of the mistakes it makes raises thethreshold of risks market participants will presum-ably subsequently choose to take. Over time, eco-

nomic efficiency will be impaired as some uneco-nomic investments are undertaken under the implicitassumption that possible losses may be borne by thegovernment.

But is much moral hazard created by aborting firesales? To be sure, investors wiped out in a fire salewill clearly be less risk prone than if their mistakeswere unwound in a more orderly fashion. But is thebroader market well served if the resulting fear andother irrational judgments govern the degree of riskparticipants are subsequently willing to incur? Risk-taking is a necessary condition for wealth creation.The optimum degree of risk aversion should be gov-erned by rational judgments about the market place,not the fear flowing from fire sales.

The Federal Reserve provided its good offices toLTCM's creditors, not to protect LTCM's investors,creditors, or managers from loss but to avoid thedistortions to market processes caused by a fire-saleliquidation and the consequent spreading of thosedistortions through contagion. To be sure, this maywell work to reduce the ultimate losses to the originalowners of LTCM, but that was a byproduct, perhapsunfortunate, of the process.

I should add that, in order to keep incentives work-ing in their favor, the creditors of LTCM apparentlyalso understood the importance of some cushioningof the losses to the owners and managers of the firm.The private creditors and counterparties in the rescuepackage chose to preserve a sliver of equity forthe original owners—one-tenth—so that some of themanagement would have an incentive to stay withthe firm to assist in the liquidation of the portfolio.Regrettably, the creditors felt that, given the complex-ity of market bets woven into a bewildering arrray offinancial contracts, working with the existing man-agement would be far easier than starting fromscratch.

SOME QUESTIONS FOR POLICYMAKERS

Without doubt, extensive study will be required toput the events of the past few weeks into properperspective. As a member of the President's WorkingGroup on Financial Markets, I support SecretaryRubin's call for a special study on the public policyimplications of hedge funds. While the affairs ofLTCM are by no means settled, I would like topose some tentative questions that may have to beaddressed.

First, how much dependence should be placed onfinancial modeling, which, for all its sophistication,can get too far ahead of human judgment? This


Statements to the Congress 1049

decade is strewn with examples of bright people whothought they had built a better mousetrap that couldconsistently extract an abnormal return from financialmarkets. Some succeed for a time. But while theremay occasionally be misconfigurations among mar-ket prices that allow abnormal returns, they do notpersist. Indeed, efforts to take advantage of suchmisalignments force prices into better alignment andare soon emulated by competitors, further narrowing,or eliminating, any gaps. No matter how skillful thetrading scheme, over the long haul, abnormal returnsare sustained only through abnormal exposure to risk.

Second, what steps could counterparties have takento ensure that they had properly estimated their expo-sure, particularly in markets that are volatile? Toan important degree, the creditors of LTCM wereinduced to infuse capital into the firm because theyfailed to stress test their counterparty exposures ade-quately and therefore underestimated the size ofthe uncollateralized exposure that they could facein volatile and illiquid markets. In part, this alsoreflected an underappreciation of the volume andnature of the risks LTCM had undertaken and itsrelative size in the overall market. By failing to makethose determinations, its fellow market participantsfailed to put an adequate brake on LTCM's use ofleverage. To be sure, sometimes decisions are basedon judgments about the soundness of borrowers thatare accepted from third parties or, possibly in thiscase, that are founded on the impressive qualifica-tions of LTCM's principals. In some cases, suchtruncated risk appraisals may be accurate, but theyare not a substitute for a rigorous analysis by thelender of the borrower's overall creditworthiness andrisk profile.

Third, in this regard what lessons are there forbank regulators? Domestic commercial bank expo-sure to LTCM included both direct lending and actingas counterparties to the firm in derivatives contracts.A preliminary review of bank dealings with LTCMsuggests that the banks have collateral adequate tocover most of their current mark-to-market exposureswith LTCM. The unexpected surge in risk aversionand the dramatic opening up of interest rate spreadsin August obviously caught LTCM wrong footed.Counterparties, including banks, continued to collectcollateral for marks to market. What they were notcollateralized against was the losses that might haveoccurred when prices moved even further and marketliquidity dried up in a fire sale.

Supervisors of banks and security firms must assesswhether current procedures regarding stress testingand counterparty assessment could have beenimproved to enable counterparties to take steps to

insulate themselves better from LTCM's debacle.More important will be the assessment of whetherthose procedures are adequate for the future. But thisis an area in which much work has been ongoing.During the fourth quarter of 1997 and the first quarterof 1998, supervisory staff of the Federal ReserveBank of New York and the Board met with managersat several major New York banking institutions todiscuss their current relationships with hedge funds,updating a similar study conducted three and one-halfyears earlier.

Fourth, does the fact that investors have lost mostof their capital and creditors may take some losses ontheir exposure to LTCM call for direct regulation ofhedge funds? It is questionable whether hedge fundscan effectively be directly regulated in the UnitedStates alone. While their financial clout may be large,hedge funds' physical presence is small. Given theamazing communication capabilities available virtu-ally around the globe, trades can be initiated fromalmost any location. Indeed, most hedge funds areonly a short step from cyberspace. Any direct U.S.regulations restricting their flexibility will doubtlessinduce the more aggressive funds to emigrate fromunder our jurisdiction. The best we can do in myjudgment is what we do today: Regulate them indi-rectly through the regulation of the sources of theirfunds. We are thus able to monitor far better hedgefunds' activity, especially as they influence US finan-cial markets. If the funds move abroad, our oversightwill diminish.

In the first line of risk defense, if I may put it thatway, are hedge funds' lenders and counterparties.Commercial and investment banks especially havethe analytic skills to judge the degree of risk to whichthe funds are exposed. Their self-interest has, withfew exceptions but including the one we are discuss-ing today, controlled the risk posed by hedge funds.Banking supervisors are the second line of riskdefense in their examination of lending proceduresfor safety and soundness. We neither try, nor shouldwe endeavor, to micromanage bank lending activity.We have nonetheless built up significant capabilitiesin evaluating the complex lending practices in over-the-counter derivatives markets and hedge funds. If,somehow, hedge funds were barred worldwide, theAmerican financial system would lose the benefitsconveyed by their efforts, including arbitraging pricedifferentials away. The resulting loss in efficiencyand contribution to financial value added and thenation's standard of living would be a high price topay—to my mind, too high a price.

Fifth, how much weight should concerns aboutmoral hazard be given when designing mechanisms



for governmental regulation of markets? By way ofexample, we should note that were banks requiredby the market, or their regulator, to hold 40 percentcapital against assets as they did after the Civil War,there would, of course, be far less moral hazard andfar fewer instances of fire-sale market disruptions. Atthe same time, far fewer banks would be profitable,the degree of financial intermediation would be less,capital would be more costly, and the level of outputand standards of living would be decidely lower. Ourcurrent economy, with its wide financial safety net,fiat money, and highly leveraged financial institu-tions, has been a conscious choice of the Americanpeople since the 1930s. We do not have the choice ofaccepting the benefits of the current system withoutits costs.

CONCLUSION

For so long as there have been financial markets,participants have had on occasion to weigh the costs

and, especially, the externalities associated with fire-sale liquidations of troubled entities against short-term assistance to tide the firms over for a time. Itwas such a balancing of near-term costs and longer-term benefits that presumably led J.P. Morgan toconvene the leading bankers of his age—both com-mercial and investment—in his library in 1907 toaddress the severe panic of that year. Such episodeswere recognized as among those rare occasions whenotherwise highly effective markets seize up and tem-porary ad hoc responses were required. The conven-ing of LTCM investors and lenders last week at theFederal Reserve Bank of New York could be viewedin that long tradition. It should similarly be viewed asa rare occasion, warranted because of the potentialfor serious disruptions to markets. We must alsoremain mindful of where to draw the line at whichpublic-sector involvement ends. The efforts last weekwere limited to facilitating a private-sector agree-ment and had no implications for Federal Reserveresources or policies.

Statement by William J. McDonough, President, Fed-eral Reserve Bank of New York, before the Committeeon Banking and Financial Services, U.S. House ofRepresentatives, October 1, 1998

I am pleased to appear before you today to describethe Federal Reserve Bank of New York's role in theevents leading up to the recent private-sector recapi-talization of Long-Term Capital Management and itsfund, Long-Term Capital Portfolio.

I will cover four points. First, I will provide somebackground on Long-Term Capital's financial prob-lems. Second, I will explain our judgment that anabrupt and disorderly closeout of Long-Term Capi-tal's positions would have posed unacceptable risksto the U.S. economy. Third, I will explain the limitedrole we played in facilitating the private-sector reso-lution to this private-sector problem. Fourth, I willidentify some of the issues that should concern us aswe begin to understand the lessons of this experience.

BACKGROUND

Long-Term Capital is an investment partnership thatwas started in 1994. It has many of the characteristicsof a "hedge fund" in that it borrows money toleverage its capital and is available only to wealthyinvestors. The strategy of Long-Term Capital was touse complex mathematical formulas to identify tem-

porary price discrepancies between different interestrates. For example, the firm might notice that theyield on corporate bonds relative to Treasury yieldswas higher than the range observed in recent years. IfLong-Term Capital believed the former relationshipwould reassert itself, it would buy corporate bondsand sell short Treasury bonds. If the spread narrowedas expected, the firm would profit. If, however, thespread continued to widen, the firm would incurlosses. This basic strategy and many complex varia-tions were followed across many interest rate prod-ucts in the United States and many overseas marketsas well. The firm was active both in traditional secu-rities markets and, perhaps more important, in deriva-tive product markets such as futures, swaps, andoptions. Anticipating that some positions would movein their favor and some would move against them, thefirm relied on diversification across a large number ofproduct and geographic markets. Long-Term Capitalproved quite successful at this strategy, generatingreturns in excess of 40 percent in 1995 and 1996,though somewhat less in 1997.

Perhaps their success went to their heads. Long-Term Capital took on larger and larger positions.They also leveraged their investments at higher lev-els, returning capital to their investors but not, appar-ently, reducing risks. We now also know that theytook on significant positions in equity markets,through both swap and options contracts. The reputa-tions of the Long-Term Capital partners, as traders



and economists, and their initial success appear tohave contributed to so many counterparties' willing-ness to deal with them.

While hubris may have set them up for a fall, itwas the extraordinary events of August in globalmarkets that appear to have tripped them.

On August 17, the Russian government announcedan effective devaluation of the ruble and declared adebt moratorium, shocking investor confidence allover the world. Over subsequent days and weeks,equity and debt markets the world over becameincreasingly volatile, with U.S. equity markets fallingand the spreads between U.S. Treasury securities andhigher-yielding debt instruments widening sharply.The correction of stock prices was not of exceptionalsize or concern and, indeed, had been anticipatedby a number of astute market observers. However,the abrupt and simultaneous widening of creditspreads globally, for both corporate and emerging-market sovereign debt, was an extraordinary eventbeyond the expectations of investors and financialintermediaries.

The unusual widening of credit spreads also causedsignificant losses at Long-Term Capital. As marketsaround the world moved in the same direction at thesame time, the diversification on which Long-Termhad previously relied failed them utterly. Instead ofoffsetting positions, their losses were compounded.At the same time, the volatility in equity marketscaused further losses. On September 2, the partnersof Long-Term Capital sent their investors a letteracknowledging 52 percent losses on the year throughAugust 31 and that they were seeking an injection ofcapital to sustain the firm. The existence of this letterbecame widely known and reported within a fewdays.

Because of this, during the first two weeks ofSeptember, concern about Long-Term Capital was awidespread topic of conversation in financial mar-kets. It is a traditional and essential role for thePresident and senior officers of the Federal ReserveBank of New York to be talking to, and receivingcalls from, market participants regarding significantdevelopments and potential dislocations. In fact, thepartners at Long-Term Capital called me early inSeptember to notify me of their difficulties and theirdiscussion with investment houses about plans toraise new capital.

By Friday, September 18, with the efforts to raisenew capital still unsuccessful—and with an increas-ing number of people now aware of Long-Term'splight because of the efforts to bring in newinvestors—events seemed to come to a head. Withmarket conditions particularly unsettled that day, I

made a series of calls to senior Wall Street officialsto discuss overall market conditions. Let me take amoment to put those calls in context. One importantobjective of the Federal Reserve is to ensure financialstability. Particularly in times of stress, it is essentialthat the Federal Reserve continue to take the pulse ofthe market. One way to do that is through candid andopen communication with key market participants.Everyone I spoke to that day volunteered concernabout the serious effect the deteriorating situation ofLong-Term could have on world markets.

Also on September 18, one of the firms that hadbeen working with Long-Term to raise new capitalasked the Long-Term Capital partners if the firmcould share the information it had with us. The part-ners at Long-Term Capital responded that they wouldprefer to present the information themselves andcalled me to arrange such a presentation.

After conferring with Chairman Greenspan andSecretary Rubin, we agreed that a visit to Long-TermCapital's offices was needed. A team from the NewYork Fed, led by Peter Fisher, the head of our Mar-kets Group, and joined by Treasury Assistant Secre-tary Gary Gensler, met with the Long-Term Capitalpartners at their offices on Sunday, September 20.During this meeting, we learned the broad outlines ofLong-Term Capital's major positions in credit andequity markets, the difficulties they were having intrying to reduce these positions in thin market condi-tions, their deteriorating funding positions, and anestimate of their largest counterparty exposures. Theteam also came to understand the impact that Long-Term Capital's positions were already having onmarkets around the world and that the size of thesepositions was much greater than market participantsimagined.

THE NEW YORK FED'S JUDGMENTS

I would like now to turn to my second point andfocus explicitly on the question of our judgment thatthe abrupt and disorderly closeout of Long-TermCapital's positions would pose unacceptable risks tothe U.S. economy.

There are several ways that the problems of Long-Term Capital could have been transmitted to causemore widespread financial troubles. Had Long-TermCapital been suddenly put into default, its counterpar-ties would have immediately "closed out" their posi-tions. If counterparties would have been able to closeout their positions at existing market prices, losses,if any, would have been minimal. However, if manyfirms had rushed to close out hundreds of billions ofdollars in transactions simultaneously, they would



have been unable to liquidate collateral or establishoffsetting positions at the previously existing prices.Markets would have moved sharply, and losseswould have been exaggerated. Several billion dollarsof losses might have been experienced by someof Long-Term Capital's more than seventy-fivecounterparties.

These direct effects on Long-Term Capital's coun-terparties were not our principal concern. While theselosses would have been considerable, and would cer-tainly have adversely affected the firms experiencingthem, this was not, in itself, a sufficient reason for usto become involved.

Two factors influenced our involvement. First, inthe rush of Long-Term Capital's counterparties toclose out their positions, other market participants—investors who had no dealings with Long-TermCapital—would have been affected as well. Second,as losses spread to other market participants andLong-Term Capital's counterparties, this would leadto tremendous uncertainty about how far prices wouldmove. Under these circumstances, there was a likeli-hood that a number of credit and interest rate marketswould experience extreme price moves and possiblycease to function for a period of one or more daysand maybe longer. This would have caused a viciouscycle: a loss of investor confidence, leading to a rushout of private credits, leading to a further widening ofcredit spreads, leading to further liquidations of posi-tions, and so on. Most important, this would haveled to further increases in the cost of capital to U.S.businesses.

Let me be clear: Had we not just experienced inAugust precisely this type of shock to our creditmarkets, had we not just seen a sudden, worldwidestraining of investor confidence, had there not alreadybeen under way a flight of capital away from privatecredit and into Treasury securities, were much of theworld not experiencing financial strain, then our judg-ments about the risks to the U.S. economy of anabrupt and disorderly closeout of Long-Term Capitalmay well have been different. But, in the circum-stances that did in fact exist, it was my judgment thatthe American people, whom we are pledged to serve,could have been seriously hurt if credit dried up in ageneral effort by banks and other intermediaries toavoid greater risk.

In light of these risks, the responsible public policyobjective was to get together those with a directfinancial interest in an orderly rescue of Long-TermCapital, to discuss its problems openly and objec-tively, to provide a sounding board for solutions, andif necessary, a calming influence. In my view, weachieved this objective.

WHAT DID THE NEW YORK FED DO?

Because events were moving swiftly, and with myapproval and support, my colleague Mr. Fisherinvited representatives of the three firms that we felthad the greatest knowledge of the situation at Long-Term Capital and a strong interest in seeking a solu-tion to an early morning meeting on September 22.The three firms were Goldman Sachs, Merrill Lynch,and J.P. Morgan.

Continuing discussions that commenced the daybefore, Mr. Fisher explained our interest in beingaware of developments and in reducing the risk of anabrupt and chaotic closeout of Long-Term Capital.The firms present stated that they were not awareof any other initiatives then being actively pursuedto resolve Long-Term Capital's problems. Theyvoiced their own concerns about the risks to themarkets of a close-out scenario. They discussed vari-ous approaches to stabilizing Long-Term Capital,including the concept of a "collective industry" orconsortium approach. However, they all agreed thatwork on a collective option should not preclude par-allel efforts by anyone; indeed, that if any firm orgroup of firms wished to step forward and take Long-Term Capital itself or Long-Term Capital's positionsonto their balance sheets that this would be the mostdesirable outcome. In the absence of any other solu-tions, the firms dispatched two working groups toLong-Term Capital's offices in Connecticut to con-sider the feasibility of "lifting" the fixed-income andthe equity positions out of Long-Term Capital. Athird working group met at one of the firm's officesdowntown to develop the idea of a consortiumapproach. By mutual agreement another firm, UBS, aSwiss bank, was added to this core group and to eachof the three working groups. However, no one fromthe New York Fed participated in any of the workinggroups.

At no point in this early morning meeting, norat any stage last week, was there discussion ofthe use of public monies—Federal Reserve or other-wise. No Federal Reserve or government guaran-tees, actual or implied, were offered, discussed, orsolicited.

Later that afternoon, we participated in a confer-ence call to review the progress of the workinggroups. Two of the working groups concluded that a"lifting" of the fixed-income and equity positionswas not feasible. The third group developed a consor-tium approach, which was deemed feasible. Every-one agreed that the consortium approach should be"last ditch," and that parallel solutions should still beencouraged.



The four firms met at the Federal Reserve at7:00 p.m. A draft term sheet was reviewed thatprovided detail with respect to the consortiumapproach. The terms and conditions were debated,altered in some places, and ultimately refined so thatthe four firms could present it to a wider group.Although Federal Reserve officials were present atthe meeting, we did not participate in the discussionabout terms and conditions.

At about 8:30 p.m., a meeting of a wider groupinvolving thirteen firms began. Meanwhile, some rep-resentatives of the core group called Long-TermCapital to discuss the terms and conditions of theconsortium approach. Federal Reserve officials didnot participate in any conversations with Long-TermCapital regarding the terms and conditions. In themeeting with the wider group, Peter Fisher explainedthe importance of avoiding a disorderly closeout ofLong-Term Capital's positions. He also underscoredthe desirability of parallel efforts to resolve the prob-lem. It was agreed that the group would reconvene at10:00 a.m. the following day. It was clear to everyonethat time was of the essence.

I returned to New York from London aroundmidnight. During the early morning hours, I calledvarious foreign central bank officials to inform themof the situation. At about 9:30 a.m. my colleaguesand I met with the core group to review the statusof the situation. A few minutes before the start ofthe scheduled 10:00 a.m. meeting, one of the coregroup firms told me that an investor group wouldmake an offer to acquire the Long-Term portfolio. Icalled one of the representatives of the investor groupto confirm this development. The offer was sub-sequently conveyed to Long-Term Capital by thatinvestor group, and a response was requested by12:30 p.m.

After a brief consultation with the core group, Idecided that the effort to proceed with the consortiumapproach needed to be suspended for a short timeuntil the alternative offer could be considered. Asnoted earlier, the consortium approach was seen asa "last resort." Consequently, the meeting aboutthe consortium approach was adjourned at about10:50 a.m., to reconvene at 1:00 p.m.

At 12:30 p.m., I learned that the alternative offerhad not been accepted and would not be extended.Shortly after 1:00 p.m., the meeting about the consor-tium approach resumed. This was now the only solu-tion being pursued. During the next five hours, theprivate-sector participants discussed every aspect ofthe terms and conditions. At the end of that discus-sion, fourteen banks and securities firms agreed toparticipate in the recapitalization, with three firms

contributing smaller amounts than the other eleven.Two firms declined to participate.

I want to emphasize a few points. First, this was aprivate-sector solution to a private-sector problem,involving an investment of new equity by Long-TermCapital's creditors and counterparties. Second,although some have characterized this as a "bailout,"control of the Long-Term portfolio passed over tothis fourteen firm creditor group, and the originalequity holders have taken a severe hit. Finally, noFederal Reserve official pressured anyone, and nopromises were made. Not one penny of public moneywas spent or committed.

ISSUES THAT SHOULD CONCERN US

It is far too early to state categorically the lessons tobe learned from Long-Term Capital. What I can sayis that we are focused on three specific issues, allrelating to leverage and how we are able to observe itthrough the eyes of our bank examiners. Let meemphasize, yet again, that the Federal Reserve has noregulatory authority over hedge funds and no regula-tory authority over Long-Term Capital.

The first issue relates to credit analysis. Our super-visory guidance generally, and with respect to hedgefunds specifically, stresses the importance of know-ing the borrower and the business purpose of theborrower's transactions. In 1994, the Federal Reserveissued a supervisory letter emphasizing the impor-tance of financial analysis of counterparties, includ-ing hedge funds, which can quickly adjust their riskprofile. There is a question whether adequate creditanalysis was performed by creditors of Long-TermCapital, which needs to be examined carefully duringthe next few weeks. If credit analysis was deficient,we need to learn how and why before we can makepronouncements that will avoid repetition of ourLong-Term Capital experience.

The second issue relates to derivatives activitiesand a concept called future potential exposure, whichis a measure of the likely price movements based onrecent years' experience. With respect to derivatives,the current market value is captured by financialstatements prepared in accordance with generallyaccepted accounting principles, but not the potentialfuture exposure. To fully understand the degree andeffect of leverage in Long-Term Capital's derivatives-related strategies, it would have been necessary tomeasure the potential future exposure in a rigorousand conservative manner. Whether sufficient informa-tion was made available to Long-Term Capital'scounterparties, including its banks, and adequatelyanalyzed by those counterparties remains to be seen.



A third question concerns stress-testing in thecredit analysis of hedge funds and the structuringof margin agreements. Stress-testing simulates theeffects on a portfolio if many asset relationshipssimultaneously move adversely far beyond historicalobservation. We recognize that stress-testing is adeveloping discipline, but it is clear that adequatetesting was not done with respect to the financialconditions that precipitated Long-Term Capital'sproblems. In a recent supervisory letter on creditunderwriting generally, we emphasized the impor-tance of stress-testing. Effective risk management ina financial institution requires not only modeling butmodels that can test the full range of financial trans-

actions across all kinds of adverse market devel-opments. Whether such models existed and, if so,whether they were effective are issues that we need toaddress.

In the aftermath of Long-Term Capital, we need topursue these leverage-related issues, and others, inconjunction with our colleagues at the Federal Finan-cial Institutions Examination Council. The insightsthat we gain should be of value to bank supervisorsand for the study of the Long-Term Capital matterthat is to be done by the President's Working Groupon Financial Markets, announced by Secretary Rubinlast Friday.

Statement by Theodore E. Allison, Assistant to theBoard, Board of Governors of the Federal ReserveSystem, before the Subcommittee on Domestic andInternational Monetary Policy, Committee on Bank-ing and Financial Services, U.S. House of Represen-tatives, October 8, 1998.

Thank you for the opportunity to comment on theimplications for the demand for Federal Reservenotes that are likely to follow from the issuanceof euro bank notes, which will—early in the nextdecade—replace the national currency notes ofeleven participating nations in Europe.1 You haveasked the Federal Reserve to address both the overallimpact of euro bank notes on the demand for U.S.currency and, in particular, what impact the issuanceof higher-denomination euro notes might have.

PLANS FOR THE EURO

Eleven member countries of the European Union areplanning to adopt the euro as a single currency, whichwill be issued in eight coin denominations—2, 5, 10,20, and 50 euro cents, 1 euro, and 2 euros—andseven-note denominations—5, 10, 20, 50, 100, 200,and 500 euros. The value of the euro in relation toother currencies, including the dollar, will not beknown until January 1, 1999, but it is likely to benear the value of the European currency unit (ECU),which is now about $1.20. (The ECU is a currencybasket whose value is based on the currencies of theeleven euro participants, as well as the Danish krone,the Greek drachma, and the British pound sterling,

whose issuers will not initially be among the eurogroup.) Thus, the value of the two highest euronotes—200 and 500—will be about $240 and $600respectively.

Euro notes and coins will be introduced on Jan-uary 1, 2002, and will be exchanged for the banknotes of the individual countries during the followingsix months. Bank notes denominated in Germanmarks, French francs, and the like will cease to belegal tender on July 1, 2002.2

THE USE OF U.S. CURRENCY OUTSIDE THEUNITED STATES AND ASSOCIATED BENEFITS

For most of this century, U.S. currency has been usedoutside this country as a store of value by peoplefacing economic and political uncertainty. TheBoard's staff estimates, for example, that, as far backas 1960, a bit less than half of all U.S. currency incirculation was held abroad. That proportion hasgrown steadily over the past four decades and hasaccelerated during the 1990s. We believe that asmany as two-thirds of all Federal Reserve notes incirculation—perhaps $250 billion to $300 billion—are now held abroad.3

The main force behind the recent increase in theholding and use of U.S. currency abroad has beenthe opening up and privatizing of previously state-dominated economic systems—chiefly in the formerSoviet bloc but also in Latin America and numerousAsian countries. In many of these transition econo-

1. The eleven participating countries are Austria, Belgium, Fin-land, France, Germany. Ireland, Italy, Luxembourg, the Netherlands,Portugal, and Spain.

2. More information on the euro can be found at the Internet sitehttp://europa.eu.int/euro/html/entry.html maintained by the EuropeanCommission.

3. The U.S. dollar is not the only currency that circulates interna-tionally. The German mark, for example, is held fairly widely outsideGermany.



mies, citizens and small businesses still face unstablelocal currencies and underdeveloped banking andpayment systems. Under these conditions, it becomesdifficult to save, to make business-to-business trans-actions, and to buy and sell a range of consumergoods. As a result, many residents of transitioneconomies have chosen to carry out critical and largesaving and transaction functions in a "hard" cur-rency, very often U.S. dollars.

The availability of U.S. currency in these econo-mies is of value to the people there, as demonstratedby the large quantity used. The functions of savingand making business transactions efficiently areessential to the improvement of economic conditionsand living standards.

The United States also benefits from the use of itscurrency outside the country. The ease with whichdollars can be spent in many places around the globe,for example, is a convenience for U.S. travelers.Moreover, the U.S. Treasury earns income on all ofthe currency in circulation—including that whichis held outside the country—in the form of intereston assets that are held by the Federal Reserve as aconsequence of the currency having been issued. The$250 billion to $300 billion of Federal Reserve notesthat appear to be in use outside the United States earnthe Treasury and the U.S. taxpayers about $12 billionto $15 billion per year.

THE HISTORY OF LARGE-DENOMINATIONNOTES IN THE UNITED STATES

Notes of $500, $1,000, $5,000, and $10,000 werefirst authorized in 1918, primarily for interbank trans-actions. In 1946, with demand for the notes declin-ing, printing of new notes of these denominationswas discontinued, and in 1969, the Treasury Depart-ment and the Federal Reserve decided to discontinuetheir issuance as well.

Since 1969, all high-denomination notes that havebeen deposited at the Federal Reserve have beendestroyed. The Secretary of the Treasury, however,retains the authority to have printed, and the FederalReserve the authority to issue, notes in all four highdenominations.

IMPLICATIONS OF THE EURO FOR THEDEMAND FOR FEDERAL RESERVE NOTES

The availability of euro notes will reduce the use ofdollars outside the United States, to some extent, fora variety of good reasons. Some U.S. currency is usedwithin the euro area to facilitate travel to other coun-

tries. For example, a Finnish family headed for avacation on the Costa del Sol might convert someFinnish markkas into dollars before leaving home,both because the dollars are more likely to beaccepted in Spain, without having to be converted,than would be markkas and because, when the dollarsare converted to pesetas, the exchange transactionsinvolved—markkas to dollars and then dollars topesetas—may involve a lower cost overall than asingle markkas-to-pesetas transaction conducted ineither Finland or Spain. Beginning in 2002, the Finn-ish family will, of course, find its local currency—theeuro—used in Spain as well. That development willimprove efficiency, and we should be glad to see it,even though the United States will experience somereduction in income as a result. Outside the euro area,some substitution of euros for dollars may take place,especially in eastern Europe, if the cost to banks andcurrency exchanges of acquiring euros is lower thanthe cost of acquiring dollars and if the cost advantageis reflected in better exchange rates to citizens andbusiness firms.

In general, however, dollar currency has a lot goingfor it as a store of value in areas with unstablepolitical or economic environments. It is acceptedand readily available in most parts of the world. TheUnited States has never recalled any outstandingnotes, so holders are confident that their dollars willalways be accepted. The United States has a stronghistory of political stability, and the dollar has held itsvalue reasonably well over a long period. Our finan-cial institutions and markets are highly regarded.As a consequence, the worldwide demand for dollarnotes is based on an unusually favorable combinationof wide acceptability, political and financial continu-ity, and esteem.

The euro may in time earn a similar kind of status.It seems likely, however, that any major substitutionof euros for dollars as a trusted store of value wouldtake place fairly gradually.

Nevertheless, there are two aspects of the foreigndemand for hard currency notes that could hastensomewhat a substitution of euro notes for dollars.The first would be the availability of higher-denomination euro notes, which could make eurosmore convenient and efficient than dollars for sometransactions. The second would be a public percep-tion that dollar notes are significantly less secureagainst counterfeiting.

THE ROLE OF HIGH-DENOMINATION NOTES

If the $100 note remains our highest denomination, itdoes seem plausible that some users would find the



high-denomination euro notes more efficient andwould shift some currency holdings from $100 notesto 200 and 500 euro notes. The magnitude is impos-sible to predict, but the heavy concentration of U.S.currency in $100 notes, as shown in table 1, suggeststhat there may be some unmet demand for a moreefficient and convenient higher denomination.4

The efficiency with which U.S. currency could beshipped and stored would be increased fivefold to theextent that $500 notes were used in place of$100 notes. Likewise, the availability of a $500 notewould reduce transaction times in the substantialnumber of large-value transactions that are conductedin $100 bills in many "dollarized" economies—mostnotably sales of real estate and consumer durablegoods such as automobiles. And some householdswould find higher-denomination U.S. currency moreefficient for saving.

The United States does not issue currency to gener-ate revenue (but rather to meet the convenience andneeds of the public), and it neither promotes the useof dollars internationally nor competes with otherissuers in this regard. Nonetheless, the demand fordollars from abroad does provide significant benefitsto the United States, and if making the use of U.S.currency more efficient and convenient for foreignusers by reissuing the $500 note could help preservethose benefits, that would be an argument for doingso.

We doubt that $500 notes and $1,000 notes wouldimprove convenience or efficiency to any significantdegree within the United States. Research at theFederal Reserve suggests that, with the availability ofa $500 note, domestic cash holdings might rise some-what, with an attendant increase in Treasury revenue,but any such effect is likely to be small.

4. The attachment to this statement is available from PublicationsServices, Mail Stop 127, Board of Governors of the Federal ReserveSystem, Washington, DC 20551, and on the Board's site on the WorldWide Web (http://federalreserve.gov).

There are public policy arguments against reissu-ing the $500 note, particularly because any efficiencygains, such as lower shipment and storage costs,would accrue not only to legitimate users of dollarnotes but also to money launderers, tax evaders, and avariety of other lawbreakers who use currency intheir criminal activity. While it is not at all clear thatthe volume of illegal drugs sold or the amount of taxevasion would necessarily increase just as a conse-quence of the availability of a larger-denominationbill, it no doubt is the case that, if wrongdoers wereprovided with an easier mechanism to launder theirfunds and hide their profits, enforcement authoritiescould have a harder time detecting certain illicittransactions occurring in cash. Consequently, webelieve that the law enforcement community shouldbe consulted in any final decision about reissuing$500 notes.

THE PERCEPTION OF SECURITY AGAINSTCOUNTERFEITING

A second, and potentially important, considerationfor people around the globe who now keep theirsavings and business working capital in U.S. cur-rency, and who might consider using an alternative,is likely to be their perception of the relative securityof notes against counterfeiting. The fear of taking apossible loss on a $100 bill could be an inducementto use an alternative currency if the alternative wereperceived as being less susceptible to counterfeiting.

This is not the subject of your hearing, and I won'tspend more time on it except to note that (a) theinteragency committee on Advanced CounterfeitDeterrence is seriously studying further possibledesign improvements, especially for the $100 noteand $50 note, and (b) if the $500 note were issuedagain, it would have to be seen as highly secure inorder to be accepted. •


Announcements

1057

REDUCTION IN THE DISCOUNT RATE

The Federal Reserve on October 15, 1998, announcedthe following set of policy actions:

• The Board of Governors approved a reduction inthe discount rate by 25 basis points from 5 percent to43/4 percent.

• The federal funds rate is expected to fall 25 basispoints from around 5 VA percent to around 5 percent.

Growing caution by lenders and unsettled condi-tions in financial markets more generally are likelyto be restraining aggregate demand in the future.Against this backdrop, further easing of the stance ofmonetary policy was judged to be warranted to sus-tain economic growth in the context of containedinflation.

In taking the discount rate action, the Boardapproved requests submitted by the Boards of Direc-tors of the Federal Reserve Banks of New York,Philadelphia, Atlanta, Chicago, St. Louis, Minneapo-lis, Kansas City, and San Francisco. Subsequently,the Board approved actions by the Boards of Direc-tors of the Federal Reserve Bank of Boston, alsoeffective October 15, and by the Boards of Directorsof the Federal Reserve Banks of Cleveland, Rich-mond, and Dallas, effective October 16. The discountrate is the interest rate that is charged depositoryinstitutions when they borrow from their DistrictFederal Reserve Banks.

APPOINTMENTS OF CHAIRMEN ANDDEPUTY CHAIRMEN OF THETWELVE FEDERAL RESERVE BANKS

The Federal Reserve Board on October 19, 1998,announced the appointments of chairmen and deputychairmen of the twelve Federal Reserve Banks for1999.

Each Reserve Bank has a board of directors of ninemembers. The Board of Governors in Washingtonappoints three of these directors and designates oneof its appointees as chairman and a second as deputychairman.

Following are the names of the chairmen anddeputy chairmen appointed by the Board for 1999:

BostonWilliam C. Brainard, Professor, Department of Economics,

Yale University, New Haven, Conn., renamedChairman.

William O. Taylor, Chairman and Chief Executive Officer,Globe Newspaper Company, Boston, Mass., renamedDeputy Chairman.

New YorkJohn C. Whitehead, Former Chairman, Goldman Sachs &

Co., New York, N.Y., renamed Chairman.Deputy Chairman—To be announced.

PhiladelphiaJoan Carter, President and Chief Operating Officer, UM

Holdings Ltd., Haddonfield, N.J., renamed Chairman.Charisse R. Lillie, Partner, Ballard Spahr Andrews &

Ingersoll, Philadelphia, Pa., renamed DeputyChairman.

ClevelandG. Watts Humphrey, Jr., President, GWH Holdings, Inc.,

Pittsburgh, Pa., renamed Chairman.David H. Hoag, Chairman and Chief Executive Officer,

The LTV Corporation, Cleveland, Ohio, renamedDeputy Chairman.

RichmondClaudine B. Malone, President, Financial & Management

Consulting, Inc., McLean, Va., renamed Chairman.Jeremiah J. Sheehan, Chairman and Chief Executive

Officer, Reynolds Metals Company, Richmond, Va.,named Deputy Chairman.

AtlantaJohn F. Wieland, President, John Wieland Homes, Inc.,

Atlanta, Ga., named Chairman.Paula Lovell, President, Lovell Communications, Inc.,

Nashville, Tenn., named Deputy Chairman.

ChicagoLester H. McKeever, Jr., Managing Partner, Washington,

Pittman & McKeever, Chicago, III, renamedChairman.

Arthur C. Martinez, Chairman and Chief Executive Officer,Sears, Roebuck and Co., Hoffman Estates, 111.,renamed Deputy Chairman.



St. LouisSusan S. Elliott, Chairman and Chief Executive Officer,

Systems Service Enterprises, Inc., St. Louis, Mo.,named Chairman.

Charles W. Mueller, Chairman, President, and ChiefExecutive Officer, Ameren Corporation, St. Louis,Mo., named Deputy Chairman.

MinneapolisDavid A. Koch, Chairman, Graco Inc., Plymouth, Minn.,

renamed Chairman.James J. Howard, Chairman, President, and Chief

Executive Officer, Northern States Power Company,Minneapolis, Minn., renamed Deputy Chairman.

Kansas CityJo Marie Dancik, Area Managing Partner, Ernst & Young

LLP, Minneapolis, Minn., renamed Chairman.Terrence P. Dunn, President and Chief Executive Officer,

J.E. Dunn Construction Company, Kansas City, Mo.,renamed Deputy Chairman.

DallasRoger R. Hemminghaus, Chairman and Chief Executive

Officer, Ultramar Diamond Shamrock Corp.,San Antonio, Tex., renamed Chairman.

James A. Martin, General Vice President, InternationalAssociation of Bridge, Structural, Ornamental andReinforcing Iron Workers, Austin, Tex., renamedDeputy Chairman.

San FranciscoGary G. Michael, Chairman and Chief Executive Officer,

Albertson's, Inc., Boise, Ida., renamed Chairman.Nelson C. Rising, President and Chief Executive Officer,

Catellus Development Corporation, San Francisco,Calif., named Deputy Chairman.

DESIGNATION OF A PRIMARY DEALERCONTROLLED BY A DUTCH FIRM

Under the Primary Dealers Act of 1988, the FederalReserve may not designate, or permit the continua-tion of the designation as, a primary dealer of anyperson of a foreign country if that person's homecountry does not grant to U.S. companies the samecompetitive opportunities in the underwriting anddistribution of government debt instruments issuedby such country as such country accords to its domes-tic companies. A "person of a foreign country"includes any foreign individual or company thatdirectly or indirectly controls a primary dealer.Accordingly, in connection with a Dutch company'srecent acquisition of a U.S. company for which itsought primary dealer status, the Federal ReserveBoard and the Federal Reserve Bank of New York

determined that U.S. companies are accorded nationaltreatment in their access to the government securitiesmarket of the Netherlands. This determination wasmade after staff members of the Federal ReserveBoard and of the Federal Reserve Bank of New Yorkconducted a comprehensive study of the characteris-tics of the Dutch government securities market.

The Federal Reserve previously completed com-prehensive studies of the characteristics of five othergovernment securities markets—in the United King-dom, Japan, Switzerland, Germany, and France.Favorable determinations were made by the FederalReserve under the Primary Dealers Act for the UnitedKingdom and Japan in August 1989, for Switzerlandin December 1989, for Germany in December 1990,and for France in September 1992.

The Federal Reserve will continue to monitordevelopments in these markets on an ongoing basis toensure that the requirements of the Primary DealersAct continue to be met as the markets change overtime.

Copies of the report on the Dutch governmentsecurities market are available from Publications Ser-vices, Mail Stop 127, Board of Governors of theFederal Reserve System, Washington DC 20551.

DEVELOPMENT OF PROCEDURES FORMANAGING CHANGES TO FEDERAL RESERVEINFORMATION SYSTEMS IN 1999 AND THEFIRST QUARTER OF 2000

The Federal Reserve Board on October 13, 1998,announced procedures to manage changes to its infor-mation systems in 1999 and the first quarter of 2000.The procedures for change management were devel-oped in conjunction with the Federal Reserve's Cen-tury Date Change Project. The procedures establishguidelines to limit Federal Reserve policy and opera-tional changes as well as internal hardware and soft-ware changes during late 1999 and early 2000.

The Federal Reserve plans to complete renova-tion and testing of its critical information systemsby year-end 1998. Subsequent changes to FederalReserve policies, rules, regulations, and servicescould impair the Year 2000 readiness of critical infor-mation systems. The procedures are designed to bal-ance the need to support changes to critical businessprocesses with the need to limit changes to informa-tion systems during this critical period.

Governor Edward W. Kelley, Jr., Chairman of theFederal Reserve Board's Committee on FederalReserve Bank Affairs, stated the following:


Announcements 1059

By limiting these changes to its systems, the FederalReserve will also minimize changes that its customerscould be required to make to their applications that inter-face with Federal Reserve System software. In addition,we intend to coordinate our activities with other institu-tions that typically generate policy and operational changesin the financial industry.

In that spirit, the Federal Reserve will disseminateits guidelines to assist other organizations that estab-lish rules, regulations, and standards for the financialservices industry.

A summary of the change management proceduresis available from Publications Services, Mail Stop127, Board of Governors of the Federal ReserveSystem, Washington, DC 20551.

ISSUANCE OF AN INTERPRETATION OF THEBASLE FRAMEWORK FOR CAPITAL ADEQUACY

The Basle Committee on Banking Supervision (BasleCommittee) on October 27, 1998, issued an interpre-tation of the Basle framework for capital adequacy(Basle Accord) regarding instruments eligible forinclusion in tier 1 capital.

The committee noted that the interpretation will besubject to review as part of a broader effort alreadyunder way to reassess the present framework forevaluating banks' capital adequacy.

The governors of the central banks of the Groupof Ten countries endorsed the Basle Accord, whichapplies to internationally active banks, in 1988.

The interpretation reaffirms that the common share-holders' equity is the key element of capital andshould be the predominant form of a bank's tier 1capital under the Basle Accord. The interpretationemphasizes the important role public disclosure playsin ensuring that the integrity of capital is maintained.

In this regard, the committee notes the need forbanks to publicly disclose each component of tier 1capital and its main features. Such disclosure is con-sistent with a report entitled Enhancing Bank Trans-parency, which the Basle Committee released in Sep-tember 1998.

The interpretation states that the committee hasdetermined that minority interest in equity accountsof consolidated subsidiaries that take the form ofspecial purpose vehicles may be included in tier 1provided they meet certain minimum criteria. Thesecriteria include permanence, deferrability of distribu-tions on a noncumulative basis, and ability to absorblosses within the bank on a going-concern basis.

Further, the committee has determined that moder-ate step-ups after a minimum of ten years are an

acceptable feature in a tier 1 instrument. Issuances ofinstruments with such a feature, however, are limitedto 15 percent of tier 1 capital to avoid undue relianceon innovative noncommon instruments in tier 1.

The Federal Reserve will make a determination asto how to implement the Basle interpretation withregard to U.S. banks after consulting with the otherregulatory agencies for federal financial institutions.

With regard to bank holding companies, the Fed-eral Reserve notes that by its terms, the Basle Accordapplies to internationally active banks but states thatownership structures should not be allowed toweaken capital positions of banks.

Since the inception of the Basle Accord, U.S. bankholding companies, entities that are legally separatefrom banks, have been subject to a risk-based capitalregime that is identical to the Basle Accord, withthe exception that holding companies are allowedto include cumulative preferred stock in tier 1 on alimited basis.

Consistent with the principles that common equityshould be the predominant component of tier 1 capi-tal and that ownership structures should not weakenbank capital positions, state member banks and bankholding companies generally have been expected tomaintain risk-based capital ratios above Basle mini-mums, without reliance on preferred stock.

State member banks and bank holding companiesdisclose the components of their capital positions insufficient detail to allow analysts and supervisorsto calculate capital ratios on many different bases,including the Basle capital standard. The FederalReserve has no plans to change these policies andpractices.

The Basle Committee's press release and its reporton Enhancing Bank Transparency, can be obtainedfrom the Internet (http://www.bis.org) or from theBasle Committee Secretariat at the Bank for Interna-tional Settlements.

ISSUANCE OF A POLICY PAPER BY THE BASLECOMMITTEE

As part of its ongoing work to improve the transpar-ency of banking organizations, the Basle Commit-tee on Banking Supervision (Basle Committee) hasissued a policy paper entitled Sound Practices forLoan Accounting, Credit Risk Disclosure and RelatedMatters. Once finalized, the Basle Committee policypaper will represent the first comprehensive inter-national supervisory guidance on sound practicesfor loan-loss allowances, accounting for troubledloans, and related credit risk disclosures of bankingorganizations.



The policy paper presents guidance on sound prac-tices through the discussion of twenty-five principles.The paper provides guidance on sound practices withrespect to key loan accounting issues, such as theinitial recognition and measurement of loans, subse-quent measurement of impaired loans, the establish-ment of loan-loss allowances, income recognition,and issues relating to troubled debt restructurings.Moreover, the paper presents sound disclosure prac-tices for loan portfolios, troubled loans, loan-lossallowances, and related credit risk management prac-tices. The paper concludes with a brief discussion ofthe role of supervisors in assessing a bank's manage-ment of asset quality and the adequacy of loan-lossallowances.

The paper has been issued by the Basle Committeeas a proposal for public comment, with commentsrequested by March 15, 1999. The Basle Commit-tee's press release and paper can be obtained fromthe Internet (http://www.bis.org) or from the BasleCommittee Secretariat at the Bank for InternationalSettlements.

ENFORCEMENT ACTIONS

The Federal Reserve Board on October 15, 1998,announced the issuance of an Order of Prohibitionagainst Jerome C. Bechstein, the former President,Chief Executive Officer, and a Director of the formerTowne Bank, Perrysburg, Ohio, and the bank'sformer bank holding company, Towne Bancorp, Inc.

Mr. Bechstein, without admitting to any allega-tions, consented to the issuance of the Order due tohis alleged participation in violations of law andunsafe or unsound practices regarding the lendingfunction at the Towne Bank.

On October 15, 1998, the Federal Reserve Boardannounced the issuance of an Order of Prohibitionagainst Lois A. Brigham, the former Senior VicePresident and a Director of the former Towne Bank,Perrysburg, Ohio, and the bank's former bank hold-ing company, Towne Bancorp, Inc.

Ms. Brigham, without admitting to any allegations,consented to the issuance of the Order due to heralleged participation in violations of law and unsafeor unsound practices regarding the lending functionat the Towne Bank.

ket stocks that meet the margin criteria in Regula-tion T (Credit by Brokers and Dealers). Also pub-lished was a complete edition of the list of foreignequity securities that meet the margin criteria inRegulation T. The lists were effective November 9,1998, and supersede the previous lists publishedeffective August 10, 1998.

The changes that have been made to the revisedOTC List, which now contains 4,745 OTC stocks, areas follows:

• Ninety-three stocks have been included for thefirst time, seventy-five under National Market System(NMS) designation

• Seventy-three stocks previously on the list havebeen removed for substantially failing to meet therequirements for continued listing

• One hundred fourteen stocks have been removedfor reasons such as listing on a national securitiesexchange or involvement in an acquisition.

The OTC list will expire on January 1, 1999. AfterJanuary 1, 1999, all stocks trading in the NASDAQStock Market will be marginable at brokers anddealers.

The foreign list is composed of those foreign equitysecurities that have been found to meet the criteria insection 220.11 of Regulation T. Effective April 1,1998, foreign stocks that have a "ready market" forpurposes of the Securities and Exchange Commis-sion's (SEC) net capital rule are also eligible formargin treatment at broker-dealers. The SEC effec-tively treats all stocks included on the FinancialTimes/Standard & Poor's Actuaries World Indices ashaving a "ready market" for capital purposes. Therevised foreign list now contains ninety-one stocksdisplayed in order of country. There were three dele-tions from the list, and there were no additions.

It is unlawful for any person to cause any represen-tation to be made that inclusion of a stock on theOTC list or the foreign list indicates that the Board orthe SEC has in any way passed upon the merits ofany such stock or transaction therein. Any referencesto the Board in connection with these lists or anystocks thereon in any advertisement or similar com-munication is unlawful.

AVAILABILITY OF REVISED LISTS OF OVER-THE-COUNTER STOCKS AND OF FOREIGN STOCKSSUBJECT TO MARGIN REGULATIONS

The Federal Reserve Board published on October 23,1998, a revised list of over-the-counter (OTC) mar-

AVAILABILITY OF A VIDEOTAPE ON RESOURCESFOR BUSINESSES OWNED BY WOMEN

The Federal Reserve announced on November 2,1998, the production of a videotape designed toheighten awareness among lenders about the business


Announcements 1061

opportunities available to them in lending to busi-nesses owned by women.

Businesses owned by women represent one of thefastest-growing sectors of the nation's economy.Between 1987 and 1996, the number of women-owned businesses grew 78 percent nationwide, out-pacing overall business growth by nearly two to one.

Through testimonials, the videotape entitled ToTheir Credit: Women-Owned Businesses featuressuccessful women business owners describing theirexperiences in obtaining bank credit. To potentialentrepreneurs, the tape stresses the need for futurecommercial borrowers to build a relationship with thelender and to have a comprehensive business planprepared before approaching a lender. To potentiallenders, the tape focuses on the profitability that thisfast-growing segment of the economy offers financialinstitutions.

During the thirty-minute program, future womenentrepreneurs should recognize the many informa-

tional resources available to help them including thefollowing:

• Women's Business Development Centers• Small Business Administration Women's Busi-

ness Centers• Community Affairs Offices at Federal Reserve

Banks.

The videotape is available through FVS Media fora nominal fee. To order a copy by telephone, thenumber is 800-555-5471.

CHANGE IN BOARD STAFF

The Federal Reserve Board announced the retire-ment, after thirty-three years of service, of Peter A.Tinsley, Deputy Associate Director in the Division ofResearch and Statistics, effective in September. •


1062

Minutes of theFederal Open Market Committee MeetingHeld on August 18, 1998

A meeting of the Federal Open Market Committeewas held in the offices of the Board of Governors ofthe Federal Reserve System in Washington, D.C., onTuesday, August 18, 1998, at 9:00 a.m.

Present:Mr. Greenspan, ChairmanMr. McDonough, Vice ChairmanMr. FergusonMr. GramlichMr. HoenigMr. JordanMr. KelleyMr. MeyerMs. MinehanMr. PooleMs. Rivlin

Messrs. Boehne, McTeer, Moskow, and Stern,Alternate Members of the Federal Open MarketCommittee

Messrs. Guynn and Parry, Presidents of the FederalReserve Banks of Atlanta and San Franciscorespectively

Mr. Kohn, Secretary and EconomistMr. Bernard, Deputy SecretaryMs. Fox, Assistant SecretaryMr. Gillum, Assistant SecretaryMr. Mattingly, General CounselMr. Baxter, Deputy General CounselMr. Prell, EconomistMr. Truman, Economist

Messrs. Cecchetti, Dewald, Hakkio, Lindsey,Simpson, Sniderman, and Stockton, AssociateEconomists

Mr. Fisher, Manager, System Open Market Account

Mr. Ettin, Deputy Director, Division of Research andStatistics, Board of Governors

Messrs. Madigan and Slifman, Associate Directors,Divisions of Monetary Affairs and Research andStatistics respectively, Board of Governors

Mr. Hooper and Ms. Johnson, Associate Directors,Division of International Finance, Board ofGovernors

Mr. Reinhart, Deputy Associate Director, Division ofMonetary Affairs, Board of Governors

Mr. Struckmeyer, Assistant Director, Division ofResearch and Statistics, Board of Governors

Ms. Low, Open Market Secretariat Assistant,Division of Monetary Affairs, Board ofGovernors

Ms. Strand and Mr. Varvel, First Vice Presidents,Federal Reserve Banks of Minneapolis andRichmond respectively

Messrs. Beebe, Goodfriend, and Rosenblum, SeniorVice Presidents, Federal Reserve Banks ofSan Francisco, Richmond, and Dallasrespectively

Messrs. Bolwell, King, Kopcke, Meyer, and Sullivan,Vice Presidents, Federal Reserve Banks ofNew York, Atlanta, Boston, Philadelphia, andChicago respectively

Mr. Weber, Senior Research Officer, Federal ReserveBank of Minneapolis

By unanimous vote, the minutes of the meetingof the Federal Open Market Committee held onJune 30-July 1, 1998, were approved.

The Manager of the System Open Market Accountreported on developments in foreign exchange mar-kets during the period since the previous meet-ing. There were no open market operations in for-eign currencies for the System's account duringthis period, and thus no vote was required of theCommittee.

The Manager also reported on developments indomestic financial markets and on System open mar-ket transactions in government securities and federalagency obligations during the period July 1, 1998,through August 17, 1998. By unanimous vote, theCommittee ratified these transactions.

The Committee then turned to a discussion of theeconomic and financial outlook and the implementa-tion of monetary policy over the intermeeting periodahead. A summary of the economic and financial


1063

information available at the time of the meeting andof the Committee's discussion is provided below,followed by the domestic policy directive that wasapproved by the Committee and issued to the FederalReserve Bank of New York.

The information reviewed at this meeting sug-gested that domestic final demand continued toexpand at a robust pace. However, increases in con-sumer spending and business investment seemed tobe moderating somewhat after very large gains ear-lier in the year, and inventory investment had slowedmarkedly. Net exports remained weak as a result ofthe persisting turmoil in Asian economies. The strikeat General Motors had damped overall economicactivity temporarily, but total payroll employmentcontinued to trend upward, and labor marketsremained extremely tight. Despite the pressures onlabor resources, trends in wages and prices hadremained stable in recent months.

Nonfarm payroll employment expanded furtherin July even though manufacturing payrolls plungedin association with the General Motors strike; jobgrowth remained strong in most nonmanufacturingsectors. Construction employment continued toincrease at about the brisk pace recorded over the firsthalf of the year, and hiring in retail trade surged. Theexpansion of jobs in the services industry slowedconsiderably in July, but this partly reflected a declinein temporary help jobs related to the GM strike. Thecivilian unemployment rate was unchanged in July at4.5 percent.

Industrial production declined considerably in Juneand July. Abstracting from the effects of the GMstrike, manufacturing output fell slightly over theJune-July period after having recorded moderategains on average in earlier months of the year; pro-duction of business equipment expanded briskly inJune and July, while the output of consumer goodsand materials weakened. The rate of utilization ofmanufacturing capacity was down appreciably inJune and July, mostly reflecting the effects of the GMstrike.

Total nominal retail sales fell in July after havingrisen at a rapid pace in the first half of the year. Asharp contraction in spending for motor vehicles,reflecting the termination at midyear of sales incen-tives offered by the Big Three automakers and shrink-ing inventories at GM dealers, more than accountedfor the drop in July. Non-auto-related outlays contin-ued on a robust upward trend, with gains evident inall major categories. Sales increases were particularlylarge at furniture and appliance stores and appareloutlets. In the housing sector, both demand and con-struction activity remained strong. Starts of single-

family units edged down in May but rebounded inJune. Sales of new homes were at an all-time high inJune, and sales of existing homes were only a littlebelow the record level reached in March of this year.With sales robust, the inventory of unsold new homesremained low.

Growth of business fixed investment slowed in thesecond quarter as the pace of business spending fordurable equipment moderated considerably from theexceptionally strong rate of earlier in the year. None-theless, outlays for computer and communicationsequipment continued to expand rapidly in the secondquarter, and purchases of other capital goods rosebriskly. Available information suggested that growthin business spending on capital goods likely wouldslow further in the months ahead. In contrast to thestrength in equipment spending, expenditures on non-residential building declined further in the secondquarter, and available indicators pointed to a mixedoutlook for this sector in coming months.

Business inventory investment slowed sharply inthe second quarter, owing in substantial measure to arunoff of motor vehicle inventories at the wholesaleand retail levels. In manufacturing, stockbuildingslowed somewhat in the second quarter, and thestock-shipments ratio at the end of the quarterremained close to the low level that had prevailedover the past year. Wholesale inventories changedlittle on balance in the second quarter as a sizabledecline in motor vehicle stocks offset a buildup ofnon-auto durable goods; in June, the aggregateinventory-sales ratio for this sector was at the upperend of its narrow range for the past year. At the retaillevel, a drop in inventories of motor vehicles in thesecond quarter more than offset a small increasein stocks at non-auto retailers, and the aggregateinventory-sales ratio in June was a little below thelower end of its range for the past year.

The nominal deficit on U.S. trade in goods andservices widened substantially further in the secondquarter; the value of exports of goods and servicesdeclined for a second straight quarter, while the valueof imports continued to rise, though at a somewhatreduced pace. Much of the decline in exports in thesecond quarter was in capital goods, but there alsowere noticeable decreases in most other major tradecategories. The increase in imports was concentratedin imported consumer goods, aircraft, and steel. Eco-nomic activity in most of the major foreign industrialcountries continued to expand, though at a slowerrate, in the second quarter. In Japan, however, eco-nomic activity appeared to have contracted sharplyfurther in the second quarter. In most other Asianeconomies, currencies and equity prices were under



downward pressure, and in Russia, asset values plum-meted in often disorderly markets. Risk spreads ondollar-denominated debt widened substantially, notonly in Russia but for Latin American issuers as well.

Price and wage inflation had remained relativelystable in recent months. Both the overall CPI and theCPI excluding food and energy items rose slightly onbalance in June and July; a small rise in food pricesoffset a noticeable decline in energy prices over thetwo-month period. For the twelve months endedin July, the core CPI registered a slightly smallerincrease than it had in the year-earlier period, partlyreflecting lower prices for new motor vehicles. Pro-ducer prices of finished goods changed little on bal-ance in June and July; a sizable drop in the prices ofenergy products over the June-July period more thanoffset a modest rise in core producer prices. For theyear ended in July, core producer prices rose some-what more than in the year-earlier period, reflectinglarger increases in the prices of finished consumergoods. Hourly compensation of private industryworkers rose in the second quarter at about the aver-age rate for the previous two quarters. For the yearended in June, however, hourly compensation pickedup significantly from the year-earlier period; theacceleration in compensation was evident in wagesand salaries and in benefits.

At its meeting on June 30-July 1, 1998, the Com-mittee adopted a directive that called for maintainingconditions in reserve markets that would be consis-tent with the federal funds rate continuing to averagearound 5'/2 percent. With the balance of risks stillpointing to the possibility of rising inflation overtime, the Committee chose to retain an asymmetricdirective tilted toward a possible firming of reserveconditions and a higher federal funds rate. Thereserve conditions associated with this directive wereexpected to be consistent with moderate growth inM2 and M3 over the months ahead.

Open market operations were directed throughoutthe period since the meeting on June 30-July 1toward maintaining the existing degree of pressure onreserve positions, and the federal funds rate averageda little above the intended level of 5 '/> percent. Mostother interest rates fell slightly on balance over theintermeeting period in response to market assess-ments that worsening conditions in Asia, LatinAmerica, and Russia portended slower growth in U.S.output and inflation over an extended period ahead.Declines in Treasury yields also reflected a continu-ing flight toward safety and quality from the persist-ing turbulence in foreign markets. In an atmosphereof increasing concerns about the prospects for corpo-rate earnings, share prices in U.S. equity markets

remained volatile and major indexes declined appre-ciably on balance over the intermeeting period.

In foreign exchange markets, the trade-weightedvalue of the dollar rose somewhat further over theintermeeting period in relation to other major curren-cies. The dollar changed little against the continentalEuropean currencies, but it moved up strongly againstthe Japanese yen and, to a lesser extent, the Canadiandollar. The dollar's rise in terms of the yen reflectedspreading pessimism regarding the Japanese govern-ment's ability to redress the problems of its troubledbanking system and provide fiscal stimulus adequateto turn its economy around. The dollar's advanceagainst the Canadian dollar occurred in the context ofcontinuing weakness in global commodity prices thatwas weighing down that currency. The dollar alsoappreciated slightly in terms of an index of the cur-rencies of the developing countries of Latin Americaand Asia that are important trading partners of theUnited States.

After having expanded briskly in the second quar-ter, M2 grew at a somewhat more moderate rate inJuly, and M3 changed little. The deceleration in M2reflected reduced inflows to retail money marketfunds. The halt in the growth of M3 was associatedwith a sharp runoff of large time deposits and out-flows from institution-only money market funds trig-gered by a temporary spike in interest rates on marketinstruments around quarter-end. For the year throughJuly, both aggregates rose at rates well above theCommittee's ranges for the year. Expansion of totaldomestic nonfinancial debt appeared to have moder-ated somewhat in recent months after a pickup earlierin the year.

The staff forecast prepared for this meeting indi-cated that economic activity would expand through1999 at a pace somewhat below the estimated growthof the economy's potential. Reduced growth of for-eign economic activity and the lagged effects of thesizable earlier rise in the foreign exchange valueof the dollar were anticipated to place substantialrestraint on the demand for U.S. exports and to leadto further substitution of imports for domestic prod-ucts. Moreover, additional moderation in businessinventory investment would damp domestic produc-tion as inventory accumulation was brought into bet-ter balance with the forecast of a more moderatetrajectory of final sales. The staff analysis suggestedthat the prospective gains in income coupled with theearlier run-up in household wealth would supportfurther brisk, though gradually diminishing, gains inconsumer spending. Housing demand was expectedto remain relatively strong in the context of thepersisting favorable cash flow affordability of home


Minutes of the Federal Open Market Committee 1065

ownership, though the slower income growth antici-pated over the projection period would damp home-building somewhat. Growth in business fixed invest-ment would gradually moderate from the vigorouspace of the first half of the year in response to smallerincreases in business sales and profits. Pressures onlabor resources were likely to diminish somewhat asthe expansion of economic activity slowed, but infla-tion was expected to pick up gradually as a result ofan anticipated reversal of some of the decline inenergy prices this year.

In the Committee's discussion of current and pro-spective economic conditions, members focused onthe disparate forces that continued to shape trends ineconomic activity, notably the persistence of consid-erable strength in private domestic spending and thedamping influences stemming from foreign economicdevelopments. The latter seemed likely to be largerthan previously anticipated as financial turmoil insome foreign economies had deepened and spreadand currently showed few signs of stabilizing. More-over, equity prices and risk spreads in U.S. financialmarkets were beginning to be adversely affected,potentially slowing domestic demand. The membersgenerally anticipated somewhat more moderategrowth than they had in their previous forecasts, withprospective expansion at a pace near or somewhatbelow the growth of the economy's potential. None-theless, they remained concerned about the potentialfor higher inflation, given the widespread tightness inlabor markets and an upward tilt in the rise of laborcompensation. For the present, however, inflationremained subdued, and it was likely to remain rela-tively low for some time in light of the weakness incommodity and other import prices and the tendencyfor low current inflation to hold down expected priceincreases.

Among the factors bearing on the outlook fordomestic economic activity, the members viewed theexternal sector as a major source of uncertainty. Thecontinued rapid decline in net exports during the firsthalf of the year largely seemed to reflect the furtherfinancial unsettlement and a deeper contraction inAsian economies than had been anticipated earlier,and several members commented that they saw lit-tle evidence that financial and economic conditionsin Asia were stabilizing. Indeed, such conditionsappeared to be worsening further in some Asiannations, and other countries had been affected by theassociated weakening in the demand for commoditiesand the more risk-averse attitudes of investors. Anec-dotal reports at this meeting suggested that the impacton the domestic economy was being felt by manu-facturing firms in several industries, although some

firms also reported that declining exports to Asiawere being offset at least in part by rising exportsto other areas of the world. Looking ahead, themembers agreed that the duration and extent of dis-ruptions in Asian and other economies could not beanticipated with any degree of confidence; while netexports were not expected to decline as rapidly asthey had in the first half of the year, even moreserious disruptions in Asia could not be ruled outand would have important implications for the U.S.economy.

In their review of developments in key expendituresectors of the domestic economy, members observedthat over the first half of the year the strength indomestic final demand, notably in the consumer andbusiness investment sectors, had more than offset thenegative effects of developments in the foreign sectorand other factors. In the consumer sector, the outlookfor further sizable increases in spending was but-tressed by unusually favorable underlying factors,including solid ongoing gains in employment andincomes and substantial further increases in house-hold net worth this year. A pause in the robust gainsin retail sales in early summer was accounted for inpart by limited inventories of new motor vehiclesassociated with the now-settled GM strike. While avariety of factors pointed to sustained growth inconsumer spending, a less ebullient stock market,should it persist, would foster more moderate expan-sion in consumer spending, perhaps at a pace more inline with the rise in consumer incomes, or at an evenslower pace if consumer confidence were adverselyaffected by developments in financial markets.

Business fixed investment also seemed to be on asolid upward trajectory, though some slowing in thegrowth of business investment spending was antici-pated in response to a projected deceleration in over-all business output and weaker business profits.Members continued to cite anecdotal evidence ofvery strong construction activity in many parts of thecountry, including indications that building projectswere being delayed because of shortages of labor andsome construction materials. In other parts of thecountry, building activity remained at a high level butseemed to have moderated somewhat. Businessspending for various types of high-tech equipmenthad surged to an undoubtedly unsustainable pace inthe first half of the year. Against this background,several members referred to emerging signs ofslightly more cautious attitudes among their businesscontacts, in many cases the result of concerns aboutdevelopments in Asia. On balance, diminishingmomentum in business investment appeared to be alikely prospect, but the ample availability of financ-



ing on favorable terms would continue to support thissector.

In the housing sector, construction activityremained at a high level in most parts of the nationand, as was the case for construction activity moregenerally, homebuilding continued to be restrained ina number of areas by limits on the availability oflabor and other inputs. The housing market clearlywas benefiting from strong gains in householdincomes, high levels of household wealth, and veryattractive financing costs. There were few indicationsof any moderation in this sector of the economy.Even so, some slowing was anticipated, at least aftercurrent construction backlogs were satisfied, inresponse to the projected slowing in employmentgrowth and the high level of the housing stock.

Currently available data indicated that the pace ofinventory accumulation had moderated substantiallyin the second quarter. Nonetheless, the rate of non-auto inventory investment in the spring still appearedto have exceeded a pace that was consistent withsustainable growth in sales. Anecdotal reports atthis meeting pointed to a somewhat mixed picturewith regard to desired inventory levels, includingexamples of both overstocking and shortages. Look-ing ahead and apart from short-run fluctuations,inventories were not expected to add to demand overcoming quarters, at least after the restocking of motorvehicles by General Motors was completed.

In the Committee's discussion of the outlook forwages and prices, members commented that the rateof inflation in consumer prices was difficult to char-acterize with precision because alternative priceindexes provided different measurement results; inparticular, chain price indexes for consumptionexpenditures showed substantially less inflation thanthe CPI. Even so, it was clear on the basis of anymeasure that consumer prices and inflation moregenerally had remained remarkably subdued in thecontext of very tight labor markets and upward pres-sure on labor compensation. And whatever the expla-nation, it seemed that the economy had been lessprone to rising inflation than it had been historicallyunder similarly tight labor market conditions. Themembers acknowledged that a number of specialfactors were contributing to the relatively benigninflation climate. Those factors included the appreci-ation of the dollar; declines in many commodityprices, notably that of oil; ample industrial capacity;and evidently diminished inflation expectations.Moreover, substantial gains in productivity weremuting the effects of rising labor compensation onunit costs, and vigorous competition in numerousmarkets was continuing to make it very difficult or

impossible for business firms to raise their prices tocover rising costs or enhance profit margins. Againstthis backdrop, members remained persuaded that asignificant rise in price inflation was not likely tooccur in the nearer term.

Looking further ahead, however, the members gen-erally agreed that rising price inflation remained animportant threat. Significant additional tightening inlabor markets would, of course, exacerbate that risk,but even at current levels these markets were tightand at some point labor costs could increase morerapidly, pressing on prices. Moreover, the effects ofsome of the factors holding down inflation seemedlikely to wane, and possibly to reverse, over time.The latter included the effects of the dollar's appreci-ation on the prices of imports and competing domes-tic products, a possible upturn in energy prices andperhaps other commodity prices as foreign econo-mies stabilized, and faster increases in the costs ofworker benefits, notably those related to health care.The apparently greater willingness of labor unions topress for higher wages and other benefits in very tightlabor markets might also intensify upward pressureson labor costs. On balance, while the risks of anoverheating economy and rising price inflation mighthave faded to some degree, many of the memberscontinued to emphasize that the Committee could notignore those risks in its policy formulation.

In the Committee's discussion of policy for theintermeeting period ahead, all but one of the mem-bers agreed on the desirability of maintaining a steadypolicy stance. The overall performance of the econ-omy remained highly satisfactory. While inflationrisks were still a concern, given the high level ofoutput and strong domestic demand, the uncertaintiesbearing on the economic outlook remained substan-tial, and indeed the risks on the downside seemedto have increased appreciably further. On balance,domestic economic and financial conditions had notchanged sufficiently during the intermeeting period towarrant an adjustment to policy. With regard to thecurrent uncertainties in the economic outlook, mem-bers emphasized that the extent and ultimate effectsof the apparently spreading fragility in foreign finan-cial markets and economies on U.S. financial andeconomic conditions were unknown. In these circum-stances, nearly all the members believed that a cau-tious wait-and-see approach to policy seemed appro-priate to allow the Committee time to assess thecourse of events and the interplay of the divergentforces bearing on the performance of the economy.In this regard it was noted that while domestic finan-cial conditions remained generally accommodative,recent developments in foreign exchange and domes-


Minutes of the Federal Open Market Committee 1067

tic financial markets had tended on balance todecrease some of the stimulative effects of financialconditions on aggregate demand in the United Statesby shifting demand overseas, increasing somewhatthe cost of raising capital, and reducing the financialwealth of households. However, a few membersexpressed concern about the potentially inflationaryimplications of relatively rapid growth in key mone-tary aggregates over the past year, though suchgrowth appeared to have moderated recently. Andin the view of one of these members, the trend inmonetary growth along with indications of risingspeculative imbalances and excesses in various mar-kets for financial and nonfinancial assets called for aprompt firming of monetary policy.

While overall economic conditions had notchanged enough in recent weeks to warrant an adjust-ment in policy, a majority of the members agreed thatthe risks to the economic outlook were now morebalanced and called for a shift from asymmetry tosymmetry in the Committee's directive. Such a direc-tive would better represent their view that the Com-mittee's next policy move could be in either directiondepending on developments abroad and their inter-action with a domestic economy that had remainedquite strong. Greater difficulties abroad and associ-ated downward pressures on demand and prices hadsubstantially diminished the chances of a strengthen-ing of inflation pressures over coming months andquarters that would require a near-term tightening ofpolicy. Other members continued to believe that therisks were still tilted to some degree toward risinginflation, though to a lesser extent than earlier. Labormarket developments continued to suggest that theeconomy could well be producing beyond its sustain-able potential and concrete signs that inflation pres-sures would abate had yet to emerge. Accordingly,they still preferred an asymmetrical directive butcould accept symmetry in light of the prevailinguncertainties in the economic outlook and the expec-tation, shared by the other members, that policywould not need to be changed during the intermeet-ing period ahead.

At the conclusion of the Committee's discussion,all but one of the members were in favor of retaininga directive that called for maintaining conditionsin reserve markets that were consistent with anunchanged federal funds rate of about 5'/2 percent.Most also indicated that they could support a shift toa directive that did not include a presumption aboutthe likely direction of any adjustments to policyduring the intermeeting period. Accordingly, in thecontext of the Committee's long-run objectives forprice stability and sustainable economic growth, and

giving careful consideration to economic, financial,and monetary developments, the Committee decidedthat slightly greater or slightly lesser reserve restraintwould be acceptable during the intermeeting period.The reserve conditions contemplated at this meetingwere expected to be consistent with moderate growthin M2 and M3 over coming months.

The Federal Reserve Bank of New York was autho-rized and directed, until instructed otherwise by theCommittee, to execute transactions in the SystemAccount in accordance with the following domesticpolicy directive:

The information reviewed at this meeting suggests thatdomestic final demand has continued to expand at a robustpace, but overall economic activity has been adverselyaffected by the strike at General Motors and developmentsin Asia. Nonfarm payroll employment continued to expandthrough July and the civilian unemployment rate wasunchanged at 4.5 percent. Industrial production declinedconsiderably in June and July; most of the drop over thetwo months reflected the GM strike. A decline in totalretail sales in July was more than accounted for by a sharpcontraction in spending for motor vehicles. Residentialsales and construction have remained exceptionally strongin recent months. Available indicators point to continuedgrowth in business capital spending, although apparently ata more moderate pace than earlier in the year. Businessinventory accumulation slowed sharply in the spring. Thenominal deficit on U.S. trade in goods and services wid-ened substantially further in the second quarter. Trends inwages and prices have remained stable in recent months.

Most interest rates have fallen slightly on balance sincethe meeting on June 30-July 1. Share prices in U.S. equitymarkets have remained volatile and major indexes havedeclined appreciably on balance over the intermeetingperiod. In foreign exchange markets, the trade-weightedvalue of the dollar rose somewhat further over the inter-meeting period in relation to other major currencies; inaddition, it was up slightly in terms of an index of thecurrencies of the developing countries of Latin Americaand Asia that are important trading partners of theUnited States.

After robust growth in the second quarter, M2 deceler-ated somewhat and M3 was about unchanged in July. Forthe year through July, both aggregates rose at rates wellabove the Committee's ranges for the year. Expansion oftotal domestic nonfinancial debt appears to have moderatedsomewhat in recent months after a pickup earlier in theyear.

The Federal Open Market Committee seeks monetaryand financial conditions that will foster price stability andpromote sustainable growth in output. In furtherance ofthese objectives, the Committee reaffirmed at its meetingon June 30-July 1 the ranges it had established in Februaryfor growth of M2 and M3 of 1 to 5 percent and 2 to6 percent respectively, measured from the fourth quarter of1997 to the fourth quarter of 1998. The range for growth oftotal domestic nonfinancial debt was maintained at 3 to7 percent for the year. For 1999, the Committee agreed ona tentative basis to set the same ranges for growth of themonetary aggregates and debt, measured from the fourth



quarter of 1998 to the fourth quarter of 1999. The behaviorof the monetary aggregates will continue to be evaluated inthe light of progress toward price level stability, move-ments in their velocities, and developments in the economyand financial markets.

In the implementation of policy for the immediate future,the Committee seeks conditions in reserve markets consis-tent with maintaining the federal funds rate at an averageof around 5'/2 percent. In the context of the Committee'slong-run objectives for price stability and sustainableeconomic growth, and giving careful consideration to eco-nomic, financial, and monetary developments, a slightlyhigher federal funds rate or a slightly lower federal fundsrate would be acceptable in the intermeeting period. Thecontemplated reserve conditions are expected to be consis-tent with moderate growth in M2 and M3 over comingmonths.

Votes for this action: Messrs. Greenspan, McDonough,Ferguson, Gramlich, Hoenig, Kelley, Meyer, Ms. Mine-han, Mr. Poole, and Ms. Rivlin. Vote against this action:Mr. Jordan.

Mr. Jordan dissented because he believed that theunderlying strength of aggregate demand in the U.S.economy would remain fundamentally intact, despiteeconomic problems abroad. The problems in Asiaprovide a channel for economic imbalances todevelop. Exports from some U.S. manufacturingindustries will decline due to softer foreign marketsand import competition. At the same time, domestic

demand for imports, housing, and consumer durableswill increase due to favorable interest rate trends.Though U.S. production of goods and services mightslow during the period ahead, it is not yet clear thattotal demand will diminish at a comparable pace. Atthe same time, ample credit provision encouragesspeculative lending and excessive consumption. Con-sequently, continued rapid growth in the money sup-ply creates the risk that inflation will accelerate andeconomic imbalances will become protracted.

TELEPHONE CONFERENCE

On September 21 the Committee held a telephoneconference to discuss recent developments in domes-tic and international financial markets and their impli-cations for the U.S. economy. The consultation washeld as background for Chairman Greenspan's testi-mony on September 23 before the Senate BudgetCommittee.

It was agreed that the next meeting of the Commit-tee would be held on Tuesday, September 29, 1998.

The meeting adjourned at 12:45 p.m.

Donald L. KohnSecretary


Legal Developments

1069

FINAL RULE—AMENDMENT TO REGULATION A

The Board of Governors is amending 12 C.F.R. Part 201,its Regulation A (Extensions of Credit by Federal ReserveBanks; Change in Discount Rate), to reflect its approval ofa decrease in the basic discount rate at each Federal Re-serve Bank. The Board acted on requests submitted by theBoards of Directors of the twelve Federal Reserve Banks.

The amendments to 12 C.F.R. Part 201 were effective onOctober 15, 1998. The rate changes for adjustment creditwere effective on the dates specified in 12 C.F.R. 201.51.

Part 201—Extensions of Credit by Federal ReserveBanks (Regulation A)

1. The authority citation for 12 C.F.R. Part 201 continuesto read as follows:

Authority: 12U.S.C. 343 et seq., 347a, 347b, 347c, 347d,348 et seq., 357, 374, 374a and 461.

2. Section 201.51 is revised to read as follows:

Section 201.51—Adjustment credit for depositoryinstitutions.

The rates for adjustment credit provided to depositoryinstitutions under section 201.3(a) are:

Federal Reserve Bank

BostonNew YorkPhiladelphiaClevelandRichmondAtlantaChicagoSt. LouisMinneapolisKansas CityDallasSan Francisco

Rate

4.754.754.754.754.754.754.754.754.754.754.754.75

Effective

October 15, 1998October 15. 1998October 15, 1998October 16, 1998October 16, 1998October 15, 1998October 15, 1998October 15, 1998October 15, 1998October 15, 1998October 16, 1998October 15, 1998

FINAL RULE-ANDX

-AMENDMENTS TO REGULATIONS T

The Board of Governors is amending 12 C.F.R. Parts 220and 224, its Regulations T and X (Securities Credit Trans-actions; List of Marginable OTC Stocks; List of ForeignMargin Stocks). The List of Marginable OTC Stocks (OTCList) is composed of stocks traded over-the-counter (OTC)in the United States that qualify as margin securities under

Regulation T, Credit by Brokers and Dealers. The List ofForeign Margin Stocks (Foreign List) is composed of cer-tain foreign equity securities that qualify as margin securi-ties under Regulation T. The OTC List and the Foreign Listhave been published four times a year by the Board, andthe Foreign List will continue to be published four times ayear by the Board. The OTC List will be discontinued afterJanuary 1, 1999. This document sets forth additions to anddeletions from the previous OTC List and deletions fromthe Foreign List.

Effective November 9, 1998, 12 C.F.R. Parts 220 and224 are amended as follows. Accordingly, pursuant to theauthority of sections 7 and 23 of the Securities ExchangeAct of 1934, as amended (15 U.S.C. 78g and 78w), and inaccordance with 12 C.F.R. Parts 220.2 and 220.11, there isset forth below a listing of deletions from and additions tothe OTC List and deletions from the Foreign List.

Deletions From The List Of Marginable OTCStocks

Stocks Removed For Failing Continued ListingRequirements

ABC Dispensing Technologies, Inc.: $.01 par commonACCOM, Inc.: $.001 par commonAmedisys, Inc.: $.001 par commonAmerican Claims Evaluation, Inc.: $.01 par commonAppliance Recycling Centers of America, Inc.: No par com-

mon

Bontex, Inc.: $.10 par commonBPI Packaging Technologies, Inc.: $.01 par commonBrothers Gourmet Coffees, Inc.: $.0001 par commonBuilding One Services Corporation: $.001 par common

Carver Corporation: $.01 par commonCasmyn Corporation: $.04 par commonCatalyst Semiconductor, Inc.: No par commonCoffee People, Inc.: No par commonCreative Bakeries, Inc.: $.001 par commonCrown Books Corporation: $.01 par commonCSI Computer Specialists, Inc.: Class A, $.001 par commonCyclo PSS Corporation: $.001 par common

Dakotah, Incorporated: $.01 par commonDSI Toys, Inc.: $.01 par commonCynagen, Inc.: $.01 par common

Eastwind Group, Inc.: $.10 par commonElectro-Sensors, Inc.: $.10 par common



Electronic Tele-Communications, Inc.: Class A, $.01 par com-mon

Electroscope, Inc.: No par commonElron Electronic Industries, Ltd.: Warrants (expire

09-01-1998)Equus Gaming Company, L.P.: Class A, units representing

beneficial ownershipErly Industries, Inc.: $1.00 par commonEzcony Interamerca Inc.: No par common

First City Financial Corporation: $.01 par special B preferredFlorida Gaming Corporation: $.10 par commonFPA Medical Management, Inc.: $.001 par common

Gatefield Corporation: $. 10 par commonGlobal Telecommunications Solutions, Inc.: $.01 par commonGolden Bear Golf, Inc.: Class A, $.01 par commonGrandetel Technologies, Inc.: No par commonGranite Broadcasting Corporation: $.01 par cumulative con-

vertible exchangeable preferredGreat Lakes Aviation, Ltd. $.01 par commonGT Bicycles, Inc.: $.001 par common

Harvest Restaurant Group. Inc.: $.01 par commonHayes Corporation: $.01 par common

latros Health Network, Inc.: $.001 par commonInsilco Holding Company: $.001 par common

JPE, Inc.: No par common

Life Medical Sciences, Inc.: $.001 par common

National Home Centers, Inc.: $.01 par commonNorland Medical Systems, Inc.: $.0005 par commonNView Corporation: No par common

Pacificare Health Systems, Inc.: Series A, $1.00 par cumula-tive convertible preferred

Pages, Inc.: No par commonPCA International, Inc.: $.20 par commonPersonnel Mangement, Inc.: No par commonPhoenix Gold International, Inc.: No par commonPremis Corporation: $.01 par common

Ross Technology, Inc.: $.01 par commonRPM, Inc.: Liquid yield option notes due 2012

Seer Technologies, Inc.: $.01 par commonSeiler Pollution Control Systems, Inc.: $.0001 par commonShowscan Entertainment Inc.: $.001 par commonSoftquad International, Inc.: No par commonSonics & Materials, Inc.: Warrants (expire 02-27-2001)Southwest Bancorp, Inc. (Oklahoma): Series A, redeemable,

cumulative preferredSteven Madden, Ltd.: Class B, Warrants (expire 12-10-1998)Stuart Entertainment, Inc.: $.01 par common

TCI Pacific Communications, Inc.: Class A, Senior cumula-tive exchangeable preferred

Telepanel Systems, Inc.: No par commonThinking Tools, Inc.: $.001 par commonTramford International, Ltd., $.01 par commonTricord Systems, Inc.: $.01 par common

Uromed Corporation: No par common

Versatility, Inc.: $.01 par commonVoxel: No par common

Washington Mutual, Inc.: Series E, No par non-cumulativeperpetual preferred

West Coast Entertainment Corporation: $.01 par commonWoodroast Systems, Inc.: $.005 par common

Stocks Removed for Listing on a NationalSecurities Exchange Or Being Involved in anAcquisition

Affiliated Community Bancorp: $.01 par commonAllied Life Financial Corporation: No par commonAmbanc Corporation: $10.00 par commonAmbassador Bank of the Commonwealth: $4.00 par commonAmcol International Corporation: $1.00 par commonAmerican Materials & Technologies Corp: $.01 par commonArakis Energy Corporation: No par commonArch Petroleum, Inc.: $.01 par commonATL Products, Inc.: Class A, $.0001 par commonATL Ultrasound, Inc.: $.01 par commonAtria Communities, Inc.: $.10 par commonAward Software International, Inc.: No par common

Bacon USA, Inc.: $.01 par commonBell Sports Corp.: $.01 par commonBenchmarq Microelectronics, Inc.: $.001 par commonBertucci's Inc.: $.005 par commonBiomatrix, Inc.: $.0001 par commonBroderbund Software, Inc.: $.01 par commonButtrey Food and Drug Stores Company: $.01 par common

Carnegie Bancorp (New Jersey): No par commonCeanic Corporation: No par commonClaremont Technology Group, Inc.: No par commonCoherent Communications Systems Corporation: $.01 par

commonCommunity Financial Holding Corporation: $5.00 par com-

monCorporateFamily Solutions, Inc.: No par commonCybermedia, Inc.: $.01 par common

Dawson Production Services, Inc.: $.01 par commonDecrane Aircraft Holdings, Inc.: $.01 par commonDeeptech International, Inc.: $.01 par commonDime Financial Corp.: $1.00 par commonDr. Solomon's Group, PLC: American Depositary ReceiptsDSC Communications Corp.: $.01 par common


Legal Developments 1071

Essex County Gas Company: $2.50 par common

Fed One Bancorp, Inc.: $.10 par commonFirst Colorado Bancorp, Inc.: $1.00 par commonFirst Commercial Corporation: $3.00 par commonFirst Home Bancorp, Inc. (New Jersey): $1.00 par commonFTP Software Inc.: $.01 par common

Gartner Group, Inc.: Class A, $.001 par commonGNI Group, Inc.: $.01 par commonGoodmark Foods, Inc.: $.01 par commonGroup I Software, Inc.: $.01 par common

Haverty Furniture Companies, Inc.: $1.00 par common;Class A, $1.00 par common

Hearst-Argyle Television, Inc.: Class A, $.01 par commonHFNC Financial Corporation: $.01 par commonHyperion Software Corporation: $.01 par common

IBS Financial Corporation: $.01 par commonIncontrol, Inc.: $.01 par commonInnoserve Technologies, Inc.: $.01 par commonInnova Corporation: No par commonInnovative Tech Systems, Inc.: $.001 par commonIntersolv, Inc.: $.01 par commonIQ Software Corporation: $.00033 par commonIWL Communications Incorporated: $.01 par common

Katz Digital Technologies, Inc.: $.001 par commonLiberty Technologies, Inc.: $.01 par commonLong Island Bancorp, Inc. (New York): $.01 par commonLukens Medical Corporation: Class A, $.01 par common

Marine Drilling Co.: $.01 par commonMariner Health Group, Inc.: $.01 par commonMaryland Federal Bancorp, Inc.: $.01 par commonMay & Speh, Inc.: $.01 par commonMCI Communications Corporation: $.10 par commonMedcath Incorporated: $.01 par commonMedicis Pharmaceutical Corporation: Class A, $.001

par commonMicroprose, Inc.: $.001 par commonMid-Am, Inc. (Ohio): $5.00 par commonMolecular Dynamics, Inc.: $.01 par commonMountbatten, Inc.: $.001 par common

National Surgery Centers, Inc.: $.01 par commonNCI Building Systems, Inc.: $.01 par commonNetvantage, Inc.: Class A, $.001 par commonNeurex Corporation: $.01 par commonNimbus CD International, Inc.: $.01 par common

Penederm Inc.: No par commonPenn-America Group, Inc.: $.01 par commonPete's Brewing Company: No par commonPetrocorp Incorporated: $.01 par commonPhysio-Control International Corporation: $.01 par commonPlenum Publishing Corporation: $. 10 par commonPMT Services, Inc.: $.01 par common

Polio Tropical, Inc.: $.01 par commonPositron Fiber Systems Corporation: No par commonProgressive Bank, Inc. (New York): $1.00 par commonPST Vans, Inc.: $.001 par common

Regent Bancshares Corp. (Pennsylvania): $.10 par commonRent-Way, Inc.: No par commonRepublic Engineered Steels, Inc.: $.01 par commonResource Bankshares Corporation (California): $3.00

par common

SLH Corporation: $.01 par commonSomerset Savings Bank (Massachusetts): $1.00 par commonSumitomo Bank of California, The: $5.00 par commonSummit Holding Southeast, Inc.: $.01 par common

Tappan Zee Financial, Inc.: $.01 par commonTelemundo Group, Inc.: Warrants (expire 12-29-1999);

Series A, $.01 par commonTeleport CommuGroup, Inc.: Class A, $.01 par commonTheragenics Corporation: $.01 par commonTimber Lodge Steakhouse, Inc.: $1.00 par commonTrans Financial Inc.: No par commonTriangle Pacific Corporation: $.01 par commonTrio-Tech International: No par common

United Dental Care, Inc.: $.10 par commonUnited Federal Savings Bank (North Carolina): $.01

par commonUniversal International, Inc.: $.05 par commonUpper Peninsula Energy Corporation: No par commonUS Servis, Inc.: $.01 par common

Viking Office Products, Inc.: No par commonVirus Research Institute, Inc.: $.01 par common

Wandel & Goltermann Technologies, Inc.: $.01 par common

Xcellenet, Inc.: $.01 par common

ZAG Industries Limited: Ordinary shares (NIS .01)

Additions to the List of Marginable OTC Stocks

24/7 Media, Inc.: $.01 par common

Actuate Software Corporation: $.001 par commonAdmiralty Bancorp, Inc.: Class B, common stockAdvanced Aerodynamics & Structures, Inc.: UnitsAdvanced Technical Products, Inc.: $.25 par commonAmerican Pacific Bancorp: Class B, common stockAristotle Corporation, The: $.001 par commonAtlantic Gulf Communities Corporation: Series B, 20%

preferred stock

Bankfirst Corporation: $2.50 par commonBindview Development Corporation: No par commonBiper S.A. de C.F.: American Depositary SharesBroadcast.com. Inc.: $.01 par common



BWC Financial Corporation: No par common

Captrock Communications Corporation: $.01 par commonCarrier Access Corporation: $.001 par commonCBES Bancorp, Inc.: $.01 par commonCD Warehouse, Inc.: $.01 par commonCFS Bancorp, Inc.: $.01 par commonClark/Bardes Holdings, Inc.: $.01 par commonCNY Financial Corporation: $.01 par commonCohesion Technologies, Inc.: $.001 par commonCommonwealth Telephone Enterprises, Inc.: Rights

(expire 10-23-1998)Corecomm Limited: $.01 par commonCost-U-Less, Inc.: $.001 par commonCreditrust Corporation: $13.00 par commonCrown Castle International Corporation: $.01 par commonCrusader Holding Corporation: $.01 par commonCyberian Outpost, Inc.: $.01 par common

Dearborn Bancorp, Inc.: No par commonDecora Industries, Inc.: $.01 par commonDelphi International, Ltd.: $.01 par commonDigital River, Inc.: $.01 par commonDset Corporation: No par common

EBay Inc.: $.001 par commonEchelon Corporation: $.01 par commonEclipsys Corporation: $.01 par commonElectronics Boutique Holdings Corporation: $.01 par commonEntrust Technologies, Inc.: $.01 par commonEufaula Banccorp, Inc.: $1.00 par commonExco Resources, Inc.: $.01 par common

FCNB Capital Trust: No par trust preferredFirst Busey Corporation: Class A, No par commonFlorida Banks, Inc.: $.01 par commonFundtech, Ltd.: Ordinary shares

Geocities: $.001 par commonGIGA Information Group, Inc.: $.001 par commonGlobal Crossing, Ltd.: 9-5/8% senior notes due 2008Golden State Vintners, Inc.: Class B, $.01 par commonGrand Union Company, The: $.01 par common

Heritage Commerce Corporation: No par commonHometown Auto Retailers, Inc.: Class A, $.001 par common

ICO Global Communications (Holdings) Limited: $.01par common

IDG Books Worldwide. Inc.: $.001 par commonIndependent Energy Holdings, PLC: American Depositary

Shares (NIS 1)Interactive Magic, Inc.: $.10 par commonIntercorp Excelle, Inc.: No par commonlntervest Bancshares Corporation: Class A, common sharesIxos Software Aktiengesellschaft: American Depositary

Shares

Jewett-Cameron Trading Company, Ltd.: No par common

Kasper A.S.L., Ltd.: $.01 par common

Landair Corporation: $.01 par commonLeap Wireless International, Inc.: $.0001 par common

Maxtor Corporation: $.01 par commonMDC Communications Corporation: Class A, subordinate

voting sharesMerrill Merchants Bancshares, Inc.: $1.00 par common

Natrol, Inc.: $.01 par commonNortheast Optic Network, Inc.: $.01 par common

Pathfinder Bancoip, Inc.: $.10 par commonPenwest Pharmaceuticals Company: $.001 par commonPilot Network Services, Inc.: $.001 par commonPrice Enterprises, Inc.: Class A, $.0001 par preferredPSB Bancorp, Inc.: $.01 par common

R&G Financial Corporation: Series A, 7.40% noncumulativemonthly income preferred stock

Railwords Corporation: $.01 par commonRepublic Bancorp, Inc.: Class A, No par common

Sequent Computer Systems, Inc.: $.01 par commonSiebert Financial Corporation: $.01 par commonSMED International, Inc.: No par commonSoftworks, Inc.: $.001 par commonSound Federal Bancorp: $.10 par commonSunrise Technologies International, Inc.: $.001 par commonSyntroleum Corporation: $.01 par common

Taragon Realty Investors, Inc.: $.01 par commonTelebanc Financial Corporation: $.01 par common; Series A,

9% beneficial unsecured securitiesTerayon Communication Systems: $.001 par commonThistle Group Holdings: $.01 par commonTowne Services, Inc.: No par commonTweeter Home Entertainment Group, Inc.: No par common

Unity Bancorp. Inc.: No par common

West Essex Bancorp. Inc.: $.01 par commonWintrusl Financial Corporation: Cumulative trust preferredWRP Corporation: $.01 par common

Deletions from the Foreign Margin Stock List

Tokyo

Furukawa Co., Ltd.: ¥50 par commonMeidensha Corporation: ¥50 par commonNOF Corporation: ¥50 par common



ORDERS ISSUED UNDER BANK HOLDING COMPANYACT

Orders Issued Under Section 3 of the Bank HoldingCompany Act

U.S. BancorpMinneapolis, Minnesota

Order Approving the Acquisition of a Bank HoldingCompany

U.S. Bancorp ('Applicant"), a bank holding companywithin the meaning of the Bank Holding Company Act("BHC Act"), has requested the Board's approval undersection 3 of the BHC Act (12U.S.C. § 1842) to acquireNorthwest Bancshares, Inc. ("Northwest"), and its whollyowned subsidiary bank. Northwest National Bank("NNB"), both of Vancouver, Washington.

Notice of the proposal, aflFording interested persons anopportunity to submit comments, has been published(63 Federal Register 27,286 (1998)). The time for filingcomments has expired, and the Board has considered theproposal and all comments received in light of the factorsset forth in section 3 of the BHC Act.

Applicant, with total consolidated assets of approxi-mately $70.9 billion, is the 17th largest commercial bank-ing organization in the United States, controlling approxi-mately 1.4 percent of total banking assets of insuredcommercial banks in the United States ("total bankingassets").1 Applicant operates subsidiary banks in 17 statesand engages in a broad range of permissible nonbankingactivities. Applicant also is the second largest commercialbanking organization in the state of Washington, control-ling approximately $6.4 billion in deposits, representingapproximately 17.6 percent of total deposits in commercialbanking organizations in the state ("state deposits").

Northwest is the tenth largest commercial banking orga-nization in Washington, controlling deposits of approxi-mately $321 million in deposits, representing less than1 percent of state deposits. On consummation of the pro-posal, and accounting for the proposed divestiture, Appli-cant would continue to be the second largest commercialbanking organization in Washington, controlling approxi-mately $6.7 billion in deposits in the state of Washington,representing approximately 18.5 percent of state deposits.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approvean application by a bank holding company to acquirecontrol of a bank located in a state other than the homestate of such bank holding company if certain conditionsare met.2 For purposes of the BHC Act, the home state of

1. Asset, ranking, and deposit data are as of June 30, 1997.2. A bank holding company's home state is that state in which the

operations of the bank holding company's banking subsidiaries were

Applicant is Minnesota, and Applicant proposes to acquirea bank in Washington. All of the conditions for an inter-state acquisition enumerated in section 3(d) are met in thiscase.3 In view of the facts of record, the Board is permittedto approve this proposal under section 3(d) of the BHCAct.

Competitive Considerations

The BHC Act prohibits the Board from approving anapplication under section 3 of the BHC Act if the proposalwould result in a monopoly or would be in furtherance ofany attempt to monopolize the business of banking. TheBHC Act also prohibits the Board from approving a pro-posed combination that would substantially lessen compe-tition or tend to create a monopoly in any relevant bankingmarket, unless the Board finds that the anticompetitiveeffects of the proposal are clearly outweighed in the publicinterest by the probable effect of the proposal in meetingthe convenience and needs of the community to be served.4

Applicant and Northwest compete directly in the Port-land, Oregon, banking market ("Portland banking mar-ket").5 Applicant is the largest depository institution in thePortland banking market, controlling deposits of $6.6 bil-lion, representing 46 percent of the total deposits in com-mercial banks in the market ("market deposits").6 North-west is the eighth largest depository institution in themarket, controlling $321 million of deposits, representing2.2 percent of total market deposits.7

To mitigate the potential anticompetitive effects of theproposal. Applicant has committed to divest one branch,which accounts for approximately $35 million in deposits

principally conducted on July 1, 1996, or the date on which thecompany became a bank holding company, whichever is later.12U.S.C. § 1841(o)(4)(C).

3. 12U.S.C. §§ 1842(d)(l)(A) & (B) and 1842(d)(2)(A) & (B).Applicant is adequately capitalized and adequately managed, as de-fined by applicable law. On consummation of the proposal. Applicantand its affiliates would control less than 10 percent of the total amountof deposits of insured depository institutions in the United States, andless than 30 percent of the total amount of deposits in Washington. Inaddition, Northwest's subsidiary bank. NNB. has been in existenceand has operated continuously for at least five years. All other require-ments of section 3(d) of the BHC Act also would be met on consum-mation of the proposal.

4. 12U.S.C. § 1842(c)(l)(B).5. The Portland banking market is defined as the Portland Ranally

Metro Area ("RMA") and the remainder of Clark County in Washing-ton, and the city of Mount Angel in Marion County. Oregon, and thecities of Saint Helens, Scappoose. and Vernonia in Columbia County.Oregon.

6. Market share data are based on calculations that include thedeposits of thrift institutions at 50 percent. The Board previously hasindicated that thrift institutions have become, or have the potential tobecome, significant competitors of commercial banks. See, MidwestFinancial Group, 75 Federal Reserve Bulletin 386 (1989); NationalCity Corporation, 70 Federal Reserve Bulletin 143 (1984). Thus, theBoard has regularly included thrift deposits in the calculation ofmarket share on a 50-percent weighted basis. See, e.g.. First HawaiianInc., 77 Federal Reserve Bulletin 52 (1991).

7. Northwest operates solely in the portion of the Portland bankingmarket that is located in Washington State.



and represents approximately 10.9 percent of the totaldeposits controlled by Northwest in the Portland bankingmarket. Applicant has committed to make this divestitureto an organization that is competitively suitable to theBoard.8 After accounting for the proposed divestiture, con-summation of the proposal would be consistent with themarket index thresholds applied under the Department ofJustice Merger Guidelines ("DOJ Guidelines").9 In thiscase, after accounting for the proposed divestiture, the HHIwould increase by not more than 186 points to not morethan 2761.

At least 27 competitors would remain in the market afterconsummation of the proposal. These competitors includeseveral large national and regional banking organizationsthat have significant market shares and extensive branchnetworks in the market.

