[Congressional Record Volume 140, Number 60 (Monday, May 16, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: May 16, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
       THE FEDERAL RESERVE AND THE FEDERAL OPEN MARKET COMMITTEE

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
February 11, 1994, and because there is no designee of the minority 
leader, the gentleman from Texas [Mr. Gonzalez] is recognized for 60 
minutes as the designee of the majority leader.
  Mr. GONZALEZ. Mr. Speaker, as I have said repeatedly, the central 
decisionmaking committee of the Federal Reserve is the Federal Open 
Market Committee. It is here, since about 1923, the Federal Reserve Act 
of 1913 certainly did not provide for that, but a lot of things have 
happened since the enactment of that law and the creation of the 
Federal Reserve Board.
  Today, Mr. Speaker, we would think that the Federal Reserve Board was 
sent from heaven, with no responsibility to anybody, but one thing for 
sure, not to be accountable, either to Congress or the President. The 
Federal Open Market Committee, ``open market'' does not mean it is an 
open committee. It is closed doors, absolutely, strict secrecy. Of 
course, it has the all-powerful determination of what your standard of 
living is or is going to be or is currently being determined, and has 
been for some couple of decades, and that is certainly, too, the 
advantage of the traditional American standard of living that we have 
always boasted of. It is the one that determines the fate of an 
administration.
  Members may think, as some citizens have written, very learned and 
experienced corporate heads who themselves have been involved in very, 
very effective and long-reaching financial transactions, both 
nationally and internationally, and they keep calling and writing and 
saying, ``But we always assumed that the Congress would be there and 
would not have relinquished its total oversight jurisdiction, and 
vested this so-called board with such powers.''
  For many, many years past, and more recently on several repeated 
occasions, I have given my colleagues the intricacies of what is the 
Federal Reserve Board. It is not a government body, it is a creature of 
the private commercial banking system. I have gone into that before, so 
I will not repeat it. It simply amazes me how many of my colleagues and 
how many citizens of great position seem to be surprised that actually 
there is no accountability. It can determine the fate of an 
administration simply by such things as interest rates.
  It is very interesting to me, I have been on the Committee on 
Banking, Finance and Urban Affairs, which used to be known as the 
Committee on Banking and Currency, and since 1975 has been known as the 
Committee on Banking, Finance and Urban Affairs, since I came to the 
Congress 32\1/2\ years ago.
  Up until just relatively recently, no more than 8 years, every 
Federal Reserve Board Chairman that would appear before the committee 
would say that they had nothing to do with controlling interest rates, 
that those things were the result of, and they consistently repeated 
it, the profligacy of Congress and the market, so-called. Now they not 
only admit it, they brag about it.
  The truth of the matter is, as I have pointed out, in a brief hearing 
before the committee, to the immediate predecessor Chairman of the 
Federal Reserve Board, Paul Volkmer, I asked him, ``Isn't it a fact 
that today we no longer can control those forces that are now external 
to our shore that actually, no matter what we do domestically, will 
determine such things as interest rates?''

                              {time}  1210

  And he acceded to the point.
  So, Mr. Speaker, even though they boast today openly, all those years 
they refused to accept that responsibility. But they can determine the 
fate of an administration by simply determining what it is they will 
pay, that is, the bankers, because the Federal Reserve Board is 
private. It is a corporation. The Congress does not have any stock in 
it. The President does not have any stock in it. The stock is owned by 
the commercial banks and the members of the Federal Reserve Board 
System. They can determine the price of treasuries and thereby in 
effect have such rippling effects as interest rates and determine the 
fate of an administration.
  Mr. Speaker, actually this has happened. It happened in 1972, it 
happened again in 1980 when the prime interest rate went to the 
incredible rate of 21 percent.
  Mr. Speaker, all history, as I have said repeatedly, shows that there 
is not one society that has survived usury. And if 21 percent prime 
interest rate is not usury or an extortionate interest rate, then I do 
not know what the definition of usury is.
  Mr. Speaker, this forceful buy mysterious body known as the Federal 
Open Market Committee recently established a formal trilateral facility 
with two foreign governments that involves granting foreign loans and 
lines of credit. The Constitution says that only the Congress can do 
that, not even the President, only the Congress. That is what is wrong 
with this so-called trilateral setup. And what is wrong is the funds 
have never been appropriated, nor authorized, by the U.S. Congress. 
This is where so many of these corporate heads just in the last 10 days 
have communicated their shock. They were not award of that.
  How many of my colleagues think that there are interest rate controls 
or usury laws? On the national level, we have not had any since the 
National Currency Act of 1865, which incidentally was foremost in 
Abraham Lincoln's mind when he was shot. He knew what was coming. But 
can my colleagues imagine any of my predecessors, at the beginning of 
my career, the chairman then thinking that interest rates would even 
reach, prime interest rates over 7 percent, much less 20 percent and 21 
percent? Why, they would have and I am sure they have turned over in 
their grave 50 times. But not today.
  The truth of the matter is, my colleagues, as optimistic as I am 
inherently, I think the time is long gone where through the ordinary 
course of events the Congress is going to regain power. Power, as 
Frederick Douglass said, never yields except on demand. It never has 
and it never will. Do we think these vast financial and banking and 
corporate oligarchs and plutocrats are going to yield this tremendous 
power of determining the fate of the financial and economic well-being 
of a whole country? Why, of course not. We can forget about it. Not 
willingly. Is the Congress going to rise? I hope, I always pray.
  Mr. Speaker, five of the members of this Federal Open Market 
Committee who discussed and voted to authorize these lines of credit 
and permanent loan facilities to foreign countries have never been 
confirmed by the Senate and, therefore, are not constitutional 
officers, even if by strict legal definition such were the case. They 
were selected by the directors of the Federal Reserve banks, two-thirds 
of whom are elected by private commercial bankers, and there is and 
always has been serious doubt about the Fed's unilateral claim to the 
power to make these deals.
  Mr. Speaker, I have voiced that since we first heard of such things 
as swaps. On April 26, the Federal Reserve joined with the Treasury 
Department to establish a permanent trilateral foreign exchange, what 
they will call swap facility with the Governments of Mexico and Canada. 
This international loan facility should be of the utmost importance to 
U.S. taxpayers whose taxes have been and continue to be placed at risk 
by these foreign exchange interventions, foreign loans and lines of 
credit to foreign countries.
  Mr. Speaker, who determines what country? These gentlemen who account 
to nobody except their own interest.
  It is important to understand just what this recent $6 billion swap 
facility for Mexico entails for which the Fed pledges of that amount, 
the Fed's part, even through they announced their $6 billion guarantee 
several weeks ago, they have actually under this agreement pledged $3 
billion to benefit Mexico. However, if the Mexican Government wanted $6 
billion in United States currency tomorrow and went into the market to 
buy United States dollars with pesos, the price of pesos would fall and 
it is unlikely they could make the trade at current exchange rates. A 
guarantee of the transfer at any time at current exchange rates is a 
guarantee of a substantial subsidy to the Mexican Government. When 
activated, the $6 billion swap formally transfers this subsidy to 
Mexico.
  A week ago, I brought on my colleagues, ``Now, here it is.'' This 
use, I say illegal and unconstitutional, of taxpayers' money could be 
so easily found in the range of billions. Yet just 3 years ago that 
great historic State of Rhode Island was facing bankruptcy and the 
banks were closed and the credit unions were closed and the savings and 
loans were closed and we had a hearing in May of 1991 and we had a 
thousand of these Rhode Islanders, elderly, there had been an increase 
of almost 50 percent in the relief rolls because most of the elderly 
had their pension resources, which is what was keeping them tied up. 
The great sovereign State of Rhode Island only needed a line of credit 
so that it could issue bonds.
  Mr. Speaker, I tried to get the Fed, and they have the power, to do 
it. Did they do it? Why, they would not even discuss it.
  I tried to get the other entities, the FDIC and the like, and not a 
word. So we had to come back. And on June 28 in the Committee on 
Banking, Finance and Urban Affairs, to the glory of each Member, we 
passed out a line of credit guarantee program so that Rhode Island 
could pledge its revenues from the sales tax to guarantee the issuance 
of the bonds and pay back, or never have to use that guarantee from the 
government. But we had to do it when it did not require legislation. It 
could have been done by these same powerful oligarchic entitles that 
find it easy to provide billions for foreign governments but not for 
one of our own sovereign States.
  My colleagues, I think that is not only shameful, I think it is 
criminal and it is a direct challenge to use who have been elected by 
the people to represent their interest, not the bankers, but their 
interest for us not to rise as one and protest and correct and reform 
and handle it in the way the Constitution says it should be done.

