Abstract: The downward-sloping yield curves of recent years have been called perverse, but an examination of the history of American interest rates reveals that, at least since the Civil War, falling yield curves have been nearly as common as those with upward slopes This article summarizes yield curve patterns since 1862 and suggests that (1) the traditional expectations theory remains a viable explanation of observed yield curves and (2) yield curves since the abandonment of the gold standard in 1971 have much in common with those of the greenback era of 1862-78 but are distinct from those of the gold standard years of 1879-1970 The slopes of yield curves appear to depend upon expectations of future yields as determined by expectations of inflation, which, in turn, depend upon the prevailing monetary standard

Abstract: In a well known U.S. Supreme Court opinion on pornography, Associate Justice Potter Stewart wrote: . . . criminal laws in this area are constitutionally limited to hard-core pornography. I shall not attempt to define the kinds of material I understand to he embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that) This "know it when I see it" principle has sonic adherents in the financial community, particularly with regard to the ambiguities surrounding the question, "What is a bank?" In an article appearing in Euromoney, Walter Wriston, chairman of Citicorp and Citibank, discusses banking and its future. 2 For Wriston, the banks of the 1990s are already here; the only trouble is that bankers are not running them. Wriston suggests that nonbank companies can now do everything a bank does—and more. Wriston's view essentially reduces to a set of simple propositions: Banks and bank holding companies are highly regulated entities. At the same time, nonbank companies have been expanding into areas that had traditionally been the domain of banks. These nonbank companies are not nearly as restricted in what they may offer customers or where they may make the offering. Accordingly, in Wriston's view, banks and bank holding companies are at a significant competitive disadvantage.

Abstract: On October 6, 1979, the Federal Reserve changed its procedures for implementing monetary policy. Prior to that date, the Federal Reserve had sought to bring the rate of monetary growth in line with its desired target rate of growth through changes in the federal funds rate. Through its open market operations, the Fed supplied or absorbed whatever level of reserves was necessary to achieve the targeted federal funds rate. To influence the price of reserves ( i.e., the federal funds rate), the Fed had to give up control, over the quantity of reserves. But after October 6, 1979, the Fed began controlling the quantity of reserves it supplied through open market operations ( i.e., the level of nonborrowed reserves); in so doing, the Federal Reserve had to let market forces determine the price of reserves—the interest rate. Under these circumstances, the federal funds rate was free to move over a much wider range than before. Since this change in the Fed's method of implementing monetary policy, much attention has been focused on the increased volatility of interest rates and the adverse economic consequences that seemed to have followed from the change. It is frequently asserted that the increased variability of interest rates stems primarily—and in the eyes of some observers, entirely—from the Fed's change in operating procedures. And indeed, by most conventional measures the degree of variability of interest rates (both longand short-term rates) did increase markedly in the year or two following October 6, 1979 in comparison with the two years or so prior to that date. But to use such a short span of time to analyze interest rate volatility and its impact may involve a myopic view that obscures the underly-