Announcements.

FEDERAL OPEN MARKET COMMITTEE DIRECTIVE

The Federal Open Market Committee decided on October 5, 1999, to leave its target for the federal funds rate unchanged.

Strengthening productivity growth has been fostering favorable trends in unit costs and prices, and much recent information suggests that these trends have been sustained.

Nonetheless, the growth of demand has continued to outpace that of supply, as evidenced by a decreasing pool of available workers willing to take jobs. In these circumstances, the Federal Open Market Committee will need to be especially alert in the months ahead to the potential for costs to increase significantly in excess of productivity in a manner that could contribute to inflation pressures and undermine the impressive performance of the economy.

Against this background, the Committee adopted a directive that was biased toward a possible firming of policy going forward. Committee members emphasized that such a directive did not signify a commitment to near-term action. The Committee will need to evaluate additional information on the balance of aggregate supply and demand and conditions in financial markets.

REGULATION CC: FINAL RULE

The Federal Reserve Board on October 28, 1999, announced adoption of a final rule amending Regulation CC (Availability of Funds and Collection of Checks), to clarify the extent to which depository institutions and others may vary the terms of the regulation by agreement for the purpose of instituting electronic return systems. The rule is effective December 15, 1999.

The Board requested comments on this rule in February 1999. Rather than adopting any of the options it proposed, the Board has revised the Commentary to Regulation CC to add examples of interbank agreements on electronic presentment and return of checks. This revision will not affect the rights of any parties to the checks under Regulation CC.

EXAMINATION FREQUENCY CYCLE FOR BRANCHES AND AGENCIES OF FOREIGN BANKS: FINAL RULE

The Federal Reserve Board, along with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, on October 21, 1999, issued a final rule on a proposal to expand the examination frequency cycle for certain U.S. branches and agencies of foreign banks. The rule was effective October 22, 1999.

This rule finalizes an interim rule, effective August 28, 1998, that made U.S. branches and agencies of foreign banks with total assets of $250 million or less eligible for an eighteen-month examination cycle if they met the qualifying criteria set out in the rule. The ruling will implement provisions of section 2214 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996.

PROPOSED ACTION

The Federal Reserve Board on October 18, 1999, announced an extension of the comment period on proposals to allow electronic delivery of federally mandated disclosures. On September 14, 1999, the Board published revised proposals for public comment under five consumer protection regulations: B (Equal Credit Opportunity), E (Electronic Fund Transfers), M (Consumer Leasing), Z (Truth in Lending), and DD (Truth in Savings). The original deadline for public comment was October 29, 1999. The Board extended the comment period until November 15, 1999.

LOW RESERVE TRANCHE ADJUSTMENT

The Federal Reserve Board on October 6, 1999, announced a decrease from $46.5 million to $44.3 million in the net transaction accounts to which a 3 percent reserve requirement will apply in 2000. This procedure is known as the low reserve tranche adjustment.

The Board also changed from $4.9 million to $5.0 million the amount of reservable liabilities of each depository institution that is subject to a reserve requirement of 0 percent.

Additionally, the Board increased the deposit cutoff levels that are used in conjunction with the exemption level to determine the frequency and detail of deposit reporting required for each institution from $81.9 million to $84.5 million for nonexempt depository institutions and from $52.6 million to $54.3 million for exempt depository institutions.

For depository institutions that report weekly, the low reserve tranche adjustment and reservable liabilities exemption adjustment will apply to the reserve computation period that begins Tuesday, November 30, 1999, and the corresponding reserve maintenance period that begins Thursday, December 30, 1999.

For institutions that report quarterly, the low reserve tranche adjustment and the reservable liabilities exemption adjustment will apply to the reserve computation period that begins Tuesday, December 21, 1999, and the corresponding reserve maintenance period that begins Thursday, January 20, 2000.