                              {time}  1220

  In truth, the so-called guarantee is a loan of United States dollars 
to Mexico, collateralized by pesos. There is no denying that giving 
U.S. dollars to a foreign government with conditions for repayment is 
simply a loan for U.S. dollars.
  In a May 9, 1994, letter I received from the Federal Reserve 
Chairman, Alan Greenspan, he asserted there is no exchange-rate risk 
since the loan is scheduled to be repaid at the initial exchange rate 
and interest can be earned on foreign currencies held. However, default 
risk, the probability of failure to repay, is not eliminated.
  A guarantee of a line of credit, such as the $3 billion rate now 
available to Mexico, places United States taxpayers' funds at risk in 
the event of default. That is why I am asking the Federal Reserve to 
provide full details of all its foreign-currency operations including 
completed Federal Open Market Committee transcripts where these 
important international currency arrangements are discussed. These 
transcripts have not been available. In fact, when we had that historic 
meeting last October and had all the Presidents and Governors, they 
attempted to deceive the committee and thereby the Congress, and we 
discovered that they had been keeping these transcripts.
  But do they want to make them available to the representatives of the 
people? Absolutely not. And that is something that I have discussed at 
great length before, so I will not extend it.
  Now, one of the most important objectives of the legislation I have 
introduced known as H.R. 28, the Federal Reserve System Accountability 
Act of 1993, is to increase the Federal Reserve's accountability to the 
public. Knowing how individual members of the FOMC decide on different 
issues serves to improve the public trust and enhances the ability of 
the Federal Reserve to carry out appropriate monetary policy.
  I congratulate Chairman Greenspan and his colleagues on the Federal 
Open Market Committee for taking the important step of properly 
releasing recent monetary policy decisions, just recently and again 
under pressure.
  Now, if the Fed would only take the next step of making complete 
transcripts of its eighth annual FOMC meetings promptly available to 
the public, people can know when and why the Federal Reserve is using 
taxpayers' money for foreign-exchange intervention, foreign loans, and 
lines of credit to foreign countries, at least that much; we will be 
able to hear the discussion why, what were the reasons, what were the 
Members who had different ideas, and how many of them spoke up. I think 
that is important for us to know, not that it changes the basic 
responsibility of this power to lend falling within the constitutional 
mandated authorization and appropriation processes.
  Now my colleagues, you may not realize this, but the Congress never 
gave the Federal Reserve approval to establish what has today become a 
$30 billion swap fund. This amount that the Fed has amounts to $30.1 
billion. Why, that amount of money would take care of all of our 
housing programs that we have not been able to fund and appropriate 
for, just that amount.
  But this is their reserve for foreign countries. Which ones? Depends. 
We do not know expect now and then, like when they released the $6 
billion arrangement with Mexico, or at least the line of credit.
  Chairman Greenspan's response to my letter on May 9 raises even 
further doubts about the legality of the Federal Reserve's use of these 
appropriated funds that are used to make loans to foreign governments 
and to extend to them lines of credit. The Federal Reserve's periodic 
forays into foreign policy by way of its swap fund is certainly an 
issue that should be of immense concern to the Congress.
  The Federal Reserve began its foreign-currency operations in 1962, 
and ever since then; now 1962 was President Kennedy, and I was abroad 
here, and I raised my voice then. Of course, I was relatively a 
freshman, and you certainly were supposed to be seen and not heard even 
at that time, but I always have spoken out.
  This was done without congressional authorization.
  William McChesney Martin, who was the Chairman of the Federal Reserve 
at that time, did not want to formally ask the Congress for 
authorization, because he said the Federal Reserve did not know what it 
needed, and I am going to quote. The Congress probably would not want 
to put itself in the position of approving something if the Federal 
Reserve was not clear about its wishes in the matter. That is reflected 
in the minutes of the FOMC, the Federal Open Market Committee, of 
February 13, 1992. Chairman Martin notified the Congress of the Federal 
Reserve's intention to establish the swap fund, but he did this not 
openly but by burying it in a nine-page speech he gave January 30, 
1962, to the Joint Economic Committee. He mentioned in his testimony 
that the Federal Reserve Bank of New York, acting as an agent for the 
Treasury, had used the Treasury's exchange stabilization fund, the fund 
on which the Federal Reserve's swap fund is based, for operations not 
previously undertaken since World War II with the aim of ``defending 
the dollar from speculative forays.''
  I think I was the only one in the Congress that mentioned that there 
was such a thing as speculation, but in 1962, in the 1960's in fact, 
who much thought that that big tide after the war period of well-being 
would ever end? And that America was the richest country in the world, 
and the only one, even then, we were unaffected with that virus, and 
nobody paid much attention. It was certainly no concern.
  But there were two things that happened that were clear signals. 
Right after 1960, the trade account for the first time showed a deficit 
of $10 billion. I spoke out and said the reason for that was simple. 
There were tremendous watershed periods of change since 1950, and I 
gave some statistics. Then I said in 1950, the late 1940's and 1950, 
the United States truly was producing almost 80 percent of the world's 
needs, but by 1960, it was not even 40 percent, and today it is not 
even 19 percent.
  So naturally sooner or later, I said then, things are going to have 
to happen for us to foresee, plan ahead, and see how we can anticipate 
these forces that will eventually turn us around.
  Also, the emergence in the 1960's of the megacorporate, 
international, or translational institutions; I spoke out on the 
Record. It is not what I am saying now. Of course, at that time nobody 
used special orders on the floor. You could write them out, submit them 
for the Record, and they would be printed as if you had uttered them. I 
never thought that was the intent of what got to be called specials 
orders, but which is not the technical word for it.

