Announcements.

ROGER W. FERGUSON, JR.: APPOINTMENT AS VICE CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Roger W. Ferguson, Jr., took office October 5, 1999, as Vice Chairman of the Board of Governors of the Federal Reserve System for a four-year term ending October 5, 2003. Dr. Ferguson originally took office on November 5, 1997, as a member of the Board to fill an unexpired term ending January 31, 2000. President Clinton announced his intention to nominate Dr. Ferguson to serve as Vice Chairman on August 6, 1999, and he was confirmed by the Senate on September 29, 1999. (For the text of the White House release announcing the nomination, see the October 1999 Federal Reserve Bulletin, page 670.)

Since July 1998, Dr. Ferguson has also served as Chairman of the Joint Year 2000 Council. The Council, supported by the Bank for International Settlements, was formed to address issues associated with the Year 2000 computer challenge within the global financial supervisory community.

Dr. Ferguson was born October 28, 1951, in Washington, D.C. He received a B.A. in economics (magna cum laude) in 1973, a J.D. in law (cum laude) 1979, and a Ph.D. in economics in 1981, all from Harvard University. In 1973-74 Dr. Ferguson was Frank Knox Fellow at Pembroke College, Cambridge University.

Before becoming a member of the Board, Dr. Ferguson was a Partner at McKinsey & Company, Inc., an international management consulting firm. He was based in New York City, and he managed a variety of studies for financial institutions from 1984 to 1997. Dr. Ferguson also served as Director of Research and Information Systems, overseeing a staff of 400 research professionals and managing the firm's investments in knowledge management technologies.

In 1981-84 Dr. Ferguson was an attorney at the New York City office of Davis Polk & Wardwell, where he worked with commercial banks, investment banks, and Fortune 500 corporations on syndicated loans, public offerings, mergers and acquisitions, and new product development.

He formerly was an elected member of the Board of Directors of the Harvard Alumni Association and Treasurer of the Friends of Education, a Trustees' Committee of The Museum of Modern Art, New York City.

Dr. Ferguson is married to Annette L. Nazareth, and they have two children.

APPOINTMENTS OF CHAIRMEN AND DEPUTY CHAIRMEN OF THE FEDERAL RESERVE BANKS FOR 2000

The Federal Reserve Board on September 20, 1999, announced the appointment of chairmen and deputy chairmen of the boards of directors of the twelve Federal Reserve Banks for 2000.

Each Reserve Bank has a board of directors of nine members. The Board of Governors in Washington appoints three of these directors and designates one of its appointees as chairman and a second as deputy chairman. Following are the names of the chairmen and deputy chairmen appointed by the Board for 2000:

Boston

William C. Brainard, Professor, Department of Economics, Yale University, New Haven, Conn., renamed Chairman.

William O. Taylor, Chairman Emeritus, The Boston Globe, Boston, Mass., renamed Deputy Chairman.

New York 

Peter G. Peterson, Chairman, The Blackstone Group, New York, N.Y., named Chairman. Deputy Chairman--To be announced.

Philadelphia

Joan Carter, President and Chief Operating Officer, UM Holdings Ltd., Haddonfield, N.J., renamed Chairman. Charisse R. Lillie, Partner, Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pa., renamed Deputy Chairman.

Cleveland

David H. Hoag, Former Chairman, The LTV Corporation, Cleveland, Ohio, named Chairman. Deputy Chairman--To be announced.

Richmond

Jeremiah J. Sheehan, Chairman and Chief Executive Officer, Reynolds Metals Company, Richmond, Va., named Chairman.

Richmond--Continued

Wesley S. Williams, Jr., Partner, Covington & Burling, Washington, D.C., named Deputy Chairman.

Atlanta

John F. Wieland, Chief Executive Officer and Chairman, John Wieland Homes and Neighborhoods, Inc., Atlanta, Ga., renamed Chairman.

Paula Lovell, President, Lovell Communications, Inc., Nashville, Tenn., renamed Deputy Chairman.