In addition, normal shift procedures will resume in September 2000 for nonexempt institutions that would otherwise have shifted from quarterly to weekly reporting, and for exempt institutions that would otherwise have shifted from annual to quarterly reporting in September 1999 but for Y2K adjustments to the category shift procedures.

AVAILABILITY OF A NEW COMMUNITY DEVELOPMENT WEB SITE

The Federal Reserve Board on October 13, 1999, announced the availability of a new Internet site, 1stSource Community Development Resource Guide, designed to help people find resources for affordable housing, business development, community infrastructure, and agribusiness. The new site, developed by the Federal Reserve Bank of Kansas City, can be accessed at www.1stsource.kc.frb.org/

"The strength of 1stSource is its simplicity," said Thomas M. Hoenig, President of the Federal Reserve Bank of Kansas City.

With dozens of federal programs available, it can be difficult to pinpoint what is needed for a project. This is the first time people have had one source for community and economic development information. People interested in financing projects that benefit economically-disadvantaged individuals, small businesses, small farms, and local communities will find 1stSource especially useful.

1stSource users can describe their projects by clicking on specific characteristics, such as type of project, the kind of financial or technical assistance needed, and project location. lstSource will then locate grant and loan programs and other resources that fit those characteristics and provide a brief one-page summary. If a program looks promising, users can contact the agency through the Internet link, telephone number, or address provided.

The Community Affairs staff at the Federal Reserve Bank of Kansas City collaborated with federal agencies to make this service available. Agencies involved include the following: the Small Business Administration, the Economic Development Administration, the Department of Housing and Urban Development, the Bureau of Indian Affairs, the Department of Agriculture, the Federal Home Loan Banks, the Federal Agricultural Mortgage Corporation (Farmer Mac), the Department of Health and Human Services' Office of Community Services, and the Department of Veterans Affairs. lstSource has also invited states to include information about their programs.

For more information on lstSource, contact John A. Wood, Assistant Vice President and Community Affairs Officer, Community Affairs Department, Federal Reserve Bank of Kansas City (telephone [phone], extension 2203).

ISSUANCE OF JOINT GUIDANCE BY FEDERAL REGULATORS ON RISKS IN HIGH LOAN-TO-VALUE RESIDENTIAL REAL ESTATE LENDING

Federal financial institution regulators (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision) on October 12, 1999, advised banks and thrift institutions about the risks associated with high loan-to-value (LTV) residential real estate loans. The guidance reminded insured institutions that the Interagency Guidelines for Real Estate Lending Policies adopted in 1992 apply to these transactions.

The 1992 guidelines advised institutions that they would come under increased supervisory scrutiny as the total of all high LTV loans approached 100 percent of total capital. The guidance just issued describes steps regulators may take if an institution's high LTV loan portfolio exceeds 100 percent of total capital. Supervisory action might include a request to sell high LTV loans, raise additional capital, or submit a plan to achieve compliance with the capital limitation.

High LTV residential loans carry higher risks than more traditional residential real estate loans. However, the regulators advised banks and thrift institutions that high LTV residential loans--which represent 90 percent or more of the value of the residence held as collateral--can be profitable when risks are effectively managed and loans are priced based on that risk.

The regulators also recognize that high LTV residential loans can serve a useful purpose in helping financially burdened borrowers consolidate and manage their debts. The regulators said that the guidance just issued is not intended to--and should not--restrict access to mortgage credit for affordable housing for low- and moderate-income borrowers. For example, high LTV home loans may be used to help first-time homebuyers by financing closing costs or rehabilitation costs into their mortgage. There is also no intent in the guidance to restrict financing of well-managed community development or rehabilitation programs.

The guidance listed four primary credit risks associated with this type of loan: increased risk of default and losses; inadequate collateral; longer terms, creating longer periods of exposure; and limited default remedies.

This guidance is intended to remind financial institutions of their obligations to effectively manage the risks in their high LTV loan portfolios and to comply with fair lending and consumer protection laws and regulations.