                              {time}  1230

  I came to the floor, made the speech, and it is in the Record. I 
pointed out that the United States, by necessity, since there were 
nations arising in Europe and Asia that would soon supplant and compete 
with the United States--but that is history, but I am giving you this 
part of the history as to the genesis or the beginning of this so-
called SWAP. Now, it is interesting, but at that time the chairman of 
the Federal Reserve Board realized what the law says. Why? That first 
chapter of the first section of the Federal Reserve Act of 1913 says 
the Federal Reserve shall be the fiscal agent of the U.S. Treasury. 
Now, at that time and until, again, the 1960's, in fact President 
Kennedy, during his brief but inspiring period, restored and therefore 
you could in 1961, 1962, 1963, you could dig into your pockets and if 
you took out five $1 notes, the chances are at least two of those were 
U.S. Treasury notes. Today you look at your $1 bill, $5, $10, $20, and 
it says ``Federal Reserve'' notes, meaning the Federal Reserve is the 
one that is printing our money. That is the commercial bankers, not the 
U.S. Government.
  So, lo and behold, as the law says, the Federal Reserve shall be the 
fiscal agent of the Treasury, and it is now the Treasury's fiscal agent 
or just agent or the handmaiden of the Federal Reserve Board.
  But it is interesting that in 1962 Chairman Martin said, ``Well, we 
are going to act as the agent for Treasury,'' which has the so-called 
stabilization of SWAP fund. At that time, then-Congressman Richard 
Bolling of Missouri asked Chairman Martin to explain. What? Because 
Congressman Bolling was on the Joint Economic Committee. Chairman 
Martin replied this way, and I quote:

       I want to make clear, Mr. Bolling, that the Federal Reserve 
     is not anxious to engage in this type of activity. The 
     Treasury stabilization fund has experimented with this kind 
     of operation since March of this year in a very small way, 
     and we have come to the view that however we should require 
     these currencies.

  And it is not possible to spell out here, ``what we are aiming at is 
to keep the speculators from unseating us.`` That was the Joint 
Economic hearing of 1962, pages 181 and 182.
  Chairman Greenspan has attached to his May 9, 1994, letters, a 
document prepared by the Federal Reserve general counsel, who at that 
time was Howard Hackley. This document, dated November 2, 1962, is 
entitled ``Legal Aspects of Proposed Plan for Federal Reserve 
Operations and Federal Currencies.'' It states with respect to the 
Federal Reserve's proposed SWAP fund, and I am going to quote, ``This 
matter is admittedly subject to a question, and while it is unlikely 
that the plan would be challenged in court, there can be no assurance, 
in the absence of legislation.'' and I repeat, ``in the absence of 
legislation, that it would not be criticized from some sources on legal 
grounds.''
  The general counsel goes on to say:

       Consultation with banking and currency committees 
     admittedly the question is debatable, particularly in view of 
     the 1933-1934 position of the board. Moreover, it may be 
     noted that in 1932, Senator Carter Glass had criticized 
     certain foreign operations of the Federal Reserve Bank of New 
     York which might be considered similar to those now 
     contemplated as being contrary to law. Senator Glass 
     suggested that such operations were inconsistent with the 
     Federal Reserve Act.

  And I say certainly with respect to the Constitution. The general 
counsel of the Federal Reserve said:

       In view of the uncertainties as to the construction of the 
     law and the history of this matter, it might be desirable, 
     before instituting the plan now proposed, to inform the 
     Banking and Currency Committees of the Congress.

  So the Fed notified Congress, well, in a speech, as I said earlier. 
As I have noted, Chairman Martin tried his best to play down the Fed's 
plan to establish a SWAP fund when he testified before the Congress. 
The extent of the Fed's obfuscation is illustrated by the fact that the 
Fed never asked the Congress for enabling legislation. Why not? The 
idea was to go ahead with as little fuss as possible, which is always 
the argument given to us; act quick, fast.
  I have always said that fast Government can be dangerous Government. 
If Congress did not pick up on the importance of the deal, so much the 
better, for in the Fed's eyes silence would amount to consent, and the 
idea was not to wake any sleeping watchdogs.
  There was not unanimity, though, at the Federal Reserve for that 
decision to establish a SWAP fund. During the 1962 Federal Reserve 
meetings, one of the Federal Reserve Board governors, J.L. Robertson, 
expressed concern about the proposed establishment of this fund. 
Chairman Greenspan has been trying to play down the extent of Governor 
Robertson's concerns. In his May 9th letter to me, Chairman Greenspan 
depicts the dissent at the February 13, 1962, FOMC meetings as the 
expression of mere reservation. I disagree with that interpretation.
  During that meeting, Governor Robertson asked if there were any 
advantages aside from the Federal Reserve's unlimited pocketbook--and 
by the way, that reminds me, at the time in 1984 that the Continental/
Illinois Bank went under, and incidentally the Congress and our 
committee, unfortunately, never did go into that to establish the 
underlying cause. It was a harbinger of the crisis that still continues 
to confront us in the financial and, with reference to my concern, the 
insured depository institutions. Why? Because those are the ones that 
the taxpayers' guarantee stands behind.
  But in 1984 the Continental/Illinois went under, and it took, as I 
found out later, $6 billion of the Fed--and that is taxpayers' money--
to shore things up. Now, the reasons why that crisis were first 
underlying causes and then immediate causes--the immediate cause was 
that the Continental/Illinois had changed from its old conservative, I 
would not use the word conservative, but frugal and prudent methods and 
went into competition with the New York international banks, thinking 
that they were going to be No. 1. In effect, the year before it went 
under, it was rated the No. 1 bank. And when it did so, it exposed 
itself, as our whole country is exposed today. The Treasury, which just 
until recently the Japanese owned two-thirds of our Treasury, of our 
debt, and in direct acquisition of assets and indirect acquisition of 
assets, we hear a lot about the Japanese, but Great Britain has 2\1/2\ 
times more than the Japanese and that is inclusive of banking.
  In fact, in California, the Japanese banking interests own over 25 
percent. This is the reason why I had the only hearings any committee 
really had on pertinent sections of the so-called NAFTA Agreement, the 
ones that we held, three, three hearings.