Chicago

Arthur C. Martinez, Chairman and Chief Executive Officer, Sears, Roebuck and Co., Hoffman Estates, Ill., named Chairman.

Robert J. Darnall, President and Chief Executive Officer, Ispat North America, Chicago, Ill., named Deputy Chairman.

St. Louis

Susan S. Elliott, Chairman and Chief Executive Officer, Systems Service Enterprises, Inc., St. Louis, Mo., renamed Chairman.

Charles W. Mueller, Chairman, President, and Chief Executive Officer, Ameren Corporation, St. Louis, Mo., renamed Deputy Chairman.

Minneapolis

James J. Howard, Chairman, President, and Chief Executive Officer, Northern States Power Company, Minneapolis, Minn., named Chairman.

Ronald N. Zwieg, President, United Food & Commercial Workers, Local 653, Plymouth, Minn., named Deputy Chairman.

Kansas City 

Jo 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.

Dallas

Roger R. Hemminghaus, Chairman, Ultramar Diamond Shamrock Corp., San Antonio, Tex., renamed Chairman.

H.B. Zachry, Jr., Chairman and Chief Executive Officer, H.B. Zachry Company, San Antonio, Tex., named Deputy Chairman.

San Francisco 

Gary G. Michael, Chairman and Chief Executive Officer, Albertson' s, Inc., Boise, Idaho, renamed Chairman.

Nelson C. Rising, President and Chief Executive Officer, Catellus Development Corporation, San Francisco, Calif., renamed Deputy Chairman.

STATEMENT BY VICE CHAIRMAN ROGER W.. FERGUSON, JR., ON THE CREATION OF THE FINANCIAL SERVICES INFORMATION SHARING AND ANALYSIS CENTER

Vice Chairman Roger W. Ferguson, Jr., issued the following statement on October 1, 1999:

The Federal Reserve supports the creation of the Financial Services Information Sharing and Analysis Center in response to the President's directive to protect our nation's banking and financial services from the threat of physical and cyber attacks.

The public and private sectors must work together to counter this threat. The center will foster private-public cooperation by permitting the timely analysis of and reliable exchange of information on computer attacks, threats, and security vulnerabilities.

The creation of the center couldn't be coming at a more opportune time. It builds on the close cooperation between financial service providers and their regulators that has characterized the preparation for the rollover to the Year 2000. By working on the century date change, we have a better understanding of the risks posed to mission-critical systems and the essential business processes that rely on these systems. We've learned to develop plans for maintaining business continuity and exchanging information if something goes wrong. This is exactly what we must do to protect the financial infrastructure so vital to our country's economic health from disruption by terrorists or criminals.

ISSUANCE OF EXAMINATION GUIDANCE ON CREDIT DISCIPLINE AT BANKS

The Federal Reserve on September 28, 1999, issued examination guidance cautioning against possible relaxation of credit discipline at banks. Although at this time loan portfolios remain sound overall, indications of departures from proven sound lending practices--in particular, overreliance on optimistic views of the borrowers' prospects and favorable economic and financial conditions--have been a recurring theme emerging from recent supervisory reviews of bank credit quality.

At the same time, over the past several quarters the volume of weak or potentially weak loans--that is, those falling into the classified or special mention categories used by supervisors--has risen at some institutions. Although the increases are generally attributable to industry-specific or global economic developments, these increases are significant because they have appeared despite the continued favorable economic and financial climate in the United States.

Supervisory reviews indicate that the vulnerability of these loans was heightened in some cases by weak underwriting practices. The guidance, contained in a supervisory letter sent to Federal Reserve bank examiners and supervisors as well as banking organizations supervised by the Federal Reserve, describes three key areas in which some banks may have strayed from historically sound lending practice:

* Approving loans based on a very optimistic assessment of a borrower's operating prospects or on the assumption that a borrower will always have ready access to financial markets

* Failing to perform meaningful stress tests--or if performed, to take such tests adequately into account--of a borrower's ability to withstand events such as unexpected shocks to operating revenue 

* Weakening internal controls critical to maintaining the rigor and discipline of lending decisions.

