Announcements.

FEDERAL OPEN MARKET COMMITTEE DIRECTIVE

The Federal Open Market Committee decided on March 18, 2003, to keep its target for the federal funds rate unchanged at 1 1/4 percent.

While incoming economic data since the January meeting have been mixed, recent labor market indicators have proven disappointing. However, the hesitancy of the economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties. The Committee believes that as those uncertainties lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to economic activity sufficient to engender an improving economic climate over time.

In light of the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decisionmaking, the Committee does not believe it can usefully characterize the current balance of risks with respect to the prospects for its long-run goals of price stability and sustainable economic growth. Rather, the Committee decided to refrain from making that determination until some of those uncertainties abate. In the current circumstances, heightened surveillance is particularly informative.

Voting for the FOMC monetary policy action were Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Ben S. Bernanke; Susan S. Bies; J. Alfred Broaddus, Jr., Roger W. Ferguson, Jr., Edward M. Gramlich; Jack Guynn, Donald L. Kohn, Michael H. Moskow, Mark W. Olson, and Robert T. Parry.

REVISIONS TO OFFICIAL STAFF COMMENTARY ON REGULATION Z

The Federal Reserve Board on March 28, 2003, issued revisions to the official staff commentary that applies and interprets the requirements of Regulation Z, which implements the Truth in Lending Act.

The commentary revisions discuss the status of certain credit-card-related fees and the rules for replacing an accepted credit card with one or more cards.

In addition, the commentary revisions discuss the disclosure of private mortgage insurance premiums and the selection of Treasury security yields for determining whether a mortgage loan is covered by provisions in Regulation Z that implement the Home Ownership and Equity Protection Act.

At the time the proposed commentary revisions were published in December 2002, the Board also requested comment and information from the public about the design and operation of overdraft or "bounced check" protection services. Board staff is continuing to gather information on these services and will determine at a later date whether additional guidance for financial institutions is warranted under Regulation Z or other laws.

The revisions are effective April 1, 2003. The date for mandatory compliance is October 1, 2003.

JOINT FEDERAL RESERVE AND TREASURY REPORT ON GLOBAL COUNTERFEITING

The Federal Reserve Board and the Treasury Department on March 14, 2003, issued a joint report to Congress stating that procedures to combat international counterfeiting of U.S. currency are becoming more effective.

U.S. dollars are held and widely used around the world, and the popularity and ubiquity of the dollar make it a potential target for counterfeiters. The incidence of counterfeiting has declined markedly with the introduction of the 1996-series currency. An upcoming new series currency, to be introduced later this year, will further enhance the security of U.S. banknotes.

The report, The Use and Counterfeiting of United States Currency Abroad, Part II, mandated by the Congress as part of the Anti-Terrorism and Effective Death Penalty Act of 1996, represents a comprehensive review of the international use and counterfeiting of U.S. currency. The report details how the combined efforts of the Treasury, United States Secret Service, and Federal Reserve have held the incidence of counterfeiting at relatively low nominal levels.

"We continue to improve our currency and resist efforts by counterfeiters the world over to produce and pass counterfeit U.S. notes," said Treasury Secretary John W. Snow. "Only by such efforts can we guarantee that our currency will continue to remain a symbol of American strength and stability."

"U.S. currency continues to hold an important place in the payment system at home and abroad and maintaining its integrity is of utmost concern to the Federal Reserve," said Roger Ferguson, Vice Chairman of the Board of Governors of the Federal Reserve System. "A secure currency precludes the need for businesses, merchants and the public to expend significant resources and time validating the genuineness of currency. When payment systems work well, the economy functions more efficiently."

This second report to the Congress on the use and counterfeiting of U.S. currency abroad provides further evidence that improved note designs have been more difficult for counterfeiters to copy. The result has been much smaller proportions of counterfeits of new design notes among notes processed at Federal Reserve Banks.

According to the report, efforts to protect U.S. currency continue to be effective. The incidence of counterfeiting is low, with approximately one counterfeit note per 10,000 notes worldwide. The U.S. Secret Service is working closely with overseas banks and law enforcement agencies to help suppress counterfeiting activities.