                              {time}  1240

  We were totally blanked out by the press. They did not report it, did 
not cover it and did not want to go into it. But it was very 
disturbing, and in those hearings we brought out more than several 
things, and that was that the so-called Free Trade Agreement had very 
little to do with trade. Over 90 percent of it is the power that the 
big banks in our country--that was the locomotive. It was chapter 14 
information which we had the hearings entitled, ``Banking and Finance 
to the Port of NAFTA.''
  The big banks, where Mexico has an exposure of over $80 billion, it 
has not even been able to pay the interest. It has had to roll over the 
interest. These banks thought, boy, we get NAFTA pushed through, and, 
when it is in place, Mexico will be able to pay us $10 billion a year.
  Well, it is illusory. Why? Because in opening it up for the American 
banks, and it will be a few, it also, for the first time, is now 
apparent that in the United States we have subsidiaries of foreign 
banks, as we brought out, that still needs a Congress to act. Our 
committee is still acting on BNL, BCCI, because it shows a 
vulnerability to these foreign monies and activities of our system, 
and, believe it or not, NAFTA is supposed to be a regional--maybe 
Western Hemisphere, so we will have after GATT, which will be known as 
a world trade organization after a while--will give the Asia, Japanese, 
et cetera, block the European Community block and, of course, the 
United States Western Hemisphere. But Japan has been coming in, as well 
as France, and other countries in Latin America, like they did before 
World War II. -----------------------------------------------

  So, NAFTA is supposed to ensure the hegemony of banking and financial 
activity, but, lo and behold, I have news for my colleagues: Since you 
did it in secrecy, the Congress for the first time conceded and 
delegated what I consider to be nondelegable constitutional power. Wait 
and see. Time will tell. But in the meanwhile the Japanese banks, 
through their subsidiaries in the United States, have found a way to 
get into Mexico. That, my friends, is what we were trying to bring out 
in order to have a full evaluation of this agreement that was reached 
in total secrecy.
  Who wrote that agreement? NAFTA? Can any of my colleagues mention the 
participants? I say, ``No, you can't.'' We brought that out in one of 
those three hearings.
  But also going back to 1984, this is the hubris, this is the spirit 
of power, total, incontrovertible and unquestioning power, that these 
folks demand and get from the Fed, and have gotten.
  After that we had a brief hearing, after Continental went under. It 
went under because immediately a little shopping mall bank in Oklahoma 
had a get an up and go 28-year-old, and he came to Continental and was 
able to evade the time-honored limitation in banking where no one bank 
can lend more than 15 percent with resources to any one borrower. Well, 
this old smart boy, whiz kid, he was able to come to different layers 
of the Continental Illinois and far exceed that. Then when the oil 
depression hit, he could not pay. Continental began to suffer some 
questions. The word went out into the foreign press, and soon the 
Japanese and the German investors pulled out $8.3 billion in 3 days. 
Boom went the bank. Fed came in with $6 billion.
  So, when Mr. Chairman Volcker came before us I asked him one 
question: Well, you say that the reason you did that is because you're 
not going to suffer. Because of the ripple effect any large bank could 
go under. Now suppose you have two or three more of these?
  He said: ``I don't care. I will use every resource of this country to 
save them.''
   I say: ``Now isn't that wonderful, to have that tremendous, unheard 
of, unprecedented in the annals of human history, power, to have these 
private banketeers through bad judgment, bad banking, be able to be 
shored up by the taxpayer and saved from their folly?
  And then there was born this so-called too-big-to-fail doctrine. I 
could not persuade the chairman at that time to have followup hearings 
and challenge that power. Absolutely not.
  So I must say, by way of parenthesis, that, when Governor Robertson 
asked if there were any advantages, aside from the Federal Reserve's 
unlimited pocketbook, and this is what Paul Volcker had in mind: I will 
use every resource this country owns, every resource. For what? To save 
the privileged bankers from their folly?
  Mr. Speaker, I ask, ``Wouldn't it be nice if other businessmen who 
lost out because of something they couldn't control in the market could 
have the same provision? Keep them in business even though they failed?

  Governor Robertson opposed the Federal Reserve's entry into the 
operation partly on legal grounds. His objections were very strong, as 
revealed in the minutes, not like Chairman Greenspan is trying to pawn 
them over now. At the February 13, 1962, board of governors meeting he 
voted against amending regulation and to authorize the Federal Reserve 
to conduct a planned foreign exchange operation. Only after that 
authority was passed, giving away the boys' authority to the FOMC, did 
he join with the majority later in the day at the FOMC meeting. His 
opposition was indeed much more telling than having mere reservations 
and should be reviewed by present FOMC members and others interested in 
the way the original swap facility came into existence.
  Chairman Greenspan sent the Committee on Banking, Finance and Urban 
Affairs a list of 60 institutions which the Federal Reserve Bank of New 
York transacted foreign exchange business for U.S. monetary authorities 
since 1989. I would like to know how these institutions are selected 
and what safeguards are in place to prevent the release of exploitable 
inside information about foreign currency operations, which 
incidentally is one of the biggest worldwide gambling casinos in 
operation on the so-called futures on international currency, worth and 
transactions, and I have spoken out on that before so I will not repeat 
it today.
  But I want to know how these institutions are selected, at 60 since 
1989. Is this information insiders could learn about and then make a 
profit from, as happened in the other section where the Federal Reserve 
has this privileged select group in the case of these security bankers 
buying Treasury bills and where we had the big steel buy the big firm 
out of New York less than 2 years ago. What happened after that? Did 
they ever pay that money, about $2 billion, the Treasury lost on that 
gambling? No, they did not.

                              {time}  1250

  They were fined about $200 million. With this a distinct possibility, 
can we be confident that the Fed is really minding the store? After 
all, we have already seen how bond traders could and did abuse their 
privileged position in what I just referred to, the Treasury bond 
market.
  The legislation I have introduced, the Federal Reserve System 
Accountability Act of 1993, significantly increases congressional 
oversight of the Fed without tampering with any of its independence in 
such things as determined monetary policy, not at all.
  In fact, even a distinguished member of the committee, the ranking 
minority members, says, whether he agrees or not, that my position is 
relatively mild, that there is nothing radical about it. Of course it 
is not, unless we are willing now to say that if you stand up to have 
accountability to the people who elected us, I say to my colleagues, is 
being radical, unless we are ready to say that we will 
unconstitutionally delegate the nondelegable power mandated only by the 
Constitution as the power to declare war, the power to coin our money, 
and the power to determine the value thereof. That is vested only in 
the Congress, and there were good reasons for that.