"While loan portfolios are currently sound at the vast majority of banks, any trends toward laxity need to be reversed where they exist to ensure that the banking system remains strong and vibrant and retains the ability to lend to sound borrowers in good times and in bad," wrote Richard Spillenkothen, Director of the Federal Reserve's Division of Banking Supervision and Regulation.

The guidance instructs Federal Reserve examiners and supervisors to be alert for indications that undue reliance on favorable assumptions about borrowers or the economy and financial markets more generally has led banks to reduce the rigor of their credit decisions or delay recognition of emerging loan weakness. If examiners observe such undue reliance, delays in recognition of problem loans, or significant weakening of internal risk-management processes, they should carefully consider whether these developments warrant a downgrade in one or more elements of the bank's overall supervisory rating for safety and soundness.

Supervisory letters are the Federal Reserve's primary means of communicating key policy directives to its examiners, supervisory staff, and the banking industry. Supervisory letters can be viewed on the Board's World Wide Web home page at www.federalreserve.gov/boarddocs/srletters/

MEETING OF THE CONSUMER ADVISORY COUNCIL

The Federal Reserve Board announced on September 28, 1999, that the Consumer Advisory Council would hold its next meeting on Thursday, October 21. The council's function is to advise the Board on the exercise of its responsibilities under the Consumer Credit Protection Act and on other matters on which the Board seeks its advice.

JOINT REPORT ON Y2K PROGRESS

On September 16, 1999, with only 106 days remaining before the new century begins, leaders from the five federal agencies that regulate banks, thrift institutions, and credit unions (the Federal Reserve Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision) joined together to report to the nation that insured financial institutions are prepared for the Year 2000 date change.

The agency officials said that 99.7 percent of the nation's insured institutions are now rated satisfactory--the highest rating given for Y2K readiness. The few institutions that are not yet rated satisfactory are receiving very close regulatory attention, they added.

Appearing on September 16 at a press conference at the National Press Club to discuss financial industry readiness were the following: John D. Hawke, Jr., Comptroller of the Currency; Donna Tanoue, Chairman of the Federal Deposit Insurance Corporation; Edward W. Kelley, Jr., Member, Federal Reserve Board; Ellen Seidman, Director, Office of Thrift Supervision; and Norman E. D'Amours, Chairman, National Credit Union Administration.

The regulators stressed that they had closely evaluated the Y2K readiness of each insured financial institution.

"We're not just taking their word for it," said Mr. Hawke. "Federal examiners have conducted Y2K examinations in each insured financial institution at least twice, and in some cases, three, four or more times. The largest banks have received continuous Y2K oversight."

The results, Mr. Hawke said, show how effective the efforts of regulators and financial institutions have been. "Right now, 99.7 percent of all federally supervised financial institutions have finished their renovations and tests of their systems--not just the systems that house their personal records and run their elevators, but the systems that bank customers rely upon for access to their funds."

The remaining few, he said, "are receiving intensive, on-site supervision to ensure that they, too, will experience no disruptions of the systems their customers depend upon when the long anticipated day arrives."

Consumers can also rely upon the guarantees provided by the Federal Deposit Insurance Corporation (FDIC), which oversees the insurance funds that back deposits in banks and thrifts, and the National Credit Union Share Insurance Fund (NCUSIF), which protects credit union depositors.

"There are few guarantees in life, but the FDIC and NCUSIF offer one of them," said Ms. Tanoue. "No one has ever lost a cent in a federally insured account. And no one will."

Mr. Kelley explained the steps that the Federal Reserve has taken to ensure bank and thrift customers continuous access to their funds. Among them, the central bank has additional currency inventory, and it has created a special borrowing facility to ensure that banks and thrifts have access to funds if needed for their Y2K preparations.

"We have stressed that we see no need for the public to hold additional cash," Mr. Kelley said. "We feel strongly that the most sensible thing to do with your money is to leave it where it is, but our responsibility is to make sure the public knows that currency is readily available."

