Announcements.

ACTION BY THE FEDERAL OPEN MARKET COMMITTEE AND AN INCREASE IN THE DISCOUNT RATE

The Federal Open Market Committee on November 16, 1999, voted to raise its target for the federal funds rate by 25 basis points to 5 1/2 percent. In a related action, the Board of Governors approved a 25 basis point increase in the discount rate to 5 percent.

Although cost pressures appear generally contained, risks to sustainable growth persist. Despite tentative evidence of a slowing in certain interest-sensitive sectors of the economy and of accelerating productivity, the expansion of activity continues in excess of the economy's growth potential. As a consequence, the pool of available workers willing to take jobs has been drawn down further in recent months, a trend that must eventually be contained if inflationary imbalances are to remain in check and economic expansion continue.

Today's increase in the federal funds rate, together with the policy actions in June and August and the firming of conditions more generally in U.S. financial markets over the course of the year, should markedly diminish the risk of inflation going forward. As a consequence, the directive the Federal Open Market Committee adopted is symmetrical with regard to the outlook for policy over the near term.

In taking the discount rate action, the Federal Reserve Board approved requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Cleveland, Richmond, and Kansas City. Subsequently the Board approved similar requests by the board of directors of the Federal Reserve Bank of San Francisco, also effective on November 16; by the boards of directors of the Federal Reserve Banks of Atlanta and Dallas, effective November 17; and by the boards of directors of the Federal Reserve Banks of St. Louis, New York, Philadelphia, Chicago, and Minneapolis, effective November 18. The discount rate is the rate charged depository institutions when they borrow short-term adjustment credit from their District Federal Reserve Banks.

MODIFICATIONS TO THE SETTLEMENT FINALITY FOR ACH CREDIT TRANSACTIONS PROCESSED BY FEDERAL RESERVE BANKS

The Federal Reserve Board on November 12, 1999, approved modifications to the settlement finality for automated clearinghouse (ACH) credit transactions processed by the Federal Reserve Banks so that settlement becomes final when posted to depository institutions' accounts. The Board will require prefunding for any ACH credit transactions that settle through a Federal Reserve account that is being monitored in real time to help manage settlement risk.

The Reserve Banks will be modifying their software and their ACH operating circular to implement settlement-day finality. To permit time for these changes, settlement-day finality and prefunding will be implemented in early 2001. A specific implementation date will be announced three months in advance of the effective date.

ADJUSTMENT OF THE DOLLAR AMOUNT THAT TRIGGERS CERTAIN DISCLOSURE REQUIREMENTS UNDER THE TRUTH IN LENDING ACT

The Federal Reserve Board on November 3, 1999, published its annual adjustment of the dollar amount that triggers additional disclosure requirements under the Truth in Lending Act for mortgage loans that bear fees above a certain amount.

The Board has adjusted the dollar amount from $441 for 1999 to $451 for 2000 based on the annual percent change reflected in the consumer price index that was in effect on June 1, 1999. The adjustment is effective January 1, 2000.

The Home Ownership and Equity Protection Act of 1994 bars credit terms such as balloon payments and requires additional disclosures when total points and fees payable by the consumer exceed $400 (to be adjusted annually) or 8 percent of the total loan amount, whichever is larger.

PROPOSED ACTION

The Federal Reserve Board on November 3, 1999, published proposed revisions to the official staff commentary that applies and interprets the requirements of Regulation Z (Truth in Lending). Comments are requested by January 10, 2000.

REVIEW OF PUBLICATIONS ACTIVITIES OF THE FEDERAL RESERVE BOARD

The Federal Reserve Board on November 3, 1999, announced a review of its publications activities. As part of this effort, the Board is seeking public comment on how the Board's publications are individually and collectively meeting information needs and to offer suggestions for improving or possibly eliminating some publications or adding new ones. Comments are requested by December 17, 1999.

SURVEY RESULTS ON CONSUMER CONFIDENCE IN BANKS' Y2K PREPARATIONS

The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) announced on November 18, 1999, the results of a survey by the Gallup Organization. According to the survey, current figures indicate that nine out of ten U.S. bank customers believe that their banks are ready for the Year 2000--or Y2K. By comparison, a March survey found that an estimated 76 percent of bank customers were confident that their banks would solve the Y2K problem.

Both surveys were sponsored by federal financial institution regulatory agencies. The Federal Reserve Board and the FDIC sponsored the current survey, which was delivered to the agencies on November 15, 1999. The results, which are based on about 1,400 completed interviews, are from an ongoing survey of adult Americans who have bank accounts.

"The survey underscores growing consumer confidence that banks are prepared for Y2K and that it will be business as usual for bank customers on January 1, 2000 and thereafter," said FDIC Chairman Donna Tanoue.

The most recent Gallup report indicates that financial institutions have been informing their customers about their Year 2000 readiness. The percentage of American adult depositors who have received information about Y2K readiness from their financial institutions has significantly increased over the past seven months: An estimated 70 percent now report receiving information from their financial institution, compared with 23 percent in March. Additionally, in March, 52 percent of respondents reported having seen or heard a great deal about the Y2K issue, but that percentage is now up to 68 percent.