Portland is the largest banking market in Oregon and the27th largest Metropolitan Statistical Area ("MSA") in thecountry. The population of the Portland MSA increased17.3 percent from 1990 to 1997, more than any of the otherMSAs in Oregon. That portion of the Portland MSA lo-cated in Washington State, in which Northwest is located,increased by more than 30 percent over the same period,more than any MSA in Washington. In addition, among the11 MSAs in Washington and Oregon, Portland ranks sec-ond in terms of percentage of households with incomesmore than $55,000, and second in median household in-come. Since 1994, ten new competitors have entered themarket; nine commercial banks have entered the marketde novo, and one commercial bank entered the market byacquiring branches that were divested by Applicant in aprevious acquisition.10

The Department of Justice conducted a detailed reviewof the proposal and advised the Board that, with the pro-posed divestiture, consummation of the proposal would notbe likely to have a significantly adverse effect on competi-

8. Applicant has committed to execute a sales agreement for theproposed divestiture with a purchaser determined by the Board to becompetitively suitable prior to consummation of the proposal, and tocomplete the divestiture within 180 days of consummation. Applicantalso has committed that, in the event it is unsuccessful in completingthe divestiture within 180 days of consummation, it will transfer theunsold branch to an independent trustee that is acceptable to the Boardand will instruct the trustee to sell the branch promptly to one or morealternative purchasers acceptable to the Board. See BankAmericaCorporation, 78 Federal Reserve Bulletin 338 (1992); United NewMexico Financial Corporation, 77 Federal Reserve Bulletin 484(1991).

9. Under DOJ Guidelines, 49 Federal Register 26,823 (1984), amarket in which the post-merger HHI is more than 1800 is consideredhighly concentrated. The Department of Justice has informed theBoard that a bank merger or acquisition generally will not be chal-lenged (in the absence of other factors indicating anticompetitiveeffects) unless the post-merger HHI is at least 1800 and the mergerincreases the HHI by more than 200 points. The Justice Departmenthas stated that the higher than normal HHI thresholds for screeningbank mergers for anticompetitive effects implicitly recognize thecompetitive effect of limited-purpose lenders and other nondepositoryfinancial institutions.

10. See U.S. Bancorp, 82 Federal Reserve Bulletin 177 (1996).

tion in any relevant market.11 The Office of the Comptrol-ler of the Currency ("OCC") and the Federal DepositInsurance Corporation also have not objected to consum-mation of the proposal.

The Board believes that this is a very close case and thatthe mitigating factors in this case only slightly outweighthe potential for significantly adverse competitive effects inthis market. Applicant is the largest competitor in thismarket, with more than a 45-percent market share beforethe proposed acquisition. This market share is more thanthree times the market share of the second largest bankingorganization in the market. Although the increase in mar-ket share represented by this acquisition would be rela-tively small, this transaction would remove a vigorouscompetitor in a strategic location in the market. Moreover,apart from Applicant and two other competitors, this mar-ket is comprised of many relatively small banking organi-zations, and the Board is concerned that a strict reliance onan HHI analysis would permit a significant number ofthese institutions to be acquired by the largest bankingorganizations in the market without recognizing the poten-tially adverse effects that these acquisitions could have oncompetition in the market.

In approving this case, the Board has placed significantreliance on the divestiture proposal, which was a majorfactor in the determination by the Department of Justicethat the transaction would not likely violate the federalantitrust laws. The Board also has considered the mitigat-ing factors noted above, and the fact that Applicant hasincreased its market share recently as a result largely ofeffective competition in the market rather than through oneor more acquisitions.12

Based on all the facts of record, and for the reasonsdiscussed above, the Board has determined that competi-tive factors are consistent with approval of the proposal.The Board will view any further acquisitions in this marketvery critically and believes that the effects of any proposedacquisition by Applicant in this market would requirecompelling evidence that the transaction would not belikely to result in anticompetitive effects.

Other Factors Under the BHC Act

The BHC Act also requires the Board, in acting on anapplication, to consider the financial and managerial re-sources and future prospects of the companies and banksinvolved in a proposal, the convenience and needs of thecommunity to be served, and certain other supervisoryfactors.

11. The Department of Justice focused its analysis on the effect ofthe proposal on small business lending in Clarke County. Washington.As explained above, the Board has analyzed the effect of the transac-tion on competition in the market for the cluster of banking productsand services in the Portland banking market.

12. The Board also notes that pricing and profitability data for thePortland market are inconclusive on whether current conditions haveresulted in significant adverse anticompetitive effects or performance.



A. Financial, Managerial, and Other SupervisoryFactors

The Board has carefully considered the financial and man-agerial resources and future prospects of Applicant andNorthwest, and their respective subsidiary banks, and othersupervisory factors in light of all the facts of record. Aspart of this consideration, the Board has reviewed relevantreports of examination and other supervisory informationprepared by the Reserve Banks and other federal agencies.The Board notes that the bank holding companies and theirsubsidiary banks are currently well capitalized and areexpected to remain so after consummation of the proposal.

The Board also has considered other aspects of thefinancial condition and resources of the two organizations,the structure of the proposed transaction, and the manage-rial resources of each of the entities and the combinedorganization. Based on these and other facts of record, theBoard concludes that considerations relating to the finan-cial and managerial resources and future prospects of Ap-plicant, Northwest, and their respective subsidiaries areconsistent with approval of the proposal, as are the othersupervisory factors that the Board must consider undersection 3 of the BHC Act.

B. Convenience and Needs Considerations

The Board has carefully considered the effect of the pro-posed acquisition on the convenience and needs of thecommunity to be served in light of all the facts of record.Based on all the facts of record, including the performancerecords of the subsidiary banks of Applicant and North-west under the Community Reinvestment Act ("CRA")(12 U.S.C. § 2901 et seq.), the Board concludes that conve-nience and needs considerations are consistent with ap-proval of the proposal.13

Conclusion

Based on the foregoing, and in light of all the facts ofrecord, the Board has determined that the applicationshould be, and hereby is, approved. Approval of the appli-cation is specifically conditioned on compliance by Appli-cant with all the commitments made in connection with theproposal and with the conditions stated or referred to inthis order, including Applicant's divestiture commitment.For purposes of this transaction, the commitments andconditions referred to in this order shall be deemed to beconditions imposed in writing by the Board in connectionwith its findings and decision, and, as such, may be en-forced in proceedings under applicable law.

13. All of Applicant's subsidiary banks have received "outstand-ing" or "satisfactory" ratings for their appropriate federal supervisorsat the most recent examinations of their CRA performance. Appli-cant's lead bank, U.S. Bank National Association, Minneapolis, Min-nesota, received a "satisfactory" performance rating from its appropri-ate federal supervisor, the OCC. In addition, NNB received a"satisfactory" performance rating from the OCC.

The acquisition shall not be consummated before thefifteenth calendar day following the effective date of thisorder, and the proposal shall not be consummated later thanthree months after the effective date of this order, unlesssuch period is extended for good cause by the Board or bythe Federal Reserve Bank of Minneapolis, acting pursuantto delegated authority.

By order of the Board of Governors, effectiveOctober 26, 1998.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin. andGovernors Kelley, Meyer, Ferguson, and Gramlich.

ROBERT DEV. FRIERSONAssociate Secretary of the Board

Orders Issued Under Section 4 of the Bank HoldingCompany Act

KeyCorpCleveland, Ohio

Order Approving Notice to Engage in NonbankingActivities

KeyCorp, Cleveland, Ohio, a bank holding company withinthe meaning of the Bank Holding Company Act ("BHCAct"), has requested the Board's approval under sec-tion 4(c)(8) of the BHC Act (12 U.S.C. § 1843(c)(8)) andsection 225.24 of the Board's Regulation Y (12 C.F.R.225.24) to merge with McDonald & Company Invest-ments, Inc.. Cleveland, Ohio ("McDonald"), and therebyacquire control of its subsidiaries, including McDonald &Company Securities, Inc. ("Company").1 KeyCorp wouldthereby engage in the following nonbanking activities:

(1) Extending credit and servicing loans, pursuantto section 225.28(b)(l) of Regulation Y(12 C.F.R. 225.28(b)(l));

(2) Engaging in activities related to extendingcredit, pursuant to section 225.28(b)(2)(ii), (vi)and (vii) of Regulation Y (12 C.F.R.225.28(b)(2)(ii), (vi) and (vii));

(3) Providing leasing services, pursuant to section225.28(b)(3) of Regulation Y (12 C.F.R.225.28(b)(3));

(4) Performing functions or activities that may beperformed by a trust company, pursuant to sec-tion 225.28(b)(5) of Regulation Y (12 C.F.R.225.28(b)(5));

(5) Providing financial and investment advisory ser-vices, pursuant to section 225.28(b)(6) of Regu-lation Y (12 C.F.R. 225.28(b)(6));

(6) Providing securities brokerage, riskless princi-pal, private placement, futures commission mer-

1. KeyCorp also has requested the Board's approval to hold andexercise an option to acquire up to 19.9 percent of the voting shares ofMcDonald if certain events occur. The option would expire on con-summation of the proposal.



chant, and other agency transactional services,pursuant to section 225.28(b)(7) of Regula-tion Y (12 C.F.R. 225.28(b)(7));

(7) Underwriting and dealing in government obli-gations and money market instruments in whichstate member banks may underwrite and dealunder 12 U.S.C. §§ 335 and 24(7) ("bank-eligible securities"), engaging in investing andtrading activities, and buying and selling bul-lion and related activities, pursuant to sec-tion 225.28(b)(8) of Regulation Y (12 C.F.R.225.28(b)(8));

(8) Providing management consulting and em-ployee benefit consulting services, pursuant tosection 225.28(b)(9) of Regulation Y (12 C.F.R.225.28(b)(9));

(9) Underwriting and dealing in, to a limited extent,all types of debt and equity securities other thaninterests in open-end investment companies("bank-ineligible securities");

(10) Providing administrative and other services toopen-end investment companies ("mutualfunds");2 and

(11) Acting as the general partner of private invest-ment limited partnerships that invest in assets inwhich a bank holding company is permitted toinvest.

Notice of the proposal, affording interested persons anopportunity to submit comments, has been published(63 Federal Register 48,509 (1998)). The time for filingcomments has expired, and the Board has considered thenotice and all comments received in light of the factors setforth in section 4(c)(8) of the BHC Act.

KeyCorp, with total consolidated assets of approxi-mately $76 billion, is the 15th largest banking organizationin the United States.3 KeyCorp operates subsidiary banksin 13 states, and engages through other subsidiaries in abroad range of permissible nonbanking activities.McDonald, with total consolidated assets of $987 million,engages in a broad range of securities underwriting anddealing, brokerage, investment advisory, and other activi-ties.4

KeyCorp proposes to merge its wholly owned subsid-iary, Key Capital Markets, Inc., Cleveland, Ohio("KCMI"), with and into Company.5 After consummationof the proposal. Company would be renamed McDonald

2. A list of the administrative services that KeyCorp would provideto mutual funds is included in the Appendix.

3. Asset and ranking data are as of June 30, 1998.4. McDonald currently engages in certain insurance and real estate

activities and has, and controls certain limited partnerships and corpo-rations that have, investments that are not permissible for bank hold-ing companies. KeyCorp has committed to conform the activities,investments, and relationships of McDonald to those permissible forbank holding companies within two years of acquiring McDonald.

5. KCMI currently engages in limited underwriting and dealing inbank-ineligible securities, as permitted under section 20 of the Glass-Steagall Act (12 U.S.C. § 377). See KeyCorp, 83 Federal Reserve

Key Investments, Inc. Company is, and after consumma-tion of the proposal will continue to be, registered as abroker-dealer with the Securities and Exchange Commis-sion ("SEC") under the Securities Exchange Act of 1934(15 U.S.C. § 78a et seq.), registered as an investment ad-viser with the SEC under the Investment Advisers Act of1940 (15 U.S.C. § 80b-1 et seq.), a member of theNational Association of Securities Dealers, Inc.("NASD"), and registered as a futures commission mer-chant with the Commodity Futures Trading Commission("CFTC") under the Commodity Exchange Act (7 U.S.C.§ 2 et seq.). Accordingly, Company is, and will continueto be, subject to the record-keeping and reporting obliga-tions, fiduciary standards, and other requirements of theSecurities Exchange Act of 1934, the Investment AdvisersAct of 1940, the Commodity Exchange Act, the SEC, theCFTC, and the NASD.

Underwriting and Dealing in Bank-Ineligible Securities

The Board has determined that, subject to the frameworkof prudential limitations established in previous decisionsto address the potential for conflicts of interests, unsoundbanking practices, or other adverse effects, underwritingand dealing in bank-ineligible securities is so closely re-lated to banking as to be a proper incident thereto withinthe meaning of section 4(c)(8) of the BHC Act.6 The Boardalso has determined that underwriting and dealing in bank-ineligible securities is consistent with section 20 of theGlass-Steagall Act (12 U.S.C. § 377), provided that thecompany engaged in the activity derives no more than25 percent of its gross revenues from underwriting anddealing in bank-ineligible securities.7

Bulletin 921 (1997). KCMI also is authorized to engage in a variety ofother nonbanking activities. See id.

6. See J.P. Morgan & Co. Inc., et ai. 75 Federal Reserve Bulletin192 (1989), aff'd sub nom. Securities Industry Ass'n v. Board ofGovernors of the Federal Reserve System, 900 F.2d 360 (D.C. Cir.1990); Citicorp, 73 Federal Reserve Bulletin 473 (1987), aff'd subnom. Securities Industry Ass'n v. Board of Governors of the FederalReserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S. 1059(1988), as modified by Review of Restrictions on Director, Officer andEmployee Interlocks, Cross-Marketing Activities, and the Purchaseand Sale of Financial Assets Between a Section 20 Subsidiary and anAffiliated Bank or Thrift, 61 Federal Register 57,679 (1996): Amend-ments to Restrictions in the Board's Section 20 Orders, 62 FederalRegister 45,295 (1997); and Clarification to the Board's Section 20Orders, 63 Federal Register 14,803 (1998) (collectively, "Section 20Orders").

7. Compliance with the revenue limitation shall be calculated inaccordance with the method stated in the Section 20 Orders, asmodified by the Order Approving Modifications to the Section 20Orders, 75 Federal Reserve Bulletin 751 (1989); 10 Percent RevenueLimit on Bank-Ineligible Activities of Subsidiaries of Bank HoldingCompanies Engaged in Underwriting and Dealing in Securities, 61Federal Register 48.953 (1996); and Revenue Limit on Bank-IneligibleActivities of Subsidiaries of Bank Holding Companies Engaged inUnderwriting and Dealing in Securities. 61 Federal Register 68,750(1996) (collectively, "'Modification Orders"). In light of the fact thatKeyCorp proposes to acquire a going concern, the Board believes thatallowing Company to calculate compliance with the revenue limita-tion on an annualized basis during the first year after consummation of



KeyCorp has committed that Company will conduct itsunderwriting and dealing activities using the methods andprocedures and subject to the prudential limitations estab-lished by the Board in the Section 20 Orders. KeyCorp alsohas committed that Company will conduct its bank-ineligible securities underwriting and dealing activitiessubject to the Board's revenue restriction.8 As a conditionof this order, KeyCorp is required to conduct its bank-ineligible securities activities subject to the revenue restric-tions and Operating Standards established for section 20subsidiaries ("Operating Standards").9

Mutual Fund Activities

KeyCorp proposes, through Company, to provide to mutualfunds ("funds") investment advisory, administrative, andother services that previously have been approved by theBoard.10 KeyCorp has committed that the proposed activi-ties will be conducted in compliance with Regulation Yand Board orders governing these activities and subject tothe prudential and other limitations established by theBoard."

the acquisition and thereafter on a rolling quarterly average basiswould be consistent with the Section 20 Orders. See U.S. Bancorp, 84Federal Reserve Bulletin 483 (1998); Dauphin Deposit Corporation,11 Federal Reserve Bulletin 672 (1991).

8. KeyCorp intends to merge KCMI with and into Company withina few weeks of the consummation of the KeyCorp/McDonald merger.Until the merger of KCMI and Company occurs, KeyCorp willoperate Company as a separate corporate entity and both KCMI andCompany will be independently subject to the 25-percent revenuelimitation on underwriting and dealing in bank-ineligible securities.See Citicorp, 73 Federal Reserve Bulletin 473, 486 n.45 (1987), aff'dsub nom. Securities Industry Ass 'n v. Board of Governors of theFederal Reserve System, 839 F.2d 47 (2d Cir.), cert, denied, 486 U.S.1059 (1988). In view of the fact that Company is significantly largerthan KCMI and will survive the merger with KCMI, the managementstructure of the proposed merged company, the activities of themerging companies and the proposed merged company, and the otheraspects of this case, the Board believes the merger would not disqual-ify Company from calculating compliance with the revenue test inconformance with the annuahzed treatment described in this order.

9. 12C.F.R. 225.200. Company may provide services that arenecessary incidents to the proposed underwriting and dealing activi-ties. Unless Company receives specific approval under section 4(c)(8)of the BHC Act to conduct the activities independently, any revenuesfrom the incidental activities must be treated as ineligible revenuessubject to the Board's revenue limitation.

10. The Board previously has determined that providing administra-tive services to mutual funds is closely related to banking within themeaning of section 4(c)(8) of the BHC Act. See, e.g., Bankers TrustNew York Corporation. 83 Federal Reserve Bulletin 780 (1997)("BTNY"); Commerzbank AG, 83 Federal Reserve Bulletin 679(1997). In addition, the Board previously has determined that theGlass-Steagall Act does not prohibit a bank holding company fromproviding advisory and administrative services to a mutual fund. See12 C.F.R. 225.125.

11. See, e.g., BTNY. The administrative services that KeyCorpwould provide to mutual funds through Company include computingthe funds' financial data, maintaining and preserving the records of thefunds, providing office facilities and clerical support for the funds, andpreparing and filing tax returns for the funds. The services are listed inthe Appendix.

KeyCorp has committed that, on consummation of the acquisitionof Company. Company will cease serving as a distributor for mutual

KeyCorp proposes to have certain director and officerinterlocks with the funds. In particular, KeyCorp proposesthat up to 25 percent of the directors of a mutual fundwould be employees, officers, or directors of KeyCorp orone of its subsidiaries, including Company. KeyCorp pro-poses that one of these directors may serve as chairman ofthe board of the fund. In addition, KeyCorp seeks to haveup to three directors, officers, or employees of KeyCorp orits subsidiaries, including Company, serve as senior offic-ers of the fund and have other KeyCorp personnel serve asjunior-level officers of the fund.12

The Board previously has authorized a bank holdingcompany and its nonbank subsidiaries to have limiteddirector and officer interlocks with mutual funds that thebank holding company advises and administers.13 TheBoard noted that the independent directors of the fundswould be responsible for the selection and review of theinvestment adviser, the underwriter, and the other majorservice contractors of the fund.14

In this case, KeyCorp's personnel would not comprisemore than 25 percent of any fund's board of directors.Accordingly, all the funds to which KeyCorp would pro-vide advisory and administrative services would haveboards of directors in which 75 percent of the directors areunaffiliated with KeyCorp. In addition, any director of afund who also serves as a director, officer, or employee ofKeyCorp would be an "interested person" under the 1940Act and, therefore, would be required to abstain fromvoting on investment advisory and other major contracts ofthe fund.

funds and distribution activities of mutual funds would be the respon-sibility of an independent distributor, which would enter into contrac-tual agreements with the mutual funds to serve as "principal under-writer." As defined in the Investment Company Act of 1940 ("1940Act"), a principal underwriter is any underwriter who, as principal,purchases from a mutual fund any security for distribution, or who asagent for such fund sells or has the right to sell the fund's securities toa dealer and/or to the public. 15 U.S.C. § 80a-2(a)(29). The indepen-dent distributor also would be responsible for supervising sales as theprincipal underwriter for purposes of the federal securities laws. Anindependent distributor would enter into any sales agreements withbrokers or other financial intermediaries to sell shares of mutual funds.The independent distributor would have legal responsibility under therules of the NASD for the form and use of all advertising and salesliterature and would be responsible for filing these materials with theNASD or the SEC.

12. Senior officers include the president, secretary, treasurer, andvice presidents with policy-making functions. Junior officers includeassistant secretaries, assistant treasurers, or assistant vice presidents ofthe funds. Junior officers are fund employees who have no authority orresponsibility to make policy.

13. See, e.g., BTNY; Lloyds TSB Group pic, 84 Federal ReserveBulletin 116 (1998); BankAmerica Corporation, 83 Federal ReserveBulletin 913 (1997); The Governor and Company of the Bank ofIreland, 82 Federal Reserve Bulletin 1129 (1996).

14. Under the 1940 Act, at least 40 percent of the board of directorsof a mutual fund must be individuals who are not affiliated with themutual fund, investment adviser, or any other major contractor to thefund. The 1940 Act and related regulatory provisions require thatindependent directors annually review and approve the mutual fund'sinvestment advisory contract and any plan of distribution or relatedagreement.



The director and officer interlocks proposed by KeyCorpwould not appear to affect the independence of the otherdirectors of the funds. The independent members of theboards of directors would continue to have authority toreview brokerage, advisory, administrative, and other ma-jor contracts and would retain authority to change thedistributor of fund shares. Based on the foregoing, theBoard concludes that the proposed director and officerinterlocks would not compromise the independence of theboards of the funds or permit KeyCorp to control the fundsfor purposes of the BHC Act or Glass-Steagall Act.

Other Activities Approved by Regulation or Order

The Board previously has determined that credit and credit-related activities; leasing activities; trust company activi-ties; financial and investment advisory activities; securitiesbrokerage, riskless principal, private placement, futurescommission merchant, and other agency transactional ac-tivities; bank-eligible securities underwriting and dealing;investing and trading activities; buying and selling bullionand related activities; and management consulting andemployee benefits consulting services are closely related tobanking within the meaning of section 4(c)(8) of the BHCAct. 15 In addition, the Board previously has determined byorder that the proposed private investment limited partner-ship activities are permissible for bank holding compa-nies.16 KeyCorp has committed that it will conduct theseactivities in accordance with the provisions and limitationsset forth in Regulation Y and the Board's orders andinterpretations relating to each of the activities.

Other Considerations

In order to approve this notice, the Board also must deter-mine that the proposed activities "can reasonably be ex-pected to produce benefits to the public, such as greaterconvenience, increased competition, or gains in efficiency,that outweigh possible adverse effects, such as undue con-centration of resources, decreased or unfair competition,conflicts of interests, or unsound banking practices."17 Aspart of its review of these factors, the Board considers thefinancial and managerial resources of the notificant and itssubsidiaries and the effect the transaction would have onsuch resources.18

In considering the financial resources of the notificant,the Board has reviewed the capitalization of KeyCorp andCompany in accordance with the standards set forth in theSection 20 Orders and finds the capitalization of each to beconsistent with approval. This determination is based on allthe facts of record, including KeyCorp's projections of thevolume of Company's underwriting and dealing activitiesin bank-ineligible securities.

15. See 12 C.F.R. 225.28(b)(l), (2), (3), (5), (6), (7), (8), and (9).16. See DresdnerBankAG, 84 Federal Reserve Bulletin 361 (1998);

Meridian Bancorp, Inc., 80 Federal Reserve Bulletin 736 (1994).17. 12U.S.C. § 1843(c)(8).18. Sec 12 C.F.R. 225.26.

The Board also has reviewed the managerial resourcesof each of the entities involved in this proposal in light ofexamination reports and other supervisory information. Inconnection with the proposal, the Federal Reserve Bank ofCleveland ("Reserve Bank") has reviewed the policies andprocedures of Company to ensure compliance with thisorder and the Section 20 Orders, including Company'soperational and managerial infrastructure, computer, audit,and accounting systems and internal risk management pro-cedures and controls. On the basis of the Reserve Bank'sreview and all other facts of record, including the commit-ments provided in this case and the proposed managerialand risk management systems of Company, the Board hasconcluded that financial and managerial considerations areconsistent with approval of the notice.

The Board has carefully considered the competitive ef-fects of the proposal. KeyCorp represents that KCMI andCompany offer largely complementary services with fewsignificant overlaps. KeyCorp has indicated that KCMI hasnot developed the type of equity underwriting and otherequity-based capital markets products, private client bro-kerage, and high-yield debt underwriting services offeredby Company. To the extent that KCMI and Company offerdifferent types of products and services, the proposed ac-quisition would result in no loss of competition. In thosemarkets where the product offerings of KeyCorp's non-banking subsidiaries and McDonald overlap, such as secu-rities brokerage, investment advisory, trust, and insuranceagency activities, there are numerous existing and potentialcompetitors. Consummation of the proposal, therefore,would have a de minimis effect on competition in themarket for these services, and the Board has concluded thatthe proposal would not have significantly adverse competi-tive effects in any relevant market.

In order to approve the proposal, the Board also mustfind that the performance of the proposed activities byKeyCorp can reasonably be expected to produce benefitsthat would outweigh possible adverse effects under theproper incident to banking standard of section 4(c)(8) ofthe BHC Act. Under the framework established in this andprior decisions, consummation of the proposal is not likelyto result in any significantly adverse effects, such as undueconcentration of resources, decreased or unfair competi-tion, conflicts of interests, or unsound banking practicesthat outweigh the public benefits of the proposal.

The Board expects that consummation of the proposalwould provide added convenience to the customers ofKeyCorp and McDonald. KeyCorp has indicated that con-summation of the proposal would expand the range ofproducts and services available to its customers and thoseof McDonald. KeyCorp also has stated that the acquisitionwould permit it to improve the operating efficiency ofKCMI and further diversify its nonbanking operations,thereby making it less vulnerable to economic fluctuationsin individual business lines.

Based on all the facts of record, the Board has deter-mined that performance of the proposed activities by Key-Corp can reasonably be expected to produce public bene-fits that outweigh any adverse effects of the proposal.



Accordingly, the Board has determined that the perfor-mance of the proposed activities by KeyCorp is a properincident to banking for purposes of section 4(c)(8) of theBHC Act.

Conclusion

On the basis of all the facts of record, the Board hasdetermined that the notice should be, and hereby is, ap-proved, subject to all the terms and conditions described inthis order. The Board's approval of the proposal extendsonly to activities conducted within the limitations of thisorder, including the Board's reservation of authority toestablish additional limitations to ensure that Company'sactivities are consistent with safety and soundness, avoid-ance of conflicts of interests, and other relevant consider-ations under the BHC Act. Underwriting and dealing inany manner other than as approved in this order is notwithin the scope of the Board's approval and is not autho-rized for Company.

The Board's determination also is subject to all the termsand conditions set forth in Regulation Y, including those insections 225.7 and 225.25(c) (12C.F.R. 225.7 and225.25(c)), and to the Board's authority to require modifi-cation or termination of the activities of a bank holdingcompany or any of its subsidiaries as the Board findsnecessary to ensure compliance with, or to prevent evasionof, the provisions and purposes of the BHC Act and theBoard's regulations and orders issued thereunder. TheBoard's decision is specifically conditioned on compliancewith all the commitments made in connection with thisnotice, including the commitments discussed in this orderand the conditions set forth in this order and the Boardregulations and orders noted above. The commitments andconditions are deemed to be conditions imposed in writingby the Board in connection with its findings and decision,and, as such, may be enforced in proceedings under appli-cable law.

This proposal shall not be consummated later than threemonths after the effective date of this order, unless suchperiod is extended for good cause by the Board or theReserve Bank, acting pursuant to delegated authority.


Voting for this action: Chairman Greenspan, Vice Chair Rivlin, andGovernors Kelley and Meyer. Absent and not voting: GovernorsFerguson and Gramlich.


Appendix

List of Administrative Services

(1) Maintaining and preserving certain records of thefunds, including financial and corporate records;

(2) Computing net asset value, dividends, performancedata and financial information regarding the funds;

(3) Furnishing statistical and research data to the funds;(4) Preparing and filing with the SEC and state securities

regulators registration statements, notices, reports,and other materials required to be filed under applica-ble laws;

(5) Preparing reports and other informational materialsregarding the funds, including prospectuses, proxies,and other shareholder communications;

(6) Providing legal and other regulatory advice to thefunds in connection with their other administrativefunctions;

(7) Providing office facilities and clerical support for thefunds;

(8) Developing and implementing procedures for moni-toring compliance with regulatory requirements andcompliance with the funds' investment objectives,policies, and restrictions as established by the boardsof directors of the funds;

(9) Providing routine fund accounting services to thefunds and liaison with outside auditors;

(10) Preparing and filing tax returns, and monitoring taxcompliance;

(11) Reviewing and arranging for payment of fund ex-penses;

(12) Providing communication and coordination serviceswith regard to the funds' investment advisors, trans-fer agent, custodian, distributor, and other serviceorganizations that render distribution, recordkeeping,or shareholder communication services;

(13) Reviewing and providing advice to the distributor,the funds, and the investment advisors regardingsales literature and marketing plans for the funds;

(14) Providing information to the distributor's personnelconcerning performance and administration of thefunds;

(15) Providing marketing support with respect to sales ofthe funds through financial intermediaries, includingparticipating in seminars, meetings, and conferencesdesigned to present information concerning thefunds;

(16) Assisting in the development of additional funds;(17) Providing reports to the boards of directors of the

funds with regard to the activities of the funds; and(18) Providing telephone shareholder services through a

toll-free number.

Orders Issued Under Sections 3 and 4 of the BankHolding Company Act

Charter One Financial, Inc.Cleveland, Ohio

Order Approving the Formation of Bank HoldingCompanies

Charter One Financial, Inc., and its wholly owned subsid-iary, Charter-Michigan Bancorp, Inc. ("CMB") (collec-



tively "Charter One"), savings and loan holding compa-nies within the meaning of the Home Owners Loan Act(12 U.S.C. § 1461 et seq.),1 have requested the Board'sapproval under section 3 of the Bank Holding CompanyAct (12 U.S.C. § 1842) ("BHC Act") to become bankholding companies by acquiring ALBANK Financial Cor-poration ("ALBANK") and its subsidiary bank, ALBANKCommercial, both of Albany, New York.2 Charter One alsohas requested the Board's approval under section 4(c)(8) ofthe BHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24of the Board's Regulation Y (12 C.F.R. 225.24) to acquirethe nonbanking subsidiaries of ALBANK, includingALBANK's subsidiary savings association, ALBANK,F.S.B., Albany, New York ("ALBANK Savings"), to retainsome of Charter One's nonbanking subsidiaries, andthereby to engage in the following nonbanking activities:

(1) Extending credit and servicing loans in accor-dance withsection 225.28(b)(l) of Regulation Y(12 C.F.R. 225.28(b)(l);

(2) Providing real estate appraisal services in accor-dance with section 225.28(b)(2)(i) of Regula-tion Y (12 C.F.R. 225.28(b)(2)(i));

(3) Providing asset management services in accor-dance with section 225.28(b)(2)(vi) of Regula-tion Y (12 C.F.R. 225.28(b)(2)(vi));

(4) Engaging in leasing personal or real property inaccordance with section 225.28(b)(3) of Regula-tion Y (12 C.F.R. 225.28(b)(3));

(5) Operating a savings association in accordancewith section 225.28(b)(4)(ii) of Regulation Y(12 C.F.R. 225.28(b)(4)(ii));

(6) Providing securities brokerage services in accor-dance with section 225.28(b)(7)(i) of Regula-tion Y (12 C.F.R. 225.28(b)(7)(i));

(7) Engaging in credit insurance activities in accor-dance with section 225.28(b)(ll)(i) of Regula-tion Y (12 C.F.R. 225.28(b)(ll)(i));

(8) Engaging in community development activitiesin accordance with section 225.28(b)(12) of Reg-ulation Y (12 C.F.R. 225.28(b)(12)); and

(9) Providing data processing services in accordancewith section 225.28(b)(14) of Regulation Y(12 C.F.R. 225.28(b)(14)).

In connection with this application, Charter One also hasrequested the Board's approval to retain ownership of9.95 percent of the voting shares of Gateway AmericanBank of Florida, Fort Lauderdale, Florida ("Gateway"),that Charter One currently owns. Charter One stated that itdoes not intend to control Gateway and has made a number

of commitments designed to ensure that Charter One willnot exercise a controlling influence over Gateway.3

Notice of the proposal, aifording interested persons anopportunity to submit comments, has been published(63 Federal Register 47,499 (1998)). The time for filingcomments has expired, and the Board has considered theproposal and all comments received in light of the factorsset forth in sections 3 and 4 of the BHC Act.

Charter One, with total consolidated assets of approxi-mately $20.2 billion, is the seventh largest depositoryorganization in Ohio, controlling approximately 3.1 per-cent of the total deposits of insured depository institutionsin the state ("total deposits").4 Charter One Savings cur-rently operates branches in Michigan, New York, and Ohioand Charter One engages in a number of nonbankingactivities. Charter One is the 22nd largest depository orga-nization in New York, controlling less than 1 percent of thetotal deposits.

ALBANK, with total consolidated assets of approxi-mately $4.1 billion, is the 21st largest commercial bankingorganization in New York, controlling less than I percentof total banking deposits in the state ("total banking depos-its"). After consummation of the proposal, Charter Onewould become the 14th largest commercial banking organi-zation in New York, controlling approximately 1.4 percentof total banking deposits.

Competitive, Financial, and Managerial Factors

Section 3 of the BHC Act prohibits the Board from approv-ing an application if the proposal would result in a monop-oly or would substantially lessen competition in any rele-vant banking market unless, in the latter case, the Boardfinds that the anticompetitive effects of the proposal areclearly outweighed in the public interest by the probableeffect of the proposal in meeting the convenience andneeds of the community to be served.5 Charter One,ALBANK and Gateway do not compete directly in anyrelevant banking market. Based on all the facts of record,the Board concludes that consummation of the proposalwould not result in a monopoly or in any significantlyadverse effects on competition or on the concentration ofbanking resources in any relevant banking market.

The BHC Act also requires the Board to consider thefinancial and managerial resources and future prospects ofthe companies and banks involved in the proposal, theconvenience and needs of the communities to be served,and certain other supervisory factors. The Board has care-fully considered the financial and managerial resources andfuture prospects of Charter One, ALBANK, and their re-spective insured depository institutions and other supervi-

1. CMB controls Charter One Bank, F.S.B. ("Charter OneSavings"), Cleveland. Ohio.

2. Pursuant to the merger agreement between Charter One andALBANK, ALBANK would be merged with and into CMB.ALBANK also has granted Charter One an option to acquire up to9.9 percent of ALBANK's outstanding common stock. The optionwould expire on consummation of the merger.

3. The Board has relied on similar commitments in other cases todetermine that an investing bank holding company would not be ableto exercise a controlling influence over another bank holding companyor bank for purposes of the BHC Act. A complete list of thesecommitments is set forth in the Appendix.

4. Asset, deposit, and ranking data are as of June 30, 1997.5. 12 U.S.C. § 1842(c)(l).



sory factors in light of all the facts of record, includingsupervisory reports of examination assessing the financialand managerial resources of the organizations and confi-dential financial information provided by Charter One.Based on these and all the other facts of record, the Boardconcludes that the financial and managerial resources andfuture prospects of Charter One, ALBANK, and their sub-sidiary insured depository institutions are consistent withapproval, as are the other supervisory factors that theBoard must consider under section 3 of the BHC Act.

Convenience and Needs Factor

The Board also has considered carefully the effect of theproposed acquisition on the convenience and needs of thecommunity to be served, in light of all the facts of record.Charter One Savings, which is the insured depository insti-tution controlled by the applicant in this case, received a"satisfactory" rating in its most recent evaluation by theOffice of Thrift Supervision ("OTS") pursuant to the Com-munity Reinvestment Act ("CRA") (12 U.S.C. § 2901et seq.). ALBANK Savings F.S.B. ("ALBANK Savings"),a wholly owned savings association subsidiary of the com-pany proposed to be acquired in this case, received a"needs to improve" rating in its most recent CRA evalua-tion by the OTS.6 The Board also notes that ALBANK andALBANK Savings have entered into a consent decree withthe Department of Justice regarding compliance with theFair Housing Act and the Equal Credit Opportunity Act("fair lending laws").

The Board has consulted with the OTS and the Depart-ment of Justice on the steps initiated by ALBANK toaddress these matters. The Board also has reviewed rele-vant supervisory information indicating that ALBANK'sinitiatives have generated successful results. In addition,the Board notes that Charter One intends to mergeALBANK Savings with and into Charter One Savings,with the community reinvestment activities of the resultinginstitution under the direction of current Charter One man-agement. Charter One also has committed that it willensure full compliance with the consent decree after con-summation of the proposed transaction.

Based on all the facts of record, including in particularthe performance record of Charter One and the measurestaken by ALBANK to ensure compliance with fair lendinglaws, the Board concludes that convenience and needsconsiderations, including the CRA performance records ofthe subsidiary depository institutions of Charter One andALBANK, are consistent with approval of the proposal.

Nonbanking Activities

The Board previously has determined by regulation thatthe operation of a savings association by a bank holding

company is closely related to banking for purposes of theBHC Act.7 In making this determination the Board requiresthat savings associations acquired by bank holding compa-nies conform their direct and indirect activities to thosepermissible for bank holding companies under section 4 ofthe BHC Act and Regulation Y. Charter One has commit-ted to conform all of the activities of Charter One Savingsto those permissible under section 4(c)(8) of the BHC Act.8

Charter One also has filed a notice under section 4(c)(8)of the BHC Act to acquire the nonbanking subsidiaries ofALBANK, including ALBANK Savings, to retain some ofCharter One's nonbanking subsidiaries, and thereby en-gage in extending credit and servicing loans, providingasset management and real estate appraisal services, engag-ing in leasing personal or real property, operating a savingsassociation, providing securities brokerage and data pro-cessing services, and engaging in credit insurance andcommunity development activities. The Board has deter-mined by regulation that these activities are closely relatedto banking for purposes of the BHC Act.9 Charter One hascommitted to conduct these nonbanking activities in accor-dance with the limitations set forth in Regulation Y and allrelevant Board orders and interpretations.

In order to approve a notice under section 4(c)(8) of theBHC Act, the Board also must determine that the proposedactivities are a proper incident to banking, that is, that theproposal "can reasonably be expected to produce benefitsto the public . . . that outweigh possible adverse effects,such as undue concentration of resources, decreased orunfair competition, conflicts of interests, or unsound bank-ing practices."10 As part of its evaluation of these factors,the Board considers the financial condition and managerialresources of the notificant and its subsidiaries, includingthe companies to be acquired, and the effect of the pro-posed transaction on those resources. For the reasons dis-cussed above, and based on all the facts of record, theBoard has concluded that financial and managerial consid-erations are consistent with approval of the notice.

The Board also has carefully considered the competitiveeffects of the proposed acquisition of nonbanking activi-ties. Charter One represents that there are few overlaps in

6. ALBANK Commercial received its charter from the State ofNew York on October 8, 1997, and has not yet been examined forCRA performance.

7. 12 C.F.R. 225.28(b)(4)(ii).8. Charter One has committed that it will conform all the insurance,

annuities, real estate, and other nonconforming activities conductedby Charter One and its subsidiaries to the requirements of section 4 ofthe BHC Act within two years after consummation of the proposal.Charter One must also conform the savings bank life insuranceactivities conducted by ALBANK to the requirements of section 4 ofthe BHC Act within two years after consummation of the proposal.ALBANK already is required to conform its other activities to therequirements of section 4 of the BHC Act within two years of the dateon which ALBANK became a bank holding company, and CharterOne must conform these activities of ALBANK to the requirements ofthe BHC Act within that same period.

9. See 12 C.F.R. 225.28(b)(l). (b)(2)(i), (b)(2)(vi), (3), (4)(ii). (7)(i),(ll)(i), (12) and (14).

10. 12 U.S.C. § 1843(c)(8).



the services provided by Charter One and ALBANK.11 Tothe extent that Charter One and ALBANK offer differenttypes of products, the proposed acquisition would result inno loss of competition. In those markets in which theproduct offerings of Charter One and ALBANK overlap,such as brokerage services and the sale of insurance andannuities products, there are numerous existing and poten-tial competitors. Consummation of the proposal, therefore,would have a de minirnis effect on competition in themarkets for these services, and the Board has concludedthat the proposal would not result in any significantlyadverse competitive effects in any relevant market.

Charter One has indicated that, after consummation ofthe merger proposal, it may provide more products andservices than those currently offered by ALBANK. Inaddition, as the Board has previously noted, there arepublic benefits to be derived from permitting capital mar-kets to operate so that bank holding companies can makepotentially profitable investments in nonbanking compa-nies and from permitting banking organizations to allocatetheir resources in the manner they consider to be mostefficient when such investments and actions are consistent,as in this case, with the relevant considerations under theBHC Act.'?

The Board also concludes that the conduct of the pro-posed nonbanking activities within the framework estab-lished under Regulation Y is not likely to result in adverseeffects, such as undue concentration of resources, de-creased or unfair competition, conflicts of interests, orunsound banking practices, that would outweigh the publicbenefits of the proposal, such as increased customer conve-nience and gains in efficiency. Accordingly, based on allthe facts of record, the Board has determined that thebalance of public benefits that the Board must considerunder the proper incident to banking standard of sec-tion 4(c)(8) of the BHC Act is favorable and consistentwith approval of Charter One's notice.

Conclusion

Based on the foregoing, and in light of all the facts ofrecord, the Board has determined that the application andnotices should be, and hereby are, approved. Approval ofthe application and notice is specifically conditioned oncompliance by Charter One with all the commitmentsmade in connection with the proposal and with the condi-tions stated or referred to in this order. The Board's deter-mination on the nonbanking activities also is subject to allthe terms and conditions set forth in Regulation Y, includ-ing those in sections 225.7 and 225.25(c) (12 C.F.R. 225.7and 225.25(c)), and to the Board's authority to require suchmodification or termination of the activities of a bank

11. Charter One Savings and ALBANK Savings do not compete inany relevant geographic market in providing savings association ser-vices.

12. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin553 (1998); First Union Corporation, 84 Federal Reserve Bulletin489(1998).

holding company or any of its subsidiaries as the Boardfinds necessary to ensure compliance with, and to preventevasion of, the provisions of the BHC Act and the Board'sregulations and orders thereunder. For purposes of thistransaction, the commitments and conditions referred toabove shall be deemed to be conditions imposed in writingby the Board in connection with its findings and decisionand, as such, may be enforced in proceedings under appli-cable law.

The acquisition of ALBANK Commercial shall not beconsummated before the fifteenth calendar day after theeffective date of this order, and the proposal shall not beconsummated later than three months after the effectivedate of this order, unless such period is extended for goodcause by the Board or by the Federal Reserve Bank ofCleveland, acting pursuant to delegated authority.


Voting for this action: Chairman Greenspan, Vice Chair Rivlin, andGovernors Meyer, Ferguson, and Gramlich. Absent and not voting:Governor Kelley.

ROBERT DEV. FRIERSON

Associate Secretary of the Board

Appendix

Commitments For Retaining Shares of Gateway Charter

One Financial, Inc. ("COFI") and CMB have committed,jointly and severally, that they will not, directly or indi-rectly:

(1) Take any action to cause Gateway or any of itssubsidiaries to become a subsidiary of COFI orCMB;

(2) Acquire or retain shares of Gateway that would causethe combined interests of COFI, CMB, their affili-ates, officers, and directors to equal or exceed10 percent of the outstanding voting shares of Gate-way;

(3) Exercise or attempt to exercise a controlling influ-ence over the management or policies of Gateway orany of its subsidiaries.

(4) Seek or accept representation by more than one direc-tor on the board of directors of Gateway or any of itssubsidiaries;

(5) Serve, or have or seek to have any representative ofCOFI or CMB serve, as an officer, agent, or em-ployee of Gateway or any of its subsidiaries;

(6) Propose more than one director in opposition to anynominee or slate of nominees proposed by manage-ment or the board of directors of Gateway;

(7) Solicit or participate in soliciting proxies with respectto any matter presented to the shareholders of Gate-way;

(8) Attempt to influence Gateway's or any of its subsid-iaries': dividend policies; loan, credit, or investmentdecisions; pricing of services; personnel decisions;



operations activities, including the location of anyoffices or branches or their hours of operation, etc.; orany similar activities or decisions of Gateway or anyof its subsidiaries;

(9) Enter into any other banking or nonbanking transac-tions with Gateway, except that COFI or CMB mayestablish and maintain deposit accounts with Gate-way, provided that the aggregate balance of all suchdeposit accounts does not exceed $500,000, and pro-vided that the accounts are maintained on substan-tially the same terms as those prevailing for compara-ble accounts of persons unaffiliated with COFI orCMB; and

(10) Dispose or threaten to dispose of shares of Gatewayin any manner as a condition of specific action ornonaction by Gateway or any of its subsidiaries

Firstar CorporationMilwaukee, Wisconsin

Order Approving the Merger of Bank HoldingCompanies

Firstar Corporation ("Firstar"), a bank holding companywithin the meaning of the Bank Holding Company Act("BHC Act"), has requested the Board's approval undersection 3 of the BHC Act (12 U.S.C. § 1842) to merge withStar Bane Corporation ("SBC") and thereby acquireSBC's wholly owned subsidiary bank, Star Bank, N.A.("Star Bank"), both of Cincinnati, Ohio.1 Firstar also hasrequested the Board's approval under section 4(c)(8) of theBHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 ofthe Board's Regulation Y (12 C.F.R. 225.24) to acquire thenonbanking subsidiaries of SBC.2

Notice of the proposal, affording interested persons anopportunity to submit comments, has been published(63 Federal Register 45,246 (1998)). The time for filingcomments has expired, and the Board has considered theproposal and all comments received in light of the factorsset forth in sections 3 and 4 of the BHC Act.

Firstar, with total consolidated assets of approximately$20 billion, is the 38th largest commercial banking organi-zation in the United States, controlling less than 1 percentof the total assets of insured commercial banks in theUnited States ("total banking assets").3 Firstar is the sec-ond largest commercial banking organization in Wiscon-sin, controlling deposits of $12.8 billion in the state. Firstaralso operates subsidiary banks in Arizona, Florida, Iowa,

Illinois, and Minnesota and engages in a number of permis-sible nonbanking activities nationwide.

SBC, with total consolidated assets of approximately$14.9 billion, is the 50th largest commercial banking orga-nization in the United States, controlling less than 1 per-cent of total banking assets. SBC's subsidiary bank, StarBank, operates in Indiana, Kentucky, Ohio, and Tennessee.After consummation of the proposal, Firstar would becomethe 24th largest commercial banking organization in theUnited States, with consolidated assets of approximately$34.9 billion, representing approximately 1 percent of totalbanking assets.

Interstate Analysis

Section 3(d) of the BHC Act, as amended by section 101 ofthe Riegle-Neal Interstate Banking and Branching Effi-ciency Act of 1994 ("Riegle-Neal Act"), allows the Boardto approve an application by a bank holding company toacquire control of a bank located in a state other than thehome state of such bank holding company if certain condi-tions are met.4 For purposes of the BHC Act, the homestate of Firstar is Wisconsin, and Firstar proposes to ac-quire a bank that is located in Indiana, Kentucky, Ohio, andTennessee.5 All conditions for an interstate acquisitionenumerated in section 3(d) are met in this case.6 In view ofall the facts of record, the Board is permitted to approvethis proposal under section 3(d) of the BHC Act.

Competitive, Financial, and Managerial Factors

Section 3 of the BHC Act prohibits the Board from approv-ing a proposal that would result in a monopoly, or thatwould substantially lessen competition in any relevantbanking market unless, in the latter case, the anticompeti-tive effects of the proposal in that banking market areclearly outweighed in the public interest by the probableeffect of the proposal in meeting the convenience andneeds of the community to be served.7 Firstar and Star donot compete directly in any relevant banking market. Based

1. Firstar and SBC also have requested the Board's approval to holdand exercise options to acquire up to 19.9 percent of each other'svoting shares, if certain events occur. The options would expire onconsummation of the proposed merger.

2. The nonbanking subsidiaries of SBC and their activities are listedin the Appendix.

3. All banking data, including rankings, assets, and deposits, are asof June 30. 1998.

4. Pub. L. No. 103-328. 108 Stat. 2338 (1994). A bank holdingcompany's home state is the state in which the operations of the bankholding company's banking subsidiaries were principally conductedon July 1, 1966, or the date on which the company became a bankholding company, whichever is later.

5. For purposes of the Riegle-Neal Act, the Board considers a bankto be located in the states in which the bank is chartered, headquar-tered, or operates a branch.

6. Firstar is adequately capitalized and adequately managed asdefined in the Riegle-Neal Act. 12 U.S.C. § 1842(d)(l)(A). SBC'sonly subsidiary bank, Star Bank, has been in existence and operatedfor the minimum period of time required by state law. 12 U.S.C.§ 1842(d)(l)(B). On consummation of the proposal, Firstar wouldcontrol less than 10 percent of the total amount of deposits of insureddepository institutions in the United States, and Firstar and SBC donot both operate insured depository institutions in the same states.12 U.S.C. § 1842(d)(2). All other requirements under section 3(d) ofthe BHC Act also would be met on consummation of the proposal.

7. See 12 U.S.C. § 1842(c).Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


on all the facts of record, the Board concludes that consum-mation of the proposal would not result in any significantlyadverse effects on competition or on the concentration ofbanking resources in any relevant banking market and thatcompetitive factors are consistent with approval of theproposal.

The BHC Act also requires the Board to consider thefinancial and managerial resources of the companies andbanks involved and certain other supervisory factors. TheBoard has carefully considered the financial and manage-rial resources and future prospects of Firstar, SBC, andtheir respective subsidiary banks and other supervisoryfactors in light of all the facts of record, including supervi-sory reports of examination assessing the financial andmanagerial resources of the organizations and confidentialfinancial information provided by Firstar. Based on theseand all the other facts of record, the Board concludes thatthe financial and managerial resources and future prospectsof Firstar, SBC, and their subsidiary banks are consistentwith approval, as are the other supervisory factors that theBoard must consider under section 3 of the BHC Act.


The Board also has considered carefully the effect of theproposed acquisition on the convenience and needs of thecommunity to be served in light of all the facts of record,including public comments on the proposal. Three com-menters expressed opposition to the merger proposal, alleg-ing that Firstar and SBC have inadequate records of meet-ing the banking and credit needs of the communities theyserve and, in particular, of communities with predomi-nantly low- and moderate-income ("LMI") and minoritypopulations. One commenter expressed particular concernabout Firstar's record of lending and providing services torural and LMI communities in Wisconsin and alleged thatthe proposed merger would adversely affect those commu-nities. The commenter also alleged that Firstar's banks inWisconsin failed to participate adequately in state andfederally guaranteed loan programs designed to assist LMIindividuals, small businesses, and owners of small farms.

A. CRA Performance Examinations

The Board has long held that consideration of the conve-nience and needs factor includes a review of the records ofthe relevant depository institutions under the CommunityReinvestment Act (12 U.S.C. § 2901 et seq.) ("CRA"). Asprovided in the CRA, the Board has evaluated the conve-nience and needs factor in light of examinations of theCRA performance records of the relevant insured deposi-tory institutions by their appropriate federal financial super-visory agency. An institution's most recent CRA perfor-mance evaluation is a particularly important considerationin the applications process because it represents a detailed,on-site evaluation of an institution's overall record of per-

formance under the CRA by its appropriate federal supervi-sor.8

All of Firstar's subsidiary banks received "outstanding"or "satisfactory" ratings in the most recent examinationsof their CRA performance. Firstar's lead subsidiary bank,Firstar Bank Milwaukee, Milwaukee, Wisconsin ("FirstarMilwaukee"), received a "satisfactory" rating in its mostrecent CRA performance evaluation by the Office of theComptroller of Currency ("OCC"), as of November 1997.Firstar Bank Wisconsin, Madison, Wisconsin ("FirstarWisconsin"), received an "outstanding" rating in its mostrecent CRA evaluation by the Federal Reserve Bank ofChicago ("Reserve Bank"), as of April 1997, and FirstarBank Illinois, Waukegan, Illinois ("Firstar Illinois"), re-ceived a "satisfactory" rating in its most recent CRAexamination by the Reserve Bank, as of June 1996. SBC'ssubsidiary bank, Star Bank, also received an "outstanding"rating in its most recent CRA examination by the OCC, asof December 1996.

The examinations found no evidence of prohibited dis-crimination or illegal credit practices at the subsidiarybanks of Firstar or SBC. Examiners concluded that thebanks solicited and accepted credit applications from allsegments of their service communities. Examiners alsogenerally noted that loans made by the banks were reason-ably distributed throughout the local communities served,including in LMI communities, and that the banks servedall members of those communities, including LMI individ-uals. In addition, examiners generally determined that thebanks' delineation of the local communities they servedwere reasonable and did not arbitrarily exclude any LMIcensus tracts.

Firstar represents that, after consummation of the pro-posal, it will adopt SBC's approach to meeting its responsi-bilities under the CRA.9 Firstar states that, by adoptingSBC's CRA approach, it would draw on SBC's expertisein providing innovative financing to projects benefitingLMI communities to expand Firstar's investments in suchcommunities. Firstar also has indicated that it would followSBC's community banking approach to agricultural lend-ing, which features locally based loan officers who havedirect contact with their customers in rural communities.Firstar also intends to seek out partnerships with commu-nity organizations in Firstar markets similar to partnershipsestablished by SBC with community-based groups in sev-eral of its markets. In addition, Firstar has noted that itwould retain some of its CRA programs that have provensuccessful. Consequently, the Board has taken into account

8. The Statement of the Federal Financial Supervisory AgenciesRegarding the Community Reinvestment Act provides that a CRAexamination is an important and often controlling factor in the consid-eration of an institution's CRA record and that reports of theseexaminations will be given great weight in the applications process.See 54 Federal Register 13,742, 13,745 (1989); see also 62 FederalRegister 52.105 (1997).

9. Firstar has stated that it would place its CRA and communitydevelopment programs under the leadership of SBC's current Directorof Community Development.



the CRA performance records of SBC and Firstar in evalu-ating the proposal.

B. SBC's CRA Performance Record

SBC offers a variety of products and programs through StarBank to assist in meeting the housing-related credit needsof LMI individuals and communities. For example, StarBank has established a Home Advantage ("HA") mortgageprogram that features reduced down payment, increaseddebt-to-income ratios, and waiver of mortgage insurancerequirements. In LMI communities. Star Bank also makesavailable HA home improvement loans with reduced inter-est rates for LMI borrowers. Examiners noted that, in 1995,Star Bank originated more than 1,100 HA mortgage loans,totaling $56.4 million, and more than 600 HA home im-provement loans, totaling $4.9 million.

The CRA performance examination characterized StarBank's responsiveness to the credit needs of its assessmentareas as excellent and commended Star Bank's penetrationof consumer loans in LMI census tracts. Examiners noted,for example, that 30 percent of the total dollar volume ofhome equity loans made by Star Bank from January 1,1995, through June 30, 1996, were made in LMI censustracts. Examiners stated that this percentage was favorablebecause only 18 percent of the owner-occupied housingunits in Star Bank's assessment areas were in LMI commu-nities.

Star Bank also established a Small Business BankingGroup ("BBG") to meet the credit and banking needs ofsmall business owners. Star Bank's BBG originated morethan 3,300 small business loans in 1997, totaling$376 million, and made more than 1,400 small businessloans in the first five months of 1998, totaling $150 mil-lion. The CRA performance examination commended StarBank's lending to small businesses and small farms andnoted that the bank had an excellent record of extendingcredit to businesses and farms of different sizes. Examinersalso noted that Star Bank participated in federal and statesmall business lending programs, including two SmallBusiness Administration ("SBA") loan programs. Examin-ers determined that Star Bank originated 117 SBA loansunder these programs in 1995, totaling approximately $25million.

The CRA performance examination commended StarBank for originating a high level of community develop-ment loans. Examiners cited Star Bank's origination of21 loans from January 1994 through July 1996, totaling$70 million, that resulted in the rehabilitation of 1,848units of affordable rental housing. Examiners also notedthat Star Bank entered into an agreement with the City ofCleveland, Ohio ("Cleveland Agreement"), to provide$25 million in loans to focus on LMI neighborhoods from1994 through 1998. As of June 1996, Star Bank hadextended $25.9 million of credit under the ClevelandAgreement, which represented 104 percent of Star Bank'soriginal commitment. Firstar notes that, in March 1998,Star Bank began a five year, $5.15 billion CommunityDevelopment Initiative to engage in community develop-

ment activities, including making small business loans,agricultural loans, and loans to businesses in LMI censustracts. Firstar has committed to carry out this initiative.

Examiners found that Star Bank had a good distributionof branches throughout its assessment areas. For example,examiners noted favorably that 27 percent of Star Bank'sbranches in Cincinnati were in LMI communities, whichexceeded the percentage of families in Cincinnati thatresided in those census tracts (19 percent). Examiners alsonoted that Star Bank offered a variety of alternative deliv-ery systems, including banking by phone, by automaticteller machines ("ATMs"), and by home computer.

C. Firstar's CRA Performance

Firstar Milwaukee. Examiners noted that Firstar Milwau-kee had been responsive to the credit needs of all segmentsof its service community. In particular, examiners com-mended the level of Firstar Milwaukee's home mortgageand home improvement lending to LMI census tracts.Examiners noted that, in 1996, Firstar Milwaukee made10 percent of its housing-related loans in LMI censustracts, which almost equaled the 13 percent of owner-occupied homes in the bank's service communities thatwere in those census tracts. Examiners also commendedFirstar Milwaukee for making 38 percent of its consumerloans to LMI borrowers, a percentage that closely approxi-mated the 37 percent of the population in its service areawith low- and moderate-incomes.

Examiners commended Firstar Milwaukee's lending tosmall businesses, including small businesses in LMI cen-sus tracts. Examiners also noted that Firstar Milwaukeehad introduced a small business line-of-credit program.The program offered a streamlined applications processand was designed for emerging small businesses thatneeded to build a credit history. From the time of theprogram's inception in 1996 through November 1997,Firstar Milwaukee originated 147 small business creditlines under this program, totaling more than $3.5 million.

Firstar Milwaukee also has participated in a variety ofgovernmentally insured, guaranteed, and subsidized loanprograms. For example, Firstar represents that its bankshave participated in the SBA's "Low Doc" program, whichoffers quick approvals to qualifying small businesses andfarms. Firstar notes that Firstar Milwaukee originated atotal of 40 SBA loans in 1996, totaling $6.2 million, and43 SBA loans in 1997, totaling $9.1 million. Firstar alsostates that Firstar Milwaukee has actively participated inVeterans Administration ("VA") and Federal Housing Ad-ministration ("FHA") loan programs. Firstar Milwaukeemade 149 VA loans in 1996, totaling $13.2 million, and159 VA loans in 1997, totaling $14.2 million. The bankalso originated 114 FHA loans in 1996, totaling$8.6 million, and 330 such loans in 1997, totaling $25million.

Examiners noted that Firstar Milwaukee offered a vari-ety of low-cost checking accounts to consumers, smallbusinesses, community groups and nonprofit organizations.Examiners also noted that Firstar Milwaukee cashed fed-



eral government benefit checks without charge. Examinersfound this check-cashing service to be unique in the bank'sassessment area because it was offered free to customersand to noncustomers of the bank.

Firstar Wisconsin. The CRA examination of Firstar Wis-consin found that the bank had a strong record of smallbusiness and small farm lending. Examiners noted that, in1996, Firstar Wisconsin made more than 3,600 small busi-ness loans and originated more than 230 small farm loans.Examiners stated that approximately 500 of the small busi-ness and farm loans, totaling approximately $42 million,were made in LMI areas.10

The CRA performance examination determined thatFirstar Wisconsin offered a variety of governmentally in-sured, guaranteed, and subsidized loans to small busi-nesses, small farms, and LMI borrowers. Examiners noted,for example, that Firstar Wisconsin originated 149 SBAloans, totaling $35.4 million, and 69 Farm Service Agency("FSA") loans, totaling $11.7 million, in 1996. Examinersalso commended the bank for using a Department of Hous-ing and Urban Development ("HUD") lending program tooffer nontraditional mortgage loans on real property incertain Native American reservations, where conventionalmortgage lending was difficult because borrowers often didnot own the mortgaged real estate outright.

Firstar states that, since the CRA performance examina-tion, Firstar Wisconsin has continued to participate ac-tively in various government-guaranteed loan programs.For example, Firstar reports that Firstar Wisconsin mademore than 130 SBA loans in 1997, totaling $37.8 million,and that the bank made 56 SBA loans in the first sixmonths of 1998, totaling $15.2 million. Firstar also statesthat Firstar Wisconsin and its affiliates in Wisconsin con-tinue to participate in various lending programs operatedby the Wisconsin Housing and Economic DevelopmentAuthority ("WHEDA"). In 1997, for example, Firstar Wis-consin originated 92 loans through WHEDA, of whichalmost half were made in rural communities. Firstar banksin Wisconsin originated 30 loans, totaling $463,000, underthe WHEDA Credit Relief Outreach Program during 1997.In addition, Firstar notes that it introduced this year theWHEDA Home Improvement Loan Program, which makeshome improvement loans available to agricultural borrow-

10. One commenter expressed concern about Firstar's commitmentto agricultural lending in Wisconsin and alleged that Firstar's consoli-dation of certain agricultural loan origination and servicing operationsinto a single office has resulted in reduced lending by Firstar to smailand LMI farm owners. Firstar denies any decreased emphasis onagricultural lending, noting that Firstar Wisconsin maintains a size-able agricultural loan portfolio of $150 million. Firstar also representsthat it employs 40 loan officers with agricultural lending authority andhas implemented programs, including a simplified application forsmall loans and speedy processing, that demonstrate its commitmentto agricultural lending. In addition, Firstar states that the consolidationof its agricultural lending operations does not limit its ability to extendcredit to farms of all sizes.

11. One commenter expressed concern that Firstar has reduced itsparticipation in FSA, WHEDA, and other government-guaranteedloan programs that benefit farmers and rural communities in Wiscon-

The CRA performance examination commended thebank's responsiveness to the credit needs of LMI individu-als and areas. For example, according to the CRA perfor-mance examination, Firstar Wisconsin and its affiliate,Firstar Home Mortgage Corporation ("FHMC"), mademore than 10 percent of their housing-related loans in LMIcensus tracts, and 21 percent of their housing-related loansto LMI borrowers. Examiners characterized the dispersionof housing-related loans in LMI census tracts and to LMIborrowers as strong.12

Examiners noted that Firstar Wisconsin made extensiveuse of innovative and flexible lending practices and pro-grams.13 Examiners also cited favorably Firstar's ongoingparticipation in the ADVOCAP program, which providedmortgage loans with flexible underwriting standards toLMI families. In addition, examiners noted that FirstarWisconsin had made investments in a number of projectsto fund the purchase and rehabilitation of affordable rentaland multifamily housing units.

D. Conclusion on the Convenience and Needs Factor

In its review of the convenience and needs factor under theBHC Act, the Board has considered carefully the entirerecord, including the CRA performance examinations ofeach of the insured depository institutions involved in thisproposal and all the information provided by comment-ers.14 Based on all the facts of record, and for the reasons

sin. Firstar acknowledges that there has been some reduction in thevolume of its origination of certain types of government-guaranteedloans designed for farmers and agricultural communities, but Firstarattributes this decrease in loan originations to changing market condi-tions and lower credit demand in Wisconsin.

12. One commenter alleged that Firstar's subsidiaries in Wisconsinmake inadequate numbers of home mortgages to LMI individuals andin LMI communities. The commenter based the allegation on itsanalysis of certain data reported by Firstar in 1996 under the HomeMortgage Disclosure Act (12U.S.C. § 2801 et seq.) ("HMDA"). Asnoted above, the CRA performance examinations of Firstar's subsid-iary banks in Wisconsin noted that the banks had strong records oflending, including home mortgage lending, to LMI individuals and inLMI communities. Examiners of Firstar Wisconsin reached this con-clusion based on their review of the bank's 1996 HMDA data andother data.

13. A commenter alleged that Firstar has been inflexible in workingwith farmers to restructure existing credit relationships or to resolvedifferences regarding loans and loan commitments. Firstar representsthat it employs agricultural specialists to provide individualized atten-tion to borrowers to resolve credit problems, consistent with safe andsound banking practices.

14. One commenter expressed concerns about the lack of branchesor proprietary ATMs of Firstar Illinois in Waukegan, Illinois, andcertain surrounding portions of Lake County. Illinois. Firstar repre-sents that, although it does not maintain any branches or ATMs inLake County, Firstar's subsidiaries provide financial assistance to, orengage in community development activities in conjunction with, avariety of community-based organizations operating in Lake County.The Board also notes that, under the CRA, an institution is evaluatedon the basis of its record of serving the credit needs of its community,including areas in which the institution maintains an office, a branchor a deposit-taking ATM, as well as the surrounding areas in which theinstitution originates or purchases a substantial portion of its loans. Aninstitution may not define its service community for CRA purposes in



discussed above, the Board concludes that considerationsrelating to the convenience and needs factor, including theCRA performance records of the relevant institutions, areconsistent with approval of the application.


Firstar also has filed a notice under section 4(c)(8) of theBHC Act to acquire SBC's nonbanking subsidiaries andthereby to engage in extending credit and servicing loans,leasing real or personal property, providing credit lifeinsurance and providing data processing services.15 TheBoard has determined by regulation that these activities areclosely related to banking for purposes of the BHC Act.16

Firstar has committed to conduct these nonbanking activi-ties in accordance with the limitations set forth in Regula-tion Y and the Board's orders and interpretations govern-ing each of these activities.

In order to approve a notice under section 4(c)(8) of theBHC Act, the Board also must determine that the proposedactivities are a proper incident to banking, that is, that theproposal "can reasonably be expected to produce benefitsto the public . . . that outweigh possible adverse effects,such as undue concentration of resources, decreased orunfair competition, conflicts of interests, or unsound bank-ing practices."17 Firstar has indicated that, after consumma-tion of the proposal, it would be able to provide moreproducts and services with greater efficiency to current andfuture customers of Firstar and SBC. Firstar would achievegreater operational efficiencies, greater economies of scale,and eliminate redundant systems and technologies. Theseefficiencies would strengthen Firstar's ability to competemore effectively in the markets in which it operates. Firstarwould draw on its product strengths and those of SBC tooffer more products at more locations than either organiza-tion could offer separately. In addition, as the Board haspreviously noted, there are public benefits to be derivedfrom permitting capital markets to operate so that bankholding companies can make potentially profitable invest-ments in nonbanking companies and from permitting bank-ing organizations to allocate their resources in the mannerthey consider to be most efficient when such investments

a manner that reflects illegal discrimination or excludes LMI geogra-phies. The CRA performance examination of Firstar Illinois deter-mined that the bank did not exclude any area from its delineatedservice community that it could have been reasonably expected toserve. Examiners also concluded that Firstar Illinois maintainedbranches and facilities in census tracts of all income levels and that thebank provided loan products and services that were similar at all itslocations.

15. Firstar currently engages in insurance activities grandfatheredunder section 4(c)(8)(G) of the BHC Act ( 12 U.S.C. § 1843(c)(8)(G))("Exemption G"). Based on the structure of the transaction, the factthat Firstar would be the legal entity surviving the proposed merger,and all the other facts of this case, the Board has determined thatFirstar would retain its grandfathered rights to engage in Exemption Gactivities after consummation of the proposed merger.

16. See 12 C.F.R. 225.28(b)(l), (3). (1 l)(i), and (14).17. 12 U.S.C, § 1843(c)(8).

and actions are consistent, as in this case, with the relevantconsiderations under the BHC Act.18

As part of its evaluation of these factors, the Boardconsiders the financial condition and managerial resourcesof the notificant and its subsidiaries, including the compa-nies to be acquired, and the effect of the proposed transac-tion on those resources. For the reasons noted above, andbased on all the facts of record, the Board has concludedthat financial and managerial considerations are consistentwith approval of the notice.

The Board also has considered the competitive effects ofthe proposed acquisition by Firstar of the nonbankingsubsidiaries of SBC. Numerous competitors would remainin each of the markets in which Firstar and SBC compete.The Board concludes that consummation of this proposalwould have a de minimis effect on competition in themarkets for nonbanking services in which Firstar and SBCcompete. Based on all the facts of record, the Boardconcludes that it is unlikely that significantly adverse com-petitive effects would result from the nonbanking acquisi-tions proposed in this transaction.

The Board also concludes that the conduct of the pro-posed nonbanking activities within the framework of Reg-ulation Y and prior Board precedent is not likely to resultin adverse effects, such as undue concentration of re-sources, decreased or unfair competition, conflicts of inter-ests, or unsound banking practices, that would outweighthe public benefits of the proposal, such as increased cus-tomer convenience and gains in efficiency. Accordingly,based on all the facts of record, the Board has determinedthat the balance of public interest factors that the Boardmust consider under the proper incident to banking stan-dard of section 4(c)(8) of the BHC Act is favorable andconsistent with approval of Firstar's notice.

Conclusion

Based on the foregoing, and in light of all the facts ofrecord, the Board has determined that the application andnotice should be, and hereby are, approved.19 Approval of

18. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin553 (1998); First Union Corporation, 84 Federal Reserve Bulletin489(1998).

19. Two commenters requested that the Board hold a public meetingor hearing on the proposal. Section 3 of the BHC Act does not requirethe Board to hold a public hearing on an application unless theappropriate supervisory authority for the bank to be acquired makes atimely written recommendation of denial. The Board has not receivedsuch a recommendation from the appropriate supervisory authorities.The Board's regulations provide for a hearing under section 4 of theBHC Act if there are disputed issues of material fact that cannot beresolved in some other manner. See 12 C.F.R. 225.25(a)(2).

Under its rules, the Board also may, in its discretion, hold a publicmeeting or hearing on an application to acquire a bank if a meeting orhearing is necessary or appropriate to clarify factual issues related tothe application and to provide an opportunity for testimony. 12 C.F.R.225.16(e). The Board has carefully considered the commenters' re-quests in light of all the facts of record. In the Board's view, comment-ers have had ample opportunity to submit their views, and, in fact,have submitted written comments that have been carefully consideredby the Board in acting on the proposal. The commenters' requests fail



the application and notice is specifically conditioned oncompliance by Firstar with all the commitments made inconnection with the proposal and with the conditions statedor referred to in this order. The Board's determination onthe nonbanking activities also is subject to all the terms andconditions set forth in Regulation Y, including those insections 225.7 and 225.25(c) (12C.F.R. 225.7 and225.25(c)), and to the Board's authority to require suchmodification or termination of the activities of a bankholding company or any of its subsidiaries as the Boardfinds necessary to ensure compliance with, and to preventevasion of, the provisions of the BHC Act and the Board'sregulations and orders thereunder. For purposes of thisorder, the commitments and conditions referred to aboveshall be deemed to be conditions imposed in writing by theBoard in connection with its findings and decision, and, assuch, may be enforced in proceedings under applicablelaw.20

The acquisition of Star Bank shall not be consummatedbefore the fifteenth calendar day following the effectivedate of this order, and the proposal shall not be consum-mated later than three months after the effective date of thisorder, unless such period is extended for good cause by theBoard or by the Reserve Bank, acting pursuant to delegatedauthority.


to identify disputed issues of fact that are material to the Board'sdecision that may be clarified by a public meeting or hearing. Thecommenters also fail to indicate why a public meeting or hearing isnecessary for the proper presentation or consideration of their views.As noted above, commenters have provided substantial written com-ments, which have been carefully considered by the Board. For thesereasons, and based on all the facts of record, the Board has determinedthat a public meeting or hearing is not required or warranted in thiscase. Accordingly, the requests are hereby denied.

20. Commenters requested that the Board delay action on theproposal, extend the public comment period, or deny the proposaluntil

(i) A pending CRA examination of Firstar Illinois is completedand the public has an opportunity to review the results of thisexamination;

(ii) The Board investigates Firstar's treatment of LMI borrowers;(iii) The Board investigates Firstar's lending practices on certain

Native American reservations; and(iv) Firstar and SBC provide additional information on their CRA

plans and programs or respond to specific allegations orconcerns raised by the commenters.

The requests for delay do not warrant postponement of the Board'sconsideration of the proposal. The Board has accumulated a signifi-cant record in this case, including reports of examination, supervisoryinformation, public reports and information, and public comment. Asnoted above, in the Board's view, the commenters have had ampleopportunity to submit their views and, in fact, have provided substan-tial written submissions that have been considered carefully by theBoard in acting on the proposal. Based on a review of all the facts ofrecord, the Board concludes that the record in this case is sufficient towarrant Board consideration and action on the proposal at this time,and further delay of consideration of the proposal, an extension of thecomment period, or denial of the proposal on the grounds discussedabove or on the basis of informational insufficiency is not warranted.

Voting for this action: Chairman Greenspan. Vice Chair Rivlin, andGovernors Meyer, Ferguson, and Gramlich. Absent and not voting:Governor Kelley.



Appendix

Nonbanking Activities of SBC

(1) Extending credit and servicing loans in accordancewith section 225.28(b)(l) of Regulation Y (12C.F.R.225.28(b)(l)), through Star Bane Finance, Inc., Cin-cinnati, Ohio.

(2) Engaging in leasing personal or real property in accor-dance with section 225.28(b)(3) of Regulation Y(12 C.F.R. 225.28(b)(3)), through DJJ Leasing Lim-ited, Cincinnati, Ohio.

(3) Engaging in credit insurance activities in accordancewith section 225.28(b)(ll)(i) of Regulation Y(12 C.F.R. 225.28(b)(ll)(i)), through The Miami Val-ley Insurance Company, Cincinnati, Ohio.

(4) Providing data processing services in accordance withsection 225.28(b)(14) of Regulation Y (12 C.F.R.225.28(b)(14)), through Money Station, Inc., Cincin-nati, Ohio.

Norwest CorporationMinneapolis, Minnesota

Wells Fargo & CompanySan Francisco, California

Order Approving the Merger of Bank HoldingCompanies

Norwest Corporation, a bank holding company within themeaning of the Bank Holding Company Act ("BHC Act"),and its wholly owned subsidiary, WFC Holdings Corpora-tion (collectively "Norwest"), have requested the Board'sapproval under section 3 of the BHC Act (12 U.S.C.§ 1842) to acquire by merger Wells Fargo & Company("Wells Fargo") and thereby acquire Wells Fargo's subsid-iary banks, including its lead bank subsidiary, Wells FargoBank, N.A., San Francisco, California.1 Norwest also hasrequested the Board's approval under section 4(c)(8) of theBHC Act (12 U.S.C. § 1843(c)(8)) and section 225.24 ofthe Board's Regulation Y (12 C.F.R. 225.24) to acquire thedomestic nonbank subsidiaries of Wells Fargo.2 In addi-

1. Norwest also would acquire Wells Fargo's other subsidiarybanks, which are Wells Fargo Bank (Texas), N.A., Houston, Texas;Wells Fargo Bank (Arizona), N.A., Phoenix, Arizona; Wells FargoBank, Ltd., Los Angeles, California; Wells Fargo Central Bank,Calabasas, California; and Wells Fargo HSBC Trade Bank. N.A.,San Francisco, California.

2. These subsidiaries are Wells Fargo Equity Capital, Inc.,San Francisco, California, which makes loans and direct equity invest-ments in companies in connection with such loans in accordance with



tion, Norwest has filed applications and notices undersection 4(c)(13) of the BHC Act (12 U.S.C. § 1843(c)(13)),sections 25 and 25A of the Federal Reserve Act(12 U.S.C. §§601 et seq., 611 et seq.), and the Board'sRegulation K (12 C.F.R. 211) to acquire the foreign subsid-iaries of Wells Fargo.3

Norwest, with total consolidated assets of approximately$93.1 billion, is the 12th largest commercial banking orga-nization in the United States.4 Norwest operates 44 subsid-iary banks in 16 states,5 and it engages through nonbankingsubsidiaries in a number of permissible nonbanking activi-ties nationwide, including securities underwriting and deal-ing, consumer finance, mortgage banking, venture capital,insurance brokerage, and commercial finance.

Wells Fargo, with total consolidated assets of approxi-mately $93.2 billion, is the 11th largest commercial bank-ing organization in the United States. Wells Fargo operatessix subsidiary banks in ten states,6 and engages in a num-ber of permissible nonbanking activities nationwide.

The proposed transaction would create a combined orga-nization that, after accounting for proposed divestitures,would be the seventh largest commercial banking organiza-tion in the United States. On a pro forma basis, the com-bined organization would have total consolidated assets ofapproximately $188.4 billion, and would operate under thename "Wells Fargo & Company" ("New Wells Fargo").

Factors Governing Board Review of Transaction

Under the BHC Act, the Board must consider a number ofspecific factors when reviewing the merger of bank hold-ing companies or the acquisition of banks. These factorsare the competitive effects of the proposal in the relevantgeographic markets; the financial and managerial resourcesand future prospects of the companies and banks involvedin the transaction; the convenience and needs of the com-munity to be served, including the records of performance

section 225.28(b)(l) of Regulation Y (12 C.F.R. 225.28(b)(l)) andprior Board precedent; and Crocker Life Insurance Company, Bris-bane, California, which underwrites optional credit life and disabilityinsurance in connection with extensions of credit by affiliated lendingentities in accordance with section 225.28(b)(ll)(i) of Regulation Y(12 C.F.R. 225.28(b)(ll)(i)).

3. Norwest also has requested the Board's approval to hold andexercise options to acquire up to 19.9 percent of Wells Fargo's votingshares, if certain events occur. The options would not be exercised ifthe merger is consummated.

4. Rankings are based on financial data as of June 30, 1998. andreflect the merger of NationsBank Corporation with BankAmericaCoiporation, approved by the Board on August 17, 1998, the mergerof Bane One Corporation with First Chicago NBD Corporation,approved by the Board on September 14, 1998, and the merger ofCiticorp with Travelers Group, approved by the Board on Septem-ber 23, 1998. All deposit data are as of June 30, 1997.

5. Norwest's subsidiary banks are located in Arizona, Colorado,Illinois, Indiana. Iowa, Minnesota, Montana, Nebraska, Nevada, NewMexico, North Dakota. Ohio, South Dakota, Texas, Wisconsin, andWyoming.

6. Wells Fargo's subsidiary banks operate in Arizona, California,Colorado. Idaho, Nevada, New Mexico, Oregon, Texas, Utah, andWashington.

under the Community Reinvestment Act (12 U.S.C. § 2901et seq.) ("CRA") of the insured depository institutionsinvolved in the transaction; and the availability of informa-tion needed to determine and enforce compliance with theBHC Act.7 In cases involving interstate bank acquisitions,the Board must also consider the concentration of depositsin the nation and certain states and compliance with otherprovisions of the Riegle-Neal Interstate Banking andBranching Efficiency Act of 1994 ("Riegle-Neal Act").8

Public Comment on the Proposal

To give interested members of the public an opportunity tosubmit comments to the Board on the statutory factors thatit is charged with reviewing, the Board published notice ofthe proposal and provided a period of time for publiccomment.9 The Board extended the initial period for publiccomment by 27 days to accommodate public interest. Theextended public comment period provided interested par-ties more than 56 days to submit written comments on theproposal.

Because of public interest in the proposal—particularlyin Minnesota, where the combined organization wouldremain a significant competitor and where the mergerwould result in the loss of the corporate headquarters ofNorwest—the Board also held a public meeting in Minne-apolis, Minnesota, on September 17, 1998. The publicmeeting gave interested persons an opportunity to presentoral testimony on the various factors the Board is chargedwith reviewing under the BHC Act. Sixty people appearedand testified at the public meeting, and many of the com-menters who testified also submitted written comments.

In total, approximately 150 organizations and individu-als submitted comments on the proposal through oral testi-mony, written comments, or both. Commenters includedfederal, state, and local government officials; communitygroups and nonprofit organizations; small business owners;union representatives and members; customers of Norwestand Wells Fargo; and other interested organizations andindividuals from Arizona, California, Iowa, Minnesota,New Mexico, Oregon, South Dakota, Texas, Wisconsin,and other states. Commenters filed information andexpressed views supporting and opposing the merger.

In evaluating the statutory factors under the BHC Act,the Board carefully considered the information and viewspresented by all commenters, including the testimony pre-sented at the public meeting and the information submittedin writing. The Board also considered all the informationpresented in the application, notices, and supplemental

7. In cases involving a foreign bank, the Board also must considerwhether the foreign bank is subject to comprehensive supervision orregulation on a consolidated basis by appropriate authorities in theforeign bank's home country.

8. Pub. L. No. 103-328, 108 Stat. 2338 (1994).9. Notice of the proposal was published in the Federal Register

(63 Federal Register 39,570 (1998)) and in local newspapers inaccordance with the Board's Rules of Procedure. See 12 C.F.R.262.3(b). Notice of the proposal was also listed on the Board'sInternet Home Page.



filings by Norwest and Wells Fargo, as well as variousreports filed by the relevant companies, publicly availableinformation, and other reports. In addition, the Board re-viewed confidential supervisory information, including ex-amination reports on the bank holding companies and thedepository institutions involved, and information providedby the other federal banking agencies and the Departmentof Justice ("DOJ"). After a careful review of all the factsof record, and for the reasons discussed in this order, theBoard has concluded that the statutory factors it is requiredto consider under the BHC Act and other relevant bankingstatutes are consistent with approval of the proposal, sub-ject to the conditions noted in this order.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approvean application by a bank holding company to acquirecontrol of a bank located in a state other than the homestate of the bank holding company if certain conditions aremet. For purposes of the BHC Act, the home state ofNorwest is Minnesota,10 and Wells Fargo's subsidiarybanks are located in California and other states."

Section 3(d) of the BHC Act provides that the Boardmay not approve a proposal if, after consummation, theapplicant would control more than 10 percent of the totaldeposits of insured depository institutions in the UnitedStates.12 In addition, the Board may not approve a proposalif, on consummation of the proposal, the applicant wouldcontrol 30 percent or more of the total deposits of insureddepository institutions in any state in which both the appli-cant and the organization to be acquired operate an insureddepository institution, or such higher or lower percentageestablished by state law.13

On consummation of the proposal, New Wells Fargowould control approximately 3.6 percent of the totalamount of deposits of insured depository institutions in theUnited States. New Wells Fargo would control less than30 percent or the appropriate percentage established byapplicable state law of total deposits held by insured depos-itory institutions in Arizona, Colorado, Nevada, New Mex-ico, and Texas, the states in which Norwest and WellsFargo both operate an insured depository institution.14

10. A bank holding company's home state is that state in which theoperations of the bank holding company's banking subsidiaries wereprincipally conducted on July 1, 1966, or the date on which thecompany became a bank holding company, whichever is later.

11. For purposes of the Riegle-Neal Act, the Board considers a bankto be located in the states in which the bank is chartered, headquar-tered, or operates a branch.

12. 12 U.S.C. § 1842(d)(2)(A). For this purpose, insured depositoryinstitutions include all insured banks, savings banks, and savingsassociations.

13. 12 U.S.C. § 1842(d)(2)(B)-(D).14. Nevada law does not impose a limitation on deposit concentra-

tion in the state. As a consequence of the proposed merger, New WellsFargo would control more than 30 percent of the total deposits inNevada. The applicant has committed to divest an amount of depositssufficient to comply with the 30 percent limitation imposed by federallaw. The combined company would comply with the deposit limita-

All other requirements of section 3(d) of the BHC Actalso would be met after consummation of the proposal.15 Inview of all the facts of record, the Board is permitted undersection 3(d) of the BHC Act to approve the proposal.

Competitive Factor

Section 3 of the BHC Act prohibits the Board from approv-ing a proposal that would result in a monopoly, or thatwould substantially lessen competition in any relevantbanking market if the anticompetitive effects of the pro-posal are not clearly outweighed in the public interest bythe probable eifect of the proposal in meeting the conve-nience and needs of the community to be served.16 TheBoard has carefully considered the competitive effects ofthe proposal in light of the facts of record, including publiccomments on the proposal.

A number of commenters expressed concern that theproposed merger would have adverse competitive effects.Many of these commenters expressed concern that largebank mergers in general, or this proposed merger in partic-ular, would reduce competition for banking services andresult in higher fees or reduced customer convenience. Inaddition, a number of commenters claimed that the pro-posed merger of Norwest and Wells Fargo would havesignificantly adverse effects on competition in Arizona andNevada where Norwest and Wells Fargo both compete.17

In order to determine the effect of a particular transactionon competition, it is necessary to designate the area ofeffective competition between the parties, which the courtshave held is decided by reference to the relevant "line ofcommerce" or product market and a geographic market.The Board and the courts have consistently recognized thatthe appropriate product market for analyzing the competi-tive effects of bank mergers and acquisitions is the clusterof products (various kinds of credit) and services (such aschecking accounts and trust administration) offered by

tions imposed by state law in the other states. See Ariz. Rev. Stat.§ 6-328; Colo. Rev. Stat. § 11-6.4-103; N.M. Stat. Ann. § 58-1C-5;and Tex. Fin. Code § 38.002.

15. Norwest is adequately capitalized and adequately managed asdefined by applicable law. 12 U.S.C. § 1842(d)(l)(A). Wells Fargo'ssubsidiary banks have been in existence and have been continuouslyoperated for the period of time required by applicable state laws.See 12 U.S.C. § 1842(d)(l)(B). Wells Fargo has subsidiary banks thathave been in existence for less than five years in California andArizona, but those states do not impose state age requirements appli-cable to the proposed transaction.

16. 12 U.S.C. §1842(c)(l).17. Several commenters argued that branch divestitures would be

required in connection with this merger and objected that portions ofthe divestiture proposal were not disclosed and subject to publiccomment. Release of this information is subject to the Freedom ofInformation Act and the Board's Rules Regarding Availability ofInformation. 12 C.F.R. Part 261, and, in fact, the Board has consideredthe objections under these procedures.



banking institutions.18 The Board and the courts have con-sistently found that the geographic markets for analyzingthe competitive effects of a proposal on the supply anddemand of the cluster of banking products and services arelocal in nature.19

The Board concludes, based on all the facts of record,that the appropriate product market for considering thecompetitive effects of this case is the cluster of bankingproducts and services, and that the appropriate geographicmarkets for considering the competitive effects of thisproposal are the 30 local banking markets in the six statesin which the subsidiary banks of Norwest and Wells Fargooperate and compete. The local banking markets are de-fined in Appendix A.20

A. Analysis of Banking Markets

Consummation of the proposal, without divestitures, wouldbe consistent with the Department of Justice Merger Guide-lines ("DOJ Guidelines")21 and prior Board precedent in

18. See Chemical Banking Corporation, 82 Federal Reserve Bulle-tin 230 (1996) ("Chemical"), and the cases and studies cited therein.The Supreme Court has emphasized that it is the cluster of productsand services that, as a matter of trade reality, makes banking a distinctline of commerce. See United States v. Philadelphia National Bank,314 U.S. 321, 357 (1963) ("Philadelphia National"); accord UnitedStates v. Connecticut National Bank, 418 U.S. 656 (1974); UnitedStates v. Phillipsburg National Bank, 399 U.S. 350 (1969) ("Phillips-burg National").

19. See Philadelphia National, 374 U.S. at 357; PhillipsburgNational; First Union Corporation, 84 Federal Reserve Bulletin 489(1998) ("First Union"); Chemical; St. Joseph Valley Bank, 68 Fed-eral Reserve Bulletin 673 (1982) ("St. Joseph"). In determining thegeographic scope of local banking markets, the Board considers anumber of factors, including: population density; worker commutingpatterns (as indicated by census data); shopping patterns; the availabil-ity and geographic reach of various modes of advertising; the presenceof shopping, employment, health care and other necessities; the avail-ability of transportation systems and routes; branch banking patterns;deposit and loan activity; and other indicia of economic integrationand the transmission of competitive forces among depository institu-tions that affect the pricing and availability of banking products andservices. See Crestar Bank, 81 Federal Reserve Bulletin 200, 201 n.5(1995); Pennbancorp, 69 Federal Reserve Bulletin 548 (1983);St. Joseph.

20. As discussed in this order, the Board has considered the pro-jected increase in the concentration of total deposits in depositoryinstitutions in these banking markets ("market deposits" or "marketshare"). Market share data is based on calculations that include thedeposits of thrift institutions at 50 percent. The Board previously hasindicated that thrift institutions have become, or have the potential tobecome, significant competition of commercial banks. See, e.g.. Mid-west Financial Group, 75 Federal Reserve Bulletin 386 (1989);National City Corporation, 70 Federal Reserve Bulletin 743 (1984).Thus, the Board has regularly included thrift deposits in the calcula-tion of market share on a 50-percent weighted basis. See, e.g., FirstHawaiian, Inc., 11 Federal Reserve Bulletin 52 (1991).

21. Under the DOJ Guidelines, 49 Federal Register 26,823(June 29, 1984), a market in which the post-merger Herfindahl-Hirschman Index ("HHI") is less than 1000 is considered to beunconcentrated, and a market in which the post-merger HHI is be-tween 1000 and 1800 is considered to be moderately concentrated.The DOJ has informed the Board that a bank merger or acquisitiongenerally will not be challenged (in the absence of other factorsindicating anticompetitive effects) unless the post-merger HHI is at

13 banking markets. These markets are discussed inAppendix B. In 11 of these markets, consummation of theproposal would increase market concentration, as mea-sured by the HHI, by less than half of the 200-pointthreshold in the DOJ Guidelines.22 Seven of the marketsalso would remain unconcentrated or moderately concen-trated, as measured by the HHI, after consummation of theproposal. In each of these markets a large number ofcompetitors relative to the size of the market would remainafter consummation of the proposal.

Consummation of the proposal would exceed the DOJGuidelines as measured by the HHI in the remaining17 banking markets. To mitigate the anticompetitive effectsof the proposal in these markets, Norwest has committed todivest a total of 26 branches, which account for a total ofapproximately $1.18 billion in deposits.23 After accountingfor the proposed divestitures, consummation of the pro-posal would be consistent with the DOJ Guidelines andprior Board precedent in at least nine of the 17 markets. Inaddition, numerous competitors would remain in most ofthese banking markets after consummation of the proposal,and many of these markets are attractive for entry. Thesebanking markets are discussed in Appendix C.

In the eight remaining banking markets, consummationof the proposal could increase the level of market concen-tration, as measured by the HHI, to levels that exceed theDOJ Guidelines. The Board has conducted a careful reviewof the competitive effects of the proposal in these markets,and considered whether other factors either mitigate thecompetitive effects of the proposal in the market or indicatethat the proposal would have a significantly adverse effecton competition in any of these markets.24

least 1800 and the merger or acquisition increases the HHI by at least200 points. The DOJ has stated that the higher than normal HHIthresholds for screening bank mergers or acquisitions for anticompeti-tive effects implicitly recognize the competitive effect of limited-purpose lenders and other non-depository financial institutions.

22. The HHI for the Bullhead City market would increase192 points on consummation of the proposal to 2010. The HHI for theSouth Lake Tahoe market would increase 204 points on consumma-tion of the proposal, but the market would remain only moderatelyconcentrated, with a post-merger HHI of 1792.

23. With respect to each market in which Norwest has committed todivest offices to mitigate the anticompetitve effects of the proposal,Norwest has committed to execute sales agreements for the proposeddivestitures with a purchaser determined by the Board to be competi-tively suitable prior to consummation of the proposal, and to completethe divestiture within 180 days of consummation. Norwest also hascommitted that, in the event it is unsuccessful in completing anydivestiture within 180 days of consummation, it will transfer theunsold branch(es) to an independent trustee that is acceptable to theBoard and will instruct the trustee to sell the branch(es) promptly toone or more alternative purchasers acceptable to the Board. SeeBankAmerica Corporation, 78 Federal Reserve Bulletin 338 (1992);United New Mexico Financial Corporation, 11 Federal Reserve Bulle-tin 484 (1991).

24. The number and strength of factors necessary to mitigate thecompetitive effects of a proposal depend on the level of concentrationand size of the increase in market concentration. See NationsBankCorporation, 84 Federal Reserve Bulletin 129 (1998) ("NationsBank/Barnett").



Arizona Banking Markets

Casa Grande. Norwest is the third largest of eight deposi-tory institutions in the Casa Grande banking market, andcontrols deposits of $38.1 million, representing 12.3 per-cent of market deposits. Wells Fargo is the sixth largestdepository institution in the market, controlling $28.6 mil-lion in deposits, representing 9.2 percent of market depos-its. On consummation of the proposal, New Wells Fargowould be the second largest depository institution in themarket, controlling 21.5 percent of market deposits, andthe HHI would increase by less than 228 points to a levelthat would not exceed a post-merger HHI of 2101.

Seven depository institutions would remain in the bank-ing market after consummation of the proposal. Moreover,several large multistate banking organizations, other thanNew Wells Fargo, would compete in this market, includingone organization that would remain the largest depositoryinstitution in the market with 33.2 percent of market depos-its, and another organization that would control 12.2 per-cent of market deposits. After the proposed merger, fourdepository institutions in the market other than New WellsFargo would control market shares of 10 percent or more.

In addition, the Casa Grande banking market has charac-teristics that make it attractive for entry. The market is inPinal County, which is an area of population and economicgrowth approximately 40 miles south of Phoenix and60 miles north of Tucson. Since 1990, the market's popula-tion has increased 26 percent, including a 15-percent in-crease in population in the town of Casa Grande. Employ-ment in the market has increased by 16 percent since 1990,compared with a national rate of increase of 14 percent inemployment during the same period. Recent entries bydepository institutions also appear to confirm that the CasaGrande banking market is attractive for entry. One bankentered the market de novo in 1996. and the second largestdepository institution in the market entered in 1997 byacquiring two branches from the largest competitor in themarket.

Phoenix. Wells Fargo is the third largest of 36 depositoryinstitutions in the Phoenix banking market, and controlsdeposits of $3 billion, representing 12.5 percent of marketdeposits. Norwest is the fourth largest depository institu-tion in the market, controlling $2.5 billion in deposits,representing 10.8 percent of market deposits. Norwest pro-poses to divest eight branches in this market, with$256.8 million in deposits (representing 1.1 percent ofmarket deposits), to an out-of-market commercial bankingorganization or to an in-market commercial banking orga-nization that currently controls 2.1 percent or less of mar-ket deposits. After the proposed merger and divestiture,New Wells Fargo would be the third largest depositoryinstitution in the market, controlling 22.2 percent of marketdeposits, and the HHI would increase by less than227 points to a level that would not exceed a post-mergerHHI of 2511.

At least 35 depository institutions would remain in themarket after consummation of the proposal. Nine largemultistate banking organizations, other than New Wells

Fargo, would compete in this market, including one organi-zation that would remain the largest depository institutionin the market, with 33.3 percent of market deposits, andanother organization that would be the second largest with29.8 percent of market deposits. The proposed divestitureof 1.1 percent of market deposits to a new entrant or asmaller competitor would either add a new competitor orwould enhance the competitive presence of a smaller com-petitor.

In addition, the Phoenix banking market has characteris-tics that make it attractive for entry. Phoenix is the sixthlargest city in the country by population and has had thefifth largest increase in population of major Americancities during the last decade. Maricopa County, the countycontaining the Phoenix market, is the fastest growingcounty in the United States. The Phoenix unemploymentrate in May 1998 was 2.5 percent, which is less than thestate and national rates of 4.1 percent and 4.3 percent,respectively. In general, unemployment in the Phoenix areaover the last decade has been low and the increase in therate of employment has been high. The increase in the rateof employment from 1990 to 1997 was 24 percent, whichis higher than the national rate of 14 percent. Recent entriesby depository institutions appear to confirm that the Phoe-nix banking market is attractive for entry by depositoryinstitutions. Since 1995, nine depository institutions haveentered the market de novo.

Prescott. Wells Fargo is the third largest of 12 depositoryinstitutions in the Prescott banking market, and controlsdeposits of $111.6 million, representing 13.5 percent ofmarket deposits. Norwest is the fourth largest depositoryinstitution in the market, controlling $100.2 million inmarket deposits, representing 12.1 percent of marketdeposits. On consummation of the proposal, New WellsFargo would be the second largest depository institution inthe market, controlling 25.5 percent of market deposits,and the HHI would increase by less than 326 points to alevel that does not exceed a post-merger HHI of 1890.

Eleven depository institutions would remain in the bank-ing market after consummation of the proposal. Moreover,several large multistate banking organizations, other thanNew Wells Fargo, would compete in this market, includingone organization that would remain the largest depositoryinstitution in the market with 25.8 percent of market depos-its, and another organization that would rank third with19.9 percent of market deposits. After the proposed merger,three competitors other than New Wells Fargo would con-trol market shares 10 percent or more.

In addition, the Prescott banking market has characteris-tics that make it attractive for entry. The population of themarket increased by 48 percent from 1990 to 1997, makingthe Prescott area one of the fastest-growing regions bypopulation in Arizona. Increase in employment in thePrescott market since 1990 has been approximately40 percent, significantly higher than the national rate of14 percent. Recent entries by depository institutions alsoappear to confirm that the Prescott banking market isattractive for entry by depository institutions. One firmentered the Prescott banking market de novo in 1996. Two



other firms entered the market by acquisition in 1997 and1998, respectively.

Sierra Vista. Wells Fargo is the third largest of sevendepository institutions in the Sierra Vista banking market,and controls $72.7 million of market deposits, representing16.1 percent of market deposits. Norwest is the fourthlargest depository institution in the market, controlling$61 million in market deposits, representing 13.5 percentof market deposits. Norwest proposes to divest one branchin this market, with $43.1 million in deposits (representingapproximately 9.6 percent of market deposits), to an out-of-market commercial banking organization or an in-marketcommercial banking organization that currently controls8.9 percent or less of market deposits. After the proposedmerger and divestiture, New Wells Fargo would be thethird largest depository institution in the market, control-ling 20.1 percent of market deposits, and the HHI wouldincrease by less than 222 points to a level that does notexceed a post-merger HHI of 2428.

At least six depository institutions would remain in themarket after consummation of the proposal. Three largemultistate banking organizations, other than New WellsFargo, would compete in this market, including one organi-zation that would remain the largest depository institutionin the market with 29.7 percent of market deposits, anotherorganization that would remain the second largest deposi-tory institution in the market with 28.2 percent of marketdeposits, and another organization with 8.9 percent ofmarket deposits. Norwest has committed to divest onebranch controlling 9.6 percent of market deposits to anout-of-market firm or to a small in-market competitor. Theproposed divestiture of 9.6 percent of market deposits to anew entrant or a smaller competitor would either add a newcompetitor or would enhance the competitive presence of asmaller competitor.

In addition, the Sierra Vista banking market has charac-teristics that make it attractive for entry. The population ofthe market increased by 17.1 percent from 1990 to 1997. Inthe past two years, two depository institutions have enteredthe market de novo.

Tucson. Wells Fargo is the third largest of thirteen depos-itory institutions in the Tucson banking market, and con-trols deposits of $762.5 million, representing 13.9 percentof market deposits. Norwest is the fifth largest depositoryinstitution in the market, controlling $478.3 million indeposits, representing 8.7 percent of market deposits. Onconsummation of the proposal, New Wells Fargo would bethe second largest depository institution in the market,controlling 22.6 percent of market deposits, and the HHIwould increase by less than 244 points to a level that doesnot exceed a post-merger HHI of 2007.