Ms. Seidman said that consumers can take steps "to ensure that their own personal financial transition into the new century is a smooth one," and to safeguard themselves in the event there are minor glitches.

Consumers should keep copies of financial records and balance their checkbooks regularly, the Office of Thrift Supervision Director said. They should keep up with news about Y2K, recognize scare stories for what they are, and separate fact from fiction. Consumers should also be realistic and withdraw only as much money from their financial institution as they would for any other holiday weekend. Ms. Seidman also urged consumers to be wary of Y2K scams.

"Be skeptical and tell friends and relatives to be skeptical if someone asks for account information, credit card numbers, social security numbers or your mother's maiden name," she said. "Be wary if promised that your money will be put into a Y2K safe account or told that your personal information is needed to make Y2K adjustments. Simply put, it isn't."

Mr. D'Amours noted that most banks, thrifts, and credit unions are already using Y2K-ready systems successfully and that operating those systems before January 1 provides evidence of how compliant systems will work after January 1.

"I want to tell you all where my money will be and where I've advised my mother to keep her money when the clock strikes midnight December 31, 1999," the National Credit Union Administration Chairman said. "My money, and if she takes my advice, my mother's money, will be where it is now, in our credit union, where it's safe and insured against loss by the U.S. Government."

ISSUANCE OF A JOINT STATEMENT ON TEMPORARY BALANCE SHEET GROWTH

The five federal banking agencies issued on September 28, 1999, the following joint statement that

addresses the agencies' supervisory approach to possible temporary balance sheet growth due to potential unusual market responses around the century date change.

Joint Interagency Statement September 28, 1999

Introduction

As part of their efforts to foster readiness for Year 2000, the Federal banking agencies have issued guidance to banking organizations calling for the development of contingency plans to address funding, liquidity, and other issues. In this regard, bank and thrift management are responsible for establishing realistic liquidity and funding plans and programs that are supported by the organization's financial strength, capital position, and risk management capabilities.

Unusual market responses to the century date change could lead to temporary balance sheet growth at some banking organizations during the century date change period. This growth could occur if a banking organization were to receive unusually large deposit inflows during the period. Similarly, such temporary asset growth could occur if corporate borrowers make unusual draws on their existing lines of credit, or request new lines, in response to a perceived need for extra liquidity during the century date change period. Absent other factors, large deposit inflows or increases in extensions of credit would likely result in an increase in total assets.

Supervisory Approach to Temporary Balance Sheet Growth

All banking organizations are responsible for managing prudently any temporary balance sheet growth that may occur. As part of the Federal banking agencies' Year 2000 supervisory program, supervisors will assess the development and content of banking organizations' contingency plans, including those that address funding and liquidity needs. These plans should address possible effects on the organization's balance sheet that may arise as a result of unusually large deposit inflows and significantly increased lending. It is likely that relatively few banking organizations will experience Year 2000-related asset growth that is significant in relation to their size, and any such asset growth is expected to be temporary. Some organizations that experience significant Year 2000-related asset growth may, despite prudent balance sheet management techniques, also experience a temporary decline in their regulatory capital ratios as a result of responding to customers' needs over the century date change period. Such a decline has the potential to result in certain consequences for the organization under statutes and regulations that the Federal banking agencies administer. If an organization believes such a situation could arise, management is urged to contact its primary supervisor to discuss options to address these issues. In assessing supervisory options, the Federal banking agencies will consider whether the institution exercises prudent and responsible measures to manage its balance sheet, maintains a fundamentally sound financial condition, and provides evidence that any drop in capital ratios is temporary.

Any questions on this issue should be directed to the banking organization's primary supervisor.

JOINT ISSUANCE OF HOST STATE LOAN-TO-DEPOSIT RATIOS FOR DETERMINING COMPLIANCE WITH THE INTERSTATE ACT

The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation on September 3, 1999, issued the host state loan-to-deposit ratios that the banking agencies will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Interstate Act). These ratios update data released on August 13, 1998.