Only about 5 percent of bank customers currently indicate that they are very concerned about the Y2K issue, down from 11 percent in the March report. The November findings support the notion that a decreased level of concern about the likely effect of the century date change on computers is related to increased information about the Y2K issue. Consumer confidence in their own financial institutions has also increased. More than 90 percent of those surveyed expressed confidence in their own banks, with the proportion of those saying they would definitely or probably take extra cash declining from 62 percent to 39 percent in the period between the March and October surveys. A majority of those who plan to withdraw extra cash say that they will take less than $500.

The survey results also indicate that the public is increasingly confident that basic payment systems will work properly during the century date change. Most American adult depositors believe that they will have access to their money; that checks will continue to be processed accurately; and that automatic teller machines, credit card systems, and electronic direct deposits will function normally.

Edward W. Kelley, Jr., a member of the Board of Governors of the Federal Reserve System stated,

From the beginning of our preparations for Y2K we said that there were two challenges facing us--the technical challenge and the challenge of public confidence. I believe we've met the technical challenge and these data indicate we've made good progress in ensuring Americans know we are ready for the century rollover.

Over the past three years, FDIC-insured financial institutions have been identifying and overhauling systems to make them Year 2000-ready. At the same time, the regulatory agencies have been closely monitoring their efforts. As of today, the regulators have assigned a "Satisfactory" rating, the highest possible rating, to 99.9 percent of FDIC-insured financial institutions.

RELEASE OF A REPORT ON A SURVEY OF WEB SITE PRIVACY

The four federal banking agencies (the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Office of Thrift Supervision) on November 9, 1999, released a report on the results of a survey of Internet privacy policies of banking and thrift institutions.

The survey report, titled Interagency Financial Institution Web Site Privacy Survey Report, examined 314 World Wide Web sites selected randomly, plus those of the 50 largest banks and thrift institutions with web sites. Conducted during May and July by the federal agencies that supervise the institutions, the survey examined the collection of consumer information, interactive capabilities, and privacy disclosures at these sites. The purpose of the survey was to provide an indication of the state of the industry with respect to data collection and on-line privacy disclosures.

Overall, 48 percent of the 364 web sites surveyed posted a privacy disclosure--a privacy policy (a comprehensive statement regarding the collection and use of consumer information) or an information practice statement (a statement describing a particular information handling policy or practice, such as data security). Sixty-two percent of web sites that collected personal information provided a privacy disclosure. Sites that collected personal information were three times as likely to post a privacy policy as sites that did not collect personal information. The survey also found that 96 percent of the nation's fifty largest banks and thrifts that are on-line provided a privacy policy or information practice statement.

The agencies began work on the survey in February 1999. The agencies will monitor, as appropriate, the industry's progress in responding to consumer privacy issues and complying with the new legal mandates contained in the financial services reform legislation through regular supervisory activities.

This survey supplements previous web site surveys that did not focus on financial institutions, such as the Federal Trade Commission's "Privacy Online: A Report to Congress" (June 1998), and the Georgetown Internet Privacy Policy Survey "Privacy Online in 1999: A Report to the Federal Trade Commission" (June 1999). Because the sample population and content of the questionnaire used to conduct the interagency survey differ materially from those in the surveys cited, direct comparisons between the results of the various surveys should not be made.

Copies of the survey report are available on the agencies's web sites.

INCREASE IN ADVERSELY CLASSIFIED SYNDICATED BANK LOANS

The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency released data on November 10, 1999, on syndicated bank loans rated adversely by examiners. According to the data, syndicated bank loans rated adversely by examiners increased in 1999 from low levels. The agencies released aggregate data for the past six years and data by major industry sector for the past three years.

Under the Shared National Credit (SNC) Program, the agencies review large syndicated loans annually, usually in May and June. The program, established in 1977, is designed to provide an efficient and consistent review and classification of any loan or loan commitment shared by three or more institutions and totaling $20 million or more.

In 1999, the SNC Program covered 8,974 credits to 5,587 borrowers totaling $1.8 trillion in drawn and undrawn loan commitments. Of the total, $37.4 billion, or 2 percent, was classified adversely because of default or other significant credit concerns. That was up from the lowest level this decade, 1.3 percent in 1998, but still significantly below the 4.1 percent level reached in 1994.

Borrowers have drawn down about a third of the $1.8 trillion in loan commitments, or $630 billion. Of this amount, $33 billion, or 5.3 percent, was classified adversely, up from 3.2 percent in 1998 but down from 11 percent in 1994.

The percentage of adversely classified credits rose in 1999 for most major industry sectors compared with 1998. The rise was sharpest for service industries because of a large increase in problem loans in the health-care sector. Other industries recording an increase included oil and gas and wholesale and retail trade.

Credits listed as "special mention" by examiners because of potential weakness--a less serious category than the three adverse classifications: substandard, doubtful, and loss--totaled $31.4 billion in 1999, up from $22.8 billion in 1998 but about the same as in 1994.

ENFORCEMENT ACTIONS

The Federal Reserve Board on November 16, 1999, announced the issuance of a consent order against Robert and Adele Barber, 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 November 16, 1999, announced the issuance of a consent order against Matthew J. Callahan, 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 November 16, 1999, announced the issuance of a consent order against

Bertram Smith, 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 November 16, 1999, announced the execution of a written agreement by and among Heritage Bancorp Company, Inc., Cleveland, Oklahoma; the First Bank of Cleveland, Cleveland, Oklahoma; the Federal Reserve Bank of Kansas City; and the Oklahoma State Banking Department.