Twelve depository institutions would remain in the bank-ing market after consummation of the proposal. Moreover,several large multistate banking organizations, other thanNew Wells Fargo, would compete in this market, includingone organization that would remain the largest depositoryinstitution in the market with 29.5 percent of market depos-its, and another organization that would be the third largestdepository institution in the market with 21.7 percent of

market deposits. After the proposed merger, three deposi-tory institutions other than New Wells Fargo would controlmarket shares of 10 percent or more and two depositoryinstitutions other than New Wells Fargo would controlmarket shares of 20 percent or more.

In addition, the Tucson banking market has characteris-tics that make it attractive for entry. Tucson is the secondlargest market in Arizona by population, and its populationhas increased 13 percent since 1990. Population in thesurrounding parts of Pima County have increased 18 per-cent during the same period. In May 1998, the unemploy-ment rate in the Tucson area was 2.5 percent, lower thanthe national average of 4.3 percent. Two depository institu-tions entered the market de novo since 1994, and four moredepository institutions entered by acquisition. Also, an-other group has applied to the Arizona Banking Depart-ment for permission to organize a de novo bank in theTucson banking market.

Nevada Banking Markets

Carson City. Norwest is the third largest of 11 depositoryinstitutions in the Carson City banking market, and con-trols deposits of $160 million, representing 18.8 percent ofmarket deposits. Wells Fargo is the largest depositoryinstitution in the market, controlling deposits of $204 mil-lion, representing 24 percent of market deposits. Norwestproposes to divest one branch in this market, with depositsof approximately $104.9 million (representing more than12 percent of market deposits), to an out-of-market com-mercial banking organization or to an in-market commer-cial banking organization that currently controls 3.9 per-cent or less of market deposits. After the proposed mergerand divestiture, New Wells Fargo would be the largestdepository institution in the market, controlling 30.5 per-cent of market deposits, and the HHI would increase byless than 247 points to a level that does not exceed apost-merger HHI of 1886.

At least ten depository institutions would remain in themarket after consummation of the proposal. Three largemultistate banking organizations, other than New WellsFargo, would compete in the market, including one organi-zation that would remain the second largest depositoryinstitution in the market with 21.9 percent of market depos-its, and another organization with 10.1 percent of marketdeposits. The proposed divestiture of 12.3 percent of mar-ket deposits to a new entrant or a smaller competitor wouldeither add a new competitor or would enhance the compet-itive presence of a smaller competitor.

In addition, the Carson City banking market has charac-teristics that make it attractive for entry. From 1990 to1996, the population of Carson City increased by 14 per-cent, approximately twice the rate of increase in populationnationally during that period.

Las Vegas. Wells Fargo is the second largest of20 depository institutions in the Las Vegas banking market,and controls deposits of $1.53 billion, representing15 percent of market deposits. Norwest is the third largestdepository institution in the market, controlling $1.51 bil-



lion in deposits, representing 14.8 percent of market depos-its. Norwest proposes to divest five branches in this mar-ket, with $268.7 million in deposits, to an out-of-marketcommercial banking organization or to an in-market com-mercial banking organization that currently controls7.1 percent or less of market deposits. After the proposedmerger and divestiture, New Wells Fargo would be thesecond largest depository institution in the market, control-ling 27.2 percent of market deposits, and HHI wouldincrease by less than 341 points to a level that would notexceed a post-merger HHI of 1978.

At least 19 depository institutions would remain in themarket after consummation of the proposal. Several largemultistate banking organizations, other than New WellsFargo, would compete in this market, including one organi-zation that would remain the largest depository institutionin the market with 31.4 percent of market deposits, andanother organization with a 8.8 percent of market deposits.After the proposed merger and divestiture, at least fourcompetitors in the market other than New Wells Fargowould control market shares of 5 percent or more. Theproposed divestiture of 2.6 percent of market deposits to anew entrant or a smaller competitor would either add a newcompetitor or would enhance the competitive presence of asmaller competitor.

In addition, the Las Vegas banking market has character-istics that make it attractive for entry. According to the U.SBureau of the Census, the population of Las Vegas in-creased 46 percent from 1990 to 1996. Over the lastdecade, the Las Vegas unemployment rate has been consis-tently low compared with the national rate. Seven of the20 depository institutions in the market entered de novosince 1994. Two depository institutions have entered byacquisition in the past five years, and one existing deposi-tory institution has expanded in the market by openingseven new branches since 1994. Three additional groupshave applications to organize de novo banks pending be-fore the state banking authority.

Reno. Wells Fargo is the second largest of ten depositoryinstitutions in the Reno banking market, and controls de-posits of $566.7 billion, representing 20.1 percent of mar-ket deposits. Norwest is the third largest depository institu-tion in the market, controlling $536.8 million in deposits,representing 19.1 percent of market deposits. Norwest pro-poses to divest two branches in this market, with$208.4 million in deposits (representing 7.4 percent ofmarket deposits), to an out-of-market banking organizationor to an in-market banking organization that currentlycontrols 3.8 percent or less of market deposits. After theproposed merger and divestiture, New Wells Fargo wouldbe the largest firm in the market, controlling 31.8 percentof market deposits, and the HHI would increase by lessthan 353 points to a level that would not exceed a post-merger HHI of 2001.

At least nine depository institutions would remain in themarket after consummation of the proposal. Three largemultistate banking organizations, other than New WellsFargo, would compete in this market, including one organi-zation that would become the second largest depository

institution in the market with 20.6 percent of market depos-its, and another organization that would become the thirdlargest depository institution in the market with 17.4 per-cent of market deposits. After the proposed merger anddivestiture, at least three competitors in the market otherthan New Wells Fargo would control market shares of10 percent or greater. The proposed divestiture of7.4 percent of market deposits to a new entrant or a smallercompetitor would either add a new competitor or wouldenhance the competitive presence of a smaller competitor.

In addition, the market has characteristics that make itattractive to entry. According to the U.S. Bureau of theCensus, Reno's population increased 16.2 percent from1990 to 1996. The unemployment rate for Reno in May1998 was 4.1 percent, slightly lower than the national rateof 4.3 percent. Over the past three years, the Reno unem-ployment rate has been consistently low relative to thenational rate. Per capita income in the Reno-Sparks MSAin 1995 was $27,866, slightly above the average of $24,361for Nevada and the national average of $22,788. Two largebanks have entered the market by acquisition since 1992(including the fourth-ranked depository institution), andone de novo bank is in the process of formation in themarket.

B. View of Other Agencies and Conclusion

DOJ has conducted a detailed review of the proposal andadvised the Board that, in light of the proposed divesti-tures, consummation of the proposal would not likely havea significantly adverse effect on competition in any rele-vant banking market. The Office of the Comptroller of theCurrency ("OCC") and the Federal Deposit InsuranceCorporation ("FDIC") also have been afforded an opportu-nity to comment and have not objected to consummation ofthe proposal.

As discussed in this order, the Board has considered thecompetitive effects of the transaction in light of a numberof factors that measure or affect the likely competitiveeffects of the proposal in each relevant banking market.These factors include the relative market share that wouldbe controlled by New Wells Fargo in each relevant bankingmarket; the level of market concentration and change inconcentration that would result from this transaction; thenumber, size and relative resources of competitors remain-ing in each market; and the structure, characteristics andattractiveness of each market. The Board also has carefullyweighed the divestitures proposed by Norwest to addressthe potential competitive effects on various markets.

After carefully reviewing these and all the other facts ofrecord, including public comments on the competitive ef-fects of the proposal, and for the reasons discussed in thisorder and appendices, the Board concludes that consumma-tion of the proposal would not be likely to result in asignificantly adverse effect on competition or on the con-centration of banking resources in any of the 30 bankingmarkets in which Norwest and Wells Fargo both compete



or in any other relevant banking market.25 Accordingly,based on all the facts of record and subject to completionof the proposed divestitures, the Board has determined thatcompetitive factors are consistent with approval of theproposal.26

Financial, Managerial, and Other Supervisory Factors

The Board has carefully considered the financial and man-agerial resources and future prospects of Norwest, WellsFargo, and their respective subsidiary banks, and othersupervisory factors in light of all the facts of record. Inconsidering the financial and managerial factors, the Boardhas reviewed relevant reports of examination and otherinformation prepared by the supervising Reserve Banksand other federal financial supervisory agencies. The Boardalso has reviewed information on the programs that Nor-west and Wells Fargo have implemented to prepare theirsystems for the Year 2000, including confidential examina-tion and supervisory information assessing the efforts ofthe two banking organizations to ensure Year 2000 readi-ness, both before and after the proposed transaction.

In evaluating financial factors in expansion proposals bybank holding companies, the Board consistently has con-sidered capital adequacy to be an especially important

25. One commenter expressed concern about the method by whichthe Board determines the appropriate levels of divestitures and theBoard's use of mitigating factors. The commenter presented an alter-native approach to assess the competitive effects of the merger pro-posal, which the commenter has presented to the Board in othermerger proposals. For the reasons previously stated by the Board, theBoard concludes that its current approach provides a more completeeconomic analysis of the competitive effects in a local banking marketthan the approach suggested by the commenter. See NationsBankCorporation, 84 Federal Reserve Bulletin 129 (1998).

26. One commenter expressed concern that financial institutionsthat operate very large numbers of automated teller machines (ATMs)may decide to handle their own ATM transaction processing func-tions, rather than relying on an ATM network or third parties for suchprocessing, and that financial institutions that engage in significantlevels of credit card lending may seek to establish a separate brandidentity for the credit cards that they issue. Commenter has presentedno evidence to demonstrate that, if such actions were to occur, theywould significantly reduce competition in any relevant market orresult in a violation of antitrust laws, and the Board notes that theevents discussed by the commenter could, in fact, increase competi-tion for ATM transaction processing or credit card lending by creatinga new competitor for such services.

Commenter also expressed concern that combinations of largebanking organizations that are significant members of separate re-gional ATM networks may lead to the merger of the ATM networksand, thereby, result in a reduction in competition for ATM networkservices. Under section 4 of the BHC Act, a bank holding company isrequired to obtain the Board's approval before acquiring more than5 percent of the voting shares of any company engaged in activitiesthat are closely related to banking, including a company formed by themerger of two or more ATM networks. In the event that a merger ofregional ATM networks controlled by bank holding companies isproposed at some time in the future, the Board would have theopportunity to address the issues raised by the commenter in thecontext of the specific facts presented at that time.

factor.27 The Board notes that Norwest and Wells Fargo arewell capitalized and New Wells Fargo would be wellcapitalized on a pro forma basis after consummation of theproposal. The Board has considered that the proposedmerger is structured as a stock-for-stock transaction andwould not increase the debt service requirements of thecombined company.

The Board also has considered the managerial resourcesof the entities involved and the proposed combined organi-zations. Norwest, Wells Fargo, and their subsidiary deposi-tory institutions currently are well managed, with appropri-ate risk management processes in place. Seniormanagement of New Wells Fargo would draw from thesenior executives of Norwest and Wells Fargo, based onthe individual management strengths of each company.Senior executives of the two companies also would form atransition team to manage and plan the integration of thebank holding companies. Norwest and Wells Fargo haveexperience with merger transactions and have indicatedthat they are devoting significant resources to address allaspects of the merger process.

In addition, the Board has considered other aspects ofthe financial condition and managerial resources of the twoorganizations, including the Board's extensive supervisoryexperience with Norwest and Wells Fargo, plans forintegration of the two companies, plans for achievingYear 2000 readiness, and records of compliance with rele-vant banking laws. Based on all the facts of record, includ-ing careful review of the comments received, the Boardconcludes that considerations relating to the financial andmanagerial resources and future prospects of Norwest,Wells Fargo, and their respective subsidiaries are consis-tent with approval of the proposal, as are the other supervi-sory factors that the Board must consider under section3 of the BHC Act.

Convenience and Needs Considerations

In acting on the proposal, the Board also must consider theconvenience and needs of the communities to be servedand take into account the records of the relevant depositoryinstitutions under the CRA. The CRA requires the federalfinancial supervisory agencies to encourage financial insti-tutions to help meet the credit needs of local communitiesin which they operate, consistent with their safe and soundoperation, and requires the appropriate federal supervisoryauthority to take into account an institution's record ofmeeting the credit needs of its entire community, includinglow- and moderate-income ("LMI") neighborhoods, inevaluating bank expansion proposals. The Board has care-fully considered the convenience and needs factor and theCRA performance records of the subsidiary depositoryinstitutions of Norwest and Wells Fargo in light of all the

27. See, e.g., Bane One Corporation, 84 Federal Reserve Bulletin961 (1998); NationsBank Corporation, 84 Federal Reserve Bulletin858 (1998).



facts of record, including public comments on the pro-posal.

A. Summary of Public Comments Regarding theConvenience and Needs Factor

The Board provided an extended public comment periodand convened a public meeting in Minneapolis to aid in thecollection of information on the aspects of the proposedmerger that the Board is required to consider under theBHC Act and other relevant statutes. As noted above,approximately 150 interested persons submitted writtencomments, testified at the public meeting, or both, on allaspects of the proposal and, in particular, the effect of theproposal on the convenience and needs of the affectedcommunities and the CRA performance records of thedepository institutions involved.

Approximately 70 commenters either expressed supportfor the proposal or commented favorably on the CRA-related activities of Norwest and Wells Fargo.28 Two com-menters who supported the proposal were communitygroups that have opposed other mergers of banking organi-zations in the past, and a number of others were formerFirst Interstate Bancorp customers who had been particu-larly impressed by Wells Fargo's performance after itacquired First Interstate.

Commenters in support of the merger commended Nor-west, Wells Fargo, or both for providing home mortgageproducts, offering financial and technical assistance forsmall and rural businesses, sponsoring and supporting com-munity development activities and affordable housing initi-atives, and participating in programs designed to assistLMI and minority individuals and communities with pre-dominantly LMI and minority residents ("LMI and minor-ity communities"). The commenters also praised Norwestand Wells Fargo for the service and expertise bank officersand staff provide to community groups as volunteers, coun-selors, and board members.

28. The commenters included:(1) The Commissioner of the City of Portland, Oregon, and a

representative from the Navajo Nation Council, WindowRock, Arizona;

(2) A number of community groups, including the GreenliningInstitute, San Francisco, California; the Hmong AmericanPolitical Association and the Hmong American Community,both of Fresno, California; the Twin Cities NeighborhoodHousing Services, the Minnesota Housing Partnership, and theDevelopment Corporation for Children, all of Minneapolis,Minnesota; the Oregon Corporation for Affordable Housing,Portland, Oregon;

(3) A number of small businesses and groups that support busi-nesses, including the Metropolitan Economic DevelopmentAssociation, Minneapolis, Minnesota; the Latin Business As-sociation and the Black Business Association of SouthernCalifornia, both of Los Angeles, California; the Greater Phoe-nix Urban League, Phoenix, Arizona; and the Black StateEmployees Association of Texas, Dallas, Texas; and

(4) Representatives of other community, civic, and nonprofit orga-nizations based in Minnesota, California, Wisconsin, Arizona,Texas, and other states.

Many community-based groups and nonprofit organiza-tions commended one or both banking organizations fortheir mortgage lending efforts in LMI and minority com-munities, or for their participation in other programs andprojects designed to increase affordable housing opportuni-ties. Several groups praised the efforts of Norwest andWells Fargo to meet the needs of specific underservedsegments of the population and to participate in particu-larly innovative projects. Other commenters praised therecords of Norwest and Wells Fargo in fulfilling theircommitments to communities, and some expressed ap-proval of recent commitments made in California and NewMexico.

Small business owners and groups supporting small busi-nesses reported favorably on the small business and agri-cultural lending of one or both banking organizations.Some commenters particularly emphasized the support thatWells Fargo had provided to businesses owned by womenor minorities. Several commenters who generally sup-ported the merger encouraged the merging organizations tomake additional CRA commitments and to continue theircurrent patterns of local lending and community support.

Approximately 80 commenters opposed the proposedmerger.29 These commenters either expressed general con-cerns about the effects of large merger proposals on theconvenience and needs of the communities to be served orexpressed specific concerns about the performance recordsof Norwest and Wells Fargo.

A number of commenters opposed to the merger con-tended that Norwest and Wells have inadequate records ofperformance under the CRA, particularly with respect toserving the banking and credit needs of LMI and minorityindividuals and communities. Some commenters expressedconcern that Norwest inappropriately refers loan applicantsrejected by its subsidiary banks to its nonbank financecompanies, which generally charge higher rates of interest.

Commenters opposing the merger also expressed con-cern about either Norwest's or Wells Fargo's denial ratesand origination rates for loans to LMI and minority individ-uals. Other commenters criticized the amount and scope ofrural and agricultural lending by Norwest or Wells Fargo,

29. The commenters included:(1) Several members of the U.S. Senate and the U.S. House of

Representatives;(2) State and local government officials, including the Minnesota

Attorney General and a Minnesota State Representative;(3) Various community-based groups and nonprofit organiza-

tions, including representatives from the national and Minne-sota offices of the Association of Community Organizationsfor Reform Now ("ACORN"); Inner City Press/Communityon the Move, Bronx, New York: the Wisconsin Rural Devel-opment Center, Mt. Horeb, Wisconsin; Citizens for Commu-nity Improvement of Des Moines and Iowa Citizens for Com-munity Improvement, both of Des Moines, Iowa;

(4) Union members, including individuals from the United Steel-workers of America, Local Union 2101 and Local Union3267;and

(5) Individual bank customers describing their negative experi-ences with the organizations.



particularly Norwest's record of lending in rural LMIareas.

Several commenters alleged that Norwest and WellsFargo had generally poor consumer service records. Somecommenters expressed concern that post-merger branchclosures could negatively affect LMI communities andindividuals. Many commenters expressed concern aboutthe fees charged for various services by Norwest and WellsFargo and about the decline in no-cost checking accountsoffered by their subsidiary banks. Some commentersargued that such banking fees disproportionately affectedpersons likely to be on a fixed income, such as seniorcitizens, students, and individuals with disabilities. Otherindividuals claimed that Wells Fargo used high-technologybanking services, such as ATMs and Internet banking, toreplace rather than enhance traditional banking services tothe detriment of LMI and minority consumers.

Many commenters from the Minneapolis area were con-cerned about the effect of relocating Norwest's headquar-ters from Minneapolis to San Francisco after the merger.These commenters feared a decrease in the combined com-pany's involvement in Minnesota, particularly theMinneapolis-St. Paul area, and job losses. Some comment-ers were concerned that the merger would result in loss oflocal control over lending decisions.

B. Overview of CRA Policies of New Wells Fargo

In its consideration of the convenience and needs of thecommunities to be served by New Wells Fargo, the Boardhas reviewed in detail the CRA performance records ofNorwest and Wells Fargo, including their mortgage andsmall business lending records, community developmentand investment programs, and their initiatives to increaselending in LMI areas in states served by their subsidiarydepository institutions.30 The Board has carefully reviewedthe examinations conducted by the appropriate federalbanking agencies under the Community Reinvestment Actof 1977 of the performance records of the insured deposi-tory institutions involved in this case. In addition, theBoard has reviewed substantial data regarding the lendingand other activities of these institutions since the conclu-sion of these examinations.

The Board also has considered the record and ability ofthe organizations to adapt programs to special local creditneeds. In addition, the Board has considered the record ofNorwest and Wells Fargo in implementing CRA programsand policies effectively after an expansion proposal, as wellas the current plans of New Wells Fargo for implementingCRA policies and programs after consummation of theproposal.

Norwest and Wells Fargo have indicated that the CRApolicies and programs of New Wells Fargo would draw onthe CRA policies and programs currently in effect at bothinstitutions. Wells Fargo has stated, for example, that NewWells Fargo would honor all of Wells Fargo's current CRApledges and continue the lending programs of Wells Fargothat focus on lending to LMI and minority individuals andsmall businesses owned by minorities.

Norwest states that the New Wells Fargo's CRA activi-ties would include local initiatives with community organi-zations with established records of community service. Thecombined organization will continue to manage and solicitinput from the community on its CRA activities at a locallevel with some oversight functions conducted centrally soas to most effectively allocate resources. An annual CRAplan will be prepared to direct activities that will havemeasurable goals and quantifiable results at the local level.Meetings with local community organizations will con-tinue at the local level.

Norwest states that the New Wells Fargo will manageand direct CRA activities at the market level by evaluatinglocal needs identified through community contacts andmarket data. Community development lending and invest-ment opportunities will continue to be identified and as-sessed locally. In addition, Norwest states the New WellsFargo will continue to perform analyses of lending, ser-vices, and investments at the market level using demo-graphic and business data to ensure awareness of andprompt attention to local issues.31 Norwest also indicatesthat local CRA programs, such as the portfolio mortgageprogram for LMI home buyers or participation in specificprograms, will continue to be managed at the market orstate level.

C. CRA Performance Examinations

As provided in the CRA, the Board has evaluated theconvenience and needs factor in light of evaluations by theappropriate federal supervisors of the CRA performancerecords of the relevant institutions. An institution's mostrecent CRA performance evaluation is a particularly impor-tant consideration in the applications process because itrepresents a detailed on-site evaluation of the institution'soverall record of performance under the CRA by the appro-priate federal financial supervisory agency.

All Norwest's subsidiary banks that have been examinedfor CRA performance since being acquired by Norwestreceived "outstanding" or "satisfactory" ratings in themost recent examinations of their CRA performance.32 Inparticular, Norwest's lead bank, Norwest Bank Minnesota,

30. Some commenters claimed that evidence suggests that, as ageneral matter, large banks engage in less small business lending,relative to their size and total lending activities, than small banks. TheBoard has considered these comments in light of the specific recordsof lending performance of Norwest and Wells Fargo, including theirrecords of assisting in meeting the credit needs of small businesses.

31. Norwest states that regulatory reporting, including data collec-tion, will be performed centrally as needed to ensure data integrity.

32. Norwest Bank Minnesota Fairbault N.A., Fairbault. Minnesota,is a special purpose bank engaged in cash management activities thatis not subject to CRA. In addition, Norwest Bank North Country N.A.,Brainard, Minnesota, was acquired by Norwest in October 1997, andhas not been examined for CRA performance.



N.A., Minneapolis, Minnesota, received an "outstanding"performance rating from the OCC, as of October 17, 1996.

All Wells Fargo's subsidiary banks that are subject toCRA also received "outstanding" or "satisfactory" ratingsin the most recent examinations of their CRA perfor-mance.33 For example, Wells Fargo Bank, N.A., WellsFargo's lead bank, and Wells Fargo Bank (Texas), N.A.,received "outstanding" ratings from the OCC, as ofMarch 31, 1996. Wells Fargo Bank (Arizona), N.A., re-ceived a "satisfactory" rating from the OCC, as ofMarch 31, 1996.

D. Norwest's CRA Performance Record

Overview. Norwest's banks offer several products that fo-cus on small businesses. In 1996, Norwest's banks re-ported more than 43,100 small business loans totaling$3.8 billion, with an average loan amount of approximately$90,000. During the same period, Norwest's banks mademore than 9,300 small business loans totaling $896.1 mil-lion in LMI census tracts and more than 28,800 smallbusiness loans totaling $1.6 billion to firms with less than$1 million in revenues. In 1997, Norwest's banks reportedapproximately 40,450 small business loans, totaling$3.7 billion, with an average loan amount of approximately$94,000. During the same period, Norwest's banks re-ported more than 8,300 small business loans totaling$836 million in LMI census tracts and more than27,000 small business loans totaling $1.5 billion to firmswith less than $1 million in revenues. In the first fivemonths of 1998, Norwest's banks reported approximately16,000 small business loans totaling $1.6 billion with anaverage loan amount of $101,000. During the same period,Norwest made more than 3,200 small business loans total-ing more than $347 million in LMI census tracts.

In 1996, Norwest's banks made more than 18,700 smallfarm loans totaling more than $952 million, with an aver-age loan amount of approximately $51,000; in 1997, Nor-west's banks made more than 17,800 small farm loanstotaling more than $982 million, with an average loanamount of approximately $55,000; and in the first fivemonths of 1998, Norwest's banks made more than9,200 small farm loans totaling more than $613 million,with an average loan amount of approximately $66,000.

Norwest's banks offer all types of personal credit, includ-ing credit cards and secured and unsecured loans. In 1997,Norwest's banks made more than 131,000 consumer loanstotaling more than $855 million to LMI borrowers and, asof May 31, 1998, made more than 46,000 consumer loanstotaling more than $316 million to LMI borrowers.

With respect to home mortgage lending, in 1996, Nor-west's banks made approximately 14,200 loans reportedunder the Home Mortgage Disclosure Act(12 U.S.C. § 2801 et seq.) ("HMDA"), loans to LMI bor-

33. Wells Fargo Bank, Ltd. and Wells Fargo Central Bank areengaged only in controlled disbursements for business depositors ofaffiliates. They do not make loans and offer no other deposit servicesand, thus, are not subject to CRA.

rowers totaling $327.3 million and more than 7,100 HMDAloans in LMI census tracts totaling $200.5 million. In 1997,Norwest's banks made more than 13,800 HMDA loanstotaling $287.4 million to LMI borrowers and more than6,800 HMDA loans totaling $179.6 million in LMI censustracts. In the first five months of 1998, Norwest's subsid-iary banks made approximately 5,800 HMDA loans total-ing $129.6 million to LMI borrowers, and more than2,900 HMDA loans totaling $79.7 million in LMI censustracts.

Norwest Mortgage, Inc. ("NMI"), a nonbank subsidiaryof Norwest, and Norwest Funding, Inc., a nonbank subsid-iary of Norwest Bank, account for the majority of Nor-west's HMDA lending. In 1996, Norwest's mortgage sub-sidiaries made approximately 109,200 HMDA loanstotaling $8.4 billion to LMI borrowers and approximately48,000 HMDA loans totaling $4.2 billion in LMI censustracts. During the same period, Norwest's mortgage subsid-iaries made more than 83,900 HMDA loans totaling$9.1 billion to minority borrowers. In 1997, the Norwestmortgage subsidiaries made more than 104,000 HMDAloans totaling more than $8.3 billion to LMI borrowers andapproximately 45,000 HMDA loans totaling $4.2 billion inLMI census tracts. During the same period, Norwest'smortgage subsidiaries made approximately 77,700 HMDAloans totaling approximately $9 billion to minority borrow-ers. In the first five months of 1998, Norwest's mortgagesubsidiaries made more than 64,000 HMDA loans totaling$5.4 billion to LMI borrowers and approximately31,000 HMDA loans totaling $3.3 billion in LMI censustracts. During the same period, Norwest's mortgage subsid-iaries made over 38,000 HMDA loans totaling $4.8 billionto minority borrowers.

Lending Record in General. CRA performance examina-tions of Norwest's subsidiary banks conducted by theappropriate federal supervisory agencies generally foundthat each bank, either directly or in conjunction with itsaffiliates, offered a variety of housing-related loan productswith flexible credit terms and underwriting guidelines,including mortgages with low down payment requirementsand mortgages insured or guaranteed by the Federal Hous-ing Authority ("FHA") or the Veterans Administration("VA"). The examinations also found that Norwest's sub-sidiary banks affirmatively solicited loan applications fromall segments of their communities, especially LMI neigh-borhoods, and that the banks' lending activities had effec-tively reached LMI communities and individuals. In addi-tion, examiners determined that the loan originations anddenials of Norwest's subsidiary banks were reasonablydistributed throughout the banks' communities.

The examinations also concluded that Norwest's subsid-iary banks had effectively identified potentially under-served areas in their communities and designated the areasfor priority attention. Examiners noted that Norwest's sub-sidiary banks also maintained an ongoing dialogue withlocal government officials and community groups repre-senting neighborhoods, small businesses and minorities toascertain the credit needs of the local community andparticipated in loan pools and programs with local govern-



ments and community development organizations to pro-mote affordable housing opportunities in local communi-ties.

Examiners concluded that Norwest's subsidiary bankscontinued to help meet the credit needs of small businessesin their communities, including LMI communities. Theexaminers also found that the banks actively participated incommunity development activities in their communitiesand noted that the banks frequently had taken a leadershiprole in corporate or local initiatives designed to promotecommunity development.

Examiners concluded that Norwest's subsidiary banksreasonably served the credit needs of all segments of theircommunities, including LMI communities, through theirbranch structure, ATM networks, and alternative deliverysystems. The examinations reviewed the branch closingpolicies and record of branch closings of Norwest's subsid-iary banks and concluded that each of the banks had a goodrecord of opening, closing, and relocating branch officeswhile providing all segments of its communities, includingLMI areas, with reasonable access to bank services.

Importantly, examiners found no evidence of prohibiteddiscriminatory or other illegal credit practices by Nor-west's subsidiary banks. In reaching this conclusion, exam-iners, in some cases, conducted a comparative analysis ofloan applications submitted by minority and nonminorityapplicants.

CRA Performance in Home State. As noted above, Nor-west's lead bank in Minnesota, Norwest Bank Minnesota,N.A. ("Norwest Bank"), received an "outstanding" ratingfrom the OCC in its most recent CRA performance evalua-tion. Norwest Bank represents approximately 23 percent ofNorwest's consolidated assets.

Examiners commended Norwest Bank for its role inmaking real estate loans, including purchase money mort-gages, refinancings, and home improvement loans during1994 and 1995. In 1995, Norwest Bank, in conjunctionwith NMI, made HMDA loans totaling more than$1 billion. Examiners also stated that Norwest Bank, inconjunction with NMI, was a market leader in originatingHMDA loans to LMI census tracts. Based on 1995 HMDAdata, the examiners found that Norwest Bank and NMI hadmade 23 percent of the total dollar volume of HMDA loansin LMI census tracts. In addition, according to the examin-ers, Norwest Bank/NMI HMDA originations to LMI appli-cants constituted approximately 22 percent by number andby dollar volume of loans made to LMI applicants in 1995.

Norwest reports that, in 1996, Norwest Bank made ap-proximately 10,000 HMDA loans totaling more than$270 million, with approximately 1,100 loans totaling morethan $33 million in LMI census tracts and more than2,500 loans totaling more than $55 million to LMI borrow-ers. Norwest reports that, in 1997, Norwest Bank made atotal of more than 9,500 HMDA loans totaling more than$263 million, with almost 900 loans totaling more than$27 million in LMI census tracts and more than2,300 loans totaling more than $52 million to LMIborrowers.

Examiners also noted that, as of June 30, 1995, Norwest

Bank had $1.3 billion in loans outstanding to small busi-nesses and $5 million in loans outstanding to small farms.By number, 59 percent of the small business and smallfarm loans were originated in amounts of less than$100,000. The examination report states that Norwest Bankwas an active Small Business Administration ("SBA")lender. As a "Preferred Lender," Norwest Bank had beenranked as the top SBA lender in Minnesota for threeconsecutive years. According to the examination report, in1995, Norwest Bank participated in the SBA's 504, 7(a),and "Low Doc" loan programs, with loans in these pro-grams totaling more than $22 million.

Norwest reports that, in 1996, Norwest's banks in Min-nesota made approximately 9,000 small business loanstotaling almost $950 million, with an average loan amountof approximately $105,000. During the same period, Nor-west's banks made almost 1,150 small business loanstotaling almost $105 million in Minnesota LMI censustracts, with an average loan amount of approximately$91,000. During 1996, Norwest's banks in Minnesota alsomade almost 6,000 small business loans totaling approxi-mately $290 million to firms with less than $1 million inrevenues. In 1997, Norwest's banks in Minnesota mademore than 8,000 small business loans totaling more than$850 million, with an average loan amount of approxi-mately $102,000. During the period, Norwest's banks inMinnesota made approximately 1,100 small business loanstotaling more than $108 million in LMI census tracts, withan average loan amount of approximately $97,000. During1997, Norwest's banks in Minnesota made more than5,700 small business loans totaling approximately$280 million to firms with less than $1 million in revenues.

In 1996, Norwest's banks in Minnesota made almost2,800 small farm loans totaling more than $145 million,with an average loan amount of $52,000. In 1997, Norwestmade more than 2,900 small farm loans totaling approxi-mately $165 million in Minnesota, with an average loanamount of $56,000. This represents more than twice asmany small farm loans for more than twice the dollarvolume of any other lender in 1996 and 1997.

Examiners also found that Norwest Bank actively partic-ipated in community development and redevelopment pro-grams, providing leadership, technical expertise and finan-cial support throughout its community. For example, during1994 and 1995, Norwest Bank committed a total of$2 million to the National Equity Fund ("NEF").

Norwest states that it also has implemented several pro-grams to enhance its service to the communities in Minne-sota since its most recent CRA evaluation. These programsinclude affordable mortgage financing provided by NMIthat is funded through the Community Activity Set-AsideProgram ("CASA") sponsored by that Minnesota HousingFinance Agency ("MHFA"). The CASA Program providessellers, cities, and nonprofit housing providers with a set-aside of funds from MHFA mortgage revenue bond toassist in meeting specific, project-oriented needs in com-munities. In addition, Norwest collaborates with ConsumerCredit Counseling Services ("CCCS") to provide financialmanagement seminars throughout the metropolitan com-



munity. CCCS is a nonprofit organization that providescounseling and education to consumers on topics such asdebt repayment, budgeting, and money management. Nor-west reports that, since 1996, 26 seminars have been heldfor LMI individuals. Norwest also reports that NorwestBank Minnesota North, N.A. is a SBA Preferred Lenderand originated 16 SBA loans totaling $1.7 million and sixloans totaling $798,000 in 1996 and 1997, respectively.

Arizona. OCC examiners found that Norwest Bank Ari-zona, N.A. ("Norwest-Arizona") and NMI oifered andoriginated a variety of conventional loan products to meetcommunity credit needs, including housing-related, con-sumer, small business, and small farm loans. In particular,examiners noted that the bank had originated or purchasedfrom NMI a significant number of home purchase loans toLMI individuals and in LMI areas through its CommunityHomeowners Program ("CHOP").34 Since the program'sinception in 1994, through June 30, 1996, Norwest-Arizonaand NMI originated 488 CHOP loans totaling $25 million.The examiners also noted that the Norwest-Arizona andNMI ranked third among HMDA reporting lenders in themarket in 1995, with 7.4 percent of all HMDA origina-tions. Norwest reports that, in 1996, its banks and NMImade 22,429 HMDA loans totaling approximately $2 bil-lion in Arizona, with more than 3,000 loans totaling morethan $206 million in LMI census tracts and more than5,800 loans totaling more than $360 million to LMI bor-rowers. In 1997, Norwest's banks and NMI made morethan 20,100 HMDA loans totaling more than $1.9 billion inArizona, with more than 2,500 loans totaling more than$180 million in LMI census tracts and more than 4,800loans totaling more than $300 million to LMI borrowers.Through May 31, 1998, Norwest's banks and NMI mademore than 12,000 HMDA loans totaling more than$1.3 billion in Arizona, with more than 1,300 loans totalingmore than $96 million in LMI census tracts and more than3,100 loans totaling more than $220 million to LMI bor-rowers.

The CRA performance examinations indicated thatNorwest-Arizona also was actively engaged in consumerlending. According to the examination record, the bankmade more than 19,900 direct and indirect consumer loanstotaling $100 million in 1995, and made more than 11,700direct and indirect consumer loans totaling $75 millionthrough June 30, 1996. Norwest reports that, in 1996, itsbanks made more than 7,500 consumer loans totaling morethan $28 million to LMI borrowers in Arizona.

In addition, examiners noted that the bank was an activelender to small businesses and small farms. The examina-tion report indicated that, as of June 30, 1996, Norwest-Arizona had $183 million in loans outstanding to smallbusinesses and $202 million in loans outstanding to smallfarms, with 66 percent of the small business and small farmloans in amounts less than $100,000. Norwest reports that,

34. Examiners indicated that the CHOP program uses flexibleunderwriting criteria to help LMI borrowers obtain home purchasemortgages.

in 1996, its banks made more than 700 small businessloans in Arizona totaling more than $81 million, with anaverage loan amount of $116,000. During the period, Nor-west's banks made more than 230 small business loanstotaling more than $30 million in Arizona LMI censustracts and more than 420 loans totaling more than$34 million to firms in Arizona with revenues of less than$1 million. In 1997, Norwest's banks made morethan 900 small business loans in Arizona totaling morethan $108 million, with an average loan amount of$115,000. During this period, Norwest's banks made morethan 240 small business loans totaling more than$32 million in Arizona LMI census tracts and more than590 loans totaling more than $47 million to firms in Ari-zona with revenues of less than $1 million. Norwest alsoreports that, in 1997, Norwest's banks made 49 small farmloans totaling more than $6 million in Arizona, with15 small farm loans totaling more than $1.8 million inArizona LMI census tracts.

Examiners noted that Norwest-Arizona frequently partic-ipated in government-related lending programs for smallbusiness and affordable housing. According to the exami-nation report, NMI made a significant amount of home-purchase and refinancing loans under programs sponsoredby the FHA and VA, originating 11.3 percent of such loansmade in Arizona's Metropolitan Statistical Areas("MSAs"). In the Phoenix MSA, Norwest-Arizona/NMIranked first in government-sponsored loan originations,with 11 percent of such loans. Examiners also noted thatthe bank supported SBA loan programs. Specifically,Norwest-Arizona was ranked ninth by the SBA Phoenixdistrict office for the six months ending June 30, 1996, intotal number of loans originated and fifteenth in total dollaramount of loans originated.

Examiners also determined that Norwest Bank Arizona,N.A., in cooperation with NMI, showed a reasonable distri-bution of loans throughout its delineated communities,including LMI areas. In 1995, Norwest-Arizona and NMIoriginated 9 percent of the total number of HMDA loansand 10 percent of the total dollar amount of loans to LMIborrowers in Arizona's MSAs.

Examiners also found that Norwest-Arizona made in-vestments in community development and redevelopmentprograms, such as Norwest's contribution of $1.3 millionto capitalize the Arizona Multibank. The Multibank is anonprofit community development corporation that pro-vides financial and technical assistance to support smallbusinesses, LMI housing, and economic development.

Examiners found no practice intended to discourageapplicants for any type of credit listed in Norwest-Arizona" s CRA Statement and determined that the banksolicited applications from all portions of its communities,including LMI areas. Examiners also determined thatNorwest-Arizona met the substantive provisions of antidis-crimination laws and regulations.

Norwest states that, since the completion of the mostrecent CRA performance evaluation, it has implementedseveral programs to enhance its service to its communitiesin Arizona. Norwest has formed, for example, a partner-



ship with Neighborhood Housing Services of Phoenix andNeighborhood Housing Services of America and makesreduced rate mortgages to LMI families in Phoenix.Norwest-Arizona also serves as the shareholder bank for a$150,000 subsidy under the Federal Home Loan BankAffordable Housing Program which is used to reduce theinterest rates on a borrower's home purchase mortgage to5.5 percent. In addition, Norwest indicates that Norwest-Arizona is investing $1 million in the NEF Limited Partner-ship to support the purchase of Low Income Housing TaxCredits and thereby financially assist affordable multifam-ily housing projects in Arizona.

Colorado. Examiners found that Norwest Bank Colo-rado, N.A. ("Norwest-Colorado") offered and originated avariety of loan products to meet community credit needs,including loans for housing-related, consumer, small busi-ness and small farm loans. Examiners commendedNorwest-Colorado for its participation in Norwest's CHOPmortgage program. From 1991 through August 30, 1996,Norwest-Colorado originated 2,649 CHOP loans totaling$152 million. In addition, examiners noted that, based on1995 HMDA data for all lenders, Norwest-Colorado, inconjunction with NMI, was the market leader in its sixdelineated MSA markets, with a total of 7,885 HMDA loanoriginations in the MSA delineations representing 9 per-cent of all conventional HMDA originations. Norwest re-ports that, in 1996, its banks and NMI made more than26,900 HMDA loans totaling more than $2.5 billion inColorado, with more than 3,800 loans totaling more than$252 million in LMI census tracts and more than 7,500loans totaling more than $492 million to LMI borrowers. In1997, Norwest's banks and NMI made more than 25,000HMDA loans totaling more than $2.6 billion in Colorado,with more than 3,300 loans totaling more than $232 mil-lion in LMI census tracts and more than 6,300 loanstotaling more than $430 million to LMI borrowers.

Examiners also noted that Norwest-Colorado was activein lending to small businesses and small farms. As ofJune 30, 1996, Norwest-Colorado had $626 million inloans outstanding to small businesses and $66 million inloans outstanding to small farms. According to the exami-nation report, 82 percent of these small business and smallfarm loans were originated in amounts less than $100,000.Norwest reports that, in 1996, its banks made more than6,000 small business loans in Colorado totaling more than$470 million, with more than 1,600 loans totaling morethan $137 million in LMI census tracts and more than4,500 loans totaling more than $256 million to firms withrevenues less than $1 million. In addition, Norwest reportsthat, in 1996, its banks made more than 700 small farmloans in Colorado totaling more than $50 million, with90 loans totaling approximately $6 million in LMI censustracts and almost 700 loans totaling more than $47 millionto farms with revenues less than $1 million. Norwestreports that, in 1997, its banks made more than 700 smallfarm loans in Colorado totaling approximately $35 million,with 75 loans totaling approximately $3 million in LMIcensus tracts and more than 600 loans totaling more than$28 million to farms with revenues less than $1 million.

Examiners also noted that Norwest-Colorado activelyparticipates in government-sponsored loan programs. Forexample, examiners commended Norwest-Colorado for itsstrong support for SBA loan programs, noting thatNorwest-Colorado had been designated as a SBA "Pre-ferred Lender" and participated in the SBA's 7A and "LowDoc" loan programs. Examiners also noted that, as of theevaluation period, Norwest-Colorado had been the numberone SBA loan originator in Colorado for four consecutiveyears. As of June 30, 1996, Norwest-Colorado had411 SBA loans in its portfolio totaling $54 million. Ac-cording to the examination report, based on 1995 HMDAdata, Norwest-Colorado, in conjunction with NMI, madegovernment-sponsored loans totaling $230 million in theMSAs in Colorado served by the bank, representing8.78 percent of the total of such loans.

Examiners also noted that Norwest-Colorado activelyengaged in extending credit to LMI consumers and in LMIneighborhoods. In 1994 and 1995, Norwest/NMI origi-nated more HMDA loans in LMI tracts and to LMI borrow-ers than any other lender. In 1995, Norwest originated36 percent of its HMDA loans to LMI applicants and26 percent in LMI census tracts. In 1995, Norwest-Colorado also had retail loans outstanding in 75 percent ofall LMI census tracts in its assessment area. In the first halfof 1996, the bank had retail loans outstanding in 98 percentof its LMI census tracts.

Since the completion of the most recent CRA perfor-mance evaluation, Norwest states that it has implementedseveral programs to enhance service to its communities inColorado. Norwest-Colorado is participating, for example,in Barrio Aztlan Homeownership Program, which providesmortgage lending, down payment assistance, and bilingualprepurchase counseling to low-income families in Den-ver's predominantly Latino neighborhoods. As of July 31,1998, Norwest-Colorado has funded 18 loans totaling$1.4 million through this program. In addition, Norwestreports that in the City of Grand Junction, Norwest-Colorado participates in the Self-Help program with theU.S. Department of Agriculture ("USDA"), a pilot pro-gram that leverages government funds for the provision ofsubsidized mortgages to LMI borrowers. Under this pro-gram, the USDA subordinates its subsidized second mort-gage to the bank's first mortgage, which is priced at, orslightly below, market rates. This permits USDA to usemore of the Self-Help funds for additional first mortgages.

Nevada. Examiners concluded that Norwest Bank Ne-vada, N.A. ("Norwest-Nevada") and its predecessor insti-tutions35 had a strong volume of lending over a broad rangeof products, that the majority of its lending was in itsdelineated community, and that a formal structure was inplace for CRA compliance. Examiners noted that the insti-

35. Norwest-Nevada was chartered as a federal thrift when it wasacquired by Norwest in 1996. It was renamed Norwest Bank Nevada,F.S.B. and subsequently was merged with another Norwest federalthrift subsidiary. Norwest converted the thrift subsidiary to a nationalbank in 1997. The most recent CRA evaluation of the institutionoccurred before its conversion to a national bank.


1102 Federal Reserve Bulletin D December 1998

tution was able to offer a broader range of products to assistLM1 customers after its acquisition by Norwest.

Examiners commented favorably on the broad range ofcredit products offered by Norwest-Nevada and its affili-ates, including mortgage loans for the purchase or refi-nance of 1-4 unit and multiunit residential properties.36

Examiners noted that although Norwest-Nevada did notunderwrite and originate FHA and VA housing loans, NMIcontinued to do so. Based on HMDA data, the examinersalso concluded that Norwest-Nevada had a reasonable geo-graphic distribution of loan products throughout its delin-eated community. Norwest reports that, in 1996, its banksand NMI made more than 10,000 HMDA loans totalingmore than $1.1 billion in Nevada, with more than600 loans totaling more than $54 million in LMI censustracts and more than 2,600 loans totaling more than$217 million to LMI borrowers. Norwest reports that, in1997, its banks and NMI made a total of more than6,900 HMDA loans totaling more than $753 million inNevada, with approximately 530 loans totaling more than$46 million in LMI census tracts and almost 1,700 loanstotaling more than $128 million to LMI borrowers.

Examiners commented favorably on the commercialcredit products offered by Norwest-Nevada to businessesand farms. Examiners also noted that the institution was anactive SBA lender. According to the report, the institutionreceived approval to offer loans under a number of SBAprograms, including the SBA's 7A-Capline, "Low Doc",7A, and 504 loans. In addition, the institution participatedin a program to lend to minority and small business ownersin an enterprise zone in Las Vegas under a $750,000 grantfrom the Department of Housing and Urban Development.Norwest reports that, in 1996, its banks made a total ofalmost 250 small business loans totaling more than$25 million in Nevada, with more than 70 loans totalingapproximately $9 million in LMI census tracts and approx-imately 180 loans totaling more than $15 million to firmswith revenues less than $1 million. Norwest reports that, in1997, its banks made a total of more than 330 smallbusiness loans totaling almost $30 million in Nevada, with80 loans totaling more than $9 million in LMI census tractsand more than 250 loans totaling more than $14 million tofirms with revenues of less than $1 million.

In addition, Norwest reports that, in 1996, its banksmade a total of 27 small farm loans totaling more than$1.5 million in Nevada, with 24 loans totaling $1.4 millionin LMI census tracts and 25 loans totaling more than$1.4 million to farms with revenues less than $1 million.Norwest reports that, in 1997, its banks made a total of71 small farm loans totaling approximately $7 million inNevada, with 34 loans totaling more than $3.4 million inLMI census tracts and more than 60 loans totaling morethan $6.7 million to farms with revenues less than$1 million.

36. The report noted that mortgage loans were processed andoriginated by NMI, but that the loans were underwritten and immedi-ately purchased by Norwest-Nevada.

Examiners also concluded that Norwest-Nevada had ahigh level of participation in community development andredevelopment programs, often in a leadership role. Theinstitution maintained two Community Outreach Centers inor adjacent to underserved areas. The centers had a staff ofthree Community Outreach Managers, who were responsi-ble for identifying credit and financial needs in LMI areas,forming partnerships with communities and organizations,and soliciting loans from LMI customers. Examiners notedthat the managers routinely worked with community-basedorganizations and local governments, including the FundUrban Northern Nevada Development, Southern NevadaReinvestment and Accountable Banking Committee, theCity of North Las Vegas, and the City of Sparks, to assistin developing special housing or credit programs. In addi-tion, the managers provided financial education workshopsfor residents in the local communities. Examiners notedthat Norwest-Nevada, in conjunction with Volunteers ofAmerica, had submitted a financing proposal that wasinstrumental in obtaining a $750,000 grant to develop asmall business loan guarantee program for a newly desig-nated Enterprise Zone in the Las Vegas MSA. Norwest-Nevada also cashed social assistance checks for noncus-tomers without charge, waived fees for nonprofitorganizations, and offered a free checking account with nomonthly fee or minimum balance.

Norwest states that, since the most recent CRA perfor-mance evaluation, it has implemented several programs toenhance services to its Nevada communities. Norwest-Nevada has doubled its commitment to lend under theAffordable Loan Program to a total of $20 million per year.Norwest reports that, since 1997, Norwest-Nevada hasallocated portions of the total commitment to various localnonprofit community development organizations that pro-vide down payment assistance, and that for 1998, approxi-mately 90 percent of the total allocation has been reservedfor nonprofit organizations. In addition, in late 1997,Norwest-Nevada established a Community Business Bank-ing Department to specifically address the needs of thesmall business owner with a gross annual revenue of$500,000 to $3 million and credit needs of up to $250,000.Norwest also reports that Norwest-Nevada participates inthe US DA Self-Help program for Nevada communitiesdiscussed above.

New Mexico. Examiners concluded that Norwest's sub-sidiary banks in New Mexico generally met the creditneeds of the communities they served. Examiners notedthat Norwest Bank New Mexico, N.A. ("Norwest-NM"),in conjunction with NMI, originated more conventionalhome purchase loans, refinancings, and home improvementloans in its delineated communities in 1995 than any otherlender, with 10.5 percent of the HMDA loans in the mar-ket. Norwest-NM's volume of HMDA loans increasedfrom $291 million in 1995 to more than $328 million in1996. During 1995 and 1996, 100 percent and 98 percent,respectively, of Norwest-NM's conventional real estate-related loans were made in the bank's delineated communi-ties. Examiners also determined that Norwest-NM reason-ably served LMI areas in its communities. According to the



examination report, in 1996, Norwest-NM made 21 percentof its HMDA loans in LMI census tracts and 31 percent ofits HMDA loans to LMI applicants. Norwest reports that,in 1997, its banks and NMI made a total of more than6,100 HMDA loans totaling more than $480 million inNew Mexico, with more than 1,000 loans totaling morethan $72 million in LMI census tracts and more than 1,400loans totaling more than $65 million to LMI borrowers.

Examiners also noted that Norwest-NM was an activelender to small businesses and small farms. In 1996,Norwest-NM made 2,969 small business loans totalingapproximately $208 million, with 83 percent by numberand 38 percent by dollar amount in loan amounts of$100,000 or less. Norwest reports that, in 1997, its banksmade more than 3,500 small business loans totaling morethan $330 million in New Mexico, with almost 1,000 loanstotaling more than $106 million in LMI census tracts andmore than 2,700 loans totaling more than $181 million tofirms with revenues less than $1 million.

Examiners indicated that, in 1996, Norwest-NM madesmall farm loans totaling $36.1 million, with 88 percent inloan amounts of less than $100,000. Norwest reports that,in 1997, its banks made a total of more than 800 small farmloans totaling more than $45 million in New Mexico, withmore than 200 loans totaling more than $11 million in LMIcensus tracts and almost 800 loans totaling approximately$40 million to farms with revenues less than $1 million.

Examiners also noted that Norwest-NM, in conjunctionwith NMI, actively participated in government-relatedlending programs for small business and housing. In 1996,Norwest-NM originated 448 home purchase loans andrefinancings totaling $40 million under programs spon-sored by government authorities, such as the FHA, the VA,and the Farmers Home Administration ("FmHA"). Exam-iners also noted that Norwest-NM was an active SBAlender with "Preferred Lender" status. More than half the$10.2 million in SBA loans made by Norwest-NM in the1996 fiscal year were originated in the Albuquerque areawhere Norwest-NM ranked first in SBA lending.

Texas. Examiners noted that Norwest Bank El Paso,N.A. ("Norwest-El Paso") used innovative products andflexible underwriting guidelines to assist in meeting theneed for home mortgage loans in its assessment area. Inparticular, the examiners noted that the bank offered afford-able mortgages and home improvement loans designedspecifically for LMI borrowers through programs like theAffordable Home Mortgage Loan Program. Norwest re-ports that, in 1996, its banks and NMI made a total of morethan 20,000 HMDA loans totaling more than $1.8 billion inTexas, with more than 1,800 loans totaling more than$102 million in LMI census tracts and almost 3.500 loanstotaling more than $182 million to LMI borrowers. Nor-west also reports that, in 1997, its banks and NMI made atotal of almost 30,000 HMDA loans totaling more than$2.7 billion in Texas, with more than 2,400 loans totalingmore than $140 million in LMI census tracts and more than4,800 loans totaling more than $254 million to LMI bor-rowers.

Examiners stated that Norwest-El Paso's level of small

business and small farm loans reflected a significant num-ber of loans throughout its assessment area. Data for 1996showed that Norwest-El Paso made 31 percent of its smallbusiness and small farm loans to businesses in LMI censustracts that had annual revenues of less than $1 million. In1996, Norwest-El Paso also introduced the Small BusinessBanking Center to assist in meeting the credit needs ofsmall businesses. The center originated 91 loans totaling$2.7 million in 1996, with an average loan amount of$30,000. Norwest states that, in 1996, its banks made morethan 5,200 small business loans totaling more than$256 million in Texas, with approximately 1,100 loanstotaling more than $51 million in LMI census tracts andalmost 3,500 loans totaling almost $150 million to firmswith revenues less than $1 million. Norwest reports that, in

1997, its banks made more than 7,600 small business loanstotaling more than $520 million in Texas, with more than1,600 loans totaling more than $138 million in LMI censustracts and more than 4,700 loans totaling more than$243 million to firms with revenues less than $1 million.

Norwest reports that, in 1996, its banks made a total ofapproximately 2,000 small farm loans totaling almost$83 million in Texas, with 300 loans totaling morethan $12 million in LMI census tracts and more than1,600 loans totaling almost $65 million to farms withrevenues less than $1 million. Norwest also reports that, in1997, its banks made a total of more than 1,600 small farmloans totaling more than $84 million in Texas, with morethan 230 loans totaling more than $14 million in LMIcensus tracts and more than 1,300 loans totaling more than$64 million to farms with revenues less than $1 million.

Examiners noted that Norwest Bank Texas, N.A.("Norwest-Texas") actively participated in developmentand redevelopment programs in its communities by provid-ing loans and financial expertise to the community. Exam-iners also commented favorably that Norwest-Texas hadbeen recognized by the Federal Home Loan Bank of Dallasfor its community support. Norwest reports that, in 1998,Norwest-Texas became a sponsor of the Texas CapitalAccess Program established by the Texas Economic Devel-opment Corporation. Under this program, state funds areused to create a loan loss reserve account for bank loans tosmall businesses that permits banks to use underwritingguidelines for qualifying applicants that are more flexiblethan conventional guidelines.

E. Wells Fargo's CRA Performance Record

Overview. Wells Fargo offers a variety of products specifi-cally designed for small business customers. Wells Fargo'sBusiness Banking Group focuses on small businesses withannual revenues of less than $10 million in which theowner is the primary financial decision maker. Wells Fargoreports that, in 1996, its banks made more than 138,000small business and small farm loans totaling more than$5.4 billion, with more than 33,000 small business andsmall farm loans totaling more than $1.5 billion in LMIcensus tracts. In 1997, Wells Fargo reports that its banksmade more than 195,000 small business and small farm



loans totaling more than $5.8 billion, with more than45,700 small business and small farm loans totaling$1.7 billion in LMI census tracts. During 1996 and 1997,Wells Fargo reports that 95 percent of its small businessand small farm loans were for amounts less than$100,000, and that the average loan amount was approxi-mately $33,000. Through June 30, 1998, Wells Fargo madea total of approximately 69,000 small business and smallfarm loans totaling $2.7 billion, with more than14,000 small business and small farm loans totaling ap-proximately $668 million in LMI census tracts.

In L996, Wells Fargo made more than 15,000 HMDAloans totaling approximately $960 million. During thesame period, Wells Fargo made approximately 1,900HMDA loans totaling $118 million in LMI census tracts,more than 5,200 HMDA loans totaling more than$180 million to LMI borrowers, and more than 1,800HMDA loans totaling approximately $96 million to minor-ity borrowers. In 1997, Wells Fargo made approximately4,800 HMDA loans totaling $540 million. During thisperiod, Wells Fargo made more than 600 HMDA loanstotaling $10 million in LMI census tracts, approximately1,600 HMDA loans totaling more than $53 million to LMIborrowers, and more than 800 HMDA loans totaling morethan $36 million to minority borrowers. Through June 30,1998, Wells Fargo made a total of approximately 4,400HMDA loans totaling more than $220 million. During thisperiod, Wells Fargo made more than 490 HMDA loanstotaling more than $21 million in LMI census tracts, morethan 1,400 HMDA loans totaling more than $53 million toLMI borrowers, and more than 600 HMDA loans totaling$25 million to minority borrowers. As of March 1998,Wells Fargo reports that it has loaned more than$14.5 billion or 33 percent of its lending goal under a$44.5 billion, 10-year CRA pledge announced in Decem-ber 1995.

Lending Record in General. Examiners generally deter-mined that Wells Fargo's banks had an effective programto ascertain the credit needs of their communities. In addi-tion, the examiners found that the banks' level of lendingreflected a responsiveness to the credit needs of theircommunities. The banks were generally active participantsin government-guaranteed or sponsored loan programs thataddressed housing, consumer, and small business creditneeds. Examiners also determined that Wells Fargo's geo-graphic distribution of loan originations was reasonableand generally consistent with demographic patterns in thecommunity, including LMI communities. Examiners gener-ally found that Wells Fargo's banks participated in financ-ing community development and redevelopment projects.

California. As noted above, Wells Fargo Bank, N.A.("WFB"), Wells Fargo's lead bank, received an "outstand-ing" rating from the OCC at its most recent CRA perfor-mance evaluation. WFB accounts for approximately90 percent of Wells Fargo's consolidated assets.

Examiners noted that the largest component of WFB'slending activities was small business loans. Examinersfound that WFB's record of making loans for less than$50,000, which accounted for 75 percent of WFB's small

business lending during the evaluation period, evidencedthe bank's commitment to small business lending. Examin-ers noted that, in 1995, WFB's loan growth was almostevenly divided between loans less than and loans morethan $50,000. Examiners also noted that WFB made asignificant number of small business loans in LMI censustracts.

In 1996, WFB made approximately 72,600 small busi-ness and small farm loans in California totaling $3.1 bil-lion, with more than 18,800 small business and small farmloans totaling more than $960 million in California LMIcensus tracts. In 1997, WFB made approximately 108,300small business and small farm loans in California totaling$3.6 billion, with more than 27,000 small business andsmall farm loans totaling $1.1 billion in California LMIcensus tracts. Through June 30, 1998, WFB made approxi-mately 32,700 small business and small farm loans inCalifornia totaling $1.7 billion, with approximately 8,000small business and small farm loans totaling more than$451 million in California LMI census tracts.

Examiners stated that WFB was an active participant ingovernment-guaranteed or sponsored loan programs thataddressed housing-related, consumer, and business creditneeds. According to the examination report, in 1994 and1995, WFB government-guaranteed loans totaled over$1 billion. During the evaluation period, the SB A recog-nized WFB as California's leading originator of loansunder the SBA's 504 Program. Examiners also noted that,during the evaluation period, WFB funded approximately90 percent of all loans in the California Capital AccessProgram. Wells Fargo reports that, as of year-end 1997,WFB was the largest lender in the California CapitalAccess Program, providing funding for approximately84 percent of the program's loans in the state.

Examiners found that WFB offered a variety of lendingproducts, with many specifically designed to help meet thecredit needs of the LMI community. Examiners noted that,during the evaluation period, WFB was the leading lenderin LMI areas in the Los Angeles MSA. Based on 1994HMDA data, WFB made 33 percent of its home purchaseloans in Los Angeles's LMI census tracts and increased thepercentage to 36 percent in 1995. Examiners commendedWFB for its consumer loan products designed for LMIborrowers, which included flexible underwriting or ex-tended terms. In 1996, WFB and Wells Fargo Bank (Arizo-na), N.A. ("WFBA"), its credit card bank affiliate, mademore than one million consumer loans in California total-ing more than $4.3 billion, with approximately 214,200consumer loans totaling $620 million in California LMIcensus tracts. In 1997, WFB and WFBA made more than655,000 consumer loans in California totaling more than$4 billion, with more than 130,000 consumer loans totalingmore than $490 million in California LMI census tracts.Through the second quarter of 1998, WFB and WFBAmade approximately 184,200 consumer loans in Californiatotaling $1.6 billion, with more than 37,000 consumerloans totaling $175 million in California LMI census tracts.

Examiners also commended WFB for its leadership,innovation, and participation in financing community de-



velopment and redevelopment projects in its delineatedcommunity. Examiners noted WFB's use of a variety oflending and investment opportunities to finance more than$694 million in community development ventures duringthe evaluation period. WFB also committed to develop57 LMI housing projects totaling $253 million during thesame period. In 1994, WFB made a $50 million loancommitment for the construction of affordable housingthrough a partnership formed with Bridge, a Californianonprofit developer of affordable housing; the World Sav-ings Bank; and the California Public Employees Retire-ment System.

Examiners noted that WFB's management decided in1995 to begin to phase-out direct mortgage lending. WellsFargo primarily originates HMDA affordable mortgageloans through Wells Resource Real Estate Services("WRRES"), a joint venture with PHH Mortgage Servic-es.37 To maintain community access to mortgages, WFBestablished local loan centers in LMI communities in SouthCentral Los Angeles, the Fruitridge community of Sacra-mento, and Southeast San Diego to provide access andcounseling through its joint venture partners and in partner-ship with nonprofit organizations providing credit counsel-ing and down payment assistance. Wells Fargo opened afourth home mortgage loan center in Fresno in 1998.38

In 1996, WFB made approximately 4,400 HMDA loansin California totaling more than $439 million. During thisperiod, the bank made 575 HMDA loans totaling morethan $50 million in California LMI census tracts, morethan 1,500 HMDA loans totaling more than $80 million toCalifornia LMI borrowers, and more than 700 HMDAloans totaling approximately $56 million to California mi-nority borrowers. In 1997, WFB made a total of approxi-mately 2,100 HMDA loans in California totaling more than$236 million. During this period, the bank made more than290 HMDA loans totaling more than $42 million in Cali-fornia LMI census tracts, more than 700 HMDA loanstotaling more than $24 million to California LMI borrow-ers, and approximately 500 HMDA loans totaling morethan $24 million to California minority borrowers. ThroughJune 30, 1998, WFB made a total of almost 1,500 HMDAloans in California totaling more than $83 million. Duringthis period, the bank made almost 170 HMDA loans total-ing more than $6 million in California LMI census tracts,approximately 500 HMDA loans totaling more than$20 million to California LMI borrowers, and more than300 HMDA loans totaling more than $12 million to Cali-fornia minority borrowers.

Examiners also noted that WFB, through the CaliforniaCommunity Reinvestment Corporation, committed morethan $30 million to a revolving loan pool to providefinancing for the development or rehabilitation of LMIhousing projects throughout California. Examiners notedthat, since 1990, WFB's annual financing activities for

37. Wells Fargo has a 24 percent interest in WRRES and PHHMortgage Services has a 76 percent interest.

38. Wells Fargo operates the home loan centers in California inpartnership with WRRES.

affordable housing development had consistently exceeded$100 million. During the evaluation period, WFB made193 business loans totaling $353 million to borrowers indesignated Enterprise Zones and 19 business loans totaling$33 million to nonprofit community organizations involvedin community development activity, businesses producingaffordable housing, and businesses sponsored by a publicagency to promote community development. In 1995, WFBcommitted to invest $12 million in equity capital throughthe Local Initiatives Support Corporation's California Eq-uity Fund, and an additional $6 million through the federaltax-exempt credit program.

Wells Fargo reports that, since its most recent CRAperformance evaluations WFB has taken several steps toenhance its service to its communities. Wells Fargo reportsthat, in 1996 and 1997, WFB's Real Estate Group providedmore than $1.1 billion to 291 affordable housing andeconomic development financing projects, and its Com-mercial Banking Group made more than 2,000 loans total-ing more than $4.4 billion to economic developmentprojects. During the same period, Wells Fargo reports thatWFB financed 30 transactions totaling more than$70 million for rural projects, including self-help housingprojects. Wells Fargo also reports that, from 1996 throughJune 30, 1998, it provided $39.3 million in contributionsthat qualified as community development activity under theCRA.

Wells Fargo states that, in mid-1997, WFB introduced its"Business Center" program. The program's centers aresmaller than traditional branches, but are full-service facil-ities with business specialists trained to provide specializedservices to small businesses. By the end of 1997, WFB hadopened 30 Business Centers in California, Arizona,Nevada, and Oregon.

Wells Fargo also reports that, by September 1996, andthrough an alliance with the National Association ofWomen Business Owners, WFB met its $1 billion goal inthe Women's Loan Program designed for creditworthy andestablished women entrepreneurs. At that time, WFB ex-panded its commitment to the program to $10 billion overten years. In addition, in August 1998, Wells Fargo made a$15 billion, three-year CRA-related lending and invest-ment commitment for California, including a separate$100 million goal for CRA-related investment and contri-butions in the state. This pledge also included a 35 percentminority mortgage outreach goal for California.

Texas. Examiners commented favorably on the specialefforts of Wells Fargo Bank (Texas), N.A. ("WFBT") in1995 to expand its small business lending and to addressthe needs of its small business customers through thedevelopment of several new products. Examiners notedthat WFBT introduced a "Business Advance" line ofcredit for small businesses and the "Quick Step SmallBusiness Loan," which includes an abbreviated applicationprocess for loans of less than $50,000. In addition, examin-ers noted that WFBT committed $550,000 to five programsoffering below-market rate loans to promote initiatives tohelp maintain a strong central business district. Wells Fargoreports that, in 1996, WFBT made a total of more 1,900



small business and small farm loans totaling more than$96 million in LMI census tracts in Texas. Wells Fargoalso reports that, in 1997, WFBT made more than 2,100small business and small farm loans totaling more than$168 million in LMI census tracts in Texas.

Examiners also found that WFBT actively participatedin government-guaranteed and sponsored loan programs.Examiners noted that, for the fiscal year ended Septem-ber 30, 1995, WFBT was the most active lender in Texasunder the SBA's 7A Program, and that it was ranked sixthnationally for number of loans and fifth nationally fordollar amount of loans under this program. Examinersfound that the number of SBA loans made by WFBTincreased by 165 percent from 1994 to 1995. In addition,examiners stated that WFBT was also active ingovernment-guaranteed student loan programs. During theevaluation period, WFBT originated $89 million in studentloans and, as a result, was the leading bank in Texas forlending under the PLUS Student Loan Program.

Examiners determined that WFBT had a reasonablenumber of consumer and small business loans in LMIcensus tracts in 1994 and 1995. Examiners stated that, in1995, the bank originated 35 percent of its business loansand 24 percent of its consumer loans in LMI census tractsin its delineated communities that were the focus of theexamination. Examiners also noted that, at the time of theexamination, 27 percent of WFBT's branches were locatedin LMI census tracts. Examiners also commended the bankfor conducting an analysis of credit distribution betweenLMI and non-LMI census tracts for each area in its delin-eated community and for using the analysis in assessingthe bank's CRA performance. Wells Fargo reports that, in1996, WFBT and WFBA made more than 13,000 con-sumer loans totaling more than $62 million in LMI censustracts in Texas, and, in 1997, made more than 15,000consumer loans totaling more than $55 million in LMIcensus tracts in Texas.

Examiners also noted that WFBT had a high level ofparticipation in community development and redevelop-ment activities and commended WFBT's use of innovativesolutions to assist in meeting community developmentneeds. Examiners noted that WFBT's total commitments tocommunity development and redevelopment projects andprograms during the evaluation period exceeded $115 mil-lion. As an example of WFBT's community developmentinvestments, examiners noted WFBT's commitment of$1 million to the Greater Houston Small Business EquityFund, a multibank community development corporationthat provides loan and equity financing to small businessesin the greater Houston area to stimulate economic growthand create jobs. In addition, examiners stated that, in 1996,WFBT committed $1.5 million to MESBIC Venture Hold-ing Company, a small business investment corporation thatprovides venture capital financing for small businessesowned by minorities. Examiners also noted that WFBTmade 59 loans totaling $3.6 million through its CommunityAssistance Program, which provides financing with flexi-ble underwriting standards to organizations that serve basicsocial needs, create jobs, provide technical assistance, or

develop aifordable housing. Examiners also noted that,during the evaluation period, WFBT made more than$1 million in charitable contributions to a variety ofcommunity-based organizations.39

Arizona. As mentioned above, Wells Fargo Bank (Arizo-na), N.A. is a special purpose bank that extends credit toconsumers and small businesses, primarily through creditcards. WFBA has delineated its service community as thePhoenix MSA, but has no branch offices in the area. In itsmost recent CRA performance evaluation, examiners statedthat WFBA had a comprehensive program to ascertain thecredit needs of its community. As part of this program,management initiated direct contact with a variety of localorganizations. Examiners also found that WFBA's board ofdirectors supported the bank's CRA efforts, which includedflexible and innovative underwriting guidelines designed tohelp meet the need for consumer credit in its delineatedcommunity. Examiners also found that WFBA's boardmonitored the bank's CRA performance through WFB'sCorporate Community Development Group.

Examiners noted that WFBA offered a variety of prod-ucts that were specifically designed to help meet the needsof LMI communities, including a secured credit card forlow-income borrowers with little credit history. Examinersalso noted that WFB had been working with communityorganizations to develop sites in LMI communities toprovide the use of computers so that individuals who donot own computers can have Internet access.

Examiners noted that, in 1995. WFBA invested $3 mil-lion in equity capital through LISC's National Equity Fund.Examiners also found that, during the evaluation period,WFBA contributed more than $161,000 to five communitygroups involved in a variety of activities, including CDChousing development training and predevelopment costs,mortgage loan counseling for LMI home buyers, and theconstruction of a single-room-occupancy housing project.

F. HMDA Data

The Board also has carefully considered the lendingrecords of Norwest and Wells Fargo in light of commentson the 1996 and 1997 HMDA data reported by the subsid-iaries of the organizations. The data for 1996 and 1997generally show that Norwest adequately assisted in meet-ing the credit needs of the communities it serves withrespect to HMDA-related loans, including minority andLMI borrowers and borrowers in LMI census tracts. Asstated above, Wells Fargo began phasing out its directresidential mortgage lending activities in 1995. Althoughfrom 1996 to 1997, Wells Fargo's actual number of appli-cations from and loan originations in LMI census tractsdecreased in Arizona, California, Idaho, Nevada, NewMexico, Oregon, and Texas, Wells Fargo was either consis-tent with or exceeded lenders in the aggregate in the

39. In addition, Wells Fargo reports that, in 1997, it made a$100,000 contribution to the National Council of La Raza Founda-tion's credit counseling program for low-income Hispanic homeown-ers in Arizona. Colorado, Texas, and California.



percentage of LMI originations during the same period.Wells Fargo's percentage of loan originations to LMI indi-viduals also was either consistent with or exceeded lendersin the aggregate in those states during the same period.Similarly, while the number of applications received fromand originations made to African-American and Hispanicapplicants decreased from 1996 to 1997 in those states,Wells Fargo's percentage of loan originations to African-American and Hispanic borrowers was consistent withlenders in the aggregate in those states during the sameperiod. The data also generally do not indicate that thebanking organizations are excluding any geographic areasor population segments on a prohibited basis.

The data for 1996 and 1997 also reflect certain dispari-ties in the rates of loan applications, originations, anddenials among members of different racial groups andpersons at different income levels, both generally and incertain states and local areas. The Board is concernedwhen an institution's record indicates such disparities inlending, and believes that all banks are obligated to ensurethat their lending practices are based on criteria that assurenot only safe and sound banking, but also equal access tocredit by creditworthy applicants regardless of their race orincome level. The Board recognizes, however, that HMDAdata alone provide an incomplete measure of an institu-tion's lending in its community because the data coveronly a few categories of housing-related lending. HMDAdata, moreover, provide only limited information about thecovered loans.40 HMDA data, therefore, have limitationsthat make the data an inadequate basis, absent other infor-mation, for concluding that an institution has not ade-quately assisted in meeting its communities' credit needsor has engaged in illegal discrimination in making lendingdecisions.

Because of the limitations of HMDA data, the Board hascarefully considered the data in light of other information,including examination reports that provide an on-site eval-uation of the compliance by the subsidiary banks of Nor-west and Wells Fargo with the fair lending laws and theoverall lending and community development activities ofthe banks. The examinations revealed no evidence of pro-hibited or illegal credit practices at the Norwest banks, andthe banks were in compliance with the substantive provi-sions of antidiscrimination laws and regulations, includingthe Equal Credit Opportunity Act, the Fair Housing Act,and the Home Mortgage Disclosure Act. In the most recentCRA examination report for Norwest Bank, examinersstated that all employees involved in making lending deci-sions received regular, comprehensive training on fair lend-ing practices, and the bank had an independent second

40. The data, for example, do not account for the possibility that aninstitution's outreach efforts may attract a larger proportion of margin-ally qualified applicants than other institutions attract and do notprovide a basis for an independent assessment of whether an applicantwho was denied credit was, in fact, creditworthy. Credit historyproblems and excessive debt levels relative to income (reasons mostfrequently cited for a credit denial) are not available from HMDAdata.

review program for all denial recommendations onHMDA-reportable loans.

The examinations of Wells Fargo's subsidiary banks alsofound no illegal discrimination in the credit practices at thebanks. For example, in the CRA examination of WFB,examiners stated that compliance and credit officers per-formed a second-level review of declined residential loanapplications from minorities and low-income individuals,reviewed loan files to analyze primary reasons for denials,regularly reviewed HMDA and comparable data for othertypes of credit to evaluate lending activity by census tractand race, and implemented ongoing sensitivity and culturaldiversity training for all bank personnel.

The Board notes that examiners reviewed the fair lend-ing policies, procedures, and training maintained by thedepository institutions of Norwest and Wells Fargo andfound them to be appropriate for monitoring compliancewith fair lending laws. The Board also has considered theHMDA data in light of the overall lending records ofNorwest and Wells Fargo, which show that their subsidiarydepository institutions assist in meeting the credit needs oftheir entire communities, including LMI neighborhoods.

G. Branch Closings

Several commenters contended that branch closings byNorwest or Wells Fargo in their respective service areas,particularly in LMI neighborhoods, had adversely affectedlocal communities. These commenters and other comment-ers also expressed concern that this proposal would resultin additional branch closings in LMI and other neighbor-hoods. Norwest has stated that although it is expected thatsome branches will be relocated, or consolidated as a resultof the proposed merger, no determinations have been madeas to which branches may be sold, consolidated, relocatedor closed over the next two years as a result of the pro-posed transaction, other than branches that are proposed tobe divested for antitrust purposes.

The Board has carefully considered the branch closingpolicies of Norwest and Wells Fargo and the record of theinstitutions in opening and closing branches. The Boardalso has carefully considered the public comments regard-ing past and potential branch closings in light of all thefacts of record.

Examiners reviewed the branch closing policies andrecord of opening and closing branches of Norwest's banksduring the examination periods. Examiners concluded thatits subsidiary banks generally had good records of opening,closing, and relocating their offices while providing allsegments of their communities with reasonable access tobanking services. Examiners also reviewed the branch clos-ing policies and record of opening and closing branches ofWFB and WFBT during the CRA examination periods.41

Examiners concluded that the branches of both banks werereadily accessible to all segments of their delineated com-

41. WFBA and Wells Fargo HSBC Trade Bank, N.A. do not operatebranch offices in their delineated communities.



munities, and that the closing of branches during the evalu-ation period did not adversely affect the banks' ability toprovide services to their communities, including LMIneighborhoods.42

The Board also has considered that federal banking lawrequires a specific mechanism for addressing branch clos-ings. Federal law requires an insured depository institutionto provide notice to the public and to the appropriatefederal regulatory agency before closing a branch.43 Thelaw does not authorize federal regulators to prevent theclosing of any branch. Any branch closings resulting fromthe proposed transaction will be considered by the appro-priate federal supervisor at the next CRA examination ofthe relevant subsidiary bank.

To permit the Board to monitor the effectiveness of thebranch closing policies of New Wells Fargo, the Boardconditions its action on this proposal on the requirementthat New Wells Fargo report to the Federal Reserve Sys-tem, on a semiannual basis during the two-year period afterconsummation, all branch closings, including consolida-tions, that occur as a result of this proposal. For branchesclosed in LMI census tracts, New Wells Fargo shouldindicate the proximity of the closed branch to the closestbranch of New Wells Fargo and the steps New Wells Fargotook to mitigate the impact of the branch closure.44

H. Community Development Corporation Activities

Norwest states that New Wells Fargo intends to form acommunity development corporation (the "CDC") as asubsidiary of the parent holding company to engage ingeneral community development activities. The CDC willpurchase at fair market value the existing CRA-relatedloans and investments of the combined company's subsid-iaries. Thereafter, the CDC will work to source, package,and structure loans and investments, which will be allo-cated geographically to the various New Wells Fargo sub-sidiary banks for CRA examination purposes. Norwest

42. According to examination reports, WFB's branch closing policyrequired that, prior to closing, management complete an in-depthanalysis of the closing's possible effect on the community. The policyalso required bank management to assess potential CRA concerns andrequired approval of the bank's board of directors before closure.

43. Section 42 of the Federal Deposit Insurance Act (12 U.S.C.§ 1831r-l), as implemented by the Joint Policy Statement RegardingBranch Closings (58 Federal Register 49,083 (1993)), requires that abank provide the public with at least 30 days notice and the appropri-ate federal supervisory agency with at least 90 days notice before thedate of the proposed branch closing. The bank also is required toprovide reasons and other supporting data for the closure, consistentwith the institution's written policy for branch closings.

44. Several commenters contended that the merger of Norwest andWells Fargo would result in the loss of jobs, particularly in Minnesota.The effect of a proposed transaction on employment in a community isnot among the factors included in the BHC Act, and the federalbanking agencies, courts, and Congress consistently have interpretedthe convenience and needs factor to relate to the effect of a proposalon the availability and quality of banking services in the community.See, e.g., Wells Fargo & Company, 82 Federal Reserve Bulletin 445.457 (1996).

indicates that the proposed CDC will allow New WellsFargo to increase the amount of community developmentlending in all the communities it serves, engage in innova-tive and flexible lending, develop new products, and workwith affordable housing developers and technical assis-tance providers to increase market opportunities for allsegments of the communities it serves.

The proposed CDC will provide short- and longer-termfinancing for community development projects, such asfinancing for multifamily affordable housing for terms of15 to 30 years, and other types of nontraditional financing.The CDC also will invest in Low Income Housing TaxCredits, purchase exempt housing debt instruments, andinvest in other secondary community development funds,such as the NEF. In addition, the CDC will provide debtand equity funding for organizations engaged in commu-nity development activities, including constructing afford-able housing, financing small and very small businesses,providing services to LMI individuals, and revitalizingLMI communities.

I. Norwest's Nonbank Lending Subsidiaries

NMI participates in more than 600 mortgage-related pro-grams, including down payment assistance programs andbond programs. A number of special products availablethrough NMI are designed for LMI families. The NorwestHomeownership Assistance Program ("NHAP"), for ex-ample, is designed to assist first-time buyers and LMIresidents in purchasing a home. As discussed in this order,Norwest's CHOP program is designed to meet the creditneeds of LMI families. Loans made under the CHOPprograms typically feature flexible qualifying guidelineswith higher debt ratios and less stringent credit require-ments, minimal down payment and higher loan-to-valueratios, no cash reserve requirement, and no private mort-gage insurance. The program also offers comprehensiveeducation programs on home ownership and budget man-agement.

Some commenters contended that Norwest has smallerpercentages of originations to minority and low-incomehome buyers than its competitors, has higher rejectionratios for African-American and Hispanic applicants thanits competitors, and lends minimally in LMI neighbor-hoods and racially diverse census tracts. In addition, somecommenters claimed that applicants who are denied a loanby a Norwest subsidiary bank are referred to one of Nor-west" s nonbank finance companies, but that qualified cus-tomers of the finance companies are not referred to aNorwest bank subsidiary where they might obtain a lowerinterest rate.

The Board has carefully considered the comments inlight of all the facts of record, including the OCC's fairlending examination findings and Norwest's fair lendingpolicies and procedures. As noted, these examinationsfound no evidence of illegal discrimination by Norwest'ssubsidiary banks, and examiners commented favorably on



Norwest's fair lending policies and procedures to preventillegal practices.45

NMI, Norwest's principal mortgage lender, originated$5.3 billion in \^\ family mortgages to LMI families in1997, which includes loans under Norwest's CHOP pro-gram for LMI families. FHA has designated NMI as thenation's top lender to minority first-time home buyers forthree consecutive years. In late 1996. NMI initiated anAffordable Housing Program, which employs loan origina-tors to focus on LMI and ethnically diverse communitiesby using nontraditional marketing techniques to reach un-derserved communities. Prepurchase counseling, throughthe Norwest Homebuyers Club, and down payment assis-tance programs are important aspects of the AifordableHousing Program.46 In addition, the Norwest HousingFoundation has committed $16 million over five years toHabitat for Humanity.

J. Conclusion on Convenience and Needs Factor

The Board recognizes that the proposal represents a signif-icant increase in the size of the resulting institution andexpansion of the geographic areas of the country the result-ing institution would serve. Accordingly, an importantcomponent of the Board's review of the proposal is consid-eration of the eifects of the proposal on the convenienceand needs of all communities served by Norwest and WellsFargo.

In conducting its review, the Board has carefully consid-ered all the comments on the convenience and needs factor.A significant number of commenters have expressed sup-port for the proposal based on the records of Norwest andWells Fargo in helping serve the banking and, in particular,the lending needs of their entire communities, includingLMI areas. Other commenters have expressed concernabout specific aspects of Norwest's record of performanceunder the CRA in its current service areas and have ex-pressed reservations about whether Norwest and WellsFargo have been, and New Wells Fargo would be, respon-sive to the banking and credit needs of all their communi-ties, particularly in the Midwest.47 The Board has carefully

45. Written submissions alleging improper referrals of customers byNorwest Bank to its finance affiliates have also been forwarded to theOCC, the bank's primary supervisor.

46. The Homebuyers Club is a prepurchase counseling service thathelps people solve credit problems that might prevent them fromqualifying for a mortgage.

47. A number of commenters criticized Norwest for not enteringinto agreements with community-based organizations that would pro-vide separate monetary goals for CRA performance for a particulargeographic area. The Board recognizes that communications by depos-itory institutions with community groups provide a valuable methodof assessing and determining how best to meet the credit needs of acommunity. Neither the CRA nor the CRA regulations of the federalsupervisory agencies, however, require depository institutions to enterinto agreements with any organization. The Board, therefore, hasviewed such agreements and their enforceability as private contractualmatters between the parties and has focused on the existing record ofperformance by the applicant and the programs that the applicant hasin place to serve the credit needs of its communities. The Board also

considered these concerns and weighed them against theoverall CRA records of Norwest and Wells Fargo, reportsof examinations of CRA performance, and informationprovided by the two banking organizations, including theirresponses to comments.48

As discussed in this order, the record in this case demon-strates that Norwest and Wells Fargo have establishedrecords of helping to meet the convenience and needs ofthe communities that each currently serves. Norwest hasindicated that New Wells Fargo will draw on the CRApolicies and programs of both organizations. The Boardnotes that, in 1997, the Norwest and Wells Fargo organiza-tions loaned and invested, in the aggregate, more than$20 billion in qualified community reinvestments, includ-ing more than $5.2 billion in single family mortgages toLMI families and more than $10 billion in loans to smallbusinesses and small farms. The Board expects that NewWells Fargo will demonstrate the same commitment tohelping to serve the banking needs of its communities,including LMI neighborhoods, that Norwest and WellsFargo have demonstrated to date. The Board also expectsthat New Wells Fargo will continue the policies of Norwestand Wells Fargo that give priority to addressing the bank-ing needs of local communities, including LMI neighbor-hoods through programs and policies that recognize theneeds of different communities.

Based on a review of the entire record, the Board con-cludes that convenience and needs considerations, includ-ing the CRA records of performance of both organizations'subsidiary depository institutions, are consistent with ap-proval of the proposal.


Norwest also has filed a notice under section 4(c)(8) of theBHC Act to acquire Wells Fargo's nonbanking companiesand thereby to engage in lending and making related equityinvestments, and selling credit life and disability insur-ance.49 The Board has determined by regulation or order

notes that New Wells Fargo will have a responsibility to help serve thecredit needs of its entire community, including LMI neighborhoods,with or without private CRA agreements.

48. A number of commenters expressed concern about the currentfee policies of one or both banking organizations. In addition, severalcommenters expressed concern that the proposal would result inincreased fees for banking services or in the loss of low-cost bankingproducts, and some requested that the Board require the mergingentities to commit to preventing increases in banking fees and de-creases in banking services as a condition of the merger. Norwest andWells Fargo offer a full range of banking products and services.Moreover, although the Board has recognized that banks help servethe banking needs of communities by making basic services availableat nominal or no charge, neither the CRA nor the primary federalsupervisors of the banks involved in this case require an institution tolimit the fees charged for its services or to provide any specific typesof banking products.

49. Norwest currently engages in insurance activities grandfatheredunder section 4(c)(8)(G) of the BHC Act (12 U.S.C. § 1843(c)(8)(G))("Exemption G"). Norwest will be the legal entity surviving themerger with Wells Fargo and, based on the structure of the transactionand all of the other facts of this case, the Board has determined that



that the activities for which notice has been provided areclosely related to banking for purposes of section 4(c)(8) ofthe BHC Act.50

In order to approve Norwest's notice to engage in non-banking activities, the Board must determine that the acqui-sition of the nonbanking subsidiaries of Wells Fargo andthe performance of those activities by New Wells Fargo isa proper incident to banking. That is, the Board mustdetermine that the proposed transaction "can reasonably beexpected to produce benefits to the public . . . that out-weigh possible adverse effects, such as undue concentra-tion of resources, decreased or unfair competition, conflictsof interests, or unsound banking practices."51

As part of its evaluation of these factors, the Boardconsiders the financial condition and managerial resourcesof Norwest and its subsidiaries, including the companies tobe acquired, and the effect of the proposed transaction onthose resources. For the reasons noted above, and based onall the facts of record, the Board has concluded that finan-cial and managerial considerations are consistent with ap-proval of the notice.

The Board also has considered the competitive effects ofthe proposed acquisition by Norwest of the nonbankingsubsidiaries of Wells Fargo in light of all the facts ofrecord, including the public comments received. The mar-kets in which the nonbanking subsidiaries of Norwest andWells Fargo compete are national or regional and areunconcentrated. The Board concludes that consummationof this proposal would have a de minimis effect on themarkets for lending and credit life and disability insurance.The Board notes that numerous competitors would remainin each of these markets. Based on all the facts of record,the Board concludes that it is unlikely that significantlyadverse competitive effects would result from the nonbank-ing acquisitions proposed in this transaction.

Norwest has indicated that the combined company willbe a stronger organization with increased capacity to serveits customers' credit needs and will be better able toprovide existing and potential customers with a broaderrange of services through an expanded delivery system andenhanced technology. Norwest states that significant costsavings are expected to produce comparable incrementalearnings and increased retained earnings, which will createadditional lending capacity and thereby enable the com-bined entity to provide additional credit to consumers andbusinesses. Norwest also states that the combined companywill have a more complete, efficient and effective deliverysystem in each of the markets where Norwest and WellsFargo offer their products and services, thereby creatinggreater convenience for customers and permitting the com-bined company to meet the needs of its communities moreeffectively and efficiently.

Norwest would retain its exemption to engage in Exemption G activi-ties after consummation of the proposed merger and the change of itsname to Wells Fargo & Company.

50. See 12 C.F.R. 225.28(b)(l) and (1 l)(i).51. 12U.S.C. § 1843(c)(8).

In addition, as the Board has previously noted, there arepublic benefits to be derived from permitting capital mar-kets to operate so that bank holding companies can makepotentially profitable investments in nonbanking compa-nies and from permitting banking organizations to allocatetheir resources in the manner they consider to be mostefficient when such investments and actions are consistent,as in this case, with the relevant considerations under theBHC Act.52

The Board also believes that the conduct of the proposednonbanking activities within the framework of Regula-tion Y and prior Board precedent is not likely to result inadverse effects, such as undue concentration of resources,decreased or unfair competition, conflicts of interests, orunsound banking practices, that would outweigh the publicbenefits of the proposal, such as increased customer conve-nience and gains in efficiency. Accordingly, based on allthe facts of record, the Board has determined that thebalance of public interest factors that the Board mustconsider under the proper incident to banking standard ofsection 4(c)(8) of the BHC Act is favorable and consistentwith approval of Norwest's notice.

Norwest also has provided notice, in accordance withsection 4(c)(13) of the BHC Act and section 211.5(c) of theBoard's Regulation K (12 C.F.R. 211.5(c)), to acquireWells Fargo's foreign nonbanking subsidiaries. The Boardconcludes that all of the factors required to be consideredunder the Federal Reserve Act, the BHC Act, and theBoard's Regulation K in connection with the foregoingnotices are consistent with approval of the proposal.

Requests for Additional Public Meetings

A number of commenters requested that the Board holdadditional public meetings or hearings on the proposal inareas that may be affected by the merger, including Califor-nia, Texas, and other states. The Board has carefully con-sidered these requests in light of the BHC Act, its Rules ofProcedure, and the substantial record developed in thiscase.53

As explained above, the Board held a public meeting onthe proposal in Minneapolis to clarify issues related to theapplication and notices and to provide an opportunity formembers of the public to testify.54 More than 50 interestedpersons appeared and provided oral testimony at the publicmeeting, including representatives and members of com-munity groups from cities and towns throughout the Mid-west and from a number of other states, including Califor-nia, Texas, and Oregon. In addition, the public comment

52. See, e.g., Bane One Corporation, 84 Federal Resen'e Bulletin553 (1998); First Union Corporation, 84 Federal Reserve Bulletin489(1998).

53. Section 3(b) of the BHC Act does not require that the Boardhold a public hearing on an application unless the appropriate supervi-sory authority for the bank to be acquired makes a timely writtenrecommendation of denial of the application. 12 U.S.C. § 1842(b). Inthis case, the Board has not received such a recommendation from anystate or federal supervisory authority.

54. See 12 C.F.R. 262.3(e) and 262.25(d).Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


period provided 56 days for interested persons to submitwritten comments on the proposal, and the Board receivedand considered written comments from more than 90 inter-ested persons who did not testify at the public hearing.

In the Board's view, all interested persons have hadample opportunity to submit their views either in writing ororally at the public meeting. Numerous commenters have,in fact, submitted substantial materials that have beencarefully considered by the Board in acting on the pro-posal. Commenters requesting additional public meetingshave failed to show why their written comments do notadequately present their views, evidence, and allegations.They also have not shown why the public meeting inMinneapolis and the 56-day comment period did not pro-vide an adequate opportunity for all interested parties topresent their views and voice their concerns. Moreover, theBoard has carefully considered the lending records ofNorwest and Wells Fargo separately in many of the stateswhere commenters requested public meetings, particularlyCalifornia and Texas. For these reasons, and based on allthe facts of record, the Board has determined that addi-tional public meetings or hearings are not required and arenot necessary or warranted to clarify the factual record onthe proposal. Accordingly, the requests for additional pub-lic meetings or hearings on the proposal are hereby denied.

Conclusion

Based on the foregoing, and in light of all the facts ofrecord, the Board has determined that the transactionshould be, and hereby is, approved. In reaching this conclu-sion, the Board has carefully considered all oral testimonyand the written comments regarding this proposal in lightof the factors that the Board is required to consider underthe BHC Act and other applicable statutes and concludesthat the comments do not warrant a delay or denial of theproposal.55

55. A number of commenters requested that the Board delay action,extend the public comment period on the proposal, or deny theproposal until:

(i) The pending CRA examination of Wells Fargo is completed,(ii) The Board conducts additional investigations on prices

charged by subprime lenders in mega mergers,(iii) Norwest and Wells Fargo make additional CRA commit-

ments, either throughout their market areas or in specificcommunities that would be affected by the merger, or

(iv) The banking organizations publicly disclose their completedivestiture plan.

The requests for delay do not warrant postponement of the Board'sconsideration of the proposal. The Board has accumulated a signifi-cant record in this case, including reports of examinations, supervi-sory information, public reports and information, and considerablepublic comment. In the Board's view, for the reasons discussed above,commenters have had ample opportunity to submit their views, and, infact, have provided substantial written submissions and oral testimonythat have been considered carefully by the Board in acting on theproposal. Based on a review of all the facts of record, the Boardconcludes that the record in this case is sufficient to warrant Boardconsideration and action on the proposal at this time, and that furtherdelay of consideration of the proposal, extension of the comment

The Board's approval is specifically conditioned on com-pliance by Norwest with all the commitments made inconnection with this application and notice and with theconditions stated or referred to in this order, includingNorwest's divestiture commitments. The Board's determi-nation on the nonbanking activities also is subject to all theterms and conditions set forth in Regulation Y, includingthose in sections 225.7 and 225.25(c) of Regulation Y(12 C.F.R. 225.7 and 225.25(c)), and to the Board's author-ity to require such modification or termination of theactivities of a bank holding company or any of its subsid-iaries as the Board finds necessary to ensure compliancewith, and to prevent evasion of, the provisions of the BHCAct and the Board's regulations and orders issued thereun-der. For purposes of this transaction, the commitments andconditions referred to above are deemed to be conditionsimposed in writing by the Board in connection with itsfindings and decision and, as such, may be enforced inproceedings under applicable law.

The acquisition of Wells Fargo's subsidiary banks shallnot be consummated before the fifteenth calendar day afterthe effective date of this order, and the proposal may not beconsummated later than three months after the effectivedate of this order, unless such period is extended for goodcause by the Board or by the Federal Reserve Bank ofSan Francisco, acting pursuant to delegated authority.





Appendix A

Banking Market Definitions

A. Arizona Banking Markets

The Bullhead City banking market is approximated by thetowns of Bullhead City, Dolan Springs, Golden Valley,Kingman, Mohave Valley, and Riviera, Arizona; Laughlin,Nevada; and Needles, California.

The Casa Grande banking market is approximated by thetowns of Arizona City, Casa Grande, Coolidge, Eloy, Flo-rence, and Sacaton.

The Flagstaffbanking market is approximated by the towns ofFlagstaff and Williams.

The Lake Havasu City banking market is approximated by thetowns of Havasu Lake and Lake Havasu City.

The Payson banking market is approximated by the towns ofPayson and Pine.

period, or denial of the proposal on the grounds discussed above or onthe basis of informational insufficiency is not warranted.



The Phoenix banking market is approximated by the PhoenixRanally Metropolitan Area ("RMA").

The Prescott banking market is approximated by the towns ofPrescott, Prescott Valley, Chino Valley, and Mayer.

The Show Low banking market is approximated by the townsof Pinetop, Show Low, Snowflake, and Taylor.

The Sierra Vista banking market is approximated by the townsof Bisbee, Douglas, Fort Huachara, Sierra Vista, and Tomb-stone.

The Tucson banking market is approximated by the TucsonRMA and the town of Green Valley.

The Winslow banking market is approximated by the towns ofHolbrook and Winslow.

The Yuma banking market is approximated by the Yuma RMAand the town of Welton.

B. California Banking Markets

The Riverside banking market is approximated by theRiverside-San Bernadino RMA and the towns of Banning,Beaumont, Blue Jay, Lake Arrowhead, Nuevo, Perris, andRunning Springs.

The South Lake Tahoe banking market is approximated by thetowns of South Lake Tahoe, California; and Stateline andZephyr Cove, Nevada.

The Truckee-Tahoe banking market is approximated by thetowns of King's Beach, Tahoe City, and Truckee, Califor-nia; and Incline Village, Nevada.

C. Colorado Banking Market

The Denver banking market is approximated by the DenverRMA, Boulder County, the towns of Erie, Fredrick, andKeenesburg in Weld County, and the non-RMA portions ofAdams and Arapahoe Counties.

D. Nevada Banking Markets

The Carson City banking market is approximated by thetowns of Carson City, Dayton, Gardnerville, Minden, andVirginia City.

The Elko banking market is approximated by the towns ofCarlin and Elko.

The Fallon banking market is approximated by the town ofFallon.

The Las Vegas banking market is approximated by the LasVegas RMA.

The Reno banking market is approximated by the Reno RMAand the town of Fernley.

The Winnemucca banking market is approximated by the townof Winnemucca.

The Yerington banking market is approximated by the town ofYerington.

E. New Mexico Banking Market

The Santa Fe banking market is approximated by the Santa FeRMA.

F. Texas Banking Markets

The Austin banking market is approximated by the AustinRMA.

The Brazos County banking market is approximated by Bra-zos County.

The Dallas banking market is approximated by Dallas County,the southeastern quadrant of Denton County, the southwest-ern quadrant of Collins County, Rockwell County, and thetowns of Forney, Terrell, Midlothian, Waxahachie, FortFerria, Grapevine, and Arlington.

The Fort Worth banking market is approximated by TarrantCounty (excluding the towns of Grapevine and Arlington),the northern half of Johnson County, the eastern half ofParker County, the southwestern quadrant of DentonCounty, and the towns of Boyd, Neward, and Rhome.

The Houston banking market is approximated by the HoustonRMA.

The San Antonio banking market is approximated by the SanAntonio Metropolitan Statistical Area ("MSA") and Ken-dall County.

Appendix B

Certain Banking Markets With No Divestitures


Bullhead City: Norwest is the fifth largest depository institu-tion in the market, controlling deposits of S47.6 million,representing 7.4 percent of total market deposits. WellsFargo is the third largest depository institution in the mar-ket, controlling deposits of $84.4 million, representing13 percent of total market deposits. On consummation ofthe proposal, New Wells Fargo would be the third largest ofnine depository institutions in the market, controlling depos-its of $132 million, representing approximately 20.4 percentof total market deposits. The HHI would increase192 points to 2010.

Winslow: Norwest is the second largest depository institutionin the market, controlling deposits of $29.4 million, repre-senting 28.4 percent of total market deposits. Wells Fargo isthe third largest depository institution in the market, control-ling deposits of $235 thousand, representing less than1 percent of total market deposits. On consummation of theproposal, New Wells Fargo would be the second largest oftwo depository institutions in the market, controlling depos-its of $29.6 million, representing approximately 28.6 per-cent of total market deposits. The HHI would increase13 points to 5916.

B. California Banking Markets

Riverside: Norwest is the 26th largest depository institution inthe market, controlling deposits of $27 million, representingless than 1 percent of total market deposits. Wells Fargo isthe second largest depository institution in the market,controlling deposits of $594.3 million, representing10.5 percent of total market deposits. On consummation of



the proposal, New Wells Fargo would be the second largestof 34 depository institutions in the market, controlling de-posits of $621.2 million, representing approximately 11percent of total market deposits. The HHI would increase10 points to 1469.

South Lake Tahoe: Norwest is the eighth largest depositoryinstitution in the market, controlling deposits of $16.8 mil-lion, representing 5.3 percent of total market deposits. WellsFargo is the second largest depository institution in themarket, controlling deposits of $61.8 million, representing19.4 percent of total market deposits. On consummation ofthe proposal, New Wells Fargo would be the second largestof seven depository institutions in the market, controllingdeposits of $78.6 million, representing approximately24.7 percent of total market deposits. The HHI wouldincrease 204 points to 1792.