  But until we address this question, the Congress has abdicated its 
power. Anyone who believes in an open accountable government should 
and, I hope, will join me in finding these Fed-imposed restrictions an 
outrage. I have asked and I have pleaded with my colleagues to join me 
in this effort. The American people have every right to complete 
accountability.
  Of course, there have always been two schools of thought throughout 
mankind's experience with government--those who believe that unless 
there was a select group chosen because of superior ability to tell the 
people what was good for them, why, no good would come of it and you 
would not have law and order.
  Then you have the other school of thought that says, no, that maybe 
in the short run people will make mistakes but in the long run the 
people are the better judges as to what is good or best for them. And 
that has been at the core of the American idea of government.
  But we are now insuring ourselves to the European continental concept 
of accepting their idea with contentment in the midst of poverty and 
abdicating our ability to govern ourselves to some of these exclusively 
selected higher beings, the bankers, to tell us how they are going to 
struggle in our behalf, and in secret. They are so proud of this that 
they do it all in secret.
  No, I say the time is upon us. It is later than we think, I say to my 
colleagues, and I ask them to join me in this legislation. There are 
these powerful banking lobbyists who have written it off for this 
Congress, but I am going to try and will keep on trying as long as I am 
discharging this responsibility. Even as I have had the responsibility 
before, I still have this responsibility.
  The bill also requires the General Accounting Office, the only arm we 
have in Congress, to oversee the executive branch, to scrutinize 
certain Federal Reserve operations, including those of the Swap Fund. 
The Fed lobbied congress in 1978 so that the GAO would not be allowed 
to investigate a swap. We came very close in 1978, but not quite, and 
the Federal Reserve, through its bank members and lobbyists, really 
worked it over.
  Anyone who believes in an open and accountable government will join 
me. I repeat, in protesting and correcting these injustices. I hope 
that I can elicit the support necessary on H.R. 28. I have a fairly 
good number of members of the committee, but we are going to have to 
have a definite majority to get it out of committee.
  This so-called central bank known as the Fed should no longer have 
the ability to arrogate to itself new powers and keep all of us in the 
dark about its policies and processes. All we seek is just plain 
simple, honest accountability.
  Mr. Speaker, I include with my remarks the following items: First, 
May 16, 1994 letter from Chairman Gonzalez to Federal Reserve Chairman 
Alan Greenspan; second, May 9, 1994 letter from Chairman Greenspan to 
Chairman, Gonzalez; and third, attachment to Chairman Greenspan's 
letter, ``List of Institutions with which the Federal Reserve Bank of 
New York Transacted Foreign Exhange Business for the U.S. Monetary 
Authorities Since 1989.''
         U.S. House of Representatives, Committee on Banking, 
           Finance and Urban Affairs,
                                     Washington, DC, May 16, 1994.
     Hon. Alan Greenspan,
     Chairman, Board of Governors of the Federal Reserve System, 
         Washington, DC.
       Dear Chairman Greenspan: One of the most important 
     objectives of my legislation, H.R. 28, the ``Federal Reserve 
     System Accountability Act of 1993,'' is to increase the 
     Federal Reserve's accountability to the public. Knowing how 
     individual members of the Federal Open Market Committee 
     (FOMC) decide on different issues serves to improve the 
     public's trust and enhance the ability of the Federal Reserve 
     to carry out appropriate monetary policy. Thus I congratulate 
     you and your colleagues for taking the important step of 
     promptly releasing your recent monetary policy decisions.
       I urge the Federal Reserve to further apply its experiment 
     in openness to foreign exchange interventions, foreign loans, 
     and lines of credit to foreign countries. The Federal Reserve 
     essentially uses its $30 billion swap fund to make loans to 
     foreign countries without any Congressional approval or 
     oversight and American taxpayers are left to wonder whether 
     their monies--now in the hands of a foreign government--are 
     indeed safe.
       Your May 9, 1994, reply to Banking Committee requests for 
     information about these aspects of Federal Reserve operations 
     is far short of a full response and is in certain respects, 
     misleading. Now that the Federal Reserve has joined with the 
     Treasury Department (on April 26, 1994) in entering a 
     permanent trilateral foreign exchange swap facility with the 
     governments of Mexico and Canada, it has become crucial that 
     you provide direct answers to Banking Committee requests for 
     information. This is of utmost importance to the U.S. 
     taxpayers whose taxes have been and continue to be placed at 
     risk by these foreign exchange interventions, foreign loans, 
     and lines of credit to foreign countries.
       It is important to understand what this recent $6 billion 
     swap facility for Mexico entails. If the Mexican government 
     wanted $6 billion in U.S. currency tomorrow and went into the 
     market to buy U.S. dollars with pesos, the price of pesos 
     would fall and it is unlikely they could make the trade at 
     current exchange rates. A guarantee of the transfer at any 
     time at current exchange rates is a guarantee of a 
     substantial subsidy to the Mexican government. When 
     activated, the $6 billion swap formally transfers this 
     subsidy to Mexico. It is a loan of U.S. dollars to Mexico 
     collateralized by Mexican pesos. There is no denying that 
     giving U.S. dollars to a foreign government with conditions 
     for repayment is a loan of U.S. dollars. It is true as you 
     note in your letter, that there is no exchange rate risk 
     since the loan is scheduled to be repaid at the initial 
     exchange rate and interest is earned on the foreign 
     currencies held. However, this is not the only problem for 
     U.S. taxpayers. The problem is default risk, the probability 
     of failure to repay. A guarantee of a line of credit puts 
     U.S. taxpayers' funds at risk.
       The Committee must have complete records of the decisions 
     of Federal Reserve policymakers with regard to these foreign 
     loans, lines of credit, and swap actions. You did not comply 
     with this request in your May 9, 1994 reply. It was during 
     some of their meetings that the FOMC members, five of whom 
     have never even been confirmed by Congress and are not 
     Constitutional officers, discussed setting up a formal 
     trilateral facility with two foreign governments that 
     involves granting foreign loans and lines of credit. The 
     Federal Reserve records should include a description of the 
     goals and objectives of their foreign exchange policies.
       The Banking Committee seeks copies of the complete record 
     of the FOMC subcommittee assigned to direct foreign exchange 
     operations as described in the November 22, 1961 document 
     that you sent to me from former Federal Reserve General 
     Counsel, Howard H. Hackney. The proposed subcommittee 
     consisted of the Chairman and Vice Chairman of the FOMC, Vice 
     Chairman of the Board of Governors, and an officer of the New 
     York Federal Reserve Bank. Please explain its history and 
     provide the Banking Committee with copies and an inventory of 
     any records of the activities and meetings of this 
     subcommittee.
       The document you sent to me entitled ``Legal aspects of 
     proposed plan for Federal Reserve operations in foreign 
     currencies,'' written by the Federal Reserve General Counsel 
     on November 2, 1961 states:
       ``This matter is admittedly subject to question; and while 