The report highlights important steps the U.S. government is currently taking to combat global counterfeiting:

* The Secret Service web site allows law enforcement agencies and currency handlers worldwide to report instances of counterfeiting and to learn more about the characteristics of a suspect note.

* The Federal Reserve Bank of New York has established overseas cash depots at foreign commercial banks. These facilities allow overseas dollar users to obtain new U.S. currency more efficiently and increase the repatriation rate of worn and old-design U.S. currency.

* U.S. enforcement agencies are working with their overseas counterparts to target cities and countries that first receive counterfeit notes in the wholesale distribution chain.

The study concludes that overseas holdings of U.S currency ranged between $340 billion and $370 billion out of the roughly $620 billion in U.S. currency held outside U.S. depository institutions in the last quarter of 2002.

According to the report, advances in reprographic and computer technology will continue to necessitate new and innovative responses to maintain the overall security of U.S. currency. These efforts will include further security enhancements to the currency design, enhanced cooperation with international law enforcement agencies and additional training of foreign law enforcement, and financial officials in counterfeit detection.

The report is available online at http:// www.federalreserve.gov/boarddocs/rptcongress/ counterfeit2003.pdf.

UPDATE OF INTERAGENCY POLICY STATEMENT ON INTERNAL AUDITING

The federal banking and thrift regulatory agencies on March 17, 2003, revised their guidance on the independence of accountants who provide institutions with both external and internal audit services to reflect the provisions of the Sarbanes-Oxley Act of 2002.

The updated Interagency Policy Statement on the Internal Audit Function and Its Outsourcing, which replaces a policy issued in 1997, also reflects the agencies' experience with the 1997 policy and incorporates recent developments in internal auditing. It was issued by 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.

The Sarbanes-Oxley Act and recently adopted Securities and Exchange Commission (SEC) rules prohibit an accounting firm from acting as the external auditor of a public company during the same period that the firm provides internal audit services to the company. The revised policy statement separately discusses the applicability of this prohibition to institutions that are public companies; insured depository institutions with $500 million or more in assets that are subject to the annual audit and reporting requirements of section 36 of the Federal Deposit Insurance Act; and nonpublic institutions that are not subject to section 36.

The existing guidelines for institutions subject to section 36 provide for their external auditors to meet the SEC's independence requirements. Auditors for these institutions, whether or not they are public companies, should comply with the prohibition on internal audit outsourcing in the SEC's rules.

The policy statement encourages nonpublic institutions not subject to section 36, which includes nonpublic depository institutions with less than $500 million in assets, to refrain from outsourcing internal audit activities to their external auditor. If such an institution decides to use the same firm for both internal and external audit work, however, the audit committee should document its consideration of the independence issues associated with this arrangement.

In addition to changes related to the Sarbanes-Oxley Act, the agencies enhanced the 1997 policy statement's discussion of the responsibilities of the board of directors and senior management with respect to the internal audit function and its placement within an organization, its management and staffing, and the communication of concerns and weaknesses in accounting and internal control. The policy also reiterates the need for institutions to maintain strong systems of internal control, including internal controls over financial and regulatory reporting, and high-quality internal audit programs. Expanded guidance has been provided on the use of independent reviews of significant internal controls by small institutions that do not have a formal internal audit manager or staff. The policy statement also includes guidance for examiners on addressing concerns they may have about the adequacy of the internal audit function or related outsourcing arrangements.

INTERAGENCY PAPER ON SOUND PRACTICES TO STRENGTHEN THE RESILIENCE OF THE U.S. FINANCIAL SYSTEM

Three federal regulatory agencies on April 8, 2003, issued an "Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System." Among other things, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Securities and Exchange Commission identified sound practices to strengthen the resilience of critical U.S. financial markets and minimize the immediate systemic effects of a wide-scale disruption.