Section 109 prohibits any bank from establishing or acquiring a branch or branches outside its home state under the Interstate Act primarily for the purpose of deposit production and provides a two-step process to test compliance with the statutory requirements.

The first step involves a loan-to-deposit ratio screen that compares a bank's statewide loan-to-deposit ratio to the host state loan-to-deposit ratio for banks in a particular state. The second step requires the banking agencies to determine if the bank is reasonably helping to meet the credit needs of the communities served by the bank's interstate branches. A bank that fails both steps is in violation of section 109 and is subject to sanctions by the banking agencies.

ENFORCEMENT ACTIONS

The Federal Reserve Board on September 8, 1999, announced the execution of a written agreement by and among First Security Bancshares, Inc., Lake Park, Iowa; the Security State Bank, Milford, Iowa; and the Federal Reserve Bank of Chicago.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against William Barber, an institution-affiliated party of the First Western Bank, Cooper City, Florida, a state member bank.

The individual, without admitting to any allegations, consented to the order to resolve allegations that he violated the Change in Bank Control Act in connection with his acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against William Carmichael, an institution-affiliated party of the First Western Bank, Cooper City, Florida, a state member bank.

The individual, without admitting to any allegations, consented to the order to resolve allegations that he violated the Change in Bank Control Act in connection with his acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against Richard Edwards, Vivian Edwards, and Jeremy Edwards, all institution-affiliated parties of the First Western Bank, Cooper City, Florida, a state member bank.

The individuals, without admitting to any allegations, consented to the order to resolve allegations that they violated the Change in Bank Control Act in connection with their acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against Grant Marant, an institution-affiliated party of the First Western Bank, Cooper City, Florida, a state member bank.

The individual, without admitting to any allegations, consented to the order to resolve allegations that he violated the Change in Bank Control Act in connection with his acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against Linda Marant, an institution-affiliated party of the First Western Bank, Cooper City, Florida, a state member bank.

The individual, without admitting to any allegations, consented to the order to resolve allegations that she violated the Change in Bank Control Act in connection with her acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against David Nieminen and Gay Lynn Nieminen, both institution-affiliated parties of the First Western Bank, Cooper City, Florida, a state member bank. The individuals, without admitting to any allegations, consented to the order to resolve allegations that they violated the Change in Bank Control Act in connection with their acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against James Rouse and Jenene Rouse, both institution-affiliated parties of the First Western Bank, Cooper City, Florida, a state member bank.

The individuals, without admitting to any allegations, consented to the order to resolve allegations that they violated the Change in Bank Control Act in connection with their acquisition of beneficial ownership of the shares of the bank.

The Federal Reserve Board on October 1, 1999, announced the issuance of a consent order against H. Burns Warfield, an institution-affiliated party of the First Western Bank, Cooper City, Florida, a state member bank.

The individual, without admitting to any allegations, consented to the order to resolve allegations that he violated the Change in Bank Control Act in connection with his acquisition of beneficial ownership of the shares of the bank.

ERRATA: FEDERAL RESERVE BULLETIN ARTICLE

"The Launch of the Euro" in the October 1999 Bulletin contains the following errors. On page 656, the text states that the European Central Bank came into formal existence on July 1, 1998; in fact the date was June 1, 1998. On page 657 in table 3, the third item in the last column states that the rotation of four of the remaining eleven regional Federal Reserve Bank presidents is on a two-year basis; in fact, the rotation is on a one-year basis. On page 663, the text states that in the first quarter of 1999, the TARGET system processed a daily average of more than 150,000 transactions valued at 966 billion euros ($863 billion); in fact, the dollar value was $1,081 billion. Also on page 663, the text of note 14 states that alternative payment systems run frequent batch settlements throughout the day; these systems actually run net settlements.

The version of the article on the Board's public web site (http://www.federalreserve.gov) incorporates these corrections.

CHANGE IN BOARD STAFF

The Board of Governors announced that Lewis S. Alexander, Deputy Director, Division of International Finance, resigned in October 1999.