Announcements.

FOMC DIRECTIVE

The Federal Open Market Committee decided on November 6, 2002, to lower its target for the federal funds rate by 50 basis points to 1 1/4 percent. In a related action, the Board of Governors approved a 50 basis point reduction in the discount rate to 3/4 percent.

The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. However, incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment. Inflation and inflation expectations remain well contained.

In these circumstances, the Committee believes that today's additional monetary easing should prove helpful as the economy works its way through this current soft spot. With this action, the Committee believes that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals in the foreseeable future.

Voting for the FOMC monetary policy action were Alan Greenspan, Chairman; William J. McDonough, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jerry L. Jordan; Donald L. Kohn; Robert D. McTeer, Jr.; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.

In taking the discount rate action, the Federal Reserve Board approved the requests submitted by the boards of directors of the Federal Reserve Banks of Dallas and New York.

Subsequently, the Federal Reserve Board approved action by the board of directors of the Federal Reserve Bank of San Francisco, decreasing the discount rate at the bank from 1 1/4 percent to 3/4 percent, effective immediately.

The Board also approved action by the board of directors of the Federal Reserve Bank of St. Louis, decreasing the discount rate at that bank from 1 1/4 percent to 3/4 percent, effective Thursday, November 7, 2002.

Also on Thursday, November 7, the Federal Reserve Board approved actions by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Kansas City, decreasing the discount rate at the banks from 1 1/4 percent to 3/4 percent, effective immediately.

AMENDMENT TO REGULATION A

The Board of Governors on October 31, 2002, approved a final rule that revises the Federal Reserve's discount window programs, which provide credit to help depository institutions meet temporary liquidity needs.

The role amends the Board's Regulation A (Extensions of Credit by Federal Reserve Banks), effective January 9, 2003. It is substantially similar to a proposal that the Board published for a ninety-day public comment period on May 24, 2002.

The rule does not entail a change in the stance of monetary policy. The Federal Open Market Committee's target for the federal funds rate will not change as a result of the adoption of these programs, and the level of market interest rates more generally will be unaffected.

The rule replaces adjustment credit, which currently is extended at a below-market rate, with a new type of discount window credit called primary credit that will be broadly similar to credit programs offered by many other major central banks. Primary credit will be available for very short terms as a backup source of liquidity to depository institutions that are in generally sound financial condition in the judgment of the lending Federal Reserve Bank. The Board expects that most depository institutions will qualify for primary credit.

Reserve Banks will extend primary credit at a rate above the federal funds rate, which should eliminate the incentive for institutions to borrow for the purpose of exploiting the positive spread of money market rates over the discount rate. The Board anticipates that the primary credit rate will be set initially at 100 basis points above the FOMC's target federal funds rate.

Reserve Banks will establish the primary credit rate at least every two weeks, subject to review and determination of the Board of Governors, through the same procedure currently used to set the adjustment credit rate. The final role includes a provision that could facilitate a reduction in the primary credit rate in a financial emergency.

By employing an above-market rate and restricting eligibility to generally sound institutions, the primary credit program should considerably reduce the need for the Federal Reserve to review the funding situations of borrowers and monitor the use of borrowed funds. This reduced administration in turn should make the discount window a more attractive funding source for depository institutions when money markets tighten.

The Board's final rule also establishes a secondary credit program that will be available in appropriate circumstances to depository institutions that do not qualify for primary credit. The Board anticipates that Reserve Banks will initially establish a secondary credit rate at a level 50 basis points above the primary credit rate.

The Board made no substantive changes to the seasonal credit program.

The Board also approved a related technical amendment to the reserve deficiency penalty provision of Regulation D (Reserve Requirements of Depository Institutions).

ISSUANCE OF FINAL REGULATION W

The Federal Reserve Board on October 31, 2002, decided to issue a final Regulation W (Transactions between Banks and Their Affiliates) that comprehensively implements sections 23A and 23B of the Federal Reserve Act.

These statutory provisions and Regulation W restrict loans by a bank to its affiliates, asset purchases by a bank from its affiliates, and other transactions between a bank and its affiliates. The purpose of the statute and the role is to limit a bank's risk of loss in transactions with affiliates and to limit a bank's ability to transfer to its affiliates the benefits arising from its access to the federal safety net.

Regulation W unifies in one public document the various interpretations of sections 23A and 23B that the Board and its staff have issued over the years as well as several new interpretations of the statute. The Board expects to publish the role in the Federal Register shortly, with an effective date of April 1, 2003.

The Board also approved a final rule that rescinds the Board's existing interpretations of sections 23A and 23B in part 250 of title 12 of the Code of Federal Regulations (which have been incorporated into Regulation W) as of April 1, 2003.

In addition, the Board decided to seek public comment on a proposed role that would prevent a bank from using an exemption in Regulation W for the purchase of extensions of credit from an affiliate if purchases made under the exemption exceeded 100 percent of the bank's capital.

Comment on the proposed rule is requested within thirty days of publication in the Federal Register, which is expected shortly.