Truckee-Tahoe: Norwest is the sixth largest depository institu-tion in the market, controlling deposits of $20.9 million,representing 4.2 percent of total market deposits. WellsFargo is the fourth largest depository institution in themarket, controlling deposits of $53.4 million, representing10.8 percent of total market deposits. On consummation ofthe proposal, New Wells Fargo would be the third largest ofseven depository institutions in the market, controlling de-posits of $74.3 million, representing 15 percent of totalmarket deposits. The HHI would increase 91 points to 2522.

C. Colorado Banking Market

Denver: Norwest is the largest depository institution in themarket, controlling deposits of $4.7 billion, representing21.7 percent of total market deposits. Wells Fargo is the13th largest depository institution in the market, controllingdeposits of $350.4 million, representing 1.6 percent of totalmarket deposits. On consummation of the proposal, NewWells Fargo would be the largest of 62 depository institu-tions in the market, controlling deposits of $5.1 billion,representing 23.3 percent of total market deposits. The HHIwould increase 69 points to 1135.

D. New Mexico Banking Market

Santa Fe: Norwest is the tenth largest depository institution inthe market, controlling deposits of $21.9 million, represent-ing 2.4 percent of total market deposits. Wells Fargo is thefourth largest depository institution in the market, control-ling deposits of $86.4 million, representing 9.3 percent oftotal market deposits. On consummation of the proposal,New Wells Fargo would be the third largest of nine deposi-tory institutions in the market, controlling deposits of$108.3 million, representing 11.7 percent of total marketdeposits. The HHI would increase 44 points to 2007.

E. Texas Banking Market

Austin: Norwest is the third largest depository institution inthe market, controlling deposits of $884.3 million, repre-senting 11.6 percent of total market deposits. Wells Fargo isthe ninth largest depository institution in the market, con-

trolling deposits of $176.4 million, representing 2.2 percentof total market deposits. On consummation of the proposal,New Wells Fargo would be the third largest of 44 deposi-tory institutions in the market, controlling deposits of$1.1 billion, representing 13.1 percent of total market de-posits. The HHI would increase 48 points to 1181.

Brazos Country: Norwest is the largest depository institutionin the market, controlling deposits of $234.9 million, repre-senting 27.6 percent of total market deposits. Wells Fargo isthe ninth largest depository institution in the market, con-trolling deposits of $7.6 million, representing less than1 percent of total market deposits. On consummation of theproposal, New Wells Fargo would be the largest of ninedepository institutions in the market, controlling deposits of$242.5 million, representing 28.5 percent of total marketdeposits. The HHI would increase 49 points to 1836.

Dallas: Norwest is the 39th largest depository institution inthe market, controlling deposits of $80.1 million, represent-ing less than 1 percent of total market deposits. Wells Fargois the eighth largest depository institution in the market,controlling deposits of $596.9 million, representing1.6 percent of total market deposits. On consummation ofthe proposal, New Wells Fargo would be the seventh largestof 100 depository institutions in the market, controllingdeposits of $676.9 million, representing 1.7 percent of totalmarket deposits. The HHI would increase 1 point to 1983.

Fort Worth: Norwest is the third largest depository institutionin the market, controlling deposits of $ 1.1 billion, represent-ing 12.4 percent of total market deposits. Wells Fargo is theeighth largest depository institution in the market, control-ling deposits of $351.3 million, representing 3.8 percent oftotal market deposits. On consummation of the proposal,New Wells Fargo would be the third largest of 48 deposi-tory institutions in the market, controlling deposits of$1.5 billion, representing 16.2 percent of total market de-posits. The HHI would increase 95 points to 1046.

Houston: Norwest is the 27th largest depository institution inthe market, controlling deposits of $192.3 million, repre-senting less than 1 percent of total market deposits. WellsFargo is the third largest depository institution in the mar-ket, controlling deposits of $3.6 billion, representing9.4 percent of total market deposits. On consummation ofthe proposal, New Wells Fargo would be the third largest of89 depository institutions in the market, controlling depositsof $3.8 billion, representing 9.9 percent of total marketdeposits. The HHI would increase 9 points to 979.

San Antonio: Norwest is the fourth largest depository institu-tion in the market, controlling deposits of $786.2 million,representing 6.7 percent of total market deposits. WellsFargo is the 16th largest depository institution in the mar-ket, controlling deposits of $82.9 million, representing lessthan 1 percent of total market deposits. On consummationof the proposal, New Wells Fargo would be the fourthlargest of 37 depository institutions in the market, control-ling deposits of $869.1 million, representing 7.5 percent oftotal market deposits. The HHI would increase 10 points to1313.



Appendix C

Certain Banking Markets with Divestitures


Flagstaff: Norwest is the second largest depository institutionin the market, controlling deposits of $77.3 million, repre-senting 20 percent of market deposits. Wells Fargo is thethird largest depository institution in the market, controllingdeposits of $69.4 million, representing 17.9 percent ofmarket deposits. Norwest proposes to divest one branchcontrolling deposits of approximately $50.4 million. Afterthe proposed merger and divestiture, New Wells Fargowould be the second largest of at least six depositoryinstitutions in the market, controlling deposits of$96.4 million, representing 24.9 percent of market deposits.The HHI would not increase more than 157 points orexceed a post-merger HHI of 2135.

Lake Havasu City: Norwest is the fifth largest depositoryinstitution in the market, controlling deposits of $35.9 mil-lion, representing 9.4 percent of market deposits. WellsFargo is the third largest depository institution in the mar-ket, controlling deposits of $52.4 million, representing 13.7percent of market deposits. Norwest proposes to divest onebranch controlling deposits of approximately $35.9 million.After the proposed merger and divestiture, New Wells Fargowould be the third largest of at least five depository institu-tions in the market, controlling deposits of $52.4 million,representing 13.7 percent of market deposits. The HHIwould not increase more than 34 points or exceed a post-merger HHI of 2399.

Payson: Norwest is the fifth largest depository institution inthe market, controlling deposits of $29.5 million, represent-ing 12.3 percent of market deposits. Wells Fargo is thefourth largest depository institution in the market, control-ling deposits of $36.5 million, representing 15.2 percent ofmarket deposits. Norwest proposes to divest one branchcontrolling deposits of approximately $29.5 million. Afterthe proposed merger and divestiture, New Wells Fargowould be the fourth largest of five depository institutions inthe market, controlling deposits of $36.5 million, represent-ing 15.2 percent of market deposits. The HHI would notincrease and would remain 2502.

Show Low: Norwest is the fifth largest depository institution inthe market, controlling deposits of $26.8 million, represent-ing 12.6 percent of market deposits. Wells Fargo is the thirdlargest depository institution in the market, controlling de-posits of $38.8 million, representing 18.2 percent of marketdeposits. Norwest proposes to divest one branch controllingdeposits of approximately $12.8 million. After the proposedmerger and divestiture, New Wells Fargo would become thesecond largest of at least four depository institutions in themarket, controlling deposits of $52.8 million, representing24.7 percent of market deposits. The HHI would increase160 points to 2419.

Yuma: Norwest is the fifth largest depository institution in themarket, controlling deposits of $75.9 million, representing

10.9 percent of market deposits. Wells Fargo is the thirdlargest depository institution in the market, controlling de-posits of $130.6 million, representing 18.7 percent of mar-ket deposits. Norwest proposes to divest one branch control-ling deposits of approximately $28.7 million. After theproposed merger and divestiture, New Wells Fargo wouldbe the second largest of at least eight depository institutionsin the market, controlling deposits of $177.8 million, repre-senting 25.4 percent of market deposits. The HHI would notincrease more than 199 points or exceed a post-merger HHIof2112.

B. Nevada Banking Markets

Elko: Norwest is the fifth largest depository institution in themarket, controlling deposits of $28.2 million, representing12.3 percent of market deposits. Wells Fargo is the largestdepository institution in the market, controlling deposits of$62.2 million, representing 27.1 percent of market deposits.Norwest proposes to divest one branch controlling depositsof approximately $28.2 million. After the proposed mergerand divestiture, New Wells Fargo would be the largest of atleast six depository institutions in the market, controllingdeposits of $62.2 million, representing 27.1 percent ofmarket deposits. The HHI would not increase more than90 points or exceed a post-merger HHI of 2034.

Fallon: Norwest is the second largest depository institution inthe market, controlling deposits of $52 million, representing25.3 percent of market deposits. Wells Fargo is the thirdlargest depository institution in the market, controlling de-posits of $40 million, representing 19.5 percent of marketdeposits. Norwest proposes to divest one branch controllingdeposits of approximately $39.8 million. After the proposedmerger and divestiture, New Wells Fargo would be thesecond largest of five depository institutions in the market,controlling deposits of $52.3 million, representing25.4 percent of market deposits. The HHI would increase2 points to 2405.

Winnemucca: Norwest is the third largest depository institu-tion in the market, controlling deposits of $31.9 million,representing 24.2 percent of market deposits. Wells Fargo isthe second largest depository institution in the market,controlling deposits of $38.7 million, representing 29.3percent of market deposits. Norwest proposes to divest onebranch controlling deposits of approximately $31.9 million.After the proposed merger and divestiture, New Wells Fargowould be the second largest of four depository institutionsin the market, controlling deposits of $38.7 million, repre-senting 29.3 percent of market deposits. The HHI would notincrease and would remain 2641.

Yerington: Norwest is the second largest depository institutionin the market, controlling deposits of $37.9 million, repre-senting 49.6 percent of market deposits. Wells Fargo is thelargest depository institution in the market, controlling de-posits of $38.4 million, representing 50.4 percent of marketdeposits. Norwest proposes to divest one branch controllingdeposits of approximately $38.4 million. After the proposedmerger and divestiture, New Wells Fargo would be thesecond largest of two depository institutions in the market,



controlling deposits of $37.9 million, representing49.6 percent of market deposits. The HHI would not in-crease and would remain 5000.

SunTrust Banks, Inc.Atlanta, Georgia

Order Approving the Acquisition of a Bank HoldingCompany

SunTrust Banks, Inc. ("SunTrust"), a bank holding com-pany within the meaning of the Bank Holding CompanyAct ("BHC Act"), has requested the Board's approvalunder section 3 of the BHC Act (12 U.S.C. § 1842(a)(3)) toacquire Crestar Financial Corporation ("Crestar"), andthereby acquire Crestar's subsidiary bank, Crestar Bank,both of Richmond, Virginia.1 SunTrust also has requestedthe Board's approval under section 4(c)(8) of the BHC Act(12 U.S.C. § 1843(c)(8)) and section 225.24 of the Board'sRegulation Y (12 CFR 225.24) to acquire the nonbankingsubsidiaries of Crestar and thereby engage in the nonbank-ing activities listed in the Appendix.2

Notice of the proposal, affording interested persons anopportunity to submit comments, has been published(63 Federal Register 47,499 and 49,358 (1998)). The timefor filing comments has expired, and the Board has consid-ered the application and notice and all comments receivedin light of the factors set forth in sections 3 and 4 of theBHC Act.

SunTrust, with total consolidated assets of approxi-mately $61.4 billion, operates banks in Florida, Georgia,Tennessee, and Alabama, and engages in a number ofpermissible nonbanking activities.3 SunTrust is the secondlargest commercial banking organization in Georgia, con-trolling deposits of approximately $10.3 billion, represent-ing 12.6 percent of total deposits in commercial bankingorganizations in the state ("state deposits"). Crestar, withtotal consolidated assets of approximately $26.2 billion,operates a bank with branches in Virginia, Maryland, andthe District of Columbia. Crestar is the largest commercialbanking organization in Virginia, controlling deposits ofapproximately $10.1 billion, representing 13.3 percent ofVirginia state deposits. Crestar is the fourth largest com-mercial banking organization in Maryland, controlling de-posits of approximately $4.9 billion, representing 8.9 per-cent of Maryland state deposits. In the District ofColumbia, Crestar is the fifth largest commercial bankingorganization, controlling deposits of approximately$922.6 million, representing 9.1 percent of deposits in theDistrict of Columbia.

Interstate Analysis

Section 3(d) of the BHC Act allows the Board to approvean application by a bank holding company to acquirecontrol of a bank located in a state other than the homestate of such bank holding company, if certain conditionsare met. For purposes of the BHC Act, the home state ofSunTrust is Georgia, and Crestar controls a bank thatoperates in Virginia, Maryland, and the District of Colum-bia.4 All the conditions for an interstate acquisition enu-merated in section 3(d) are met in this case.5 In view of allthe facts of record, the Board is permitted to approve theproposal under section 3(d) of the BHC Act.

Competitive Considerations

The BHC Act prohibits the Board from approving anapplication under section 3 of the BHC Act if the proposalwould result in a monopoly or if the proposal wouldsubstantially lessen competition in any relevant bankingmarket and, in the latter case, the Board has not found thatthe anticompetitive effects of the proposal are clearly out-weighed in the public interest by the probable effect of theproposal in meeting the convenience and needs of thecommunity to be served.6 SunTrust and Crestar do notcompete in any banking market. Based on all the facts ofrecord, the Board concludes that consummation of theproposal would not have a significantly adverse effect oncompetition or on the concentration of banking resourcesin any relevant banking market. Accordingly, the Boardhas determined that competitive factors are consistent withapproval of the proposal.

Financial, Managerial, and Other Supervisory Factors

The Board has carefully considered the financial and man-agerial resources and future prospects of SunTrust andCrestar, and their respective subsidiaries, and other supervi-sory factors in light of all the facts of record. As part of thisconsideration, the Board has reviewed relevant reports ofexamination and other supervisory information preparedby the Reserve Banks and other federal agencies. TheBoard notes that the bank holding companies and their

1. SunTrust proposes to acquire Crestar by merging its whollyowned subsidiary, SMR Corporation, formed solely for the purpose ofeffecting the acquisition, with and into Crestar.

2. SunTrust also has requested the Board's approval to hold andexercise an option to purchase up to 19.9 percent of the voting sharesof Crestar if certain events occur. The option would expire on consum-mation of the proposal.

3. Asset data are as of June 30, 1998, and state deposit and rankingdata are as of June 30, 1997.

4. A bank holding company's home state is that state in which theoperation of the bank holding company's banking subsidiaries wereprincipally conducted on July 1, 1966, or the date on which thecompany became a bank holding company, whichever is later.12 U.S.C. § 1841(o)(4)(C).

5. See 12 U.S.C. §§ 1842(d)(l)(A) and (B) and 1842(d)(2)(A) and(B). SunTrust is adequately capitalized and adequately managed, asdefined by applicable law. Crestar Bank has been in existence andcontinuously operated for the minimum period of five years. Onconsummation of the proposal, SunTrust would control less than10 percent of the total amount of deposits of insured depositoryinstitutions in the United States. SunTrust also would not exceedapplicable state law deposit limitations, as calculated under state law,in any state in which Crestar operates. See Md. Code Ann., § 5-1013(1997). All other requirements of section 3(d) of the BHC Act wouldbe met on consummation of the proposal.

6. 12 U.S.C. §1842(c)(l).



subsidiary banks are currently well capitalized and areexpected to remain so after consummation of the proposal.

The Board also has considered other aspects of thefinancial condition and resources of the two organizationsand the structure of the proposed transaction. Based onthese and other facts of record, the Board concludes thatconsiderations relating to the financial and managerial re-sources and future prospects of SunTrust, Crestar, and theirrespective subsidiaries are consistent with approval of theproposal, as are the other supervisory factors that the Boardmust consider under section 3 of the BHC Act.


The Board has carefully considered the effect of the pro-posed acquisition on the convenience and needs of thecommunities to be served in light of all the facts of record,including comments on the effect the proposal would haveon the communities to be served by the combined organiza-tion. Overall, the Board received approximately 45 com-ments in favor of the proposal and nine opposed to, orexpressing concern about, the proposal.

Most of the comments supporting the proposal weresubmitted by public officials and community-based organi-zations and commented favorably on SunTrust's record ofperformance under the Community Reinvestment Act(12 U.S.C. § 2901 et seq.) ("CRA").7 These commentersgenerally commended the assistance SunTrust provided incommunity redevelopment activities and praised SunTrustfor reinvesting in various communities. The letters express-ing concern about the proposal urged SunTrust to makecommitments to lending in rural and small metropolitanareas or criticized various aspects of the CRA performanceor home mortgage lending records of SunTrust and Crestar,including their lending records to minorities and in low- tomoderate-income ("LMI") areas, in part on the basis ofdata submitted under the Home Mortgage Disclosure Act(12 U.S.C. § 2801 et seq.) ("HMDA").8

In reviewing the convenience and needs of the communi-ties to be served, the Board notes that SunTrust provides afull range of financial services through its bank and non-bank subsidiaries, including commercial and retail bank-ing, trust and investment management, and corporate andinvestment banking services. SunTrust has stated that theproposed acquisition would enhance and expand the bank-ing services available to all of its and Crestar's customers,

7. These commenters included nine public officials and the follow-ing community groups: Atlanta Neighborhood Development Partner-ship, Inc., The College Fund/UNCF, Community Equity Investments,Inc., Community Housing Resource Center, The Enterprise Founda-tion, Florida Community Loan Fund, Greater Miami Neighborhoods,Inc., Keystone Challenge Fund, and Tampa Bay Economic Develop-ment Corporation.

8. These commenters were CANICCOR, Metropolitan WashingtonPlanning & Housing Association, Withlacoochee Regional PlanningCouncil, Apalachee Regional Planning Council, CSRA Regional De-velopment Center, Southwest Tennessee Development District, South-east Georgia Regional Development Center, and two individuals.

including LMI households. The Board has given substan-tial consideration to the comments received in addition toSunTrust's and Crestar's existing record of helping toserve the convenience and needs of all their communities,as reflected in SunTrust's and Crestar's CRA and supervi-sory examinations and in their current programs and poli-cies.

CRA Performance Examinations. The Board has longheld that consideration of the convenience and needs factorincludes a review of the records of the relevant depositoryinstitutions under the CRA. As provided in the CRA, theBoard evaluates the convenience and needs factor in lightof examinations of the CRA performance records of therelevant institutions by their appropriate federal financialsupervisory agencies. An institution's most recent CRAperformance examination is a particularly important con-sideration in the applications process because it representsa detailed, on-site evaluation of the institution's overallrecord of performance under the CRA by its appropriatefederal supervisor.9 The Board has reviewed the records ofperformance of the subsidiary depository institutions ofSunTrust and Crestar in light of their most recent CRAperformance examinations and all other facts of record.

The reports of these examinations indicate that the sub-sidiary depository institutions of SunTrust and Crestar arehelping to meet the convenience and needs of the commu-nities they serve. All of SunTrust's 28 subsidiary banks,which operate in four states, received ratings of "satisfac-tory" or better from the appropriate federal supervisor attheir most recent examinations for performance under theCRA. SunTrust's lead subsidiary bank, SunTrust Bank,Atlanta, Georgia, which accounts for approximately28 percent of SunTrust's consolidated assets, received a"satisfactory" rating from the Federal Reserve Bank ofAtlanta at its most recent examination for CRA perfor-mance, as of December 1996 (the "1996 Examination").10

Crestar Bank received an "outstanding" rating from theFederal Reserve Bank of Richmond at its most recentexamination for CRA performance, as of May 1996."

9. The Statement of the Federal Financial Supervisory AgenciesRegarding the Community Reinvestment Act provides that a CRAexamination is an important and often controlling factor in the consid-eration of an institution's CRA record and that reports of theseexaminations will be given great weight in the applications process.See 54 Federal Register 13,742 and 13,745 (1989); see also62 Federal Register 52,105 (1997).

10. More than 25 percent of SunTrust's subsidiary banks receivedratings of "outstanding" from the appropriate federal supervisors attheir most recent examinations for CRA performance.

11. Since that examination, Crestar Bank has merged with Crestar'sother subsidiary depository institutions, each of which also receivedan "outstanding" rating from the appropriate federal supervisor at itsmost recent CRA performance examination. Crestar Bank MD,Bethesda, Maryland, received an "outstanding" CRA performancerating from the Federal Reserve Bank of Richmond, as of August1996; Crestar Bank, N.A., Washington, D.C., received an "outstand-ing" CRA performance rating from the Office of the Comptroller ofthe Currency, as of November 1994; and Crestar Bank FSB, Balti-more, Maryland, received an "outstanding" CRA performance ratingfrom the Office of Thrift Supervision, as of April 1996.



The 1996 Examination concluded that the managementof SunTrust Bank had taken an active and affirmative rolein meeting credit needs throughout the bank's assessmentarea, including the credit needs of LMI areas and individu-als and small businesses and small farms. Examiners foundthat SunTrust Bank's CRA-related investments exhibited ahigh level of complexity and responsiveness to credit andcommunity development needs, that the bank's branchnetwork was accessible to most segments of the communi-ties it served,12 and that the bank provided a significantnumber and variety of community development services.13

Lending Record of SunTrust. The 1996 Examinationconcluded that SunTrust Bank's level of lending within itsassessment area was excellent, and that the bank's level ofqualified loans constituted a significant percentage of thebank's total assets and total loans. Examiners noted that thebank extended a large dollar volume of small businessloans during 1995 and the first two quarters of 1996.During this review period, the bank made 6,612 smallbusiness loans, totalling $840 million. More than 80 per-cent of these loans, totalling $291 million, were in amountsof less than $250,000. The bank also originated 27 SmallBusiness Administration ("SBA") loans, totalling $56 mil-lion, during the review period, and an additional 12 SBAloans, totalling $16.6 million, during the third quarter of1996. Examiners noted that the bank offered a variety offlexible and innovative business products and participatedin several business development and microloan programs.14

Examiners further noted that the bank's institutional com-munity development loans, primarily to nonprofit organiza-tions and community service providers in the Atlanta Met-ropolitan Statistical Area ("MSA"), totalled $378 millionin 1995 and $445 million in 1996.

According to the 1996 Examination, the bank had anexcellent record of extending home improvement, FederalHousing Administration ("FHA") and Veterans Adminis-tration ("VA") loans to LMI borrowers and in LMI censustracts. SunTrust Bank also offered numerous flexible homepurchase lending programs. The 1996 Examination foundthat the bank assisted LMI borrowers to obtain affordablehousing through a variety of programs that featured re-duced down payment and closing cost requirements and

12. A commenter questioned whether the proposal would result inany branch closings or service reductions in the District of Columbia.SunTrust has indicated that it does not expect the transaction to resultin the closure of any branches and that it would make no immediatechanges in the terms and conditions of products and services offeredby Crestar.

13. One commenter alleged, without providing any supporting facts,that SunTrust's subsidiary banks had dealt improperly with the com-menter's SunTrust shares. The Board has provided copies of thecomment to the appropriate federal supervisors of the relevant Sun-Trust subsidiary banks for their consideration. The Board retainssufficient authority to take appropriate supervisory action againstSunTrust if the allegations can be substantiated.

14. These programs included the Entrepreneurial Development LoanFund, which makes loans to small businesses and businesses ownedby minorities in Atlanta, and the GRASP, Inc., Microloan Program,which provides entrepreneurs access to loans in amounts of $500 to$25,000.

flexible underwriting standards. In addition, SunTrust sup-ports efforts to provide affordable housing through its com-munity development activities. During the review period ofthe 1996 Examination, SunTrust Bank originated loans ofapproximately $17.4 million to support the development of437 affordable housing units in the Atlanta MSA. SunTrusthas stated that, since the 1996 Examination, the bank hasmade approximately $29 million in construction loans foraffordable single family homes.

Examiners also concluded that the lending records ofSunTrust's lead Florida and Tennessee banks, SunTrustBank, Central Florida, Orlando, Florida ("STB-CentralFlorida"), and SunTrust Bank, Nashville, N.A., Nashville,Tennessee ("STB-Nashville"), respectively, reflected a re-sponsiveness to their communities' identified credit needs.Examiners noted that STB-Central Florida had been activein meeting the primary community development lendingneed in its assessment areas, which was affordable housingfor LMI individuals, and stated that the bank originated$70.2 million in community development loans during thereview period, most of which were for housing-relatedprojects for LMI individuals. Examiners further stated thatSTB-Central Florida used innovative and flexible lendingpractices to serve the credit needs of its communities.15

Examiners of STB-Nashville also favorably noted thebank's flexible credit products designed for LMI individu-als and described the bank as an active lender to smallbusinesses, explaining that the bank had made more than6,700 small business loans, totalling almost $800 million,from January 1, 1994, to June 30, 1996.16 Examiners foundno evidence of prohibited discrimination or other illegalcredit practices and found no violations of fair lendinglaws at STB-Central Florida or STB-Nashville.

SunTrust has indicated that its subsidiary banks, during1997 and the first half of 1998, made 14,000 mortgageloans, totalling $679 million, to LMI borrowers, represent-ing 21.3 percent of all mortgages made by the banks, and6,500 mortgage loans, totalling $404 million, in LMI cen-sus tracts. SunTrust also has asserted that its subsidiarybanks, during this same period, made 76,000 consumerloans, totalling $791 million, to LMI borrowers, represent-ing 34 percent of all consumer loans made by the banks,and 27,000 consumer loans, totalling $591 million, in LMIcensus tracts. Moreover, during this time period, Sun-Trust's subsidiary banks originated 41,000 small businessloans, totalling $4.1 billion. Approximately 64 percent ofthese loans were made to small businesses with annualrevenues of less than $ 1 million, 76 percent were made in

15. Examiners discussed the SunTrust Affordable Housing Pro-gram, a proprietary program providing down payment assistance,flexible debt ratios, below market interest rates, and no mortgageinsurance: the Community Home Buyers Program, a proprietary pro-gram offering flexible debt ratios and no discount points or originationfees; and the Florida Housing Finance Agency Homeowner MortgageRevenue Bond Program, a statewide program that offers a belowmarket interest rate and down payment assistance.

16. Examiners also noted that approximately 23 percent of thebank's small business loans in 1995 and the first half of 1996 weremade to borrowers in LMI census tracts.



amounts of $100,000 or less, and 23 percent were made tobusinesses in LMI census tracts.17

SunTrust also has a strong record of small farm lending.SunTrust and its subsidiaries originated more than 50 per-cent of the farm loans having an original principal amountof $500,000 or less ("small loans to farms") and the loansto farms having gross annual revenues of $1 million or less("loans to small farms") made by all financial institutionsin the state of Florida in 1996 and 1997. In Georgia,SunTrust and its subsidiaries originated approximately29 percent of the small loans to farms and approximately35 percent of the loans to small farms made by financialinstitutions in the aggregate during the same period.18

Lending Record of Crestar. The CRA performance ex-aminations of Crestar's subsidiary depository institutionsindicated that Crestar's banks, thrift, and mortgage com-pany subsidiary, Crestar Mortgage Corporation, Richmond,Virginia, actively marketed mortgage products and ac-tively solicited residential mortgage applications from LMIindividuals. The examinations also noted that Crestar of-fered a number of affordable housing products and partici-pated in a variety of government-sponsored loan programs,including those available through the FHA, VA, VirginiaHousing Development Authority, the Maryland Commu-nity Development Authority, and the D.C. Housing Fi-nance Agency. Crestar also participates in an affordablehousing program sponsored by the Federal Home LoanBank. Through this program, Crestar has helped develop350 units of low-cost housing by providing $35 million inloans and grants.

In addition, Crestar has created special business loancenters to underwrite credit to small businesses in itsservice areas. Crestar also participates in several govern-ment programs to promote small business lending, includ-ing programs sponsored by the SBA, the Economic Devel-opment Administration, and the Virginia Small BusinessFinancing Authority. Examiners also concluded that Cre-star's depository institutions' delineations of their serviceareas were reasonable and did not exclude any LMI neigh-

17. Many of SunTrust's banks operate in rural and small metropoli-tan areas and were recognized in their examinations for their smallbusiness and small farm lending. Several of these banks participatedin government-sponsored programs, such as those offered by the RuralDevelopment Agency.

18. Several commenters have urged SunTrust and Crestar to definetheir commitment to economic development investment and lendingin rural and small metropolitan areas. SunTrust has indicated that thesix SunTrust subsidiary banks whose communities include the serviceareas of the commenters have average loan-to-deposit ratios of morethan 104 percent and make the majority of their loans within theirdelineated communities. In addition, several of SunTrust's banks thatoperate in rural areas offer government-sponsored loan programs,including those of the Rural Development Agency, and were com-mended in their most recent CRA performance examinations for thevolume of their small business and small farm loan originations.Moreover, Crestar Bank offers Rural Housing and Community Devel-opment Service loans and has invested in the Virginia EconomicDevelopment Corporation, a private organization that provides equityand other forms of financing to small- and medium-sized businesses inrural areas throughout Virginia.

borhoods, and that the banks' offices were reasonablyaccessible to all segments of their communities.

During 1997 and the first half of 1998, Crestar mademore than 13,600 mortgage loans, totalling approximately$945 million, to LMI borrowers, representing approxi-mately 42 percent of all HMDA-reportable loans made byCrestar. During this same period, Crestar and its subsidiar-ies made more than 36,200 consumer loans, totalling$441 million, to LMI borrowers, representing 40 percent ofall consumer loans made by Crestar, and more than 11,500consumer loans, totalling $168 million, in LMI censustracts, representing 32 percent of all consumer loans madeby Crestar. Moreover, during this time period, Crestaroriginated approximately 14,800 small business loans, to-talling $1.4 billion; more than 80 percent of these loanswere made in amounts of $100,000 or less, and approxi-mately 20 percent were made to businesses in LMI censustracts.

HMDA Data. The Board also has considered SunTrust'sand Crestar's lending record in light of comments on theHMDA data of the organizations' subsidiaries. The 1997data indicate that Crestar Bank and Crestar Mortgage Cor-poration originated loans for a larger percentage ofhousing-related loan applications received from AfricanAmericans, LMI individuals, and residents of census tractswith predominately minority and LMI residents ("minorityand LMI census tracts") in Virginia than did lenders in theaggregate. The 1997 data also generally indicate that Sun-Trust's subsidiary banks originated loans for a significantlylarger percentage of housing-related loan applications, anddenied a significantly smaller percentage of such applica-tions, received from African Americans, Hispanics, LMIindividuals, and residents of minority and LMI censustracts in Georgia, Florida, and Tennessee than did lendersin the aggregate in those states.

The data reflect, however, certain disparities in the ratesof loan denials by racial group and income level. TheBoard is concerned when the record of an institution indi-cates disparities in lending, and believes that all banks areobligated to ensure that their lending practices are based oncriteria that ensure not only safe and sound lending but alsoequal access to credit by creditworthy applicants regardlessof their race or income level. The Board recognizes thatHMDA data alone provide an incomplete measure of aninstitution's lending in its community because these datacover only a few categories of housing-related lending.HMDA data, moreover, provide only limited informationabout the covered loans.19 HMDA data, therefore, havelimitations that make them an inadequate basis, absentother information, for concluding that an institution has not

19. The data, for example, do not account for the possibility that aninstitution's outreach efforts may attract a larger proportion of margin-ally qualified applicants than other institutions attract and do notprovide a basis for an independent assessment of whether an applicantwho was denied credit was, in fact, creditworthy. Credit historyproblems and excessive debt levels relative to income (reasons mostfrequently cited for a credit denial) are not available from HMDAdata.



adequately assisted in meeting its community's creditneeds or has engaged in illegal lending discrimination.

Because of the limitations of HMDA data, the Board hasconsidered these data carefully in light of other informa-tion. Examiners found no evidence of prohibited discrimi-nation or other illegal credit practices at the subsidiarydepository institutions of SunTrust and Crestar at theirmost recent completed examinations. Examiners reviewedthe fair lending policies and procedures maintained by thebanks and found the policies and procedures to be compre-hensive and appropriate for monitoring compliance withfair lending laws. The Board also has considered theHMDA data in light of SunTrust's and Crestar's lendingrecords, which show that the organizations' subsidiarydepository institutions assist significantly in helping tomeet the credit needs of their communities, including LMIareas.

Conclusion on Convenience and Needs Considerations

The Board has carefully considered all the facts of record,including the public comments received, responses to thecomments, and the CRA performance records of the sub-sidiary depository institutions of SunTrust and Crestar,including relevant reports of examination. Based on areview of the entire record, and for the reasons discussed inthis order, the Board has concluded that convenience andneeds considerations, including the CRA performancerecords of the subsidiary depository institutions of Sun-Trust and Crestar, are consistent with approval.


SunTrust also has filed notice under section 4(c)(8) of theBHC Act to acquire the nonbanking subsidiaries of Crestarand thereby engage in a number of nonbanking activities,including extending credit and servicing loans, providingleasing services, providing financial and investment ad-vice, providing agency transactional services (other thanacting as a futures commission merchant), underwritingand dealing to a limited extent in debt and equity securities,buying and selling bullion and related activities for theaccount of customers, insurance agency activities, commu-nity development activities, and data processing and man-agement consulting activities through an automated tellermachine ("ATM") and point-of-sale network. The Boardpreviously has determined by regulation or order that eachof these activities is closely related to banking for purposesof section 4(c)(8) of the BHC Act.20 SunTrust proposes toconduct these activities in accordance with Regulation Yand all relevant Board interpretations and orders.

A. Insurance Agency Activities

SunTrust also has applied to acquire and operate subsidiar-ies of Crestar that engage in certain insurance activities.

These subsidiaries, Crestar Insurance Agency, Inc.("Crestar Insurance"), and Crestar Securities Corporation("Crestar Securities"), both of Richmond, Virginia, en-gage in insurance agency activities pursuant to ExemptionG ("Exemption G") of Title VI of the Garn-St GermainDepository Institutions Act of 1982 ("Garn-St GermainAct"), which allows a bank holding company and itssubsidiaries to continue to engage in any insurance agencyactivity if the bank holding company or subsidiary wasengaged in insurance agency activities prior to January 1,1971, as a consequence of approval by the Board prior tothat date.21 SunTrust argues that it should be permitted toacquire and engage in insurance agency activities throughCrestar Insurance and Crestar Securities on the basis ofExemption G rights that accrue to Crestar.

The Board previously has determined that Exemption Grights expire when the bank holding company possessingthe Exemption G rights is acquired by another bank hold-ing company that does not independently qualify forExemption G rights.22 In this case, SunTrust does notqualify for Exemption G rights because it was not engagedin insurance activities prior to January 1, 1971, as a conse-quence of Board approval. The Board does not believe thatthe facts of this case justify a different conclusion.23 For theforegoing reasons, the Board concludes that Crestar'sExemption G rights will expire when SunTrust acquiresCrestar, and SunTrust is not entitled to engage, directly orthrough Crestar Insurance or Crestar Securities, in generalinsurance agency activities pursuant to Exemption G.

In the alternative, SunTrust proposes to acquire andconduct insurance agency activities through Crestar Insur-ance and Crestar Securities pursuant to Exemption D("Exemption D") of Title VI of the Garn-St GermainAct.24 Exemption D permits a bank holding company andany subsidiary of a bank holding company to continue toengage in any insurance agency activity in which thecompany was engaged on May 1, 1982, or which the Boardapproved for such company on or before May 1, 1982. TheBoard previously has determined that a company withExemption D rights does not lose those rights on its acqui-sition by a nongrandfathered bank holding company, pro-vided that the grandfathered company retains its separatecorporate structure, its insurance activities are not con-ducted by other companies within the acquiring bankingorganization, and the company conducts its insurance ac-tivities in accordance with the limits in Exemption D.25

20. See 12 C.F.R. 225.28 (b)(l), (3), (6), (7), (8). (9), (11), (12), and(14): United Virginia Bancshares, Inc., 73 Federal Reserve Bulletin309 (1987); Bamett Banks, Inc., et al., 83 Federal Reserve Bulletin131 (1997).

21. 12U.S.C. § 1843(c)(8)(G).22. See Trustcorp, Inc., 73 Federal Reserve Bulletin 827, 829

(1987) ("Trustcorp"); C&S/Sovran Corporation, 76 Federal ReserveBulletin 853 (1990) ("C&S/Sovran").

23. SunTrust argues that, because Crestar would continue to existafter the proposed transaction, the language of Exemption G indicatesthat Crestar Insurance and Crestar Securities would retain theirExemption G rights even after Crestar's acquisition by SunTrust. TheBoard previously has considered and rejected this interpretation ofExemption G. See Trustcorp, at 829.

24. 12U.S.C. § 1843(c)(8)(D).25. See Sovran Financial Corporation, 73 Federal Reserve Bulletin

672 (1987), aff'd, National Ass'n of Professional Insurance Agents v.



Although SunTrust would not qualify for Exemption Grights after its acquisition of Crestar, the Board notes thatCrestar Insurance and Crestar Securities may qualify forExemption D rights.26 SunTrust may provide additionalevidence to the Board that Crestar Insurance or CrestarSecurities acted as agent in the sale of particular types ofinsurance in particular states on May 1, 1982.27 On such ashowing, the relevant company would be permitted tocontinue to act as agent for those types of insurance inVirginia, the states adjacent to Virginia, and the states inwhich the company was lawfully engaged in such activityon May 1, 1982.

B. Proper Incident Considerations

In order to approve the proposal, the Board also mustdetermine that the performance of the proposed activities isa proper incident to banking, that is, that the proposedtransaction "can reasonably be expected to produce bene-fits to the public . . . that outweigh adverse effects, such asundue concentration of resources, decreased or unfair com-petition, conflicts of interests, or unsound banking prac-tices."28

The Board expects that the acquisition of Crestar bySunTrust would provide added convenience to customersof both institutions and is likely to result in increasedoperating efficiencies for the combined organization. Addi-tionally, there are public benefits to be derived from permit-ting capital markets to operate so that bank holding compa-nies can make potentially profitable investments innonbanking companies and from permitting banking orga-nizations to allocate their resources in the manner theyconsider to be most efficient, when such investments andactions are consistent, as in this case, with the relevantconsiderations under the BHC Act.

As part of its evaluation of the statutory factors, theBoard considers the financial and managerial resources ofthe notificant, its subsidiaries, and any company to beacquired; the effect the transaction would have on suchresources; and the management expertise, internal controland risk management systems, and capital of the entityconducting the activity.29 For the reasons discussed above,and based on all the facts of record, the Board has con-cluded that financial and managerial considerations areconsistent with approval of the notice.

Board of Governors of the Federal Reserve System, 856 R2d 282(D.C. Cir. 1988), cert, denied, 490 U.S. 1090 (1989).

26. The Board previously has determined that acquiring bank hold-ing companies which did not qualify for Exemption G rights inconnection with their acquisition of a grandfathered bank holdingcompany could qualify for Exemption D rights. See Trustcorp; C&S/Sovran.

27. This evidence should be consistent with the types of evidencerelied on by the Board in previous orders in which the Board foundthat a company met the requirements of Exemption D. See MidAmeri-can Corporation, 76 Federal Reserve Bulletin 559 (1990); Citicorp,76 Federal Reserve Bulletin 70 (1990).

28. 12U.S.C. § 1843(c)(8).29. See 12 C.F.R. 225.26.

The Board also has carefully considered the competitiveeffects of the proposed acquisition of Crestar's nonbankingsubsidiaries. Nonbank subsidiaries of SunTrust and Crestarcompete in securities underwriting and dealing activities,securities brokerage, asset management and investmentadvisory activities, mutual fund advisory and share broker-age activities, credit card operations, mortgage originationand servicing activities, trust services, and selling insur-ance to the extent permissible for bank holding companies.The Board notes that the market for each of the nonbank-ing services is unconcentrated, that there are numerousproviders of the services, and that there is minimal geo-graphic overlap in the areas in which SunTrust and Crestarprimarily offer these services. Consummation of the pro-posal, therefore, would have a de minimis effect on compe-tition, and the Board has concluded that the proposal wouldnot have a significantly adverse effect on competition inany relevant market.

The Board believes that the conduct of the proposedactivities within the framework established under Regula-tion Y and prior orders is not likely to result in adverseeffects, such as undue concentration of resources, de-creased or unfair competition, conflicts of interests, orunsound banking practices, that would not be outweighedby the public benefits of the proposal, such as increasedconvenience and gains in efficiency. Accordingly, based onall the facts of record, the Board has determined that thebalance of public benefits that the Board must considerunder the proper incident to banking standard of sec-tion 4(c)(8) of the BHC Act is favorable and consistentwith approval of the proposal.30

Conclusion

Based on the foregoing and all the other facts of record, theBoard has determined that the application and noticeshould be, and hereby are, approved. The Board's approvalis specifically conditioned on compliance by SunTrust withall the commitments made in connection with the proposaland all the conditions in this order.

The Board's determination on the nonbanking activitiesalso is subject to all the terms and conditions set forth inRegulation Y, including those in sections 225.7 and225.25(c) of Regulation Y (12 C.F.R. 225.7 and225.25(c)), and to the Board's authority to require suchmodification or termination of the activities of a bankholding company or any of its subsidiaries as the Boardfinds necessary to ensure compliance with, and to preventevasion of, the provisions of the BHC Act and the Board'sregulations and orders issued thereunder. For purposes of

30. SunTrust and Crestar each currently owns an approximately20 percent nonvoting equity interest in a company that engages inimpermissible activities ("Company"). As part of this transaction,SunTrust would acquire Crestar's 20 percent interest in Company. Asa condition of the order, SunTrust is required to divest or reduce itsinterest in Company to comply with the Board's Policy Statement onNonvoting Equity Investments, 12 C.F.R. 225.143, within two yearsof consummation of the proposal.



this order, the commitments and conditions relied on by theBoard in reaching this decision are deemed to be condi-tions imposed in writing by the Board in connection withits findings and decisions, and, as such, may be enforced inproceedings under applicable law.

The acquisition of Crestar Bank may not be consum-mated before the fifteenth calendar day following the effec-tive date of this order, and the proposal may not be con-summated later than three months after the effective date ofthis order, unless such period is extended for good cause bythe Board or by the Federal Reserve Bank of Atlanta,acting pursuant to delegated authority.




Appendix

Crestar Financial Corporation's NonbankingSubsidiaries

(1) Crestar Securities Corporation, Richmond, Virginia("Crestar Securities'"), and thereby engage in extendingcredit and servicing loans, providing leasing services, pro-viding financial and investment advisory services, provid-ing securities brokerage, riskless principal, and privateplacement services, underwriting and dealing in bank-eligible securities, entering into futures, forwards, and op-tions contracts for hedging puiposes, and buying and sellingbullion and related activities for the account of customerspursuant to sections 225.28(b)(l), (3), (6), (7), and (8) ofRegulation Y (12 C.F.R. 225.28(b)(l), (3), (6), (7), and (8));and underwriting and dealing in. to a limited extent, certainmunicipal revenue bonds, 1-4 family mortgage-related se-curities, consumer receivable-related securities, and com-mercial paper, as previously approved by the Board inCrestar Financial Corporation, 83 Federal Reserve Bulle-tin 512 (1997).

(2) Crestar Insurance Agency, Inc., Richmond, Virginia, andthereby engage in insurance agency activities, with CrestarSecurities, pursuant to section 225.28(b)(l l)(iv) of Regula-tion Y (12 C.F.R. 225.28(b)(ll)(iv)), as discussed morefully in the Order.

(3) Crestar Community Development Corporation, Richmond,Virginia, and thereby engage in community developmentactivities, pursuant to section 225.28(b)(12) of Regula-tion Y (12 C.F.R. 225.28(b)(12)).

(4) Honor Technologies, Inc., Maitland, Florida, and therebyengage in data processing and management consulting ac-tivities through the operation of an ATM and point-of-salenetwork, pursuant to sections 225.28(b)(9) and (14) ofRegulation Y (12 C.F.R. 225.28(b)(9) and (14)).

ORDERS ISSUED UNDER INTERNATIONAL BANKINGACT

Chinatrust Commercial Bank, Ltd.Taipei, Taiwan

Order Approving Establishment of a Branch

Chinatrust Commercial Bank, Ltd. ("Bank"), Taipei, Tai-wan, a foreign bank within the meaning of the Interna-tional Banking Act ("IBA"), has applied under section 7(d)of the IBA (12U.S.C. §3105(d)) to establish a state-licensed branch in New York, New York. The ForeignBank Supervision Enhancement Act of 1991 ("FBSEA"),which amended the IBA, provides that a foreign bank mustobtain the approval of the Board to establish a branch inthe United States.

Notice of the application, affording interested persons anopportunity to submit comments, has been published in anewspaper of general circulation in New York, New York(New York Times, November 12, 1997). The time for filingcomments has expired, and all comments have been con-sidered.

Bank, with assets equivalent to approximately$16.9 billion, is the ninth largest bank in Taiwan.1 Bank'sshares are publicly traded and widely held, with no singleshareholder directly owning more than 2 percent. Bankoperates more than 30 branches in Taiwan and also hasbranches in Hong Kong, India, and Paraguay. In addition,Bank operates an offshore banking unit in Taiwan andcommercial bank subsidiaries in the Philippines andIndonesia.

Bank's primary purpose for establishing the proposedbranch is to provide banking services to the U.S. subsidiar-ies of Bank's existing customers in Taiwan, and to facili-tate international trade between the United States and Asia.Bank does not engage directly or indirectly in any non-banking activities in the United States, and, after establish-ing the proposed branch, would be a qualifying foreignbanking organization within the meaning of Regulation K(12 C.F.R. 211.23(b)).

Bank has received approval to establish the proposedbranch from the Taiwan authorities. The New York StateBanking Department also has approved Bank's applicationto establish the proposed branch.

In order to approve an application by a foreign bank toestablish a branch in the United States, the IBA and Regu-lation K require the Board to determine that the foreignbank applicant engages directly in the business of bankingoutside of the United States, and has furnished to the Boardthe information it needs to assess the application ade-quately. The Board also must determine that the foreignbank is subject to comprehensive supervision or regulationon a consolidated basis by its home country supervisor(12U.S.C. §31O5(d)(2); 12 C.F.R. 211.24)). The Boardalso may take into account additional standards as set forth

1. All data are as of December 31, 1997, unless otherwise noted.


] 122 Federal Reserve Bulletin • December 1998

in the IBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4);12C.F.R. 2ll.24(c)).

As noted above, Bank engages directly in the business ofbanking outside the United States. Bank also has providedthe Board with the information necessary to assess theapplication through submissions that address the relevantissues.

Regulation K provides that a foreign bank will be con-sidered to be subject to comprehensive supervision orregulation on a consolidated basis if the Board determinesthat the bank is supervised and regulated in such a mannerthat its home country supervisor receives sufficient infor-mation on the foreign bank's worldwide operations, includ-ing the relationship of the foreign bank to any affiliate, toassess the overall financial condition of the foreign bankand its compliance with law and regulation (12 C.F.R.

With respect to the issue of supervision by home countryauthorities, the Board has considered the following infor-mation. Bank is supervised and regulated by the Ministryof Finance ("Ministry") and the Taiwan Central Bank("Central Bank"), which share responsibility for the super-vision of banks in Taiwan. The Banking Law of Taiwangrants the Ministry overall authority for the regulation andsupervision of banks in Taiwan, including Bank.3 TheMinistry has delegated the authority to the Central Bank toact as the primary examiner of banks in Taiwan, in whichcapacity the Central Bank conducts mandatory annual ex-aminations.

The Board previously has determined, in connectionwith applications involving other banks in Taiwan, thatthese banks were subject to home country supervision on aconsolidated basis.4 Bank is supervised by the Ministry and

2. In assessing this standard, the Board considers, among otherfactors, the extent to which the home country supervisors:

(i) Ensure that the bank has adequate procedures for monitoringand controlling its activities worldwide;

(ii) Obtain information on the condition of the bank and itssubsidiaries and offices through regular examination reports,audit reports, or otherwise;

(iii) Obtain information on the dealings with and relationshipbetween the bank and its affiliates, both foreign and domestic;

(iv) Receive from the bank financial reports that are consolidatedon a worldwide basis, or comparable information that permitsanalysis of the bank's financial condition on a worldwideconsolidated basis;

(v) Evaluate prudential standards, such as capital adequacy andrisk asset exposure, on a worldwide basis.

These are indicia of comprehensive, consolidated supervision. Nosingle factor is essential and other elements may inform the Board'sdetermination.

3. This authority permits the Ministry, among other things, to issuelicenses, limit activities and expansion, conduct examinations, setminimum capital and liquidity ratios, limit credit extensions, restrictdirector interlocks, define qualifications for management, and takeenforcement actions.

4. See Taipei Bank, 79 Federal Reserve Bulletin 143 (1993); UnitedWorld Chinese Commercial Bank, 79 Federal Reserve Bulletin 146(1993); Bank of Taiwan, 79 Federal Reserve Bulletin 541 (1993);Chiao Tung Bank, 79 Federal Reserve Bulletin 543 (1993); TheFarmers Bank of China, 81 Federal Reserve Bulletin 620 (1995);Taiwan Business Bank, 81 Federal Reserve Bulletin 746 (1995); Land

the Central Bank on substantially the same terms andconditions as such other banks. Based on all the facts ofrecord, the Board has determined that Bank is subject tocomprehensive supervision and regulation on a consoli-dated basis by its home country supervisors.

The Board also has taken into account the additionalstandards set forth in section 7 of the IBA (see 12 U.S.C.§ 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above,

Bank has received the consent of its home country authori-ties to establish the proposed state-licensed branch.

Bank must comply with the minimum capital standardsof the Basle Accord, as implemented by Taiwan. Bank'scapital exceeds these minimum standards and can be con-sidered equivalent to capital that would be required of aU.S. banking organization. Managerial and other financialresources of Bank are also considered consistent withapproval, and Bank appears to have the experience andcapacity to support the proposed branch. Bank has estab-lished controls and procedures for the proposed branch inorder to ensure compliance with U.S. law, as well ascontrols and procedures for its worldwide operations gener-ally.

The Board has reviewed the restrictions on disclosure inrelevant jurisdictions in which Bank operates and has com-municated with relevant authorities about access to infor-mation. Bank has committed that it will make available tothe Board such information on the operations of Bank andany affiliate of Bank that the Board deems necessary todetermine and enforce compliance with the IBA, the BankHolding Company Act of 1956, as amended, and otherapplicable federal law. To the extent that the provision ofsuch information is prohibited or impeded by law, Bankhas committed to cooperate with the Board to obtain anyconsents or waivers that might be required from thirdparties in connection with disclosure of such information.In addition, subject to certain conditions, the Ministry andthe Central Bank may share information on Bank's opera-tions with other supervisors, including the Board. In lightof these commitments and other facts of record, and sub-ject to the condition described below, the Board concludesthat Bank has provided adequate assurances of access toany necessary information the Board may request.

On the basis of all the facts of record, and subject to thecommitments made by Bank, and the terms and conditionsset forth in this order, the Board has determined thatBank's application to establish a state-licensed branchshould be, and hereby is, approved. Should any restrictionson access to information on the operations or activities ofBank or any of its affiliates subsequently interfere with theBoard's ability to obtain information to determine andenforce compliance by Bank or its affiliates with applicablefederal statutes, the Board may require termination of anyof Bank's direct or indirect activities in the United States.Approval of the application also is specifically conditionedon compliance by Bank with the commitments made in

Bank of Taiwan, 83 Federal Reserve Bulletin 336 (1997); BankSinoPac, 83 Federal Reserve Bulletin 669 (1997).



connection with this application, and with the conditions inthis order.5 The commitments and conditions referred toabove are conditions imposed in writing by the Board inconnection with its decision, and may be enforced inproceedings under 12U.S.C. § 1818 or 12U.S.C. § 1847against Bank, its offices, and its affiliates.

By order of the Board of Governors, effective October 5,1998.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin, andGovernors Kelley, Meyer, Ferguson, and Gramlich.


Erste Bank odersterreichischen SparkassenAktiengesellschaftVienna, Austria

Order Approving Establishment of a Branch

Erste Bank odersterreichischen Sparkassen Aktiengesell-schaft, Vienna, Austria ("Bank"), a foreign bank withinthe meaning of the International Banking Act ("IBA"), hasapplied under section 7(d) of the IBA (12 U.S.C. § 31O5(d))to establish a federally licensed branch in New York,New York. The Foreign Bank Supervision EnhancementAct of 1991, which amended the IBA, provides that aforeign bank must obtain the approval of the Board toestablish a branch in the United States.

Notice of the application, affording interested persons anopportunity to comment, has been published in a newspa-per of general circulation in New York (The New YorkTimes, May 28, 1998). The time for filing comments hasexpired, and the Board has considered the application andall comments received.

Bank, with total consolidated assets of approximately$57 billion, is one of the largest banks in Austria.1 DieErste osterreichische Spar-Casse Anteilsverwal-tungssparkasse, Vienna, Austria ("AVS""), which owns43 percent of Bank's voting shares, is Bank's largestshareholder.2 No other single shareholder holds 10 percentor more of the outstanding voting shares of Bank.

In addition to its network of domestic branches, Bankoperates bank and nonbank subsidiaries that engage in anumber of activities in Austria, including commercialbanking, finance, insurance, real estate, and travel-related

5. The Board's authority to approve the establishment of the pro-posed office parallels the continuing authority of the State of NewYork to license offices of a foreign bank. The Board's, approval of theapplication does not supplant the authority of the State of New Yorkand the New York State Banking Department ("Department") tolicense the proposed office of Bank in accordance with any terms orconditions that the Department may impose.

services. International operations include branches, repre-sentative offices, and bank and nonbank subsidiarieslocated in Europe, Asia, and the United States. Bank is aqualifying foreign banking organization within the mean-ing of Regulation K (12 C.F.R. 211.23(b)).

Bank was formed as the result of the merger of Giro-Credit Bank Aktiengesellschaft der Sparkassen AG ("Giro-Credit") into Die Erste osterreichische Spar-Casse BankAktiengesellschaft ("Die Erste"), both of Vienna, Austria.Before the merger, Die Erste had no banking operations inthe United States. GiroCredit operated a federally licensed,uninsured branch in New York, which Bank seeks author-ity to operate through the instant application. Pursuant toRegulation K, the Board allowed the merger to proceedbefore an application to establish the office was filed andacted on by the Board.3

The Austrian Federal Ministry of Finance (the "Minis-try"), which approved the merger of Die Erste and Giro-Credit, has no objection to the continued operation of theexisting branch of Bank.

In order to approve an application by a foreign bank toestablish a branch in the United States, the IBA and Regu-lation K require the Board to determine that the foreignbank applicant engages directly in the business of bankingoutside of the United States and has furnished to the Boardthe information it needs to assess the application ade-quately. The Board generally also must determine that theforeign bank is subject to comprehensive supervision orregulation on a consolidated basis by its home countrysupervisor (12 U.S.C. § 3105(d)(2)). The Board may alsotake into account additional standards as set forth in theIBA and Regulation K (12 U.S.C. § 3105(d)(3)-(4);12 C.F.R. 211.24(c)).

Bank engages directly in the business of banking outsideof the United States through its banking operations inAustria and elsewhere. Bank also has provided the Boardwith the information necessary to assess the applicationthrough submissions that address the relevant issues.

Regulation K provides that a foreign bank will be con-sidered to be subject to comprehensive supervision orregulation on a consolidated basis if the Board determinesthat the bank is supervised and regulated in such a mannerthat its home country supervisor receives sufficient infor-mation on the foreign bank's worldwide operations, includ-ing the relationship of the foreign bank to any affiliate, toassess the overall financial condition of the foreign bankand its compliance with law and regulation (12 C.F.R.

1. All data are as of June 30, 1998.2. AVS, an inactive savings bank that acts as a holding company for

Bank, is controlled by Verein - Die Ersteosterreichische Spar-CasseAnteilsverwaltungssparkasse ("Verein DE"), a savings bank associa-tion. Verein DE engages in no activities other than controlling AVS.

3. 12 C.F.R. 211.24(a)(3).4. In assessing this standard, the Board considers, among other

factors, the extent to which the home country supervisors:(i) Ensure that the bank has adequate procedures for monitoring

and controlling its activities worldwide;(ii) Obtain information on the condition of the bank and its

subsidiaries and offices through regular examination reports,audit reports, or otherwise;

(iii) Obtain information on the dealings with and relationshipbetween the bank and its affiliates, both foreign and domestic;



In this case, with respect to the issue of supervision byhome country authorities, the Board has considered thefollowing information. Bank is supervised and regulatedby the Ministry and the Austrian National Bank ("CentralBank")- The Board previously has determined that anotherAustrian credit institution is subject to comprehensive su-pervision on a consolidated basis by the Ministry and theCentral Bank.5 The Board has determined that Bank issupervised on substantially the same terms and conditionsas that other institution. Based on all the facts of record, theBoard concludes that Bank is subject to comprehensivesupervision on a consolidated basis by its home countrysupervisor.

The Board also has taken into account the additionalstandards set forth in section 7 of the IBA {see 12 U.S.C.§ 3105(d)(3)-(4); 12 C.F.R. 211.24(c)(2)). As noted above,

the Ministry has not objected to Bank establishing theproposed federally licensed uninsured branch.

Austria is a signatory to the Basle risk-based capitalstandards, and Austrian risk-based capital standards meetthose established by the Basle Capital Accord and theEuropean Union. Bank's capital is in excess of the mini-mum levels that would be required by the Basle CapitalAccord and is considered equivalent to capital that wouldbe required of a U.S. banking organization. Managerial andother financial resources of Bank also are considered con-sistent with approval, and Bank appears to have the experi-ence and capacity to support the branch. Bank has estab-lished controls and procedures for the branch to ensurecompliance with U.S. law, as well as controls and proce-dures for its worldwide operations in general.

Finally, the Board has reviewed the restrictions on dis-closure in relevant jurisdictions in which Bank operatesand has communicated with relevant government authori-ties about access to information. Bank and Verein DE havecommitted to make available to the Board such informa-tion on the operations of Bank and any affiliate of Bankthat the Board deems necessary to determine and enforcecompliance with the IBA, the Bank Holding Company Act

(iv) Receive from the bank financial reports that are consolidatedon a worldwide basis, or comparable information that permitsanalysis of the bank's financial condition on a worldwideconsolidated basis;

(v) Evaluate prudential standards, such as capital adequacy andrisk asset exposure, on a worldwide basis.

These are indicia of comprehensive, consolidated supervision. Nosingle factor is essential and other elements may inform the Board'sdetermination.

5. See Creditanstalt-Bankverein, 82 Federal Reserve Bulletin 594(1996).

of 1956, as amended, and other applicable federal law. Tothe extent that the provision of such information is prohib-ited or impeded by law, Bank and Verein DE have commit-ted to cooperate with the Board to obtain any necessaryconsents or waivers that might be required from thirdparties in connection with disclosure of certain informa-tion. In addition, subject to certain conditions, the Ministrymay share information on Bank's operations with othersupervisors, including the Board. In light of these commit-ments and other facts of record, and subject to the condi-tion described below, the Board concludes that Bank hasprovided adequate assurances of access to any necessaryinformation the Board may request.

On the basis of all the facts of record, and subject to thecommitments made by Bank, as well as the terms andconditions set forth in this order, the Board has determinedthat Bank's application to establish a federally licensedbranch should be, and hereby is, approved. Should anyrestrictions on access to information on the operations oractivities of Bank and its affiliates subsequently interferewith the Board's ability to obtain information to determineand enforce compliance by Bank or its affiliates withapplicable federal statutes, the Board may recommendtermination of any of Bank's direct or indirect activities inthe United States. Approval of this application is alsospecifically conditioned on Bank's compliance with thecommitments made in connection with this application andwith the conditions in this order.6 The commitments andconditions referred to above are conditions imposed inwriting by the Board in connection with its decision, andmay be enforced in proceedings under 12 U.S.C. § 1818 or12 U.S.C. § 1847 against Bank, its offices, and its affiliates.

By order of the Board of Governors, effectiveOctober 14. 1998.



6. The Board's authority to approve establishment of the proposedbranch office parallels the continuing authority of the Office of theComptroller of the Currency ("OCC") to license federal offices of aforeign bank. The Board's approval of this application does notsupplant the authority of the OCC to license the proposed branchoffice of Bank in accordance with any terms or conditions that theOCC may impose.



APPLICATIONS APPROVED UNDER BANK HOLDING COMPANY ACT

By the Secretary of the Board

Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request tothe Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System,Washington, D.C. 20551.

Section 3

Applicant(s) Bank(s) Effective Date

Compass Bancshares, Inc.,Birmingham, Alabama

First Citizens Bancshares. Inc..Dyersburg, Tennessee

Old National Bancorp,Evansville, Indiana

Simmons First National Corporation,Pine Bluff, Arkansas

Arizona Bank, October 23, 1998Tucson, Arizona

First Volunteer Corporation, October 29, 1998Union City, Tennessee

First Volunteer Bank,Union City, Tennessee

Southern Bancshares, Ltd., October 13, 1998Carbondale, Illinois

First National Bank and Trust Company,Carbondale, Illinois

American Bancshares of Arkansas, Inc., October 5, 1998Charleston, Arkansas

American State Bank,Charleston, Arkansas

Section 4


The Chase Manhattan Corporation,New York, New York

Chase Equity Holdings, Inc.,Wilmington, Delaware

Norwest Corporation,Minneapolis, Minnesota

Norwest Corporation,Minneapolis, Minnesota

State Street Corporation,Boston, Massachusetts

CBC Holding (Delaware) Inc., October 14, 1998Wilmington, Delaware

PNC Bank, National Association,Pittsburgh, Pennsylvania

PNC Trust Company, Delaware, NationalAssociation,Wilmington, Delaware

Edina Realty Mortgage, LLC, October 13, 1998Edina, Minnesota

RELS, LLC, October 5, 1998San Diego, California

RELS Title, LLC,Edina, Minnesota

Bridge Information Systems, Inc., October 16, 1998St. Louis, Missouri

Wall Street on Demand, Inc.,Boulder, Colorado



By Federal Reserve Banks

Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request tothe Reserve Banks.

Section 3

Applicant(s) Bank(s) Reserve Bank Effective Date

Area Bancshares Corporation,Owensboro, Kentucky

BancorpSouth, Inc.,Tupelo, Mississippi

BancFirst Corporation,Okalahoma City, Oklahoma

Baylake Corporation,Sturgeon Bay, Wisconsin

BOK Financial Corporation,Tulsa, Oklahoma

The George Family Partnership,Ltd.,Bonifay, Florida

Bonifay Holdings, L.L.C.Bonifay, Florida

Business Holding Corporation,Baton Rouge, Louisiana

Central Bancshares, Inc.,Cambridge, Nebraska

Century Bancshares, Inc.,Schaller, Iowa

Colonial BancGroup, Inc.,Montgomery, Alabama


Cortland First FinancialCorporation,Cortland, New York

Eggemeyer Advisory Corp.,Rancho Santa Fe, California

Castle Creek Capital, L.L.C,Rancho Santa Fe. California

Castle Creek Capial Partners Fund-I,L.P.,Rancho Santa Fe, California

First Beemer Corporation,Beemer, Nebraska

Broadway Bank and Trust,Paducah, Kentucky

The First Corporation,Opelika, Alabama

First National Bank of Opelika,Opelika, Alabama

Kingfisher Bancorp, Inc.,Kingfisher, Oklahoma

Evergreen Bank, N.A.,Poy Sippi, Wisconsin

Bank of Albuquerque, N.A.,Albuquerque, New Mexico

Bonifay Holding Company, Inc.,Bonifay, Florida

St. Louis

St. Louis

Kansas City

Chicago

Kansas City

Atlanta

October 8, 1998

October 9, 1998

October 7, 1998

September 17, 1998

September 29, 1998

September 30, 1998

The Business Bank of Baton Rouge,Baton Rouge, Louisiana

First Central Bank McCook, NationalAssociation,McCook, Nebraska

State Bank of Schaller,Schaller, Iowa

InterWest Bancorp,Reno, Nevada

InterWest Bank,Reno, Nevada

TB&T, Inc.,Dallas, Texas

Texas Bank & Trust,Dallas, Texas

Oneida Valley Bancshares, Inc.,Oneida, New York

Oneida Valley NationalBank of Oneida,Oneida, New York

Peninsula Bank of San Diego,San Diego, California

Atlanta October 1, 1998

Kansas City October 21, 1998

Chicago

Atlanta

Atlanta

New York

October 15, 1998

September 29, 1998

October 15, 1998

October 7, 1998

San Francisco October 16, 1998

Citizens Bank,Bancroft, Nebraska

Kansas City September 30, 1998



Section 3—Continued


First Gilmer Bankshares, Inc.,Gilmer, Texas

First Gilmer Delaware Holdings,Ltd.,Wilmington, Delaware

FLAG Financial Corporation,LaGrange, Georgia

F&M Bancorp,Frederick, Maryland

Frontier Financial Corporation,Everett, Washington

Grandview Bancshares, Inc.,Grandview, Texas

Grandview Delaware Financial, Inc..Dover, Delaware

Gold Bane Corporation,Leawood, Kansas

Heritage Commerce Corp.,San Jose, California

Intra Financial Corporation,Clyde, Kansas

Lake Bank Shares, Inc., EmployeeStock Ownership Plan,Emmons, Minnesota

Legacy Bancorp, Inc.,Milwaukee, Wisconsin

Marine Bancshares, Inc.,Marine on St. Croix, Minnesota

Marin National Bancorp,San Rafael, California

MetroCorp Bancshares, Inc.,Houston, Texas

MetroCorp-Delaware, Inc.,Wilmington, Delaware

Michigan Community BancorpLimited,Sterling Heights, Michigan

Morrill Bancshares, Inc.,Sabetha, Kansas

Mutual Bancorp of the Berkshires,Inc.Pittsfield, Massachusetts

City Savings Bank of Pittsfield,Pittsfield, Massachusetts

Security State Bank,Ore City, Texas

Heart of Georgia Bancshares, Inc.,Mount Vernon, Georgia

Mount Vernon Bank,Mount Vernon, Georgia

Monocacy Bancshares, Inc.,Taneytown, Maryland

Valley Bancorporation,Sumner, Washington

Bank of Sumner,Sumner, Washington

First State Bank,Grandview, Texas

Citizens Bancorporation, Inc.,Tulsa, Oklahoma

Citizens Bank of Tulsa,Tulsa, Oklahoma

Heritage Bank East Bay,Fremont, California

Arizona Bancshares, Inc.,Flagstaff, Arizona

Lake Bank Shares, Inc.,Emmons, Minnesota

Legacy Bank,Milwaukee, Wisconsin

Security State Bank of Marine,Marine on St. Croix, Minnesota

First National Interim Bank of Marin,Las Vegas, Nevada

MetroBank, National Association,Houston, Texas

MetroBank, National Association,Houston, Texas

Lakeside Community Bank,Sterling Heights, Michigan

North Oakland Community Bank,Rochester Hills, Michigan

Morrill & Janes Bancshares, Inc.,Hiawatha, Kansas

Lenox Financial Services Corp.,Lenox, Massachusetts

Lenox Savings Bank,Lenox, Massachusetts

United Financial Group, Inc.,Pittsfield, Massachusetts

Dallas

Atlanta

Dallas

August 27, 1998

September 30, 1998

Richmond October 9, 1998


September 30, 1998

Kansas City October 16, 1998



Minneapolis October 15, 1998

Chicago

Minneapolis

San Francisco

Dallas

Dallas

Chicago

October

October

October

October

October

October

9, 1998

21, 1998

19, 1998

9, 1998

9, 1998

9, 1998


Boston October 16, 1998





National City Bancshares, Inc..Evansville, Indiana

Oconee Financial Corporation,Watkinsville, Georgia

Ottawa Bancshares, Inc.,Ottawa, Kansas

Pacific Coast Bankers' Bancshares,San Francisco, California

Pepperell Bancshares FinancialGroup, Inc.,Biddeford, Maine

Petefish, Skiles Bancshares, Inc.,Virginia, Illinois

PHS Bancorp, M.H.C.,Beaver Falls, Pennsylvania

Provincial Corp.,Lakeville, Minnesota

Putnam County Bancorp, Inc.,Hennepin, Illinois

Republic First Bancorp, Inc.,Philadelphia, Pennsylvania

Robinson Bancshares, Inc.,Lenox, Georgia

Seed Money Limited Partnership,Allison Park, Pennsylvania

Texas Financial Bancorporation,Inc.,Minneapolis, Minnesota

Delaware Financial, Inc.,Wilmington, Delaware

Travelers Rest Bancshares, Inc.,Travelers Rest, South Carolina

United Financial Corp.,Great Falls, Montana

Union Planters Corporation,Memphis, Tennessee

Union Planters Holding Corporation,Memphis, Tennessee

Progressive Bancshares, Inc., St. LouisLexington, Kentucky

The Progressive Bank, N.A.,Lexington, Kentucky

Oconee State Bank,Watkinsville, Georgia

First State Management, Inc.,Salina, Kansas

Pacific Coast Bankers' Bank,San Francisco, California

Pepperell Trust Company,Biddeford, Maine

Petefish, Skiles & Co.,Virginia, Illinois

PHS Bancorp, Inc.,Beaver Falls, Pennsylvania

Provincial Bank,LakeviJle, Minnesota

Bank of Ladd,Ladd, Illinois

Republic First Bank Delaware,Brandywine, Delaware

Bank of Lenox,Lenox, Georgia

Enterprise Bank,Allison Park, Pennsylvania

Walburg State Bank,Georgetown, Texas

Bank of Travelers Rest, RichmondTravelers Rest, South Carolina

Valley Bancorp, Inc., MinneapolisPhoenix, Arizona

LaPlace Bancshares, Inc., St. LouisLaPlace, Louisiana

Bank of LaPlace of St. John the BaptistParish, LouisianaLaPlace, Louisiana

October 5, 1998

Atlanta

Kansas City

San Francisco

Boston

Chicago

Cleveland

Minneapolis

Chicago

Philadelphia

Atlanta

Cleveland

Dallas

October 15, 1998

October 21, 1998

October 15, 1998

September 23, 1998

October 15, 1998

September 25, 1998

October 8, 1998

September 25, 1998

October 1, 1998

October 21, 1998

October 8, 1998

August 31, 1998

October 22, 1998

October 22, 1998

September 24, 1998



Section 4

Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date

Advance Bancorp, Inc.,Homewood, Illinois

ANB Corporation,Muncie, Indiana

The Bank of New York Company,Inc.,New York, New York

Bank of the Ozarks, Inc.,Little Rock, Arkansas


Davis Bancorporation, Inc.,Davis, Oklahoma

First Bancorporation, Inc.,La Crosse, Wisconsin

First Centralia Bancshares, Inc.,Centralia, Kansas

First Western Bancorp, Inc.,Huron, South Dakota

Imperial Bancorp,Inglewood, California

Mellon Bank Corporation,Pittsburgh, Pennsylvania

Morrill Bancshares, Inc.,Sabetha, Kansas

Morrill & Janes Bancshares, Inc.,Hiawatha, Kansas

New London Bancshares, Inc.,New London, Missouri

Onaga Bancshares, Inc.,Onaga, Kansas

Second Bancorp,Warren, Ohio

Sherburn Bancshares, Inc.,Sherburn, Minnesota

TIB Financial Corporation,Key Largo, Florida

United Overseas Bank Limited,Singapore

Westdeutsche LandesbankGirozentrale,Duesseldorf, Federal Republic ofGermany

South Chicago Bank,Chicago, Illinois

American National Trust andInvestment Management Company,Muncie, Indiana,

Indiana Trust & InvestmentManagement Company,Mishawaka, Indiana

BNY ESI & Co..New York, New York

Alpha Management Inc.,San Francisco, California

John R. Taylor Financial Group, Inc.,Fort Smith, Arkansas

InterWest Mortgage,Reno, Nevada

FBC Financial Corporation,Claremore, Oklahoma

Midwest Data Services, Inc.,La Crosse, Wisconsin


Northern Hills Insurance, LLC.Belle Fourche, South Dakota

First Houston Financial Services, Inc.,d.b.a., Altair Corporation,Houston, Texas

Russell Mellon Analytical Services,LLC,Tacoma, Washington



To engage in general insurance agencyactivities


Trumbull Financial Corporation,Warren, Ohio

To engage de novo in the nonbankactivity of making loans and buyingoverlines

TIB Software and Services, Inc.,Key Largo, Florida

ERAS Joint Venture,Miami, Florida

UOB Global Capital LLC,Delaware

TeamCo Management Co., LLC,Delaware

WestLB Securities Americas Inc.,New York, New York

Chicago

Chicago

New York

St. Louis

Atlanta

Kansas City

Minneapolis

Kansas City,

Minneapolis

San Francisco

Cleveland

Kansas City

Kansas City

St. Louis

Kansas City

Cleveland

Minneapolis

Atlanta

New York

New York

October 15, 1998

October 8, 1998

October 1, 1998

October 13, 1998

September 29, 1998

October 16, 1998

September 30, 1998

October 16, 1998

October 19, 1998

October 5, 1998

October 19, 1998

October 16, 1998

October 16, 1998

October 15, 1998

October 16, 1998

October 7, 1998

October 2, 1998

October 7, 1998

October 22, 1998

October 1, 1998




Applicant(s) Nonbanking Activity/Company Reserve Bank Effective Date

Wilmington Trust Corporation,Wilmington, Delaware

WT Investments, Inc.Wilmington, Delaware

Wilmington Trust Company,Wilmington, Delaware

Philadelphia September 25, 1998

APPLICATIONS APPROVED UNDER BANK MERGER ACTBy the Secretary of the Board

Recent applications have been approved by the Secretary of the Board as listed below. Copies are available upon request tothe Freedom of Information Office, Office of the Secretary, Board of Governors of the Federal Reserve System,Washington, D.C. 20551.


AmSouth Bank,Birmingham, Alabama

Capital City Bank Group, Inc.,Tallahassee, Florida

Security Bank,Rails, Texas

AmSouth Bank of Tennessee,Chattanooga, Tennessee

First Union National Bank,Charlotte, North Carolina

First State Bank,Petersburg, Texas

October 22, 1998

October 20, 1998

October 26, 1998

By Federal Reserve Banks

Recent applications have been approved by the Federal Reserve Banks as listed below. Copies are available upon request tothe Reserve Banks.

Applicant(s)

BancFirst,Oklahoma City, Oklahoma

Bank of Bentonville,Bentonville, Arkansas

Colonial Bank,Montgomery, Alabama

Colonial Bank,Montgomery, Alabama

Comerica Bank,Detroit, Michigan

Farmers State Bank of WestConcord,West Concord, Minnesota

Mercantile Bank Midwest,Des Moines, Iowa

Mercantile Bank Midwest,Des Moines, Iowa

People First Bank,Hennessey, Oklahoma

Republic Security Bank,West Palm Beach, Florida

Bank(s)

Kingfisher Bank & Trust Company,Kingfisher. Oklahoma

State Bank of Noel,Noel, Missouri

InterWest Bank,Reno, Nevada

Texas Bank & Trust,Dallas, Texas

Comerica Bank & Trust,F.S.B.,Boca Raton, Florida

Eagle Valley Bank, N.A.,St. Croix Falls, Wisconsin

The Rock Island Bank NationalAssociation,Bettendorf, Iowa

First National Bank Iowa,Iowa City, Iowa

City Bank,Weatherford, Oklahoma

Newberry Bank,Newberry, Florida

Reserve Bank

Kansas City

St. Louis•

Atlanta

Atlanta

Chicago

Minneapolis

Chicago

Chicago

Kansas City

Atlanta

Effective Date

October 7, 1998

October 9, 1998

September 29, 1998

October 15, 1998

October 19, 1998

October 21, 1998

October 2, 1998

October 2, 1998

October 8, 1998

October 21, 1998



PENDING CASES INVOLVING THE BOARD OF GOVERNORS

This list of pending cases does not include suits against theFederal Reserve Banks in which the Board of Governors is notnamed a party.

Attorneys Against American Apartheid v. Board of Governors,No. 98-1483 (D.C. Cir., filed October 21, 1998). Petitionfor review of denial of reconsideration of a Board orderdated August 17, 1998, approving the merger ofNationsBank Corporation, Charlotte, North Carolina, andBankAmerica. Corporation, San Francisco, California.

Independent Bankers Association of America v. Board of Gov-ernors, No. 98-1482 (D.C. Cir., filed October 21, 1998).Petition for review of a Board order dated September 23,1998, conditionally approving the applications of TravelersGroup, Inc., New York, New York, to become a bankholding company by acquiring Citicorp, New York,New York, and its bank and nonbank subsidiaries.

Jones v. Board of Governors, No. 98-30138 (5th Cir., filedOctober 1, 1998). Appeal of district court dismissal ofcomplaint alleging violations of the Fair Housing Act.

Cunningham v. Board of Governors, No. 98-1459 (D.C. Cir.,filed September 30, 1998). Petition for review of a Boardorder dated September 23, 1998, conditionally approvingthe applications of Travelers Group, Inc., New York,New York, to become a bank holding company by acquir-ing Citicorp, New York, New York, and its bank andnonbank subsidiaries.

Wasserman v. Board of Governors. No. 98-CIV-6017(S.D.N.Y., filed August 24, 1998). Complaint allegingwrongful failure to investigate activities of a bank. OnSeptember 14, 1998, the Board filed its motion to dismissthe complaint, and on October 14 the court dismissed theaction on plaintiff's withdrawal of the complaint.

Pharaon v. Board of Governors, No. 98-103 (U.S. SupremeCourt, filed July 15, 1998). Petition for writ of certiorariseeking review of the decision of the Court of Appeals forthe District of Columbia Circuit affirming the Board's orderdated January 31, 1997, imposing civil money penalties andan order of prohibition for violations of the Bank HoldingCompany Act. On October 19, 1998, the Supreme Courtdenied the writ.

Inner City Press/Community on the Move v. Board of Gover-nors, No. 98-CIV-4608 (DLC) (S.D.N.Y., filed June 30,1998). Freedom of Information Act case. On July 1, 1998,the court denied plaintiff's motion for a temporary restrain-ing order extending the public comment period on theapplication by Travelers Group Inc. to acquire Citicorp. OnSeptember 30, 1998, the court granted the Board's motionfor summary judgment.

Clarkson v. Greenspan, No.98-5349 (D.C. Cir., filed July 29,1998). Appeal of district court order granting Board's mo-tion for summary judgment in a Freedom of InformationAct case. On September 14, 1998, the Board filed a motionfor summary affirmance of the district court dismissal.

Board of Governors v. Carrasco, No. 98 Civ. 3474 (LAK)(S.D.N.Y., filed May 15, 1998). Action to freeze assets ofindividual pending administrative adjudication of civilmoney penalty assessment by the Board. On May 26, 1998,the court issued a preliminary injunction restraining thetransfer or disposition of the individual's assets and appoint-ing the Federal Reserve Bank of New York as receiver forthose assets.

Board of Governors v. Pharaon, No. 98-6101 (2d Cir., filedMay 4, 1998). Appeal of partial denial of Board's motionfor summary judgment in action to freeze assets of individ-ual pending administrative adjudication of civil money pen-alty assessment by the Board. On May 22, 1998, the appel-lee filed a cross-appeal from the partial final judgment.

Research Triangle Institute v. Board of Governors, No. 97-1719 (U.S. Supreme Court, filed April 28, 1998). Petitionfor writ of certiorari to review dismissal by the UnitedStates Court of Appeals for the Fourth Circuit of a contractclaim against the Board. On October 5, 1998, the SupremeCourt denied the writ.

Fenili v. Davidson, No. C-98-01568-CW (N.D. California,filed April 17, 1998). Tort and constitutional claim arisingout of return of a check. On June 5, 1998, the Board filed itsmotion to dismiss.

Wilkins v. Warren, No. 98-1320 (4th Cir., filed March 2,1998). Appeal of District Court dismissal of action involv-ing customer dispute with a bank. On June 10, 1998, thecourt of appeals dismissed the appeal.

Logan v. Greenspan, No. l:98CV00049 (D.D.C., filed Janu-ary 9, 1998). Employment discrimination complaint.

Goldman v. Department of the Treasury, No. 1-97-CV-3798(N.D. Ga., filed December 23, 1997). Declaratory judgmentaction challenging Federal Reserve notes as lawful money,On March 2, 1998, the Board filed a motion to dismiss theaction.

Kerr v. Department of the Treasury, No. CV-S-97-01877-DWH (S.D. Nev., filed December 22, 1997). Challenge toincome taxation and Federal Reserve notes. On Septem-ber 3, 1998, a motion to dismiss was filed on behalf of allfederal defendants.

Allen v. Indiana Western Mortgage Corp., No. 97-7744 RJK(CD. Cal., filed November 12, 1997). Customer disputewith a bank. On March 23, 1998, the district court dis-missed the action.

Patrick v. United States, No. 97-75564 (E.D. Mich., filedNovember 7, 1997). Action for damages arising out of taxdispute. On August 20, 1998, the district court dismissedthe action as to all defendants.

Patrick v. United States, No. 97-75017 (E.D. Mich., filedSeptember 30, 1997). Action for damages arising out of taxdispute. On August 20, 1998, the district court dismissedthe action as to all defendants.

Artis v. Greenspan, No. 97-5235 (D.C. Cir., filed Septem-ber 19, 1997). Appeal of district court order dismissing



employment discrimination class action. On October 20,1998, the court of appeals affirmed the dismissal.

Towe v. Board of Governors, No. 97-71143 (9th Cir, filedSeptember 15, 1997). Petition for review of a Board orderdated August 18, 1997, prohibiting Edward Towe andThomas E. Towe from further participation in the bankingindustry.

In re: Subpoena Duces Tecum Served on the Office of theComptroller of the Currency, No. 97-5229 (D.C. Cir., filedSeptember 12, 1997). Appeal of district court order denyingmotion to compel production of pre-decisional supervisorydocuments and testimony sought in connection with anaction by Bank of New England Corporation's trustee inbankruptcy against the Federal Deposit Insurance Corpora-tion. On June 26, 1998, the court of appeals reversed andremanded the case to the district court. On August 10, 1998,the Board filed a petition for rehearing and suggestion forrehearing in bane. On October 6, 1998, the court amendedits opinion and denied the petition.

Bettersworth v. Board of Governors, No. 97-CA-624 (W.D.Tex., filed August 21, 1997). Privacy Act case.

Greeff v. Board of Governors, No. 97-1976 (4th Cir., filedJune 17, 1997). Petition for review of a Board order datedMay 19, 1997, approving the application by Allied IrishBanks, pic, Dublin, Ireland, and First Maryland Bancorp,Baltimore, Maryland, to acquire Dauphin Deposit Corpora-tion, Harrisburg, Pennsylvania, and thereby acquire Dau-

phin's banking and nonbanking subsidiaries. On August 14,1998, the court of appeals denied the petition.

FINAL ENFORCEMENT ORDERS ISSUED BY THEBOARD OF GOVERNORS

Jerome C. BechsteinPerrysburg, Ohio

The Federal Reserve Board announced on October 15,1998, the issuance of an Order of Prohibition againstJerome C. Bechstein, the former President, Chief Execu-tive Officer, and a Director of the former Towne Bank,Perrysburg, Ohio, and the bank's former bank holdingcompany, Towne Bancorp, Inc.

Lois A. BrighamPerrysburg, Ohio

The Federal Reserve Board announced on October 15,1998, the issuance of an Order of Prohibition against LoisA. Brigham, the former Senior Vice President and a Direc-tor of the former Towne Bank, Perrysburg, Ohio, and thebank's former bank holding company, Towne Bancorp,Inc.


Al

Financial and Business Statistics

A3 GUIDE TO TABULAR PRESENTATION

DOMESTIC FINANCIAL STATISTICS

Money Stock and Bank Credit

A4 Reserves, money stock, liquid assets, and debtmeasures

A5 Reserves of depository institutions and Reserve Bankcredit

A6 Reserves and borrowings—Depositoryinstitutions

Policy Instruments

A7 Federal Reserve Bank interest ratesA8 Reserve requirements of depository institutionsA9 Federal Reserve open market transactions

Federal Reserve Banks

A10 Condition and Federal Reserve note statementsA l l Maturity distribution of loan and security

holding

Monetary and Credit Aggregates

A12 Aggregate reserves of depository institutionsand monetary base

A13 Money stock, liquid assets, and debt measures

Commercial Banking Institutions—Assets and Liabilities

A15 All commercial banks in the United StatesA16 Domestically chartered commercial banksA17 Large domestically chartered commercial banksA19 Small domestically chartered commercial banksA20 Foreign-related institutions

Financial Markets

A22 Commercial paper and bankers dollaracceptances outstanding

A22 Prime rate charged by banks on short-termbusiness loans

A23 Interest rates—Money and capital marketsA24 Stock market—Selected statistics

Federal Finance

A25 Federal fiscal and financing operationsA26 U.S. budget receipts and outlaysA27 Federal debt subject to statutory limitation

Federal Finance—Continued

A27 Gross public debt of U.S. Treasury—Types and ownership

A28 U.S. government securitiesdealers—Transactions

A29 U.S. government securities dealers—Positions and financing

A30 Federal and federally sponsored creditagencies—Debt outstanding

Securities Markets and Corporate Finance

A31 New security issues—Tax-exempt state and localgovernments and corporations

A32 Open-end investment companies—Net salesand assets

A32 Corporate profits and their distributionA32 Domestic finance companies—Assets and

liabilitiesA3 3 Domestic finance companies—Owned and managed

receivables

Real Estate

A34 Mortgage markets—New homesA35 Mortgage debt outstanding

Consumer Credit

A36 Total outstandingA36 Terms

Flow of Funds

A37 Funds raised in U.S. credit marketsA39 Summary of financial transactionsA40 Summary of credit market debt outstandingA41 Summary of financial assets and liabilities

DOMESTIC NONFINANCIAL STATISTICS

Selected Measures

A42 Nonfinancial business activityA42 Labor force, employment, and unemploymentA43 Output, capacity, and capacity utilizationA44 Industrial production—Indexes and gross valueA46 Housing and constructionA47 Consumer and producer pricesA48 Gross domestic product and incomeA49 Personal income and saving


A2 Federal Reserve Bulletin • December 1998

INTERNATIONAL STATISTICS

Summary Statistics

A50 U.S. international transactionsA51 U.S. foreign tradeA51 U.S. reserve assetsA51 Foreign official assets held at Federal Reserve

BanksA52 Selected U.S. liabilities to foreign official

institutions

Reported by Banks in the United States

A52 Liabilities to, and claims on, foreignersA53 Liabilities to foreignersA55 Banks' own claims on foreignersA56 Banks' own and domestic customers' claims on

foreignersA56 Banks' own claims on unaffiliated foreignersA57 Claims on foreign countries—Combined

domestic offices and foreign branches

Reported by Nonbanking Business

Enterprises in the United States

A58 Liabilities to unaffiliated foreignersA59 Claims on unaffiliated foreigners

Securities Holdings and Transactions

A60 Foreign transactions in securitiesA61 Marketable U.S. Treasury bonds and

notes—Foreign transactions

Interest and Exchange Rates

A61 Discount rates of foreign central banksA61 Foreign short-term interest ratesA62 Foreign exchange rates

A63 GUIDE TO STATISTICAL RELEASES ANDSPECIAL TABLES

A64 INDEX TO STATISTICAL TABLES


Guide to Tabular Presentation

A3

SYMBOLS AND ABBREVIATIONS

cen.a.Pr

*

0

ATSBIFCDCMOCRAFFBFHAFHLBBFHLMCFmHAFNMAFSLICG-7

CorrectedEstimatedNot availablePreliminaryRevised (Notation appears on column heading

when about half of the figures in that columnare changed.)

Amounts insignificant in terms of the last decimalplace shown in the table (for example, less than500,000 when the smallest unit given is millions)

Calculated to be zeroCell not applicableAutomatic transfer serviceBank insurance fundCertificate of depositCollateralized mortgage obligationCommunity Reinvestment Act of 1977Federal Financing BankFederal Housing AdministrationFederal Home Loan Bank BoardFederal Home Loan Mortgage CorporationFarmers Home AdministrationFederal National Mortgage AssociationFederal Savings and Loan Insurance CorporationGroup of Seven

G-10GNMAGDPHUD

IMFIOIPCsIRAMMDAMSANOWOCDOPECOTSPMIPOREITREMICRPRTCSCOSDRSICVA

GENERAL INFORMATION

In many of the tables, components do not sum to totals because ofrounding.

Minus signs are used to indicate (1) a decrease, (2) a negativefigure, or (3) an outflow.

"U.S. government securities" may include guaranteed issuesof U.S. government agencies (the flow of funds figures also

Group of TenGovernment National Mortgage AssociationGross domestic productDepartment of Housing and Urban

DevelopmentInternational Monetary FundInterest onlyIndividuals, partnerships, and corporationsIndividual retirement accountMoney market deposit accountMetropolitan statistical areaNegotiable order of withdrawalOther checkable depositOrganization of Petroleum Exporting CountriesOffice of Thrift SupervisionPrivate mortgage insurancePrincipal onlyReal estate investment trustReal estate mortgage investment conduitRepurchase agreementResolution Trust CorporationSecuritized credit obligationSpecial drawing rightStandard Industrial ClassificationDepartment of Veterans Affairs

include not fully guaranteed issues) as well as direct obliga-tions of the Treasury.

"State and local government" also includes municipalities,special districts, and other political subdivisions.


A4 Domestic Financial Statistics • December 1998

1.10 RESERVES, MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES

Percent annual rate of change, seasonally adjusted1

Monetary or credit aggregate

Q4 Ql Q2 Q3 July Sept.

Reserves of depositor}1 institutions1 Total .'2 Required3 Nonborrowed4 Monetary base1

Concepts of money, liquid assets, and debt5 Ml6 M27 M38 L9 Debt

Notitransattion components10 In M25

11 In M3 only*

Tune and savings depositsCommercial banks

12 Savings, including MMDAs13 Small time7

14 Large time8'9

Thrift institutions15 Savings, including MMDAs16 Smalftime7

17 Large time8

Money market mutual funds18 Retail19 Institution-only

Repurchase agreements and Eurodollars20 Repurchase agreements10

21 Eurodollars10

Debt components4

22 Federal23 Nonfedcral

-2.8 '-5.6

.97.0

10.09.26.0

9.319.5

16.34.59.9

1.4-3.1

5.4

15.122.0

39.524.3

.47.9

-1.9-1.8

- 6 r

6.9

3.08.0

11.012.8'6.2

9.820.3

7.6- 4144

19.318.9

34.17.6'

.08.3

-3.8-2.5-4.3

4.1

7.510.3'8.0'6.2'

10.118.8'

14.3-1.018.0

11.6-5.6

- .8

21.736.5

14.5-7 .7 '

-1.48.7'

- 7 . 4

- 9 . 0

-8.36.9

- 2 . 7

6.77.0

n.a.n.a.

10.08.0

13.9.7

-2.4

6.9-4.9-4.0

21.8

21.6

10.39.9

n.a.n.a.

-9.6-4.7

-11.74.7

- 3 . 3

3.07.4'

4.0'

6.0'

5.220.4'

.4-4.415.4

16.3-3.2

-20.5

20.138.7

7.935.7'

- 4 . 0

9.3'

-5.3-18.1

- 7 . 9

6.2

-3.65.36.8'7.2'5.5'

8.410.9'

10.9-1 .0 '16.8'

3.6-1.113.9

20.828.7

-32.613.9'

- . 97.6'

-15.3-8.8

-15.55.0

-3.24.71.3'

- . 5 '5.8'

7.5-8.6'

16.8.0'

-30.2'

8.2-5 .3 '-9.6

5.5-5.3

17.917.2'

- 97.9'

4.91.0'4.68.9

-3.68.3

11.5'9.35.9

12.420.9'

14.95.6'

2.7-12. V

-8 .3 '

33.1

36.5

32.5'4.2'

- . 88.0

10.9

16.1

-10.511.5

3 415.615.1

n.a.n.a.

19.713.8

21.5

1.5- 1 . 6

8.11.12.8

48.338.4

32.1-33.7

n.a.n.a.

1. Unless otherwise noted, rates of change are calculated from average amounts outstand-ing during preceding month or quarter.

2. Figures incorporate adjustments for discontinuities, or "breaks," associated withregulatory changes in reserve requirements. (See also table 1.20.)

3. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonallyadjusted, break-adjusted total reserves (line I), plus (2) the seasonally adjusted currencycomponent of the money stock, plus (3) (for all quarterly reporters on the "Report ofTransaction Accounts, Other Deposits and Vault Cash" and for all weekly reporters whosevault cash exceeds their required reserves) the seasonally adjusted, break-adjusted differencebetween current vault cash and the amount applied to satisfy current reserve requirements.

4. Composition of the money stock measures and debt is as follows:Ml (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of

depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at allcommercial banks other than those owed to depository institutions, the U.S. government, andforeign banks and official institutions, less cash items in the process of collection and FederalReserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order ofwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions,credit union share draft accounts, and demand deposits at thrift institutions. Seasonallyadjusted Ml is computed by summing currency, travelers checks, demand deposits, andOCDs, each seasonally adjusted separately.

M2- Ml plus (1) savings (including MMDAs), (2) small-denomination time deposits (timedeposits—including retail RPs—in amounts of less than $100,000). and (3) balances in retailmoney market mutual funds (money funds with minimum initial investments of less than$50,000). Excludes individual retirement accounts (IRAs) and Keogh balances at depositoryinstitutions and money market funds. Seasonally adjusted M2 is calculated by summingsavings deposits, small-denomination time deposits, and retail money fund balances, eachseasonally adjusted separately, and adding this result to seasonally adjusted Ml.

M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more), (2)balances in institutional money funds (money funds with minimum initial investments of$50,000 or more), (3) RP liabilities (overnight and term) issued by all depository institutions,and (4) Eurodollars (overnight and term) held by U.S. residents at foreign branches of U.S.banks worldwide and at all banking offices in the United Kingdom and Canada. Excludes

amounts held by depository institutions, the U.S government, money market funds, andforeign banks and official institutions. Seasonally adjusted M3 is calculated by summing largetime deposits, institutional money fund balances, RP liabilities, and Eurodollars, eachseasonally adjusted separately, and adding this result to seasonally adjusted M2.

L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasurysecurities, commercial paper, and bankers acceptances, net of money market fund holdings ofthese assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-termTreasury securities, commercial paper, and bankers acceptances, each seasonally adjustedseparately, and then adding this result to M3.

Debr The debt aggregate is the outstanding credit market debt of the domestic nonfinancialsectors—the federal sector (U.S government, not including government-sponsored enter-prises or federally related mortgage pools) and the nonfederal sectors (slate and localgovernments, households and nonprofit organizations, nonhnancial corporate and nonfarmnoncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt andcorporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data,which are derived from the Federal Reserve Board's flow of funds accounts, arc break-adjusted (that is, discontinuities in the data have been smoothed into the scries) andmonth-averaged (that is, the data have been derived by averaging adjacent month-end levels).

5. Sum of (1) savings deposits (including MMDAs), (2) small time deposits, and (3) retailmoney fund balances, each seasonally adjusted separately.

6. Sum of (1) large time deposits. (2) institutional money fund balances, (3) RP liabilities(overnight and term) issued by depository institutions, and (4) Eurodollars (overnight andterm) of U.S. addressees, each seasonally adjusted separately.

7. Small time deposits—including retail RPs—arc those issued in amounts of less than$100,000. All IRA and Keogh account balances at commercial banks and thrift institutionsare subtracted from small time deposits.

8. Large time deposits are those issued in amounts of $100,000 or more, excluding thosebooked at international banking facilities.

9. Large time deposits at commercial banks less those held by money market funds,depository institutions, the U.S. government, and foreign banks and official institutions.

10. Includes both overnight and term.


Money Stock and Bank Credit A5

1.11 RESERVES OF DEPOSITORY INSTITUTIONS AND RESERVE BANK CREDIT'

Millions of dollars

Average ofdaily figures

July Sept.

Average of daily figures for week ending on date indicated

Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30

SUPPLYING RESERVE FUNDS

1 Reserve Bank credit outstandingU.S. government securities2

2 Bought outright—System account1

3 Held under repurchase agreementsFederal agency obligations

4 Bought outright5 Held under repurchase agreements6 Acceptances

Loans to depository institutions7 Adjustment credit8 Seasonal credit9 Extended credit

10 Float11 Other Federal Reserve assets

12 Gold stock13 Special drawing rights certificate account14 Treasury currency outstanding

ABSORBING RESERVE FUNDS

15 Currency in circulation16 Treasury cash holdings

Deposits, other than reserve balances, withFederal Reserve Banks

17 Treasury18 Foreign19 Service-related balances and adjustments . . .20 Other21 Other Federal Reserve liabilities and capital . .22 Reserve balances with Federal Reserve Banks4

SUPPLYING RESERVE FUNDS

1 Reserve Bank credit outstandingU.S government securities

2 Bought outright—System account3

3 Held under repurchase agreementsFederal agency obligations

4 Bought outright5 Held under repurchase agreements6 Acceptances

Loans to depository institutions7 Adjustment credit8 Seasonal credit9 Extended credit

10 Float11 Other Federal Reserve assets

12 Gold stock13 Special drawing rights certificate account14 Treasury currency outstanding

ABSORBING RESERVE FUNDS

15 Currency in circulation16 Treasury cash holdings

Deposits, other than reserve balances, withFederal Reserve Banks

17 Treasury18 Foreign19 Service-related balances and adjustments20 Other21 Other Federal Reserve liabilities and capital22 Reserve balances with Federal Reserve Banks4 .

479,603

440,5724,662

526838

0

55215

0377

32,358

11,0479,200

25,855

485,999

5,430170

6,919'277

16,8329,891

481,257

441,9023,072

4693,013

0

27247

0414

32,113

11,0459,200

25,888

487,890120

5,130167

6,979347

16,9229.836

486,639

444,2236,303

4171,923

0

56177

0622

32,918

11,0459,200

25.948

492,78093

6,296176

6,911360

17,1609,057

479,828

441,7831.949

4512,932

0

45256

0343

32,069

11,0449,200

25,888

8.159132

5,450164

6,860354

16,8467.996

480,993

442,2782,812

4513,638

0

4254

0421

31.135

11,0449,200

25,902

487,77593

4,905167

7,167'373

17,0779,582'

442,3225,050

4513.425

0

2340

60431.729

11,0469,200

25,916

488,71594

5,400166

6,870365

17,13511.244

443,5356,150

4512,959

0

63184

0379

32,549

11,0469,200

25,930

492.82592

5,396162

6,875358

17,25!9.488

442,7858,038

4031.729

0

27167

0530

33,120

11,0459,200

25.944

493.78792

5,869175

6,827358

16.9988.881

444,8105.675

4031.521

0

11174

0678

32,808

11.0459,200

25,958

492,39594

7,144165

6,946370

17,1688,002

End-of-month figures Wednesday figures

July

482,030

440,6127,266

526760

0

2239

0-267

32.893

11,0469,200

25,860

486.038141

4.648161

6,976264

16,83013,078

Aug.

