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Federal Reserve Bank of St. Louis
.
Collection: Paul A. Volcker Papers
Call Number: MC279
Box 13
Preferred Citation: Congressional Correspondence, 1986 September-October 3; Paul A. Volcker
Papers, Box 13; Public Policy Papers, Department of Rare Books and Special Collections, Princeton
University Library
Find it online: httfinclingaids.princeton.edu/collections/MC279/c424 and
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Federal Reserve Bank of St. Louis
I.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, El. C. 20551
PAUL A. VOLCKER
CHAIRMAN
October 3, 1986
The Honorable W. Henson Moore
U.S. House of Representatives
20515
Washington, D.C.
Dear Mr. Moore:
Thank you for your letters of April 15 and May 19,
1986, expressing concern over the proposed procurement by the
Federal Reserve Banks of production high speed currency
processing equipment. Our response to your letters was delayed
while we investigated the issues raised by your letters.
Your April 15 letter expressed concern about the
expenditure of funds for the development of high speed currency
processing technology by foreign companies and your May 19
letter reiterated your concern on this point and further
expressed concern that United States companies developing
currency processing equipment were being unfairly disadvantaged
because Japan and Germany, which both have companies that
the development of prototype currency
in
participated
processing equipment for the Federal Reserve Banks, did not
allow United States companies to compete in their markets to
sell high speed currency processing equipment.
While I appreciate your concerns for fair competition
between United States and foreign companies, in this instance I
believe that these concerns are largely misplaced.
The Federal Reserve has found that in procuring high
technology equipment, such as high speed currency processing
systems, as well as other goods and services, competition among
suppliers results not only in controlling costs but also in
benefits in terms of the characteristics of the equipment
Thus, the Federal Reserve generally seeks to
purchased.
promote competition among prospective reliable sources of
equipment. It was these considerations that led to the initial
decision to develop several prototype second generation high
speed currency processing systems and to select production
For example, the development
systems on a competitive basis.
of second generation high speed currency processing equipment
is expected to yield benefits in terms of increased throughput,
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Federal Reserve Bank of St. Louis
•
The Honorable W. Henson Moore
Page 2
reduced labor costs, greater accountability and accuracy, and
Comparison of factors such
increased security to name a few.
as these, together with price and other factors, will determine
the future sources of this equipment.
In undertaking the effort to develop second generation
high speed currency processing equipment, the Federal Reserve
has been mindful of the desirability of maintaining domestic
Accordingly, the Federal Reserve
sources for this equipment.
Banks have adhered to the spirit of the Buy American Act,
including giving a six percent cost preference to domestic
vendors, in selecting prototype vendors and will do so in the
Further, the Federal Reserve
selection of production vendors.
Banks considered the availability of domestic vendors in
determining the number of prototype contracts to award.
Moreover, because of our concern about trade
opportunities in this area, we specifically asked the Bank of
Japan and the Deutsche Bundesbank about their procurement
Both the Bank of
practices with respect to foreign vendors.
Japan and the Deutsche Bundesbank affirm that they are open to
procurement of this type of equipment from United States
vendors. They also indicate that they are substantial users of
data processing equipment provided by United States companies.
Given these assurances that competition in the
provision of this type of equipment will be open to foreign
suppliers, it would seem to me to be inappropriate to depart
If there are special
from established procurement procedures.
problems relating to foreign procurement of this type of
equipment, as you are aware, there are a number of trade
\statutes that provide remedies for foreign trade practices that
These statutes form an
unfairly disadvantage U.S. exporters.
integral part of U.S. trade policy and have been elaborated
over some period of time with carefully designed procedures to
domestic
protect the interests of U.S. exporters and
customers.
Accordingly, while I want to assure you that we will
continue to review this situation, we plan to proceed with the
solicitation of proposals from both domestic and foreign
vendors for production high speed currency processing equipment.
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Federal Reserve Bank of St. Louis
S . cerely,
eteeQatei,
;
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. E. 20551
October 3, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable William V. Roth
Chairman
Committee on Governmental Affairs
United States Senate
Washington, D.C. 20510
Dear Chairman Roth,
p
As required by law (31 U.S.C. 720), the Board of
Governors offers the following comments on the recent report
prepared by the General Accounting Office entitled "U.S. Banking
Supervision and International Supervisory Principles"
(GAO/NSIAD-86-93). The Board was pleased to cooperate with the
GAO in its evaluation of international bank supervision, and
welcomed the opportunity to review this report.
Except in one respect, the report and its recommendations are largely unchanged from the draft version on which the
Board commented earlier in the year. (The Board's earlier
The
comments are reproduced in the report beginning at page 40.)
nal
main change has been to eliminate all references to internatio
supervisory agreements in relation to the work of the Basle
Supervisors Committee. This is an important change since the
earlier version made it appear, mistakenly, that the Basle
were
Committee reached agreements about supervisory matters that
binding on the participating countries.
Under the recommendations of the report, the federal
banking agencies should:
1.
2.
3.
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Federal Reserve Bank of St. Louis
I
ensure that the adequacy of foreign bank supervision is
evaluated and economic conditions in the home country
are considered when foreign banks apply to establish
U.S. banking offices, and encourage state banking
agencies to do so as well;
encourage state banking agencies to notify the approve
priate foreign supervisory agencies when they recei
foreign bank applications to establish U.S. banking
offices;
arrange periodic briefings of state banking officials
about the work of the Basle Supervisors Committee.
\
2
In addition, the report recommends that the Federal Reserve
rvision
establish a repository of information on foreign bank supe
which would be available for use by other banking agencies.