APPROVAL OF FEE SCHEDULES FOR PAYMENT SERVICES

The Federal Reserve Board on October 31, 2002, approved fee schedules for Federal Reserve Bank payment services, effective January 2, 2003.

Overall, the price level for Federal Reserve priced services will increase less than 1 percent in 2003 from 2002 levels. Because of fee reductions in electronic services in recent years, the overall price level has declined about 2 percent since 1996.

In 2003, the Reserve Banks will reduce fees for their Fedwire funds transfer, Fedwire securities, and FedACH automated clearinghouse (ACH) services. These reductions will result in a 5 percent decline in overall fees for the Reserve Banks' electronic payment services. The lower fees reflect continued efficiencies gained from consolidating the Federal Reserve's electronic payment operations. Since 1996, prices for all electronic payment services have declined approximately 47 percent.

Check service fees will increase, on average, approximately 3 percent compared with current fees. The check service continues to invest in automation and electronic check technologies, which will improve operating efficiencies at the Reserve Banks and result in long-run cost savings.

The 2003 fee schedule for each of the priced services except the check service is included in a Federal Register notice. Fee schedules for all priced services will be available on the Federal Reserve Banks' Financial Services web site at www.frbservices.org by November 5, 2002.

The Board also approved the 2003 private-sector adjustment factor (PSAF) for Reserve Bank priced services of $171.7 million. The PSAF is an allowance for taxes and other imputed expenses that would have to be paid and return on capital that would have to be earned if the Federal Reserve's priced services were provided by a private business. The Monetary Control Act of 1980 requires the Federal Reserve to recover the costs of providing priced payment services, including the PSAF, over the long run, to promote competition between the Reserve Banks and private-sector service providers.

During the period from 1992 to 2001, the Reserve Banks recovered 99.8 percent of priced services costs, including operating costs, imputed costs, and targeted return on equity (ROE, or net income). The Reserve Banks estimate that they will recover 92.2 percent of all their priced services costs in 2002 and project that they will recover 94.4 percent of these costs in 2003. The Reserve Banks project revenues of $933.7 million and costs of $883.9 million, for a net income of $49.8 million, compared with a targeted ROE of $104.7 million.

CONFERENCE ON "BANKING OPPORTUNITIES IN INDIAN COUNTRY"

The Federal Reserve Board, along with the Federal Reserve Banks of Chicago, Minneapolis, Kansas City, and San Francisco, sponsored a conference to explore ways to encourage banking opportunities in tribal communities. "Banking Opportunities in Indian Country" was held November 18-20 in Scottsdale, Arizona. The conference focused on methods and resources for encouraging initiatives and partnerships that increase access to credit and capital and strengthen local economies.

Featured speakers included Federal Reserve Board Governor Mark Olson; Rebecca Adamson (Eastern Cherokee), founder of the First Nations Development Institute; Robert Cheadle (Chickasaw), legislative counsel for the Chickasaw Nation; J.D. Colbert (Muscogee), president of the Native American Bankers Association; Stephen Cornell, director of the Udall Center for Studies in Public Policy at the University of Arizona; Mary S. Gabler, vice president and community development manager for Wells Fargo; and Lance Morgan (Winnebago), founder of Ho-Chunk, Inc. of the Winnebago Tribe of Nebraska.

The conference was designed for bankers, tribal leaders, tribal economic and housing development specialists, attorneys, and resource staff for community development. General sessions each day addressed issues and opportunities for financial service providers, tribes, and tribal members. Breakout sessions provided specific information from experts on how to lay the groundwork for making capital and credit available in Indian Country, build relationships with key partners, leverage financial opportunities, and use financial resources for community economic development initiatives.

The conference was held at the Doubletree Paradise Valley Resort in Scottsdale, Arizona. For more information call 866-226-7167 (toll free) or see the conference web site at www.federalreserve.gov/ communityaffairs/national.

ENFORCEMENT ACTIONS

The Federal Reserve Board on October 17, 2002, announced the execution of a Written Agreement by and among O.A.K. Financial Corporation, Byron Center, Michigan; the Byron Center State Bank, Byron Center, Michigan; the Federal Reserve Bank of Chicago; and the State of Michigan Office of Financial and Insurance Services.

The Federal Reserve Board on October 23, 2002, announced the issuance of an Amendment to a Cease and Desist Order against the United Central Bank, Garland, Texas.

CHANGES IN BOARD STAFF

The Board of Governors has approved the appointments of Billy Sauls as Assistant Director and Chief of Security and Donald Spicer as Assistant Director.

Mr. Sauls will have oversight responsibility for the security program for the Board's premises and personnel. He came to the Management Division in January 2002 as Chief of Security. Before coming to the Board, he spent four years as Assistant Inspector General for the U.S. Postal Service and twenty-two years with the U.S. Secret Service. Mr. Sauls holds a bachelor of arts degree from Atlantic Christian College.

Mr. Spicer will have oversight responsibility for Space Planning, Engineering and Facilities, and General Services, including the mail, postal, supply, motor transport, and cafeteria operations. Mr. Spicer came to the Board in 1987. He holds a bachelor of arts degree from the University of Virginia and an M.B.A. from the University of Maryland.