ispublished quarterly by thePublicAffairs Department of theFederal ReserveBank of St. Louis.Viewsexpressed arenot necessarily official opinionsof theFederal ReserveSystem ortheFederal ReserveBank of St. Louis.
Post Office Box 442St. Louis, Missouri 63166
Editor: Alice C. Dames(314) email@example.com
n July 2, the U.S. Treasury implementedan investment option for Treasury Taxand Loan (TT&L) participantscalled DynamicInvesting, which isa new component of theTreasury Investment Program (TIP).Dynamic Investing providesan opportunity forparticipantsto receive additional Treasury invest-ments, which are not available through the directinvestment option. The new program also providesthe Treasury with enhanced cash-managementcapabilitiesby reinvesting unanticipated receiptson a same-day basis.Dynamic Investmentsmay be processed for theTreasury by TIP participantseach businessday fromnoon until 5 p.m. Eastern time; however, eachenrolled financial institution hasthe option todesignate an earlier cutoff time to accommodateitsfunds-management needs.To qualify for Dynamic Investing, a financialinstitution must be a same-day direct investmentTT&Lparti-cipant.Questionsabout DynamicInvestmentsshould be directed tothe TT&L NationalCustomer Service Areaat 1-888-568-7343.The Treasury also isevaluating another TT&Linvestment option, which would invest fundsfora fixed term (usually one week to one month) ata guaranteed rate of interest with participatingfinancial institutions. Thisoption, currently referredto asthe Term Investment Option, isin the earlystagesof development. A pilot program may beimplemented asearly asDecember. Updatesonterm investmentswill be provided asmoreinformation becomesavailable.
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Eighth District UpdatesPhoneSystem
sportsa newlook. (Some say it’sabouttime!) We’ve changed thenameplate to clarify just whatthe initials
have alwaysstood for:
. We’vealso enlarged the type size andwidened the columns. Finally,we’ve upgraded the paper andused more color and illustrations.What’sthe point? To increasereadability and focusattentionon the critical newsabout theFederal Reserve. Asyou’vetold usrepeatedly, you wantup-to-date information aboutthe Fed, but you want it in ashort, easy-to-absorb format,accompanied by contact infor-mation should you requiremore information.Current and back issuesof
are availableonline at www.stls.frb.org/ publications/index.html. Onthisweb page, there’salso a link to our electronic mailing listwhere you can sign up forelectronic notification of eachnew issue.Asalways,
willcontinue to cover the full rangeof Fed newsaffecting EighthDistrict bankers. Your feed-back isimportant, and we’reeager to hear from you. Whattopicswould you like ustocover? Who else at your insti-tution should receive
? Let usknow. You maycall or write the
editor, Alice Dames, whosepostal and e-mail addressesandphone number are listed on theback cover.
New Look, Same Book
News and Views forEighth District Bankers
Treasury Implements NewTT&L Investment Option
Louisville Community & Lender Luncheon
ArkansasCommunity Investment Symposiums
SEPTEMBER 27—PINEBLUFF, ARK.OCTOBER 2—JONESBORO, ARK.
Evansville Community ResponseCommittee MeetingonBrownfields
(formerly EvansvilleCommunity &LenderLuncheon)
OCTOBER 18—EVANSVILLE, IND.
Evansville Community Response CommitteeMeetingonMixed-Income HousingDevelopment
NOVEMBER 8—EVANSVILLE, IND.
Community Development Forum
OCTOBER 24—QUINCY, ILL.
Forfurtherinformation, contactDianaZahner at(314)444-8761.
Forfurtherinformation, contactEllenEubank at(901)579-2421.
PRSRT STDUS POSTAGE
ST LOUIS MOPERMIT NO 444
UPCOMINGFED-SPONSORED EVENTSFOR EIGHTH DISTRICTDEPOSITORY INSTITUTIONS
economist,FederalReserveBank ofSt. Louis
Fed Web Site Explains CreditCard Offers to Consumers
TheFederal Reservehasproducedanewconsumer-informationbrochure, “Shop: TheCredit CardYouPick CanSaveYouMoney.”Thebrochureasksconsumerstoexaminetheirspendingandrepayment habitsandencouragesthem tocomparisonshopforcredit.Consumerslearnhow tocalculatethecostandtermsof acredit planaswell asthevariousformulaslendersusetocalculateinterest rates,financechargesandoutstandingbalances.Consumersalsowill findaglossary of terms,adiagram tohelpthem deciphertheinforma-tionthey receiveincredit cardsolicitationmaterialsanda“Credit CardShopper’sCheck-list,” whichincludestipsonshoppingforacardandevaluatingthecardsconsumersalreadyhaveintheirwallets.ThebrochurecanbefoundontheFederalReserveBoard’swebsite, www.federalre-serve.gov/pubs/shop/.