On September 5, 2002, the agencies published for comment a draft of the paper in the Federal Register. The agencies have incorporated many of the suggestions that were made. The final paper, which applies most directly to the clearing and settlement activities of a limited number of financial institutions, provides more flexibility to firms in managing geographic dispersion of backup facilities and staffing arrangements, and takes into account other considerations relevant to cost-effective implementation of sound practices.

ONLINE RESOURCE ON PERSONAL FINANCIAL EDUCATION

The Federal Reserve Board on March 28, 2003, announced the launch of an online resource for researchers, educators, program directors, and others interested in advancing financial education programs.

The Financial Education Research Center was developed by the Federal Reserve Bank of Chicago to promote excellence in financial education by encouraging research and disseminating information through its repository of research studies and listings of major financial education programs throughout the country. The Center is housed on the Chicago Reserve Bank's web site (www.chicagofed.org/ cedric/index.cfm).

The Federal Reserve Board and the twelve Federal Reserve Banks undertake a variety of educational programs and partnerships with financial education providers. The Financial Education Research Center is one aspect of the Federal Reserve's efforts to increase awareness and further the implementation of effective financial education programs and initiatives. To date, little broad-based empirical data have been gathered regarding the most effective means for improving individuals' personal financial practices. The online center is an additional tool for those interested in supporting financial education.

Inquiries regarding the submission of material for inclusion on the site should be directed to [e-mail].

MINUTES OF DISCOUNT RATE MEETINGS

The Federal Reserve Board on March 28, 2003, released the minutes of its discount rate meetings from January 6 to January 27, 2003.

ENFORCEMENT ACTIONS

The Federal Reserve Board on March 17, 2003, announced the execution of a written agreement by and between Midstate Bancorp, Inc., Hinton, Oklahoma and the Federal Reserve Bank of Kansas City. The Federal Reserve Board also announced the execution of a written agreement by and among the Legacy Bank, Hinton, Oklahoma, the Federal Reserve Bank of Kansas City, and the Oklahoma State Banking Department. The Legacy Bank is a subsidiary of Midstate Bancorp, Inc.

The Federal Reserve Board on March 21, 2003, announced the execution of a written agreement by and between Barnes Banking Company, Kaysville, Utah, and the Federal Reserve Bank of San Francisco.

The Federal Reserve Board on March 27, 2003, announced the execution of a written agreement by and among Fifth Third Bancorp, Cincinnati, Ohio; the Fifth Third Bank, Cincinnati, Ohio; the Federal Reserve Bank of Cleveland; and the State of Ohio Department of Commerce, Division of Financial Institutions.

STAFF CHANGES

Maureen P. English, Associate Director in the Division of Consumer and Community Affairs, retired from the Board on April 3, 2003, after nearly twenty-seven years of service.

The Board of Governors has also approved the following officer promotions and appointment:

* The promotions of Marianne Emerson to Director and Maureen Hannan to Deputy Director in the Division of Information Technology;

* The appointment of H. Fay Peters as Deputy Director in the Management Division.

Marianne Emerson was appointed to the official staff as an Assistant Director in 1990 and has since managed all of the division's critical operations through a series of progressively more responsible assignments. Ms. Emerson has served as Deputy Director of the Division of Information Technology since 1999 and as Acting Director since 2002.

Maureen Hannan was appointed to the official staff in 1998 and had oversight responsibility for the collection and editing of the Board's micro economic and financial statistical data. Ms. Hannan has represented the Board on many Federal Reserve, interagency, and private-sector forums addressing information technology issues.

H. Fay Peters will have oversight responsibility for the day-to-day operations of the Management Division, including Human Resources, Finance and Accounting, Facilities, and the security program for the Board's premises and personnel. Ms. Peters joined the Federal Reserve System in 1982 as an attorney at the Federal Reserve Bank of Boston and was Assistant Counsel and Assistant Corporate Secretary when she left the Boston Bank in 1988 for a Senior Counsel position at the Federal Reserve Bank of Minneapolis. She was promoted in 1999 to Vice President and Equal Employment Opportunity (EEO) Officer. Ms. Peters has a B.S. degree in business administration from Northeastern University and a J.D. degree from the Boston University School of Law.