     it is unlikely that the plan would be challenged in court, 
     there can be no assurance, in the absence of legislation, 
     that it would not be criticized from some sources on legal 
     grounds.''
       The General Counsel goes on to say:
       ``Consultation with Banking and Currency Committees.--
     Admittedly, the question is debatable, particularly in view 
     of the 1933-1934 position of the Board. Moreover, it may be 
     noted that in 1932, Senator [Carter] Glass had criticized 
     certain foreign operations of the Federal Reserve Bank of New 
     York, which might be considered as similar to those now 
     contemplated, as being contrary to the law. [Senator Glass] 
     suggested that such operations were inconsistent with the 
     Federal Reserve Act.''
       The Federal Reserve General Counsel said:
       ``In view of the uncertainties as to the construction of 
     the law and the history of this matter, it might be 
     desirable, before instituting the plan [to start a Federal 
     Reserve swap fund] now proposed, to inform the Banking and 
     Currency Committees of Congress.''
       Federal Reserve Chairman William McChesney Martin did not 
     want to formally ask the Congress for authorization because 
     the Federal Reserve did not know what it needed and ``the 
     Congress probably would not want to put itself in the 
     position of approving something if the Federal Reserve was 
     not clear about its wishes in the matter'' (paraphrased FOMC 
     minutes, February 13, 1962, p. 79). Chairman Martin notified 
     the Congress of the Federal Reserve's intention to establish 
     the swap fund by burying the information in a nine-page 
     speech he gave on January 30, 1962 to the Joint Economic 
     Committee. He mentioned that the New York Federal Reserve 
     Bank, acting as an agent for the Treasury, had used the 
     Treasury's Exchange Stabilization Fund (the fund on which the 
     Federal Reserve's swap fund is based) for operations not 
     previously undertaken since World War II with the ``aim of 
     defending the Dollar from speculative forays.'' (JEC 
     Hearings, 1962, p. 174). Then-Congressman Richard Bolling 
     asked Chairman Martin to explain. Chairman Martin replied:
       ``* * * I want to make clear, Mr. Bolling, that the Federal 
     Reserve is not anxious to engage in this type of activity. * 
     * * The Treasury stabilization fund has experimented with 
     this kind of operation since March of this year, in a very 
     small way, and we have come to the view that however we 
     should acquire these currencies--and it is not possible to 
     spell out here--what we are aiming at is to keep the 
     speculators from unseating us, * * *.'' (JEC Hearings, 1962, 
     p. 181-2.)
       In short, this was an improper way to notify the Congress 
     of a new facility that would use funds that were not 
     Congressionally authorized. Thus, the suggestion by the 
     former General Counsel of the Federal Reserve to provide 
     notification to the Congress in an attempt to buttress the 
     flimsy legal justification for the Federal Reserve's 
     internally authorized swap fund was not followed.
       In your May 9, 1994 letter to me you indicate that although 
     Federal Reserve Governor J.L. Robertson expressed 
     ``reservations,'' he voted with the majority in favor of the 
     swap facility at the February 13, 1962 FOMC meeting. This 
     description is misleading. At the February 13, 1962 meeting 
     Governor Robertson asked if there were any advantages aside 
     from the Federal Reserve's ``unlimited pocketbook'' of having 
     two government agencies operating in foreign exchange and he 
     was told there were none.
       He opposed the Federal Reserve's entry into this operation 
     partly on legal grounds. His objections were very strong as 
     revealed in the minutes. At the February 13, 1962 Board of 
     Governors meeting he voted against amending Regulation N to 
     authorize the Federal Reserve to conduct the planned foreign 
     exchange operations. Only after that authority was passed, 
     giving away the Board's authority to the FOMC, did he join 
     with the majority later in the day at the FOMC meeting. His 
     opposition was indeed much more telling than having mere 
     ``reservations'' and should be reviewed by present FOMC 
     members and others interested in the way the original swap 
     facility came into existence.
       Please send the minutes of the January 23, 1962 FOMC 
     meeting where there were two dissenting votes on approving in 
     principle a program of System foreign currency operations. (A 
     number of pages appear to be missing from the copy of the 
     minutes of the February 13, 1962 FOMC meeting you sent to me. 
     Please send a full copy.)
       I am concerned about the inconsistencies between the 
     records you sent to me containing Federal Reserve monthly 
     holdings of foreign currencies, delineated by country, and 
     the quarterly reports that indicate interventions. You now 
     inform me that the monthly holdings data (one set of which 
     uses historical exchange rates) include interest payments and 
     ``valuation effects.'' Please send a consistent accounting 
     record that specifies the amount of interventions and the 
     effect on accumulated inventories of currencies of each 
     country. Interest payments should be included in this 
     accounting record as well as a full description of any 
     valuation effects. The record should contain a complete and 
     itemized account of why the inventories of each countries' 
     currencies held by the Federal Reserve changed at the end of 
     each month. A consistent accounting record that contains 
     consistent times series data is extremely important in 
     performing econometric tests on the effects of foreign 
     exchange operations by the Federal Reserve.
       This is an essential part of maintaining accountability for 
     Federal Reserve actions. The Banking Committee's obligation 
     to fulfill its oversight role requires a consistent record of 
     Federal Reserve foreign exchange activities that correctly 
     ties in the extensive holdings of foreign currencies, 
     amounting to $22.3 billion at the end of 1993. This is a 
     substantial investment for U.S. taxpayers that must be 
     continually evaluated for cost and effectiveness.
       Attached to your May 9 letter was a list of 60 institutions 
     with which the Federal Reserve Bank of New York transacted 
     foreign exchange business for U.S. monetary authorities since 
     1989. Please describe exactly how these institutions were 
     chosen. Describe the original and any ongoing examination of 
     the operations of these institutions made by the Federal 
     Reserve. Did there institutions receive any information about 
     interventions before this knowledge was generally available? 
     Describe in detail the precautions taken during an 
     intervention for guarding against the use of exploitable 
     inside information about the interventions. Also include a 
     step-by-step description of how interventions are conducted.
       In addition, please provide the job descriptions and number 
     of individuals who receive exploitable inside information 
     about foreign exchange interventions. Explain how the Federal 
     Reserve monitors trading activity to determine if there are 
     signs of insider trading. The Committee has received reports 
     that information about the trilateral agreement of April 26, 
     1994 was known to sources outside the government in the days 
     preceding the announcement. This may explain why the Mexican 
     peso began to rise almost a day and a half before the 
     announcement.
       Finally, I wish to draw your attention to some new research 
     conducted by Professors Kathryn M. Dominguez and Jeffrey Al 
     Frankel in their September 1993 book, ``Does Foreign Exchange 
     Intervention Work?'', [published by the Institute for 
     International Economics, Washington, DC]. Their results show:

     ``that the effect of U.S. intervention is much greater when 
     the New York Federal Reserve Bank lets the market know it is 
     intervening. Second, the results reported . . . suggest that 
     official announcements regarding exchange rate policy have 
     far more impact than intervention that is quietly 
     disseminated.'' (page 136.)
       With information networks providing instant communication 
     and markets operating in many time zones around the world, 
     there seems little reason to pretend that massive 
     interventions of the type conducted by U.S. monetary 
     authorities can be kept secret for very long. The list you 
     sent to the Banking Committee of the 60 institutions which 
     transacted foreign exchange business for U.S. monetary 
     authorities has caused me concern about the use of inside 
     information for a favored few when there is not full and 
     prompt accounting for intervention activities. Certainly 
     there must be fuller accounting to the Congress and the 
     public. Please indicate what changes will be made in Federal 
     Reserve policy to ensure full and timely information to all 
     market participants about currency interventions, lines of 
     credit to foreign entities, and foreign loans.
       Please respond to this request for information as promptly 
     as possible and no later than June 1, 1994.
           Sincerely,
                                                Henry B. Gonzalez,
                                                         Chairman.
                                  ____

                                         Board of Governors of the


                                       Federal Reserve System,

                                      Washington, DC, May 9, 1994.
     Hon. Henry B. Gonzalez,
     Chairman, Committee on Banking, Finance and Urban Affairs, 
         House of Representatives, Washington, DC.
       Dear Mr. Chairman: This letter responds to the issues and 
     questions concerning the Federal Reserve's swap arrangements 
     and related matters raised in your letter of April 20.
       The Federal Reserve takes very seriously its 
     responsibilities to the Congress and to the public to account 
     for its policies, actions, and operations, including its 
     foreign exchange operations. The Federal Reserve and U.S. 
     Treasury are unique among the monetary authorities of major 
     industrial countries in the frequency and detail in our 
     public reports on foreign exchange operations, including the 
     operations of the Federal Reserve's swap network. 
     Nevertheless, we are open to suggestions for providing 
     additional information as long as sensitive information would 
     be appropriately protected.
       The Federal Reserve has responded in full to your requests 
     regarding the operations of the Federal Reserve's reciprocal 
     currency (swap) arrangements. In early 1993, we provided 
     substantial detail on these arrangements, supplemented by 
     data and documentation related to the Federal Reserve's 
     reciprocal currency arrangements in general and swap 
     arrangements with the Bank of Mexico in particular.
       As a matter of normal procedure and public accountability, 
     any activation of a swap arrangement with the Federal Reserve 
     or the establishment of a special swap arrangement is 
     included in the regular quarterly reports on U.S. foreign 
     currency operations sent to Congress and published 
     subsequently in the Federal Reserve Bulletin. In addition, 
     positive decisions to change the size of swap arrangements 
     are normally announced immediately.
       Swap drawings are not loans but are the simultaneous spot 
     purchase and forward sale of foreign currency against 
     dollars. This type of transaction is used in some form by 
     most central banks, in some cases as a standard instrument of 
     monetary policy. In the case of a swap drawing on the Federal 
     Reserve by a foreign central bank, there is no exchange risk 
     to the Federal Reserve associated with such a drawing. 
     Moreover, in agreeing to allow such a swap drawing, the 
     Federal Reserve always seeks to assure that there are 
     reasonable prospects of prompt repayment, for example, out of 
     the drawing country's international reserves or through its 
     drawings on the International Monetary Fund or prospective 
     proceeds from World Bank loans. Since the swap network was 
     established in 1962, all drawings on this network have been 
     repaid in full.
       The Federal Reserve's authority to establish and operate 
     the swap network is derived from section 14(e) of the Federal 
     Reserve Act which provides that any Federal Reserve Bank may, 
     with the consent or upon the order and direction of the Board 
     of Governors, ``open and maintain accounts in foreign 
     countries, appoint correspondents, and establish agencies in 
     such countries wheresoever it may be deemed best for the 
     purpose of purchasing, selling, and collecting bills of 
     exchange.'' (12 U.S.C. 358.) The Board has implemented this 
     provision in Regulation N. (12 C.F.R. 214.5.) A detailed 
     discussion of the Federal Reserve's authority in this area is 
     set forth in a 1961 memorandum to the FOMC from its General 
     Counsel; a copy was twice previously provided to Congress, 
     and a copy is enclosed with this letter for your convenience. 
     The conclusions of the memorandum were endorsed 
     contemporaneously by the General Counsel of the Treasury and 
     the Attorney General of the United States. The FOMC's 
     decision at its meeting on February 13, 1962, and Federal 
     Reserve Board's revised Regulation N implemented the position 
     set forth in the FOMC General Counsel's memorandum.
       You asked about former Vice Chairman Robertson's views in 
     1962 concerning the appropriateness of the Federal Reserve's 
     involvement in foreign currency operations. His was a 
     minority opinion at the time. In fact, while he voiced 
     reservations about the Federal Reserve's involvement in these 
     activities at the Committee's meeting on February 13, 1962, 
     he joined the rest of the FOMC in a unanimous vote approving 
     the authorization regarding open market transactions in 
     foreign currencies at that meeting.
       On the substance of former Vice Chairman Robertson's 
     remarks, I would note that, in the opinion of the legal 
     authorities on these issues, the statues of the United States 
     provide legal authority to the Federal Reserve to engage in 
     foreign currency operations as outlined above. Moreover, it 
     is quite understandable that the U.S. central bank would be 
     granted such authority. While the precise legal arrangements 
     differ country by country, all major central banks play a 
     role in foreign currency operations. Since many of these 
     operations involve dealings with other central banks, it 
     is both efficient and appropriate for the Federal Reserve 
     to participate in such operations. Over the past 32 years, 
     the Federal Reserve has consulted closely with the U.S. 
     Treasury on all its foreign currency operations, including 
     instances where a swap partner country has requested to 
     draw on its swap line with the Federal Reserve. To my 
     knowledge, there never has been a serious dispute about 
     any of these operations, and all the operations of the 
     Federal Reserve's swap network have been viewed as 
     consistent with U.S. policy toward the country requesting 
     a drawing.
       As requested, I enclose the complete minutes of the 
     February 13, 1962, meeting of the FOMC and the documents 
     cited at that meeting and relating to the issues that you 
     raised.
       As I noted in my letter of February 10, 1993, Congress has 
     never found any of the foreign currency operations of the 
     Federal Reserve to be an inappropriate use of the powers 
     granted to the Federal Reserve in the Federal Reserve Act. 
     The Swap network and the legal basis for Federal Reserve 
     foreign currency operations were reviewed extensively by the 
     Congress in 1962 and again in 1973. A 1980 amendment of the 
     Federal Reserve Act permits the Federal Reserve to invest its 
     foreign exchange holdings in obligations of foreign 
     governments.
       It has been our practice that each request for a drawing on 
     the Federal Reserve's swap network, each proposal to increase 
     the size of a swap arrangement, and each proposal for a 
     special temporary swap arrangement is reviewed by the FOMC. 
     There always has been a strong positive consensus within the 
     FOMC regarding the appropriateness of the Federal Reserve's 
     reciprocal currency arrangements; however, at times there 
     have been voices questioning certain operations or the 
     continued existence of the swap arrangements. President 
     Hoskins posed such a question in the discussion on November 
     1, 1988.
       In your April 20 letter you request a copy of ``the 
     telegram that President Hoskins referred to'' in the 
     transcript of the November 1, 1988 meeting. As I stated in my 
     letter of April 5, 1994, the circumstances that brought about 
     the discussion of the proposed swap facility that was under 
     consideration in October-November 1988 subsequently changed 
     favorably, and there was no need to complete the proposed 
     arrangement. Thus, there was no need to poll the FOMC via 
     telegram for its formal vote on the matter, and no telegram 
     was sent.
       In previous requests for information concerning Federal 
     Reserve foreign currency holdings, we provided you with data 
     on Federal Reserve foreign currency holdings, by currency, as 
     of the end of each month from 1962 to January 1993 (the time 
     of your request). In a response to a follow-up request, we 
     provided you data on Federal Reserve foreign currency 
     balances restated in current market value terms. In your 
     April 20 letter you note that your staff has had difficulty 
     in matching these data on Federal Reserve foreign currency 
     holdings with data on foreign currency operations that appear 
     in the quarterly reports on U.S. foreign currency operations. 
     As noted in my earlier responses and in discussions with your 
     staff, changes in these data on balances may incorporate 
     interest earnings and valuation effects as well as actual 
     foreign exchange transactions during a particular period. 
     Federal Reserve staff is prepared to sit down with your staff 
     to review further any questions they may have about these 
     data.
       Turning to your questions about the Federal Reserve Bank of 
     New York's operational practices in carrying out foreign 
     exchange intervention operations at the direction of the 
     Department of Treasury and the Federal Open Market Committee, 
     the Federal Reserve Bank of New York executes foreign 
     exchange transactions with banks in the United States in the 
     same manner as briefly described in the article by R.M. 
     Kubaryh, referred to in your letter. In rare circumstances, 
     when markets in the United States are closed but the Treasury 
     and the Federal Reserve deem it necessary for operations to 
     be conducted, the Federal Reserve Bank of New York may deal 
     with overseas bank offices--in the sense of agreeing to the 
     price and other terms of trades--but such transactions are 
     booked and settled with the banks' U.S. offices.
       At the time the Kubarych article was written in 1977, the 
     Federal Reserve Bank of New York limited its foreign exchange 
     dealing relations to federally supervised banking 
     institutions (commercial banks, Edge Act Corporations, and 
     U.S. branches of foreign banks). However, in February 1992, 
     the Federal Reserve Bank of New York announced its 
     willingness to deal with S.E.C.-registered broker-dealers in 
     addition to federally supervised banking institutions. 
     Attached is a list of all institutions with which the Federal 
     Reserve Bank of New York has transacted foreign exchange 
     business for the accounts of the Exchange Stabilization Fund 
     and the Federal Reserve System Open Market Account since 
     1989.
       The Kubarych article focuses on the impact of foreign 
     exchange transactions financed by drawings on swap lines. You 
     should understand that the foreign exchange intervention 
     activities of the Treasury and the Federal Reserve have not 
     been financed in this way since 1980.
       In the past 10 years, there is no instance in which a 
     drawing has been made on the Federal Reserve's swap network 
     without a parallel drawing on a swap line with the U.S. 
     Treasury's Exchange Stabilization Fund, including the August 
     1988 drawing by the Bank of Mexico. (The facts of the 1988 
     drawings were reported in the December 1988 quarterly report 
     on U.S. foreign currency operations.) The FOMC cleared the 
     1988 drawing consistent with its normal procedures.
       The penultimate paragraph of your letter raises questions 
     about the motivation of and benefits from Federal Reserve 
     swap arrangements with the Bank of Mexico in recent years. 
     The Federal Reserve swap arrangements with the Bank of 
     Mexico, as with agreements with other central banks, are 
     intended to contribute to financial stability which benefits 
     all citizens of Mexico and the United States. They are not 
     motivated by political considerations.
       As I stated in my letter of April 5, the joint Federal 
     Reserve-Treasury $3.5 billion special swap facility that was 
     considered in October-November 1988 was never formally 
     established. Thus, its contribution to the stability of 
     financial markets was limited to the psychological effects of 
     the announcement on October 17, 1988 that the Treasury and 
     Federal Reserve were prepared to develop such a facility. The 
     special temporary $12 multilateral facility that was 
     developed on a contingency basis in November 1993 was neither 
     established nor announced. Therefore, the benefit was only 
     that coming from a carefully considered contingency plan. 
     Finally, the special temporary $6 billion facility announced 
     on March 24, was not intended to favor any particular segment 
     or sector of Mexico's society or economy. The objective of 
     that special arrangement, which as it turns out was not drawn 
     upon, was to promote the stability of financial markets in 
     Mexico and, thereby, to contribute to the economic well being 
     of the people of Mexico and the United States.
           Sincerely,
                                                   Alan Greenspan,
                                                         Chairman.
       Enclosures.