New Video Helps PreventIdentify Theft
Aspart of theFederal Reserve’songoingcommitment toconsumereducation, theBostonandSanFranciscoreservebankshavereleasedanew consumer-educationvideoentitled,“Identity Theft: Protect Yourself.” Thevideodetailshow easily financial informationcangetintothewronghands, allowingcriminalstounlawfully obtaincredit inyourname. Thevideoteachesconsumersabout how toprotectthemselvesthroughinterviewswithlaw-enforcement officials, industry representativesandcrimevictims. Thevideoalsooutlineswhatconsumersshoulddoif they suspect that theiridentity hasbeenstolen.Copiesof thevideoareavailableat $7.50each, whichincludespostageandhandling.Ordersshouldbesent toTheFederal ReserveBank of Boston, PublicandCommunity AffairsDepartment, ATTN: Identity FraudVideo, POBox 2076, Boston, MA, 02106-2076. Checksormoney ordersmust beincludedintheorderandbemadepayabletotheFederal ReserveBank of Boston.
Resources Available forthe Self-Employed
TheInteragency WorkgrouponMicroenter-priseDevelopment, whichincludesCommunityAffairsstaff from theFederal ReserveBoardofGovernors, hasproducedanew publication,CrossingtheBridgetoSelf-Employment—AFederal MicroenterpriseResourceGuide.Thepublicationdiscussesthevariousfederallyfundedmicroenterpriseprogramsthat areavailable, providescasestudiesof entrepreneurswhohavesuccessfully usedtheprograms, andhighlightssomeof thebankingregulatoryagenciesthat support microenterprisedevel-opment. Toobtaincopiesof thepublication,contact theCommunity Development FinancialInstituteFundat (202) 622-8401.
However, a closer examination of the data showsthat most newshareholdersown a relatively small amount of stocks.The accompanying chart also revealsthat the share of stocksheld bythe richest 10 percent of American householdsremained between 78and 82 percent during the period between 1989-98. Thismeansthataggregate stockholdingsremain highly concentrated in the handsof thewealthiest 10 percent. Hence, the argument discussed above doesnotapply because even though the number of shareholdersincreased, arelatively small pool of wealthy investorsstill absorbed most of the risk.Other explanationsfor the most-recent stock market boom include:• The baby-boom generation entered itspeak savingsyears, andboomers’ large demand for stocksfueled prices.• Productivity increased rapidly because of the information-technology revolution.• Because of the quick growth of mutual funds, American householdstended to hold a more-diversified portfolio than before the recent boom.• Irrational exuberance could have driven the price of stocksabovetheir fundamental values.However, economistsJohn Heaton and Deborah Lucasargue that noneofthese factorscan explain a significant portion ofthe 1990s’stock marketrun-up. Because stock priceshave been very volatile throughout itshistory, the recent boom might be a cyclical deviation from the trend.It ispuzzling that a large fraction of American householdscontinue toown few or no stocksbecause, on average, stockshave outperformedgovernment bondsby a large margin. In a recent issue of the
,the Bank’seconomicsjournal, I discussed several possible explanations.• First, collecting and processing stock information iscostly, and thecostsfor researching investmentsmay be prohibitive for small investors.• Second, because volatile housing pricespose a considerable risk,and a home isthe most-important asset held by the average household,thisrisk could lead average workersto invest conservatively.• Third, stock market returnsare volatile in the short run and tendto be negative during business-cycle downturns—just when theaverage worker facesan increased risk of being unemployed.One can argue that because of the information-technology revolu-tion, information costshave become lessimportant for making invest-mentdecisions. The research clearly indicatesthat our economy’sreliance on labor income and the average worker’shome-ownershippatternsare the primary reasonswhy stock ownership remainshighlyconcentrated in the handsof a few wealthy households. Simply put,working people—who face considerable labor-income risk and havea limited ability to borrow—often choose to put their savingsintorelatively safe assetsinstead of stocks.
article, “StockholdingIsStill Highly Concentrated.” ForfurtherreadingseeHeaton, JohnandDeborahLucas, “Stock Pricesand Fundamentals.” NBER MacroeconomicsAnnual, 1999. Guo, Hui. “A SimpleModelofLimited Stock MarketParticipation.” FederalReserveBank ofSt. Louis
Despite theRecent Boom,StockholdingIs Still in theHands of Few
Y E S !
I t ’ s t h e s a m e
C e n t r a l B a n k e r
, o n l y b e t t e r !
The 1990swere excep-tionally good yearsfor stock market investors. The Standardand Poor’s500 index, whichmeasuresthe value of the largest500 firms, increased eight yearsduring the decade and climbed15 percent per year on average.Many observershave noted thatthe ’90s’stock market boomcoincided with a surge in thenumber of householdsthatowned stocks—either directlyor indirectly—through mutualfunds, retirementaccountsand othermanaged assets. Astheaccompanying chartshows, the stock marketparticipation rate rosesharply from 32 percentin 1989 to 49 percent in1998. Did thislargeinflux of new investorspropel the decade’sstock market boom?Economic theory sug-geststhat if an increase in thenumber of shareholdersspreadsstock market risk over a largerpool of investors, then the rateof return required to com-pensate shareholdersfor theirrisksought to fall. Thiswouldcause a one-time increasein stock prices.It istempting, then, to arguethat the increase in stock marketparticipation played a signifi-cant role in the recent boom.
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