487,877'

442.1357,942

4513,566

0

66226

0973'

32,518

11,0469,200

25,916

488,57794

6,704162

6,870'332

17,42013,881

496,372

446,04712,135

4032,099

0

896159

0-1,22935,862

11,0449,200

25,972

494.22192

4.952347

7,009349

17,65417,965

478,560

442.0591,986

4513,148

0

0261

0220

30.435

11,0429,200

25,888

488,91293

4,372160

6.860378

16,5607,355

Aug. 26

488,228

441,3559,272

4514,964

0

1259

0271

31,656

11,0469,200

25,902

489,03394

4,331162

7,167'365

16,89916,323'

Sept. 2 Sept. 9 Sept. 16

441 9765,110

4513,076

0

4217

0668

31.753

11.0469,200

25,916

491,00892

5.372191

6,870362

16,9908,531

494,426

443,49910,965

4514,104

0

1820

1,77633,446

11,0449,200

25,930

494,60992

4,940171

6,875354

16,83216,728

442,8359,106

403795

0

31173

0142

33.157

11.0459.200

25.944

493.96094

6 265163

6,827357

16,7348.430

Sept. 23

491,427

445,8048,630

4032,075

0

9177

0836

33.495

11,0459,200

25,958

493.32593

7.508166

6.946388

16,95212.253

446,2395.441

4031.170

0

138172

0797

33,549

11,0459.200

25.972

492,77193

6,989201

7,009353

17.2069.503

Sept. 30

496.372

446.04712.135

4032.099

0

1590

-1.22935.862

11,0449,200

25,972

494,22192

4 952347

7,009349

17,65417,965

1. Amounts of cash held as reserves are shown in table 1.12, line 2.2. Includes securities loaned—fully guaranteed by U.S. government securities pledged

with Federal Reserve Banks—and excludes securities sold and scheduled to be bought backunder matched sale-purchase transactions.

3. Includes compensation that adjusts for the effects of inflation on the principal ofinflation-indexed securities.

4. Excludes required clearing balances and adjustments to compensate for float



1.12 RESERVES AND BORROWINGS Depository Institutions'

Millions of dollars

Reserve classification

1 Reserve balances with Reserve Banks2 Total vault cash3

3 Applied vault cash4 Surplus vault cash5

5 Total reserves6

6 Required reserves7 Excess reserve balances at Reserve Banks7

8 Total borrowings at Reserve Bankss

9 Seasonal borrowings10 Extended credit'

1 Reserve balances with Reserve Banks2

2 Total vault cash3

3 Applied vault cash4

4 Surplus vault cash5

5 Total reserves6

6 Required reserves7 Excess reserve balances at Reserve Banks7

8 Total borrowings at Reserve Banks*9 Seasonal borrowings

10 Extended credit

Prorated monthly averages of biweekly averages

1995

Dec.

20,44042.28137.4604.821

57,90056,622

1,278257400

19%

Dec.

13.39544,52537,8486,678

51,242'49,819

1.423'155680

1997

Dec.

10,67344,70737,2067,500

47.88046.196

1,683324790

1998

Mar.

10,138'41.59835,3706.228

45.507'44,193

1.314'41220

Apr.

11.05341,21535,4235.792

46.47545,131

1.3457241

0

May

9.64641,48235,1596,323

44,80543.655

1.150153940

June

9,66842,63535,4277,208

45.09543.475

1,620251159

0

July

9.64642,035'34.954

7,081'44.60043,235

1.365258215

0

Aug.'

9,68242,12135,0257.095

44.70743.194

1.513271242

0

Sept.

9,28542,57934,9107.669

44,19542,509

1.686251178

0

Biweekly averages of daily figures for two week periods ending on dales indicated

1998

June 3

9,89841,27734,969

6,30744,86743,597

1,270178123

0

June 17

9.339'43.59235,8677,725

45,20643,676

1,530236145

0

July 1

9,96941,91935,0606,859

45,02943,232

1,797285184

0

July 15

10,22542,10135.1026.999

45,326'43,999

1,327'198196

0

July 29

8,93341 984'34.7707.214'

41,70342.341

1.362314233

0

Aug. 12

10,42841.984'35,1576,827'

45,58544,147

1.437271241

0

Aug. 26

8,800'42 355'35,0247,330'

43,824'42,392

1,431280255

0

Sept. 9'

10,36341,79334.712

7.08145.07543.153

1.922247209

0

Sept. 23

8.43942.90035.0397.862

43,47742.093

1.384190171

0

Oct. 7

9,59542,94834.906

8,04244,50142.515

1,985379152

0

1 Data in this table also appear in the Board's H.3 (502) weekly statistical release. Forordering address, see inside front cover. Data are not break-adjusted or seasonally adjusted.

2. Excludes required clearing balances and adjustments to compensate for float andincludes other off-balance-sheet "as-of" adjustments.

3. Total "lagged" vault cash held by depository institutions subject to reserverequirements. Dates refer to the maintenance periods during which the vault cash may be usedto satisfy reserve requirements. The maintenance period for weekly reporters ends sixteendays after the lagged computation period during which the vault cash is held Before Nov 25

4. All vault cash held during the lagged computation period by bound institutions (thaiis, those whose required reserves exceed their vault cash) plus the amount of vault cashapplied during the maintenance period by "nonbound" institutions (that is, those whose vaultcash exceeds their required reserves) to satisfy current reserve requirements.

5. Total vault cash (line 2) less applied vault cash (line 3).6. Reserve balances with Federal Reserve Banks (line 1) plus applied vault cash

(line 3)7. Total reserves (line 5} less required reserves (line 6).S. Also includes adjustment credit.9. Consists of borrowing at the discount window under the terms and conditions estab-

lished for the extended credit program to help depository institutions deal with sustainedliquidity pressures. Because there is not the same need to repay such borrowing promptly aswith traditional short-term adjustment credit, the money market effect of extended credit issimilar to that of nonborrowed reserves.


Policy Instruments A 7

1.14 FEDERAL RESERVE BANK INTEREST RATES

Percent per year

Current and previous levels

Federal Reserve

Adjustment credit1

On11/27/98

Effective date Previous rate

Seasonal credit

On11/27/98

Extended credit

On11/27/98

BostonNew YorkPhiladelphia. .ClevelandRichmond . .Atlanta

ChicagoSt. LouisMinneapolis . .Kansas City . .DallasSan Francisco

11/18/9811/17/9811/17/9811/19/9811/18/9811/18/98

11/19/9811/19/9811/19/9811/18/9811/17/9811/17/98

4.75 11/19/98 5.15 11/19/98 5.65

4.75 5.05 11/19/98 5.65

Range of rates for adjustment credit in recent years

Effective date

In effect Dec. 31. 1977

1978—Jan. 920

May 1112

July 310

Aug 7|Sept. 22Oct. 16

20Nov. 1

3

1979—July 20Aug. 17

20Sept. 19

21Oct. 8

10

1980—Feb. 1519

May 2930

June 1316

July 2829

Sept. 26Nov. 17Dec. 5

81981—May 5

8

Range (orlevel)—AllF.R. Banks

6

6-6.56.5

6.5-77

7-7.257.257.75

88-8.5

8.58.5-9.5

9.5

1010-10.5

10.510.5-11

1111-12

12

12-1313

12-1312

11-1211

10-11101112

12-1313

13-1414

F.R. Bankof

N.Y.

6

6.56.5777.257.257.7588.58.59.59.5

1010.510.511111212

1313131211111010111213131414

Effective date

1981— Nov. 26

Dec 4

1982—July 2023

Aug. 23 '.'.

162730

Oct. 1213

Nov. 2226

Dec. 141517

1984—Apr. 913

Nov. 2126

Dec. 24

1985—May 2024

1986—Mar. 710

Apr. 2123

July 11Aug. 21

22

1987—Sept. 4

11


13-141312

11.5-1211.5

11-11.511

10 510-10.5

109.5-10

9.59-9.5

98.5-98.5-9

8.5

8.5-99

8 5-98.58

7.5-87.5

7-7.57

6.5-76.56

5.5-65.5

5.5-6

6

F.R. Bankof

N.Y.

131312

11.511.5111110.510109.59.59998.58.5

998.58.58

7.57.5

776.56.565.55.5

6

6

Effective date

1988—Aug. 911

1989—Feb. 2427

1990 Dec 19

1991 Feb. 14

Apr. 30May 2Sept. ! 3

17Nov. 6

7Dec. 20

24

1992—July 27

1994—May 1718

Aug. 1618

Nov. 1517

1995—Feb. 19

1996—Jan. 31Feb. 5

1998—Oct. 15Oct. 16

1998—Nov. 17Nov. 19

In effect Nov. 27, 1998


6-6.56.5

6.5-77

6.5

6-6.56

5.5-65.5

5-5.55

4.5-54.5

3.5^1.53.5

3-3 53

3-3.53.5

3-5-44

4-4.754.75

4.75-5.255.25

5.0O-5.255.00

4.75-5.004.75

4.50-4.754.50

4.50

F.R. Bankof

N.Y.

6.56.5

77

6.5

665 55.5554.54.53.53.5

33

3.53.5444.754.75

5.255.25

5.005.00

4 754.75

4.504.50

4.50

1. Available on a short-term basis to help depository institutions meet temporary needs forfunds that cannot be met through reasonable alternative sources. The highest rate establishedfor loans to depository institutions may be charged on adjustment credit loans of unusual sizethat result from a major operating problem al the borrower's facility.

2. Available to help relatively small depository institutions meet regular seasonal needs forfunds that arise from a clear pattern of intrayearly movements in their deposits and loans andthat cannot be met through special industry lenders. The discount rate on seasonal credit takesinto account rates charged by market sources of funds and ordinarily is reestablished on thefirst business day of each two-week reserve maintenance period; however, it is never less thanthe discount rate applicable to adjustment credit.

3. May be made available to depository institutions when similar assistance is notreasonably available from other sources, including special industry lenders. Such credit maybe provided when exceptional circumstances (including sustained deposit drains, impairedaccess to money market funds, or sudden deterioration in loan repayment performance) orpractices involve only a particular institution, or to meet the needs of institutions experiencingdifficulties adjusting to changing market conditions over a longer period (particularly at timesof deposit disintermediation). The discount rale applicable to adjustment credit ordinarily ischarged on extended-credit loans outstanding less than thirty days, however, at the discretion

of the Federal Reserve Bank, this time period may be shortened. Beyond this initial period, aflexible rate somewhat above rates charged on market sources of funds is charged. The rateordinarily is reestablished on the first business day of each two-week reserve maintenanceperiod, but it is never less than the discount rate applicable to adjustment credit plus 50 basispoints.

4. For earlier data, see the following publications of the Board of Governors: Banking andMonetary Statistics, 1914-1941, and 1941-1970; and the Annual Statistical Digest, 1970-1979.

In 1980 and 1981, the Federal Reserve applied a surcharge to short-term adjustment-creditborrowings by institutions with deposits of $500 million or more that had borrowed insuccessive weeks or in more than four weeks in a calendar quarter. A 3 percent surcharge wasin effect from Mar. 17, 1980. through May 7, 1980. A surcharge of 2 percent was reimposedon Nov. 17. 1980; the surcharge was subsequently raised to 3 percent on Dec. 5, 1980, and to4 percent on May 5, 1981. The surcharge was reduced to 3 percent effective Sept. 22, 1981,and to 2 percent effective Oct. 12, 1981. As of Oct. 1. 1981, the formula for applying thesurcharge was changed from a calendar quarter to a moving thirteen-week period. Thesurcharge was eliminated on Nov. 17, 1981.



1.15 RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS'

Type of deposit

Net transaction accounts1 $0 million-$47.8 million3

2 More than $47.8 million4

3 Nonpersonal time deposits'*

4 Eurocurrency liabilities6

Requirement

Percentage ofdeposits

310

0

0

Effective date

1/1/981/1/98

12/27/90

12/27/90

1. Required reserves must be held in the form of deposits with Federal Reserve Banksor vault cash. Nonmember institutions may maintain reserve balances with a FederalReserve Bank indirectly, on a pass-through basis, with certain approved institutions. Forprevious reserve requirements, see earlier editions of the Annual Report or the FederalReserve Bulletin. Under the Monetary Control Act of 1980, depository institutionsinclude commercial banks, mutual savings banks, savings and loan associations, creditunions, agencies and branches of foreign banks, and Edge Act corporations.

2. Transaction accounts include all deposits against which the account holder is permittedto make withdrawals by negotiable or transferable instruments, payment orders of with-drawal, or telephone or preauthorized transfers for the purpose of making payments to thirdpersons or others. However, accounts subject to the rules thai permit no more than sixpreauthorized, automatic, or other transfers per month (of which no more than three may beby check, draft, debit card, or similar order payable directly to third parties) are savingsdeposits, not transaction accounts.

3. The Monetary Control Act of 1980 requires that the amount of transaction accountsagainst which the 3 percent reserve requirement applies be modified annually by 80 percent ofthe percentage change in transaction accounts held by all depository institutions, determinedas of June 30 of each year. Effective with the reserve maintenance period beginning January 1,1998, for depository institutions that report weekly, and with the period beginning January \5,1998, for institutions that report quarterly, the amount was decreased from $49.3 million to$47.8 million.

Under the Garn-St Germain Depository Institutions Act of 1982. the Board adjusts theamount of reservable liabilities subject to a zero percent reserve requirement each year for [he

succeeding calendar year by 80 percent of the percentage increase in the total rcscrvableliabilities of all depositor)' institutions, measured on an annual basis as of June 30. Nocorresponding adjustment is made in the event of a decrease. The exemption applies only toaccounts that would be subject to a 3 percent reserve requirement. Effective with the reservemaintenance period beginning January 1, 1998, for depository institutions that report weekly,And with the period beginning January 15, 1998, for institutions thai report quarterly, theexemption was raised from $4.4 million to $4.7 million.

4. The reserve requirement was reduced from 12 percent to 10 percent onApr. 2, 1992, for institutions that report weekly, and on Apr 16, 1992. for institutions thatreport quarterly.

5. For institutions that report weekly, the reserve requirement on nonpersonal lime depositswilh an original maturity of less than 1 l/z years was reduced from 3 percent to 1 ]/i percent forthe maintenance period that began Dec. 13. 1990, and to zero for the maintenance period thatbegan Dec. 27. 1990. For institutions that report quarterly, the reserve requirement onnonpersonal time deposits with an original maturity of less than 1 lA years was reduced from 3percent to zero on Jan. 17, 1991.

The reserve requirement on nonpersonal time deposits with an original maturity of i '/>years or more has been zero since Oct. 6, 1983.

6 The reserve requirement on Eurocurrency liabilities was reduced from 3 percent to zeroin the same manner and on the same dates as the reserve requirement on nunpersonal timedeposits with an original maturity of less than 1 ]/l years (see note 5).


Policy Instruments A9

1.17 FEDERAL RESERVE OPEN MARKET TRANSACTIONS1

Millions of dollars

Type of transactionand maturity

U.S. TREASURY SECURITIES2

Outright transactions {excluding matched

Treasury billsI Gross purchases2 Gross sales3 Exchanges4 For new bills5 Redemptions

Others within one year6 Gross purchases7 Gross sales8 Maturity shifts9 Exchanges

10 RedemptionsOne to five years

! 1 Gross purchases12 Gross sales13 Maturity shifts14 Exchanges

Five to ten years15 Gross purchases16 Gross sales17 Maturity shifts18 Exchanges

More than ten years19 Gross purchases20 Gross sales21 Maturity shifts22 Exchanges

All maturities23 Gross purchases24 Gross sales25 Redemptions

Matched transactions26 Gross purchases27 Gross sales

Repurchase agreements28 Gross purchases29 Gross sales

30 Net change in U.S Treasury securities

FEDERAL AGENCY OBLIGATIONS

Outright transactions31 Gross purchases32 Gross sales33 Redemptions

Repurchase agreements34 Gross purchases35 Gross sales

36 Net change in federal agency obligations

37 Total net change in System Open Market Account . . .

1995

10.9320

405,296405.296

900

3900

43,574-35.407

1,776

5.3660

-34.64626,387

1,4320

-3,0937,220

2.5290

-2.2531,800

20,6490

2,676

2,197.7362,202,0311

.531.694328.497

16 875

00

1,003

36,85136J76

-928

15,948

1996

9.9010

426.928426'928

0

5240

30,512-41.394

2.015

3,8980

-25,02231,459

1,116

o-5,4696.666

1 65S' ~0-20

3,270

17,0940

2,015

3.092,3993.094.769

457,568450.359

19.919

00

409

75,35474^842

103

20,021

1997

9.1470

436,257435,907

0

5,5490

41,716-27,499

1,996

19.6800

-37,98720.274

3.8490

-1,9545,215

5,8970

-1.7752,360

44,1220

1,996

3,577,9543,580,274

810,485809,268

41,022

00

1.540

160,409159369

-500

40,522

Feb.

00

35,49535495

0

00

6,098-6.128

0

00

-3,2133,383

00

-2,8841.420

o00

1,325

000

326.813326.235

33,42830,583

3.423

00

10

9,6158J76

829

4,252

Mar.

00

34,02534.025

0

1,5010

1,964-5.736

0

2.2620

-1,9645,736

283

o00

743000

4.78900

364,307364,537

40,21137,010

7,760

00

50

17,68518342

-707

7,053

Apr.

3,5500

46,80246^802

0

1,3690

4.369-2.601

286

2,9930

-4,3692,201

495o00

o00

400

8,4070

286

*54 756354.741

59,54850.663

17.021

00

74

1 3,54713^042

431

17.452

1998

May

00

35,19035J90

0

00

6,951-4,990

0

00

-6,6202,270

00

-3312.720

o000

000

367,934368,281

7,72220,456

-13,081

000

1,5753300

-1,725

-14,806

June

00

32,83032,830

0

00

1.520-5.084

0

00

-1,5205.084

0000

0000

000

369.358370,569

57,09841.414

14,473

00

25

14 54812^913

1,610

16,083

July

00

40 31240312

0

00

2,638-2,242

1,311

00

-2,6381.842

0000

000

400

00

1,311

373,285371,142

52,11663.531

-10,584

000

11 23612341

-1,105

-11,689

Aug.

00

34,60734,607

0

9860

6,367-8,964

0

5350

-2.1685.828

3030

-3,4111,364

1.7690

-7891,772

3,59300

346.245348,318

39.07838,402

2,196

02550

33.43130.625

2,731

4.927

1. Sales, redemptions, and negative figures reduce holdings of the Syslem Open MarketAccount; all other figures increase such holdings.

2. Transactions exclude changes in compensation for the effects of inflation on the principalof inflation-indexed securities.



1.18 FEDERAL RESERVE BANKS Condition and Federal Reserve Note Statements1

Millions of dollars

Wednesday

Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 July 31 Aug. 31 Sept. 30

End of month

Items in process of collectionBank premises

Other assetsDenominated in foreign currencies3

All other4

Total assets

LIABILITIES

Federal Reserve notes

Total deposits

Depository institutionsU.S. Treasury—General accountForeign—Official accountsOther

Deferred credit itemsOther liabilities and accrued dividends5

29 Total liabilities .

CAPITAL ACCOUNTS

Capital paid inSurplusOther capital accounts

Consolidated condition statement

33 Total liabilities and capital accounts.

MEMO34 Marketable U.S. Treasury securities held in cuslody for

foreign and international accounts

35 Federal Reserve notes outstanding (issued to Banks)36 LESS: Held by Federal Reserve Banks37 Federal Reserve notes, net

Collateral held against notes, net38 Gold certificate account39 Special drawing rights certificate account . .40 Other eligible assets41 U.S. Treasury and agency securities

42 Total collateral.

Gold certificate accountSpecial drawing rights certificate account

Loans4 To depository institutions5 Other6 Acceptances held under repurchase agreements

Federal agency obligations7 Bought outright8 Held under repurchase agreements

9 Total US. Treasury securities

10 Bought outright2

11 Bills12 Notes13 Bonds14 Held under repurchase agreements

15 Total loans and securities .

11,0469,200

410

22100

4513,076

447,086

441,976197.174178.82765,9755,110

450,833

8,3111,293

17,60412,887

511,585

465,594

21,298

15,3735.372

191362

7,7024.698

499,292

5,8655,2201,207

511,585

566,887

575,063109,469465,594

11,0469,200

0445,348

465,594

11,0449,200

397

18600

4514.104

454,464

443,499198,696178.82765.97510.965

459,204

10,5371,296

17,61214,593

523,883

469,168

29,135

23,6704,940

171354

8,7484,690

511,741

5 9455.220

976

52.1,883

11,0459,200

395

20300

403795

451,941

442,835198,032178,82865.975

9,106

453,342

7,6761,297

17,62114,198

514,774

22,353

15,5676,265

163357

7,1824,540

502,580

5,9505,2201,023

514,774

553,835

11,0459,200

412

18500

4032,075

454,434

445,804196,851182,97765,976

8,630

457,096

7,1871,297

17,63014,543

518,410

467,872

27,387

19,3257,508

166388

6,2004,762

506,220

5,9125,2201,058

518,410

11,0449,200

417

1,05500

4032,099

458,182

446,047195,864184,18665,99612,135

461,738

6,4541,295

18,44815,880

524,476

468.759

31,353

25,7064,952

347349

6,7114,637

511,460

5,9105,220

524,476

564,692

11,0469,200

435

24100

526760

447,878

440,612199,407178,88762,318

7,266

449,404

4,6771,289

17,28214,378

507,711

460,754

25,312

20,2394,648

161264

4,8164,818

495,699

5,8225,220

970

507,711

11.0469,200

423

29300

4513,566

450,077

442,135197,334178,82665,975

7,942

454,386

2,4651,293

17,60113,671

510,087

463,179

27,520

20,3216,704

162332

1,9684,750

497,417

5,8665,2201,583

510,087

Federal Reserve note statement

576.139106.971469,168

11,0449,200

0448.924

469,168

577,941109,436468,505

11,0459,200

0448,260

468,505

579,127111,255467,872

11,0459.200

0447,626

467,872

580,575111,817468,759

11,0449,200

0448,515

468,759

570,428109,674460,754

11,0469,200

0440,508

460,754

574,813111,635463,179

11,0469,200

0442,932

463,179

11,0449,200

417

1,05500

4032,099

458,182

446,047195,864184,18665.99612.135

461,738

6,4541,295

18,44815.880

524,476

468,759

31,353

25,7064,952

347349

6,7114,637

511,460

5.9105,2201,886

524,476

564,692

580,575111,817468,759

11,0449.200

0448,515

468,759

1. Some of the data in this table also appear in the Board's H.4.1 (503) weekly statisticalrelease. For ordering address, see inside front cover.

2. Includes securities loaned—fully guaranteed by U.S. Treasury securities pledged withFederal Reserve Banks—and includes compensation that adjusts for the effects of inflation onthe principal of inflation-indexed securities. Excludes securities sold and scheduled to bebought back under matched sale-purchase transactions.

3. Valued monthly at market exchange rates.4 Includes special investment account at the Federal Reserve Bank of Chicago in Treasury

bills maturing within ninety days.5. Includes exchange-translation account reflecting the monthly revaluation at market

exchange rates of foreign exchange commitments.


1.19 FEDERAL RESERVE BANKS Maturity Distribution of Loan and Security Holding

Millions of dollars

Federal Reserve Banks A11

Type of holding and maturity

Wednesday

Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30 July 31

1998

Aug. 31 Sept. 30

1 Total loans

2 Within fifteen days'

3. Sixteen days to ninety days

4 Total U.S. Treasury securities2 .

5 Within fifteen days'6 Sixteen days to ninety days7 Ninety-one days to one year8 One year to five years9 Five years to ten years

10 More than ten years11 Total federal agency obligations .

12 Within fifteen days'13 Sixteen days to ninety days14 Ninety-one days to one year15 One year to five years16 Five years to ten years17 More than ten years

221

60161

447,086

13,32693.050

143,965101,53541,27653,934

3,527

3,1245

12093

185n.a.

46140

454,464

20,08793,576

144,055101,53541,27653.935

4,555

4,1525

12093

185n.a.

18915

451,941

24,46392,841

137.890101.53541.27653.935

1,198

795507593

185

185

17312

454,434

17,67792,715

144,183104,64641,27653,935

2,478

2,075507593

185n.a.

1,055

97382

458,182

20,31090,644

145,875105.78941.62853.936

2,502

2,099507593

185

107134

447,878

13,53898,052

145,37796,71143.01851.181

1,286

81048

11410418525

176117

442,135

15,10492,231

145,997101,53541,27653,935

4,017

3,6145

12093

185n.a.

233

15578

458,182

20,31090,644

145.875105,78941,62853,936

2,502

2,099507593

185n.a.

1. Holdings under repurchase agreements are classified as maturing within fifteen days inaccordance with maximum maturity of the agreements.

2. Includes compensation that adjusts for the efFects of inflation on the principal ofinflation-indexed securities.



1.20 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND MONETARY BASE1

Billions of dollars, averages of daily figures

1994Dec.

1995Dec.

1996Dec.

1997Dec.

1998

Apr. May June July Aug. Sept.

ADJUSTED FORCHANGES IN RESERVE REQUIREMENTS:

1 Total reserves2 Nonborrowed reserves4

3 Nonborrowed reserves plus extended credit5

4 Required reserves5 Monetary base6

6 Total reserves7

7 Nonborrowed reserves8 Nonborrowed reserves plus extended credit9 Required reserves8

10 Monetary base

Seasonally adjusted

59.4159.2059.2058.24

418.12

56.4056.1456.1455 12

434.17

50.0849.9349.9348.66

452.38

46.6746.3546.3544.99

480.15

45.7245.6645.6644.20

484.23

46.0546.00'46.00'44.73

485.86

45.9645.8945.8944.61

487.20

45.5945.4445.4444.44

489.10

45.3945.1445.1443.77

491.63

44. Rl44.5644.5643.45

493.67

45.0044.7344.7343.48

497.31

Not seasonally adjusted

NOT ADJUSTED FORCHANGES IN RESERVE REQUIREMENTS'"

11 Total reserves1'12 Nonborrowed reserves13 Nonborrowed reserves plus extended credit14 Required reserves15 Monetary base16 Excess reserves13

17 Borrowings from the Federal Reserve

61.1360.9260.9259.96

422.51

61.3461.1361.1360.17

427.251.17.21

44.5944.3444.3442.90

502.09

58.0257.7657.7656.74

439.03

57.9057.6457.6456.62

444.451.28.26

51.5251.3751.3750.10

456.72

51.2451.0951.0949.82

463.491.42.16

47.9747.6547.6546.29

485.11

47.8847.5647.5646.20

491.921.68.32

44.9944.9444.9443.47

481.35

44.9744.9244.9243.45

488.411.52.06

45.54'45.5045.5044.23

484.00

45.5145.4745.4744.19

490.961.31'.04

46.5346.4546.4545.18

487 36

46.4846.4046.4045.13

494.111.35.07

44.8744.7144.7143.72

488.28

44.8144.6544 6543.66

494.951.15.15

45.1744.9244.9243.55

491.18

45.1044.8444.8443.48

497.931.62.25

44.6944.4344.4343.32

495.32

44.6044.3444.3443.24

502.171.37.26

44.8144.5444.5443.30'

497.49

44.7144.4444.4443.19

504.391.51'.27

44.3144.0644.0642.63

500.98

44.20419441.9442.51

507.791.69.25

1. Latest monthly and biweekly figures are available from the Board's H.3 (502) weeklystatistical release. Historical data starting in 1959 and estimates of the effect on requiredreserves of changes in reserve requirements are available from the Money and ReservesProjections Section, Division of Monetary Affairs, Board of Governors of the Federal ReserveSystem, Washington, DC 20551.

2. Figures reflect adjustments for discontinuities, or "breaks," associated with regulatorychanges in reserve requirements. (See also table 1.10.)

3. Seasonally adjusted, break-adjusted total reserves equal seasonally adjusted, break-adjusted required reserves (line 4) plus excess reserves (line 16).

4. Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted,break-adjusted total reserves (line 1) less total borrowings of depository institutions from theFederal Reserve (line 17).

5. Extended credit consists of borrowing at the discount window under the terms andconditions established for the extended credit program to help depository institutions dealwith sustained liquidity pressures. Because there is not the same need to repay suchborrowing promptly as with traditional short-term adjustment credit, the money market effectof extended credit is similar to that of nonborrowed reserves

6. The seasonally adjusted, break-adjusted monetary base consists of (1) seasonallyadjusted, break-adjusted total reserves (line 1), plus (2) the seasonally adjusted currencycomponent of the money stock, plus (3) (for all quarterly reporters on the "Report ofTransaction Accounts, Other Deposits and Vault Cash" and for all those weekly reporterswhose vault cash exceeds their required reserves) the seasonally adjusted, break-adjusteddifference between current vault cash and the amount applied to satisfy current reserverequirements.

7. Break-adjusted total reserves equal break-adjusied required reserves (line 9) plus excessreserves (line 16).

8. To adjust required reserves for discontinuities that are due to regulatory changes inreserve requirements, a multiplicative procedure is used to estimate what required reserveswould have been in past periods had current reserve requirements been in effecl. Break-adjusted required reserves include required reserves against transactions deposits and nonper-sonal time and savings deposits (but not reservable nondeposit liabilities).

9. The break-adjusted monetary base equals (I) break-adjusted total reserves (line 6), plus(2) the (unadjusted) currency component of (he money stock, plus (3) (for all quarterlyreporters on the "Report of Transaction Accounts. Other Deposits and Vault Cash" and for allthose weekly reporters whose vault cash exceeds their required reserves) the break-adjusteddifference between current vault cash and the amount applied to satisfy current reserverequirements.

10. Reflects actual reserve requirements, including those on nondeposit liabilities, with noadjustments to eliminate the effects of discontinuities associated with regulatory changes inreserve requirements.

11. Reserve balances with Federal Reserve Banks plus vault cash used to satisfy reserverequirements.

12. The monetary base, not break-adjusted and not seasonally adjusted, consists of (U totalreserves (line 1 I), plus (2) required clearing balances and adjustments to compensate for floaiat Federal Reserve Banks, plus (3) the currency component of the money stock, plus (4) (forall quarterly reporters on the "Report of Transaction Accounts, Other Deposits and VaultCash" and for all those weekly reporters whose vault cash exceeds their required reserves) thedifference between current vault cash and the amount applied to satisfy current reserverequirements. Since the introduction of contemporaneous reserve requirements in February1984, currency and vault cash figures have been measured over [he computation periodsending on Mondays.

13. Unadjusted total reserves (line 11) less unadjusted required reserves (line 14).


Monetary and Credit Aggregates A13

1.21 MONEY STOCK, LIQUID ASSETS, AND DEBT MEASURES1

Billions of dollars, averages of daily figures

Measures'1 Ml2 M23 M34 L5 Debt

Ml componenis6 Currency1

9 Other checkable deposits6

NoHtrtinsaction components10 In M27

II In M^ only"

Commercial banks12 Savings deposils, including MMDAs13 Small time deposits9

Thrift institutions!5 Savings deposits, including MMDAs16 Small time depositsy

17 Large time deposits'"

Money market mutual funds18 Retail' '19 Institution-only

Repurchase agreements and Eurodollars20 Repurchase agreements12

Debt (omp-onenls22 Federal debt23 Nonfederal debt

Measures24 Ml25 M226 M327 L28 Debt

Mi components29 Currency3

31 Demand deposits5

32 Other checkable deposits6

Noniransartion components33 In M27 :34 In M3 only1*

Commercial banks35 Savings deposits, including MMDAs36 Small time deposits9

Thrift institutions38 Savings deposits, including MMDAs39 Small time deposits'*40 Large lime deposits10

Monex market mutual funds41 Retail42 Institution-only

Repurchase agreements and Eurodollars

44 Eurodollars12

Debt components45 Federal debt46 Nonfederal debt

1994Dec.

1995Dec.

1996Dec.

1997Dec.

1998

June July Aug. Sept.

Seasonally adjusted

1,150.73,503.04,333.65,315.8

354.38.5

384.0403.9

2,352.3

752.6503.2

397.3314.264.7

385.0203.1

183.3

1,492.49,507.0

1.128.73,651.24,595.65,702.3

13 697 6

372.48.9

391.0356 4

2,522.6944 4

775.0575.8345 4

359.7357.274.2

454.9253.9

182.488 6

3,638.910,058.7

1,082.83,826.14,931.16,083.6

14 425 2

394.98.6

403.6275.9

2.743.21 105 0

904.8594.5413 2

366.9354.378.0

522.8310.3

194.2109 2

3,780.610,644.7

1,076.04,046.45,376.86,611.3

15 167 8

425.58.2

397.1245.2

2,970.41 330 4

1,020.9625.7487 5

376.6343.9

85.4

603.2376.2

236.1145 3

3.798.411,369 4

1,074.54,196.15,645.9'6,927.8'

15 633 lr

438.27.8

383.1245.4

3,121.61 449 81

1,088.4623.5536 0'

396.4338.9

87.5

674.3432.1

254.3139 9'

3,775.711,857.4'

1,071.64,212.75,652.1'6,925.0'

15 708 4'

441.27.7

377.9244.7

3,141.1'1 439 4r

1,103.6623.5'522 5'

399.1337.4'86.8

677.4430.2

258.1141 9'

1.772.911,935.5'

1,068.44,242.05,706.5'6,978.9

15 785 3

443.77.8

373.9'243.1

3,173.6'1 464 5'

1.117.3626.4527 5'

400.0334.0

86.2'

696.1443.3

265.1'142 4'

3,770.312,015.0

1,071.44,297.15,778.4

n.a.

449 57.9

373.1241.0

3.225.61 481 3

1.137.3627.2526 8

402 7334.386.4

724.1457.5

272.2138 4

n.an.a.


1.174.43.523.44.353.25,344.6

13.002.0

357.58 I

400.3408.6

2.W.0829 7

751.7501.5

396.8313.264.8

385.9204.6

179.681.8

3.499.09.503.1

1,152.43,672.04.615.25.732.8

13,699 1

376.28.5

407.2360.5

2,519.6943.2

774.1573.8345 8

359.2355.9

74.3

456.4255.8

178.089.4

3,645.910,053.1

1.104.93,845.44.948.96,111.6

14,425.5

397.98.3

419.9278.8

2,740.51.103.5

903.3592.7413 6

366.4353.2

78.1

524.8312.7

188.8110.3

3.787.910,637.6

1,097.64,065.35,394.06.636.7'

15,167.4

429.07.9

413.0247.7

2,967.81.328.6

1,019.0624.1488 0

375.9343.0

85.4

605.8378.9

229.4146.9

3,805.811,361.6

1,073.84.191.25.635.8'6,909.8'

15,599.4'

438.380

382.5245.0

3,117.4'1,444.6'

1,091.6623.9534 9

397.6339.1

87.3

665.2424.5

259.4138.4'

3,755.211.844.2'

1,072.54,213.2'5,644.0'6,910.3'

15.660 4'

442.68.2

378.7243.0

3,140.71.430.8'

1,106.1624.2'521 6'

400.0337.886.7

672.6425.3

258.4'138.8'

3,740.811,919.6'

1,067.14.246.55.707.6'6,980.5

15,740.0

444.38.2

373.9'240.8

3.179.3'1.461.2'

1,119.6626.5527 6'

400.8'334.0

86.2

698.4441.1

265.6'140.8'

3,749.611.990.4

1.068.24.288.35,762.8

n.a.n.a.

448 28.1

372.1239 7

3,220.21.474.4

1,135.5626.8529 2

402.1334.1

86.8

721.6451.3

270.3136.8

n.a.n.a.

Footnotes appear on following page



NOTES TO TABLE 1.21

1. Latest monthly and weekly figures are available from the Board's H.6 (508) weeklystatistical release Historical data starting in 1959 are available from the Money and ReservesProjections Section, Division of Monetary Affairs, Board of Governors of the Federal ReserveSystem, Washington, DC 20551.

2. Composition of the money stock measures and debt is as follows'Ml: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of

depository institutions, (2) travelers checks of nonbank issuers, (3) demand deposits at allcommercial banks other than those owed to depository institutions, the U.S. government, andforeign banks and official institutions, less cash items in Ihe process of collection and FederalReserve float, and (4) other checkable deposits (OCDs), consisting of negotiable order ofwithdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions,credit union share draft accounts, and demand deposits at thrift institutions. Seasonallyadjusted Ml is computed by summing currency, travelers checks, demand deposits, andOCDs, each seasonally adjusted separately.

M2: Ml plus (1) savings deposits (including MMDAs), (2) small-denomination timedeposits (time deposits—including retail RPs—in amounts of less than $100,000), and (3)balances in retail money market mutual funds (money funds with minimum initial invest-ments of less than $50,000). Excludes individual retirement accounts (IRAs) and Keoghbalances at depository institutions and money market funds. Seasonally adjusled M2 iscalculated by summing savings deposits, small-denomination time deposits, and retail moneyfund balances, each seasonally adjusted separately, and adding this result to seasonallyadjusted Ml.

M3: M2 plus (1) large-denomination time deposits (in amounts of $100,000 or more)issued by all depository institutions, (2) balances in institutional money funds (money fundswith minimum initial investments of $50,000 or more), (3) RP liabilities (overnight and term)issued by all depository institutions, and (4) Eurodollars (overnight and term) held by U.S.residents at foreign branches of U.S. banks worldwide and at all banking offices in the UnitedKingdom and Canada. Excludes amounts held by depository institutions, the U.S. govern-ment, money market funds, and foreign banks and official institutions. Seasonally adjustedM3 is calculated by summing large time deposits, institutional money fund balances, RPliabilities, and Eurodollars, each seasonally adjusted separately, and adding this result toseasonally adjusted M2.

L: M3 plus the nonbank public holdings of U.S. savings bonds, short-term Treasurysecurities, commercial paper, and bankers acceptances, net of money market fund holdings of

these assets. Seasonally adjusted L is computed by summing U.S. savings bonds, short-termTreasury- securities, commercial paper, and bankers acceptances, each seasonally adjustedseparately, and then adding this result to M3.

Debt: The debt aggregate is the outstanding credit market debt of the domestic nonfinancialsectors—the federal sector (U.S. government, not including government-sponsored enter-prises or federally related mortgage pools) and the nonfederal sectors (state and localgovernments, households and nonprofit organizations, nonfinancial corporate and nonfarmnoncorporate businesses, and farms). Nonfederal debt consists of mortgages, tax-exempt andcorporate bonds, consumer credit, bank loans, commercial paper, and other loans. The data,which are derived from the Federal Reserve Board's flow of funds accounts, are break-adjusted (that is, discontinuities in the data have been smoothed into the series) andmonth-averaged (that is, the data have been derived by averaging adjacent month-end levels).

3. Currency outside the U.S. Treasury, Federal Reserve Banks, and vaults of depositoryinstitutions.

4. Outstanding amount of U.S. dollar-denominated travelers checks of nonbank issuers.Travelers checks issued by depository institutions are included in demand deposits.

5. Demand deposits at commercial banks and foreign-related institutions other than thoseowed to depository institutions, the U.S. government, and foreign banks and official institu-tions. les;> cash items in the process of collection and Federal Reserve float.

6. Consists of NOW and ATS account balances at all depository institutions, credit unionshare draft account balances, and demand deposits at thrift institutions.

7. Sum of (I) savings deposits (including MMDA.s). (2) small time deposits, and (3) retailmoney fund balances.

8. Sum of (1) large time deposits. (2) institutional money fund balances, (3) RP liabilities(overnight and term) issued by depository institutions, and (4) Eurodollars (overnight andterm) of US. addressees.

9. Small time deposits—including retail RPs—are those issued in amounts of less than$100,000. All IRAs and Keogh accounis at commercial banks and thrift institutions aresubtracted from small time deposits

10. Large time deposits are those issued in amounts of $100,000 or more, excluding thosebooked ai international banking facilities.

11. Large time deposits at commercial banks less those held by money market funds,depository institutions, the U.S. government, and foreign banks and official institutions.

12. Includes both overnight and term.


Commercial Banking Institutions—Assets and Liabilities A15

1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'

A. AH commercial banks

Billions of dollars

Account

Assets1 Bank credit2 Securities in bank credit3 U.S. government securities . . . .4 Other securities5 Loans and leases in bank credit- . .6 Commercial and industrial7 Real estate8 Revolving home equity . . . .9 Other

10 Consumer11 Security-'12 Other loans and leases13 Interbank loans14 Cash assets4

15 Other assets5

16 Total assets6

Liabilities17 Deposits18 Transaction19 Nontransaction20 Large time21 Other22 Borrowings23 From banks in the U.S24 From others25 Net due to related foreign offices26 Other liabilities

27 Total liabilities

28 Residual (assets less liabilities)7

Assets29 Bank credit30 Securities in bank credit31 U.S. government securities32 Other securities33 Loans and leases in bank credit2 . . .34 Commercial and industrial35 Real estate36 Revolving home equity37 Other38 Consumer39 Security1

40 Other loans and leases41 Interbank loans42 Cash assets4

13 Other assets*

44 Total assets'

Liabilities45 Deposits46 Transaction47 Nontransaction48 Large time49 Other50 Borrowings51 From banks in the U.S52 From others53 Net due to related foreign offices . . . .54 Other liabilities



M E M O57 Revaluation gains on off-balance-sheet

items*58 Revaluation losses on off-balance-

sheet items*

Monthly averages

1997

Sept.

1998

Mar. Apr. May June July Aug. Sept

Wednesday figures

1998

Sept. 9 Sept. 16 Sept 23 Sept 30

Seasonally adjusted

4,006.61.036.3

724.5311.8

2.970.3838.1

1,214.695.4

1,119.2515.5

95.8306.3196.5253.3288.9

4.688.8

3.O48.0687.6

2,360.4612.6

1,747.8770.2295.2475.0198.2268.0

4.2*4.4

404.3

4.222.91.129.6

782.0347.6

3.093.2872.7

1,264.698.3

1.166.3502.1116.9337.0218.3275.9295.8

4,955.7

3,198.8698.3

2,500.5677.3

1,823.1856.9306.8550.1205.4296.1

4357.2

398.6

4,220.31,109.8

766.1343.6

3,110.5870.4

1.273.198.4

1,174.7505.5115.8345.7214.6268.8308.8

4,955.0

3,211.9696.6

2,515.3674.5

1,840.7870.7305.9564.8179.8295.2

4357.6

397.4

4,248.71.125.7

773.3352.4

3,123.0878.6

1,274.997.9

1,176.9505.9120.9342.8202.2250.7313.4

4,957.4

3,205.5687.5

2,518.0674.9

1.843.1861.8282.2579.6174.4299.1

4340.7

416.7

4.260.01.119.9

756.6363.2

3,140.1888.4

1,274.097.7

1,176.3502.7127.7347.2217.3250.8313.3

4,983.9

3,223.0682.8

2,540.2685.1

1.855.1857.3287.6569.7170.6308.2

4359.1

424.8

4,278.11,127.9

759.5368.5

3,150.1893.9

1,275.497.4

1,178.0496.7131.1353.0213.6243.7310.9

4,988.8

3.197.1667.0

2,530.1667.4

1,862.8856.8289.3567.5186.1317.9

4358.0

430.8

4,338.31,153.3

769.7383.6

3,185.0901.5

1.285.097.4

1.187.6494.3138.4365.9208.1251.9312.0

5,053.4

3,228.8667.6

2,561.3679.2

1,882.1861.6293.9567.7201.1325.4

4,617.0

436.5

4.394.41.173.7

766.5407.2

3,220.6912.8

1.285.997.8

1,188.1497.3144.3380.4222.0252.8317.5

5,129.4

3 249.8677.2

2.572.7684.2

1.888.5889.6303.7585.9200.2335.1

4,674.7

454.7

4,375.71,168.5

766.5402.0

3,207.3907.6

1,289.897.9

1,191.9495.3138.4376.2221.8267.7317.1

5,1253

3,258.8669.3

2389.4686.4

1,903.0885.6308.8576.7203.2333.0

4,6803

444.9

4,387.41.167.2

755.8411.4

3,220.3915.2

1,287.197.9

1.189.2497.3138.5382.1213.6247.8313.2

5,105.0

3,249.4668.5

2,580.9687.3

1,893.6868.6298.1570.5207.7328.2

4,653.9

451.2

4,399.41.176.3

766.0410.3

3,223.1916.5

1,282.598.4

1,184.2501.6141.3381.2220.7242.4313.7

5,118.9

3.229.4666.9

2,562.5686.0

1,876.5883.4291.7591.7199.9336.9

4,649.6

469.4

4,418.91,184.2

774.2409.9

3,234.7913.1

1,283.096.9

1,186.1495.7160.0382.9235.1257.6324.9

5,178.5

3,263.7711.7

2,552.0676.1

1,875.9922.6317.1605.6191.4343.6

4,7213

457.2


3,998.91,027.8

720.5307.4

2,971.1833.0

1.219.296.0

1 123.1518.293.7

307.0191.9251.4290.0

4.675J

3,050.5682.8

2,367.7614.3

1,753.4772.3294.2478.2197.6267.8

4,288.2

387.1

80.8

81.7

4.213.91,131.4

785.3346.1

3,082.4876.2

1.258.097.2

1 160.8495.6117.8334.8217.8264.4295.6

4,934.7

3,189.5685.9

2,503.6674.8

1.8288848.6304.3544.3203.9296.3

4338.4

396.3

87.8

89.4

4,225.41,120.9

774.5346.5

3,104.4878.0

1,266.697.5

1,169.1500.5117.3342.1217.3264.1307.2

4,956.8

3,211.3701.7

2,509.6669.0

1.840 6870.1305.0565.117902944

4354.8

402.0

83.8

84.4

4,243.61,130.4

777.9352.5

3,113.3884.1

1,268.697.6

1,171.0500.6120.5339.5197.8246.3312.8

4,943.1

3,189.0675.6

2,513.4675.2

1,838.2867.3283.4583.9183.0298.6

4337.9

405.2

85.8

84.9

4,261.41,122.9

759.1363.8

3,138.6891.2

1.271.697.4

1,174.2499.9127.7348.2214.0245.8311.7

4,975.4

3,215.0677.8

2.537.2682.8

1,854.4867.1290.6576.5176.5307.4

4366.0

409.4

92.7

90.7

4.272.11,122.3

755.6366.7

3,149.8893.5

1,277.697.5

1,180.1494.7129.0355.0207.2239.3312.1

4,973.2

3,189.6662.1

2,527.5664.1

1,863.4861.4289.6571.8188.2317.2

4356.4

416.9

92.7

90.5

4,324.81,144.8

764.9379.9

3,180.1895.5

1,288.697.5

1,191.1495.9133.9366.2201.0239.6314.0

5,022.2

3,218.6654.1

2,564.5678.2

1,886.3854.6289.9564.7201.6325.4

4,6003

421.9

95.7

96.4

4.381.41,161.7

761.44O0.3

3,219.7907.3

1.290.898.4

1,192.45O0.I140.9380.5216.4250.8318.7

5.109.6

3,254.0672 5

2.581.5685.9

1.895.6893.1302.6590.5200.3334.8

4,682.1

427.5

109.5

110.2

4.357.41,159.6

762.8396.9

3.197.7897.5

1,294.898.4

1,196.4497.6131.9375.9222.1270.5320.8

5,113.4

3.282.4675.7

2,606.7686.8

1,919.8870.7301.6569.1199.9333.0

4.686.0

427.4

108.0

107.5

4,375.71,152.1

750.9401.2

3,223.6909.8

1,293.098.6

1,194.4500.6138.8381.4208.6244.6313.6

5,085.1

3,258.8667.8

2,591.1688.2

1,902.9872.0297.0575.1204.1327.6

4,662.6

422.5

107.9

109.2

4.381.61,160.9

759.6401.3

3,220.7912.0

1,286.099.1

1.186.9504.6138.9379.2208.2233.1312.7

5,078.2

3,203.5640.3

2.563.2688.4

1.874.8905.2296.9608.3204.7336.3

4,649.7

428.4

113.2

115.1

4.413.01,173.0

768.1404.9

3,240.0912.0

1,289.097.9

1 191 1498.2155.3385.5228.7255.7325.8

5,165.1

3.267.8708.4

2,559.4679.7

1,879.7928.3316.0612.3193.3343.5

4,733.0

432.1

111.3

112.0

Footnotes appear on p. A21.



1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued

B. Domestically chartered commercial banks

Billions of dollars

Account

Assets1 Bank credit2 Securities in bank credit3 U.S. government securities4 Other securities5 Loans and leases in bank credit2 . . . .6 Commercial and industrial7 Real estate8 Revolving home equity9 Other

10 Consumer11 Security3


15 Other assets5

16 Total assets"

Liabilities17 Deposits18 Transaction19 Nontransaction20 Large time21 Other . . .22 Borrowings23 From banks in the U.S24 From others25 Net due to related foreign offices26 Other liabilities


28 Residua! (assets less liabilities)7

Assets29 Bank credit30 Securities in bank credit31 U.S. government securities32 Other securities33 Loans and leases in bank credit2 . . . .34 Commercial and industrial35 Real estate36 Revolving home equity37 Other38 Consumer39 Security'40 Other loans and leases41 Interbank loans42 Cash assets4

43 Other assets5

44 Total assets6

Liabilities45 Deposits . • .46 Transaction47 Nontransaction48 Large time49 Other50 Borrowings51 From banks in the US52 From others53 Net due to related foreign offices . . . .54 Other liabilities



MEMO.57 Revaluation gains on off-balance-sheet

items*58 Revaluation losses on off-balance-

sheet items*59 Mortgage-backed .securities9

Monthly averages

1997

Sept

1998

Mar. Apr. May June Jul> Aug. Sept.

Wednesday figures

1998

Sept. 9 Sept. 16 Sept. 23 Sept. 3(1

Seasonally adjusted

3,469.9857.4641.8215.6

2,612.6615.8

1,186.595.4

1.091.2515.552.3

242.5178.0219.1245.3

4,056.2

2,784.8676.5

2,108.2361.0

1 747 2625.6260.4365 272.6

173.8

3,656.8

399.4

3,465.4850.5637.6212.8

2,615.0611.8

1,191.296.0

1.095.1518.250.4

243.4173.5217.1246.3

4,045.7

2 786.0'671.3

2.114.7363.8

1,750.9627.7259.3368.473.5

173.8

3,661.0

384.6

37.5

39.9259.0

3.656.7929.5693.2236.3

2,727.2653.0

1,238.798.3

1,140.4502.1

67.8265.6195.1241.3259.3

4,295.7

2 907.5686.4

2.221.2400.8

1,820.4704,1279.8424 3

82.8207.1

3,901.5

394.3

3 647.5932.8695.8237.0

2,714.7655.9

1,232.197.2

1,134.8495.6

67.9263.2194.6231.0259.2

4,275.7

2 897.1674.1

2,223.0396.2

1,826.8695.8277.3418.5

82.1207.1

3,882.1

393.6

47.2

49.6300.7

3,663.4915.6676.9238.7

2,747.8657.3

1,248.298.4

1.149.8505.5

63.6273.2192.0233.2272.7

4,304.0

2,917.9684.4

2.233.5394.5

1.839.0704.7279.2425 4

77.4210.1

3,910.0

394.0

3,668.2924.8686.7238.1

2,743.4664.8

1 241.997.5

1,144.4500.5

65.7270.5194.7230.2273.0

4,309.2

2,919 0689.9

2,229.1390.3

1,838.8704.1278.4425.7

78.0210.1

3,911.1

398.1

43.9

45.3295.6

3,685.7928.6684.2244.5

2,757.0666.8

1,250.597.9

1,152.6505.9

61.8272.0180.4215.9279.3

4,304.0

2,910.2676.0

2,234.2391.7

1 842.6698.4259.8438.6

73.3211.8

3,893.6

410.3

).678.9929.4688.2241.2

2.749.5672.9

1,244.397.6

1.146.7500.6

61.9269.8176.0211.9278.3

4,288.0

2,891.0664.4

2,226.6389.9

1,836.7703.9261.0443.0

80.9211.8

3,887.6

400.3

45.6

46 1298.0

3,693.9920.8669.3251.6

2,773.1675.5

1,249.997.7

1.152.1502.7

67.5277.5193.4215.5279.1

4.324.7

2,920.3671.7

2,248.6393.2

1 855 5690,2258.0432.2

73.4218.1

3,902.0

422.7

3.692.3920.6671.6249.0

2.771.7678.3

1,247.697.4

1.150.2499.9

67.6278.3190.1209.5278.4

4,313.0

2,910.6666.7

2,243.9390.8

1,853.1699.9261.0439.0

80.1218.1

3,908.7

404.3

50.5

50 1291.2

3,706.0928.1669.3258.8

2,778.0677.8

1,251.697.4

1,154.1496.7

69.6282.3191.6208.5276.7

4,325.6

2 899.9653.6

2,246.2384.5

1.861.7686.9262.5424.5

79.3224.9

3,891.0

434.6

Nol seasons

1 697.2919.7665.8253.9

2.777.5677.7

1,253.997 5

1.156.4494.7

68.0283.1185.2204.2278.3

4,307.7

2,894.2648.6

2 MS .5383.4

1,862.1691.5262.7428.7

84.9224.9

3,895.4

412.3

51.0

50.4294.4

3,748.5942.6676.8265.8

2,805.9684.4

1,261.397.4

1,163.9494.3

73.3292.6185.6217.9276.3

4,371.6

2,922.6655.8

2.266.8384.0

1,882.8691.6269.8421.892.8

226.8

3.933.8

437.8

lly adjusted

3.732.6929.8671.2258.7

2,802.7679.5

1,265.097.5

1.167.5495.9

69.6292 7178.6205.6277.4

4.337.0

2.913.7642.4

2,271.3386.4

1,884.9684.7265.9418.8

96.7226.8

3,921.8

415.2

51.9

54.2301.9

3,787.0959.4684.3275.1

2,827.6691.3

1,262.597.8

1,164.7497.3

75.2301.3190.7218.6279.4

4,418.6

2,934.6662.0

2.272.7382.9

1.889.8705.4271.2434.2105.1230.6

3,975.7

442.9

3.779.1950.6679.3271.4

2,828.5686.9

1,267.598.4

1,169.0500.172.1

302.0185.0216.4280.6

4.403.8

2.937.2656.6

2,280.6386.3

1.894.3708.8270.0438.8106.7230.6

3,983.4

420.4

61.5

65.0314.0

3,775.5955.6683.7271.9

2.819.9688.5

1,266.297.9

1.168.3495.3

70.0299.7190.0233.7279.8

4.422.4

2 942.0654.4

2.287.6382.5

1,905.1709.4280.6428.7102.0232.3

3,985.7

436.7

3.764.3949.0679.9269.1

2,815.3681.0

1.271.398.4

1.173.0497.6

65.4299.9190.3236.9282.6

4,417.0

2.966.7660.6

2.306.1387.6

1,918.5694.5273.4421.1104.3232.3

3,997.8

419.1

61.1

63.3310.8

3,776.7953.6676.6277.1

2,823.1691.2

1,263.697.9

1.165.7497.3

68.9302.1188.2212.9275.4

4,396.5

2 933 0'653.6

2,279.4384.0

1 895.4690.8270.3420.4106.0224.7

3,954.4

442.1

3.772.5943.5671.4272.1

2.829.0687.6

1,269.598.6

1.170.9500.6

69.2302.1183.2210.4275.9

4,384.8

2.942.9652.5

2,290.4388.8

1.901.6694.2269.2425.0106.9224.7

3,968.7

416.2

60.3

64.3308.2

3,794.9965.6686.5279.1

2,829.3692.7

1,259.398.4

1,160.9501.674.2

301.6188.6207.0275.0

4,408.4

2,911.5650.8

2,260.7383.1

1.877.6705.3265.8439.5107.5231.6

3,956.0

452.5

3,782.3953.5680.4273.1

2.828.8689.1

1,262.799.1

1,163.6504.671.6

300.8176.0197.4274.6

4,373.1

2.882.3623.3

2,259.0385.6

1.873.5727.1271.0456.1110.7231.6

3,951.7

421.3

64.6

69.1314.2

3,803.9964.8690.0274.8

2,839.1693.8

1,260.096.9

1,163.1495.7

87.5302.0197.0224.7286.3

4,454.2

2 953.5696.5

2,257.0380.9

1,876.1716.3268.0448.3109.2233.4

4,012.4

441.8

3.8O0.1957.9684.8273.2

2,842.2691.6

1,265.897.9

1.168.0498.2

82.1304.5190.6221.6287.8

4.442.3

2,952.3'691.7

2,260.6382.2

1.878.4722.0266.9455^0109.1233.4

4,016.7

425.6

61 7

65.2323.5




1.26 COMMERCIAL BANKS IN THE UNITED STATES

C. Large domestically chartered commercial banks

Billions of dollars

Assets and Liabilities'—Continued

Account

Assets1 Bank credit2 Securities in bank credit3 U.S. government securities4 Trading account5 Investment account6 Other securities7 Trading account8 Investment account9 Slate and local government .

10 Other11 Loans and leases in bank credit2 . . .12 Commercial and industrial13 Bankers acceptances14 Other15 Real estate16 Revolving home equity17 Other18 Consumer19 Security3

20 Federal funds sold to andrepurchase agreementswith broker-dealers

21 Other22 State and local government . . . .23 Agricultural24 Federal funds sold to and

repurchase agreementswith others

25 All other loans26 Lease-financing receivables27 Interbank loans28 Federal funds sold to and

repurchase agreements withcommercial banks

29 Other30 Cash assets4

31 Other assets5

32 Total assets*




Monthly averages

1997

Sept.

1998

Mar. Apr. May June July Aug. Sept.

Wednesday figures

1998

Sept. 9 Sept. 16 Sept. 23 Sept. 30

Seasonally adjusted

2,089.4458.5325.423.5

302.0133.161.771.422.249.2

1,630.9438.5

1.5437.0660.7

67.3593.4306.947.6

30.916.712.29.5

7.670.377.7

126.1

82.643.5

150.2185.5

2,5142

1,547.1383.1

1,164.0200.6963.5474.1186.6287.567.8

147.0

2,235.9

278.3

2,227.6523.9374.0

27.5346.6149.970.979.022.856.2

1,703.7467.8

1.3466.5681.7

69.1612.7297.061.7

43.817.911.29.8

7.279.887.4

132.5

82.250.3

174.9197.4

2,695.1

1,626.6391.4

1,215.1229.7

1,005.5548.0210.3337.778.7

176.7

2,430.0

265.1

2.228.0511.2360.9

23.7337.2L50.369.480.923.058.0

1.716.8470.6

1.2469.4686.1

69.4616.7301.257.3

39.817.611.29.9

7.282.790.5

127.8

76.151.7

165.8209.1

2,693.2

1,629.3390.8

1,238.5222.0

1,016.5546.4209.6336.7

73.9179.5

2.429.1

264.1

2,240.9520.1364.424.5

339.9155.774.481.422.858.6

1,720.8477.7

1.3476.4685.8

68.8617.1300.855.9

37.618.311.39.9

5.681.092.7

115.5

65.150.3

148.3214.1

2,681.1

1.613.4382.8

1,230.6217.3

1,013.3537.6189.6348.069.4

181.4

2,401.8

279.3

2,239.0512.1350.424.3

326.1161.778.583.222 260.9

1,726.9484.2

1.2483.0679.068.3

610.7297.4

61.3

42.818.611.29.9

5.584.793.6

124.9

74.550.4

147.0211.3

2,684.7

1,610.1376.6

1,233.5218.7

1,014.8528.3187.2341.169.5

187.8

2,395.8

289.0

2,238.8513.9347.820.2

327.6166.181.185.022.462.6

1,724.8485.0

1.3483.7675.167.8

607.3292.063.4

44.818.611.19.8

8.784.895.0

120.4

67.752.7

141.6208.8

2,6722

1,586.3361.7

1,224.6212.4

1,012.2522.0188.9333.275.6

193.9

2377.9

294.3

2,269.2524.7353.8

21.1332.7170.983.187.722.665.1

1.744.5488.4

1.3487.2677.7

67.7610.0292.866.9

47.919.011.29.8

9.789.997.9

112.5

60.452.1

148.9208.4

2,702.2

1,593.9363.2

1.230.7211.2

1,019.5527.2195.9331.2

89.1196.0

2,406.1

296.0

2,300.1539.5360.421.8

338.6179.189.389.823.266.6

1,760.7493.4

1.3492.1675.9

68.0607.9295.868.5

50.018.511.39.8

12.194.399.6

114.3

62.052.3

148.9208.1

2,7343

1.594.1366.6

1.227.5206.1

1021 3540.0197.0343.0101.3199.6

2,435.1

299.3

2,290.8538.0361.421.5

339.9176.687.089.623.266.4

1,752.8490.8

1.3491.3679.8

68.1611.6294.463.1

43.619.511.39.8

11.293.299.2

114.4

61.952.5

162.9210.1

2,741.5

1,604.3366.1

1.238.2207.1

1031.1541.9204.5337.498.4

201.3

2,445.9

295.6

2,291.6536.0354.4

18.5335.9181.591.290.323.167.2

1,755.7493.4

1.3493.9677.368.1

609.1295.262.1

43.618.611.49.8

12.095.099.4

109.7

56.253.5

145.0208.0

2,717.6

1.594.4361.8

1,232.7206.8

1,025.8524.2195.6328.6102.7194.4

2,415.7

302.0

2,307.0545.2362.023.5

338.4183.29 4 289.023.165.9

1.761.9494.9

1.3495.3672.868.5

6042298.2

67.9

48.719.211.49.9

13.494.199.5

112.4

60.352.1

139.3205.9

2,727.6

1,575.0355.5

1,219.5204.9

1.014.6540.8193.5MIA103.8200.6

2,420.2

307.4

2,313.9540.3363.1

23.5339.6177.287.190.123.366.8

1,773.5495.5

1.3496.0673.0

67.3605.7295.9

81.0

64.316.711.29.8

12.194.8

100.3121.6

70.551.1

151.1206.5

2,7553

1,601.7387.4

1.214.3203.9

1,010.4553.4194.5358.8104.9201.9

2,461.9

293.3




1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities1—Continued

C. Large domestically chartered commercial banks—Continued

Account

Assets45 Bank credit46 Securities in bank credit47 U.S. government securities48 Trading account49 Investment account50 Mortgage-backed securities .51 Other52 One year or less53 One to five years54 More than five years . . .55 Other securities56 Trading account57 Investment account58 State and local government . .59 Other60 Loans and leases in bank credit2 . .61 Commercial and industrial62 Bankers acceptances63 Other64 Real estate65 Revolving home equity . . .66 Other67 Commercial68 Consumer69 Security3

70 Federal funds sold to andrepurchase agreementswith broker-Kiealers

71 Other72 State and local government . . .73 Agricultural74 Federal funds sold to and

repurchase agreementswith others

75 All other loans76 Lease-financing receivables77 Interbank loans78 Federal funds sold to and

repurchase agreementswith commercial banks . . . .

79 Other80 Cash assets4

81 Other assets5

82 Total assets6

Liabilities83 Deposits84 Transaction85 Nontransaction86 Large time87 Other88 Borrowings89 From banks in the U.S90 From nonbanks in the U.S91 Net due to related foreign offices . . .92 Other liabilities



M E M O95 Revaluation gains on off-balance-

sheet items8

96 Revaluation losses on off-balance-sheet items8

97 Mortgage-backed securities9

98 Pass-through securities99 CMOs, REMICs, and other

mortgage-backed securities . .100 Net unrealized gains (losses) on

available-for-sale securities10 . . .101 Offshore credit to U.S. residents" . .

Monthly averages

1997

Sept.

1998


Wednesday figures

1998



2.082.4452.1321.5

23.4298.1193.9103.028.850.923.3

130.659.471.222.349.0

1,630.3435.9

1.5434.4663.6

67.8365.2227.5308.745.7

29.416.312.29.7

7.669.976.9

124.7

81.743.0

148.8185.5

2304.0

1,551.8380.1

1.171.7203.3968.3473.2184.4288.868.6

147.0

2,240.6

263.4

37.5

39.9211.9145.0

66.9

1.834.1

2,222.0525.8375.428.3

347.1228.8116.830.452.234.2

150.471.479.022.756.3

1,696.2469.7

1.2468.5677.5

68.1376.0230.2292.561.8

44.017.811.29.4

7.278.988.0

128.2

78.849.4

166.1197.4

2,676.7

1.614.5382.2

1,232.3225.1

1,007.2543.0209.0334.078.0

176.7

2.412.2

264.5

47.2

49.6248.6169.9

78.8

2.935.2

2,227.1514.9365.6

23.9341.7222.5117.831.751.634.5

149.369.080.322.957.3

1,712.2475.7

1.2474.5680.2

68.4377.1231.5297.1

59.4

41.717.711.19.5

7.281.790.3

128.5

77.351.2

163.4209.1

2,690.9

1,622.1392.8

1,229.3217.8

1.011.6547.6209.1338.574.5

179.5

2,423.7

267.2

43.9

45.3242.3165.3

77.0

3.035.5

2.227.1516.7365.1

23.7341.4222.3117.730.250.237.3

151.670.980.722.758.0

1,710.4481.3

1.2480.1678.068.3

374.6231.9296.8

56.0

37.618.411.29.7

5.679.892.0

114.8

64.850.0

144.3214.1

2,662.9

1.593.6373.3

1,220.3215.5

1.004.8542.9190.1352.777.1

181.4

2395.0

267.9

45.6

46.3243.0164.7

78.3

2.836.0

2.232.6508.8350.123.4

326.7213.8111.630.247.034.3

158.775.782.922.460.6

1,723.8485.3

1.2484.1676.1

68.0374 2230.7296.261.4

42.419.011.210.0

5.584.993.2

125.3

74.950.5

141.9211.3

2,673.6

1,603.8373 2

1.230.6216.3

1.014.3537.6189.6348.076.2

187.8

2,405.4

268.2

50.5

50.1235.1156.8

78.2

3.236.1

2.231.8506.9345.6

196325.9215.2109.429.149.830.5

161.377.084.322.362.1

1,724.9485.1

1.2483.8677.468.0

375.5230.7291.761.8

43.818.111.110.1

8.784.594.5

119.4

67.052.4

138.0208.8

2,660.5

1,586.1359.5

1,226.8211.3

1,015.5526.5188.9337.681.2

193.9

2388.0

272.6

51.0

50.4237.6156.9

80.7

3.535.3

2.253.7513.0349.0

20.9328.1221.8104.927.746.830.4

164.076.887.222.764.6

1,740.7485.1

1.3483.8681.0

68.0377.9231.3294.463.2

45.018.311.310.1

9.789.296.7

110.0

58.651.4

138.9208.4

2,673.8

1,591.5354.0

1,237.5213.6

1,023.9518.9191.3327.692.9

196.0

2399.4

274.4

51.9

54.2244.2160.2

84.0

3.135.6

2.290.1531.4355.7

21.7334.0232.2100.326.542.331.5

175.786.389.423.266.2

1,758.7490.5

1.3489.2679.2

68.6374.6232.6297.765.4

47.518.011.410.1

12.193.898.5

113.1

61.551.6

147.4208.1

2,7213

1,600.2363.5

1,236.7209.6

1,027.1540.1194.8345.3103.0199.6

2,442.9

278.4

61.5

65.0254.8166.3

88.5

3.836.8

2,279.7532.5358.322.3

336.0230.9105.127.344.733.1

174.285.089.223.266.0

1,747.2485.2

1.3483.9684.068.5

382.1233.4296.258.5

40.418.111.310.1

11.292.598.1

112.2

59.952.3

164.0210.1

2,728.8

1,621.1366.5

1.254.5212.2

1,042.4528.6198.2330.4100.7201.3

2,451.7

277.1

61.1

63.3253.5163.3

90.2

3.536.7

2.284.2526.1349.3

18.83.30.5228.6101.926.443.232.3

176.886.790.023.266.9

1.758.2491.1

1.3489.8681.4

68.7378.3234.4297.462.5

43.818.711.410.1

12.094.098.3

109.2

56.852.4

143.8208.0

2,707.9

1,606.7361.9

1.244.8211.6

1.033.2525.8194.1331.7103.6194.4

2,430.4

277.5

60.3

64.3250.7161.1

89.6

3.436.9

2,289.1532.5355.1

22.9332.3232.999.326.841.431.1

177.389.188.223.265.0

1,756.6492.1

1.3490.8673.8

69.0369.9234.9299.965.3

46.418.911.410.1

13.492.498.1

109.9

58.951.0

133.0205.9

2,700.8

1,559.2338.8

1,220.4207.4

1,013.0554.1195.3358.9106.920O.6

2,420.9

279.9

64.6

69.1255.5167.1

88.4

3.536.7

2.309.3535.5359.323.0

336.4241.495.025.539.030.4

176.286.190.123.466.7

1.773.8494.9

1.3493.6676.968.1

373.5235.2297.8

75.6

59.516.111.310.1

12.195.499.7

121.5

70.850.7

149.7206.5

2,749.0

1,608.8387.7

1,221.1205.2

1,015.9553.8191.8362.0104.8201.9

2,4693

279.8

61.7

65.2264.3174.1

90.2

4.637.3




1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued

D. Small domestically chartered commercial banks

hllions of dollars

Account

Assets1 Bank credit2 Securities in bank credit3 U.S. government securities4 Other securities5 Loans and leases in bank credit- . . . .6 Commercial and industrial7 Real estate8 Revolving home equitv9 Other "

10 Consumer11 Security-5

12 Other loans and leases13 Interbank loans14 Cash assets'*15 Other assets5

16 Total assets6

Liabilities17 Deposits[ 8 Transaction19 Non trans act ion20 Large time21 Other22 Borrowings23 From banks in the U.S24 From others25 Net due to related foreign offices . . . .26 Other liabilities


2 8 R e s i d u a l ( a s s e t s l e s s l i a b i l i t i e s ) 7 . . . .

Assets29 Bank credit30 Securities in bank credit31 U.S. government securities32 Other securities33 Loans and leases in bank credit2 . . . .34 Commercial and industrial35 Real estate36 Revolving home equity . . . .37 Other . ".38 Consumer39 Security1


43 Oiher assets'*

44 Total assets'1



56 Residual (assets less liabilities)7 . . . .

M E M O

57 Mortgage-backed securities'1

1997

Sept.

Monthly averages

1998


Wednesd ly figures

1998


Seasonally adjusted

1.380.5398.8316.3

82.5981.7177.2525.9

28.1497.8208.6

4.765.351.968.959.8

1,541.9

1,237.7293.5944.2160.5783.8151.573.877.74.9

26.8

1,420.9

121.1

1,429.1405.6319.2

86.41,023.5

185.2556.929.2

527.7205.1

6.170.262.666.461.9

1,600.6

1,281.0294.9986.0171.1814.9156.169.586.64.1

30.3

1,471.5

129.1

1,435.4404.4316.0

88.41,031.0

186.7562.029.0

533.0204.3

6.271.764.167.463.6

1,610.8

1,288.5293.6995.0172.5822.5158.369.688.73.5

30.6

1,480.9

129.9

1.444.8408.5319.888.7

1,036.3189.1564.7

29.1535.5205.1

5.971.464.967.765.1

1,622.8

1,296.8293.2

1,003.6174.4829.2160.770.290.63.8

30.4

1,491.8

131.0

1,454.9408.7318.8

89.91,046.2

191.2570.9

29.4541.4205.3

6.272.668.568.567.8

1,640.0

1,310.2295.1

1.015.1174.5840.6161.970.891.13.9

30.3

1306.2

133.7

1,467.3414.1321.592.6

1.053.2192.8576.5

29.6546.8204.7

6.272.971.166.967.9

1,653.4

1 3135291.9

1,021.6172.1849.5164.973.691.33.7

31.0

1313.1

140.3

1.479.3417.9323.094.9

1,061.5196.0583.6

29.7553.9201.5

6.474.073.169.067.9

1,669.4

1.328.8292.6

1,036.1172.8863.3164.573.990.63.7

30.7

1327.7

141.8

1.486.9420.0323.996.0

1,066.9197.9586.6

29.7556.9201.5

6.674.376.469.771.3

1.684.2

1,340.5295.3

1,045.2176.7868.5165.374.191.23.7

31.0

1340.6

143.7

1,484.7417.6322.395.3

1,067.1197.8586.529.7

556.7200.9

7.075.075.770.869.7

1.680.9

1,337.7288.3

1,049.4175.4874.0167.576.291.33.6

31.0

1339 X

141.1

1,485.1417.7322.295.5

1.067.4197.8586.3

29.7556.5202.1

6.774.578.567.967.4

1,678.9

1,338.6291.8

1.046.8177.2869.6166.674.791.83.3

30.3

1338.8

140.1

1.487.8420.4324.595.9

1.067.4197.8586.5

29.8556.7203.3

6.373.476.267.869.1

1,680.8

1,336.5295.3

1,041.2178.2863.0164.572.492.13.7

31.1

1335.8

145.1

1,490.0424.4326.897.6

1,065.6198.4587.0

29.6557.5199.8

6.573.975.473.679.9

1,698.9

1,351.8309.1

1,042.7177.0865.8162.973.589.44.3

31.5

13503

148.4


1,383.0398.3316.182.1

984.7175.9527.6

28.3499.3209.5

4767.148.868.360.8

1341.7

1,234.3291.2943.0160.5782.6154.574.979.74.9

26.8

1.420.5

121.2

47.1

1,425.5407.0320.4

86.61.018.5

186.2554.6

29.1525.5203.2

6.168.466.464.961.8

1399.0

1,282.6291.9990.7171.1819.6152.968.484.5

4.130.3

1,469.9

129.1

52.1

1,441.1409.9321.1

88.81,031.1

189.1561.7

29 2532.5203.4

6.270.766.266.863.9

1,618.3

1,296.9297.1999.7172.5827.2156569.387.23.5

30.6

1,487.4

130.9

53.3

1,451.8412.7323.1

89.61,039.2

191.7566.329.3

537.0203.9

5.971.461.267.664.2

1.625.1

1,297.3291.1

1,006.2174.4831.8161.170.990.23.8

30.4

1,492.6

132.5

55.0

1.459.7411.9321.590.3

1,047.8193.0571.5

29.4542.1203.7

6.273.564.767.667.1

1,639.4

1,306.8293.5

1,013.3174.5838.8162.371.491.03.9

30.3

1303.3

136.1

56.1

1,465.4412.8320.292.6

1,052.6192.6576.5

29.5547.0203.0

6.274.265.866.369.5

1,6477

1,307.9289.1

1,018.7172.1846.6164.973.891.23.7

31.0

13073

139.7

56.8

1.478.8416.8322.294.7

1,062.0194.4584.0

29.5554.5201.6

6.475.668.666.769.0

1,663.3

1 322.2288.4

1,033.8172.8861.0165.874.691.13.7

30.7

13214

140.9

57.8

1,489.0419.3323.695.7

1,069.8196.4588.3

29.9558.4202.4

6.676.172.069.072.5

1,6823

1,337.1293.1

1,044.0176.7867.2168.775.293.537

31.0

13403

142.1

59.2

1,484.6416.5321.794.9

1.068.1195.8587.3

29.8557.5201.4

7.076.678.173.072.5

1,688.2

1 345 7294.1

1,051.5175.4876.1165.975.290.73.6

31.0

1346.1

142.1

57.3

1,488.2417.5322.195.4

1,070.8196.5588.1

29.9558.2203.2

6.776.374.066.767.9

1,676.9

1,336 3290.6

1,045.6177.2868.4168.475.193.333

30.3

1338.2

138.6

57.4

1,493.2421.0325.395.8

1,072.1196.9588.9

30.1558.8204.7

6.375.366.164.368.8

1,6723

1,323.1284.5

1,038.6178.2860.4173.075.897.23.7

31.1

1330.9

1414

58.7

1,490.8422.4325.497.0

1,068.4196.6589.0

29.8559.2200.4

6.575.969.271.981.3

1.693.3

1,343.5304.1

1,039.5177.0862.5168.175.193.04.3

31.5

1347.4

145.8

59.2




1.26 COMMERCIAL BANKS IN THE UNITED STATES Assets and Liabilities'—Continued

E. Foreign-related institutions

Billions of dollars

Account

Assets1 Bank credit2 Securities in bank credit3 U.S. government securities4 Other securities5 Loans and leases in bank credit2 . . .6 Commercial and industrial7 Real estate8 Security3


12 Other assets5

13 Total assets6

Liabilities14 Deposits15 Transaction16 Nontransaction17 Borrowings18 From banks in the US19 From others20 Net due to related foreign offices21 Other liabilities


23 Residua] (assets less liabilities)7

Assets24 Bank credit25 Securities in bank credit26 U.S. government securities27 Trading account28 Investment account29 Other securities30 Trading account31 Investment account32 Loans and leases in bank credit2 . . .33 Commercial and industrial34 Real estate35 Security3

36 Other loans and leases37 Interbank loans38 Cash assels-l39 Other assets5

40 Total assets*

Liabilities41 Deposits42 Transaction43 Nontransaction44 Borrowings45 From banks in the U.S46 From others47 Net due to related foreign offices48 Other liabilities


50 Residual (assets less liabilities)7 . . . .

M E M O51 Revaluation gains on off-balance-sheet

items8

52 Revaluation losses on off-balance-sheet items*

Monthly averages

1997

Sept.

1998


Wednesday figures

1998


Seasonally adjusted

536.6178.982.796.2

357.7222.3

28.043.663.818.434.243.6

632.6

263.211.0

252.1144.634.9

109.7125.694.2

627.7

4.9

566.1200.1

88.8111.3366.0219.6

25.949.171.323.134.536.4

660.0

291.212.0

279.3152.827.0

125.8122.689.1

655.7

4.3

556.9194.189.2

105.0362.8213.115.052.272.522.635.636.2

651.0

294.012.3

281.8166.026.6

139.4102.585.1

647.6

3.4

563.0197.089.1

107.9166.0211.824.459.170.821.834.834.1

653.4

295.311 5

283.7163.422.4

141.0101.287.3

647.1

6.4

566.0199.087.4

111.7367.0213.024.260.269.723.935.334.1

659.2

302.611 1

291.6167.129.6

137.597.290.1

657.1

2.1

572.0199.990.2

109.7372.2216.123.961.570.722.035.234.2

663.2

297.2134

283.9169.926.8

143.1106.893.0

667.0

-3.8

589.8210.792.9

117.8379.1217.1

23.765.173.222.534.035.8

681.8

306.211.8

294.4169.924.0

145.9108.398.7

683.2

-1.3

607.4214.3

82.2132.1393.1221.5

23.469.279.131.434.338.1

710.8

315.215.2

300.0184332.6

151.795.1

104.5

699.0

11.8

600.3212.9

82.8130.1387.4219.123.668.476.431.834.037.3

703.1

316.814.9

301.8176228.2

148.0101.2100.7

694.9

8.2

610.7213.5

79.2134.3397.2223.923.669.680.025.434.937.8

708.5

316.414.9

301.5177.927.8

150.1101.7103.5

699.4

9.1

604.5210.7

79.5131.2393.8223.8

23.367.179.632.235.438.7

710.5

317.916.1

301.8178 125.9

152.292.3

105.2

693.6

16.9

615.1219.4

84.2135.2395 7219.3

23.072.580.838.132.938.5

7243

310.215.2

295.0206.449.1

157.382.1

110.2

708.9

15.4


533.5177.482.917.065.994.556.637.9

356.1221.2

28.043.363.618.434.343.6

629.6

264.511.5

253.0144.634.9

109.7124.194.0

627.2

2.5

43.3

41.8

566.3198.689.517.572.1

109.165.843.3

367.7220.325.949.971.623.133.436.4

659.0

292.511.9

280.6152.827.0

125.8121.789.3

656.3

2.7

40.6

39.8

557.2196.187.818.569.3

108.364.843.6

361.0213.1

24.751.671.622.633.934.2

647.6

292.311.8

280.5166.026.6

139.4101.084.3

643.7

3.9

39.9

39.0

564.7201.0

89.720.868.9

111.366.644.7

363.7211.224.358.669.721.834.434.5

655.2

298.011.2

286.8163.422.4

141.0102.186.8

650.3

4.9

40.2

38.6

569.1202.2

87.418.968.5

114.870.244.6

366.9212.9

24.060.170.023.936.333.4

662.4

304.411.1

293.3167.129.6

137.596.589.3

6573

5.1

42.2

40.6

574.9202.6

89.824.964.9

112.870.142.7

372.3215.8

23.660.971.922.035.133.8

665.5

295 413.5

282.0169.926.8

143.1103.392.3

660.9

4.6

41.7

40.2

592.3214.993.730.763.1

121.275.246.0

377.3216.023.664.373.522.534.136.6

685.2

304.911.8

293.2169.924.0

145.9105.098.7

678.5

6.7

43.8

42.2

602.2211.0

82.121.560.6

128.983.145.8

391.2220.423.368.978.631.4VIA38.1

705.8

316.815.8

300.9184.332.6

151.793.5

104.2

698.7

7.0

47.9

45.3

593.0210.6

82.822.060.8

127.882.345.5

382.5216.523.566.576.131.833.638.3

696.4

315.615.1

300.6176.228.2

148.095.6

100.8

688.2

8.2

46.9

44.2

603.2208.6

79.520.059.5

129.083.245.8

394.7222.3

23.569.679.325.434.237.7

700.2

315.915.2

300.6177.927.8

150.197.3

102.9

693.9

6.3

47.6

44.9

599.3207.479.219.659.7

128.282.545.7

391.9222.9

23.367.378.432.215.738.1

705.1

321.217.0

304.2178.125.9

152.294.1

104.6

698.0

7.1

48.6

46.0

612.9215.1

83.420.962.5

131.785.246.4

397.8220.423.173.381.038.134.138.0

722.8

315.516.7

298.8206.449.1

157.384.2

110.2

7163

6.5

49.6

46.8




NOTES TO TABLE 1.26

NOTE. Tables 1.26, 1.27. and 1.28 have been revised to reflect changes in the Board's H.8statistical release, "Assets and Liabilities of Commercial Banks in the United States." Table1.27, "Assets and Liabilities of Large Weekly Reporting Commercial Banks," and table 1.28,"Large Weekly Reporting U.S. Branches and Agencies of Foreign Banks." are no longerbeing published in the Bulletin. Instead, abbreviated balance sheets for both large and smalldomestically chartered banks have been included in table 1.26, parts C and D. Data are bothmerger-adjusted and break-adjusted. In addition, data from large weekly reporting U.S.branches and agencies of foreign banks have been replaced by balance sheet estimates of allforeign-related institutions and are included in table 1.26, part E. These data are break-adjusted.

The not-seasonally-adjusted data for ail tables now contain additional balance sheet items,which were available as of October 2. 1996.

I. Covers the following types of institutions m the fifty states and the District ofColumbia: domestically chartered commercial banks that submit a weekly report of condition(large domestic); other domestically chartered commercial banks (small domestic); branchesand agencies of foreign banks, and Edge Acl and agreement corporations (foreign-relatedinstitutions). Excludes International Banking Facilities Data are Wednesday values or proratu averages of Wednesday values. Large domestic banks constitute a universe; data forsmall domestic banks and foreign-related institutions are estimates based on weekly samplesand on quarler-end condition reports. Data are adjusted for breaks caused by ^classificationsof assets and liabilities.

The data for large and small domestic banks presented on pp. AI7-19 are adjusted toremove the estimated effects of mergers between these two groups. The adjustment formergers changes past levels to make them comparable with current levels. Estimatedijuantities of balance sheet items acquired in mergers are removed from past data for the bank

group that contained the acquired bank and put into past data for the group containing theacquiring bank. Balance sheet data for acquired banks are obtained from Call Reports, and aratio procedure is used to adjust past levels.

2. Excludes federal funds sold to, reverse RPs with, and loans made to commercial banksin the United Stales, all of which are included in "Interbank loans."

3. Consists of reverse RPs with brokers and dealers and loans to purchase and carrysecurities.

4. Includes vault cash, cash items in process of collection, balances due from depositoryinstitutions, and balances due from Federal Reserve Banks.

5. Excludes the due-from position with related foreign offices, which is included in "Netdue to related foreign offices "

6. Excludes unearned income, reserves for losses on loans and leases, and reserves fortransfer risk. Loans are reported gross of these items.

7. This balancing item is not intended as a measure of equity capital for use in capitaladequacy analysis. On a seasonally adjusted basis this item reflects any differences in theseasonal patterns estimated for total assets and total liabilities

8. Fair value of derivative contracts (interest rate, foreign exchange rate, other commodity andequity contracts) in a gain/loss position, as determined under FASB Interpretation No. 39.

9 Includes mortgage-backed securities issued by U.S. government agencies, U.S.government-sponsored enterprises, and private entities.

10. Difference between fair value and historical cost for securities classified as available-for-sale under FASB Statement No. 115. Data are reported net of tax effects Data shown arerestated to include an estimate of these tax effects.

11. Mainly commercial and industrial loans but also includes an unknown amount of creditextended to other than nonfinancial businesses.



1.32 COMMERCIAL PAPER AND BANKERS DOLLAR ACCEPTANCES OUTSTANDING

Millions of dollars, end of period

Year ending December

1993Dec.

1994Dec.

1995Dec.

1996Dec.

1997Dec.

Apr. May July

By basis11 Imports into United States12 Exports from United States13 Allother

Commercial paper (seasonally adjusted unless noted otherwise)

1 All issuers

Financial companies1

2 Dealer-placed paper , total. .3 Directly placed paper3, total.

4 Nonfinancial companies

5 Total

By holder6 Accepting banks7 Own bills8 Bills bought from other banks .

Federal Reserve Banks6

9 Foreign correspondents10 Others

555,075

218,947180,389

155,739

595,382

223,038207,701

674,904

275,815210,829

188,260

775,371

361,147229,662

184,563

966,699

513,307252,536

1,049,222

550,670282,083

216,469

1,041,681

558,817275,415

207,449

1,053,995

569.065274,469

210,460

1,091,554

597,193276,476

1,102,307

616,382266,022

219,904

1,119,816

606,355281.927

231,534

Bankers dollar acceptances (not seasonally adjusted)

32,348

12,42110,707

1,714

72519,202

10.2177.293

14,838

29,835

11,78310,4621,321

410

17,642

10,0626,355

13,417

29,242 25,832' 25,774

1. Institutions engaged primarily in commercial, savings, and mortgage banking; sales,personal, and mortgage financing; factoring, finance leasing, and other business lending;insurance underwriting; and other investment activities.

2. Includes all financial-company paper sold by dealers in the open market.3. As reported by financial companies that place their paper directly with investors.4. Includes public utilities and firms engaged primarily in such activities as communica-

tions, construction, manufacturing, mining, wholesale and retail trade, transportation, andservices.

5. Data on bankers dollar acceptances are gathered from approximately 100 institutions.The reporting group is revised every January. Beginning January 1995, data for Bankersdollar acceptances are reported annually in September.

6. In 1977 the Federal Reserve discontinued operations in bankers dollar acceptances forits own account.

1.33 PRIME RATE CHARGED BY BANKS Short-Term Business Loans1

Percent per year

Date of change

1995—Jan. 1Feb. 1July 7Dec. 20

1996—Feb. 1

1997—Mar 26

1998—Sept. 30Oct. 16

Rate

8.509.008.758.50

8.25

8.50

8.258.00

Period

199519961997

1995—JanFebMar.Apr.MayJuneMyAugSeptOctNovDec

Averagerate

8.838.278.44

8.509.009.009.009.009.008.808.758.758.758.758.65

Period

1996—JanFebMarApr.MayJuneJulyAugSeptOctNovDec

Averagerate

8.508.258.258.258.258.258.258.258.258.258.258.25

Period

1997-JanFcbMar.AprMayJuneJulyAugSeptOctNovDec

1998—JanFebMar.Apr.MayJuneJulyAugSeptOct

Averagerate

8.258.258.308.508.508.508.508.508.508.508.508.50

8.508.508.508.508.508.508.508.508.498.12

1. The prime rate is one of several base rates that banks use to price short-term businessloans. The table shows the date on which a new rate came to be the predominant one quotedby a majority of the twenty-rive largest banks by asset size, based on the most recent Call

Report. Data in this table also appear in the Board's H.15 (519) weekly and G.13 (415)monthly statistical releases. For ordering address, see inside front cover.


Financial Markets A23

1.35 INTEREST RATES Money and Capital Markets

Percent per year; figures are averages of business day data unless otherwise noted

1997

1998

July Aug. Sept.

1998, week ending

Sept. 4 Sept. II Sept. 18 Sept. 25

MONEY MARKET INSTRUMENTS

1 Federal funds1'2-3

2 Discount window borrowing2"4

Commercial paper' '6

Nonfinancial3 1-month4 2-month5 3-month

5.835.21

Financial6 1-month .7 2-month8 3-month

Commercial paper (historical)3-5"6"7

9 1-month10 3-month11 6-month

n.a.n.a.

5.935.935.93

5.305.02

n.a.n.a.n.a.

n.a.n.a.n.a.

5.435.415.42

Finance paper, directly placed (historical)^1 x

12 1-month13 3-month14 6-month

Bankers acceptances ' '15 3-month16 6-month

Certificates of deposit, secondary marker1'1®17 1-month18 3-month19 6-month

20 Eurodollar deposits, 3-month3'11

U.S. Treasury billsSecondary market3'5

21 3-month22 6-month23 1-year

Auction average""'24 3-month25 6-month26 1-year

U.S. TREASURY NOTES AND BONDS

Constant maturities^27 1-year28 2-year29 3-year30 5-year31 7-year32 10-year33 20-year34 30-year

Composite35 More than 10 years (long-term)

STATE AND LOCAL NOTES AND BONDS

Moody's series14

36 Aaa37 Baa38 Bond Buyer series'5

CORPORATE BONDS

39 Seasoned issues, all industries16

Rating group40 Aaa41 Aa42 A43 Baa44 A-rated, recently offered utility bonds17

MEMODividend-price ratio

45 Common stocks

5.815.785.68

5.815.80

5.875.925.98

5.93

5.495.565.60

5.515.595.69

5.946.156.256.386.506.576.956.88

6.93

5.806.105.95

7.597.727.838.207.86

5.315.295.21

5.315.31

5.355.395.47

5.38

5.015.085.22

5.025.095.23

5.525.845.996.186.346.446.836.71

6.80

5.525.795.76

7.377.557.698.057.77

5.465.00

5.575.575.56

5.595.595.60

5.545.585.62

5.445.485.48

5.545.57

5.545.625.73

5.065.185.32

5.075.185.36

5.635.996.106.226.336.356.696.61

6.67

5.325.505.52

7.277.487.547.877.71

5.565.00

5.515.505.48

5.535.525.50

n.a.n.a.

n.a.n.a.n.a.

5.505.47

5.575.605.65

4.985.125.13

4.995.125.13

5.415.525.525.525.565.505.805.70

5.78

4.975.08"5.12

6.536.78

7.136.98

5.545.00

5.515.505.48

5.525.515.50

n.a.n.a.

5.505.46

5.575.595.65

4.965.035.08

4.965.035.10

5.365.465.475.465.525.465.785.68

5.76

5.01'5.12'5.14

6.556.786.897.156.93

1.39

5.555.00

5.505.505.48

5.515.515.50

n.a.n.a.n.a.

5.495.46

5.565.585.61

4.904.954.94

4.944.975.00

5.215.275.245.275.365.345.665.54

5.64

5.015.155.10

6.526.776.897.147.02

1.48

5.515.00

5.445.375.31

5.455.385.32

n.a.n.a.n.a.

5.385.27

5.495.415.33

4.614.634.50

4.744.754.51

4.714.674.624.624.764.815.385.20

5.34

4.845.114.99

6.406.686.827.096.93

1.59

5.485.00

5.505.495.47

5.505.505.49

n.a.n.a.n.a.

n.a.n.a.n.a.

5.495.45

5.565.575.58

4.894.914.85

4.924.94

5.105.095.055.075.195.205.575.42

5.54

4.925.135.03

6.526.786.917.157.08

1.48

5.615.00

5.505.485.42

5.505.485.42

n.a.n.a.n.a.

n.a.n.a.n.a.

5.475.41

5.555.525.50

4.764.794.68

4.804.83

4.914.914.844.925.045.055.475.32

5.44

4.925.155.03

6.476.746.877.127.00

1.64

5.475.00

5.495.445.39

5.505.445.40

5.545.00

5.495.405.32

5.505.435.34

n.a.n.a.

5.475.40

5.535.465.41

4.734.714.55

4.794.79n.a.

4.764.744.674.724.874.905.415.26

4.845.085.00

6.436.706.847.086.93

1.61

5.385.24

5.535.425.33

5.38

4.624.694.54

4.744.764.51

4.764.704.654.624.774.835.385.21

4.855.104.97

6.426.706.837.106.90

1.56

5.425.00

5.455.345.27

5.445.355.28

n.a.n.a.n.a.

5.345.20

5.485.375.27

5.33

4.534.524.40

4.644.62n.a.

4.614.534.514.484.614.675.345.14

4.755.104.94

6.376.666.797.076.89

1.53

1. The daily effective federal funds rate is a weighted average of rates on trades throughNew York brokers.

2. Weekly figures are averages of seven calendar days ending on Wednesday of thecurrent week; monthly figures include each calendar day in the month.

3. Annualized using a 360-day year for bank interest.4. Rate for the Federal Reserve Bank of New York.5. Quoted on a discount basis.6. An average of offering rates on commercial paper for firms whose bond rating is AA or

the equivalent.7. Series ended August 29, 1997.8. An average of offering rates on paper directly placed by finance companies.9. Representative closing yields for acceptances of the highest-rated money center banks.

10. An average of dealer offering rates on nationally traded certificates of deposit.11. Bid rates for Eurodollar deposits collected around 9:30 a.m. Eastern time. Data are for

indication purposes only.12. Auction date for daily data; weekly and monthly averages computed on an issue-date

basis.

13. Yields on actively traded issues adjusted to constant maturities. Source: U.S. Depart-ment of the Treasury.

14. General obligation bonds based on Thursday figures; Moody's Investors Service.15. State and local government general obligation bonds maturing in twenty years are used

in compiling this index. The twenty-bond index has a rating roughly equivalent to Moodys'Al rating. Based on Thursday figures.

16. Daily figures from Moody's Investors Service. Based on yields to maturity on selectedlong-term bonds.

17. Compilation of the Federal Reserve. This series is an estimate of the yield on recentlyoffered, A-rated utility bonds with a thirty-year maturity and five years of call protection.Weekly data are based on Friday quotations.

18. Standard & Poor's corporate series. Common stock ratio is based on the 500 stocks inthe price index.

NOTE. Some of the data in this table also appear in the Board's H.15 (519) weekly andG.13 (415) monthly statistical releases. For ordering address, see inside front cover.Digitized for FRASER

http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis


1.36 STOCK MARKET Selected Statistics

Feb. Mar. Apr. May June July Aug. Sept

Prices and trading volume (averages of daily figures)'

Common stock prices (indexes)1 New York Stock Exchange

(Dec. 31 , 1965 - 50)2 Industrial3 Transportation4 Utility5 Finance

6 Standard & Poor's Corporation(1941-43 - 10)2

7 American Stock Exchange(Aug. 31, 1973 = 5O)3

Volume of trading (thousands of shares)8 New York Stock Exchange9 American Stock Exchange

10 Margin credit at broker-dealers4

Free credit balances at brokers*11 Margin accounts6

12 Cash accounts

291.18367.40270.14110.64238.48

541.72

498.13

345,72920,387

357.98453.57327.30126.36303.94

670.49

570.86

409,74022,567

456.99574.97415.08143.87424.84

873.43

628.34

523,254n.a.

504.13624.61458.49146.25479.81

963.36

665.72

632,89528.199

532.15660.91485.73170.96508.97

1,023.74

685.73

610,95826,808

560.70693.13508.06191.67539.47

1,076.83

722.37

619,36628.943

578.05711.89523.73207.32563.07

1,112.20

742.33

647,11029,544

574.46712.39505.02198.25551.28

1,108.42

735.02

569,23927.004

569.76731.01492.98188.26548.57

1,108.39

704.59

605,57625.447

586.39718.54503.89189.95579.67

1.156.58

724.83

639,74426,473

539.16665.66441.36186.24511.22

1.074.62

655.67

712,71032,721

506.56629.51408.75186.17454.28

1,020.64

621.48

790,23833,331

Customer financing (millions of dollars, end-of-period balances)

76,680

16,25034,340

97,400

22,54040,430

126,090

31,41052,160

127,790

29,48048,620

135,590

27,45048,640

140,340

27,43051,340

140,240

28,16051,050

143,600

26,20047,770

147,700

29.84051,205

31,82053,780

147,800

38,460'53.850'

Margin requirements (percent of market value and effective date)7

Mar. 11. 1968

13 Margin stocks . . .14 Convertible bonds15 Short sales

705070

806080

May 6, 1970

655065

555055

Nov. 24, 1972

655065

137,540

41.97054,240

505050

1. Daily data on prices are available upon request to the Board of Governors. For orderingaddress, see inside front cover.

2. In July 1976 a financial group, composed of banks and insurance companies, was addedto the group of stocks on which the index is based. The index is now based on 400 industrialstocks (formerly 425), 20 transportation (formerly 15 rail), 40 public utility (formerly 60), and40 financial.

3. On July 5, 1983, the American Stock Exchange rebased its index, effectively cuttingprevious readings in half.

4. Since July 1983, under the revised Regulation T, margin credit at broker-dealers hasincluded credit extended against stocks, convertible bonds, stocks acquired through theexercise of subscription rights, corporate bonds, and government securities. Separate report-ing of data for margin stocks, convertible bonds, and subscription issues was discontinued inApril 1984.

5. Free credit balances are amounts in accounts with no unfulfilled commitments tobrokers and are subject to withdrawal by customers on demand.

6. Series initiated in June 1984.7. Margin requirements, stated in regulations adopted by the Board of Governors pursuant

to the Securities Exchange Act of 1934, limit the amount of credit that can be used topurchase and carry "margin securities" (as defined in the regulations) when such credit iscollateralized by securities. Margin requirements on securities are the difference between themarket value (100 percent) and the maximum loan value of collateral as prescribed by theBoard. Regulation T was adopted effective Oct. 15, 1934; Regulation U, effective May 1,1936; Regulation G, effective Mar. 11, 1968; and Regulation X. effective Nov. 1, 1971.

On Jan. 1, 1977, the Board of Governors for the first time established in Regulation T theinitial margin required for writing options on securities, setting it at 30 percent of the currentmarket value of the stock underlying the option. On Sept. 30. 1985, the Board changed therequired initial margin, allowing it to be the same as the option maintenance margin requiredby the appropriate exchange or self-regulatory organization; such maintenance margin rulesmust be approved by the Securities and Exchange Commission.


1.38 FEDERAL FISCAL AND FINANCING OPERATIONS

Millions of dollars

Federal Finance A25

Type of account or operation

Fiscal year Calendar year

1998

Apr. May June July Sept.