  XIII. List of Institutions with which the Federal Bank of New York 
Transacted Foreign Exchange Business for the U.S. Monetary Authorities 
                               since 1989

       ABN Amro Bank
       Australia and New Zealand Banking Group
       Banca Commerciale Italiana
       Bank of America
       Bank of Boston
       Bank of New York
       Bank of Nova Scotia
       Bank of Tokyo
       Bankers Trust Company
       Banque Paribas
       Barclays Bank PLC
       BHF-Bank
       Boatmen's National Bank
       Canadian Imperial Bank of Commerce
       Chase Manhattan Bank
       Chemical Bank
       Creditanstalt Bankverein
       Credit Commerciale de France
       Citibank
       Commonwealth Bank of Australia
       Credit Industriel Et Commercial
       Credit Lyonnais
       Credit Suisse
       Dai-Ichi Kangyo Bank
       Dean Witter Reynolds Inc.
       Deutsche Bank AG
       Dresdner Bank AG
       First Interstate Banks\5\
       First National Bank of Chicago
       First Union Natl Bk of North Carolina
       Fuji Bank
       Goldman Sachs
       Harris Trust & Savings Bank
       Hong Kong and Shanghai Banking Corp\4\
       Industrial Bank of Japan
       Irving Trust\1\
       Lloyds Bank PLC
       Long Term Credit Bank of Japan
       Manufacturers Hanover Trust Company\2\
       Mellon Bank
       Merrill Lynch International Bank
       Midland Bank PLC
       Mitsubishi Bank
       Morgan Guaranty Trust Company of New York
       Morgan Stanley
       National Westminster Bank PLC
       Nationsbank of North Carolina
       Nippon Credit Bank
       Northern Trust Company
       Republic National Bank of New York
       Royal Bank of Canada
       Sakura Bank
       Sanwa Bank
       Security Pacific Bank\3\
       Shawmut Bank
       Societe Generale
       Standard Chartered Bank
       Sumitomo Bank
       Swiss Bank Corporation
       Union Bank of Switzerland

     \1\Merged under the name of Bank of New York in October 1989.
     \2\Merged under the name of Chemical Bank in June 1991.
     \3\Merged under the name of Bank of America in May 1992.
     \4\Hong Kong & Shanghai Banking Corp. began trading under the 
     name of Midland on November 2, 1992.
     \5\In June 1992 Standard Chartered Bank acquired certain 
     lines of business from First Interstate and on January 1, 
     1993 began trading under the name of Standard Chartered Bank, 
     Los Angeles.

                          ____________________