WASHINGTON, April 1 — The Federal Reserve voluntary credit restraint program is not really voluntary, the vice chairman of the Fed said here Wednesday, and he suggested the Fed appears determined to make life miserable for banks that try to avoid compliance.
Frederick H. Schultz, the Fed official in charge of administering the restraint program, told the 800 bank auditors here for the Bank Administration Institute's auditors conference that the voluntary guidelines which ask banks to keep total loan growth for the year to 6% to 9%, is not really a voluntary program.
"If we find a bank violating the targets," Mr. Schultz said, "then we will have a little consultation." He then warned that if the "little consultation" is not effective, "then I'm going to need more reports."
He explained that under the Credit Control Act of 1969, the Fed can require as much reporting from banks as it deems necessary and, he added, it is a criminal act not to comply.
"These reports might be very long reports," the Fed governor intoned ominously. "They might be weekly or even daily reports."
Mr. Schultz said that some banks have called to complain that they are very near reaching the 6% to 9% target for the year already. He said the Fed is telling these bankers that they are to take care of small businesses, farmers and the other special categories of borrowers and that otherwise nothing can be done.
Some banks complain that this kind of restriction does not apply to them because they are "growth banks," Mr. Schultz said. "We tell them, 'you may not be a growth bank for a little while.'" He also said that some of the states experiencing strong growth "maybe won't be as explosive for a little while."
"We are going to stick to this monetary policy very tightly," Mr. Schultz said, adding that the credit restraint program is a "major thrust of the present anti-inflation plan.
"It is impossible to get out of this inflationary situation without a recession," the Fed vice chairman told the bank auditors. He said that many small businesses, farmers, and small financial institutions are "hemorrhaging" and "we can't let this go on forever." He said it is "vital" that the country cut consumption and increase savings.
Mr. Schultz was less certain about the timing and results of the new program. He said the consumer price index statistics "will be lousy for the next couple of months," but that "it is possible that we will get to a single-digit CPI by the end of this year."
He also told the auditors that it is important Federal Reserve be equally cautious when the economy is recovering. "We will not allow the money supply to get out of control coming out of the next recession," he said. "We have to have a firm monetary policy and help on the fiscal policy besides."