US. budget'1 Receipts, total2 On-budget3 Off-budget4 Outlays, total5 On-budget6 Off-budget7 Surplus or deficit ( - ) , total8 On-budget9 Off-budget

Source of financing {total}10 Borrowing from the public11 Operating cash (decrease, or increase (—t). . .12 Other2

MEMO13 Treasury operating balance (level, end of

period)14 Federal Reserve Banks15 Tax and loan accounts

1,000,751351,079

1,515,7291,227,065

288,654-163.899-226,314

62,415

171,288-2,007-5,382

37,9498,620

29,329

1,453.0621.085,570

367,4921,560,5121,259,608

300,904-107.450-174,038

66,588

129,712-6,276

-15,986

44,2257,700

36,525

1,579,2921,187,302

391,9901,601,2351,290,609

310,626-21.943

-103.30781,364

38,171604

-16,832

43,6217,692

35,930

261,002216,98844,014

136,400108,56927,830

124,603108,419

16,184

-60.587-60.398

-3,618

88,03028,01460,016

95,27861,79033,488134,057102,38131.676

-38.779-40,591

1,812

-8,59751,899-4,523

36,1315,69330,438

187,860144,97342,887136,754125,60611,14851,10619,36731,739

-12,618-36,144-2,344

72,27518,14054,135

119,72387,82031,903143,807115,71428,094

-24.084-27,894

3,809

-16,37036,2104,244

36,0654,64831,417

111.74179,13532,606122,90792,55530,352

-11,166-13.420

2,254

33,989-362

-22,461

36,4276,70429,722

180,947149,73731,210142,725107,91134.81438,22241,826-3,604

-46,413-2,45110,642

38,8784,952

33,926

1. Since 1990, off-budget items have been the social security trust funds (federal old-agesurvivors insurance and federal disability insurance) and the U.S. Postal Service.

2. Includes special drawing rights (SDRs); reserve position on the U.S. quota in theInternational Monetary Fund (IMF); loans to the IMF; other cash and monetary assets;accrued interest payable to the public; allocations of SDRs; deposit funds; miscellaneousliability (including checks outstanding) and asset accounts, seigniorage; increment on gold;

net gain or loss for U.S. currency valuation adjustment; net gain or loss for IMF loan-valuation adjustment; and profit on sate of gold.

SOURCE. Monthly totals: U.S. Department of the Treasury, Monthly Treasury Statement ofReceipts and Outlays of the U.S. Government; fiscal year totals: U.S. Office of Managementand Budget, Budget of the US Government.



1.39 U.S. BUDGET RECEIPTS AND OUTLAYS1

Millions of dollars

Source or type

Fiscal year Calendar year

1998

Aug. Sept.

[ All sources

2 Individual income taxes, net3 Withheld4 Nonwithheld5 Refunds

Corporation income taxes6 Gross receipts7 Refunds8 Social insurance taxes and contributions, net9 Employment taxes and contributions'"

10 Unemployment insurance11 Other net receipts3

12 Excise taxes13 Customs deposits14 Estate and gift taxes15 Miscellaneous receipts4

OUTLAYS

16 All types

17 National defense18 International affairs19 General science, space, and technology20 Energy21 Natural resources and environment22 Agriculture

23 Commerce and housing credit24 Transportation25 Community and regional development26 Education, training, employment, and

social services

27 Health28 Social security and Medicare . . .29 Income security

30 Veterans benefits and services . .31 Administration of justice32 General government33 Net interest5

34 Undistributed offsetting receipts6

1,453,062

656.417533,080212,16888.897

189,05517,231

509,414476,36128,5844,469

54,01418,67017,18925,534

1,560,512

265,74813.49616.7092,844

21,6149,159

-10,47239.56510,685

52.001

119,378523.901225,989

36,98517,54811,892

241,090-37,620

1,579,292

737,466580,207250,75393,560

204,49322,198539,371506,75128,2024,418

56,92417,92819,84525,465

1,601,235

270,47315,22817,1741,483

21,3699,032

-14,62440,76711,005

53,008

123,843555,273230,886

39,31320,19712,768

244,013-49,973

707,552

121.884279.98853,4919,604

95,36410,053

240,326227,77710,3022.245

27,0169,2948,83512,889

800,177

139,4028,5328,260695

10,30711,037

-5,89921,5125,498

27,524

61,595269.412107.631

21,1099,5836,546

122.573-25,142

845,527

400,436292,252191,05082,926

106,4519,635

288,251268,35717,7092.184

28,0848,61910,47712,866

797,418

132,6985,7408,938

8039,6281,465

-7,57516,8475.678

61,809278,863124,034

17,69710,6706,623

122,655-24,235

773,812

354,072306,86558,06910.869

104.65910.135

260.795247,79410.7242,280

31,133'9,67910,26213.348

824,370

140,8739,42010,040

41111,10610.590

-3,52620,4145.749

26.851

63,552283,109106,353

22.07710.2127.302

122.620-22,795

922,632

447,514316,309219,13687,989

109,35314,220

312,713293,52017,0802,112

29,9228,54612,97115.837

815,886

129,3514,6109.426

95710,0512,387

-2,48316,1964.863

25,928

65,053286,305125.196

19,61511,2876,139

122,345-21,340

119,723

58,96957,4864,0012,520

5,8081.736

43,81741,130

2,301385

6,1271,7771,8253,135

143.807

25,865815

1.711122

2,217176

-1,2233.327

917

11,03351,10921,198

4,9582,256

30820,791

-5.416

111,741

122,907

18,502443

1.581-1131,8551,656

-1,4233,218

770

10,70444,24014,281

1,7492,012

57921,366

-3,221

180,947

55,30051,8814,9441,525

2,9521,484

45,80641,9733,502331

3,1811,7321,7182.535

90,47953,35339,8532.729

38,9282,128

43.07942.540

206333

2,9611,7012,3563,572

142.725

24,7481,1231.824

8922,1152,780

8,1473.9971.115

11,29347,55517,309

3,4321,6752,199

15,976-7.909

1. Functional details do not sum 10 total outlays for calendar year data because revisions tomonthly totals have not been distributed among functions. Fiscal year total for receipts andoutlays do not correspond to calendar year data because revisions from the Budget have notbeen fully distributed across months.

2. Old-age, disability, and hospital insurance, and railroad retirement accounts.3. Federal employee retirement contributions and civil service retirement and

disability fund.

4. Deposits of earnings by Federal Reserve Banks and other miscellaneous receipts.5. Includes interest received by trust funds.6. Rents and royalties for the outer continental shelf. U.S. government contributions for

employee retirement, and certain asset sales.SOURCE. Fiscal year totals: U.S. Office of Management and Budget, Budget of the US.

Government, Fiscal Year 1999, monthly and half-year totals: U.S. Department of the Trea-sury, Monthly Treasury Statement of Receipts and Outlays of the US. Government.


1.40 FEDERAL DEBT SUBJECT TO STATUTORY LIMITATION

Billions of dollars, end of month

Federal Finance All

1996

Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30

1 Federal debt outstanding . .

2 Public debt securities3 Held by public4 Held by agencies

5 Agency securities6 Held by public7 Held by agencies

8 Debt subject to statutory limit .

9 Public debt securities10 Other debt1

MEMO11 Statutory debt limit

5,260

5,2253,778I Ml

3527

8

5,137

5,1370

5,500

5,357

5,3233,8261.497

3427

8

5,237

5,2370

5,500

5,415

5,3813,8741.507

3426

8

5,294

5.2940

5,500

5,410

5,3763,8051,572

3426

7

5,290

5,2900

5,500

5,446

5,4133,8151.599

3326

7

5,328

5,3280

5,950

5,536

5,5023,8471,656

3427

7

5,417

5,4160

5,573

5,5423,8721,670

31265

5,457

5,4560

5,950

5,578

5,5483,7901,758

30264

5,460

5,4600

5,950

5,556

5,526n.a.n.a.

5,440

5,4390

5,950

1. Consists of guaranteed debt of U.S. Treasury and other federal agencies, specifiedparticipation certificates, notes to international lending organizations, and District of Colum-bia stadium bonds.

SOURCE. U.S. Department of the Treasury, Monthly Statement of the Public Debt of theUnited States and Treasury Bulletin.

1.41 GROSS PUBLIC DEBT OF U.S. TREASURY Types and Ownership

Billions of dollars, end of period

Type and holder 1994

Q4 Ql Q2 Q3

1 Total gross public debt . . .

By type2 Interest-bearing3456789

1011121314

MarketableBillsNotesBondsInflation-indexed notes and bonds'

NonmarketableState and local government series .Foreign issues1

GovernmentPublic

Savings bonds and notesGovernment account series

15 Non-interest-bearing . . .

By holder*16 U.S. Treasury and other federal agencies and trust funds17 Federal Reserve Banks18 Private investors .1920212223

24252627

Commercial banksMoney market funds . . .Insurance companies . . .Other companiesState and local treasuries'Individuals

Savings bondsOther securities

Foreign and international'Other miscellaneous investors; » •

4,800.2

4,769.23,126.0

733.81,867.0

510.3n.a.

1,643.1132.642.542.5

.0177.8

1,259.831.0

1,257.1374.1

3,168.0290.467.6

240.1224.5541.0

180.5150.7688.7784.6

4,988.7

4,964.43,307.2

760.72,010.3

521.2n.a.

1,657.2104.540.840.8

.0181.9

1,299.624.3

1,304.5391.0

3.294.9278.771.5

241.5228.8469.6

185.0162.7862.2794.9

5,323.2

5,317.23,459.7

777.42,112.3

555.0n.a.

1,857.5101.337.447.4

.0182.4

1,505.96.0

1,497.2410.9

3,411.2261.8

91.6214.1258.5482.5

187.0169.6

1,135.6610.5

5,502.4

5,494.93,456.8

715.42,106.1

587.333.0

2,038.1124.136.236.2

.0181.2

1.666.77.5

1,655.7451.9

3,393.4269.8

88.9224.9265.0493.0

186.5168.4

1,278.0418.8

5,502.4

5,494.93,456.8

715.42,106.1

587.333.0

2.038.1124.136.236.2

.0181.2

1,666.77.5

1,655.7451.9

3,393.4269.8

88.9224.9265.0493.0

186.5168.4

1,278.0418.8

5,542.4

5,535.33,467.1

720.12,091.9

598.741.5

2,068.2139.135.436.4

.0181.2

1.681.57.2

1,670.4400.0

3,430.7279.2

84.8225.5268.1442.4

186.3165.8

1,240.2538.4

5447.9

5,540.23.369.5

641.12,064.6

598.750.1

2,170.7155.036.036.0

.0180.7

1,769.17.7

1,757.6458.4

3,330.6275.082.9

228.0267.2441.0

186.0165.0

1,247.4438.0

5,526.2

5,518.73,331.0

637.72.009.1

610.441.9

2,187.7164.435.135.1

.0180.8

1,777.37.5

1. The U.S. Treasury first issued inflation-indexed securities during the first quarter of1997.

2. Includes (not shown separately) securities issued to the Rural Electrification Administra-tion, depository bonds, retirement plan bonds, and individual retirement bonds.

3. Nonmarketable series denominated in dollars, and series denominated in foreign cur-rency held by foreigners.

4. Held almost entirely by U.S. Treasury and other federal agencies and trust funds.5. Data for Federal Reserve Banks and U.S. government agencies and trust funds are actual

holdings; data for other groups are Treasury estimates.6. Includes state and local pension funds.

7. In March 1996, in a redefinition of series, fully defeased debt backed by nonmarketablefederal securities was removed from "Other miscellaneous investors" and added to "State andlocal treasuries." The data shown here have been revised accordingly.

8. Consists of investments of foreign balances and international accounts in the UnitedStates.

9. Includes savings and loan associations, nonprofit institutions, credit unions, mutualsavings banks, corporate pension trust funds, dealers and brokers, certain U.S. Treasurydeposit accounts, and federally sponsored agencies.

SOURCE. U.S. Treasury Department, data by type of security. Monthly Statement of thePublic Debt of the United States; data by holder, Treasury Bulletin.



1.42 U.S. GOVERNMENT SECURITIES DEALERS Transactions'

Millions of dollars, daily averages

1998

June July Aug.

1998, week ending

Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23 Sept. 30

OUTRIGHT TRANSACTIONS

By type of security1 U.S. Treasury bills

Coupon securities, by maturity2 Five years or less3 More than five years4 Inflation-indexed

Federal agency5 Discount notes

Coupon securities, by maturity6 One year or less7 More than one year, but less than

or equal to five years8 More than five years9 Mortgage-backed

By type of counterpartyWith interdealer broker

10 U.S. Treasury11 Federal agency12 Mortgage-backed

With other13 U.S. Treasury14 Federal agency15 Mortgage-backed

FUTURES TRANSACTIONS3

By type of deliverable security16 U.S. Treasury bills





OPTIONS TRANSACTIONS4

By type of underlying security25 U.S. Treasury bills





30,868

111,62278,005

651

37,154

1,746

3,1963,330

71,310

122,4082,250

20,149

98,73743,17651,161

2,66616,057

0

0

0000

1,6274,943

0

0

0

00

768

25,889

82,09459,741

1,205

35,439

1,325

2,8922,700

61,434

92,7821,904

19,316

76,14840,45142,118

65

1,76411,813

0

0

0000

1,8565,124

0

0

0

00

623

32,286

137,25677,455

717

37,530

1,095

4,1183,583

72,609

135,5773,012

22,350

112,13643,31450,258

5,90718,177

0

0

0

000

1,7906,496

0

0

0

00

793

26,401

115,47664,454

301

37,020

777

4,7482,455

67,380

113,6942,511

20,538

92,93842,48946.843

3,02315,079

0

0

0000

1,2724,488

0

0

0

00

697

26,841

120,62872,437

761

37,479

1,302

4,5052,468

95,734

121,1932,752

26,766

99,47443,00368,967

5,03112,194

0

0

0000

1,2305,613

0

0

0

00

1,110

28,263

116,56958,072

585

37,638

1,195

2,9483,046

63,047

112,8262,377

19,705

90,66342,45043,342

3,78013,845

0

0

0000

1,7016,005

0

0

O00

541

33,499

157,47993,119

968

34,649

1,0934,0495,026

59,351

155,7143,559

20,044

129,35141,25739,307

50

7,77723,221

0

0

0000

2,4689,382

0

0

0

00

633

187,693105,015

862

42,747

9054,9085,058

77,327

185,7924,094

25,054

159,53649,52452,272

10,68030,063

0

0

0000

2,2635,986

0

0

0

00

1,050

35,909

120,89474,135

1,212

39,628

517

6,0932,561

111,619

130,4502,696

31,866

101,70046,10279,753

3,49816,714

0

0

0

000

1,7236,421

0

0

0

00

815

40,148

151,59285,936

1,657

45,984

1,544

5,0782,569

103,767

156,3602,768

37,391

122,97352,40666,375

5,08722,287

0

0

0000

2,6916,440

0

0

0

00

786

31,762

141,65084,597

817

48,277

1,378

4,4662,817

83,919

143,2033,556

29,255

115,62353,38253,271

3,50620.808

0

0

0000

1,4075,485

0

0

0

00

348

28,504

130,82585,452

1,140

50,771

1,036

4,0032,769

71,093

135,1533,264

26,631

110,76955,31544,462

2,72415,948

0

0

0000

1,9506,383

0

00

975

1. Transactions are market purchases and sales of securities as reported to the FederalReserve Bank of New York by the U.S. government securities dealers on its published list ofprimary dealers. Monthly averages are based on the number of trading days in the month.Transactions are assumed to be evenly distributed among the trading days of the report week.Immediate, forward, and futures transactions are reported at principal value, which does notinclude accrued interest; options transactions are reported at the face value of the underlyingsecurities.

Dealers report cumulative transactions for each week ending Wednesday.2. Outright transactions include immediate and forward transactions. Immediate delivery

refers to purchases or sales of securities (other than mortgage-backed federal agency securi-ties) for which delivery is scheduled in five business days or less and "when-issued"securities that settle on the issue date of offering. Transactions for immediate delivery of mortgage-backed agency securities include purchases and sales for which delivery is scheduled in thirty businessdays or less. Stripped securities are reported at market value by maturity of coupon or cotpus.

Forward transactions are agreements made in the over-the-counter market that specifydelayed delivery. Forward contracts for U.S. Treasury securities and federal agency debtsecurities are included when the time to delivery is more than five business days. Forwardcontracts for mortgage-backed agency securities are included when the time to delivery ismore than thirty business days.

3. Futures transactions are standardized agreements arranged on an exchange. All futurestransactions are included regardless of time to delivery.

4. Options transactions are purchases or sales of put and call options, whether arranged onan organized exchange or in the over-the-counter market, and include options on futurescontracts on U.S. Treasury and federal agency securities.

NOTE, "n.a." indicates that data are not published because of insufficient activity.Major changes in the report form filed by primary dealers induced a break in the dealer data

series as of the week ending January 28, 1998.


Federal Finance A29

1.43 U.S. GOVERNMENT SECURITIES DEALERS Positions and Financing1

Millions of dollars

NET OUTRIGHT POSITIONS3

fiv type of security1 US Treasury bills



Coupon securities, by maturity

7 More than one year, but less thanor equal to five years

8 More than five years9 Mortgage-backed

NET FUTURES POSITIONS4

By type of deliverable security10 US. Treasury bills


12 More than five years

Federal agency


16 More than one year, but less thanor equal to five years


NET OPTIONS POSITIONS

By type of deliverable security19 U.S. Treasury bills

Coupon securities, by maturity20 Five years or less21 More than five years



25 More than one year, but less than


Reverse repurchase agreements28 Overnight and continuing29 Term

Securities borrowed30 Overnight and continuing31 Term

Securities received as pledge

33 Term

Repurchase agreements34 Overnight and continuing35 Term

Securities loaned

37 Term

Securities pledged38 Overnight and continuing39 Term

Collaleralized loans40 Total

1998

June July Aug.

1998, week ending

Aug. 5 Aug. 12 Aug. 19 Aug. 26 Sept. 2 Sept. 9 Sept. 16 Sept. 23

Positions

2.012

-22,489-11,405

1,306

16.758

2,098

7.04310,93469,961

139

-1,530-32,350

0

0

0

000

0

-2,063-343

0

0

0

n.a.n.a.1,750

1,766

-16,440-17,653

2,671

19,296

2,782

7,43510,75964,705

596

-4,346-26.100

0

0

0

000

0

-1,050-3,065

0

0

0

n.a.n.a.2,332

3,981

-18,708-11.060

2,305

16,408

2.756

5,8218,784

61,657

1,144

-4,879-32,741

0

0

0

000

0

-827-2,842

0

0

0

n.a.n.a.1,954

4,030

-21,834-15,890

2.725

18,105

2,809

6,7939,054

61,216

809

-2,889-31,268

0

0

0

000

0

-577-3,397

0

0

0

n.a.n.a.3,092

2,786

-26,511-13,915

2,603

18,803

2,692

7,7178,831

71.517

878

-4,360-33,884

0

0

0

000

0

-645-3,409

0

0

0

n.an.a.

1,696

6,322

-29,451-12.806

2,187

14,783

2,278

6,23210,41463,422

1,172

-4,629-33,411

0

0

0

000

0

-627-3,859

0

0

0

n.a.n.a.2,229

2,185

-7,988-10,324

2,196

13,975

2,833

4,5657,990

52,505

1,385

-6,374-33,309

0

0

0

000

0

-1,294-880

0

0

0

n.a.n.a.1,649

4,845

-4,625-8201.786

17,042

3,355

3,3787,280

58,637

1,474

-5,851-30,879

0

0

0

000

0

-957-2,815

0

0

0

n.a.n.a.1,222

6,948

-7,456597

1,883

19,191

3,211

5,0336,512

62,539

1,617

-6,506-29,025

0

0

0

000

0

-1,878-3,497

0

0

0

n.a.n.a.1,692

-896

-6,121-3,598

1,536

20,889

2,961

5,9926,371

66,404

287

-10,554-26,815

0

0

0

000

0

-911-1,015

0

0

n.a.n.a.1,706

-1,168

-7,093-2,644

1,327

17,117

2,653

4,9067,344

55,797

151

-9,681-23,089

0

0

0

000

0

267-2,398

0

0

n.a.n.a.2,517

Financing5

341,684824,391

221,33198.054

3,043n.a.

740,876744,206

11,1643 625

56,1755,471

11.177

320,143895,133

218,17295,894

3,140n.a.

720,678799,633

10,9993 623

54.4776,425

16,787

333,413829,365

221,15095,383

2,770n.a.

735,478728,531

12,5183 830

49,0945,612

21,580

323,805959,264

212,33297,037

2,748n.a.

711,604856,968

12,3893 497

49,0345.851

21,562

327,9921,002,726

218,69695,627

2,617n.a.

729,503886,939

12,9044 100

47,8355.853

24,137

337,894702,978

221,83495,116

2,983n.a.

747,609606,000

13,1973 771

49,2304,867

21,570

332,826734,912

225,40294,232

2,820n.a.

729,867646,966

12,9923 876

51,4855,861

21,434

345,156765,937

226,49595,375

2,641n.a.

758,591664,056

10,4953 803

47,3765,732

18,238

305,452778.038

223,82099,144

3,120n.a.

726,556675,410

10,9323 808

46,4825,794

13.879

309.408798,530

231,670103,598

3.413n.a

747,092718,248

10,0163 936

52,3445.560

14.678

336,627820,842

232,824101,204

3,470n.a.

735,625746,038

10,0073 897

55,6355,878

16,520

1. Data for positions and financing are obtained from reports submitted to the FederalReserve Bank of New York by the U.S. government securities dealers on its published list ofprimary dealers. Weekly figures are close-of-business Wednesday data. Positions for calendardays of the report week are assumed to be constant. Monthly averages are based on thenumber of calendar days in the month.

2. Securities positions are reported at market value.3. Net outright positions include immediate and forward positions. Net immediate posi-

tions include securities purchased or sold (other than mortgage-backed agency securities) thathave been delivered or are scheduled to be delivered in five business days or less and"when-issued" securities that settle on the issue date of offering. Net immediate positions formortgage-backed agency securities include securities purchased or sold that have beendelivered or are scheduled to be delivered in thirty business days or less.

Forward positions reflect agreements made in the over-the-counter market that specifydelayed delivery. Forward contracts for U.S. Treasury securities and federal agency debt

securities are included when the time to delivery is more than five business days. Forwardcontracts for mortgage-backed agency securities are included when the time to delivery ismore than thirty business days.

4. Futures positions reflect standardized agreements arranged on an exchange. All futurespositions are included regardless of time to delivery.

5. Overnight financing refers to agreements made on one business day that mature on thenext business day; continuing contracts are agreements that remain in effect for more than onebusiness day but have no specific maturity and can be terminated without advance notice byeither party; term agreements have a fixed maturity of more than one business day. Financingdata are reported in terms of actual funds paid or received, including accrued interest.

NOTE, "n.a." indicates that data are not published because of insufficient activity.Major changes in the report form filed by primary dealers induced a break in the dealer data

series as of the week ending January 28, 1998.



1.44 FEDERAL AND FEDERALLY SPONSORED CREDIT AGENCIES Debt Outstanding


Agency 1996 1997

Apr. May July

1 Federal and federally sponsored agencies

2 Federal agencies3 Defense Department1

4 Export-Import Bank23

5 Federal Housing Administration4

6 Government National Mortgage Association certificates ofparticipation5

7 Postal Service6

8 Tennessee Valley Authority9 United States Railway Association6

10 Federally sponsored agencies7

11 Federal Home Loan Banks12 Federal Home Loan Mortgage Corporation13 Federal National Mortgage Association14 Farm Credit Banks8

15 Student Loan Marketing Association9

16 Financing Corporation17 Farm Credit Financial Assistance Corporation"18 Resolution Funding Corporation

MEMO19 Federal Financing Bank debt13

Lending to federal and federally sponsored agencies20 Export-Import Bank21 Postal Service6

22 Student Loan Marketing Association23 Tennessee Valley Authority24 United States Railway Association6

Other lending14

25 Farmers Home Administration26 Rural Electrification Administration27 Other

738,928

39.1866

3,455116

n.a.8,073

27,536

699,742205,817

93,279257,23053,17550,335

8,1701,261

29,996

103,817

3,4498,073n.a.3,200n.a.

33,71917,39237,984

844,611

37,3476

2.05097

n.a.5,765

29,429

807,264243,194119,961299,17457,37947,529

8,1701.261

29,996

78,681

2,0445,765

3,200n.a.

21,01517,14429,513

925,823

29,3806

1,44784

n.a.27,853n.a.

896,443263,404156,980331,27060,05344,763

8,1701,261

29,996

58,172

1,431n.a.n.a.

18,32516,70221,714

1,022,609

27,7926

552102

27,786

994,817313,919169,200369,77463,51737,7178,1701,261

29,996

49,090

13,53014,89820,110

1,059,043

27,2276

54997

27,221

1,031,816317,967193,300381,09362,32736,310

8,1701,261

29,996

45,487

n.a.n.a.

13,03014,31517,593

1,048,661

27,1046

542102

n.a.27,098

1,021,557323,208200,800395,97762,79936,256

8,1701,261

29,996

44,893

12,38014,20317,768

1,044,575

26,9956

542108

n.a.n.a.26,989

1,017,580322,155204,751399,48963,74435,952

8,1701,261

29,996

44,223

n.a.n.a.

11,95514,20717,519

1,061,253

26,8176

1,295144

n.a.n.a.26,811

1,034,436328,514200,314406,162

64,71733,231

8,1701,261

29,996

136,892

1,295n.a.n.a.n.a.n.a.

13,53014,819

107,248

26,99060

156

n.a.n.a.

26,984

n.a.328,009208,800415,229

64,528n.a.8,1701,261

29,996

42,610

tn.a.

10,90014,12617,584

1. Consists of mortgages assumed by the Defense Department between 1957 and 1963under family housing and homeowners assistance programs.

2. Includes participation certificates reclassified as debt beginning Oct. 1, 1976.3. On-budget since Sept. 30, 1976.4. Consists of debentures issued in payment of Federal Housing Administration insurance

claims. Once issued, these securities may be sold privately on the securities market.5. Certificates of participation issued before fiscal year 1969 by the Government National

Mortgage Association acting as trustee for the Farmers Home Administration, the Departmentof Health, Education, and Welfare, the Department of Housing and Urban Development, theSmall Business Administration, and the Veterans Administration.

6. Off-budget.7. Includes outstanding noncontingent liabilities: notes, bonds, and debentures. Includes

Federal Agricultural Mortgage Corporation, therefore details do not sum to total. Some dataare estimated.

8. Excludes borrowing by the Farm Credit Financial Assistance Corporation, which isshown on line 17.

9. Before late 1982, the association obtained financing through the Federal Financing Bank(FFB). Borrowing excludes that obtained from the FFB, which is shown on line 22.

10. The Financing Corporation, established in August 1987 to recapitalize the FederalSavings and Loan Insurance Corporation, undertook its first borrowing in October 1987.

11. The Farm Credit Financial Assistance Corporation, established in January 1988 toprovide assistance to the Farm Credit System, undertook its first borrowing in July 1988.

12. The Resolution Funding Corporation, established by the Financial Institutions Reform,Recovery, and Enforcement Act of 1989, undertook its first borrowing in October 1989.

13. The FFB, which began operations in 1974, is authorized to purchase or sell obligationsissued, sold, or guaranteed by other federal agencies. Because FFB incurs debt solely for thepurpose of lending to other agencies, its debt is not included in the main portion of the table toavoid double counting.

14. Includes FFB purchases of agency assets and guaranteed loans; the latter are loansguaranteed by numerous agencies, with the amounts guaranteed by any one agency generallybeing small. The Farmers Home Administration entry consists exclusively of agency assets,whereas the Rural Electrification Administration entry consists of both agency assets andguaranteed loans.


Securities Markets and Corporate Finance A31

1.45 NEW SECURITY ISSUES Tax-Exempt State and Local Governments

Millions of dollars

Type of issue or issuer,or use

Apr. May June July Sept.

1 All issues, new and refunding

By type of issue2 General obligation3 Revenue

By type of issuer4 State ,5 Special district or statutory authority6 Municipality, county, or township . .

7 Issues for new capital

By use of proceeds8 Education9 Transportation

10 Utilities and conservation11 Social welfare12 Industrial aid13 Other purposes

145,657

56,98088,677

14,66593,50037,492

102,390

23,96411,8909,618

19,5666,581

30.771

171,222

60,409110,813

13,651113,22844,343

112,298

26,85112,3249,791

24,5836,287

32,462

214,694

69,934134,989

18,237134,91970,558

135,519

31,86013,95112,21927,7946,66735,095

21,306

9,89311,413

2,42014,2284,658

12,538

3,5251,760687

2,903581

3,082

27,859

9,59718,261

2,37519,6295,859

15,134

4,297771

1,8663,1041,2363.860

20,271

8,15412,117

3,54812,5044,219

12,616

4,0801,089

749n.a.

6783,255

22,862

4,82718,035

1,14616,8654,851

15,281

2,8191,0435,971n.a.

5762,482

29,665

10,13519,530

2,80918,0997,220

19,341

4,9112,9622,368n.a.

5635,279

22,599

6,51516,084

1,97216,2445,673

15,895

2,7333,677

795n.a.1,0024.674

20,344

5,81214,532

1,48314,2334,628

11,258

2,4351,9821,179n.a.

7092,764

17,526

5,61911,907

1,28012,4903,756

9,106

2,041918831

n.a.315

2,726

1. Par amounts of long-term issues based on date of sale.2. Includes school districts.

SOURCE. Securities Data Company beginning January 1990; Investment Dealer'sDigest before then.

1.46 NEW SECURITY ISSUES U.S. Corporations

Millions of dollars

Type of issue, offering,or issuer

May July

1 All issues1

2 Bonds2

By type of offering3 Public, domestic4 Private placement, domestic5 Sold abroad

By industry group6 Nonfinancial7 Financial

8 Stocks2

By type of offering9 Public

10 Private placement^ .

By industry group11 Nonfinancial12 Financial

673,779'

572,998

408,70787,49276,799

156,763416,235

105,323

73,22332,100

52,70720.516

668,687

548,922

465,489n.a.

83,433

119,765429,157

122,006

122.006n.a.

80,46041.546

771,135

641,069

537,880n.a.

103.188

130,116510,953

117,880

117,880n.a.

60,38657.494

81,465

73,798

55,647n.a.

10,551

21,03945,159

7,667

7,667n.a.

1,7615,906

76,178

64,996

50,453n.a.6,943

12,13345,263

11,182

11.182n.a.

5,7375.445

116,594

97,323

81,778n.a.7,946

17,30172,422

19,271

19,271n.a.

10,7568.515

84,399

71,929

55,452n.a.8,878

16,98547,345

12,470

5,5516,919

85,013

70,313

56,965n.a.5,748

12,85649,857

14,700

14,700n.a.

9,2715,429

36,944

19,833

78,280r

n.a.7.363'

16,84410,344

17,111

10,2486,863

70,306

60,534

54,266n.a.6,267

17,22143,313

9,772

9,772n.a.

6,3903,382

53,628

49,903

12,79937,104

3,725

3,725

2,5601,165

1. Figures represent gross proceeds of issues maturing in more than one year; they are theprincipal amount or number of units calculated by multiplying by the offering price. Figuresexclude secondary offerings, employee stock plans, investment companies other than closed-end, intracorporate transactions, and Yankee bonds. Stock data include ownership securitiesissued by limited partnerships.

2. Monthly data cover only public offerings.3. Monthly data are not available.SOURCE. Beginning July 1993, Securities Data Company and the Board of Governors of

the Federal Reserve System.



1.47 OPEN-END INVESTMENT COMPANIES Net Sales and Assets'

Millions of dollars

Item

1 Sales of own shares2

2 Redemptions of own shares3 Net sales3

4 Assets4

5 Cash5

6 Other

1996

934,595

702,711231,885

2,624,463

138,5592,485,904

1997

1,190,900

918,728272,172

3,409,315

174,1543.235,161

1998

Feb.

114,219

81,688

32,532

3,675,392

180,4153,494.977

Mar.

128,348

97,24831,100

3,843,971

174,0583,669,913

Apr.

128,828

97,08731,741

3,909,932

170,0453,739,887

May

113,593

84,42129,172

3,882,061

171,4253,710,636

June

122,288

97,89924,389

3,986,952

199,1353,787,817

July

134,801

107,36827,433

3,957,093

195,9663,761,127

Aug.'

111,587

118,812

-7,225

3,479,401

194,4353,284,967

Sept.

118,640

106,94211,697

3,628,812

210,2263,418,586

1. Data include stock, hybrid, and bond mutual funds and exclude money market mutualfunds.

2. Excludes reinvestment of net income dividends and capital gains distributions and shareissue of conversions from one fund to another in the same group.

3. Excludes sales and redemptions resulting from transfers of shares into or out of moneymarket mutual funds within the same fund family.

4. Market value at end of period, less current liabilities.5. Includes all U.S. Treasury securities and other short-term debt securities.SOURCE. Investment Company Institute. Data based on reports of membership, which

comprises substantially all open-end investment companies registered with the Securities andExchange Commission. Data reflect underwritings of newly formed companies after theirinitial offering of securities.

1.48 CORPORATE PROFITS AND THEIR DISTRIBUTION

Billions of dollars; quarterly data at seasonally adjusted annual rates

1995

Q3 Q4 Ql Q2 Q3 Q4 Ql Q2

1 Profits with inventory valuation andcapital consumption adjustment

2 Profits before taxes3 Profits-tax liability4 Profits after taxes5 Dividends6 Undistributed profits

7 Inventory valuation8 Capital consumption adjustment

672.4635.6211.0424.6205.3219.3

-22.659.4

750.4680.2226.1454.1261.9192.3

-1.271.4

817.9734.4246.1488.3275.1213.2

6.976.6

755.4681.9227.7454.2269.1185.1

1.272.3

762.0685.7224.2461.5273.6187.9

3.073.3

794.3712.4238.8473.6274.1199.5

8.173.8

815.5729.8241.9487.8274.7213.2

10.375.5

840.9758.9254.2504.7275.1229.5

4.877.2

820.8736.4249.3487.1276.4210.6

4.380.1

829.2719.1239.9479.2277.3201.8

25.384.9

820.6723.5241.6481.8278.1203.7

7.889.4

SOURCE. U.S. Department of Commerce, Survey of Current Business.

1.51 DOMESTIC FINANCE COMPANIES Assets and Liabilities1

Billions of dollars, end of period; not seasonally adjusted

Account

ASSETS

1 Accounts receivable, gross2

5 LESS: Reserves for unearned income6 Reserves for losses

7 Accounts receivable, net8 All other

9 Total assets

LIABILITIES AND CAPITAL

11 Commercial paper

Debt12 Owed to parent13 Not elsewhere classified14 All other liabilities15 Capital, surplus, and undivided profits

16 Total liabilities and capital

1995

607.0233.0301.672 4

60.712.8

533.5250 9

784.4

15.3168.6

51.1300.0163.685.9

784.4

1996

637.1244.9309.5

82 7

55.613.1

568.3290 0

858.3

19.7177.6

60.3332.5174.793.5

858.3

1997

663.3256.8318.587 9

52.713.0

597.63124

910.0

24.1201.5

64.7328.8189.6101.3

910.0

1996

Q4

637.1244.9309.5

82 7

55.613.1

568.3290 0

858.3

19.7177.6

60.3332.5174.793.5

858.3

Ql

648.0249.4315.283 4

51.312.8

583.9289 6

873.4

18.4185.3

61.0324.6189.294.9

873.4

1997

Q2

651.6255.1311.784 8

57.213.3

581.2306 8

887.9

18.8193.7

60.0345.3171.498.7

887.9

Q3

660.5254.5319.5

86 4

54.612.7

593.1289 1

882.3

20.4189.6

61.6322.8190.197.9

882.3

Q4

663.3256.8318.587 9

52.713.0

597.63124

910.0

24.1201.5

64.7328.8189.6101.3

910.0

1998

Ql

667.2251.7325.989 6

52.113.1

601.9329 7

931.6

22.0211.7

64.6338.2193.1102.1

931.6

Q2

676.0251.3334.9

89 9

53.213.2

609.6340 1

949.7

22.3225.9

60.0348.7188.9103.9

949.7

1. Includes finance company subsidiaries of bank holding companies but not of retailersand banks. Data are amounts carried on the balance sheets of finance companies; securitizedpools are not shown, as they are not on the books.

2. Before deduction for unearned income and losses.


Securities Market and Corporate Finance A3 3

1.52 DOMESTIC FINANCE COMPANIES Owned and Managed Receivables1

Billions of dollars, amounts outstanding

Type of credit

Apr. May July

2 Consumer. . . .3 Real estate . . .4 Business

121314151617

1819202122232425262728

2930313233343536

ConsumerMotor vehicles loansMotor vehicle leasesRevolvingOther1

Securitized assets4

Motor vehicle loansMotor vehicle leasesRevolvingOther

Real estateOne- to four-familyOtherSecuritized real estate assets4

One- to four-familyOther

BusinessMotor vehicles

Retail loansWholesale loans5

LeasesEquipment

LoansLeases

Other business receivables6

Securitized assetsMotor vehicles

Retail loansWholesale loansLeases

EquipmentLoansLeases

Other business receivables

Seasonally adjusted

283.172.4

326.8

689.5

285.881.1

28.542.6

34.83.5

n.a.14.772.4n.a.n.a.

n.a.n.a.

331.266.521.836.6

8.08.08.08.08.0

8.08.08.08.08.08.08.08.0

307.7111.9342.4

769.7

310.686.792.532.533.2

36.88.70.0

20.1111.952.130.5

28.90.4

347.267.125.133.0

9.09.09.09.09.0

9.09.09.09.09.09.09.09.0

327.7121.1361.0

819.0

328.7121.6368.7

328.9121.9374.5

330.2124.2378.6

332.5120.9377.9


818.1

330.987.096.838.634.4

44.310.80.0

19.0121.159.028.9

33.00.2

366.163.525.627.710.10.10.10.10.2

10.210.210.210.210.210.210.210.2

95.236.633.0

45.010.50.0

18.2121.661.528.1

31.80.2

372.767.827.330.210.2

206.550.8

155.751.6

32.12.0

30.00.0

10.54.26.34.2

825.3

326.790.695.930.433.4

42.810.45.3

18.1121.962.428.1

31.20.2

376.768.228.329.510.4

207.851.2

156.754.0

31.61.9

29.60.0

10.34.16.24.7

832.2

329.489.695.930.533.5

45.710.85.3

18.1124.265.228.1

30.70.2

378.669.129.329.510.4

209.351.3

158.054.3

31.01.9

29.20.0

10.24.06.24.7

836.0

335.489.997.029.934.4

49.310.95.3

18.6120.962.327.5

30.90.1

379.768.429.228.211.0

212.852.7

160.253.7

29.12.3

26.70.0

10.54.16.45.3

336.6'125.2378.7

835.2r

338.5"91.797.329.6'35.0

50.210.85.3

18.5125.265.928.5

30.60.1

371.561.129.221.010.9

212.851.6

161.254.5

26.32.2

24.10.0

11.55.16.45.4

339.1127.1379.2

841.6

340.595.396.930.234.7

49.210.75.3

18.2127.168.628.7

29.70.1

374.062.529.622.010.9

212.051.8

160.257.0

25.92.1

23.80.0

11.44.96.45.2

NOTE. This table has been revised to incorporate several changes resulting from thebenchmarking of finance company receivables to the June 1996 Survey of Finance Compa-nies. In that benchmark survey, and in the monthly surveys that have followed, more detailedbreakdowns have been obtained for some components. In addition, previously unavailabledata on securitized real estate loans are now included in this table. The new information hasresulted in some reclassification of receivables among the three major categories (consumer,real estate, and business) and in discontinuities in some component series between May andJune 1996.

Includes finance company subsidiaries of bank holding companies but not of retailers andbanks. Data in this table also appear in the Board's G.20 (422) monthly statistical release. Forordering address, see inside front cover.

1. Owned receivables are those carried on the balance sheet of the institution. Managedreceivables are outstanding balances of pools upon which securities have been issued; thesebalances are no longer carried on the balance sheets of the loan originator. Data are shown

before deduciions for unearned income and losses. Components may not sum to totalsbecause of rounding.

2. Excludes revolving credit reported as held by depository institutions that are subsidiar-ies of finance companies.

3. Includes personal cash loans, mobile home loans, and loans to purchase olher types ofconsumer goods such as appliances, apparel, boats, and recreation vehicles.

4. Outstanding balances of pools upon which securities have been issued; these balancesare no longer carried on the balance sheets of the loan originator.

5. Credit arising from transactions between manufacturers and dealers, that is, floor planfinancing.

6. Includes loans on commercial accounts receivable, factored commercial accounts, andreceivable dealer capital; small loans used primarily for business or farm purposes; andwholesale and lease paper for mobile homes, campers, and travel trailers.



1.53 MORTGAGE MARKETS Mortgages on New Homes

Millions of dollars except as noted

Item

PRIMARY MARKETS

Terms1

1 Purchase price (thousands of dollars)2 Amount of loan (thousands of dollars)3 Loan-to-price ratio (percent)4 Maturity (years)5 Fees and charges (percent of loan amount)

Yield (percent per year)6 Contract rate1

7 Effective rate13

8 Contract rate (HUD series)4

SECONDARY MARKETS

Yield (percent per year)9 FHA mortgages (Section 203)5

10 GNMA securities6

FEDERAL NATIONAL MORTGAGE ASSOCIATION

Mortgage holdings (end of period)11 Total12 FHA/VA insured13 Conventional

14 Mortgage transactions purchased (during period)

Mortgage commitments (during period)15 Issued7

16 To sell8

FEDERAL HOME LOAN MORTGAGE CORPORATION

Mortgage holdings (end of periodf17 Total18 FHA/VA insured19 Conventional

Mortgage transactions (during period)20 Purchases21 Sales

22 Mortgage commitments contracted (during period)9 . . . .

1995

175.8134.578.627.71.21

7.657.858.05

8.187.57

1996

182.4139.278.227.21.21

7.56

in8.03

8.197.48

1997

180.1140.380.428.21.02

7.577.737.76

7.897.26

Mar. Apr. May

1998

June

Terms and yields in primary and secondary markets

191.7149.581.028.30.95

7.037.177.16

7.096.66

189.5147.180.428.40.87

7.057.197.20

7.376.63

195.6150.279.128.30.85

7.057.187.11

7.076.63

193.7151.081.028.30.85

7.037.167.08

7.076.54

July

208.7160.178.728.50.90

6.997.137.05

7.056.48

Aug.

191.5150.481.328.60.87

6.957.096.86

7.036.42

Sept.

192.7150.880.928.70.85

6.856.986.64

6.536.05

Activity in secondary markets

253.51128,762

224.749

56,598

56,092360

107,424267

107,157

98,47085,877

118,659

287,05230,592

256,460

68,618

65,859130

137,755220

137.535

125,103119,702

128,995

316,67831,925

284,753

70.465

69,9651.298

164,421177

164,244

117,401114,258

120,089

327,02531,965

295,060

12.095

14.05792

185,928166

185,762

21,01119,085

23,060

133,57132,734

300,837

14,668

17,5560

189,471162

189,309

25,13224,479

24,468

343,92232,771

311,151

17.423

10,6120

192,603158

192,445

23,74323,338

26,100

349,24932,896

316,353

11.916

16,9210

196,634422

196,212

22,39421,133

20,008

359,82733,036

326,791

17.326

13.217419

202.582456

202,126

22,605'22,263

23,528

366,89032,929

333,961

14,316

17,016233

206,856489'

206,367'

21.50720.634'

24,694

375,66532,903

342,762

15,681

16,282249

216,522490

216,032

25,36524,294

23,375

1. Weighted averages based on sample surveys of mortgages onginated by major institu-tional lender groups for purchase of newly built homes; compiled by the Federal HousingFinance Board in cooperation with the Federal Deposit Insurance Corporation

2 Includes all fees, commissions, discounts, and ""points'* paid (by the borrower or theseller) to obtain a loan.

3 Average effective interest rate on loans closed for purchase of newly built homes,assuming prepayment at the end of ten years.

4. Average contract rate on new commitments for conventional first mortgages; from U.S.Department of Housing and Urban Development (HUD). Based on transactions on the firstday of the subsequent month.

5. Average gross yield on thirty-year, minimum-downpayment first mortgages insuredby the Federal Housing Administration (FHA) for immediate delivery in the privatesecondary market. Based on transactions on first day of subsequent month.

6. Average net yields to investors on fully modified pass-through securities backed bymortgages and guaranteed by the Government National Mortgage Association (GNMA),assuming prepayment in twelve years on pools of thirty-year mortgages insured by theFederal Housing Administration or guaranteed by the Department of Veterans Affairs.

7. Does not include standby commitments issued, but includes standby commitmentsconverted.

8. Includes participation loans as well as whole loans.9. Includes conventional and government-underwritten loans. The Federal Home Loan

Mortgage Corporation's mortgage commitments and mortgage transactions include activityunder mortgage securities swap programs, whereas the corresponding data for FNMAexclude swap activity.


Real Estate A35

1.54 MORTGAGE DEBT OUTSTANDING1


Type of holder and property

Q2 Q3 04

1998

Ql

1 All holders

By type of property2 One- to four-family residences3 Multifamily residences4 Nonfarm, nonresidential5 Farm

By type of holder6 Major financial institutions7 Commercial banks2

8 One- to four-family9 Multifamily

10 Nonfarm, nonresidential11 Farm12 Savings institutions3

13 One- to four-family14 Multifamily15 Nonfarm, nonresidential16 Farm17 Life insurance companies18 One- to four-family19 Multifamily20 Nonfarm, nonresidential21 Farm

22 Federal and related agencies23 Government National Mortgage Association . .24 One- to four-family25 Multifamily26 Farmers Home Administration4

27 One- to four-family28 Multifamily29 Nonfarm, nonresidential30 Farm31 Federal Housing and Veterans' Administrations32 One- to four-family33 Mullifamily34 Resolution Trust Corporation35 One- to four-family36 Multifamily37 Nonfarm, nonresidential38 Farm39 Federal Deposit Insurance Corporation40 One- to four-family41 Mullifamily42 Nonfarm, nonresidential43 Farm44 Federal National Mortgage Association45 One- to four-family46 Multifamily47 Federal Land Banks48 One- (o four-family49 Farm50 Federal Home Loan Mortgage Corporation51 One- to four-family52 Multifamily

53 Mortgage pools or trusts5

54 Government National Mortgage Association55 One- to four-family56 Multifamily57 Federal Home Loan Mortgage Corporation . .58 One- to four-family59 Multifamily60 Federal National Mortgage Association61 One- to four-family62 Multifamily63 Farmers Home Administration11

64 One- to four-family65 Multifamily66 Nonfarm. nonresidential67 Farm68 Private mortgage conduits69 One- to four-family6

70 Multifamily71 Nonfarm, nonresidential72 Farm

73 Individuals and others74 One- to four-family75 Multifamily76 Nonfarm. nonresidential77 Farm

4,393,545

3.355,868271,823682,883

82.971

1,819,8061,012,711

615,86139,346

334,95322,551

596,191477,62664,34353,933

289210,904

7,01823,902

170,4219,563

315,580660

41,78118,09811,3195,6706,694

10,9644,7536,211

10,4285,2002,8592,369

07,8211,0491,5955,177

0174.312158,766

15.54628,555

1,67126,88541,71238,882

2,830

1,730,004450.934441,198

9.736490,851487,725

3,126530,343520,763

9,580193097

257,857208,500

11,74437,613

0

528,155368,74969,68672,73816,983

4,604,609

3,530,400281,788707,86184,561

1,894,4201,090,189

669,43443,837

353.08823.830

596,763482,35361,98752,135

288207,468

7,31623,435

167,0959,622

306,774

20

41,79117,70511,6176,2486,2219,8095,1804.6291,864

691647525

04,303

492428

3,3830

176,824161,665

15,15928,428

1,67326.75543.75339,901

3,852

1,863,210472,283461,438

10,845515.051512,238

2,813582,959569,724

13,235

054

292,906227.800

15.58449.522

0

540,206372,786

73,71975,85917,841

4,930,487

3,761,560300,665781,12987,134

1.979,1141,145,389

698,50846,675

375,32224,883

628,335513,71261,57052,723

331205,390

6,77223.197

165,39910,022

300,935220

41,59617,30311,6856,8415,7686,2443,5242.719

00000

2,431365413

1,6530

174,556160,75113.80529,602

1,74227,86046,50441,7584,746

2,064,882506,340494,158

12,182554,260551,513

2,747650,780633,210

17.57030003

353,499261,900

21,96769,633

0

585,556376,341

81,389109,55818,268

5,062,766

3,860,763305,963807,361

2,033,5991,196,461733,69449,116387,58826,063629,062516,52160.07052,132

338208,0776,84223,499167,54810,188

292.966770

41,40017.23911.7067,1355,3214,2002,2991,900

00000

1.816272309

1,2350

170,386157,72912,65729,9631,763

28.20045,19440,0925,102

2,145,995520,938507,61813,320

567,187564,4452,742

673,931654.82619,105

20002

383,937279,45024,35580.132

0

590,206377,96682,081111,59118,567

5,180,917

3,956,815308,418825,92389,760

2,068,0021,227,131752,32349,166398,84126,801631,444519,56460,34851,187

346209,4267,08023,615168,37410,358

291,410770

41,33217,45811,7137,2464,9163,4621.4372,025

00000

1,476221251

1,0040

168,458156,36312,09530,3461,786

28,56046,32940,9535.376

2,202,549529,867516,21713,650

569,920567,3402,580

690,919670,67720,242

20002

411.841299,40025,65586,786

0

618,955405,99081,702112,48618,777

5,279333

4,029,268314,590845,05890,417

2,086,7211,244,108762,53150,642

403,95726,978631,822520,67259,54351,252

354210.7927,18623,755169,37710,473

292,581

041,19517,25311,7207,3704,8523,8211,7672,054

00000

724109123492

0167,722156,24511.47730,6571,804

28,85348,45442.6295,825

2,272,999536,810523,15613,654

579.385576,846

2,539709,582687,98121,601

20002

447,219318,00029,26499,955

0

627,033413,08282,392112.65518,904

5,380,907

4,102,830320,237866,41491,425

2,119,2791,270,032779,92751,790

410,85927,456

637,012527,03659,07450,532

369212,235

7,32123,902170,42310,589

293,499

040,97217,16011,7147,3694,7293,6941,6412,053

00000

786118134534

0166,670155,87610,79431,0051,824

29,18150,36444,4405,924

2,330,674533,011519,15213,859

583,144580,7152,429

730,832708,12522,707

20002

483,685336,82433,477113.384

0

637,455422,66382,379113,31219,100

5,505,783

4,195,738326,527890,53892,980

2,124,2591,280,732784,92952,175

415.31128,316

629,882520,27658,70450,519

383213,6457,48824.038171,39310,726

294,547

040,92117,05911,7227,4974,6443,6311,6102,021

00000

56485963840

167.202156,76910.43331,3521,845

29,50750,86944.5976,272

2,442,603537,586523,24314,343

609,791607,4692,322

761,359737,63123,728

2000->

533,865364,31638,144131,405

0

644,375428,41382,529114,03119.402

1. Multifamily debt refers to loans on structures of five or more units2. Includes loans held by nondeposit trust companies but not loans held by bank trust

departments.3. Includes savings banks and savings and loan associations.4. FmHA-guaranteed securities sold to the Federal Financing Bank were reallocated from

FmHA mortgage pools to FmHA mortgage holdings in 1986:Q4 because of accountingchanges by the Farmers Home Administration.

5. Outstanding principal balances of mortgage-backed securities insured or guaranteed bythe agency indicated.

6. Includes secuntized home equity loans.7. Other holders include mortgage companies, real estate investment trusts, state and local

credit agencies, state and local retirement funds, nomnsured pension funds, credit unions, andfinance companies.

SOURCE. Based on data from various institutional and government sources. Separation ofnonfarm mortgage debt by type of property, if not reported directly, and interpolations andextrapolations, when required for some quarters, are estimated in part by the Federal Reserve.Line 69 from Inside Mortgage Securities and other sources.


A36 Domestic Financial Statistics El December 1998

1.55 CONSUMER CREDIT1

Millions of dollars, amounts outstanding, end of period

Holder and type of credit

] Total

4 Other2

5 Total

By major holder6 Commercial banks

8 Credit unions

10 Nonfinancial business"11 Pools of securitized assets4

By major type of credit

13 Commercial banks14 Finance companies15 Pools of securitized assets4

17 Commercial banks18 Finance companies19 Nonfinancial business3

20 Pools of securitized assets4

21 Other22 Commercial banks23 Finance companies24 Nonfinancial business25 Pools of securitized assets4

1995 1996 1997

1998

Mar. Apr. May June July' Aug.

Seasonally adjusted

1,095,711

364,209443,183288,319

1,181,913

392,321499,486290,105

1,233,099

413,369531,140288,590

1,246,016

419,811539,674286.530

1,249,950

421,378542,213286.359

1,251,874

422,806541,656287.412

1,260,676

425,736545,920289,020

1,266,189

427,949543,723294,517

1,270,809

431,789545,918293,102


1,122,828

501,963152,123131,93940,10685,061

211,636

367.069151,43781,07344,635

464,134210,298

28,46053,525

147,934

291,625140,22842,59031,53619,067

1,211,590

526,769152,391144,14844,71177,745

265,826

395.609157,04786,69051,719

522,860228,615

32,49344,901

188,712

293,121141,10733,20832,84425,395

1,264,103

512,563160,022152,36247,17278,927

313,057

416.962155,25487,01564,950

555,858219,826

38,60844,966

221,465

291,283137,48334,39933,96126,642

1,234,714

492,213156,480149,33447,08772,754

316,846

415,524153,92686,83465,057

534,420201,316

36,61341,246

226.226

284,770136,97133,03331,50825,563

1,239,310

500,207154,328149,11947,50065,102

323,054

416,138151.27890,56463,737

535,976209,171

30,39833,487

233,668

287.196139.75833,36631,61525,649

1,240,755

497,389153,556149,78447.91565.238

326,873

418,425151,67789,56965,988

536,043207,318

30,49533,412

235,347

286,287138,39433,49231,82625,538

1,253,893

491,509154,275149,38348,32965,278

345,119

425,453150,87789,94871,615

540,147200,901

29,89333,544

245,635

288,293139,73134,43431,73427,869

1,259328

491,777156,366150,66748,74465,495

346,279

429,551153,20391,74172,470

537,458197,64629,60533,807

246,031

292,319140,92835,02031,68827,778

1,271,013

498,775160,151151,20349,15866,026

345,700

434,470155,50895,25770,766

542,751200,424

30,15534,009

247,422

293,792142,84334,73932,01727,512

1. The Board's series on amounts of credit covers most short- and intermediate-term creditextended to individuals. Data in this table also appear in the Board's G.19 (421) monthlystatistical release. For ordering address, see inside front cover.

2. Comprises mobile home loans and all other loans that are not included in automobile orrevolving credit, such as loans for education, boats, trailers, or vacations. These loans may besecured or unsecured.

3. Includes retailers and gasoline companies.4. Outstanding balances of pools upon which securities have been issued; these baJances

are no longer carried on the balance sheets of the loan originator.5. Totals include estimates for certain holders for which only consumer credit totals are

available.

1.56 TERMS OF CONSUMER CREDIT1

Percent per year except as noted

Item

INTEREST RATES

Commercial banks1 48-month new car2 24-month personal

Credit card plan3 All accounts4 Accounts assessed interest

Auto finance companies

6 Used car

OTHER TERMS3

Maturity (months)

8 Used car

Loan-to-value ratio

10 Used car

Amount financed (dollars)11 New car12 Used car

1995

9.5713.94

15.9015.64

11.1914.48

54.152.2

9299

16,21011.590

1996

9.0513.54

15.6315.50

9.8413.53

51.651.4

91100

16,98712,182

1997

9.0213.90

15.7715.57

7.1213.27

54.151.0

9299

18,07712,281

Feb.

8.8714.01

15.6515.33

6.9812.87

52.652.5

9297

18.82512,356

Mar.

n.a.n.a.

n.a.n.a.

5.9412.79

51.552.6

9297

18.93212,431

Apr.

n.a.n.a.

n.a.n.a.

6.2012.76

50.752.9

9198

18,92212,716

1998

May

8.6913.76

15.6715.62

6.0712.73

50.852.9

9399

18,79312,607

June

n.a.n.a.

n.a.n.a.

6.0212.63

50.954.0

91100

18,87812,698

July

n.a.n.a.

n.a.n.a.

6.2512.51

51.754.1

92100

19,08412,733

Aug.

8.7113.45

15.8315.85

6.0012.68

53.054.1

93101

19,06812,407

1. The Board's series on amounts of credit covers most short- and intermediate-term creditextended to individuals. Data in this table also appear in the Board's G.19 (421) monthlystatistical release. For ordering address, see inside front cover.

2. Data are available for only the second month of each quarter.3. At auto finance companies.


1.57 FUNDS RAISED IN US. CREDIT MARKETS1

Billions of dollars; quarterly data at seasonally adjusted annual rates

Flow of Funds A37

Transaction category or sector

Q4 Ql Q2 Q3 04 Qi 02

Nonfinancial sectors

1 Total net borrowing by domestic nonfinancial sectors

By sector and instrument2 Federal government3 Treasury securities4 Budget agency securities and mortgages

5 Nonfederal

By instrument6 Commercial paper7 Municipal securities and loans8 Corporate bonds9 Bank loans n.e.c

10 Other loans and advances11 Mortgages12 Home13 Multifamily residential14 Commercial15 Farm16 Consumer credit

By borrowing sector17 Household18 Nonfinancial business19 Corporate20 Nonfarm noncorporate21 Farm22 State and local government

23 Foreign net borrowing in United States24 Commercial paper25 Bonds26 Bank loans n.e.c27 Other loans and advances

28 Total domestic plus foreign

588.0

256.1248.3

7.8

10.074.875.26.4

- 18 .9123.7156.2- 6 . 8

-26.71.0

60.7

207.857.952.1

3.22.6

66.2

69.8- 9 . 682.9

.7- 4 . 2

657.8

572.2

155.9155.7

2

416.4

21.4-35 .9

23.375.234.0

173.4178.5- 1 . 2-6 .1

2.2124.9

311.4151.3143.6

3.34.4

-46 .2

-14.0-26.1

12.21.4

- 1 . 5

558.2

701.6

144.4142.9

1.5

557.1

18.1-48 .2

73.3102.367.2

205.5174.5

8.121.2

1.6138.9

349.0259.6232.7

23.92.9

-51 .5

71.113.549.7

8.5- .5

772.7

725.8

145.0146.6- 1 . 6

580.8

- .926

72.566.233.8

318.0264.9

12.637.9

2.688.8

372.8214.8165.544.5

4.8- 6 . 8

76.911.355.89.1

.8

802.7

768.4

23.123.2- .1

745.3

13.771.490.7

107.668.2

341.1267.7

11.458.7

3.352.5

351.6337.6267.8

63.56.4

56.1

56.93.7

46.78.5

-2 .0

825.3

642.2

112.3115.6- 3 . 3

530.0

-24.154.889.927.83.2

331.5248.4

15.366.1

1.646.8

306.6177.7108.661.47.6

45.7

93.64.4

84.57.8

- 3 . 1

735.8

674.5

64.966.3-1.4

609.6

7.234.179 4

140.734.2

251.5217.5

3.928.0

2.162.5

324.7268.0215.2

47 84.9

16.9

31.215.515.5- .7

.9

705.7

614.4

-43.5-43.8

.2

658.0

20.359.686.1

118.119.3

295.1210.5

12.767.7

4.159.5

317.3298.2223.6

68.66.0

42.5

61.710.438.711.51.2

676.1

829.6

30.331.2- .9

799.3

14.588.9

122.931.679.2

411.9333.6

6.567.5

4.350.3

368.3358.4287.1

65.85.5

72.6

92.5-11.6100.3

7.3- 3 . 5

922.2

954.9

40.839.0

1.7

914.2

12.8103.274.4

140.0140.1405.8309.3

22.371.6

2.637.8

396.2425.7345.1

71.69.0

92.3

42.3.7

32.415.7

- 6 . 5

997.2

919.1

-31.3-28.9- 2 . 4

950.4

53.9116.7157.256.080.7

434.3330.3

19.980.14.0

51.7

435.9420.2334.9

77.47.9

94.3

68.856.014.35.5

- 7 . 0

987.9

29 Total net borrowing by financial sectors .

By instrument30 Federal government-related31 Government-sponsored enterprise securities .32 Mortgage pool securities33 Loans from U.S. government

34 Private35 Open market paper36 Corporate bonds37 Bank loans n.e.c38 Other loans and advances39 Mortgages

By borrowing sector40 Commercial banking41 Savings institutions42 Credit unions43 Life insurance companies44 Government-sponsored enterprises45 Federally related mortgage pools46 Issuers of asset-backed securities (ABSs)47 Finance companies48 Mortgage companies49 Real estate investment trusts (REITs)50 Brokers and dealers51 Funding corporations

294.4

165.380.684.7

.0

129.1- 5 . 5123.1

- 1 4 . 422.4

3.6

13.411.3

.2

.280.684.783.6

- 1 . 4.0

3.41206.3

Financial sectors

-69 .6-68.1

- 1 . 4

1,004.5

6.686.1

160.8170.134.5

487.8367.9

22.591.1

6.258.6

476.7463.0363.4

92.27.4

64.9

68.5-24 .8

89.87.9

- 4 . 4

1,003.5

468.4

287.5176.9115.4-4 .8

180.940.5

121.8-13 .7

22.69.8

20.112.8

.2

.3172.1115.472.948.7

-11 .513.7

.523.1

456.4

204.1105.998.2

.0

252.342.7

196.73.93.45.6

22.52.6

— 1- .1

105.998.2

141.150.2

.45.7

- 5 . 034.9

556.2

231.590.4

141.1.0

324.792.2

179.716.927.97.9

13.025.5

.11.1

90.4141.1153.645.912.411.0

-2 .064.1

644.4

212.898.4

114.4.0

431.6166.7208.1

13.635.67.8

46.119.7

.1

.298.4

114.4204.6

48.7- 1 . 324.8

8.180.7

674.1

252.8123.3129.6

.0

421.3162.1199.024.031.24.9

26.923.0

.32.0

123.3129.6157.338.112.115.24.9

141.6

336.5

105.7- 8 . 9114.6

0

230.9176.661.7

6.5-20.1

6.2

14.4-16.8

-.2.8

-8 .9114.685.85.6— 715.1

- 2 . 9129.7

659.0

286.2198.188.1

.0

372.977.0

231.4-6 .063.07.5

76.431.9

.2

.1198.188.1

122.7120.5

-12.219.834.9

-21.5

594.0

161.046.4

114.6.0

433.0168.8193.423.237.510.1

32.522.3

.2

.246.4

114.6224.7

8.93.6

32.0- 6 . 9115.4

987.9

298.1157.9140.3

.0

689.8244.2345.8

30.761.77.3

61.041.7

3~ 3

157.9140.3385.0

59.64.2

32.17.0

99.2

840.3

227.3142.584.8

.0

613.0237.4316.0

18.932.78.0

83.510.6

.5

.0142.584.8

255.080.1

5.236.3

- 1 . 0142.8

1,016.2

4134166.4247.0

.0

602.8134.8376.8

7.276.0

8.0

95.931.2

.2- . 6

166.4247.0363.5101.8-5 .533.920.0

- 37 .6



1.57 FUNDS RAISED IN U.S. CREDIT MARKETS1—Continued


Q4

1997

Qi Q4 Qi Q2

52 Total net borrowing, all sectors

53 Open market paper54 U.S. government securities55 Municipal securities56 Corporate and foreign bonds . .57 Bank loans n.e.c58 Other loans and advances . . . .59 Mortgages60 Consumer credit

952.2

-5,1421,4

74,8281.2-7 .2

- . 8127.360,7

1,026.6

35,7448.1-35.9157.362.950.3

183.2124,9

1,229.0

74.3348.5

-48.2319.6114.770.2

211.1138.9

1,358.9

102.6376.5

2.6308.092.162.5

325.988.8

1,469.7

184.1235.971.4

345.5129.7101.8348.8

52.5

1,409.9

142,4365.1

54.8373.459.731.3

336.446.8

1,042.2

199.3170.634.1

156.6146.515.0

257.762.5

1,335.1

107,7242,659.6

356.1123.683.4

302.659,5

1,516.2

171.7191.388.9

416.662.2

113.3422.0

50.3

1,985.1

257.7338.9103.2452.6186.4195.3413.1

37.8

1.828.2

347.3196.0116.7487.5

80.4106.4442.3

51.7

2,019.6

116.6343.8

86.1627.4185.3106.1495.8

58.6

Funds raised through mutual funds and corporate equities

61 Total net issues

62 Corporate equities63 Nonfinancial corporations64 Foreign shares purchased by U.S. residents65 Financial corporations66 Mutual fund shares

429.7

137.721,363,453.0

292.0

125.2

24.6-44.9

48.121.4

100.6

143.9

-3.5-« .3

50.44.4

147.4

231.8

-5.8-64.2

60.0-1.6

237.6

191.9

-73.3-114.6

41.3.1

265.1

162.3

-20.4-56.0

42.2-6.7182.8

181.9

-67.7-90.4

46.6-23.9249.6

183.9

-66.2-100.0

54.4-20.6250.1

248.6

-51.3-124.0

64.38.4

299.9

153.0

-108.0-144.1

- 136.5

261.0

218.0

-103.4-138.0

13.621.0

321.4

194.2

-118.2-129.2

4.07.1

312.4

1. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tablesF.2 through F.4. For ordering address, see inside front cover.


Flow of Funds A39

1.58 SUMMARY OF FINANCIAL TRANSACTIONS'

Billions of dollars except as noted; quarterly data at seasonally adjusted annual rates


1996

Q4 Ql Q2 Q3 Q4 Ql

NET LENDING IN CREDIT MARKETS'

1 Total net lending in credit markets

2 Domestic nonfederal nonfinancial sectors3 Household4 Nonfinancial corporate business5 Nonfarm noncorporate business6 State and local governments7 Federal government8 Rest of the world9 Financial sectors

10 Monetary authority11 Commercial banking12 U.S.-chartered banks13 Foreign banking offices in United States14 Bank holding companies15 Banks in U.S.-affiliated areas16 Savings institutions17 Credit unions18 Bank personal trusts and estates19 Life insurance companies20 Other insurance companies21 Private pension funds22 State and local government retirement funds . . . .23 Money market mutual funds24 Mutual funds25 Closed-end funds26 Government-sponsored enterprises27 Federally related mortgage pools28 Asset-backed securities issuers (ABSs)29 Finance companies30 Mortgage companies31 Real estate investment trusts (REITs)32 Brokers and dealers33 Funding corporations

RELATION OF LIABILITIESTO FINANCIAL ASSETS

34 Net flows through credit markets

Other financial sources35 Official foreign exchange36 Special drawing rights certificates37 Treasury currency38 Foreign deposits39 Net interbank transactions40 Checkable deposits and currency41 Small time and savings deposits42 Large time deposits43 Money market fund shares44 Security repurchase agreements45 Corporate equities46 Mutual fund shares47 Trade payables48 Security credit49 Life insurance reserves50 Pension fund reserves51 Taxes payable52 Investment in bank personal trusts53 Noncorporate proprietors' equity54 Miscellaneous

55 Total financial sources

Liabilities not identified as assets ( —)56 Treasury currency57 Foreign deposits58 Net interbank liabilities59 Security repurchase agreements60 Taxes payable61 Miscellaneous

Floats not included in assets (—)62 Federal government checkable deposits63 Other checkable deposits64 Trade credit

65 Total identified to sectors as assets

952.2

41.61.09.1

-1.132.6

-18.4129.3799.7

36.2142.2149.6-9.8

.02.4

- 2 3 321.79.5

100.927.749.522.720.4

159.520.087.884.781.0

- 2 0 9.0.6

14.8-35.3

952.2

.0

.4-18.5

50.5117.3

-70.3-23.5

20.271.3

137.7292.052.261.436.0

255.611.4

.925.5

340.0

2,312.9

-5 .74.2

46.415.8

-170.8

-1.5-1.3-4.0

2,429.9

1,026.6

238.7275.5

17.7.6

-55.0-27.5132.3683.0

31.5163.4148.111.2

.93.36.7

28.17.1

66.724.945.522.330.0

-7.1-3.7117.8115.465.848.3

-24.04.7

-44.2-16.2

1,026.6

-5.8.0.7

52.989.8- 9 7

-39.919.643.378.224.6

100.694.0- .1

34.5246.2

2.617.855.6

252.0

2,083.6

- . 243.0-2.769.416.6

-150.4

-4.8-2.8

1.5

2,114.0

1,229.0

-93.81.6

-8.84.7

-91.4- .2

273.91,049.1

12.7265.9186.575.4- . 34.2

-7.616.2

-8.399.221.561.327.586.552.510.584.798.2

119.349.9-3.4

2.290.1

-29.7

1,229.0

8.82.2

.635.39.9

-12 .796.665.6

142.3110.4-3.5147.4100.726.744.9

233.26.24.0

71.5449.4

2,768.5

- . 525.1-3.122.921.1

-221.3

-6.0-3.8

-12.5

2,946.7

1,358.9

9.513.815.04.4

-23.7-7.7

414.7942.4

12.3187.5119.663.33.9.7

19.925.5-7.772.522.548.345.988.848.9

2.292.0

141.1123.4

18.48.22.0

-15 .76.5

1,358.9

- 6 . 3- .5

.185.9

-51.615.897.2

114.0145.840.0-5.8

237.672.352.443.6

230.816.2-8.647.1

415.8

2,900.8

- . 959.4-3.3- .720.4

-122.6

.5-4.0

-31.5

2,983.7

1,469.7

-106.114.92.7- .34.9

312.11.241.5

38.3324.8274.940.25.44.2

-4.716.87.6

101.025.267.636.687.580.9

1.295.0

114.4166.121.916.4

- 2 . 013.733.4

1,469.7

.7- . 5

.0107.4

-45.841.597.1

122.5157.6115.2

-73.3265.194.5

110.152.9

296.815.175.041.2

586.7

3,529.6

- . 6107.4

-19.872.617.7

-303.3

- 2 . 7-3 .9

9.7

3,652.5

1,409.9

-141.2-46.6-16.9

4.4-82.1

-4.3586.6968.8

6.9245.4152.484.110.5

-1.6-47.9

25.8-2.5124.527.734.138.181.125.7

2.2137.1129.6108.2-3.6

4.1-2.182.7

-48.4

1,409.9

.7

.0-2.4120.110.2

-47.391.1

136.5188.272.9

-20.4182.8110.4131.166.7

281.122.1-4.229.4

465.4

3,244.3

- 3 . 151.7

1.5110.424.8

-140.4

-12.4-3.8-9.8

3,225.3

1,042.2

-221.7-273.5

78.72.5

-29.51.7

330.6931.7

34.4316.0206.1101.7

2.26.1

- 5 . 320.5

3.488.36.0

55.023.258.263.9

2.744.9

114.662.339.8-1.3- 2 . 1

-14 .521.5

1,042.2

-17.6-2.1

.4186.7

-78.481.8

151.556.3

157.632.7

-67.7249.663.4

110.449.8

256.621.768.850.1

668.2

3,082.2

- .3176.930.3

-107.319.325.1

-4.6-3.3-5.2

2,951.3

1,335.1

-50.5-48.3-46.7

2.741.85.7

307.01.072.9

42.9290.0286.7-3.6

5.11.8

23.825.210.7

174.428.058.534.626.190.0

1.3119.988.1

107.8.9

-24.4-2.1

-11.7-10.9

1,335.1

.4

.0

.223.9

-57.050.634.0

174.798.9

218.9-66.2250.1

56.0127.562.5

318.912.471.848.0

527.8

3,288.5

- .510.6

-26.7185.327.6

-485.0

-8.3-4.3

-53.8

3,643.7

1,516.2

-138.0-131.5

31.72.8

-41 .03.3

404.11,246.8

22.9226.2220.7

4.6-5.0

5.8-35.3

13.67.3

106.0.32.066.279.1

121.5108.0

.355.8

114.6162.268.382.9-2.115.81.7

1,516.2

2.4.0

1.3116.1

-31.5-38.4

47.0188.4226.2111.2

-51 .3299.9121.090.662.8

326.929.680.849.7

621.6

3,770.5

.793.9

-50.023.414.7

-137.8

10.0-3.039.4

3,779.1

1,985.1

55.028.6-4.1

2.927.5

9.0206.5

1,714.752.9

467.1386.258.219.43.2

-2.07.78.8

35.334.790.79.5

144.261.8

.4159.2140.3332.2-21.4

8.3-1 .765.3

121.2

1,985.1

17.5.0

-1.9103.0

-16.271.9

156.070.8

147.898.1

-108.0261.0137.7111.936.6

284.8-3.478.416.8

529.4

3,977.4

-2.4148.3

- 32 .6188.9

9.4-615.5

-7.9-5.058.5

4,235.7

1,828.2

-206.4-196.5

-5.53.0

-7.415.5

234.91.784.2

27.4293.7260.8

12.015.35.6

10.119.62.4

108.923.472.681.7

172.0143.6

.6166.084.8

195.828.610.4

-2.0250.494.1

1,828.2

1.0.03

-45.321.265.9

152.0118.5248.0250.5

-103.4321.479.6

168.847.8

259.944.150.341.0

868.6

4,418.4

- . 2-94.6107.2187.641.2

-207.6

7.5-4.0

5.9

4,375.5

1. Data in this table also appear in the Board's Z.I (780) quarterly statistical release, tablesF.I and F.5. For ordering address, see inside front cover.

2. Excludes corporate equities and mutual fund shares.



1.59 SUMMARY OF CREDIT MARKET DEBT OUTSTANDING'



1996

Q4 Ql Q2 Q3 Q4 Ql Q2

Nonfinancial sectors

1 Total credit market debt owed bydomestic nonfinancial sectors

By sector and instrument2 Federal government3 Treasury securities4 Budget agency securities and mortgages

5 Nonfederal

By instrument6 Commercial paper7 Municipal securities and loans8 Corporate bonds9 Bank loans n.e.c

10 Other loans and advances11 Mortgages12 Home13 Multifamily residential14 Commercial15 Farm16 Consumer credit

By borrowing sector17 Household18 Nonfinancial business19 Corporate20 Nonfarm noncorporate21 Farm22 State and local government

23 Foreign credit market debt held inUnited States

24 Commercial paper25 Bonds26 Bank loans n.e.c27 Other loans and advances

28 Total credit market debt owed by nonfinancialsectors, domestic and foreign

29 Total credit market debt owed byfinancial sectors

13,014.5

3.492.33.465.6

26.7

9.522.2

139.21,341.71,253.0

759.9669.6

4,374.83,355.9

265.6670.3

83.0983.9

4,452.83,947.62,683.61.121.8

142.21,121.7

370.8

42.7242.3

26.159.8

13,385.3

By instrument30 Federal government-related31 Government-sponsored enterprise securities32 Mortgage pool securities33 Loans from U.S. government34 Private35 Open market paper36 Corporate bonds37 Bank loans n.e.c38 Other loans and advances39 Mortgages

By borrowing sector40 Commercial banks41 Bank holding companies42 Savings institutions43 Credit unions44 Life insurance companies45 Government-sponsored enterprises46 Federally related mortgage pools47 Issuers of asset-backed securities (ABSs)48 Brokers and dealers49 Finance companies50 Mortgage companies51 Real estate investment trusts (RETTs)52 Funding corporations

53 Total credit market debt, domestic and foreign

54 Open market paper55 U.S. government securities56 Municipal securities57 Corporate and foreign bonds58 Bank loans n.e.c59 Other loans and advances60 Mortgages61 Consumer credit

3,822.2

2,172.7700.6

1,472.1.0

1,649.5441.6

1,008.848.9

131.618.7

94.5133.6112.4

.5

.6700.6

1,472.1579.0

34.3433.7

18.731.1

211.0

17,207.5

623.55,665.01,341.72,504.0

834.9860.9

4,393.5983.9

13,716.0

3,636.73,608.5

28.2

10,079.3

157.41,293.51,326.3

862.1736.9

4,580.33,530.4

273.8691.6

84.61,122.8

4,806.84,202.32,911.41.145.8

145.11.070.2

441.9

56.2291.9

34.659.3

14,158.0

14,441.8

3,781.83,755.1

26.6

10,660.1

156.41,296.01,398.8

928.3770.6

4,898.33,761.6

290.0759.5

87.11,211.6

5,150.94,445.83,105.71.190.2

149.91,063.4

518.8

67.5347.743.760.0

14,960.7

3,804.93.778.3

26.5

168.61,367.51,489.51,035.9

838.85,239.34,029.3

301.4818.390.4

1,264.1

5,505.24,779.23,369.21,253.7

156.31,119.5

569.6

65.1394.4

52.158.0

15,778.3

14,441.8

3,781.83,755.1

26.6

10.660.1

156.41.296.01.398.8

928.3770.6

4.898.33.761.6

290.0759.5

87.11,211.6

5,150.94.445.83.105.71,190.2

149.91.063.4

518.8

67.5347 743.760.0

14,608.9

3,829.83,803.5

26.3

10,779.1

168.71,305.11,418.7

964.5784.4

4,951.33.806.1

291.0766.5

87.71,186.4

5,182.84,527.43,176.81,202.2

148.31,069.0

524.3

69.3351.6

43.559.9

14,960.7 15,133.2 15,266.6

14,727.4

3,760.63.734.3

26.3

10.966.8

179.31,326.81,440.21,000.2

788.25,027.13,860.8

294.2783.5

88.71,205.0

5,271.24,609.63,236.81,219.3

153.41.086.1

539.2

71.3361.246.460.3

14,931.4

3,771.23,745.1

26.1

176.61,340.21,470.91,000.1

802.85,142.73,956.8

295.8800.4

89.81.226.7

5,383.04,681.73,291.11,235.2

155.41,095.5

557.7

64.3386.348.258.9

15,489.1

15,208.7

3,804.93,778.3

26.5

11.403.8

168.61.367.51.489.51,035.9

838.85,239.34,029.3

301.4818.390.4

1,264.1

5,505.24,779.23,369.21,253.7

156.31,119.5

569.6

65.1394 4

52.158.0

15,778.3

15,439.6

3,830.43,804.5

25.9

193.11,397.11.528.81,052.0

864.65,338.94.102.8

306.4838.391.4

1,234.7

5,562.44,902.43,473.91.273.1

155.41,144.3

584.1

76.7398.0

53.555.9

16,023.7

Financial sectors

4,281.2

2,376.8806.5

1,570.3.0

1,904.4486.9

1.205.452.8

135.024.3

102.6148.0115.0

.4

.5806.5

1,570.3720.1

29.3483.9

19.136.8

248.6

4,837.3

2,608.3896.9

1,711.4.0

2,229.1579.1

1,385.169.7

162.932.2

113.6150.0140.5

.41.6

896.91,711.4

873.827.3

529.831.547.8

312.7

5,448.7

2,821.0995.3

1,825.8.0

2.627.6745.7

1,560.183.3

198.540.0

140.6168.6160.3

.61.8

995.31,825.81,089.4

35.3554.5

30.372.6

373.8

4,837.3

2,608.3896.9

1.711.4.0

2.229.1579.1

1.385.169.7

162.932.2

113.6150.0140.5

.41.6

896.91,711.4

873.827.3

529.831.547.8

312.7

4,916.5

2.634.7894.7

1,740.00

2,281.8623.0

1,396.570.6

157.933.8

115.3151.6136.3

.41.8

894.71,740.0

889.926.6

528.431.451.6

348.6

5,085.3

2,706.2944.2

1.762.1.0

2,379.1642.5

1,458.169.2

173.735.6

125.7160.5144.3

.41.8

944.21,762.1

918.435.3

557.828.356.6

350.0

5,205.4

2,746.5955.8

1,790.7.0

2,458.9684.7

1,478.274.8

183.038.2

130.0164.0149.8

.51.9

955.81,790.7

989.233.6

532.729.264.6

363.4

5,448.7

2,821.0995.3

1,825.8.0

2.627.6745.7

1.560.183.3

198.540.0

140.6168.6160.3

.61.8

995.31,825.81,089.4

35.3554.5

30.372.6

373.8

5,653.7

2,877.91.030.91.847.0

.02,775.8

804.91,634.9

87.3206.642.0

148.7181.2162.9

.71.8

1.030.91.847.01,147.4

35.1571.9

31.681.7

412.9

18,439.2

700.46,013.61,293.52,823.6

949.6931.1

4,604.61,122.8

19,798.0

803.06,390.01,296.03,131.71,041.7

993.64,930.51,211.6

21,227.0

979.46,625.91,367.53,444.11,171.31,095.35,279.31,264.1

19.798.0

803.06.390.01,296.03,131.71.041.7

993.64,930.51,211.6

20,049.7

861.16,464.51,305.13,166.81,078.61,002.34,985.01,186.4

20,351.9

893.16,466.81,326.83.259.51,115.81,022.15,062.81,205.0

20,694.5

925.76,517.71,340.23,335.41,123.11,044.85,180.91,226.7

21.227.0

979.46,625.91,367.53,444.11,171.31,095.35,279.31.264.1

21,677.4

1.074.86,708.31,397.13,561.81,192.81,127.15,380.91.234.7

15,634.4

3.749.03.723.4

25.6

11,885.5

202.51,425.81,569.01,100.6

871.95,461.84,195.7

312.0861.193.0

1,253.9

5,689.35,028.83,571.81.296.1

160.91.167.3

602.1

71.4420.5

55.554.8

16,236.5

5,912.5

2,981.21.072.51,908.7

.02,931.3

838.91,733.5

89.3225.644.0

159.7194.5170.7

.81.6

1,072.51,908.71,236.1

40.1596.9

30.290.1

410.7

22,149.1

1,112.76,730.21,425.83,723.01,245.41,152.45,505.81.253.9

1 Data in this table also appear in the Board's Z. 1 (780) quarterly statistical release, table,L.2 through L.4. For ordering address, see inside front cover.


Flow of Funds A41

1.60 SUMMARY OF FINANCIAL ASSETS AND LIABILITIES'

Billions of dollars except as noted, end of period


Q4 Ql Q2 Q3 Q4 Ql Q2

CREDIT MARKET DEBT OUTSTANDING"1

1 Total credit market assets

Domestic nonfedera] noniinancia) sectors . . .HouseholdNonfinancial corporate businessNonfarm noncorporate businessState and local governments

Federal governmentRest of the worldFinancial sectors

Monetary authorityCommercial banking

U.S.-chartered banksForeign banking offices in United StatesBank holding companiesBanks in U.S.-affiliated areas

Savings institutionsCredit unionsBank personal trusts and estatesLife insurance companiesOther insurance companiesPrivate pension fundsState and local government retirement funds . .Money market mutual fundsMutual fundsClosed-end fundsGovernment-sponsored enterprisesFederally related mortgage poolsAsset-backed securities issuers (ABSs)Finance companiesMortgage companiesReal estate investment trusts (REITs)Brokers and dealersFunding corporations

RELATION OF LIABILITIESTO FINANCIAL ASSETS

34 Total credit market debt

Other liabilities35 Official foreign exchange36 Special drawing rights certificates37 Treasury currency38 Foreign deposits39 Net interbank liabilities40 Checkable deposits and currency .41 Small time and savings deposits42 Large time deposits43 Money market fund shares . .44 Security repurchase agreements . .45 Mutual fund shares46 Security credit47 Life insurance reserves48 Pension fund reserves49 Trade payables50 Taxes payable51 Investment in bank personal trusts52 Miscellaneous


Financial assets not included in liabilities ( + )54 Gold and special drawing rights55 Corporate equities56 Household equity in noncorporate business . . .

Liabilities not identified as assets i —)57 Treasury currency58 Foreign deposits59 Net interbank transactions60 Security repurchase agreements61 Taxes payable62 Miscellaneous

Floats not included in assets ( —)63 Federal government checkable deposits64 Other checkable deposits65 Trade credit

66 Total identified to sectors as assets .

17.207.5

3.038 91,982.2

289.237.6

729.9203.4

1,216.012,749.2

368.23,254.32,869.6

337.118.429.2

920.8246.8248.0

1.482.6446.4656.9455.8459.0718.886.0

663.31.472.1

541.7476.2

36.513.393.3

109.3

17,207.5

53.28.0

17.6373.9280.1

1,242.02,183.2

411.2602.9549.5

1,477.3279.0505.3

4,870.51,140.6

101.4699.4

5,331.3

37,334.1

21.16,237.93,422.4

-5.4325.4-6.567.848.8

-1,039.5

3.438.0

-245.9

47,829.3

18,439.2

2,903.81,942.6

280.442.3

638.6203.2

1,530.313,801.8

380.83,520.13.056.1

412.618.033.4

913.3263.0239.7

1,581.8468.7718.2483.3545.5771.396.4

748.01,570.3

661.0526.233.015.5

183.482.2

18,439.2

63.710.218.2

418.8290.7

1,229.32.279.7

476.9745.3659.9

1,852.8305.7550.2

5,588.71,241.4

107.6803.0

5.697.7

40,778.7

22.18,331.33,649.7

-5.8360.2-9.090.762.4

-1,332.5

3.134.2

-258.4

53,836.9

19,798.0

2,953.42,005.9

2S6.046.7

614.8195.5

1,931.214,717.9

393.13,707.73,175.8

475.822.034.1

933.2288.5232.0

1,654.3491.2766.5529.2634.3820.298.7

813.61,711.4

784.4544.541.217.5

167.788.7

19,798.0

53.79.7

18.3516.1240.8

1,245.12.377.0

590.9891.1699.9

2.342.4358.1593.8

6,314.71,313.6

123.8871.7

5,982.5

44,341.1

21.410,062.43,868.8

- 6 . 7431.2-10.6

90.076.9

-1,749.4

-1.630.1

-289.9

59,723.7

21,227.0

2,814.61,849.7

300.949.4

614.5200.4

2,258.415,953.6

431.44.032.5'.450.7

516.127.438.3

928.5305.3239.5

1,755.2515.3834.2565.8721.9901.199.8

908.61,825.8

950.5566.4

57.615.5

181.4117.4

21,227.0

48.99.2

18.3619.4193.3

1,286.62.474.1

713.41,048.7

815.12,989.4

468.2646.7

7.398.21,408.2

138.81.082.86.452.7

49,039.1

21.112,776.04,188.6

-7.3534.5-32.1162.692.0

-2,204.8

-8.126.2

-291.2

19,798.0

2,953.42,005.9

286.046.7

614.8195.5

1,931.214,717.9

393.13,707.73,175.8

475.822.034.1

933.2288.5232.0

1,654.3491.2766.5529.2634.3820.298.7

813.61.711.4

784.4544.541.217.5

167.788.7

19,798.0

53.79.7

18.3516.1240.8

1,245.12,377.0

590.9891.1699.9

2,342.4358.1593.8

6,314.71,313.6

123.8871.7

5,982.5

44,341.1

21.410,062.43,868.8

- 6 . 7431.2-10.6

90.076.9

-1,749.4

-1.630.1

-289.9

59,723.7

20,049.7

2,891.21,951.7

286.847.4

605.4195.9

2,019.414,943.2

397.13,775.73,218.1

499.522.535.6

931.9291.2232.8

1.680.2491.6780.3531.6659.0838.599.3

824.31,740.0

20,351.9

2,842.41.898.6

276.948.0

618.9197.3

2,094.615,217.6

412.43,856.83,295.2

501.823.836.1

937.8299.9235.5

1,724.1498.6794.9542.7656.5861.399.7

854.81,762.1

20,694.5

2,789.41,848.1

285.948.7

606.6198.2

2,196.315,510.7

412.73,912.93,351.9

501.022.537.5

929.0303.9237.1

1.750.4506.6811.5562.0678.7890.499.7

868.71,790.7

794.6552.440.917.0

164.1100.6

20,049.7

46.39.2

18.4562.8210.9

1,220.02,427.1

606.0950.8713.8

2.410.6380.0606.2

6,401.51,297.3

137.3888.7

6,227.1

45,163.9

20.910,063.53,963.3

-6.8475.4-1.668.174.8

-1,628.4

-9.725.6

-344.0

60,558.2

819.4553.1

34.816.5

161.295.6

20,351.9

46.79.2

18.4568.8197.1

1,265.32,432.3

646.7952.4766.7

2,717.5414.8621.9

6,906.71,317.1

133.5982.9

6,199.9

46,549.8

21.111,627.04,053.9

-6.9478.0-8.1

108.677.1

-1,743.9

-6.827.9

-369.8

63,695.6

863.4564.4

55.515.9

165.191.8

20,694.5

46.19.2

18.7597.8186.9

1,234.22,438.8

696.11,005.1

795.42,973.6

432.2637.6

7,289.81.347.0

142.61,058.96,409.2

48,013.6

21.012,649.44,119.5

-6 .7501.5

-22 .1124.987.4

-1.735.8

-7.819.5

-377.8

66,220.5

21,227.0

2,814.61,849.7

300.949.4

614.5200.4

2,258.415,953.6

431.44.032.53.450.7

516.127.438.3

928.5305.3239.5

1,755.2515.3834.2565.8721.9901.199.8

908.61,825.8

950.5566.4

57.615.5

181.4117.4

21,227.0

48.99.2

18.3619.4193.3

1,286.62.474.1

713.41,048.7

815.12.989.4

468.2646.7

7,398.21,408.2

138.81.082.86.452.7

49,039.1

21.112,776.04,188.6

-7.3534.5-32.1162.692.0

-2,204.8

-8.126.2

-291.2

67.753.1

21,677.4

2,759.71,819.1

280.050.2

610.5204.3

2,322.516,391.0

433.84,094.13,505.1

518.031.239.7

931.0307.5240.1

1,786.3521.1852.3582.5775.0939.3100.0949.5

1,847.0993.7572.0

60.215.0

244.0146.5

21,677.4

48.29.2

18.4608.1188.4

1,259.52,524.5

744.01,130.7

881.43,340.2

505.3658.7

7,955.81,395.4

158.61,179.36,650.9

50,934.0

21.214,397.64,188.6

-7.4510.8-2.0

213.096.5

-2,190.0

-10.421.4

-342 .4

71,251.9

22,149.1

2.812.81.846.8

286.951.0

628.2207.5

2.398.516.730.3

440 34,140.13.546.8

525.526.841.0

928.1316.4240.9

1,815.6528.2878.7603.2815.9968.5100.0985 9

1,908.71,074.6

579.057.414.5

196.9137.4

22,149.1

50.19.2

18.4619.2186.4

1,321.42.532.7

733.51,153.7

865.43,456.0

481.0668.3

8,093.91,416.9

149.21.207.26.720.1

51,831.5

21.014,556.14,165.5

-7.4525.9

4.7193.7100.5

-2,189.2

-16.124.2

-354.9

72.292.8

1. Data in this table also appear in the Board's Z. 1 (780) quarterly statistical release, tablesL.I and L.5. For ordering address, see inside front cover.

2. Excludes corporate equities and mutual fund shares.


A42 Domestic Nonfinancial Statistics • December 1998

2.10 NONFINANCIAL BUSINESS ACTIVITY Selected Measures

Monthly data seasonally adjusted, and indexes 1992= 100, except as noted

1996 1997

1998

Apr. May July' Aug.r Sept.

1 Industrial production1...

Market groupings2 Products, total3 Final, total4 Consumer goods5 Equipment6 Intermediate7 Materials

Industry groupings

8 Manufacturing

9 Capacity utilization, manufacturing (percent)2.

10 Construction contracts3

11 Nonagricultura) employment, total4

12 Goods-producing, total13 Manufacturing, total14 Manufacturing, production workers15 Service-producing16 Personal income, total17 Wages and salary disbursements18 Manufacturing19 Disposable personal income20 Retail sales'

Prices"21 Consumer (1982-84=100)22 Producer finished goods (1982= 100)

114.5

110.6111.3109.9113.8108.3120.8

82.8

122.1'

114.998.397.599.0

120.2156.1150.9130.3156.4151.5

152.4127.9

118.5

113.7114.6111.8119.6110.8126.2

120.2

81.4

130.8

117.299.097.298.4

123.0165.2159.8135.7164.0159.6

156.9131.3

118.5119.6114.4128.8115.1134.1

127.0

81.7

141.9'

119.9100.397.698.9

126.2174.5171.2144.7171.7166.9

160.5131.8

121.3122.6116.6133.1117.4138.2

82.1

146.0'

122.3102.599.1

100.5128.6179.2177.8150.6175.2170.8

161.6130.3

127.3

120.6121.5115.1133.1117.6138.2

81.4

147.0'

122.4102.699.1

100.6128.8180.2178.9151.0176.0172.2

161.9130.2

121.3122.6116.0134.3117.3138.7

142.0'

122.5102.499.1

100.5128.9180.9179.5151.2176.7172.4

162.2130.1

128.4

121.8123.2116.5135.0117.5139.1

148.0'

122.8102.799.1

100.4129.3181.4180.3151.0177.0173.7

162.5130.4

128.8

122.2123.3116.7135.2118.6139.6

148.0'

123.2102.599.0

100.1129.7182.2181.5151.5177.5175.8

162.8130.6'

127.5

121.2122.3115.3'134.7'117.9'137.5

130.0'

145.0'

123.3102.698.999.9

130.0182.7181.8150.5177.9176.0

163.0130.6

127.0

120.5121.2114.4133.4118.1137.5

129.5

79.1

147.0

123.5101.997.998.4

130.4183.5182.8149.5178.6174.8

163.2130.9

122.6124.0116.6137.2118.3139.4

131.9

80.3

140.0

123.8102.498.499.1

130.6184.4184.2151.3179.5174.9

163.4130.6

122.0123.4116.1136.3118.0139.3

136.0

123.8102.298.399.3

130.7n.a.n.a.n.a.n.a.

175.4

163.6130.6

1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. Forthe ordering address, see the inside front cover. The latest historical revision of the industrialproduction index and the capacity utilization rates was released in December 1997. The recentannual revision is described in an article in the February 1998 issue of the Bulletin. For adescription of the aggregation methods for industrial production and capacity utilization, see"Industrial Production and Capacity Utilization: Historical Revision and Recent Develop-ments," Federal Reserve Bulletin, vol. 83 (February 1997). pp. 67-92. For details about theconstruction of individual industrial production series, see "Industrial Production: 1989Developments and Historical Revision.'" Federal Reserve Bulletin, vol 76 (April 1990), pp.187-204.

2. Ratio of index of production to index of capacity. Based on data from the FederalReserve, DRI McGraw-Hill, U.S. Department of Commerce, and other sources.

3. Index of dollar value of total construction contracts, including residential, nonresiden-tial, and heavy engineering, from McGraw-Hill Information Systems Company, F.W. DodgeDivision.

4. Based on data from U.S. Department of Labor, Employment and Earnings. Series coversemployees only, excluding personnel in the armed forces.

5. Based on data from U.S. Department of Commerce, Sun'ey of Current Business.6. Based on data not seasonally adjusted. Seasonally adjusted data for changes in the price

indexes can be obtained from the U.S. Department of Labor, Bureau of Labor Statistics,Monthly Labor Review.

NOTE. Basic data (not indexes) for series mentioned in notes 4 and 5, and indexes for seriesmentioned in notes 3 and 6, can also be found in the Survey of Current Business

Figures for industrial production for the latest month are preliminary, and many figures forthe three months preceding the latest month have been revised. See "Recent Developments inIndustrial Capacity and Utilization." Federal Reserve Bulletin, vol. 76 (June 1990), pp.411-35. See also "Industrial Production Capacity and Capacity Utilization since 1987,"Federal Reserve Bulletin, vol. 79 (June 1993), pp. 590-605.

2.11 LABOR FORCE, EMPLOYMENT, AND UNEMPLOYMENT

Thousands of persons; monthly data seasonally adjusted

Category

HOUSEHOLD SURVEY DATA1

1 Civilian labor force-Employment

2 Nonagricultural industries3

Unemployment

5 Rate (percent of civilian labor force)

ESTABLISHMENT SURVEY DATA

6 Nonagricultural payroll employment4

7 Manufacturing

9 Contract construction10 Transportation and public utilities

12 Finance13 Service14 Government

1995

132,304

121,4603,440

7,4045.6

117,191

18,524581

5,1606,132

27,5656,806

33.11719.305

1996

133,943

123,2643,443

7,2365.4

119,523

18,457574

5,4006,261

28,1086,899

34,37719,447

1997

126,297

126,1593,399

6,7394.9

122,257

18,538573

5,6276,426

28,7887,053

35,59719,655

1998

Feb.

137,557

127,8293.335

6,3934.6

124,832

18,822590

5,9026,494

29,0527,232

37,02019,720

Mar

137,523

127,8623,132

6,5294.7

124,914

18,829587

5,8606,504

29,0427,258

37,10619,728

Apr.

137,242

128,0333,350

5.8594.3

125,234

18,827582

5.9306,513

29,1337,289

37,19619,764

May

137.364

128.1183,335

5,9104.3

125,562

18,805579

5,9176,534

29,2387.311

37,35019,828

June

137,447

127,8673,343

6,2374.5

125,751

18,780578

5,9466,538

29,2697,333

37,49419,813

July'

137,296

127,6263,441

6.2304.5

125,869

18.594571

5,9706,550

29.3747.370

37,61419,826

Aug.'

137,415

127,6403,529

6,2474.5

126,178

18.693571

5,9916,572

29,3717,372

37,69319,915

Sept.

138,075

128,2473,518

6,3104.6

126,247

18,677571

5,9716,578

29,4227,395

37,71719,916

1. Beginning January 1994, reflects redesign of current population survey and populationcontrols from the 1990 census.

2. Persons sixteen years of age and older, including Resident Armed Forces. Monthlyfigures are based on sample data collected during the calendar week that contains the twelfthday; annual data are averages of monthly figures. By definition, seasonably does not exist inpopulation figures.

3. Includes self-employed, unpaid family, and domestic service workers

4. Includes all full- and part-time employees who worked during, or received pay for, thepay period that includes the twelfth day of the month: excludes proprietors, self-employedpersons, household and unpaid family workers, and members of the armed forces. Data areadjusted to the March 1992 benchmark, and only seasonally adjusted data are available at thistime.

SOURCE. Based on data from U.S. Department of Labor. Employment and Earnings


Selected Measures A43

2.12 OUTPUT, CAPACITY, AND CAPACITY UTILIZATION1

Seasonally adjusted

Series

1 Total industry

2 Manufacturing

3 Primary processing3

4 Advanced processing4

5 Durable goods6 Lumber and products7 Primary metals8 Iron and steel9 Nonferrous

10 Industrial machinery and equipment11 Electrical machinery12 Motor vehicles and parts13 Aerospace and miscellaneous

transportation equipment

14 Nondurable goods15 Textile mill products16 Paper and products17 Chemicals and products18 Plastics materials19 Petroleum products

20 Mining21 Utilities22 Electric

1 Total industry

2 Manufacturing

3 Primary processing3

4 Advanced processing4

5 Durable goods6 Lumber and products7 Primary metals8 Iron and steel9 Nonferrous

10 Industrial machinery andequipment

11 Electrical machinery12 Motor vehicles and parts13 Aerospace and miscellaneous

transportation equipment

14 Nondurable goods15 Textile mill products16 Paper and products17 Chemicals and products18 Plastics materials19 Petroleum products

20 Mining21 Utilities22 Electric

1973

High

1997

Q4

1998

Ql Q2' Q3

Output (1992=100)

127.3

130.1

119.8135.3

147.2114.7127.8126.5129.4177.6246.0144.0

98.6

112.6111.5113.5117.1131.4109.8

105.9115.5115.7

1975

Low

127.7

130.8

120.2136.2

148.2115.7128.2127.2129.3181.2254.0137.2

101.3

113.1110.1113.1118.0130.8113.0

108.4110.4112.1

128.2

131.1

119.9136.7

149.1117.3125.4123.4127.8188.3257.5132.9

101.1

112.7109.6112.7118.1131.0113.5

107.3115.3117.8

Previous cycle5

High Low

128.2

130.9

119.5136.6

149.8118.0122.7118.5127.7192.5260.0133.5

102.3

111.7109.6113.9116.8132.2113.7

105.6118.7120.9

1997

Q4

1998

Ql Q2 Q3

Capacity (percent of 1992 output)

153.0

158.3

139.2168.1

180.6141.3138.5137.9138.9210.0301.9186.7

124.8

135.7132.3126.7147.5141.9115.7

118.2127.1125.4

Latest cycle6

High Low

154.8

160.4

140.4170.7

184.1142.2140.1139.4140.6215.8315.4188.8

125.5

136.4132.8127.4148.6143.6116.2

118.4127.4125.7

1997

Sept.

156.5

162.4

141.4173.1

187.6142.6141.8141.3142.1221.4328.6190.8

126.3

137.0133.2128.1149.4145.0117.2

118.6127.7126.1

158.1

164.2

142.5175.5

190.9143.1143.5143.1143.6226.7341.8192.8

127.2

137.6133.4128.7150.2146.3118.2

119.0128.0126.4

1997

Q4

1998

Ql Q2 Q3

Capacity utilization rate (percent)2

83.2

82.2

86.080.4

81.581.292.391.893.284.681.577.1

79.0

82.984.389.679.492.694.9

89.690.992.3

82.5

81.6

85.679.8

80.581.391.591.392.084.080.572.7

80.7

82.982.988.879.491.197.2

91.686.689.2

82.0

80.7

84.879.0

79.582.288.587.489.985.178.469.7

80.0

82.282.388.079.190.496.8

90.590.393.5

81.1

79.7

83.977.9

78.582.585.582.888.984.976.169.2

80.4

81.282.188.577.890.496.2

88.892.795.7

1998

Apr. May June' July' Aug. Sept.p

Capacity utilization rate (percent)

89.2

88.5

91.287.2

89.288.7

100.2105.890.8

96.089.293.4

78.4

87.891.497.187.6

102.096.7

94.396.299.0

72.6

70.5

68.271.8

68.961.265.966.659.8

74.364.751.3

67.6

71.760.069.269.750.681.1

88.282.982.7

87.3

86.9

88.186.7

87.787.994.295.891.1

93.289.495.0

81.9

87.591.296.184.690.990.0

96.089.188.2

71.1

69.0

66.270.4

63.960.845.137.060.1

64.071.645.5

66.6

76.472.380.669.963.466.8

80.375.978.9

85.4

85.7

88.984.2

84.693.692.795.289.3

85.484.089.1

87.3

87.390.493.586.297.088.5

88.092.695.0

78.1

76.6

77.776.1

73.175.573.771.874.2

72.375.055.9

79.2

80.777.785.079.374.885.1

87.083.487.1

82.7

81.6

85.779.7

81.080.791.590.892.5

84.281.076.2

77.9

82.384.590.178.893.695.4

90.190.892.5

82.4

81.4

85.479.6

80.381.990.889.992.1

84.979.472.7

79.9

82.782.188.579.591.897.9

90.687.690.7

82.4

81.1

84.979.4

80.182.388.687.889.7

85.078.473.5

80.3

82.483.588.078.990.296.3

91.490.494.3

81.2

79.7

84.077.8

78.282.586.084.587.9

85.377.362.8

79.9

81.681.387.478.789.196.3

89.492.895.5

80.6

79.1

84.376.9

77.182.485.784.087.9

85.576.954.5

80.4

81.781.789.478.592.397.5

89.592.094.7

81.6

80.3

84.178.7

79.783.486.784.289.7

85.176.077.9

80.7

81.181.987.877.990.796.8

88.792.495.2

81.1

79.6

83.378.0

78.781.684.280.289.0

84.275.375.2

80.2

80.882.788.176.988.394.3

88.293.897.2

_,J,,.,.,l,,_l,u,. v,, .i.w.uuu, ...^stnai production series, see rnuusinai rrouucuon: iyDevelopments and Historical Revision," Federal Reserve Bulletin, vol. 76 (April 1990), ]187-204.

2. Capacity utilization is calculated as the ratio of the Federal Reserve's seasonally adjustedindex of industrial production to the corresponding index of capacity.

3. Primary processing includes textiles; lumber; paper; industrial chemicals; syndieticmaterials; fertilizer materials; petroleum products; rubber and plastics; stone, clay, and glass;primary metals; and fabricated metals.

4. Advanced processing includes foods; tobacco; apparel; furniture and fixtures; printingand publishing; chemical products such as drugs and toiletries; agricultural chemicals; leatherand products; machinery; transportation equipment; instruments; and miscellaneous manufac-tures.

5. Monthly highs, 1978-80: monthly lows, 1982.6. Monthly highs, 1988-89; monthly lows, 1990-91.



2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1

Monthly data seasonally adjusted

Group

1992pro-por-tion

1997avg.

Sept. Oct. Feb. Mar. Apr. May June' July' Aug. Sept.p

Index (1992 = 100)

MAJOR MARKETS

1 Total index

2 Products3 Final products4 Consumer goods, total5 Durable consumer goods6 Automotive products7 Autos and trucks8 Autos, consumer9 Trucks, consumer

10 Auto parts and allied goods11 Other12 Appliances, televisions, and air

conditioners13 Carpeting and furniture14 Miscellaneous home goods15 Nondurable consumer goods16 Foods and tobacco17 Clothing18 Chemical products19 Paper products20 Energy21 Fuels22 Residential utilities

23 Equipment24 Business equipment25 Information processing and related.26 Computer and office equipment .27 Industrial28 Transit29 Autos and trucks30 Other31 Defense and space equipment32 Oil and gas well drilling33 Manufactured homes

34 Intermediate products, total .35 Construction supplies36 Business supplies

37 Materials38394041424344454647484950

Durable goods materialsDurable consumer parts . . . .Equipment partsOther

Basic metal materials . . . .Nondurable goods materials.. .

Textile materialsPaper materialsChemical materialsOther

Energy materialsPrimary energyConverted fuel materials. . . .

SPECIAL AGGREGATES

51 Total excluding autos and trucks52 Total excluding motor vehicles and parts53 Total excluding computer and office

equipment54 Consumer goods excluding autos and trucks55 Consumer goods excluding energy56 Business equipment excluding autos and

trucks57 Business equipment excluding computer and

office equipment58 Materials excluding energy

100.0

60.546.329.16.12.61.7.9.7.9

3.5

1.0.8

1.623.010.32.44.52.92.9

.82.1

17.213.25.41.14.02.51.21.33.3

.6

.2

14.25.38.9

39.520.84.07.69.23.18.91.11.83.92.19.76.33.3

97.195.1

98.227.426.2

12.0

12.129.8

124.5

118.5119.6114.4131.3129.9136.5115.2159.1119.3132.3

168.6117.0120.0110.2109.395.9

119.1109.3111.3109.3112.0

128.8141.9168.1385.6133.3111.2119.7135.075.2

149.7139.1

115.1121.8111.1

134.1158.2139.2221.9125.5120.6113.0109.3112.6115.2110.3103.9101.7108.3

124.3123.8

121.9113.2114.8

129.1143.7

125.6

119.1120.3114.5131.9132.8140.9119.9166.5120.1131.1

166.0116.2119.4110.2108.696.0

119.4110.1112.4110.8112.8

130.6144.4172.9414.6133.8114.2120.2135.174.7

153.1137.2

115.2120.4112.2

136.1161.3140.7229.6126.6121.7113.3111.4112.7115.6109.5105.5102.2111.8

125.4124.8

122.9113.0114.7

147.3

130.8145.8

126.5

120.2121.5115.9131.4131.2139.7115.2168.6117.9131.5

169.4116.5118.6112.1109.796.4

123.0111.3116.2112.0117.8

131.3145.5174.3420.3135.9113.0117.0137.574.7

149.1136.9

116.3121.3113.4

136.7163.2141.8233.3127.8122.5113.1111.9113.4115.0109.0104.7101.7110.6

126.5125.9

123.8114.6115.9

149.0

131.8147.0

127.5

121.2122.5116.7136.5138.4147.8120.3179.8123.8135.0

177.2122.1119.2111.8110.795.1

121.3111.7113.9106.7117.1

132.8147.5174.7427.3136.3119.9128.2137.374.5

150.0138.1

117.3123.6113.5

137.7165.0142.3237.9128.8124.9114.4111.0112.2116.5113.7103.9101.4108.6

127.2126.6

124.8115.0117.0

149.7

133.5148.6

127.9

121.0122.2115.9134.7133.8142.7113.9175.7120.1135.3

178.7116.8122.1111.3110.095.1

121.8110.1113.5109.3115.1

133.4I486176.0440.1137.8121.2124.6136.274.5

145.9132.4

117.4123.2113.9

138.9166.5146.9240.9128.3122.2116.0112.5113.7119.1113.3104.2100.7110.9

127.7127.0

125.1114.4116.2

151.5

134.4150.2

127.8

121.3122.6116.6135.6132.6139.9116.0168.2120.9138.0

186.4122.5121.0112.0113.095.2

122.9110.2107.4110.5105 4

133.1147.3175.4457.1136.4119.8121.1133.675.7

154.0144.0

117.4125.2112.9

138.2166.2138.5245.5128.8125.0114.5107.9112.3119.2109.4103.7102.8105.5

127.7127.3

124.9115.4117.9

150.5

132.7149.4

127.3

120.6121.5115.1134.3131.0137.2105.7172.7121.0136.9

188.6117.7120.7110.4111.893.5

121.8107.8104.6110.0101.5

133.1146.8178.0476.1134.2117.9116.4132.775.9

158.9148.6

117.6126.2112.6

138.2165.8139.3245.7127.7125.4114.8108.5114.01 17.6112.5103.7103.0105.0

127.3126.9

124.3113.9116.5

150.5

131.7149.3

128.0

121.3122.6116.0135.2132.4137.7107.4172.0123.7137.4

192.5116.5120.8111.3111.394.7

122.2106.2112.6111.3112.8

134.3148.7179.7499.2137.4117.8117.1135.275.3

158.6145.4

117.3124.2113.2

138.7166.4139.3247.7127.8122.8113.5107.6111.8116.6111.5106.0104.0109.6

128.0127.5

124.8114.8116.4

152.6

133.0149.2

128.4

121.8123.2116.5136.3134.5140.2108.3176.0125.3137.8

193.8117.1120.7111.6111.994.8

124.1106.7110.2111.7109.0

135.0150.2182.9518.2137.6118.9119.4136.275.1

150.5146.9

117.5124.7113.2

139.1167.6141.0249.6128.4122.8113.9107.6111.9117.2111.7105.0103.3108.3

128.4127.9

125.2115.2117.3

153.9

134.0150.1

128.8

122.2123.3116.7138.0136.7142.4109.3179.4127.5139.0

192.5122.3120.6111.5112.093.3

123.3105.8111.6111.0111.5

135.2150.4184.2532.4136.3120.5120.1134.775.4

148.1148.6

118.6126.7113.7

139.6167.7143.2250.3127.5121.4113.2107.6111.11 16.2111.6107.2104.4112.6

128.8128.3

125.6115.3117.3

154.1

133.8150.0

127.5

121.2122.3115.3130.4122.1117.694.6

144.1127.11.37.1

188.6119.3120.2111.5110.193.6

123.6105.3117.4111.9119.7

134.7150.7184.9546.4140.2114.4107.1136.375.0

137.5142.9

117.9126.5112.9

137.5164.1129.2249.3126.8119.2113.0106.9112.0115.7111.0106.2103.2111.9

127.9127.8

124.1115.0115.0

156.0

133.7147.5

127.0

120.5121.2114.4124.0107.192.576.5

111.6125.8137.8

199.1118.5118.4111.8110.693.2

122.5107.1118.1113.3120.0

133.4149.1184.8559.6141.1105.685.9

139.874.9

132.1153.2

118.1127.6112.5

137.5163.5126.7250.3126.3118.7114.1107.2113.81170111.6106.1104.4109.2

128.1128.1

123.6115.3113.9

157.1

132.0147.6

129.0

122.6124.0116.6139.6142.2151 1125.6181.5129.2137.1

199.3119.6116.7111.1109.991.4

121.7106.7118.1112.8120.2

137.2154.3186.9577.7141.51277131.6128.675.5

128.1149.0

118.3128.5112.3

139.4168.3145.0252 5126.7120.6113.0107 4111.6I15.<)110.4105.9103.8109.8

128.6128.0

125.5114.8116.4

156.8

136.6150.2

128.7

122.0123.4116.1137.4138.5143.8129.5163.6130.4136.2

193.2119.6117.0111.0110.092.0

120.5106.9118.0109.8121.6

136.3153.4186.7592.6138.4126.5128.9134.275.2

124.7145.0

118.0127.6112.3

139.3167.8143.5253.6125.9118.0112.6107.9112.7I 14.2111.3106.8104.8110.7

128.4127.8

125.1114.7115.9

135.5149.7



2.13 INDUSTRIAL PRODUCTION Indexes and Gross Value1—Continued

Group

MAJOR INDUSTRIES

59 Total index

60 Manufacturing

62 Advanced processing

63 Durable goods64 Lumber and products65 Furniture and fixtures66 Stone, clay, and glass

67 Primary metals

69 Raw steel70 Nonferrous71 Fabricated metal products.. .72 Industrial machinery and

73 Computer and office

74 Electrical machinery75 Transportation equipment. . .76 Motor vehicles and parts .77 Autos and light trucks .78 Aerospace and

miscellaneoustransportationequipment

79 Instruments80 Miscellaneous

81 Nondurable goods82 Foods83 Tobacco products84 Textile mill products85 Apparel products86 Paper and products87 Printing and publishing88 Chemicals and products . . . .89 Petroleum products90 Rubber and plastic products .91 Leather and products

92 Mining93 Metal94 Coal

96 Stone and earth minerals

98 Electric99 Gas

SPECIAL AGGREGATES

100 Manufacturing excluding motorvehicles and parts

101 Manufacturing excluding officeand computing machines . . .

MAJOR MARKETS

102 Products, total

103 Final104 Consumer goods105 Equipment106 Intermediate

SICcode

2425

3233

331,2331 FT

333-6,934

35

3573637

371371PT

372-6,93839

20212223262728293031

10121314

491.493PT492.493PT

1992pro-por-tion

100.0

85.426.558.9

45.02.01.4

2.13.11.7.1

1.45.0

8 0

1.87.39.54.92.6

4.65.41.3

40.49.41.61.82.23.66.79.91.43.5

.3

6.9.5

1.04.8

.6

7.76.21.6

80.5

83.6

2,001.9

1,552.11,049.6

502.5449.9

1997avg.

124.5

127.0118.1131.4

142.3114.9122.5

120.5124.5122.8115.9126.4122.9

382.3231.5115.6137.2128.3

94.4108.0125.9

111.1109.6112.7109.699.6

112.9104.9115.3109.4126.473.7

106.0106.9109.9103.2118.8

112.5113.1111.0

126.4

124.1

2,373.2

1.855.81,195.5

660.0518.1

1997

Sept.

125.6

128.0118.6132.7

144.4113.3122.0

121.2125.9124.5119.2127.7122.7

173 7

412.0237.5118.8141.2132.3

96.8108.9126.1

111.3108.6112.0111 499.1

113.7105.1115.6110.1127.670.9

106.5105.3109.5104.3117.7

115.1115.7112.7

127.3

124.9

2,396.9

1,875.61,203.3

672.3522.2

Oct.

126.5

129.1118.9134.1

145.5112.9123.0

121.0127.4126.4117.7128.6124.4

418.0240.8118.3139.6130.4

97.3109.7126.5

112.2109.2118.8111.699.3

112.8106.7116.71112127.472.4

105.9111.1109.6103.1116.2

116.9118.1111.9

128.4

125.9

2,416.1

1,890.61,215.9

674.5526.5

Nov.

127.5

130.4120.0135.5

147.7117.0124.1

122.1128.9127.0120.9131.1124.7

177 7

425.7247.4121.6145.9137.7

97.9109.5126.2

112.6110.9115.9112.598.6

113.6107.4116.5108.6129.671.0

106.1113.2111.2102.6119.2

115.3114.7117.8

129.4

127.2

Gross v

2,442.2

1,911.01,224.1

686.9532.3

Dec.

127.9

130.9120.5136.1

148.6114.4124.4

123.4127.2126.1119.2128.5126.7

178 6

438.3249.9123.4146.6132.5

100.6109.0128.5

112.9110.9110.1110.499.3

114.1107.1118.2109.7129.371.3

105.7103.8117.4101.7120.2

114.3114.2115.0

130.0

127.6

1998

Jan.

127.8

131.1120.6136.4

148.3114.8122.5

122.3129.3127.9122.8131.0125.6

180 3

457.1252.9119.9138.3130.8

101.8109.0128.0

113.6112.9116.9111.899.3

112.4106.5118.7112.3129.369.4

108.4105.3116.0105.0124.3

108.7110.2103.0

130.7

127.8

Feb. Mar.

Index (1992 =

127.3

130.6120.1135.8

147.8116.7120.4

121.4128.1127.0123.7129.4124.3

179 4

476.6254.1118.8136.7126.7

101.1109.6128.4

113.0112.0115.9109.697.7

114.6105.6117.6111.9129.470.8

108.8119.5108.4105.9122.6

108.2110.699.0

130.2

127.1

128.0

130.8119.8136.3

148.6115.6123.0

120.7127.1126.7119.5127.5125.0

183 8

500.5254.9118.7136.6127.4

101.0109.9128.5

112.6111.4114.7108.998.2

112.4105.0117.7114.8129.769.4

108.0105.5109.4106.5117.2

114.3115.6109.5

130.5

127.2

ilue (billions of 1992 dollars, annual

2,435.3

1,904.91,215.7

689.4531.4

2,442.8

1,911.91,224.6

687.3532.0

2,427.7

1,895.01,209.6

685.5533.3

2,442.6

1,911.51,219.2

692.6532.1

Apr.

100)

128.4

131.6120.5137.2

149.7116.7122.3

120.2128.2126.4122.8130.4125.6

186 3

520.1257.5119.4138.3129.5

100.7110.4129.1

113.2112.2114.0109.298.3

113.2104.8118.7114.4131.967.7

107.4103.0110.6105.3120.8

111.8114.2102.4

131.2

127.9

ates)

2,454.7

1,922.91,225.3

697.9533.0

May

128.8

131.7120.1137.5

150.2117.3121.9

120.4125.5124.0122.3127.4126 A

188 2

535.1257.5120.7140.2131.4

101.4110.6127.3

112.9112.3114.0111.297.0

112.7104.5118.0112.8131.567.3

108.4104.7118.2104.6125.6

115.5118.8102.4

131.2

127.9

2,461.1

1,924.51,224.8

700.1537.4

June'

127.5

130.0119.1135.4

147.6117.9123.1

119.2122.4119.9115.9125.4125.7

190 5

550.0257.4110.8120.2109.4

101.1109.3126.8

112.0110.5112.5108.397.4

112.1103.2117.8113.1130.966.3

106.1105.3112.0102.3127.7

118.6120.5111.2

130.6

126.1

2,431.2

1,896.71,202.8

694.5534.9

July'

127.0

129.5119.9134.3

146.3117.8121.4

120.7122.5119.7117.2125.8125.5

192 3

563.9259.5103.8104.786.5

102.1108.6127.0

112.2110.8113.9109.097.2

114.9102.4117.7114.9130.966.3

106.4101.7116.3102.3127.0

117.6119.5110.2

131.0

125.5

2,405.8

1,868.81,188.3

680.8536.5

Aug.

129.0

131.9119.8138.0

152.1119.3120.9

122.8124.4120.6120.4128.9124.3

192 9

582.9259.8126.1150.2141.5

102.6109.4125.5

111.6109.8115.0109.395.5

113.1101.9117.0114.4131.466.0

105.5105.5112.7101.2128.9

118.3120.3110.6

130.8

127.8

2,484.7

1,948.51,230.1

719.3537.9

Sept.p

128.7

131.3119.0137.5

151.1116.8120.8

122.5121.3115.3112.8128.3124.8

192 3

598.3260.6123.7145.5136.7

102.2109.3125.5

111.3110.3112.3110.495.8

113.7102.1115.7111.7131.466.3

105.0104.1116.0100.3126.9

120.2123.0109.6

130.5

127.2

2,468.5

1,934.91,221.9

713.9535.1

1. Data in this table also appear in the Board's G.17 (419) monthly statistical release. Forthe ordering address, see the inside front cover. The latest historical revision of the industrialproduction index and the capacity utilization rates was released in December 1997. The recentannual revision is described in an article in the February 1998 issue of the Bulletin. For adescription of the aggregation methods for industrial production and capacity utilization, see"Industrial Production and Capacity Utilization: Historical Revision and Recent Develop-

ments," Federal Reserve Bulletin, vol. 83 (February 1997), pp. 67-92. For details about theconstruction of individual industrial production series, see "Industrial Production: 1989Developments and Historical Revision," Federal Reserve Bulletin, vol. 76, (April 1990), pp.187-204.

2. Standard industrial classification.



2.14 HOUSING AND CONSTRUCTION

Monthly figures at seasonally adjusted annual rates except as noted

Item

NEW UNITS

1 Permits authorized2 One-family3 Two-family or more4 Started5 One-family

7 Under construction at end of period1

8 One-family9 Two-family or more

10 Completed

12 Two-family or more13 Mobile homes shipped

Merchant builder activity inone-family units

14 Number sold15 Number for sale at end of period'

Price of units sold (thousandsof dollars)2

16 Median17 Average

EXISTING UNITS (one-family)

18 Number sold

Price of units sold (thousandsof dollars)2

19 Median20 Average

CONSTRUCTION

21 Total put in place

22 Private23 Residential24 Nonresidential25 Industrial buildings26 Commercial buildings27 Other buildings28 Public utilities and other

29 Public30 Military31 Highway32 Conservation and development33 Other

1995

1,333997335

1,3541,076

278776554222

1,3191,073

247341

667374

133.9158.7

3,812

113.1139.1

1996

1,4261,070

3561,4771,161

316820584235

1,4051,123

283361

757326

140.0166.4

4,087

118.2145.5

1997

1,4421,056

3871,4741,134

340834570264

1,4071,122

285354

803287

145.9175.8

4,215

124.1154.2

1997

Nov. Dec.

1998

Jan. Feb. Mar. Apr.

Private residential real estate activity (thousands of units except

1,4751,102

3731,5231,167

356862575287

1,4321,145

287352

875280

145.0175.4

4,390

124.3155.0

1,4671,094

3731,5401,130

410872580292

1,4131,094

319353

805282

145.9175.8

4,370

125.9157.5

1,5531,142

4111,5451,225

320888593295

1.3141.007

307362

853281

148.0178.6

4,370

126.1156.8

1,6351,176

4591,6161,263

353907609298

1,4611,142

319377

878281

156.0181.6

4.770

124.5153.9

1,5691,136

4331,5851,239

346911616295

1,4861,130

356374

836285

152.0178.9

4,890

127.1157.2

1,5171.145

3721,5461,237

309911619292

1,5091,198

311370

892286

148.0176.7

4,770

128.2159.7

May

is noted)

1,5431,152

3911,5381,224

314917627290

1,4581,112

346374

892'287'

153.2'183.5

4,830

130.5162.3

June

1,5171,128

3891,6201,269

351930639291

1,4841.166

318362

922287

146.7175.4

4,740

134.0169.2

July'

1,5811,173

4081,7041,300

404938643295

1.5471,216

331380

877286

149.3176.6

4,910

133.8168.4

Aug.

1,6181,180

4381,6161,253

363944646298

1,5071,160

347368

838289

151.0183.1

4,730

132.9165.9

Value of new construction (millions of dollars)3

538,158

408,012231,191176,82132,53568,24527,08448,957

130,1472.983

38.1266.371

82,667

581,813

444,743255,570189,17332,56375,72230,63750,252

137,0702,639

41,3265,926

87,179

618,051

470,969265,536205,433

31,41783,72737,38252,906

147,0822.625

45,2465,628

93,583

623,068

475,340268,893206,44730,07583,60138,34154,430

147,7282,889

47.4165,068

92,355

626,290

478,363273,020205,34329,79483,21439,27553,060

147,9272,342

45,3066,422

93,857

633,714

487,807278,956208,851

31,05585,80737,69454,295

145,9072,474

46.0675,281

92.085

638,180

490,896282,496208,400

30,93684,15239,15154,161

147,2842,916

45,5616,305

92,502

639,913

494,333286,045208,288

31,47483,98137,81255,021

145,5802,818

45,5595,488

91,715

645,974'

500,078'289,666'210,412'

31,457'86,064'39,168'53,723'

145,896'2,85Or

46,175'4,985'

91,886'

635,396'

496,495'288,003'208,492'29,642r

86,321'37,678'54.851'

138,901'2,471'

42,030'5.146'

89,254'

650^41

503,592291,907211,68530,06788,48037,33455,804

146,7492,659

44,5415.989

93.560

650,897

503,938296,635207,30327,89185,59837,45356,361

146,9583,309

44,1055.485

94,059

651,607

503,725296,182207,54328,59683,78638,03957,122

147,8812,871

44,8285,428

94,754

1. Not at annual rates.2. Not seasonally adjusted.3. Recent data on value of new construction may not be strictly comparable with data for

previous periods because of changes by the Bureau of the Census in its estimating techniques.For a description of these changes, see Construction Reports (C-30-76—5), issued by theCensus Bureau in July 1976.

SOURCE. Bureau of the Census estimates for all series except (1) mobile homes, which areprivate, domestic shipments as reported by the Manufactured Housing Institute and season-ally adjusted by the Census Bureau, and (2) sales and prices of existing units, which arepublished by the National Association of Realtors. All back and current figures are availablefrom the originating agency. Permit authorizations are those reported to the Census Bureaufrom 19.000 jurisdictions beginning in 1994.



2.15 CONSUMER AND PRODUCER PRICES

Percentage changes based on seasonally adjusted data except as noted

Item

CONSUMER PRICES2

(1982-84=100)

1 All items

2 Food3 Energy items4 All items less food and energy5 Commodities6 Services

PRODUCER PRICES(1982=100)

7 Finished goodsH Consumer foods9 Consumer energy

10 Other consumer goods11 Capital equipment

Intermediate materials12 Excluding foods and feeds

Crude materials14 Foods15 Energy16 Other

Change from 12months earlier

1997Sept.

2.2

2.12.02.2

.42.9

.0- .7

.0

.6- 1

- 2

-11.42.71.6

1998Sept.

1.5

2.0-9.8

2.5.8

3.1

-.95

-11.62.1- . 5

-2.1- . 8

-8.8-22.8-11.5

Change from 3 months ea(annual rate)

1997

Dec.

1.5

1.5-7.7

2.4.6

3.3

-1.21.5

-5.7- .3

-2.0

- .6.0

4.15.4

-8.2

ier

1998

Mar.

.2

1.3-21.1

2.4.8

3.0

-3.0-1.8

-27.03.9

.0

-4.4-.9

-14.3-53.5-13.6

June

2.5

3.0-1.9

2.61.13.2

.0

.6-3.1

1.4-.9

-1 .6-1.2

-3.0-2.3-5.0

Sept.

1.5

2.0-8.7

2.3I.I3.0

.62.1

-8.33.3

.6

-1.6-1.5

-20.9-25.9-18.8

Change from 1 month earlier

1998

May

.3

.6

.32.1.3

.1 '- . 4

.8

.r

-A'- .1

- . 9 '.0'

r

June

.1

1- 7

.1

.0

.2

- .2 '.0'

-1.7.0'.0

-A'- .1

.0'-4 .8 '

- . 3 '

July

2

.2

.0

.1

.2

.2

.4

.3

.3

.1

.0

.0

-2.8- . 6

-1.8

Aug.

.2

.2-1.0

•)

3

- .4- .4

-2.3.0

- .3

-.1

-1.1-5.1-2.0

Sept.

.0

.0-1.3

.2_ i

3

.3

.4-.1

.5

.4

-.2

-1.9-1.7-1 .3

Indexlevel,Sept1998'

163.6

161.1102.7174.2143.2191.8

130.6135.475.4

147.4136.5

123.5133.2

100.964.2

138.1

1 Not seasonally adjusted.2. Figures for consumer prices are for all urban consumers and reflect a rental-equivalence

measure of homeownership.

SOURCE. U.S. Department of Labor, Bureau of Labor Statistics.



2.16 GROSS DOMESTIC PRODUCT AND INCOME

Billions of current dollars except as noted; quarterly data at seasonally adjusted annual rates

Q2 03 Q4 Ql Q2

GROSS DOMESTIC PRODUCT

By sourcePersonal consumption expenditures

Durable goodsNondurable goodsServices

Gross private domestic investment . .Fixed investment

NonresidentialStructuresProducers' durable equipment .

Residential structures

Change in business inventoriesNonfarm

Net exports of goods and servicesExportsImports

Government consumption expenditures and gross investmentFederalState and local

By major type of productFinal sales, total

GoodsDurableNondurable

ServicesStructures

Change in business inventoriesDurable goodsNondurable goods

MEMO

Total GDP in chained 1992 dollars

NATIONAL INCOME

Total

Compensation of employeesWages and salaries

Government and government enterprisesOther

Supplement to wages and salariesEmployer contributions for social insuranceOther labor income

Proprietors' income'Business and professional1

Farm1

Rental income of persons2

Corporate profits'Profits before tax3

Inventory valuation adjustmentCapital consumption adjustment

Net interest

7,269.6

4,953.9611.0

1,473.6

1.043.21,012.5

727.7201.3526.4

30.7

40.1

-83.9819.4903.3

1,356.4509.1847.3

7,238.92,644.91,143.41.501.53,974.9

619.1

30.732.4-1.7

6,761.7

5,923.7

4,208.93.441.9

622.72,819.2

767.0365.3401.6

488.1465.6

22.4

133.7

672.4635.6

- 22 .659.4

420.6

7,661.6

5,215.7643.3

1,539.23,033.2

1.131.91.099.8

787.9216.9571.0311.8

32.124.5

-91.2873.8965.0

1,405.2518.4

7,629.52,780.31.228.81,551.64.179.5

669.7

32.120.811.4

6,994.8

6,256.0

4,409.03,640.4

640.92,999.5

768.6381.7387.0

527.7488.8

38.9

150.2

750.4680.2-1.271.4

418.6

5,493.7673.0

1,600.63,220.1

1,256.01,188.6

860.7240.2620.5327.9

67.463.1

-93.4965.4

1.058.8

1.454.6520.29.14 4

8,043.52,911.21,310.11.601.04.414.1

718.3

67.433.633.8

7,269.8

6,646.5

4,687.23,893.6

664.23,229.4

793.7400.7392.9

551.2515.835.5

158.2

8179734.4

6.976.6

432.0

8,063.4

5.438.8659.9

1.588.23.190.7

1,259.91,176.4

850.5234.3616.2325.9

83.577.2

-86.8961.1

1.047.9

1,451.5522.9928.6

7,979.92,883.61.293.61,589.94,386.9

709.4

83.548.834.6

7,236.5

6,604.5

4,649.23,859.2

661.63,197.6

790.0398.4391.5

549.9512.1

37.8

158.0

815.5729.8

10.3

75.5

431.8

8,170.8

5,540.3681.2

1,611.33.247.9

1.265.71,211.1

882.3243.8638.5328.8

54.6

47.3

-94.7981.7

1,076.4

1,459.5521.0938.5

8,116.22,944.31,337.11,607.24,448.0

723.9

54.6

19.9

34.7

7,311.2

6,704.8

4,715.53,919.3

666.73,252.6

796.2402.7393.6

556.5520.236.3

158.6

840.9758.9

4.877.2

433.3

8,254.5

5 593 2682.2

1.613.23.297.8

1.292.01.220.1

882.8246 4636.4337.4

71.966.9

-98.8988.6

1,087.4

1,468.1520.1947.9

8,182.62,948.71,334.31,614.44.501.2

732.7

71.934.037.9

7,364.6

6,767.9

4,798.03,993.6

671.43,322.2

804.4407.4397.0

558.0526.6

31.4

158.8

820.8736.4

4.180.1

432.4

8^84.2

5,676.5705.1

1.633.13.338.2

1,356.61.271.1

921.3245.0676.3349.8

95.590.5

-123.7973.3

1.097.1

1.464.9511.6953.3

8.288.73.005.81,376.91.628.84,538.4

744.6

95.549.945.6

7,464.7

6,875.0

4.882.84.065.9

679.53.386.4

816.8414.1402.8

564.2536.8

27.4

158.3

829.2719.125.384.9

440.5

8,440.6

5,773 7720.1

1.655.23.398 4

1,345.01,305.8

941.9245.4696.6363.8

39.231.5

-159.3949.6

1,108.9

1,481.2520.7960.4

8,401.33,025.31,380.81,644.44,619.5

756.6

39.24.5

34.7

7,498.6

6,945.5

4,945.24,121.6

685.83,435.8

823.5417.9405.7

571.7544.0111

820.6723.5

7.8

1. With inventory valuation and capital consumption adjustments.2. With capital consumption adjustment.

3. For after-tax profits, dividends, and the like, see table 1.48.SOURCH. U.S. Department of Commerce, Survey of Current Business.


2.17 PERSONAL INCOME AND SAVING

Billions of current dollars except as noted: quarterly data at seasonally adjusted annual rates


Q2 Q3 Q4 Ql Q2

PERSONAL INCOME AND SAVING

1 Total personal income

2 Wage and salary disbursements3 Commodity-producing industries4 Manufacturing5 Distributive industries6 Service industries7 Government and government enterprises

8 Other labor income9 Proprietors' income1

10 Business and professional1

11 Farm1 ^12 Rental income of persons'"13 Dividends14 Personal interest income15 Transfer payments16 Old-age survivors, disability, and health insurance benefits

17 LESS: Personal contributions for social insurance

18 EQUALS: Personal income

19 LESS: Personal tax and nontax payments

20 EQUALS: Disposable personal income

21 LESS Personal outlays

22 EQUALS: Personal saving

MEMOPer capita (chained 1992 dollars)Gross domestic productPersonal consumption expenditures . .Disposable personal income

Saving rate (percent)

GROSS SAVING

Gross saving

Gross private saving

Personal savingUndistributed corporate profits'Corporate inventory valuation adjustment

Capital consumption allowancesCorporateNoncorporate

Gross government savingFederal ."

Consumption of fixed capitalCurrent surplus or deficit (—), national accounts. .

Slate and localConsumption of fixed capitalCurrent surplus or deficit (—), national accounts. .

41 Gross investment

42 Gross private domestic investment43 Gross government investment44 Net foreign investment

45 Statistical discrepancy

6,072.1

3,428.5863.9647.9782.9

1,158.9622.7

401.6488.1465.6

22.4133.7192.8704.9

1,015.9

507.8

293.6

6,072.1

795.0

5,277.0

5,097.2

179.8

25,690.517,498.418,640.0

1,187.4

1,106.2

179 8256.1

-22.6

431.1225.9

81.2-103.7

70.7-174.4

184.873.2

111.7

1,160.9

1,043.2218.4

-100.6

-26.5

6,425.2

3,631.1909.0674.6823.3

1.257 9640.9

387.0527.7488.8

38.9150.2248.2719.4

1,068.0

538.0

306.3

6,425.2

890.5

5,534.7

5,376.2

158.5

26,335.717,893.018,989.0

1,274.5

1,114.5

158.5262.4-1.2

452.0232.3

160.0- 39 .6

70.6-110.3

199.777.1

122.6

1,242.3

1.131.9229.7

-119.2

- 3 2 . 2

6,784.0

3,889.8975.0719.5879.8

1,370.8664.2

392.9551.2515.8

35.5158.2260.3747.3

1,110.4

565.9

326.2

6,784.0

989.0

5,795.1

5.674.1

121.0

27.136.218,340.919.349.0

1,406.3

1,141.6

121.0296.7

6.9

477.3242.8

264 749.570.6

-21 1215.2

81.1134.1

1,350.5

1,256.0235.4

-140.9

-55.8

6,743.6

3,855.5965.4712.0870.2

1,358.3661.6

391.5549.9512.137.8

158.0259.9745.7

1,106.8

563.9

323.7

6,743.6

975.8

5,767.9

5.616.0

151.9

27,052.318,215.619,315.0

1,416.3

1,169.5

151.9299.0

10.3

473.7241.3

246.936.170.9

-34.8210.7

80.6130.1

1,368.6

1,259.9232.6

-123.9

6,820.9

3,915.5979.4722.3886.3

1,383.2666.7

393.6556.5520.2

36.3158.6260.4750.5

1,114.0

568.3

328.2

6,820.9

999.0

5,821.8

5,723.3

98.5

27,260.418,445.219.385.0

1,427.0

1.139.0

98.5311.5

4.8

480.8244.4

288.070.070.3- .3

218.081.4

136.6

1,361.9

1,265.7237.3

-141.0

6,904.9

3,989.91,003.7

741.3904.5

1.410.26714

397.0558.0526.6

31.4158.8261.3753.0

1,120.5

572.2

333.6

6,904.9

1,025.5

5,879.4

5,781.2

98.2

27,398.218,530.519,478.0

1,428.0

1.131.6

98.2295.0

4.3

487.7247.0

296.472.370.22.2

224.182.7

141.4

1,360.7

1,292.0236.5

-167.8

7,003.9

4,061.91.019.0

750.4918.9

1,444.5679.5

402.8564.2536.827.4

158.3261.6757.0

1.H9.0

581.6

340.9

7,003.9

1,066.8

5,937.1

5,864.0

73.0

27,718.818.771.119.632.0

1.2

1,482.5

1.130.1

73.0312.0

25.3

492.5248.6

352.4128.769.958.8

223.783.5

140.2

1.428.4

1,366.6237.4

-175.6

7,081.9

4,117.61,023.2

750.8932.2

1,476.4685.8

405.7571.7544.027.7

161.0262.1763.0

1,145.8

585.0

345.1

7,081.9

1,092.9

5.988.9

5,963.3

25.6

27,783.019,007.819,719.0

1,448.5

1,079.0

25.6300.9

7.8

497.8250.7

369.4143.969.574.4

225.684.3

141.3

1,362.7

1.345.0232.5

-214.8

-85.7

1. With inventory valuation and capital consumption adjustments.2. With capita] consumption adjustment.

SOURCE. U.S. Department of Commerce, Survey of Current Business.


A50 International Statistics • December 1998

3.10 U S . INTERNATIONAL TRANSACTIONS Summary

Millions of dollars; quarterly data seasonally adjusted except as noted1

Item credits or debits

Q2 Q3 Q4 Qi Q2P

1 Balance on current account2 Merchandise trade balance3 Merchandise exports4 Merchandise imports5 Military transactions, net6 Other service transactions, net7 Investment income, net8 U.S. government grants9 U.S. government pensions and other transfers

10 Private remittances and other transfers

11 Change in U.S. government assets other than officialreserve assets, net (increase, - )

12 Change in U.S. official reserve assets (increase, —)13 Gold14 Special drawing rights (SDRs)15 Reserve position in International Monetary Fund16 Foreign currencies

17 Change in U.S. private assets abroad (increase, - )18 Bank-reported claims3

19 Nonbank-reported claims20 U.S. purchases of foreign securities, net21 U.S. direct investments abroad, net

22 Change in foreign official assets in United States (increase, f)23 U.S. Treasury securities24 Other U.S. government obligations25 Other U.S. government liabilities4

26 Other U.S. liabilities reported by U.S. banks3

27 Other foreign official assets5

28 Change in foreign private assets in United States (increase, +)29 U.S. bank-reported liabilities3

30 U.S. nonbank-reported liabilities31 Foreign private purchases of U.S. Treasury securities, net32 Foreign purchases of other U.S. securities, net33 Foreign direct investments in United States, net

34 Allocation of special drawing rights35 Discrepancy36 Due to seasonal adjustment37 Before seasonal adjustment

MEMOChanges in official assets

38 U.S. official reserve assets (increase, —)39 Foreign official assets in United States, excluding line 25

(increase, +)

40 Change in Organization of Petroleum Exporting Countries officialassets in United States (part of line 22)

-115,254-173,729575.845

-749,5744,76969,06919,275

-11,170-3,433-20,035

-589

-9,7420

-808-2,466-6,468

-317,122-75,108-45,286

-100,074-96,654

109,76868,977

3,735-217

34,0083,265

355,68130,17659,63799,54896,36757,653

0-22,742

-9,742

109,985

4,239

-134,915-191,337611,983

-803,3204,68478,07914,236

-15,023-4.442-21,112

-708

6,6680

370-1,2807,578

-374,761-91,555-86,333-115,801-81,072

127,344115,6715.008-3625,7041,323

436,01316,47839,404154,996130,15177,622

0-59.641

-59,641

6,668

127,706

14,911'

-155,215-197,954679,325

-877,2796,78180,967-5,318

-12,090-4,193-23,408

174

-1,0100

-350-3,5752.915

-477,666-147,439-120,403-87,981-121,843

15,817-7,2704,134

-2,52121.928-654

717,624148,059107,779146,710196,84593,449

0-99.724

-99,724

-1,010

18,338

10,822'

-35,090-49,096169,240

-218,3362,19120,390

460-2,274-1,055-5,706

-269

-2360

-13354

-157

-86,101-26,625-9,825

-23,263-26,388

-5,411-11,689

827-5235,043931

155,18428,0675,274

42,61454,25820,149

0-28.077

685-28,762

-236

-4,888

1,970

-38,094-49,296172,302

-221,5981,945

20,246-1,544-2,362-1,056-6,027

436

-7300

-139-463-128

-123,021-29,577-24.791-41,167-27,488

21,2586,6862,667

-1,16712.439

633

160,18012,60626,27535,43260,32718,964

0-20,027-10,018-10,009

-730

22,425

3.031

-45,043-49,839174,284

-224,1231,103

20,277-4,247-5,213-1,069-6,055

29

-4,5240

-150-4,221-153

-118,946-27,539-47,907-8,030

-35,470

-26,979-24,578

86-244

-3,2501,007

247,47089,64347,39035,30136,78328,453

0-52,007

3,528-55,535

-4,524

-26,735

-1,282

-46,735-55,698171,469

-227,1671,52719,164-2,248-2,266-1,126-6,088

-4440

-182-85

-177

-44,8163,074

-6,596-6,973-34,321

11,32411,3362,610

-1,059-607-956

84,205-50,49732,707-1,70177,01925,931

0-3,1466,217

-9,363

-444

12,383

-56,525-64,831164,666

-229,4971,03619,842-3,238-2,060-1,130-6,144

-496

-1,945072

-1,031

-95,049-24,979

-23,446-40,261

-10,483-20,317

254-4229,170832

173,90840,888

25,71569,53122,036

0-9,4101,562

-10,972

-1,945

-10,061

1. Seasonal factors are not calculated for lines 12-16, 18-20. 22-34, and 38-40.2. Data are on an international accounts basis. The data differ from the Census basis data,

shown in table 3.11, for reasons of coverage and timing. Military exports are excluded frommerchandise trade data and are included in line 5.

3. Reporting banks include all types of depository institutions as well as some brokers anddealers.

4. Associated primarily with military sales contracts and other transactions arranged withor through foreign official agencies.

5. Consists of investments in U.S. corporate stocks and in debt securities of privatecorporations and state and local governments.

SOURCE. U.S. Department of Commerce, Bureau of Economic Analysis, Survey of CurrentBusiness.


Summary Statistics A51

3.11 U.S. FOREIGN TRADE1

Millions of dollars; monthly data seasonally adjusted

Item

1 Goods and services, balance2 Merchandise3 Services

4 Goods and services, exports5 Merchandise6 Services

7 Goods and services, imports8 Merchandise9 Services

1995

-101,857-173,560

71,703

794,610575,871218,739

-896,467-749,431-147.036

1996

-111,040-191,170

80,130

848,833612,069236,764

-959,873-803.239-156,634

1997

-113,684-198,975

85,291

931,370678,150253,220

-1,045,054-877,125-167,929

1998

Feb.'

-11,614-18,120

6,506

77,81356,35021,463

-89,427-74,470-14.957

Mar.'

-13,497-20,503

7.006

79,05857,21721,841

-92,555-77.720-14,835

Apr.'

-14,148-21,335

7,187

77,51555,33522,180

-91,663-76,670-14,993

May'

-15,777-22,578

6,801

76.39954,71921,680

-92,176-77,297-14,879

June'

-13,639-20,530

6,891

76,37554,76721,608

-90,014-75,297-14.717

July

-14,547-21,029

6,482

75,10153,82521,276

-89,648-74,854-14.794

Aug.p

-16,775-23,202

6,427

74,83953,69821,141

-91,614-76,900-14,714

1. Data show monthly values consistent with quarterly figures in the U.S. balance ofpayments accounts.

SOURCE. FT900, U.S. Department of Commerce, Bureau of the Census and Bureau ofEconomic Analysis.

3.12 U.S. RESERVE ASSETS


Asset

1 Total

2 Gold stock, including ExchangeStabilization Fund1

3 Special drawing rights4 Reserve position in International Monetary

Fund2

5 Foreign currencies4

1995

85,832

11.05011.037

14,64949,096

1996

75,090

11,04910,312

15,43538,294

1997

69,954

11,05010,027

18,07130.809

Feb.

70,632

11,05010.217

18,13531.230

Mar.

69,354

11,05010.108

17,97630,220

Apr.

70,328

11,04810,188

18,21830,874

1998

May

70,723

11,04910,296

18,95730,421

June

71,161

11,04710,001

18,94531,168

July

72,264

11,0469,586

20,78030,852

Aug.

73,544

11,0469,891

21,16131,446

Sept.p

75,676

11,04410,106

21,64432,882

1 Gold held "under earmark" at Federal Reserve Banks for foreign and internationalaccounts is not included in the gold stock of the United States; see table 3.13, line 3. Goldstock is valued at $42.22 per fine troy ounce.

2. Special drawing rights (SDRs) are valued according to a technique adopted by theInternational Monetary Fund (IMF) in July 1974. Values are based on a weighted average ofexchange rates for the currencies of member countries. From July 1974 through December1980, sixteen currencies were used; since January 1981, five currencies have been used. U.S.

SDR holdings and reserve positions in the IMF also have been valued on this basis since July1974.

3. Includes allocations of SDRs by the International Monetary Fund on Jan. I of the yearindicated, as follows: 1970—$867 million; 1971—$717 million; 1972—$710 million; 1979—$1,139 million: 1980—$1,152 million; 1981—$1,093 million; plus net transactions in SDRs.

4. Valued at current market exchange rates.

313 FOREIGN OFFICIAL ASSETS HELD AT FEDERAL RESERVE BANKS1


Asset

1 Deposits

Held in custody2 U.S. Treasury securities3 Earmarked gold3

1995

386

522,17011,702

1996

167

638,04911,197

1997

457

620,88510,763

1998

Feb.

243

621,95610,705

Mar.

167

630,60210,664

Apr.

162

622,22010,651

May

156

622,55710,641

June

200

616,56910,617

July

161

613,89310,586

Aug.

161

588.33710,510

Sept.p

347

578,40310,457

1. Excludes deposits and U.S. Treasury securities held for international and regionalorganizations.

2. Marketable U.S. Treasury bills, notes, and bonds and nonmarketable U.S. Treasurysecurities, in each case measured at face (not market) value.

3. Held in foreign and international accounts and valued at $42.22 per fine troy ounce; notincluded in the gold stock of the United States.



3.15 SELECTED U.S. LIABILITIES TO FOREIGN OFFICIAL INSTITUTIONS


Item

1 Total1

By type2 Liabilities reported by banks in the United States"3 U.S. Treasury bills and certificates3

U.S. Treasury bonds and notes

5 Nonmarketable6 U.S. securities other than U.S. Treasury securities5

By area7 Europe1

8 Canada9 Latin America and Caribbean

10 Asia11 Africa

1996

758,624

113,098198,921

379,4975.968

61,140

257,91521,29580,623

385,4847,3795,926

1997

778,538

135,326148,301

423,4565,994

65,461

263,10318,74997,616

382,42310,1186,527

1998

Feb.

780,393

139,739144,324

423,5096,069

66,752

261.13319.06599.381

385.37810.5184,916

Mar.

790,921

134,719153,335

429,6426.110

67,115

259,05320,28098,028

397,28311,4404,835

Apr.

788,310

144,929138,418

430,8046,149

68,010

268,84820,254

101,191382,027

11,2814.707

May

786,184

142,658137,652

431,7026,189

67,983

269,17820,122

101,792379,188

10,5745,328

June

781,067

144,097134,324

428,2166,229

68,201

264,63719,396

100,829378,154

11.5526,497

July

775,154

142.157131.089

428,6856,269

66,954

270,17519,963

100,801367,752

11,9014,560

Aug.'

760,245

143,501130,398

411,7656,311

68,270

266,60516,38798,450

363,96911,4983,334

1. Includes the Bank for International Settlements.2. Principally demand deposits, time deposits, bankers acceptances, commercial paper,

negotiable time certificates of deposit, and borrowings under repurchase agreements.3. Includes nonmarketable certificates of indebtedness and Treasury bills issued to official

institutions of foreign countries.4. Excludes notes issued to foreign official nonreserve agencies. Includes current value of

zero-coupon Treasury bond issues to foreign governments as follows: Mexico, beginningMarch 1988, 20-year maturity issue and beginning March 1990, 30-year maturity issue;

Venezuela, beginning December 1990, 30-year maturity issue; Argentina, beginning April1993, 30-year maturity issue.

5. Debt securities of U.S. government corporations and federally sponsored agencies, andU.S. corporate stocks and bonds.

SOURCE. Based on U.S. Department of the Treasury data and on data reported to thedepartment by banks (including Federal Reserve Banks) and securities dealers in the UnitedStates, and on the 1989 benchmark survey of foreign portfolio investment in the UnitedStates.

3.16 LIABILITIES TO, AND CLAIMS ON, FOREIGNERSPayable in Foreign Currencies


Reported by Banks in the United States'

Item

1 Banks' liabilities

3 Deposits

1994

89,25860,71119,66141,05010,878

1995

109,71374,01622,69651,3206,145

1996

103,38366,01822,46743.55110,978

1997

Sept.

120,10591,15832,15459,00410,090

Dec.

117,52483,03828,66154,377

8,191

1998

Mar.

100,34281,97727,93454,0437,926

June

90,11968,09527,21340,882

7,354

1. Data on claims exclude foreign currencies held by U.S. monetary authorities. 2, Assets owned by customers of the reporting bank located m the United States thatrepresent claims on foreigners held by reporting banks for the accounts of the domesticcustomers


Bank-Reported Data A53

3.17 LIABILITIES TO FOREIGNERSPayable in U.S. dollars


Reported by Banks in the United States'

Item

BY HOLDER AND TYPE OF LIABILITY

1 Total, all foreigners

3 Demand deposits4 Time deposits2

5 Other1

6 Own foreign offices4

7 Banks' custodial liabilities8 US. Treasury bills and certificates6

9 Other negotiable and readily transferableinstruments7

10 Oiher

11 Nonmonetary international and regional organizations8

13 Demand deposits14 Time deposits"15 Other3

17 U.S. Treasury bills and certificates6

18 Other negotiable and readily transferableinstruments

19 Other

20 Official institutions'21 Banks' own liabilities22 Demand deposits23 Time deposits"24 Other1

25 Banks' custodial liabilities5

26 U.S. Treasury bills and certificates'1


28 Other

29 Banks'"

31 Unaffiliated foreign banks}2 Demand deposits

34 Other'35 Own foreign offices4

36 Banks' custodial liabilities5


38 Other negotiable and readily transferableinstruments7

39 Other

40 Other foreigners

42 Demand deposits43 Time deposits2

44 Other'

45 Banks" custodial liabilities5



48 Other

MEMO49 Negotiable time certificates of deposit in custody fot

foreigners

1995

1,099,549

753,46124,448

192,558140,165396,290

346,088197,355

52,20096,533

11,03910.347

214,6565,670

692350

3411

275,92883,4472,098

30,71750,632

192,481168,534

23,603344

691,412567,834171,544

11,758103,47156,315

396,290

123,57815,872

13,03594,671

121,17091,83310.57153,71427,548

29,33712,599

15,2211 517

9,103

1996

t

1,162,148

758,99827,034

186,910143,510401.544

403,150236,874

72,01194,265

13,97213,355

295,7847,542

617352

2650

312,01979,406

1,51133,33644,559

232,613198,921

33,266426

694,835562,898161,354

13,69289,76557,897

401,544

131,93723,106

17,02791,804

141,322103,339

11,80258,02533,512

37,98314,495

21,4532 035

14,573

1997

1,283,686

883,63932,104

198,470168,013485.052

400.047193,239

93,641113,167

11,69011,486

165,4666,004

20469

1332

283,627101,910

2,31441.42058.176

181,717148,301

33,211205

816,064642,324157,272

17,52783,43356,312

485,052

173,74031,915

35.333106,492

172,305127,91912.24768,15147,521

44,38612,954

24.9646 468

16,083

1998

Feb.

1,283,675

879,68629,691

183,285189,527477.183

403,989186,564

99,402118,023

16,18415,855

745,316

10,465

329149

1800

284,063109,959

1,91037,24270,807

174.104144,324

29.643137

799,943623,213146,03016,08475,25554,691

477,183

176,73030,620

35,107111,003

183,485130,659

11,62365,47253,564

52.82611,471

34,4726 883

20.823

Mar.

1,255,075

843,90632,588

183,109188,425439.784

411,169191,571

96.364123,234

15,24614,925

985,9578,870

321247

722

288,054104,006

2,05140,26561,690

184,048153,335

30,183530

763,349585,083145,29918,35070,06056,889

439,784

178,26628,499

34,962114,805

188,426139.892

12,08966,82760,976

48,5349.490

31,1477 897

22,416

Apr.

1,270,626

861,72732,107

185,948204.294439,378

408,899174,256

111,398123,245

14,89414,478

3656,6467,467

416344

720

283,347105,731

2,53238,86564,334

177,616138,418

38,745453

776,269596,509157,13117,15272,70367,276

439,378

179,76026,650

37,942115,168

196,116145.00912,05867,73465,217

51,1078,844

34,6397 624

22,503

May

1,260,273

852,05231,201

185,160192,167443.524

408,221173,873

107,797126,551

14,18613,559

2297,0296,301

627359

2680

280,310104,358

2,05236,06066,246

175,952137,652

38,010290

782,828601,967158,443

16,11174,01868,314

443,524

180,86126,920

38,186115,755

182,949132,168

12,80968,05351,306

50,7818,942

31,33310 506

23,440

June

l,287,968r

884,741'36,246'

186,693'183,451478.351'

403.227'169,225'

112,527121,475

14,07913,441

2266,7846,431

638338

2982

278,421102,256

2,58236,06863.606

176.165134.324

41,178663

809,206'633,032'154,68120,772'75,231'58,678

478,351'

176,174'25,337r

38,077112,760

186,262'136.012'

12,66668,610'54,736

50,2509,226

32,9748 050

21,229

July

1,305,757

896.87230,928

187,956192,536485,452

408.885164,274

116,802127,809

14,18112,088

196,2545,815

2,093349

1,7440

273,246102,040

3,56036,35862,122

171.206131,089

39,809308

825,175643,982158,53015,09778,25265,181

485,452

181,19322,929

39,133119.131

193.155138,762

12,25267,09259,418

54,3939,907

36,1168 370

22.847

Aug.?

1,340,871

928,04832,997

183,469190,531521,051

412,823163,598

121,351127,874

15,05213,584

596,1527,373

1.468490

9762

273.899100.973

3,45235,61861,903

172,926130,398

41,773755

853,855673,792152,741

16,04574,21962,477

521.051

180,06320,694

40,110119.259

198,065139,699

13,44167,48058,778

58,36612,016

38,4927 858

24,712

1. Reporting banks include all types of depository institutions as well as some brokers anddealers. Excludes bonds and notes of maturities longer than one year.

2. Excludes negotiable time certificates of deposit, which are included in "Other negotia-ble and readily transferable instruments."

3. Includes borrowing under repurchase agreements,4. For U.S. banks, includes amounts owed to own foreign branches and foreign subsidiar-

ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatoryagencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consistsprincipally of amounts owed to the head office or parenl foreign bank, and to foreignbranches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank.

5 Financial claims on residents of the United States, other than long-term securities, heldby or through reporting banks for foreign customers.

6. Includes nonmarketable certificates of indebtedness and Treasury bills issued to officialinstitutions of foreign countries.

7. Principally bankers acceptances, commercial paper, and negotiable time certificates ofdeposit,

8. Principally the International Bank for Reconstruction and Development, the Inter-American Development Bank, and the Asian Development Bank. Excludes "holdings ofdollars" of the International Monetary Fund.

9. Foreign central banks, foreign central governments, and the Bank for InternationalSettlements.

10. Excludes central banks, which are included in "Official institutions."



3.17 LIABILITIES TO FOREIGNERS Reported by Banks in the United States1—Continued

Feb. Mar. Apr. May July Aug.p

Belgium and LuxembourgDenmarkFinland


51 Foreign countries . .

52 Europe53 Austrii545556

FranceGermanyGreeceItalyNetherlandsNorwayPortugalRussiaSpainSwedenSwitzerlandTurkeyUnited Kingdom

5758596061626364656667

697071

YugoslaviaOther Europe and other former U.S.S.R.

72 Canada

73 Latin America and Caribbean . .747576777879808182838485868788899091

ArgentinaBahamasBermudaBrazilBritish West IndiesChileColombiaCubaEcuadorGuatemalaJamaicaMexicoNetherlands AntillesPanamaPeruUruguayVenezuelaOther

92 AsiaChina

93949596979899100101102103104

MainlandTaiwanHong Kong

IndiaIndonesiaIsraelJapanKorea (South)PhilippinesThailand .Middle Eastern oil-exporting countriesOther

105 Africa106 Egypt107 Morocco108 South Africa109 Zaire110 Oil-exporting countries14

111 Other

112 Other . . . .113 Australia114 Other . .

115 Nonmonetary international and regional organizations116 International15

117 Latin American regional118 Other regional17

1,099,549

1,088,510

362,8193,537

24,7922,9212,83139,21824,0352,01410,86813,7451,3942,7617,94810,0113,246

43,6254,124

139,183177

26,389

30,468

440,21312,23594,9914,89723,797239,0832,8263,659

81,3141.276481

24,5604,6734,264974

1,83611,8087,531

240,595

33,75011,71420,1973,3732,7084,041

109,1935,7493,09212,27915,58218,917

7,6412,13610473910

1,7972,855

6,7745,6471,127

11,0399,300893846

1,162,148

1,148,176

376,5905,12824,0842,5651,958

35,07824,6601,83510.94611,1101,2883,5627,62317,7071,623

44,5386,738

153,420206

22,521

38,920

467,52913,87788,8955,52727,701

251,4652,9153,256

211,7671,282628

31,2406,0994,099834

1,89017,3638,670

249.083

30,43815,99518,7893,9302,2986,051

117,3165,9493,37810,91216,28517,742

8,1162,01211245810

2,626

7,9386,4791,459

13,97212,0991,339534

1,283,686

1,271,996

420,4382,717

41,0071,5142,246

46,60723,7371,552

11,3787,385317

2,2627,96818,9891,628

39,1724,054

181,904239

25,762

28,341

536,36520,199112,2176,91131,037

276,3894,0723,652

662,0781,494450

33,9725,0854,241893

2,38221,6019,626

269,299

18,25211,76017,7224,5673,5546,281

143,40113,0603,2506,50114,95925,992

10,3471,663138

2,15810

3.0603,318

7,2066,304902

11,69010,517

424749

1,283,675

1,267,491

420,0182,77438,1781,2152,136

44,99023,290

1,6959,8047,043

8451,4376,118

20,1372,055

37,1574.047

191,181244

25,672

29,470

533,90718,278

110,9008,283

33,026273,464

4,4503,908

581,9981,382

43733,611

5,4174,087

9122,247

21,8919.558

267,957

18,57512,94217,7975,2652,9897,197

140,42612,5302,8724,676

15,95226,736

9.6701.670

731,825

43,4792,619

6,4695,4661,003

16,18414,5911,217

376

1.255,075

1,239,829

390,7502,375

33,2441,0941,549

44,02720,971

2,0209,6318,208

3461,4266,466

16,3151,967

35,4634,154

174,198236

27,060

27,121

529,44618,835

109,0418,273

34,017261,542

3,9754,200

551.8141,438

43135,70811,3513,958

8782,228

21,47410,228

275,173

20,70113,61917,8255.5864,0157,589

137,70011,2333,0099,073

16.21728,606

11,3851,449

882,547

104,2753,016

5,9544,989

965

15,24614,331

536379

1,270,626

1,255,732

406,3912,957

38,5302,5881,768

48,46824,895

2,38310,6008,051

5142 2795,381

18,0711,785

32,3414,340

172,829246

28,365

27,398

552,89617,766

112,5106,657

36,777273,565

4,3304,212

571,7371,478

44937,62317,5694,211

8782,097

20,69610.284

251,423

20,12213,77619,7624,8134,2667,348

113,28313,7112,8707,928

17,09526,449

11,1601.236

1312,556

34,3322,902

6,4645,4501,014

14,89413,431

762701

1,260,273

1,246,087

405,3483,012

35.5181,4431,365

47,86926,452

2,61011,1277,265

7742,1603,952

15,5202,197

33,8934,467

178,185270

27,269

26,021

550,71416,938

114,2227,142

38,463277,929

4,2304,383

591,7831,353

43837,6827,4474,106

9641,991

21,6009.984

244,779

20,20912,64818,1064,8823,1976,251

111,62314,0102,8028,876

15,29626.879

10,9651,460

1152,465

54,0792,841

8,2607.416

844

14,18612.509

830847

1,287,968'

l,273,889r

402,090'2,268

35,4541,9891,438

46,162'25,470

2,42911,509'6,845

6072,3344,654

11,649'3,148

39,078'4,875

176.703'234

25,244'

28,864'

568,208r

18,501'116.435'

7,76935,343'

295,321'4,3494,805'

631,6061.363

52238,044'6,8613,723

9251,982

20.44210.154'

254,408'

21,55811,61919,7204,8213,848'6,095

118.66913,2693,4187,148

13,82530,418'

10,7321,523

842,642

53,5522,926

9,5878,5101,077

14,07912.548

670861

1,305,757

1,291,576

431,7632,602

33,8452,0131,211

47,14023,730

2,78411,1147,0971,1792,8236,398

12,0792,198

44,8615,058

196,859322

28,450

29,526

563,81821,009

115,3097,216

34,290289,797

4,9814,023

631,7561,273

51938,554

8,9223,596

9842,097

19,4929,937

247,947

18,91911,33315,8264,6783,9385,969

123,16712,7132,6096,780

13,89728.118

10,7851,319

742.446

73,8933,046

7,7376,4901.247

14,18111,120

7172,344

1,340,871

1,325,819

457,4672,671

35,0862,1281,350

48,32828,751

2,94110,6259,2391,4692,4242,718

14,2831,769

39,3624,298

219.147242

30,636

27,844

556,48221,654

113,5437,332

27.824290,900

4,7194,104

621,5881.239

55038,087

8.3403,676

9002,091

20,1279.746

266,482

18,50611,29018,3496,4375,6455,296

131,37612,4982.7777,869

14,53531.904

10.5591,459

762.428

353,6842.877

6,9855,9311,054

15,05212,725

6851,642

11. Since December 1992, has excluded Bosnia, Croatia, and Slovenia.12. Includes the Bank for International Settlements. Since December 1992, has

included all parts of the former U.S.S.R. (except Russia), and Bosnia, Croatia, and Slovenia.13. Comprises Bahrain. Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab

Emirates (Trucial States).14. Comprises Algeria. Gabon, Libya, and Nigeria.

15. Principally the International Bank for Reconstruction and Development. Excludes''holdings of dollars" of the International Monetary Fund.

16. Principally the Inter-American Development Bank.17. Asian. African, Middle Eastern, and European regional organizations, except the Bank

for International Settlements, which is included in "Other Europe."



3.18 BANKS' OWN CLAIMS ON FOREIGNERS Reported by Banks in the United States1

Payable in U.S. Dollars


Area or country 19%

Mar. Apr. May July Aug.p


2 Foreign countries

3 Europe4 Austria5 Belgium and Luxembourg6 Denmark7 Finland8 France9 Germany

10 Greece11 Italy12 Netherlands13 Norway14 Portugal15 Russia16 Spain17 Sweden18 Switzerland19 Turkey20 United Kingdom21 Yugoslavia2

22 Other Europe and other former U.S.S.R.'

23 Canada

24 Latin America and Caribbean25 Argentina26 Bahamas27 Bermuda28 Brazil29 British West Indies30 Chile31 Colombia32 Cuba33 Ecuador34 Guatemala35 Jamaica36 Mexico37 Netherlands Antilles38 Panama39 Peru40 Uruguay41 Venezuela42 Other

43 AsiaChina

44 Mainland45 Taiwan46 Hong Kong47 India48 Indonesia49 Israel50 Japan51 Korea (South)52 Philippines53 Thailand54 Middle Eastern oil-exporting countries"1

55 Other

56 Africa57 Egypt58 Morocco59 South Africa60 Zaire61 Oil-exporting countries5

62 Other

63 Other64 Australia65 Other

66 Nonmonelary international and regional organizations6.

532.444

530,513

132,150565

7,624403

1.05515,0339,263

4695.3705,346

665888660

2,1662,0807,474

80367,784

1474,355

20,874

256,9446,439

58.8185.741

13.297124,037

4,8644,550

0825457323

18,0249,2293,0081,829

4661,6613,376

115,336

1,0231,713

12,8211,8461,696

73961,46813,975

1,3182,6129,6396,486

2,742210514465

1552

1,000

2,4671,622

845

599,925

597,321

165,7691,6626,727

492971

15,2468,472

5686,4577,117

808418

1,6693,2111,739

19,7981,109

85.234115

3.956

26,436

274,1537,400

71,8714,129

17,259105,510

5,1366,247

01,031

620345

18,42525,2092,7862.720

5891,7023,174

122,478

1,4011,894

12,8021,9461,762

63359,96718,9011,6972,679

10,4248.372

2,776247524584

0420

1,001

5,7094,5771,132

708,272

705,809

199,880

1,3546,641980

1,23316.23912,676

4026,2306,141555777

1,2482,9421,854

28,8461,558

103,14352

7,009

27,176

343,8208,92489,3798,782

21,696145.4717.9136.945

01,311886424

19,51817,8384,3643,491629

2,1294.120

125.063

1,579921

13,9902,2002,634768

59.54018.1621,6892,25910,79010,531

3,5302475118050

1.212755

6,3405,2991,041

2,463

703,988

701,233

212,307

1,9346,021907

1,55418.96310.752

5045.9745.4471.296533

1.1436,2552,18429,0061,675

110,35753

7,749

24,872

345,6439,40284,9828,917

23,987149,5208.2496.729

01.398868401

21.10715,5944,2323,550594

2,3343,779

109,045

1,988820

13,5202,1722,270987

51,89112.8121.6452.1389.1019.701

3.4033045145730

1.219793

5,9635,139824

2,755

687,648

684,700

205,528

1,5666,148895

1,68618,20613,047

5036.6016,618850589

1,1155,7782,798

31,3061,914

97,58861

8,259

29,827

338,9098,726

77,5858,997

25,283147,9108,1716,783

01,476904364

20,68017,6184,1083,538920

2,1693,677

101,353

2,762740

12.6281.9272,291812

46,66011,5201,8132,1448,9219,135

3,567289518559

01,364837

5,5165,011505

2.948

700,035

696,742

207,154

1,8275,482968

1,01817,38316,931

4426,9385,851662935

1,1337,4582,97525,0692,324

101,77259

7,927

25,785

354,3028,540

82,7119,46226,033159,6498,4446,772

01,522955373

20,91314,0734,4223.644773

2,1943,822

99,183

2,921939

10,1621,8072,210874

44,97010,8521,5611,97111,028

3,337294483490

01,194876

6,9816,513468

3,293

703,532

701,140

208,567

2,1306,1151,286931

16.27615,301

4286,5333,980736

1,4961,1176,2183,18129,3172,386

102.88919

8.228

24,961

361,0828,207

78,0838,890

25,354168.1248,4827,208

01,498955385

21,21517,3524,3933,792807

2,3813,956

96,813

2,934723

12,8841,9132,099893

42.07111,9361,6141,9069,3388,502

.3,6932814908590

1,078985

6,0245,704320

2,392

728,673'

725,758r

223,986'

1,2597,7821,1981,14615.47415.751

3646.4355,763680888

1,0575,5603,069

34,9702,414

110.464'53

9,659

32,703

365,836'8,518'

77,595'9,452'24,552176,8258,4977,102

01.430932320

20,39314,2944,2333,965959

2,4954,274

94.804r

1,989835

12,8711,9722,098'954

43,01011.0011.5411.8898,4488,196

2.484283430653

0308810

5,9455,439506

740,258

735,848

229,928

1,8928,459933

1,03214,42111,327

4506,3455,642553

1.1561,3456,4244,55349,3592,010

104,39779

9,551

36,007

359.2998.421

78,77010,62224,187166,2038,4346,914

01,649911335

20,08416,2784,3084,0091,1542,4364,584

100,196

1.679595

11,0451,8222,0101,116

45.56612,863

1,2431,820

11,2079,230

3,497294471630

01,331

771

6,9216.067

854

4,410

764,033

759,643

226,8301,8566,7791.3741,161

17,31412,029

5308,6174,3211,110

7251,2075,2334,456

49,2581,990

98,30853

10,509

41,402

379,0878,707

77.8959,629

23,541192,036

8,3056,915

01,519

950318

20,09912,9394,1574,1111,0552,6484,263

102,378

2,703661

13.8211,8782,031

90744,81311,5081,2581,883

12,1368,779

3,575279426653

01.0461,171

6,3715.999

372

I Reporting banks include all types of depository institutions as well as some brokers anddealers.

2. Since December 1992, has excluded Bosnia, Croatia, and Slovenia.3. Includes the Bank for International Settlements. Since December 1992, has included all

pans of the former U.S.S.R. (except Russia), and Bosnia. Croatia, and Slovenia.

4. Comprises Bahrain. Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United ArabEmirates (Trucial States).

5. Comprises Algeria, Gabon, Libya, and Nigeria.6. Excludes the Bank for International Settlements, which is included in "Other Europe."



3.19 BANKS' OWN AND DOMESTIC CUSTOMERS' CLAIMS ON FOREIGNERS Reported by Banks in the United States1



Type of claim

1 Total

3 Foreign public borrowers4 Own foreign offices2

5 Unaffiliated foreign banks

7 Other8 All other foreigners

9 Claims of banks' domestic customers3

10 Deposits11 Negotiable and readily transferable

12 Outstanding collections and other

MEMO13 Customer liability on acceptances

14 Dollar deposits in banks abroad, reported bynonbanking business enterprises in the

1995

655,211

532,44422,518

307,427101,59537,77163,824

100,904

122,76758,519

44,161

20,087

8,410

30,717

1996

743,919

599,92522,216

341,574113,68233,82679,856

122,453

143,99477,657

51,207

15.130

10,388

39,661

1997

852,899

708,27220,660

431,685109,22431,04278,182

146,703

144,62773,110

53,967

17.550

9,624

34,046

1998

Feb.

703,98827,041

421,733106,60026,55980,041

148,614

36,741

Mar.

842,461

687,64828,232

402,387107,79425,65782,137

149,235

154,81385.406

51,594

17,813

7,496

31,958

Apr.

700,03532,465

409,955104,62224,32480,298

152,993

31,633

May

703,53228,986

415,175105,50121,28284,219

153,870

32,172

Juner

881,949

728,67327,802

435,201108,23422,84385,391

157,436

153,27686,408

52,171

14,697

6,604

25,287

July

740,25835,656

446,536101,77723,28378,494

156,289

30,067

Aug.p

764,03329,779

465,153105,90624,59381,313

163,195

26,196

1. For banks' claims, data are monthly; for claims of banks' domestic customers, data arefor quarter ending with month indicated.

Reporting banks include all types of depository institution as well as some brokers anddealers.

2. For U.S. banks, includes amounts due from own foreign branches and foreign subsidiar-ies consolidated in quarterly Consolidated Reports of Condition filed with bank regulatoryagencies. For agencies, branches, and majority-owned subsidiaries of foreign banks, consists

principally of amounts due from the head office or parent foreign bank, and from foreignbranches, agencies, or wholly owned subsidiaries of the head office or parent foreign bank.

3. Assets held by reporting banks in the accounts of their domestic customers.4. Principally negotiable time certificates of deposit, bankers acceptances, and commercial

paper.5. Includes demand and time deposits and negotiable and nonnegotiable certificates of

deposit denominated in U.S. dollars issued by banks abroad.

3.20 BANKS' OWN CLAIMS ON UNAFFILIATED FOREIGNERS Reported by Banks in the United States1



Maturity, by borrower and area 1994

1997

Sept.

1 Total

By borrower2 Maturity of one year or less . .3 Foreign public borrowers . . .4 All other foreigners5 Maturity of more than one year6 Foreign public borrowers . . .7 All other foreigners

By areaMaturity of one year or less

8 Europe9 Canada

10 Latin America and Caribbean11 Asia12 Africa13 All other3

Maturity of more than one year14 Europe15 Canada16 Latin America and Caribbean17 Asia18 Africa19 All other3

202,282

170,41115,435

154,97631,8717,838

24,033

56,3816,690

59,58340,567

1,3795,811

4,3583,505

15,7175,3231,5831,385

224,932

178,85714,995

163,86246,075

7,52238,553

55,6226,751

72,50440,296

1,2952,389

4,9952,751

27,6817,9411,4211.286

258,106

211,85915,411

196,44846,247

6,79039,457

55,6908,339

103,25438,078

1,3165,182

6,9652,645

24,9439,3921,361

941

281,000

217,98120,123

197,85863,019

8,75254,267

69,2048,460

99,92934,650

2,1573,581

11,2023,842

34,98810,3931,2361,358

276,597

205,85912,069

193,79070,7388,525

62,213

58,2949,91797,27733,9722,2114,188

13,2402,512

42,06910,1981,2361,483

285,518

214.82216,952197,87070,69611,31059.386

69,2459,304

101,01328,7482,2284.284

15,1182,75239,33710,7311,2541.504

293,055

211,02917,023

194,00682,02610,67371.353

73,7878,766

99,29423.5691,1164,497

16,3152,573

47,90312,5691,2591,407

1. Reporting banks include all types of depository institutions as well as some brokers anddealers.

2. Maturity is time remaining until maturity.3. Includes nonmonetary international and regional organizations.



3.21 CLAIMS ON FOREIGN COUNTRIES Held by U.S. and Foreign Offices of U.S. Banks1


Area or country

Sept. Sept.

1 Total

2 G-10 countries and Switzerland . .3 Belgium and Luxembourg4 France5 Germany6 Italy7 Netherlands8 Sweden9 Switzerland

10 United Kingdom11 Canada12 Japan

13 Other industrialized countries . . . .14 Austria15 Denmark16 Finland17 Greece18 Norway19 Portugal20 Spain21 Turkey22 Other Western Europe23 South Africa24 Australia

25 OPEC"26 Ecuador27 Venezuela28 Indonesia29 Middle East countries30 African countries

31 Non-OPEC developing countries .

Latin America32 Argentina33 Brazil34 Chile35 Colombia36 Mexico37 Peru38 Other

AsiaChina

MainlandTaiwan

IndiaIsraelKorea (South) . .MalaysiaPhilippinesThailandOther Asia

Africa48 Egypt49 Morocco50 Zaire51 Other Africa-' . . .

52 Eastern Europe. . . .53 Russia4

54 Other

55 Offshore banking centers56 Bahamas57 Bermuda58 Cayman Islands and other British West Indies59 Netherlands Antilles60 Panama5

61 Lebanon62 Hong Kong, China63 Singapore64 Other*65 Miscellaneous and unallocated7

499.5

191.27.2

19.124.711.83.62.75.1

85.810.021.1

45.71.11.3.9

4.52.01.2

13.61.63.21.0

15.4

24.1.5

3.73.8

15.3.9

96.0

11.28.46.12.6

18.45

2.7

1.19.24.2

.416.23.13.3

.3

.6

.0

.8

2.7.8

1.9

72.910.28.4

21.41.61.3.1

20.010.1

.166.9

551.9

206.013.619.427.311.53.72.76.7

82.410.328.5

50.2.9

2.6.8

5.73.21.3

11.61.94.71.2

16.4

22.1.7

2.74.8

13.3.6

112.6

12.913.76.82.9

17.3.8

2.8

1.89.44.4

.519.14.44.14.94.5

.4

.7

.0

.9

4.2i.O3.2

99.211.06.3

32.410.3

1.4I

25.013.1

.157.6

612.8

226.911.418.031.414.94.72.76.3

101.612.223.6

55.51.23.3

.65.62.31.6

13.62.33.42.0

19.6

20.1.9

2.34.9

11.5.5

126.5

14.121.7

6.72.8

15.41.23.0

9.84.2

.621.75.34.75.44.8

.0

.8

5.11.04.1

106.117.34.1

26.113.2

1.7.1

27.615.9

.172.7

586.2

220.011.317.433.915.25.93.06.3

90.514.821.7

62.11.01.7.6

6.13.01.4

16.12.84.81.7

22.8

19.2.9

2.35.4

10.2.4

15.017.86.63.1

16.31.33.0

2.610.43.8

.521.95.55.44.84.1

.6

.7

.01.0

5.31.83.5

105.214.24.0

32.011.7

1.7.1

26.015.5

.150.0

645.3

228.311.716.629.816.04.02.65.3

104.714.023.7

65.71.11.5.8

6.78.0

.913.22.74.72.0

24.0

19.71.12.45.2

10.7.4

14.320.77.04.1

16.21.63.3

2.510.34.3

.521.56.05.85.74.1

6.93.73.2

134.720.34.5

37.226.1

2.0.1

27.916.7

.159.6

647.5

231.414.119.732.114.44.53.46.0

99.216.321.7

66.41.91.7.7

6.35.31.0

14.42.86.31.9

24.4

21.81.11.94.9

13.2.7

128.1

14.322.06.83.7

17.21.63.4

2.710.54.9

.614.66.56.06.84.3

.9

.6

.0

.9

8.93.55.4

131.320.9

6.732.819.92.0

.130.817.9

.159.6

678.8

250.09.4

17.934.120.26.43.65.4

110.615.726.8

71.71.52.81.46.14.71.1

15.43.45.51.9

27.8

22.3.9

2.15.6

12.51.2

16.427.3

7.63.3

16.61.43.4

3.610.65.3

.816.36.47.07.34.7

.7

.0

.9

7.14.22.9

129.616.17.9

35.115.82.6

.135.216.7

.357.6

711.0

247.711.420.234.719.37.24.14.8

108.315.122.6

73.81.73.71.96.24.61.4

13.94.46.11.9

28.1

22.91.22.26 5

11.8I.I

137.0

17.126.18.03.4

16.41.83.6

4.39.74.91.0

16.25.65.76.24.5

.9

.7

.0

.9

9.85.14.7

138.919.89.8

45.721.7

2.1.1

27.212.7

.180.8

725.9

242.811.015.428.615.56.23.37.2

113.413.728.6

64.51.52.41.35.13.6

.911.74.58.22.2

23.1

26.01.32.56.7

14.41.2

138.7

18.428.68.73.4

17.42.04.1

3.29.04.9

.715.65.15 75.44.3

9.15.14.0

145.729.99.8

43.414.63.1

.132.212.7

.199.1

739.2r

249.1'11 215.625.519.77.34.85.6

120.1'13.525.8

74.31.72.01.56.14.0

.716.54.99.93.7

23.2

25.71.33.35.5

14.31.4

147.4'

19.332.49.03.3

17.72.14.0

4.211.75.0

.716.2'4.55.05.54.2

.6

.01.1

12.0'7.5'4.6

129.329.2

9.024.914.03.2

.133.815.0

.1101.3'

1. The banking offices covered by these data include U.S. offices and foreign branches ofU.S. banks, including U.S. banks that are subsidiaries of foreign banks. Offices not coveredinclude U.S. agencies and branches of foreign banks. Beginning March 1994, the data includelarge foreign subsidiaries of U.S. banks. The data also include other types of U.S. depositoryinstitutions as well as some types of brokers and dealers. To eliminate duplication, the dataare adjusted to exclude the claims on foreign branches held by a U.S. office or another foreignbranch of the .same banking institution.

These data are on a gross claims basis and do not necessarily reflect the ultimate countryrisk or exposure of U.S. banks. More complete data on the country risk exposure of U.S. banksare available in the quarterly Country Exposure Lending Survey published by the FederalFinancial Institutions Examination Council.

2. Organization of Petroleum Exporting Countries, shown individually; other members ofOPEC (Algeria, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and UnitedArab Emirates); and Bahrain and Oman (not formally members of OPEC).

3. Excludes Liberia. Beginning March 1994 includes Namibia.4. As of December 1992. excludes other republics of the former Soviet Union.5. Includes Canal Zone.6. Foreign branch claims only.7. Includes New Zealand. Liberia, and international and regional organizations.



3.22 LIABILITIES TO UNAFFILIATED FOREIGNERS Reported by Nonbanking Business Enterprises inthe United States


Type of liability, and area or country

1997

Mar. June Sept. Dec. Mar. Junep

Payable in dollarsPayable in foreign currencies

fly typeFinancial liabilities


Commercial liabilitiesTrade payablesAdvance receipts and other liabilities


By area or countryFinancial liabilities

EuropeBelgium and LuxembourgFranceGermanyNetherlandsSwitzerlandUnited Kingdom

20212223242526

272829

3031

Latin America and CaribbeanBahamasBermudaBrazilBritish West IndiesMexicoVenezuela

AsiaJapanMiddle Eastern oil-exporting countries'

AfricaOil-exporting countries . .

32 All other'

Commercial liabilities33 Europe34 Belgium and Luxembourg35 France36 Germany37 Netherlands38 Switzerland39 United Kingdom

41424344454647

484950

5152

Latin America and CaribbeanBahamasBermudaBrazilBritish West IndiesMexicoVenezuela

AsiaJapanMiddle Eastern oil-exporting countries'. .

AfricaOil-exporting countries

54,309

38,29816,011

32,95418.81814,136

21,35510,00511,350

19,4801,875

21,703495

1,7271,961

552688

15,543

629

2,03410180

207998

05

8,4037,314

35

135123

6,773241728604722327

2,444

1,037

1,85719

34516123

574276

10,7414,5551,576

428256

46,448

33,90312,545

24,24112,90311.338

22,20711.01311,194

21,0001,207

15,622369999

1,974466895

10,138

632

1,783591475786612

5,9885,436

27

150122

7,700331481767500413

3,568

1.040

1,7401

2059856

416221

10,4213,3151,912

619254

54,798

38,95615,842

26,06511,32714.738

28.73312.72016,013

27.6291,104

16,195632

1,0911,834556699

10,177

1,401

1,6682365078

1.030171

6.4235,869

25

380

340

9,767479680

1,002766624

4,303

1.090

2.5746329719614

665328

13,4224,6142,168

1,040532

58,667

39,86118,806

29,63311.84717,786

29,03411,43217,602

28,0141,020

20,081769

1,2051,589507694

13,863

602

1,876293277596516

6,3705,794

72

290

9,524639679

1,043551480

4,158

1,068

2,5624347920014

633318

13,9154,4652,495

1,037479

53 Other1. . .

56,501

38,65117,850

28,26311,44216,821

28,23811,04017,198

27,2091,029

18,530238

1,2801.765466591

12.968

1,616

1,2851245597

775151

6,2485,668

39

290

8,683736708845288429

3.818

1,136

2,5003339722526

594304

13,8754,4302,420

941423

1,103

55,891

39,74616,145

26,46111,48714.974

29,43010,88518,545

28,2591,171

18,01989

1,3341,730507645

12,165

651

1,067106452669761

6,2395,725

23

330

9,343703782945452400

3,829

1,150

2,2243818023323

562322

14,6284,5532,984

929504

59,618

41,88817,730

29,11312,97516.138

30,50510.90419.601

28.9131,592

19,238186

1,6842,018494776

12,318

2,392

1,38614122914360426I

5,3945,085

32

600

10,228666764

1,274439375

4,086

1.175

2.17616

20322012

565261

14,9664,5003,111

874408

1,086

56,741

42,23714.504

26.75113.54713.204

29,99010,10719,883

28,6901,300

19,008127

1,7952,578472345

11,846

1,045

965178691

517211

5,0244,767

23

330

676

9.951565840

1,068443407

4,041

1,347

2,05127174249

5520219

14,6724,3723,138

833376

52,022

40,91411,108

22,66912,63410,035

29,3539,84219,511

28,2801,073

15,72275

1,9652.441484189

8,463

539

1,3206

4976845511

4,4083,869

0

290

9,924557612

1,219485349

3,743

1,511

2,28514

20924627557196

13,6113,9953,194

921354

I. Comprises Bahrain, Iran, Iraq, Kuwait. Oman. Qatar, Saudi Arabia, and United ArabEmirates (Trucial States).

2. Comprises Algeria, Gabon, Libya, and Nigeria.3. Includes nonmonetary international and regional organizations.


Nonbank-Reported Data A59

3.23 CLAIMS ON UNAFFILIATED FOREIGNERSthe United States


Reported by Nonbanking Business Enterprises in

Type of claim, and area or country 1996

Sept.

1 Total

2 Payable in dollars3 Payable in foreign currencies

By type4 Financial claims5 Deposits6 Payable in dollars7 Payable in foreign currencies8 Other financial claims9 Payable in dollars

10 Payable in foreign currencies

11 Commercial claims12 Trade receivables13 Advance payments and other claims

14 Payable in dollars15 Payable in foreign currencies

ov area or countryFinancial claims

16 Europe17 Belgium and Luxembourg18 France19 Germany20 Netherlands

SwitzerlandUnited Kingdom

24252627282930

313233

3435

Latin America and CaribbeanBahamasBermuda

British West IndiesMexicoVenezuela

AsiaJapanMiddle Eastern oil-exporting countries'

AfricaOil-exporting countries

36 All other' . . .

Commercial claims37 Europe38 Belgium and Luxembourg39 France40 Germany41 Netherlands42 Switzerland43 United Kingdom

45 Latin America and Caribbean46 Bahamas47 Bermuda48 Brazil49 British West Indies50 Mexico51 Venezuela

52 Asia53 Japan54 Middle Eastern oil-exporting countries'

55 Africa56 Oil-exporting countries

57 Other1

57,888

53.8054,083

33,89718.50718.026

48115,39014,3061,084

23,99121,1582,833

21,4732.518

7,93686

800540429523

4,649

3,581

19,5362,424

27520

15,22872335

1,87!953141

3730

9,540213

1,8811.027311557

2,556

1.988

4,1179

23461283

1,243348

6,9822,655708

45467

52,509

48,7113,798

27,39815,13314,654

47912,26510,9761,289

25,11122,9982,113

23,0812,030

7,609193803436517498

4,303

2,851

14,5001,965

81830

10.39355432

1,579871

3

2765

583

9.8242.31

1,8301.070452520

2,656

1,951

4.36430

27289879

993285

7,3121,870974

65487

1.006

63,642

58,6305,012

35,26821,40420,631

77313,86412,0691,795

28,37425,7512,623

25,9302,444

9,282185694276493474

6,119

3,445

19,5771,452140

1,46815.182

45731

2,2211,035

22

17414

10,443226

1,6441.337562642

2.946

2,165

5.27635275

1,303190

1.128357

8,3762,003971

746166

68,102

62,1265,976

40,54722,15020,4991,651

18,39715,3813.016

27,55524,8012,754

26,2461,309

13.076119760324567570

9,837

4,917

19,7421,894

1571,404

15,176517

22

2,068831

12

18214

9,863364

1,5141,364

582418

2,626

2,381

5,06740

1591,216

1271.102

330

8,3482,0651,078

718100

1,178

68,266

62,0826,184

40,71724,30822,817

1,49116,40913,1523,257

27,54924,858

2,691

26,1131,436

12.904203680281519447

9,814

6,422

18,7252.064

1881,617

13,553497

21

1,93476620

17915

9,603327

1,3771.229

613389

2,836

2,464

5.24129

1971,136

981,140

451

70,760

64,1446,616

42,05924,12522,566

1,55917,93414.6213,313

28.70125,110

3,591

26.9571,744

15.862360

1,112352764448

11,254

4,279

19,1762.442

1901,501

12,957508

15

2.015999

15

17416

553

10.486331

1,6421,395

573381

2.904

2.649

5,02822

1281,101

981,219

418

8.4602,0791,014

8,5762,048

987

61881

1,163

764207

1,198

70,077

62,1737,904

38,90823,13921,290

1,84915,76911,5764,193

31,16927,536

3.633

29,3071,862

16,948406

1,015427677434

12.286

3,313

15,5432,459

1081.313

10,311537

36

2,133823

11

31915

12.120328

1,7961,614

597554

3.660

2.660

5,75027

2441,162

1091.392

576

8,7131,9761,107

680119

72,837

65,3597,478

42,13421,03019,3221,708

21,10416,8144,290

30,70326,8883,815

29,2231,480

16,020378902393911401

11,122

4,688

18,2071,316

661,408

13,55196747

2,174791

9

32516

12,854232

1,9391.670534476

4.828

2,882

5,48113

2381,128

881,302441

7,6381,713987

613122

64,020

58,4635,557

33,12015,92214,2441,678

17,19814,5672,631

30,90026,8174,083

29,6521,248

14,047518796290975403

9.595

3,035

12,7751,310

481,3948,1531,089

57

2,376886

12

15515

12,935216

1,9551,757

492418

4,654

2,779

6,08212

3591,183

1101.462

585

7.3671.7571,127

657116

1,080

1. Comprises Bahrain, Iran. Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United ArabEmirates (Trucial States).

2. Comprises Algeria. Gabon, Libya, and Nigeria.3. Includes nonmonetary international and regional organizations.



3.24 FOREIGN TRANSACTIONS IN SECURITIES

Millions of dollars

Transaction, and area or country 1996Jan.-Aug. Apr. May July Aue.p

1 Foreign purchases

2 Foreign sales

3 Net purchases, or sales ( —) .

4 Foreign countries5 Europe6 France7 Germany8 Netherlands9 Switzerland

10 United Kingdom11 Canada12 Latin America and Caribbean . . .13 Middle East1

14 Other Asia15 Japan16 Africa17 Other countries

18 Nonmonetary international and

regional organizations . . . .

BONDS2

19 Foreign purchases

20 Foreign sales

21 N e t p u r c h a s e s , o r s a l e s ( - ) . . .

2 2 Foreign countries

U.S. corporate securities

23 Europe24 France25 Germany26 Netherlands27 Switzerland28 United Kingdom29 Canada30 Latin America and Caribbean , . .31 Middle East1

32 Other Asia33 Japan34 Africa35 Other countries

36 Nonmonetary international andregional organizations . .

37 Stocks, net purchases, or sales ( - )38 Foreign purchases39 Foreign sales40 Bonds, net purchases, or sales ( - )41 Foreign purchases42 Foreign sales

43 Net purchases, or sales (—), of stocks and bonds

44 Foreign countries

45 Europe46 Canada47 Latin America and Caribbean48 Asia49 Japan50 Africa51 Other countries

52 Nonmonetary international andregional organizations

590,714578,203

12,511

12,585

5,367

-2,4021,1041,4152,7154,4782,2265,816

-1 ,600918

-372-85-57

-74

393.953268,487

125,466

125,295

77,5704,4604,4392,1071,170

60,5094,486

17,7371,679

23,76214,173

624-563

171

1,097,9581,028,361

69,597

69,754

62,6886,6419,0593,8317,848

22,478-1,406

5,203383

2,0724,787

472342

610.116475,958

134,158

133,595

71,6313,3002,7423,576

18754,1346,264

34,7332,155

16,9969,3571,005

811

1,047,705998,030

49,675

50,000

63,569

6,2189,0774,2939,284

17,948-2,919

3,710-500

-13,846-3 ,486

882-896

550,538423.460

127,078

126,590

76,4102,4403,8041,6693,688

55,3044,600

34,6391,7438,4384,040

137623

106,98897,501

9,487

9,477

9.088- 4 0768140

1.1324,576-4612,183-273-944-667

13-129

67,42049,991

17,429

17,360

8,253272419199266

6,194114

5,514820

2,428886

36195

136,184122,769

13,415

13,419

11,144

1,480627557

1,9563,402

5662,110-170-202

-1,42283

- 1 1 2

70,07950,208

19,871

19,732

12,669727249364358

9,833400

4,835522

1,166742- 7 2212

134,177130,628

3,549

3,570

5,511-2601,453

161974595

55-3,689

3461,563

555128

-344

76,45252,225

24,227

24,097

19,02433

1,727523772

14,346363

2,25669

2,0782,904

45262

129,528121,355

8,173

8,193

10,670650

1,834564

2,2342,968- 5 0 6

-1,333-234-611-208

275- 6 8

65,495

52.584

12,911

12,853

5,555- 1 7

- 1 3 3532794

4,585628

6,703109

-106460

- 3 1- 5

146,147142,591

3,556

3,581

7,2271,7341,020830

1,490695

-1,6001,798286

-3,949-540204

-385

74,10053,167

20,933

20.834

12,117667302344404

8,696607

6,371162

1,26652782229

152,833150,308

2,525

2,739

6,983199

1,5031,2651,0921,154-443-614-134

-2,905-306-14-134

72.85062,213

10,637

10,714

8,489451812108234

4,489640

2,029171

-588-511-4821

-77

Foreign securities

-59,268450,365509,633-51,369

1,114,035

1,165,404

-110,637

-109,766

-57,139

-7,685-11,507-27,831-5,887-1,517-4.087

-40,942756,015796,957-48,1711,451,704

1,499.875

-89,113

-88,921

-29,874

-3,085-25,258-25,123-10.001-3,293-2,288

-1,419620,441621,860-31,973967,558999,531

-33,392

-33,323

-10,601

3,219-13,797-10,033-5,770-1,201-910

-69

-1,20968,83270,041-5,003100.043105,046

-6,212

-6,170

-2,587742527

-4,800-3,584-146

94

-42

-1.68981,36083,049-4,559128,396132,955

-6,248

-6,220

2,898-1,783

618-7 ,902-7,118

-152101

- 2 8

-13780,73680,873

-12,158118,296130,454

-12,295

-12,331

-1,457-475

-6,108-3,520

1,265-302-469

36

-3,39380,94184,334

-1,882110,403112,285

-5,275

-5,443

-2,035

-1,335-1,092-779-681-79

-123

168

2,53588,50885,973

-12,355151,477163,832

-9,820

-9,794

-7,240214

-2,548516-38-32-704

-26

-3,16682,07485,2403,065

118,890115,825

-101

-30

2,678

2,195-4,864

-64-316-269294

-71

141,566139,722

1,844

1,843

5,459

9881,326163

-2771,740-276610

-157-4,112

214159160

66.59458,678

7,916

7,878

4,878

23313932100

2,989439

1,592-1881,709-10-17-535

5,55274,35868,8061,018

139,341138,323

6,570

6,587

1,2112,631

-1,2054,2271,741-122-155

- 1 7

1. Comprises oil-exporting countries as follows: Bahrain, Iran, Iraq, Kuwait, Oman, Qatar,Saudi Arabia, and United Arab Emirates (Trucial States).

2, Includes state and local government securities and securities of U.S. governmentagencies and corporations. Also includes issues of new debt securities sold abroad by U.S.corporations organized to finance direct investments abroad.


Securities Holdings and Transactions/Interest and Exchange Rates A61

3.25 MARKETABLE U.S. TREASURY BONDS AND NOTES Foreign Transactions1

Millions of dollars; net purchases, or sales ( —) during period

Area or countryJan.-Aug.

1998

Apr. May July Aug.?

1 Total estimated

2 Foreign countries

3 Europe4 Belgium and Luxembourg5 Germany6 Netherlands7 Sweden8 Switzerland9 United Kingdom

10 Other Europe and former US.S.Ri 1 Canada

12 Latin America and Caribbean13 Venezuela14 Other Latin America and Caribbean15 Netherlands Antilles16 Asia17 Japan18 Africa19 Other

20 Nonmonetary international and regional organizations21 International22 Latin American regional

MEMO23 Foreign countries24 Official institutions25 Other foreign

Oil-exporting countries26 Middle East2

27 Africa3

232,241

234,083

118,7811,429

17,980-5822,242

32865,65831,7262,331

20,785- 6 9

8,43912,41589,73541,366

1,0831,368

-1,842-1,390

-779

234,08385,807

148,276

10,2321

184,171

183,688

144,9213,427

22,4711,746-4656,028

98,25313,461-811

-2,554655

-549-2,66039,56720,360

1,5241,041

483621170

183,68843,959

139,729

7,636-12

21,045

20,252

23,4821,640

-1,962-4,266

4561,360

17,9388,316

-1,741

-238-515

13,414-13,137

1,852626466

-3,569

793354208

20,252-11,691

31,943

-8,2322

9,959

10,093

6,798252

1,096-792-4301,6905,875-893

266

2,12599

2,949-9231,348

764176

-620

-134-223

-29

10,0931,2428,851

4090

-4,091

-5,287

-857704

1,897-1,733

400170

-3,7051,410-517

-8,383-128-11

-8,2443,522-168

154794

1,196900

10

-5,2876,133

-11,420

1,3250

6,078

6,769

6,530-165-829

130-202-4835,7852,2941,457

-7,98114

-632-7,363

7,9666,301

-18-1,185

-691-715

- 4

6,7691,1625,607

-3800

21,267

21,116

176-143

34118444

-2,7202,906-223

20,033-339-335

20,7071,4551,582

13-950

151136- 1

21,116898

20,218

9510

1,674'

1,978'

715'-513

-1,181731335

-973 r

-1,4263,742- 6 6

2,578'693

3,513'-1,628-1,153-2,442

145-241

-304-226

0

1,978'-3,486

5,464'

-1,3880

-3,578

-3,631

-5,903215

82-265

239-827

-5,769422

-569

949450

2,305-1,806

1,327774- 2 3

5347

192

-3,631469

-4,100

-2,5780

-15,776

-15,776

-2,804667

-1,799-3,081

-152-6808,019

-5,778-2,088

-5,940-1,308

3,914-8,546-3,856

29962

-1,150

0- 1 0

-15,776-16,920

1,144

-4,1601

1. Official and private transactions in marketable U.S. Treasury securities having anoriginal maturity of more than one year. Data are based on monthly transactions reports.Excludes nonmarketable U.S. Treasury bonds and notes held by official institutions of foreigncountries.

2. Comprises Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and United ArabEmirates (Trucial States).

3. Comprises Algeria, Gabon, Libya, and Nigeria.

3.26 DISCOUNT RATES OF FOREIGN CENTRAL BANKS'

Percent per year, averages of daily figures

Country

Rate on Oct. 31, 1998

Montheffective

Country

Rate on Oct. 31, 1998

Montheffective

Austria . .Belgium .Canada . .Denmark .France

2.52.755.54.253.3

Apr. 1996Oct. 1997Oct. 1998Sept. 1998Oct. 1997

Germany . . .ItalyJapanNetherlandsSwitzerland

2.54.0

.52.51.0

Apr. 1996Oct. 1998Sept. 1995Apr. 1996Sept. 1996

1. Rates shown are mainly those at which the central bank either discounts or makesadvances against eligible commercial paper or government securities for commercial banks orbrokers. For countries with more than one rate applicable to such discounts or advances, therate shown is the one at which it is understood that the central bank transacts the largestproportion of its credit operations.

2. Since February 1981, the rate has been that at which the Bank of France discountsTreasury bills for seven to ten days.

3.27 FOREIGN SHORT-TERM INTEREST RATES1

Percent per year, averages of daily figures

Type or country

2 United Kingdom

5 Switzerland

7 France8 Italy9 Belgium

10 Japan

1995

5.936.637.144.432.944.306.43

10.434.731.20

1996

5.385.994.493.211.922.913.818.793.19

.58

1997

5.616.813.593.241.583.253.356.863 40

.58

1998

Apr.

5 567.414.943.561.393 523.505.093 69

.66

May

5.577.375.093.551.523.533.504.983 67

.56

June

5 577.615.103.491.813 513.474.993 62.57

July

5.577.675.103.461.983.463.444.753.59

.67

Aug.

5.567.615.353.421.683.433.444.783.48

.69

Sept.

5.397.355.663.401.433.333.434.863.42

.45

Oct.

5.177.115.433.501.203.283.454.403.41

.49

1. Rates are for three-month interbank loans, with the following exceptions: Canada,linance company paper; Belgium, three-month Treasury bills; and Japan, CD rate.



3.28 FOREIGN EXCHANGE RATES AND INDEXES OF THE FOREIGN EXCHANGE VALUE OF THE U.S. DOLLAR1

Currency units per dollar except as noted

1995

1998

May- Sept. Oct.

COUNTRY/CURRENCY UNIT

1 Australia/dollar2

2 Austria/schilling3 Belgium/franc4 Brazil/real5 Canada/dollar6 China, P.R./yuan7 Denmark/krone8 Finland/markka9 France/franc

10 Germany/deutsche mark11 Greece/drachma

12 Hong Kong/dollar13 India/rupee. .14 Ireland/pound15 Italy/lira16 Japan/yen17 Malaysia/ringgit18 Mexico/peso19 Netherlands/guilder20 New Zealand/dollar2

21 Norway/krone22 Portugal/escudo

23 Singapore/dollar24 South Africa/rand25 South Korea/won26 Spain/peseta27 Sri Lanka/rupee28 Swcden/krona29 Switzerland/franc30 Taiwan/dollar31 Thailand/baht32 United Kingdom/pound .33 Venezuela/bolivar

NOMINAL

34 G-10 (March 1973 = 10O)4

35 Broad (January 1997=100)5

36 Major currencies (March 1973=100)6. . . .37 Other important trading partners (January

1997=100)'

REAL

38 Broad (March 19-73= 100)5

39 Major currencies (March 1973= 100)6. . . .40 Other important trading partners (March

1973=100)'

84.2592.52'81.40

88.6680.78

Exchange Rates

74.0710.07629.470.91621.37258.37005.59994.37634.98641.4321

231.68

7.735732.42160.35

1,629.4593.962.50736.4471.6044

65.636 1355

149.88

1.41713.6284

772.69124.6451.0477.14061.1812

26.49624.921157.85174.85

78.2810.58930.971.00511.36388.33895.80034.59485.1158

1.5049240.82

7.734535.51159.95

1,542.76108.782.51547.6001.6863

68.776.4594

154.28

1.41004.3011

805.00126.6855.2896.70821.2361

27.46825.359156.07417.19

74.3712.20635.811.07791.38498.31936.60925.19565.83931.7348

273.28

7.743136.36151.63

1.703.81121.062.81737.9181.9525

66.257.0857

175.44

1.48574.6072

950.77146.5359.0267.64461.4514

28.77531.072163.76488.39

63.1212.49136.621.14751.44528.30846.76625.39665.95281.7753

307.22

7.749040.47141,74

1,750.79134.903.82048.5852.0005

53.887.4539

181.87

1.63745.0927

1.399.05150.8164.2617.70261.4790

33.46639.198163.82537.26

60.4612.61536.981.15431.46558.31006.82945.45036.01181.7928

304.24

7.747142.37140.51

1,766.32140.334.00068.9202.0208

51.237.5785

183.58

1.69415.3910

1.397.77152.1865.1507 91741.4949

34.55342.332165.04543.82

61.8012.65037.071.16141.48698.31006.84995.46536.02801.7976

299.35

7.748342.61139.88

1,772.42140 794.15918.8992.026751.857.6246

183.93

1.70856.2285

1,295.76152.5865.9087.99421.5136

34.38741.300164.37558.47

58.8812.57436.851.17171.53468.31006.80675.43405.99121.7869

301.21

7.749442.84140.37

1,763.01144.684.20369.3712.0148

50.117.7248

182.99

1.75716.3198

1,314.29151.7266.6428.12821 4933

34.73141.720163.42571.88

58.8911.95535.051.18051.52188.30556.47171.17345.69691.6990

292.47

7.748042.58147.24

1,678.92134.483.805010.2191.9169

50.447.5564

174.19

1.72266.0966

1.375.54144.3366.2607.88161.4000

34.64640.402168.23583.85

61.7911.52433.811.18891.54528.27786.22944.98455.4925

1.6381281.64

7.748342.39152.21

1,620.96121.053.800010.1591.8479

52.137.4294

168.01

1.63785.7991

1.344.14139.2366.3457.83951.3373

33.12138.118169.44570.68

Indexes3

87.3497.43'85.22

90.7085.83

96.38104.4791.85

95.5693.20

1. Averages of certified noon buying rates in New York for cable transfers. Data in thistable also appear in the Board's G.5 (405) monthly statistical release. For ordering address,see inside front cover.

2. Value in U.S. cents.3. For more information on the indexes of the foreign exchange value of the dollar, see

o/ifirni R/>HHI-\)P Rullptin vnl X4 (Drtnher 1 QQR\ nn K11-1X

99.61115.1696.88

103.1098.40'

100.90117.8798.68

105.49100.42'

101.38118.1799.31

105.86101.41'

101.80120.14100.96

107.47103.21'

97.17118.8596.99

131.38

105.6699.05'

93.69115.4693.46

102.5595.55

5. ror more lniormaiion on me indexes 01 me loreignFederal Reserve Bulletin, vol. 84 (October 1998), pp. XI1-18.

4. Weighted average of the foreign exchange value of the U.S. dollar against the currenciesof the other G-10 countries. The weight for each of the ten countries is the 1972-76 averageworld trade of that country divided by the average world trade of all ten countries combined.Series revised as of August 1978 (see Federal Reserve Bulletin, vol. 64 (August 1978).p. 700).

5. Weighted average of the foreign exchange value of the U.S. dollar against the currenciesof a broad group of U.S. trading partners. The weight for each currency is computed as an

average of U.S. bilateral import shares from and export shares lo the issuing country and of ameasure of the importance to U.S. exporters of that country's trade in third country markets.

6. Weighted average of the foreign exchange value of the U.S. dollar against a subset ofbroad index currencies that circulate widely outside the country of issue. The weight for eachcurrency is its broad index weight scaled so that the weights of the subset of currencies in theindex sum to one.

7. Weighted average of the foreign exchange value of the U.S. dollar against a subset ofbroad index currencies that do not circulate widely outside the country of issue. The weightfor each currency is its broad index weight scaled so that the weights of the subset ofcurrencies in the index sum to one.


A63

Guide to Statistical Releases and Special Tables

STATISTICAL RELEASES—-List Published Semiannually, with Latest Bulletin Reference

Issue PageAnticipated schedule of release dates for periodic releases December 1998 A72

SPECIAL TABLES—Data Published Irregularly, with Latest Bulletin Reference

Title and Date Issue Page

Assets and liabilities of commercial banksSeptember 30, 1997 February 1998 A64December 31, 1997 May 1998 A64March 31, 1998 August 1998 A64June 30, 1998 November 1998 A64

Terms of lending at commercial banksNovember 1997 February 1998 A68February 1998 May 1998 A66May 1998 August 1998 A67August 1998 November 1998 A66

Assets and liabilities of U.S. branches and agencies of foreign banksSeptember 30, 1997 February 1998 A72December 31, 1997 May 1998 A70March 31, 1998 August 1998 A72June 30, 1998 November 1998 A72

Pro forma balance sheet and income statements for priced service operationsSeptember 30, 1997 January 1998 A64March 31, 1998 July 1998 A64June 30, 1998 October 1998 A64

Residential lending reported under the Home Mortgage Disclosure Act1995 '. September 1996 A681996 September 1997 A681997 September 1998 A68

Disposition of applications for private mortgage insurance1996 September 1997 A761997 September 1998 A72

Small loans to businesses and farms1997 September 1998 A76

Community development lending reported under the Community Reinvestment Act1997 September 1998 A79



Index to Statistical Tables

References are to pages A3-A62 although the prefix "A" is omitted in this index

ACCEPTANCES, bankers (See Bankers acceptances)Assets and liabilities (See also Foreigners)

Commercial banks, 15-21Domestic finance companies, 32, 33Federal Reserve Banks, 10Foreign-related institutions, 20

AutomobilesConsumer credit, 36Production, 44, 45

BANKERS acceptances, 5, 10, 22, 23Bankers balances, 15-21. (See also Foreigners)Bonds (See also U.S. government securities)

New issues, 31Rates, 23

Business activity, nonfinancial, 42Business loans (See Commercial and industrial loans)

CAPACITY utilization, 43Capital accounts

Commercial banks, 15-21Federal Reserve Banks, 10

Central banks, discount rates, 61Certificates of deposit, 23Commercial and industrial loans

Commercial banks, 15-21Weekly reporting banks, 17, 18

Commercial banksAssets and liabilities, 15-21Commercial and industrial loans, 15-21Consumer loans held, by type and terms, 36Real estate mortgages held, by holder and property, 35Time and savings deposits, 4

Commercial paper, 22, 23, 32Condition statements (See Assets and liabilities)Construction, 42, 46Consumer credit, 36Consumer prices, 42Consumption expenditures, 48, 49Corporations

Profits and their distribution, 32Security issues, 31,61

Cost of living (See Consumer prices)Credit unions, 36Currency in circulation, 5, 13Customer credit, stock market, 24

DEBT (See specific types of debt or securities)Demand deposits, 15-21Depository institutions

Reserve requirements, 8Reserves and related items, 4, 5, 6, 12

Deposits (See also specific types)Commercial banks, 4, 15-21Federal Reserve Banks, 5, 10

Discount rates at Reserve Banks and at foreign central banks andforeign countries (See Interest rates)

Discounts and advances by Reserve Banks (See Loans)Dividends, corporate, 32

EMPLOYMENT, 42Eurodollars, 23, 61

FARM mortgage loans, 35Federal agency obligations, 5, 9, 10, 11. 28, 29Federal credit agencies, 30Federal finance

Debt subject to statutory limitation, and types and ownershipof gross debt, 27

Receipts and outlays, 25, 26Treasury financing of surplus, or deficit, 25Treasury operating balance, 25

Federal Financing Bank, 30Federal funds, 23, 25Federal Home Loan Banks, 30Federal Home Loan Mortgage Corporation, 30, 34, 35Federal Housing Administration, 30, 34, 35Federal Land Banks, 35Federal National Mortgage Association, 30, 34, 35Federal Reserve Banks

Condition statement, 10Discount rates (See Interest rates)U.S. government securities held, 5, 10, 11, 27

Federal Reserve credit, 5, 6, 10, 12Federal Reserve notes, 10Federally sponsored credit agencies, 30Finance companies

Assets and liabilities, 32Business credit, 33Loans, 36Paper. 22, 23

Float, 5Flow of funds, 37—41Foreign currency operations, 10Foreign deposits in U.S. banks, 5Foreign exchange rates, 62Foreign-related institutions, 20Foreign trade, 51Foreigners

Claims on, 52, 55, 56, 57, 59Liabilities to, 51, 52, 53, 58, 60, 61

GOLDCertificate account. 10Stock. 5, 51

Government National Mortgage Association, 30, 34, 35Gross domestic product, 48, 49

HOUSING, new and existing units, 46

INCOME, personal and national, 42, 48, 49Industrial production, 42, 44Insurance companies, 27, 35Interest rates

Bonds, 23Consumer credit, 36Federal Reserve Banks, 7Foreign central banks and foreign countries, 61Money and capital markets, 23Mortgages, 34Prime rate, 22

International capital transactions of United States, 50-61International organizations, 52, 53, 55, 58, 59Inventories, 48Investment companies, issues and assets, 32Investments (See also specific types)

Commercial banks, 4, 15-21Federal Reserve Banks, 10, 11Financial institutions, 35


A65

LABOR force, 42Life insurance companies (See Insurance companies)Loans (See also specific types)

Commercial banks, 15-21Federal Reserve Banks, 5, 6, 7, 10, 11Financial institutions, 35Insured or guaranteed by United States. 34, 35

MANUFACTURINGCapacity utilization, 43Production, 43, 45

Margin requirements, 24Member banks (See also Depository institutions)

Reserve requirements, 8Mining production, 45Mobile homes shipped, 46Monetary and credit aggregates, 4, 12Money and capital market rates, 23Money stock measures and components, 4, 13Mortgages (See Real estate loans)Mutual funds, 13, 32Mutual savings banks (See Thrift institutions)

NATIONAL defense outlays, 26National income, 48

OPEN market transactions, 9

PERSONAL income, 49Prices

Consumer and producer, 42, 47Stock market, 24

Prime rate, 22Producer prices, 42, 47Production, 42, 44Profits, corporate, 32

REAL estate loansBanks. 15-21, 35Terms, yields, and activity, 34Type of holder and property mortgaged, 35

Reserve requirements, 8Reserves

Commercial banks, 15-21Depository institutions, 4, 5, 6, 12Federal Reserve Banks, 10U.S. reserve assets, 51

Residential mortgage loans, 34, 35Retail credit and retail sales, 36, 42

SAVINGFlow of funds. 37-41National income accounts, 48

Savings institutions, 35, 36, 37—41Savings deposits (See Time and savings deposits)Securities (See also specific types)

Federal and federally sponsored credit agencies, 30Foreign transactions, 60New issues, 31Prices, 24

Special drawing rights, 5, 10, 50, 51State and local governments

Holdings of U.S. government securities, 27New security issues, 31Rates on securities, 23

Stock market, selected statistics, 24Stocks (See also Securities)

New issues, 31Prices, 24

Student Loan Marketing Association, 30

TAX receipts, federal, 26Thrift institutions, 4. (See also Credit unions and Savings

institutions)Time and savings deposits, 4, 13, 15-21Trade, foreign, 51Treasury cash. Treasury currency, 5Treasury deposits, 5. 10. 25Treasury operating balance, 25

UNEMPLOYMENT, 42U.S. government balances

Commercial bank holdings, 15-21Treasury deposits at Reserve Banks, 5, 10, 25

U.S. government securitiesBank holdings, 15-21,27Dealer transactions, positions, and financing, 29Federal Reserve Bank holdings, 5, 10, 11, 27Foreign and international holdings and

transactions, 10, 27, 61Open market transactions, 9Outstanding, by type and holder, 27, 28Rates, 23

U.S. international transactions, 50-62Utilities, production, 45

VETERANS Administration, 34, 35

WEEKLY reporting banks, 17, 18Wholesale (producer) prices, 42, 47

YIELDS (See Interest rates)



Federal Reserve Board of Governorsand Official Staff

ALAN GREENSPAN, ChairmanALICE M. RIVLIN, Vice Chair

EDWARD W. KELLEY, JR.LAURENCE H. MEYER

OFFICE OF BOARD MEMBERS

LYNN S. FOX, Assistant to the BoardDONALD J. WINN, Assistant to the BoardTHEODORE E. ALLISON, Assistant to the Board for Federal

Reserve System AffairsWINTHROP P. HAMBLEY, Special Assistant to the BoardBOB STAHLY MOORE, Special Assistant to the BoardDIANE E. WERNEKE, Special Assistant to the Board

LEGAL DIVISION

J. VIRGIL MATTINGLY, JR., General CounselSCOTT G. ALVAREZ, Associate General CounselRICHARD M. ASHTON, Associate General CounselOLIVER IRELAND, Associate General CounselKATHLEEN M. O'DAY, Associate General CounselKATHERINE H. WHEATLEY, Assistant General Counsel

OFFICE OF THE SECRETARY

JENNIFER J. JOHNSON, Secretary

ROBERT DEV. FRIERSON, Associate SecretaryBARBARA R. LOWREY, Associate Secretary and Ombudsman

DIVISION OF BANKINGSUPERVISION AND REGULATION

RICHARD SPILLENKOTHEN, Director

STEPHEN C. SCHEMERING, Deputy DirectorHERBERT A. BIERN, Associate DirectorROGER T. COLE, Associate DirectorWILLIAM A. RYBACK, Associate DirectorGERALD A. EDWARDS, JR., Deputy Associate DirectorSTEPHEN M. HOFFMAN, JR., Deputy Associate DirectorJAMES V. HOUPT, Deputy Associate DirectorJACK P. JENNINGS, Deputy Associate DirectorMICHAEL G. MARTINSON, Deputy Associate DirectorSIDNEY M. SUSSAN, Deputy Associate DirectorMOLLY S. WASSOM, Deputy Associate DirectorHOWARD A. AMER, Assistant DirectorNORAH M. BARGER, Assistant DirectorBETSY CROSS, Assistant DirectorRICHARD A. SMALL, Assistant DirectorWILLIAM SCHNEIDER, Project Director,

National Information Center

DIVISION OF INTERNATIONAL FINANCE

KAREN H. JOHNSON, Director

LEWIS S. ALEXANDER, Deputy DirectorPETER HOOPER III, Deputy DirectorDALE W. HENDERSON, Associate DirectorDAVID H. HOWARD, Senior AdviserEDWIN M. TRUMAN, Senior AdviserDONALD B. ADAMS, Assistant DirectorTHOMAS A. CONNORS, Assistant Director

DIVISION OF RESEARCH AND STATISTICS

MICHAEL J. PRELL, Director

EDWARD C. ETTIN, Deputy DirectorDAVID J. STOCKTON, Deputy DirectorWILLIAM R. JONES, Associate DirectorMYRON L. KWAST, Associate DirectorPATRICK M. PARKINSON, Associate DirectorTHOMAS D. SIMPSON, Associate DirectorLAWRENCE SLIFMAN, Associate DirectorMARTHA S. SCANLON, Deputy Associate DirectorDAVID S. JONES, Assistant DirectorSTEPHEN D. OLINER, Assistant DirectorSTEPHEN A. RHOADES, Assistant DirectorJANICE SHACK-MARQUEZ, Assistant DirectorCHARLES S. STRUCKMEYER, Assistant DirectorALICE PATRICIA WHITE, Assistant Director

JOYCE K. ZICKLER, Assistant DirectorGLENN B. CANNER, Senior AdviserJOHN J. MINGO, Senior Adviser

DIVISION OF MONETARY AFFAIRS

DONALD L. KOHN, Director

DAVID E. LINDSEY, Deputy DirectorBRIAN F. MADIGAN, Associate DirectorRICHARD D. PORTER, Deputy Associate DirectorVINCENT R. REINHART. Deputy Associate DirectorWILLIAM C. WHITESELL, Assistant DirectorNORMAND R.V. BERNARD, Special Assistant to the Board

DIVISION OF CONSUMERAND COMMUNITY AFFAIRS

DOLORES S. SMITH, Director

GLENN E. LONEY, Deputy DirectorSANDRA F. BRAUNSTEIN, Assistant DirectorMAUREEN P. ENGLISH, Assistant DirectorADRIENNE D. HURT, Assistant DirectorIRENE SHAWN MCNULTY, Assistant Director


ROGER W. FERGUSON, JR.EDWARD M. GRAMLICH

A67

OFFICE OFSTAFF DIRECTOR FOR MANAGEMENT

S. DAVID FROST, Staff DirectorJOHN R. WEIS, Adviser

MANAGEMENT DIVISION

S. DAVID FROST, Director

STEPHEN J. CLARK, Associate Director, Finance FunctionDARRELL R. PAULEY, Associate Director, Human Resources

FunctionSHEILA CLARK, EEO Programs Director

DIVISION OF SUPPORT SERVICES

ROBERT E. FRAZIER, Director

GEORGE M. LOPEZ, Assistant DirectorDAVID L. WILLIAMS, Assistant Director

DIVISION OF INFORMATION RESOURCESMANAGEMENT

STEPHEN R. MALPHRUS, Director

RICHARD C. STEVENS, Deputy DirectorMARIANNE M. EMERSON, Assistant DirectorMAUREEN HANNAN, Assistant DirectorPo KYUNG KIM, Assistant DirectorRAYMOND H. MASSEY, Assistant DirectorEDWARD T. MULRENIN, Assistant DirectorDAY W. RADEBAUGH, JR., Assistant DirectorELIZABETH B. RIGGS, Assistant Director

DIVISION OF RESERVE BANK OPERATIONSAND PAYMENT SYSTEMS

CLYDE H. FARNSWORTH, JR., Director

DAVID L. ROBINSON, Deputy Director (Finance and Control)LOUISE L. ROSEMAN, Associate DirectorPAUL W. BETTGE, Assistant DirectorJACK DENNIS, JR., Assistant DirectorEARL G. HAMILTON, Assistant DirectorJOSEPH H. HAYES, JR., Assistant DirectorJEFFREY C. MARQUARDT, Assistant DirectorMARSHA REIDHILL, Assistant Director

OFFICE OF THE INSPECTOR GENERAL

BARRY R. SNYDER, Inspector Genera!DONALD L. ROBINSON, Assistant Inspector General


A68 Federal Reserve Bulletin El December 1998

Federal Open Market Committeeand Advisory Councils

FEDERAL OPEN MARKET COMMITTEE

MEMBERS

ALAN GREENSPAN, Chairman

ROGER W. FERGUSON, JR.

EDWARD M. GRAMLICH

THOMAS M. HOENIG

JERRY L. JORDAN

EDWARD W. KELLEY, JR.

LAURENCE H. MEYER

CATHY E. MINEHAN

WILLIAM J. MCDONOUGH, Vice Chairman

WILLIAM POOLE

ALICE M. RIVLIN

ALTERNATE MEMBERS

EDWARD G. BOEHNE

ROBERT D. MCTEER, JR.

MICHAEL H. MOSKOW GARY H. STERN

STAFF

DONALD L. KOHN, Secretary and EconomistNORMAND R.V. BERNARD, Deputy SecretaryLYNN S. FOX, Assistant SecretaryGARY P. GILLUM, Assistant SecretaryJ. VIRGIL MATTINGLY, JR., General CounselTHOMAS C. BAXTER, JR., Deputy General CounselMICHAEL J. PRELL, Economist

LYNN E. BROWNE, Associate Economist

STEPHEN G. CECCHETTI, Associate EconomistWILLIAM G. DEWALD, Associate EconomistCRAIG S. HAKKIO, Associate EconomistDAVID E. LINDSEY, Associate EconomistMARK S. SNIDERMAN, Associate EconomistTHOMAS D. SIMPSON, Associate EconomistDAVID J. STOCKTON, Associate Economist

PETER R. FISHER, Manager, System Open Market Account

FEDERAL ADVISORY COUNCIL

WILLIAM M. CROZIER, JR., First DistrictDOUGLAS A. WARNER III, Second DistrictWALTER E. DALLER, JR., Third DistrictROBERT W. GILLESPIE, Fourth DistrictKENNETH D. LEWIS, Fifth DistrictSTEPHEN A. HANSEL, Sixth District

THOMAS H. JACOBSEN, President

CHARLES T. DOYLE, Vice President

NORMAN R. BOBINS, Seventh DistrictTHOMAS H. JACOBSEN, Eighth DistrictRICHARD A. ZONA, Ninth DistrictC. Q. CHANDLER, Tenth DistrictCHARLES T. DOYLE, Eleventh DistrictVACANCY, Twelfth District

JAMES ANNABLE, Co-Secretary

WILLIAM J. KORSVIK, Co-Secretary


A69

CONSUMER ADVISORY COUNCIL

WILLIAM N. LUND, Augusta, Maine, ChairmanYVONNE S. SPARKS, St. Louis, Missouri, Vice Chairman

RICHARD S. AMADOR, LOS Angeles, CaliforniaWALTER J. BOYER, Garland, TexasWAYNE-KENT A. BRADSHAW, LOS Angeles, CaliforniaJEREMY EISLER, Biloxi, MississippiROBERT F. ELLIOT, Prospect Heights, IllinoisHERIBERTO FLORES, Springfield, MassachusettsDWIGHT GOLANN, Boston, MassachusettsMARVA H. HARRIS, Pittsburgh, PennsylvaniaKARLA IRVINE, Cincinnati, OhioFRANCINE C. JUSTA, New York, New YorkJANET C. KOEHLER, Jacksonville, FloridaGWENN KYZER, Allen, TexasJOHN C. LAMB, Sacramento, CaliforniaERROL T. LOUIS, Brooklyn, New York

MARTHA W. MILLER, Greensboro, North CarolinaDANIEL W. MORTON, Columbus, OhioCHARLOTTE NEWTON, Springfield, VirginiaCAROL PARRY, New York, New YorkPHILIP PRICE, JR., Philadelphia, PennsylvaniaDAVID L. RAMP, Minneapolis, MinnesotaMARILYN ROSS, Omaha, NebraskaMARGOT SAUNDERS, Washington, D.C.

ROBERT G. SCHWEMM, Lexington, KentuckyDAVID J. SHIRK, Eugene, OregonGAIL SMALL, Lame Deer, MontanaGREGORY D. SQUIRES, Milwaukee, WisconsinGEORGE P. SURGEON, Chicago, IllinoisTHEODORE J. WYSOCKI, JR., Chicago, Illinois

THRIFT INSTITUTIONS ADVISORY COUNCIL

CHARLES R. RINEHART, Santa Ana, California, PresidentWILLIAM A. FITZGERALD, Omaha, Nebraska, Vice President

GAROLD R. BASE, Piano, TexasDAVID A. BOCHNOWSKI, Munster, IndianaDAVID E. A. CARSON, Bridgeport, ConnecticutRICHARD P. COUGHLIN, Stoneham, MassachusettsSTEPHEN D. HAILER, Akron, Ohio

F. WELLER MEYER, Falls Church, VirginiaEDWARD J. MOLNAR, Harleysville, PennsylvaniaGUY C. PINKERTON, Seattle, WashingtonTERRY R. WEST, Jacksonville, FloridaFREDERICK WILLETTS, III, Wilmington, North Carolina



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SIS AND POLICY ISSUES. August 1990. 608 pp. $25.00 each.RISK MEASUREMENT AND SYSTEMIC RISK: PROCEEDINGS OF A

JOINT CENTRAL BANK RESEARCH CONFERENCE. 1996.578 pp. $25.00 each.

EDUCATION PAMPHLETSShort pamphlets suitable for classroom use. Multiple copies areavailable without charge.

Consumer Handbook on Adjustable Rate MortgagesConsumer Handbook to Credit Protection LawsA Guide to Business Credit for Women, Minorities, and Small

BusinessesSeries on the Structure of the Federal Reserve System

The Board of Governors of the Federal Reserve SystemThe Federal Open Market CommitteeFederal Reserve Bank Board of DirectorsFederal Reserve Banks

A Consumer's Guide to Mortgage Lock-InsA Consumer's Guide to Mortgage Settlement CostsA Consumer's Guide to Mortgage RefinancingsHome Mortgages: Understanding the Process and Your Right

to Fair LendingHow to File a Consumer ComplaintMaking Sense of SavingsSHOP: The Card You Pick Can Save You MoneyWelcome to the Federal ReserveWhen Your Home is on the Line: What You Should Know

About Home Equity Lines of CreditKeys to Vehicle Leasing


A71

STAFF STUDIES: Only Summaries Printed in theBULLETIN

Studies and papers on economic and financial subjects that are ofgeneral interest. Requests to obtain single copies of the full text orto be added to the mailing list for the series may be sent toPublications Services.

Staff Studies 1-157, 161, and 168-169 are out of print.

158. THE ADEQUACY AND CONSISTENCY OF MARGIN REQUIRE-MENTS IN THE MARKETS FOR STOCKS AND DERIVATIVEPRODUCTS, by Mark J. Warshawsky with the assistance ofDietrich Earnhart. September 1989. 23 pp.

159. NEW DATA ON THE PERFORMANCE OF NONBANK SUBSIDI-ARIES OF BANK HOLDING COMPANIES, by Nellie Liang andDonald Savage. February 1990. 12 pp.

160. BANKING MARKETS AND THE USE OF FINANCIAL SER-VICES BY SMALL AND MEDIUM-SIZED BUSINESSES, byGregory E. Elliehausen and John D. Wolken. September1990. 35 pp.

162. EVIDENCE ON THE SIZE OF BANKING MARKETS FROM MORT-GAGE LOAN RATES IN TWENTY CITIES, by Stephen A.Rhoades. February 1992. 11 pp.

163. CLEARANCE AND SETTLEMENT IN U.S. SECURITIES MAR-KETS, by Patrick Parkinson, Adam Gilbert, Emily Gollob,Lauren Hargraves, Richard Mead, Jeff Stehm, and MaryAnn Taylor. March 1992. 37 pp.

164. THE 1989-92 CREDIT CRUNCH FOR REAL ESTATE, byJames T. Fergus and John L. Goodman, Jr. July 1993.20 pp.

165. THE DEMAND FOR TRADE CREDIT: AN INVESTIGATION OFMOTIVES FOR TRADE CREDIT USE BY SMALL BUSINESSES, byGregory E. Elliehausen and John D. Wolken. September1993. 18 pp.

166. THE ECONOMICS OF THE PRIVATE PLACEMENT MARKET, byMark Carey, Stephen Prowse, John Rea, and Gregory Udell.January 1994. 111 pp.

167. A SUMMARY OF MERGER PERFORMANCE STUDIES IN BANK-ING, 1980-93, AND AN ASSESSMENT OF THE "OPERATINGPERFORMANCE" AND "EVENT STUDY" METHODOLOGIES,by Stephen A. Rhoades. July 1994. 37 pp.

170. THE COST OF IMPLEMENTING CONSUMER FINANCIAL REGU-LATIONS: A N ANALYSIS OF EXPERIENCE WITH THE TRUTHIN SAVINGS ACT, by Gregory Elliehausen and Barbara R.Lowrey, December 1997. 17 pp.

171. THE COST OF BANK REGULATION: A REVIEW OF THE EVI-DENCE, by Gregory Elliehausen, April 1998. 35 pp.

REPRINTS OF SELECTED Bulletin ARTICLESSome Bulletin articles are reprinted. The articles listed below arethose for which reprints are available. Beginning with the Janu-ary 1997 issue, articles are available on the Board's World WideWeb site (http://www.federalreserve.gov) under Publications,Federal Reserve Bulletin articles.

Limit of ten copies

FAMILY FINANCES IN THE U.S.: RECENT EVIDENCE FROM THESURVEY OF CONSUMER FINANCES. January 1997.



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Actions of the Board:Applications and ReportsReceived

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Factors Affecting Reserve Balancesof Depository Institutions andCondition Statement ofFederal Reserve Banks3

Money Stock, Liquid Assets,and Debt Measures3

Assets and Liabilities ofCommercial Banks in theUnited States3

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A73

Release number and title

Quarterly Releases

E.2. Survey of Terms of BankLendingto Business '

E.7. List of OTC Margin Stocks

E. 11. Geographical Distribution ofAssets and Liabilities ofMajor Foreign Branches ofU.S. Banks

E.I5. Agricultural Finance Databook

E. 16. Country Exposure LendingSurvey

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1. Please note that for some releases there is normally a certain variability in the release date because of reporting or processing procedures. Moreover,for all series unusual circumstances may, from time to time, result in a release date being later than anticipated.

2. The data in some releases are also reported in the Bulletin statistical appendix.3. These releases are also available on the Board's World Wide Web site (http://www.federalreserve.gov) under Domestic and International Research,

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Maps of the Federal Reserve System

EW YORK

L E G E N D

Both pages

• Federal Reserve Bank city

• Board of Governors of the FederalReserve System, Washington, D.C.

Facing page

• Federal Reserve Branch city

— Branch boundary

N O T E

The Federal Reserve officially identifies Districts by num-ber and Reserve Bank city (shown on both pages) and byletter (shown on the facing page).

In the 12th District, the Seattle Branch serves Alaska,and the San Francisco Bank serves Hawaii.

The System serves commonwealths and territories asfollows: the New York Bank serves the Commonwealth

of Puerto Rico and the U.S. Virgin Islands; the San Fran-cisco Bank serves American Samoa, Guam, and the Com-monwealth of the Northern Mariana Islands. The Board ofGovernors revised the branch boundaries of the Systemmost recently in February 1996.


A75

2-B

% 1Boll ilo

NEW

NY

NJ

CT

/

NY

YORK

3-C

PA /

PHILADELPHIA

4-DPittsburgh

\ )

icinnati

CLEVELAND

5-EBaltimore MD

RICHMOND

6-F

Birniingham^J'

TN—»- •Nashxilk'n .

GA

New Orleani

ATLANTA

yMiami

7-G

V.1

1A

Ml

1>otroit •

CHICAGO

8-H

MO !sville

• Memphis

ST. LOUIS

9-1

MINNEAPOLIS

10-J

-,"-' ok

KANSAS CITY

12-L

11-K

r-«arft*r \ntonio •

DALLAS

HAWAII i | .

SAN FRANCISCO



Federal Reserve Banks, Branches, and Offices

FEDERAL RESERVE BANKbranch, ox facility Zip

ChairmanDeputy Chairman

PresidentFirst Vice President

Vice Presidentin charge of branch

BOSTON* 02106 William C. BrainardWilliam O. Taylor

NEW YORK* 10045 John C. WhiteheadPeter G. Peterson

Buffalo 14240 Bal Dixit

PHILADELPHIA 19105 Joan CarterCharisse R. Lillie

CLEVELAND* 44101 G. Watts Humphrey, Jr.David H. Hoag

Cincinnati 45201 George C. JuilfsPittsburgh 15230 John T. Ryan III

RICHMOND* 23219 Claudine B. MaloneRobert L. Strickland

Baltimore 21203 Daniel R. BakerCharlotte 28230 Dennis D. Lowery

ATLANTA 30303 David R. JonesJohn F. Wieland

Birmingham 35283 Patricia B. ComptonJacksonville 32231 Judy JonesMiami 33152 R. Kirk LandonNashville 37203 Frances F. MarcumNew Orleans 70161 Lucimarian Roberts

CHICAGO* 60690 Lester H. McKeever, Jr.Arthur C. Martinez

Detroit 48231 Florine Mark

ST. LOUIS 63166 John F. McDonnellSusan S. Elliott

Little Rock 72203 Betta M. CarneyLouisville 40232 Roger ReynoldsMemphis 38101 Carol G. Crawley

MINNEAPOLIS 55480 David A. KochJames J. Howard

Helena 59601 William P. Underriner

KANSAS CITY 64198 Jo Marie DancikTerrence P. Dunn

Denver 80217 Peter I. WoldOklahoma City 73125 Barry L. EllerOmaha 68102 Arthur L. Shoener

DALLAS 75201 Roger R. HemminghausJames A. Martin

El Paso 79999 Patricia Z. Holland-BranchHouston 77252 Edward O. Gay lordSan Antonio 78295 H. B. Zachry, Jr.

SAN FRANCISCO 94120 Gary G. MichaelCynthia A. Parker

Los Angeles 90051 Anne L. EvansPortland 97208 Carol A. WhippleSalt Lake City 84125 Richard E. DavisSeattle 98124 Richard R. Sonstelie

Cathy E. MinehanPaul M. Connolly

William J. McDonoughVacancy

Edward G. BoehneWilliam H. Stone, Jr.

Jerry L. JordanSandra Pianalto

J. Alfred Broaddus, Jr.Walter A. Varvel

Jack GuynnPatrick K. Barron

Michael H. MoskowWilliam C. Conrad

William PooleW. LeGrande Rives

Gary H. SternColleen K. Strand

Thomas M. HoenigRichard K. Rasdall

Robert D. McTeer, Jr.Helen E. Holcomb

Robert T. ParryJohn F. Moore

Carl W. Turnipseed'

Charles A. Cerino1

Robert B. Schaub

William J. Tignanelli'DanM. Bechter1

James M. MckeeFredR. Herr1

James D. Hawkins1

James T. Curry IIIMelvyn K. PurcellRobert J. Musso

David R.AUardice1

Robert A. HopkinsThomas A. BooneMartha L. Perine

John D.Johnson

Carl M. Gambs'Kelly J. DubbertSteven D. Evans

Sammie C. ClayRobert Smith. Ill 'James L. Stull'

MarkL. Mullinix1

Raymond H. Laurence1

Andrea P. WolcottGordon R. G. Werkema-

*Additional offices of these Banks are located at Windsor Locks, Connecticut 06096; East Rutherford, New Jersey 07016; Utica at Oriskany, New York 13424;Columbus, Ohio 43216; Columbia, South Carolina 29210; Charleston, West Virginia 25311; Des Moines, Iowa 50306; Indianapolis, Indiana 46204; Milwaukee,Wisconsin 53202; and Peoria, Illinois 61607.

1. Senior Vice President.2. Executive Vice President


Index to Volume 84

A77

GUIDE TO PAGE REFERENCES IN MONTHLY ISSUES

Issue Text "A" Pages

January ..February .March ...AprilMayJune

1- 7677-154

155-240241-308309-390391-516

1-761-861-781-801-901-78

Index totables

667666647464

The "A" pages consist of statistical tables and reference information.

Issue

JulyAugustSeptember .OctoberNovember .December .

Text

517- 584585- 702703- 810811- 896897-1024

1025-1132

"A" pages

1-801-861-961-781-921-88

Index totables

667680667664

Statistical tables are indexed separately (see p. A64 of this issue).

PagesAgricultural loans 1-21Alexander, Lewis S., appointed Deputy Director,

Division of International Finance 941Allison, Theodore E., Assistant to the Board, Federal

Reserve note and Euro bank note, statement 1054-56Annual Report, 84th. 1997 455Annual Report, Budget Review, 1998-99 455Anti-money-laundering efforts, statement 639^43Antitrust issues 619-27, 705Articles

Bank merger policy and the new CRA data 703-15Credit risk rating at large U.S. banks 897-921Industrial production and capacity utilization:

Annual revision and 1997 developments 77-91Monetary policy reports to the Congress 155-73, 585-603New information on lending to small businesses

and small farms: The 1996 CRA data 1-21New summary measures of the foreign exchange

value of the dollar 811-18Open market operations during 1997 517-32Profits and balance sheet developments at U.S.

commercial banks in 1997 391^119Recent changes to the Federal Reserve's Survey of

Terms of Business Lending 604-15Recent developments in home equity lending 241-51Thrift involvement in commercial and industrial

lending 1025-37Treasury and Federal Reserve foreign

exchange operations 174-9,420-25,716-21, 1038-43

U.S. international transactions in 1997 309-21Asia, financial crisis 175, 186, 257-62, 310,405Audit outsourcing, sound practices for 97Automated clearinghouse 25Automobile leasing 940, 948

BALANCE sheet developments, U.S. commercial banks .. 391-400Banca Serfin, S.A., cease and desist order 539, 573Banco Industrial de Venezuela, cease and desist order 539. 573Banco Internacional, S.A., cease and desist order 539, 573Banco Nacional de Mexico, cease and desist order 539, 573Banco Santander, cease and desist order 539, 573Bancomer, S.A., cease and desist order 539, 573Bank Examination Report Privilege Act (BERPA) 725, 727Bank examiners, risk-based capital guidelines 668Bank for International Settlements, Committee

on Banking Supervision 28

PagesBank holding companies

Elimination of duplicative approval requirements 727Index of orders and actions taken by the Board .. 69, 297-9, 566,

887, 889Small shell, revision in supervisory policy 37Tier 1 and 2 leverage capital standard 538, 673, 833^14

Bank Holding Company Act of 1956Applications approved under

1855 Bancorp 568, 8011st Brookfield, Inc., Employee Stock Ownership Plan ... 6941 st Choice Financial Corporation 373ABN AMRO Bank, N.V., Amsterdam,

the Netherlands 513ABN AMRO Holding, N.V., Amsterdam,

the Netherlands 512, 513ABN AMRO Incorporated 513ABN AMRO North America, Inc 512Acadiana BancShares, Inc 1020Advance Bancorp, Inc 1129Alabama National Bancorporation 70, 568, 890Albert J. Ortte Family Limited Partnership 803Alliance Bancorporation, Inc 301Alliance Bancshares, Inc 801Allied Irish Banks, P.L.C., Dublin, Ireland 567Amador Merger Corporation 71Ambank Company, Inc 303AMCORE Financial, Inc 237AmCorp Financial. Inc 801Ameribanc, Inc 145, 509, 694, 800America's First Bancorp, Inc 509American State Bank Holding Company, Inc 146American State Financial Corporation 235American State Financial Corporation of Delaware 235Amerigroup, Inc 150AmTrust, Inc 568ANB Corporation 1129Anchor Financial Corporation 801Androscoggin Bancorp, Inc 1020Androscoggin Bancorp, MHC 1020Anson Bancorp, Inc 568Archer, Inc 890Area Bancshares Corporation 303, 1126Arizona Bancshares, Inc 801Arvest Bank Group, Inc 891, 893Associated Banc-Corp 1017Automated Technology Machines, Inc 1020Avon State Bank Employee Stock Ownership

Plan and Trust 694


A78 Federal Reserve Bulletin December 1998

PagesBank Holding Company Act of 1956—Continued

Applications approved under—ContinuedBane Corporation 1017Bane Ed Corp 146BancFirst Corporation 370, 890, 1126BancorpSouth, Inc 1126Bancshares of Jackson Hole, Inc 891Bancshares of Missouri, Inc 511Bank Capital Corporation 570BankofLadd 1127Bank of Montreal, Montreal, Ontario, Canada 73, 146Bank of Montreal, Toronto, Ontario, Canada 570, 892Bank of New York Company, Inc 303, 1129Bank of Nova Scotia New York Trust Company 697Bank of Nova Scotia, Toronto, Ontario, Canada 149, 697Bank of the Ozarks, Inc 237, 1129Bankers Trust New York Corporation 511BankFirst Corporation 693Bankmont Financial Corporation 73, 146, 570, 892Banque Nationale de Paris, Paris, France 303. 1017, 1020Baraboo Bancorporation 568Barclays Bank PLC. London, England 892Barclays California Corporation 892Barclays Capital, Inc 892Barclays PLC, London, England 892Barclays USA 892Bayerische Vereinsbank, AG, Munich.

Federal Republic of Germany 237, 571Baylake Corporation 1126BB&T Corporation 303, 509, 694, 697, 804BB&T Financial Corporation of Virginia 509Belvedere Capital Partners, Inc 568Bethany Bankshares, Inc 509Blackhawk Bancorp, Inc 805BNY Capital Markets, Inc 303BOC Financial Corp 509Bodcaw Bancshares. Inc 1017BOK Financial Corporation 892, 1126Bolivar Banking Corporation 301Bonifay Holdings, L.L.C 1126BOR Bancshares, Inc 146Boston Private Bancorp, Inc 73Brookline Bancorp. Inc 301Brookline Bancorp, N.H.C 301Buckhead Community Bancorp, Inc 235Buena Vista Bancorp, Inc 568Builders Financial Corporation 71Busby Holdings, Inc 372Business Holding Corporation 1126Cache Bank Financial Corporation 370Cambridge Financial Group, Inc 694Capital Community Bancorporation, Inc 301Capitol Bancorp, Ltd 71, 146, 509, 1017Capitol City Bancshares, Inc 890Cardinal Financial Corporation 568Carolina First BancShares. Inc 890Carolina First Corporation 511, 892Carrollton Bancorp 301Castle Creek Capital Partners Fund I, L.P.,

La Jolla, California 150Castle Creek Capital Partners Fund-I, L.P.,

Rancho Santa Fe, California 801, 1018, 1126Castle Creek Capital, L.L.C, La Jolla, California 150Castle Creek Capital, L.L.C,

Rancho Santa Fe, California 801, 1018, 1126CBI-Kansas, Inc 235, 890, 1017CBOT Financial Corporation 697CBOT Financial Corporation of Delaware 697CCB Bancorp, Inc 890CCF Holding Company 890Central Bancompany, Inc 694Central Bancshares. Inc 149, 805. 1126Central Illinois Bancorp, Inc 235Central Iowa Bancorporation 509Central Trust Company 694Centura Banks, Inc 299Century Bancshares. Inc 1126Century Bank Corp 235CGB Acquisition Corporation 147


Applications approved under—ContinuedChambers Bancshares, Inc 370Chase Equity Holdings, Inc 1125Chase Manhattan Corporation 1125C1TBA Financial Corporation 697Citizens & Northern 512Citizens Bancorp. Inc 568Citizens Bancshares Company 71Citizens Bancshares Corporation 146Citizens Bancshares. Inc.. Crawfordville, Florida 890Citizens Bancshares, Inc., Edmond, Oklahoma 890Citizens Bancshares, Inc., Salineville, Ohio 146, 801, 893Citizens Banking Company 146Citizens Effingham Bancshares. Inc 71Citizens Financial Corporation 370Citizens National Bancshares, Inc 568City Holding Company 373City National Corporation 71City Savings Bank of Pittsfield 1127Clover Community Bankshares, Inc 568CNB Bancshares. Inc 304, 568CNB Holdings, Inc 694Coddle Creek Financial Corp 71Colonial BancGroup, Inc 146, 890, 892, 1126, 1129ComBanc, Inc 694Commerce Bancorp, Inc 695Commerce Bancshares, Inc., Albertville, Alabama 235Commerce Bancshares, Inc.,

Kansas City, Missouri 235,890, 1017Commerce Financial Corporation 892Commercial BancShares, Incorporated 146Commercial Guaranty Bancshares, Inc 147Community Bancshares of Mississippi, Inc 235Community Bancshares of Mississippi, Inc.,

Employee Stock Ownership Plan 301Community Bancshares of West Plains. Inc 71Community Bank Capital Corporation 509Community Bank Minnesota Employee Stock

Ownership Plan 890Community Bank Shares of Indiana, Inc 301Community Banks of Florida, Inc 510Community Banks, Inc 370Community Bankshares, Inc 71. 695Community Financial Group, Inc 1017Community Financial Services, Inc 571Community First Banking Company 147Community First Bankshares, Inc 370, 695, 801Community Group, Inc 370Community National Bancorporation 149Community National Bank Corporation Employee

Stock Ownership Plan 301Community Trust Bancorp, Inc 507Community Trust Financial Services Corporation 373Community West Bancshares 147, 1020Compass Bancorporation of Texas, Inc 145Compass Bancshares, Inc 145, 693, 1125Compass Banks of Texas, Inc 145Concord EFS, Inc 149, 373Connor Trusts 890Cornhusker Growth Corporation 373Cortland First Financial Corporation 1126CountryBanc Holding Company 370, 568Countryside Bancshares, Inc 370Covenant Bancgroup, Inc 71Credit Commercial de France S.A.. Paris, France 149CSB Bancshares, Inc 71. 301Cullen/Frost Bankers, Inc 145, 508Cumberland Bancorp, Inc 510Dakota Bancshares, Inc 370Danvers Bancorp, Inc 890Dauphin Bancorp, Inc 695Davis Bancorporation, Inc 512, 1129Delaware Community Group, Inc 370Delaware Financial, Inc 1128Deposit Guaranty Corp 369Deutsche Bank, AG, Frankfurt am Main,

Federal Republic of Germany 303, 512, 805, 892Deutsche Morgan Grenfell, Inc 303


Index to Volume 84 A79


Applications approved under—ContinuedDeWitt First Bankshares Corporation 373Diamond Bancorp, Inc 695DRH Mortgage, LLC 1016Eagle Lake Bancshares, Inc 1017Eastern Virginia Bankshares, Inc 147Eggemeyer Advisory Corp 150,801, 1018, 1126El Paso Bancshares, Inc 801Emigrant Bancorp, Inc 890Employee Stock Ownership Trust of People's

Bank and Trust Company of Pickett County 569Equitable Financial Corporation 1018Exchange Bancshares, Inc 695F.N.B. Corporation 147, 569, 890F&M Bancorp 1127F&M Bancorporation, Inc 235, 371F&M Bancshares, Inc 71F&M Merger Corporation 235. 371F&M National Corporation 237Farmers Bancshares, Inc 695, 805Farmers State Corporation 149, 510FBOP Corporation 71, 235FCB Bancorp, Inc 569Fidelity Ban Corporation 71Fidelity Company 301Fifth Third Bancorp 73,571Fifth Third Bank 149FINABEL Corporation 1017Financial Bancshares, Inc 801Financial Investors of the South, Inc 1020First American Bankshares, Inc 802First American Corporation 300, 369, 693, 889First Azle Bancshares, Inc.. Employees

Stock Ownership Plan 370First Bancorp 1018First Bancorporation, Inc 1129First Bancshares, Inc 891First Banks America, Inc., Clayton, Missouri 147First Banks America, Inc., Houston, Texas 71First Banks, Inc 71, 147, 890First Beemer Corporation 1126First Belmond Bancorporation 1018First Busey Corporation 235First Business Bancshares, Inc 237First Capital Bancshares, Inc 370First Centralia Bancshares, Inc 512, 1129First Charter Corporation 892First Chicago NBD Corporation 508First Citizens Bane Corp 510First Citizens Bancshares, Inc 1125First Commerce Bancshares, Inc 695First Commercial Corporation 304First Empire State Corporation 233First Financial Bancorporation 800First Gilmer Bancshares, Inc 569, 1127First Gilmer Delaware Holdings, Inc 569, 1127First Hawaiian, Inc 1018First Jermyn Corp 371First Lansing Bancorp, Inc 1020First National Bancorp, Inc 71First National Bancshares, Inc 1018First National Bank at St. James, ESOP 71, 695First National Bank of Artesia Employee

Stock Ownership Plan 147First National Bank of Nevada Holding Company 890First National Corporation 301, 1020First National of Nebraska. Inc 800First Nebraska Banes, Inc 301First Neighborhood Bancshares, Inc., Employee

Stock Ownership Plan 510First Pecos Bancshares, Inc 1018First Place Financial Corporation 371First Region Bancshares, Inc 802First Savings Bank of Washington Bancorp, Inc 371First Security Corporation 146, 234, 567First State Financial Corporation 71First Telebanc Corporation 695First Union Corporation 373, 571, 890


Applications approved under—ContinuedFirst United Bancshares, Inc 235, 371, 373First Western Bancorp, Inc 237, 1129First Western Bancshares Employee Stock

Ownership Plan 147First York Ban Corp 510Firstand Company 510FirstFederal Financial Services, Corp 571FirstMerit Corporation 697Firstrust Corporation 235, 1020Fishback Financial Corporation 1020Fisher Bancorp, Inc 71Flag Financial Corporation 374, 510, 1018, 1020, 1127Fleet Financial Group, Inc 73Florida Banks, Inc 695FMB Bankshares, Inc 698FMCB Holdings, Inc 371FNB Financial Services, Inc., Employee Stock

Ownership Plan 301Forstrom Bancorporation, Inc 371Fort Madison Financial Company 802Founders Financial Corporation 510Frandset Financial Corporation 695Franklin Bancorp, Inc 1020Frontier Financial Corporation 1127Fryburg Banking Company, Inc 569FSBO Holdings, Inc 890Fulton Financial Corporation 234GB&T Bancshares, Inc 510GEBSCO,Inc 147George Family Partnership, Ltd 1126George Washington Bancorp, Inc 71Gifford Bancorp, Inc., Employee Stock

Ownership Plan 235Giltner Investment Partnership II, Ltd 571Glacier Bancorp, Inc 236, 371GNB Bankshares Corporation 147Gold Bane Acquisition Corp., Inc., II 301Gold Bane Acquisition Corporation VII, Inc 802Gold Bane Corporation, Inc 301, 695, 802, 1127Governor and Company of the Bank of Ireland,

Dublin 2, Ireland 73Grandview Bancshares. Inc 1127Grandview Delaware Financial, Inc 1127Great Southern Bancorp, Inc 697Greater Bay Bancorp 71, 510Greater Community Bancorp 373Greater Southern Capital Corporation 72Greater Southern Capital Corporation Employee

Stock Ownership Trust 72Guaranty Capital Corporation 695GV Bancorp Employee Stock Ownership Plan 371GV Bancorp. Inc 371Habersham Bancorp 802Halbur Bancshares, Inc 569Hall Properties, LP 569Hancock Holding Company 802Harlingen Bancshares, Inc 302Harris Bancorp, Inc 73, 146Heartland Financial USA. Inc 510, 805Henderson Bancshares, Inc 73Heritage Bancorp, Inc 802Heritage Capital Corporation 510Heritage Commerce Corp 1127Heritage Financial Corporation 72, 695Heritage Group, Inc 892Hibernia Corporation 147, 371, 569Highlands Independent Bancshares, Inc 147Hogan Investments, Limited 236Hogan Investments, Inc 236Holland Financial Corporation 1018Home Valley Bancorp 569Homeside Lending, Inc 571Hometown Bancorp, Ltd 147Hometown Bancshares, Inc 371, 695Hoosac Financial Services, Inc 302Horizon Bank of Florida Employee Stock

Ownership Plan 147




Applications approved under—ContinuedHorizons Bancorp. Inc 802HUBCO.Inc 303Huntington Bancshares, Incorporated 73, 303Imperial Bancorp 1129Independent Bank Corporation 512Independent Mutual Holding Company 302Independent Southern Bancshares, Inc.,

Employee Stock Ownership Trust 147Industry Bancshares, Inc 236Inland Northwest Bancorporation, Inc 373Integrion Financial Network, LLC 512Interchange Financial Services Corporation 510International Brotherhood of Boilermakers,

Iron Ship Builders, Blacksmiths, Forgers.and Helpers 372

InterWest Bancorp. Inc 147. 695, 891Intra Financial Corporation 1127Inver Grove Bancshares, Inc 302Investors Financial Services Corp 697ISB Financial Corp 510J.R. Montgomery Bancorporation 236James River Bankshares, Inc 372JDOB, Inc 802JJ&B Capital, L.P. 372K&Z Company. LLC 695Kanbanc, Inc 510Keene Bancorp, Inc. 40 Hk) Employee

Stock Ownership Plan 1018Killbuck Bancshares 1018Koss-Winn Bancshares, Inc., Employee

Stock Ownership Plan with 401(k) Provision 148Krum Holdings, L.L.C 372Lake Bank Shares, Inc., Employee Stock

Ownership Plan 1127Lakeland Bancorp. Inc 236Larch Bancorporation. Inc 802Laurens Bancshares, Inc 236LB Bancorp, Inc 510LCNB Bancorporation of Delaware, Inc 569LCNB Bancorporation, Inc 569Legacy Bancorp, Inc 1127LeMars Acquisition Corp 802Lenox Financial Services Corp 304Light Bancshares Corporation 148Lincoln Interim Corporation 302Lino Lakes Bane Shares, Inc 569Little Sioux Bancshares, Inc 372Louisville Development Bancorp, Inc 74M.I.F. Limited 696Magna Group, Inc 373MainBancorp, Inc 372Maincorp Intermediate Holding Company, Inc 372Mainline Bancorp, Inc 569MainStreet BankGroup, Incorporated 302, 569Marfa Bancshares, Inc 891Marfa Delaware Bancshares, Inc 891Marin National Bancorp 1127Marine Bancshares, Inc 1127Marquette Bancshares, Inc 802Marshall & Ilsley Corporation 237Marshall Community Bancshares, Inc 372Maryland Permanent Capital Corporation 1021Mason-Dixon Bancshares, Inc 304Matson Financial, Inc 72MBC Investments Corporation 805MBNA Corporation 72MBT Bancshares, Inc 372McCurtain County Bancshares, Inc 302McLaughlin Bancshares, Inc 800Mellon Bank Corporation 236, 237, 805, 1129Mercantile Bancorp, Inc 72, 1020Mercantile Bancorporation, Inc 145, 237, 509, 694, 800Merchants Holding Company 695, 891MetBank Holding Corp 803Metrocorp Bancshares, Inc 1 127Metrocorp-Delaware. Inc 1127Michigan Community Bancorp, Limited 1127


Applications approved under—ContinuedMid-America Bancorp, Inc 510Mid-America Mortgage Services, Inc 150Mid-Atlantic Community BankGroup, Inc 512Mid-Penn Bancorp, Inc 569Middle Georgia Corporation 237Midland Bancshares, Inc 236Midland First Financial Corporation 72Midwest Bancorporation. Inc. & Affiliates

Employee Stock Ownership Plan 803Midwest Bankers' Bancorporation, Inc 374Millbrook Bank System, Inc 236Minnwest Corporation 805Mississippi Valley Bancshares. Inc 236MNB Bancshares, Inc 148Montana First National Bancorporation 72Montana Security, Inc 148Morgantown Bancshares, Inc 148Morrill & Janes Bancshares, Inc 512, 1129Morrill Bancshares, Inc 512, 1127, 1129Mutual Bancorp of the Berkshires, Inc 1127Mystic Financial, Inc 148N.A. Corporation 803Narragansett Financial Corp 236NatBC Holding Corporation 72NATCOM Bancshares, Inc 511National Australia Bank, Limited,

Melbourne. Australia 304, 571National Bank of Canada, Montreal,

Quebec, Canada 72, 149National City Bancshares, Inc 372, 803, 892,

1018, 1128National City Corporation 234, 300, 508. 567National City Mortgage Co 300National Commerce Bancorporation 150, 236. 803, 1018National Commerce Community Bancorp, Inc. I 236National Commerce Community Bancorp, Inc. II 236National Processing, Inc 234, 567NationsBanc Montgomery Securities, LLC 805NationsBank Corporation 148, 805NB Holdings Corporation 148NCB Holdings, Inc 1018Neighborhood Bancorp 512New England Community Bancorp. Inc 148, 569New Galveston Company 508New Independent Bancshares, Inc 512New London Bancshares, Inc 1129New Millennium Bankshares, Inc 891Newton Financial Management Company, LLC 236Niagara Bancorp, MHC 300North Shore Bancorp 148Northern Trust Corporation 511, 892Northwest Bancorporation, Inc 1018Norwest Corporation 74, 148, 234, 237,

369, 508, 567, 568,693, 694, 800, 801,

1016, 1125Norwest Financial Services. Inc 74, 694Norwest Financial, Inc 74, 694Norwest Mortgage, Inc 800Norwest Ventures. LLC 800NSB Bancorp, Inc 150NW Bancorp, Inc 696Oconee Financial Corporation 1128Ohnward Bancshares, Inc 372Old Kent Financial Corporation 800Old National Bancorp 1125Olympia Financial Corp 234Onaga Bancshares, Inc 512, 1129One Valley Bancorp, Inc 374, 803Orchard Valley Financial Corporation 697Osceola Bancorporation 569Ottawa Bancshares, Inc 1128Owen-Curtiss Financial Corporation 72Pacific Coast Bankers' Bancshares 1128Palm Desert Investments 698Panhandle BancShares, Inc 148Paramount Bancorp, Inc 302




Applications approved under—ContinuedPASL Holding Corp 803Pedcor Bancorp 148Penns Woods Bancorp, Inc 72Penseco Financial Services Corporation 150Peoples Bancorporation, Inc 72, 803Peoples BancTrust Company, Inc 372, 511Peoples Heritage Financial Group, Inc 74Peoples Holding Company, Inc 569Peoples Service Company 803Peoples Trust of 1987 148Peoples, Inc 148Pepperell Bancshares Financial Group, Inc 1128Petefish, Skiles Bancshares, Inc 1128PHS Bancorp, M.H.C 1128Pilot Grove Savings Bank Employee Stock

Ownership Plan 891Ploetz Investments, Limited Partnership 696Plymouth Bancorp, Inc 803Popular International Bank, Inc 1019Popular North America, Inc 1019Popular, Inc 1019Portage Bancshares, Inc 696Porter Holdings, Ltd 372Premier Bancorp, Inc 569Premier Bancshares, Inc 148,570, 1019Premier Financial Bancorp, Inc 148, 696Premier Financial Corp 891Premier Holdings-Nevada, Inc 511Prosperity Bancshares, Inc 891Provincial Corp 1128PSB BancGroup, Inc 372PSB Bancorp, Inc 696Putnam County Bancorp, Inc 1128Redstone Bancorporation, Inc 1019Regions Financial Corporation 236, 237, 238, 302, 696Republic Bancshares, Inc 148, 698. 805Republic First Bancorp, Inc 1128Rigler Investment Co 696Riverside Banking Company 149Riverside Gulf Coast Banking Company 72Robinson Bancshares, Inc 1128Rockhold Bancorp 149Roscoe Community Bankshares, Inc 72Roseau Realty Co., Inc 74Royal Bank of Canada, Montreal. Quebec, Canada 512RSI Bancorp, Inc 803RSI Bancorp. MHC 803RSNB Bancorp 1016RVB Bancshares, Inc 696RW Bancorp.. Ltd 149Salisbury Bancorp, Inc 696San Juan Bank Holding Company 804Sandy Spring Bancorp, Inc 1019Savannah Bancorp, Inc 1019Second Bancorp 1129Second Bancorp, Incorporated 891Second National Financial Corporation 1019Security Bancshares, Inc 302Security Bank Holding Company 72, 511, 804Security Bank Holding Company Employee

Stock Ownership Plan 72, 511Security State Bancshares, Inc 72, 570Seed Money, Limited Partnership 1128Sequatchie Valley Bancshares, Inc 1020Service Bancorp, MHC 804Shamrock Delaware Financial, Inc 372Sherburn Bancshares, Inc 1129Sherwood Bane Corporation 804Shorebank Corporation 511Shorebank Detroit Corporation 511Signature Bancshares, Inc 570Simmons First National Corporation 1125SIS Bancorp, Inc 73SJNB Financial Corporation 571SNB Bancorp 236SNB Bancshares, Inc 804South Alabama Bancorporation, Inc 234, 1016


Applications approved under—ContinuedSouth Branch Valley Bancorp, Inc 149South Tulsa Financial Corporation 511South Valley Bancorp, Inc 302Southeast Capital Corporation 571Southeast Capital Corporation, ESOP 571Southern Bancshares. Inc 372Southern Development Bancorporation, Inc 570Southern Heritage Bancorp, Inc 570Southern Missouri Bancshares, Inc 149Sparta Union Bancshares, Inc 73Spring Hill (Delaware), Corporation 696Spring Hill Holdings Corporation 696SSB Investments, Inc 694Standard Mutual Holding Company 302Star Bane Corporation 696State Financial Services Corporation 150State National Bancshares, Inc 302, 1019State of Franklin Bancshares, Inc 511State Street Corporation 694, 1125Sterling Bancorporation, Inc 1019Sterling Bancshares, Inc 1019Stichting Administratiekantoor ABN AMRO Holding,

Amsterdam, The Netherlands 512Stichting Prioriteit ABN AMRO Holding,

Amsterdam, The Netherlands 512Stockmens Financial Corporation 237Strasburg Bancorp, Inc 149Summit Bancorp 1021Summit Bankshares, Inc 571Sun Community Bancorp, Limited 509, 1017Sundance Bankshares, Inc 149Sundowner Corporation 71, 147SunTrust Banks of Florida, Inc 891SunTrust Banks, Inc 891SW Financial, Inc 73SWB Bancshares, Inc 73Swiss Bank Corporation, Basel, Switzerland 304Synovous Financial Corp 804Tarpon Coast Bancorp, Inc 302TB&C Bancshares, Inc 804Tennessee Central Bancshares, Inc 149Texas Capital Bancshares, Inc 891Texas Financial Bancorporation, Inc 1128Texas United Bancshares, Inc 511TIB Financial Corporation 1129Timberland Bancorp, Inc 149Tippins Bankshares Inc 302Toronto-Dominion Bank, Toronto, Ontario, Canada 74, 571Town Bankshares, Ltd 696Traditional Bancorporation, Inc 511TransPecos Financial Corp 372Travelers Rest Bancshares, Inc 1128Tri-County Financial Group, Inc 511Triangle Bancorp, Inc 696Trust No. 3 under the Will of Charles Henderson 73U.S. Bancorp 74U.S.B. Holding Co., Inc 892UB&T Financial Services Corporation 696UCBH Holdings, Inc 804Union Bankshares Corporation 697Union Bankshares, Inc 1019Union City Corporation 149Union Planters Corporation 303, 373, 508, 513,

571, 697, 804,1020, 1128

Union Planters Holding Corporation 373, 508, 513, 571,697, 804, 1128

UnionBancorp, Inc 805, 1020United Bancorp, Inc 570United Bankshares, Inc 303, 1020United Community Bancshares 570United Community Bancshares, Inc 698United Financial Corp 891, 893, 1128United Financial Holdings, Inc 150United Overseas Bank, Limited, Singapore 1129United Security Bancorporation 697Unity Bancshares, L.L.C 373




Applications approved under—ContinuedUnity Holdings, Inc 570Upson Bankshares, Inc 1020USAL Bancorp, Inc 570UST Corp 805, 893Vail Banks. Inc 891Val Cor Bancorporation, Inc 374Valley National Corporation 570Verona Bancshares, Limited 73VIB Corp 236Violeta Investments, Ltd 891Virginia Bank Bankshares, Inc 73Voyager Financial Services Corporation 1021Wachovia Corporation 70, 145, 234, 508, 568Warren Bancorp, Inc 891Warwick Community Bancorp, Inc 73Washington Bancorp 73Waterhouse Investor Services, Inc 74, 571Wayne Bancorp, Inc 303West Burlington Bancorporation 804Westdeutsche Landesbank Girozentrale,

Duesseldorf, Federal Republic of Germany 513, 1129Western Sierra Bancorp 1019WFC, Inc 1019Whitney Holding Corporation 804Wilber Company 570Williams Partners, L.P. 236Wills Point Financial Corporation 149Wilmington Trust Corporation 1130Winter Trust of 12/3/74 804Winter-Park Bancshares, Inc 73Wintrust Financial Corporation 1020WTSB Bancorp, Inc 697WTSB Delaware Bancorp, Inc 697Zions Bancorporation 149, 373, 374

Orders issued underBane One Corporation 553-8, 961-85Banco Bilbao Vizcaya, S.A., Bilbao, Spain 356-8BankAmerica Corporation 858-84BankBoston Corporation 849-52Charter One Financial, Inc 1079-83Citicorp 985-1016Commerce Bancorp, Inc 358-60, 798Cooperatieve Centrale Raiffeisen-Boerenleenbank,

B.A., Rabobank Nederland Utrecht,the Netherlands 852-5

Dresdner Bank AG, Frankfurt, Germany 361—3Eagle Bancorp, Inc 673Fifth Third Bancorp 677-80First American Corporation 845—7First Chicago NBD Corporation 961-85First Financial Corporation 279First Mariner Bancorp 956-9First Midwest Bancorp, Inc 486-9First National Bank Group, Inc 959-61First of Waverly Corporation I l lFirst Union Corporation 59, 489-507Firstar Corporation 1083-8FirstMerit Corporation 363-6Fleet Financial Group, Inc 227-30Fuji Bank, Limited, Tokyo, Japan 674HUBCO, Inc 547-51Indiana United Bancorp 280J.P. Morgan & Co., Inc 113-5KeyCorp 1075-89Lloyds TSB Group, pic, London, England 116-20National City Corporation 281-8NationsBank Corporation 129^5, 858-84NB Holdings Corporation 129-45North Fork Bancorporation, Inc 290-94, 477-81Norwest Corporation 552, 676, 847-52,

1088-115Norwest Investment Services, Inc 552Oechsle International Advisors, L.P. 361-3PAB Bankshares, Inc 474-7Peoples Heritage Financial Group, Inc 351^4Popular, Inc 481-3RCM Capital Management. L.L.C 361-3


Orders issued under—ContinuedRegions Financial Corporation 354-6, 558-63Royal Bank of Canada, Montreal,

Quebec, Canada 855-8Sanwa Bank Limited, Osaka, Japan 120Shore Financial Corporation 288Societe Generale, Paris, France 680—3Star Bane Corporation 121-6SunTrust Banks, Inc 126-9, 1115-21Travelers Group, Inc 985-1016U.S. Bancorp 62^1,483-6, 1073-5UBS AG, Zurich and Basel, Switzerland 684-93Union Bank of Switzerland, Zurich,

Switzerland 684-93WesBanco, Inc 366-9

Bank Holding Company Supervision Manual 98, 339, 670Bank income data adjustments 408Bank Merger Act

Applications approved under1st United Bank 305Alabama Exchange Bank 74Alpha Community Bank 699American Bank of Montana 513AmSouth Bank 1130Atlanta Bank 151Atlantic Bank 572BancFirst 151, 806, 894, 1130BankofBelton 699Bank of Bentonville 1130Bank of Casa Grande Valley 894Bank of Commerce 513Bank of Cushing and Trust Company 698Bank of Greenville 151Bank of Lancaster 238Bank of Marion 806Bank of Monroe 1021Capital City Bank Group, Inc 1130Capital One Bank 238Centura Bank 305Citizens Bank 806Citizens Banking Company 806Citizens Trust Bank 238Colonial Bank 74, 151, 513, 572,

699, 894, 1130Comerica Bank 1130Commercial & Savings Bank Company 1021Commercial Bank 894Community Bank and Trust 74Community First Bank and Trust 374Compass Bank 150, 698, 893Eaton Bank 1021Exchange Bank & Trust Company 806F&M Bank-Blakeley, Inc 374F&M Bank-Northern Virginia 513F&M Bank-Richmond 374Farmers and Merchants Bank 151Farmers Bank of Maryland 151, 238Farmers State Bank 305, 572Farmers State Bank of West Concord 1130Farmers Trust Bank 305FCNB Bank 572, 1021Fifth Third Bank 572Fifth Third Bank of Central Kentucky, Inc 513Fifth Third Bank of Cincinnati 572Fifth Third Bank of Columbus 572Fifth Third Bank of Southern Ohio 572, 1021Fifth Third Bank of Western Ohio 572First Bank 75First Banking Center-Burlington 374First Community Bank 894First Farmers Bank & Trust Company 374First Interstate Bank 75First Security Bank 699First State Bank and Trust Company of Larned 151First Virginia Bank of Tidewater 151George Mason Bank 305Hanmi Bank 894Hanover Bank 806



PagesBank Merger Act—Continued

Applications approved under—ContinuedHuron Community Bank 699Isabella Bank and Trust 374Jersey Bank for Savings 513Johnson Bank 572, 894Laurel Bank 1021Lindell Bank & Trust Company 894M&I Bank of Burlington 375M&I Bank of Racine 375M&I Bank of Shawano 806M&I Marshall & Ilsley Bank 375Manufacturers and Traders Trust Company 238Mercantile Bank 572Mercantile Bank Midwest 1130Mercantile Bank of Western Iowa 894Northern Neck State Bank 151Old Kent Bank 805Omni Bank 75One Valley Bank of Summersville. Inc 894Peninsula Trust Bank 699People First Bank 894, 1130Peoples Bank and Trust Company 375, 894Pointe Bank 460Premier Bancorp, Inc 75RCB Bank 699Republic Security Bank 460,699,894, 1130Richwood Banking Company 513Savina Bank 151Security Bank 1130Sentinel Interim Bank 806ShoreBank 513Southern California Bank 75Triane Bank 699Triangle Bancorp. Inc 375Triangle Bank 375Valley Independent Bank 375Virginia Heartland Interim Bank 1021Wesbanco Bank Wheeling 699Western Bank of Cody 699WestStar Bank 699

Orders issued underCentura Bank 64. 67WestStar Bank 294, 884

Bank merger issues 438-51, 619-27,643-7,703-15

Bank regulation, staff study summary 252BankAmerica Corporation 669. 748, 858-84Banking antitrust policy 705Banking structure 620, 621, 897-921Basle Accord, amendment and proposal 454Basle Committee on Banking Supervision 38, 268, 454,

940, 1059Basle Framework for Capital Adequacy, interpretation 1059Bechstein, Jerome C, enforcement action 1060Bethea, Martha, Associate Director, Division of

Research and Statistics, retirement 456Biern, Herbert A., Associate Director, Division

of Banking Supervision and Regulation,statement 639-43

Board of Governors (See also Federal Reserve System)Antitrust standards, application of 622-6Commodity Exchange Act and derivatives

transactions, statement 636-9Consumer Advisory Council

Meetings 268, 939New members 191-3Nomination procedures 538

Division mergers 39Index of orders and actions taken 69, 297-9, 566, 887-9Management Division 39Members

Ferguson, Roger W. appointed chairman,Year 2000 Council 746

Lists, 1913-98 701Phillips, Susan M., resignation 454

Staff changesAlexander, Lewis S 941Bethea, Martha 456

PagesBoard of Governors—Continued

Staff changes—ContinuedBowen, Brent L 456Braunstein, Sandra F. 456Clark, Stephen J 39Coyne, Joseph R 455Fox, Lynn S 455Frierson, Robert de V. 455Frost, David S 39Garwood, Griffith L 456Hannan, Maureen 749Hooper. Peter 941Horowitz, Fred 39, 456Hurt, Adrienne D 456Johnson. Jennifer J 455Johnson, Karen H 941Livingston, George E 39, 456Loney, Glenn E 456Mann, Catherine L 39Oliner, Stephen D 99Pauley, Darrell R 39Promisel, Larry 456Reidhill, Marsha 340Reinhart, Vincent R 749Shack-Marquez, Janice 99Shannon, David L 39, 456Siegman, Charles J 456Smith, Dolores S 456Snyder, Barry R 540Stevens, Richard C 748Thompson, Portia W. 39Tinsley, Peter A 1061Truman, Edwin M 941Weis, John R 39Whitesell, William C 749Wiles, William W. 455Young, Florence M 340

Thrift Institutions Advisory Council, new members 95World Wide Web site, new address 748

Bonanca, Jason J., article 1038Bonds, U.S. Treasury 531Borrowers of Securities Credit (Reg. X) 96, 197, 338, 469,

791, 1060, 1069Bostic, Raphael W., article 1Bowen, Brent L., Inspector General, Office of the

Inspector General, retirement 456Brady, Thomas F., article 604, 615Braunstein, Sandra F., promoted to Associate

Director, Division of Consumer Affairs 456Brigham, Lois A., enforcement action 1060Business equipment, output of 82Business sector 161, 167,591Businesses, small, lending to 1-21, 707

CANNER, Glenn B., articles 1, 241Capital adequacy guidelines 673, 822Capital holdings 164, 319, 398, 595Carey, Mark S., article 897Cash shipments, interstate 338Cease and desist orders

Banca Serfin, S.A., Mexico 539, 573Banco Industrial de Venezuela, Caracas, Venezuela 539, 573Banco Internacional, S.A., Bital, Mexico 539, 573Banco Nacional de Mexico, Banamex, Mexico 539, 573Banco Santander, Spain 539, 573Bancomer, S.A., Mexico 539, 573

Century Date Change (CDC) project 26, 1058Cheng, Virginia, article 517Circuit breakers for equity-related markets, statement 184Citicorp, public meeting scheduled 669Clark, Stephen J., promoted to Assistant Director,

Management Division 39Commercial and industrial loans 392, 1025-37Commercial banks

Balance sheet developments 391^19Capital 398Derivatives 398Income and expenses, tables 401, 409-19



PagesCommercial banks—Continiued

Letters of credit 398Liabilities 397Loan and lease losses 404Loans 392, 394Securities holdings 396

Commodity Exchange Act of 1936 636-9, 742, 743, 744Communications equipment, production of 79Community development lending 1, 20Community Reinvestment Act of 1977 (CRA)

Bank mergers, effect on 443, 703-15H.R. 10 657Performance tests 3Small businesses and small farms, lending data 1

Computers, production of 79Condition statement. Federal Reserve Banks 575Conglomerates, supervision of 268Congressional Budget Office 183Construction supplies, production of 82Consumer Advisory Council

Meetings 268, 939New members 191-3Nomination procedures 538

Consumer disclosures on home-secured loans,joint report 746

Consumer goods, sales and production 81Consumer leasing (Reg. M) 338, 940, 948Consumer price index, statement 451-3Consumer spending 159, 589Coyne, Joseph R., Assistant to the Board,

Office of Board Members, retirement 455Credit, financial developments 597Credit by Banks for Purchasing and Carrying

Margin Stocks (Reg. U) 96, 197, 338Credit by Brokers and Dealers (Reg. T) 96, 197, 338, 469,

791, 1060, 1069Credit ratings at US. banks, article 897-921Cyrnak, Anthony W., article 703

DEMAND deposits, interest on, S. 1405, statement 326Depository institutions

Credit extended by 167Disclosure statements 337, 338Payment services from Federal Reserve 193Transactions, proposed action 668

Derivatives activities 38, 398, 636-9Directory: Community Development Investments 670Discount rate 1057Durkin, Thomas A., article 241Dutch government securities 1058

ECONOMIC developmentsBusiness sector 161, 591Financial 168, 597Foreign exchange 164, 170Government sector 162, 593Household sector 159, 589Labor markets 165, 595

Economy, U.S.Monetary policy, statements 155-73, 262-7,

585-603, 735-8Outlook, statements 183, 330-32, 632-6Performance, monetary policy reports 159, 586

Electronic Fund Transfers (Reg. E) 337, 939, 947Electronic payment services (See also

Regulations: E) 37, 628-32Elliehausen, Gregory, staff study summary 252Employment 165English, William B., article 604Enhancing Bank Transparency, Basle

Committee paper 940Equal Credit Opportunity (Reg. B) 95, 107, 338,

343-50, 454Equity prices 170Euro bank notes, statement 1054-6European Economic and Monetary Union (EMU) 811Examination cycles for financial institutions 337, 341, 822

PagesExchange rates

Articles 174-9,420-5,716-21, 1038^3

Indexes 170, 811-18Expenses, 1994 401-3Exports 164, 312Extensions of Credit by Federal Reserve Banks

(Reg. A) 1069External sector, economic developments 594

FARMS, loans to 1-21Federal expenditures 162Federal Financial Institutions Examination Council 3Federal funds rate 517, 525Federal Open Market Committee

1999 meeting schedule 939Meeting minutes

1992 transcripts, available 338Sept. 30, 1997 40-5Nov. 12, 1997 100-6Dec. 16, 1997 273-8Feb. 3-4, 1998 457-68Mar. 25, 1998 541-6May 19, 1998 750-6June 30-July 1, 1998 824-31Aug. 18, 1998 1062-8

Monetary policy stance 939Open market operations 517-32

Federal Reserve BanksChairs and deputy chairs, appointed 36, 95, 1057Directors, list 377-89Financial statements 575—84Holiday schedule, 1999 194Income and expenses 194Statements

Change in capital 578Condition 576Income 577

Federal Reserve note and Euro bank note, statement 1054-6Federal Reserve Regulatory Service, CD-ROM available 539Federal Reserve System (See also Board of Governors)

Anti-money-laundering efforts, statement 639—43Fees for services 37Interest payments on demand deposits 726Payment services to depository institutions 193Year 2000 readiness 25-31

Fedwire funds transfer system 25, 668Fees for Federal Reserve services to depository

institutions 37Ferguson, Governor Roger W., Jr.

Appointed chairman, Year 2000 Council 746Electronic payments services, statement 628-32

Finance, global, statements 30-2, 186-90,325, 536

Financial institutions, examination cycle 337, 341, 822Financial Regulatory Relief and Economic

Efficiency Act of 1997, S. 1405, statements .... 326-30, 332-6Financial Services Act of 1998, H.R. 10, statement 647-59Financial statements, Federal Reserve Banks 575-84Fisher, Peter R., articles 174, 420, 517, 716, 1038Foreign exchange

Dollar values 811-18Reserves 424Treasury and Federal Reserve operations 174-9, 420-5,

716-21, 1038-43Foreign stocks, lists of marginable 194, 221-7, 455,

469-74, 748, 791-7,1060, 1069-72

Foreign transactions in 1997, article 309-21Fox, Lynn S., appointed Assistant to the Board,

Office of Board Members 455Framework for Internal Control Systems of

Banking Organisations, Basle Committee paper 940Framework for the Evaluation of Internal

Control Systems, Basle Committee paper 268Frierson, Robert de V., appointed Associate

Secretary of the Board, Office of the Secretary 455Frost, David S., Staff Director for Management,

appointed Director, Management Division 39



PagesGARWOOD, Griffith L., Director, Division

of Consumer Affairs, retirement 456Global financial system, statements 30-2, 186-90, 325,

536, 926-9, 936-8Global Year 2000 Round Table 660Government 162, 163, 593Gramlich, Governor Edward M., statements

Consumer price index 451-3Social security reform 627, 925Truth in Lending Act and RESPA, reform 730-35

Greenspan, Chairman Alan, statementsAsia financial crisis 257-62Bank mergers 643-7Death of William McChesney Martin 746Edwin M. Truman nomination, statement 941Financial Services Act of 1998, H.R. 10. statement 647-59Global financial system 30-2, 186-90, 325,

536, 926-9, 936-8Long-Term Capital Management hedge fund 1046-50Medicare program 429-33Monetary policy 735-42Old-Age, Survivors and Disability Insurance

benefits program (OASDI) 32-5Over-the-counter derivatives 742U.S. economy and monetary policy 183, 262-7,

330-2, 632-6Group of Ten (G-10) governors 28

H.R. 10 444, 449, 647-59Hannan, Maureen, appointed Assistant Director,

Division of Information ResourcesManagement 749

Hedge fund 1046, 1050Herfindahl-Hirschman index (HHI) 704, 712, 713Hilton, Spence, article 517Home equity lending, article 241-51Home Mortgage Disclosure (Reg. C) .... I l l , 268, 338, 939, 943-7Home sales 160Hooper, Peter, appointed Deputy Director,

Division of International Finance 941Horowitz, Fred 39, 456Household finances 159, 160, 589, 590Housing and Urban Development, Department of 730Humphrey-Hawkins reports (Monetary policy

reports to the Congress) 155-73, 585-603Hurt, Adrienne D., promoted to Assistant Director,

Division of Consumer Affairs 456

IMPORTS 313Income, commercial banks 315, 401, 402Income statement, Federal Reserve Banks 575Index of foreign exchange value 811-18Individual Accounts Plan (IA) 627, 925Industrial production and capacity utilization

Annual data revision and 1997 developments 77-91Releases , 22-5, 92-5, 180-2, 254-6,

322-4, 426-8, 533-5, 616-8,722^4, 819-21, 922^1, 1043-5

Tables 86-91Information security 96Information systems readiness, 1999-2000 1058Interest 169, 401, 600, 726Interim rule, risk-based capital guidelines 96Internal credit risk models, report 538International

Banking operations 97, 406, 659-67Developments, monetary policy 164, 174, 601Transactions, 1997, article 309-21

International Banking Act of 1978, orders issued underBank of Cyprus, Ltd., Nicosia, Cyprus 67Bank of Scotland, Edinburgh, Scotland 230Caha de Ahorros de Valencia Castellon

y Alicante, Bancaja, Valencia, Spain 231Chinatrust Commercial Bank, Ltd., Taipei, Taiwan 1121—23Erste Bank derosterreichischen Sparkassen

Aktiengesellschaft, Vienna, Austria 1123Hong Kong Special Administrative Region,

People's Republic of China 886HSBC Equator Bank, pic, London, England 564

PagesInterstate branching 338Investments 160, 316, 591Issue and Cancellation of Bank Capital Stock (Reg. I) 788-90

JEWELL, Andrew, article 174Johnson, Jennifer J., appointed Secretary of the Board,

Office of the Secretary 455Johnson, Karen H., appointed Director, Division

of International Finance 941Joint Year 2000 Council 659, 661Justice, U.S. Department of 625, 704, 706. 712, 713

KELLEY, Edward W., Jr.. Federal Reserveand Year 2000, statements 25, 433-8, 929-35

Keys to Vehicle Leasing, brochure 98Know Your Customer policy 641

LABOR market, US 165, 595Leahy, Michael P., article 811Letters of credit, commercial banks 398Leverage Capital Standards 673, 833-^-4Litigation

Final enforcement decisions issued by Board of GovernorsBank of America, N.T. & S.A 1022-4Bank of the Desert 807-9Espiritu, Elena 1022Locci, Massimiliano 152Salmon, Richard 807-9

Final enforcement orders issued by Board of GovernorsAl-Fulaij, Faisal Saud 700Altman, Robert A 306Banca Serfin, S.A., Mexico 539, 573Banco Industrial de Venezuela,

Caracas. Venezuela 539, 573Banco Internacional, S.A., Bital, Mexico 539, 573Banco Nacional de Mexico,

Banamex, Mexico 539, 573Banco Santander, Spain 539, 573Bancomer, S.A., Mexico 539, 573Bechstein, Jerome C 1132Brigham, Lois A 1132Carrizo, Luis 76Clifford. Clark M 306Colbourn, Patti 154Colley.JohnE 306Dill, Eric C 76Habib Bank AG Zurich, Zurich, Switzerland, 376Koury, Stephen R 306Lindahl, Michael A 306Muniz, Jose E. Romero 76OmniBank 376PanAmerican Bank 376Putnam-Green Financial Corporation 76Towne Bank 307Wachs, Michael 307

Index of orders and actions taken 69, 297-9, 566, 887-9Pending cases involving the Board of

Governors, lists of 75, 151, 239, 305,375, 460, 514, 572,

699, 806, 894, 1021, 1131Termination of enforcement actions

Bank of Versailles 376Millennium Bank 376Security State Bank of Pecos 376

Written agreement approved by Federal ReserveBanks, ShoreBank, Cleveland 1024

Livingston, George E 39, 456Loan and lease losses, commercial banks 404Loan Application Register 268Loan-to-deposit ratios 822Loans

Commercial and industrial 392Home equity, article 241 -51Household 394Mortgage, disclosure requirements 268Small business and small farm 1-21

Loney, Glenn E., promoted to Deputy Director,Division of Consumer Affairs 456

Long-Term Capital Management hedge fund, statement ... 1046-54



Luckett, Charles A., articlePages

. 241

MANN, Catherine L., Assistant Director, Divisionof International Finance, resignation 39

Marginable stockForeign and over-the-counter 469—74, 791-6,

1060-5, 1069-74Regulation, amendment to merge

Regs. GandU 96, 197-221, 338-62Martin, William McChesney, Chairman

Greenspan's statement 746McDonough, William J., President, Federal

Reserve Bank of New York, Long-TermCapital Management, statement 1050-4

Medicare program, statement 429-33Members, Board of Governors, lists 701Membership of State Banking Institutions

in the Federal Reserve System (Reg. H) 746, 757, 833-44Meyer, Governor Laurence H., statements

Antitrust issues, related to mergers and acquisitions 619-27Bank mergers 438-51Regulatory relief bill 725-9S. 1405 326-30, 332-6

Minimum Security Devices and Proceduresfor Federal Reserve Banks andState Member Banks (Reg. P) 746, 791

Mining equipment, output of 82Monetary aggregates 598Monetary policy

Economic projections 155. 156External sector 594Price developments 166, 596Reports to the Congress 155-73, 585-603Statements 262-7, 735^2

Money laundering, statement 639^13Money stock data, revision 269—72Moody's bond rating scale 900Mortgage loans 268, 396, 747Moynihan, Senator Daniel P. 627, 925

NATIONAL bank charter 653National Commission on Retirement Policy 627, 925NationsBank Corporation 669, 748, 858-84Nelson, William R., article 604Netherlands debt market 98Netting systems 38New information on lending to small businesses

and small farms: The 1996 CRA data, article 1-21Norwest Corporation 823

OFF bank premises, operation standards 350Official staff commentaries, open-end credit plans 337Oil importation 313Old-Age, Survivors, and Disability Insurance

benefits program (OASDI), statement 32—5Oliner, Stephen D., appointed Assistant Director,

Division of Research and Statistics 99Open market operations, 1997, article 517-32Operation Casablanca 639, 642Operational Risk Management. Basle Committee

paper 940Orders and actions by Board of Governors 69, 297-9, 566Osborne, Daniel, articles 420, 716Over-the-counter margin stocks

Derivatives 636-9, 742Lists of marginable 194, 221-7, 455, 469-74,

748,791-7, 1060, 1069-72Lists of marginable, discontinuation 96

PATRIKIS, Ernest T, First Vice President,Federal Reserve Bank of New York,Year 2000 and computer systems, statement 659-67

Pauley, Darrell R., promoted to Assistant Director,Management Division 39

Payments services from Federal Reserve 193Philadelphia National Bank 705, 706Phillips, Governor Susan M.

Circuit breakers for equity-related markets, statement 184Resignation 454

Pilloff, Steven J., article 1025

PagesPoint-in-time grading 899Policy statements, internal audits, sound practices for 97Prager, Robin A., article 1025Prices 166, 596Primary dealers 1058Profits and balance sheet developments at U.S.

commercial banks in 1997, article 391^119Promisel, Larry, Senior Associate Director,

Division of International Finance, retirement 456Proposed actions

Consumer Leasing (Reg. M) 338Equal Credit Opportunity (Reg. B) 338Fedwire funds transfer 668Home Mortgage Disclosure (Reg. C) 268, 338Insured depository institutions 668International Banking Operations (Reg. K) 97Management interlocks 823Private small-dollar clearing and settlement systems 38Privately operated large-dollar multilateral

netting systems 38Privately operated multilateral settlement systems 38Reserve requirements 38Risk-based capital standards 38Rules Regarding Delegation of Authority 97Same-day settlement rule 338Truth in Lending (Reg. Z) 97, 268, 338Truth in Savings (Reg. DD) 338

Publications (See also Videotapes)Annual Report, 84th, 1997 455Annual Report, Budget Review, 1998-99 455Bank Holding Company Supervision Manual 98, 339, 670Directory: Community Development Investments 670Federal Reserve Regulatory Service, CD-ROM 539Keys to Vehicle Leasing 98Trading and Capital-Markets Activities Manual, 1998 339Ways to Simplify Consumer Disclosures in

Home-Secured Loans, joint report 746

RADDOCK, Richard, article 77Real Estate Settlement Procedures Act (RESPA) 268, 730, 746Regulations (Board of Governors, See also Rules)

A, Extensions of Credit by Federal ReserveBanks; Change in Discount Rate 1069

B, Equal Credit Opportunity 95, 107, 338,343-50, 454

C, Home Mortgage Disclosure I l l , 268, 338,939, 943-7

D, Reserve Requirements of DepositoryInstitutions 37, 47, 337, 350

E, Electronic Fund Transfers 337, 939, 947G, Securities Credit by Persons Other Than

Banks, Brokers, or Dealers 96, 197-221H, Membership of State Banking Institutions

in the Federal Reserve System 746, 757-88, 833-44I, Issue and Cancellation of Federal Reserve

Bank Capital Stock 788-90M, Consumer Leasing 338, 940, 948P. Minimum Security Devices and Procedures

for Federal Reserve Banks andState Member Banks 746, 791

T, Credit by Brokers and Dealers 96, 197-221, 338-62, 469,791-3, 1060, 1069-72

U, Credit by Banks for Purchasing orCarrying Margin Stocks 96. 197-221. 338-62

X, Borrowers of Securities Credit 96, 197-221, 338-62,469, 791-7, 1060, 1069-72

Y, Bank Holding Companies and Changein Bank Control 337, 350, 673, 833^4

Z, Truth in Lending 37, 47, 96, 97, 337, 338DD, Truth in Savings 338, 746, 797,

940, 949-55Regulatory burden 326-30, 332-6Reidhill, Marsha, appointed Assistant Director,

Division of Reserve Bank Operations andPayment Systems 340

Reinhart, Vincent R., promoted to Deputy AssociateDirector, Division of Monetary Affairs 749

Reserve requirements 37, 47, 326—30Reserve Requirements of Depository Institutions

(Reg. D) 37,47, 337, 350



PagesReserves, patterns in and management

strategies for 519. 523, 524Residential assets and investments 160RESPA (See Real Estate Settlement Procedures Act)Risk-based capital 38, 96, 668. 822Rules, home mortgage disclosure I l lRules Regarding Availability of Information 52, 105Rules Regarding Delegation of Authority 97

S. 1405, statements 326-30, 332-6Same-day settlement rule 338Saving rate 159Section 20 subsidiaries 337, 350Securities holdings 396, 529, 530Self-testing privilege 95, 107Semiconductors, production of 79Settlement systems 38Shack-Marquez, Janice, appointed Assistant Director,

Division of Research and Statistics 99Shannon, David L 39, 456Siegman, Charles J., Senior Adviser, Division of

International Finance, retirement 456Small businesses, loans to 707Smith, Dolores S., appointed Director, Division of

Consumer and Community Affairs 456Snyder, Barry R., appointed Inspector General,

Office of the Inspector General 540Social security reform, statement 627, 925SOMA (System Open Market Account) ... 519, 521, 530, 531, 532Sound Practices for Loan Accounting, Credit

Risk Disclosure and Related Matters,Basle Committee paper 1059

Staff Study summary, Cost of bank regulation:A review of the evidence 252

Standard & Poor's bond rating scale 900State and local governments, expenditures 163Statements to the Congress (including reports and letters)

Anti-money-laundering efforts (Herbert H. Biern) 639^3Antitrust issues related to mergers and

acquisitions (Governor Meyer) 619-27Asia financial crisis (Chairman Greenspan) 257-62Bank mergers (Governor Meyer) 438-51Circuit breakers for equity-related markets

(Governor Phillips) 184Commodity Exchange Act and derivatives

transactions (Board of Governors of theFederal Reserve System) 636-9

Consumer price index (Governor Gramlich) 451-3Developments in world finance (Chairman Greenspan) 30-2Electronic payment services (Governor Ferguson) 628-32Federal Reserve and Year 2000

(Governor Kelley) 25-31, 433-8, 929-35Federal Reserve note and Euro bank note

(Theodore E. Allison) 1054-6Financial Services Act of 1998, H.R. 10

(Chairman Greenspan) 647-59Global financial system (Chairman Greenspan) 186-90, 325,

536, 926-9, 936-8Home mortgage loans, streamlining disclosure

requirements (Governor Meyer) 725-7Long-Term Capital Management, hedge fund

Chairman Greenspan 1046—50William J. McDonough 1050-54

Medicare program (Chairman Greenspan) 429—33Over-the-counter derivatives (Chairman Greenspan) 742S. 1405 (Governor Meyer) 326-30, 332-6Social security reform (Governor Gramlich) 627, 925Social Security's Federal Old-Age. Survivors,

and Disability Insurance benefits program(Chairman Greenspan) 32-5

Truth in Lending Act and RESPA, reform(Governor Gramlich) 730-5

U.S. economy and monetary policy(Chairman Greenspan) 183, 262-7, 330-2,

632-6, 643-7, 735^2Year 2000 (Y2K), computer systems, and

international finance (Ernest T. Patrikis) 659-67Stekler, Lois E., article 309Stevens, Richard C, promoted to Deputy Director,

Division of Information Resources Management 748

PagesStock prices 601Survey of Terms of Business Lending 604-15Survey of U.S. Ownership of Foreign Long-Term

Securities, Treasury Department 318Surveys of Consumers 250System Open Market Account holdings .... 519, 521, 530, 531, 532

TECHNICAL Committee of the InternationalOrganisation of Securities Commissions (IOSCO) 38

Terms of Business Lending, Survey of, article 604—15Thompson, Portia W., EEO Programs Adviser,

Office of Board Members, retirement 39Thrift Institutions Advisory Council, new members 95Thrift institutions, C&l lending 1025-37Through-the-cycle grading 899Tier 1 leverage capital standard 538, 673, 833—4-1Tier 2 leverage capital standard 841-4Tinsley, Peter A., Deputy Associate Director, Division

of Research and Statistics, retirement 1061To Their Credit: Women-Owned Businesses, videotape 1060Towne Bancorp, Inc., enforcement action 1060Towne Bank, enforcement action 1060Trade deficit, US 311Trading activities, report 38Trading and Capital-Markets Activities Manual, 1998 339Transportation equipment, production of 80Travelers Corp., public meeting scheduled 669Treacy, William F., article 897Treasury and Federal Reserve foreign exchange

operations, articles 174-9, 420-25,716-21, 1038-43

Treasury. U.S. Department of the, Benchmark Surveyof U.S. Ownership of Foreign Long-Term Securities 318

Truman, Edwin M.Appointed Senior Adviser, Division of

International Finance 941Nomination to Assistant Secretary for International

Affairs, U.S. Treasury, Chairman Greenspan'sstatement 941

Truth in Lending (Reg. Z)Amendment 37, 47, 96Official staff commentary 337Proposed actions 97, 338Reform 730-5,746

Truth in Lending Act 268Truth in Savings (Reg. DD) 338, 746. 797, 940, 949-55Tulpan, Ted, article 517

U.S. current account balance 309U.S. economy and monetary policy, statements 183, 262-7U.S. international transactions in 1997, article 309-21U.S. trade deficit 311

VARIABLE-rate loans, disclosure regulation 96Videotape, To Their Credit: Women-Owned Businesses 1060

WAGES and compensation 165Ways to Simplify Consumer Disclosures in

Home-Secured Loans, joint report 746Weighting scheme for indexes 815Weis, John R., appointed Adviser to the Staff Director for

Management 39Wells Fargo & Company 823Whitesell, William C., appointed Assistant Director,

Division of Monetary Affairs 749Wiles, William W., Secretary of the Board. Office

of the Secretary, retirement 455World finance, statement 30-2World Wide Web site, Board's new address 748

YEAR 2000Council, Governor Ferguson appointed chairman 746Federal Reserve readiness, statements 25-31, 433-8,

659-67, 929-35Information systems readiness 1058Public awareness program 29

Young, Florence M., Assistant Director, Division ofReserve Bank Operations and Payment Systems,retirement 340


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