The first of these recommendations grew out of comparie
sons between certain principles enunciated by the Basle Committe
and their implementation by U.S. supervisory authorities as
es
revealed by agency files. One of the principles reviewed stat
of
that supervisors should satisfy themselves about the adequacy
supervision in the home country when a foreign banking organiza
tion seeks to enter the country. The report criticizes the
agencies because application files do not regularly contain
specific evaluations of the supervisory system in the foreign
country involved. (A similar criticism is made with regard to
consideration of economic conditions in the foreign country
involved.)
The Federal Reserve System has made a serious effort to
extend and improve its knowledge and understanding of foreign
the
supervisory systems through its participation in the work of
Basle Supervisors Committee and otherwise. A considerable body
rt,
of knowledge has been accumulated as a result of that effoing
on
work
exists in filed materials and is familiar to analysts
s and in
the evaluation of foreign banks. In these circumstance
it has not
the interest of efficient utilization of resources, foreign
bcen thought necessary that a written evaluation of application
supervisory systems be made in connection with every
is usually
involving a foreign bank. The knowledge accumulated
adequacy of
sufficient to allow a general judgment about the
rd cannot be
foreign supervision. The absence of a written reco tion. The
ques
taken to indicate a lack of consideration of the attention of
staff has a continuing obligation to bring to the
as they bear on
the Board aspects of foreign supervisory systems e supervision
applications before the Board. In those cases wher ided.
prov
is of concern, an explicit evaluation would be
agencies,
On the second recommendation to the federal
the International
the Federal Reserve has since the passage of agencies to consult
Banking Act of 1978 encouraged state banking
has stood ready to
about applications involving foreign banks and
supervisory authoriuse its lines of communications with foreign
s have standing
ties. In particular, the district Reserve Bank
state banking
instructions to maintain close relations with provide such
agencies about foreign banking matters and to
exchanged information
encouragement and assistance. The Board has
Currency and with the
with the Office of the Comptroller of the
on these matters and
Banking Department of the State of New York
e banking supercontinues to welcome inquiries from other stat
visors.
about the
So far as briefing state banking agencies
the Federal Reserve
work of the Basle Committee is concerned,
recent Annual Report of
sent early this year a copy of the most
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Federal Reserve Bank of St. Louis
3
the Basle Committee to the Conference of State Bank Supervisors.
This report summarizes the work of the Committee and provides
brief descriptions of the major supervisory developments in its
member countries during the year. In forwarding this report, an
offer was made to make copies available to individual state
agencies, and also to discuss the work of the Basle Committee.
The Federal Reserve will continue its efforts to disseminate
information about international cooperative efforts in the field
of bank supervision.
The recommendation that the Federal Reserve Board
establish a central repository of information about foreign
supervisory systems is unnecessary as the cost and burden of
creating and maintaining such a formal repository would in most
cases far outweigh any advantages that may be gained. As noted
earlier, a considerable body of information and knowledge about
foreign supervisory systems already exists within the Federal
Reserve System, and efforts are continuing to expand them. The
Federal Reserve has traditionally been ready to share its information resources with other federal and state banking agencies.
In our contacts with state banking supervisors, the availability
of this material and this knowledge will continue to be emphasized.
erely,
SiY
Identical letter to:
The Honorable Jack Brooks
Chairman
Government Operations Committee
U.S. House of Representatives
Washington, D.C. 20515
bcc:
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Federal Reserve Bank of St. Louis
Fred Dahl
Mrs. Mallardi (2)
Elizabeth Roberts
a gitig
.
•fGovt•.•c;o
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
October 3, 1986
PAUL A. VOLCKER
CHAIRMAN
&4L R'
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
20515
Washington, D.C.
Dear Chairman St Germain:
August 4,
As a further follow-up to your letter of
look into improved
proposing that a task force be formed to
application process, I
consumer information about the mortgage
Staff from the Board
can report that the project is underway. with a number of the
and the Federal Home Loan Bank Board met de associations are
trade groups to discuss the idea. The tra
mortgage processing
willing to work on a pamphlet explaining
production and
procedures, and will assume the cost of its consider underto
distribution. Several groups also agreed
set of internal guidetaking development, on their own, of a
ted in your letter.
lines on mortgage processing as sugges
will be seeking
We think we're off to a good start and titutions, both
ge of ins
input on the brochure from the wide ran
r letter.
public and private, identified in you
Sincerely,
ISLEauf
86-3485)
GG:pte (see V-165, 86-3482 through
bcc:
Chairman Gray, FHLBB
Richard Tucker, FHLBB
Mr. Garwood
Mrs. Mallardi (2)v
IDENTICAL LETTERS SENT TO:
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Federal Reserve Bank of St. Louis
Cong. Wylie, Chrmn. Gonzalez, and
Cong. McKinney
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
September 30, 1986
Mr. William Peter Sherkey
P.O. Box 623
Exmore, Virginia 23350
Dear Mr. Sherkey:
Senator Trible asked that the Federal Reserve respond
to your recent questions concerning the national debt.
First, the amount of the national debt outstanding as
of August 31, 1986, was about $2.094 trillion.
Second, the
average maturity of this debt is five years and three months.
I hope that this information is useful.
know if I can be of further assistance.
Sincerely,
SI Donald IL Wiwi
Donald J. Winn
Assistant to the Board
cc:
The Honorable Paul Trible
RW:JK:CO:vcd/pte (V-190, 86-4086)
bcc: Rita Walls
Mrs. Mallardi
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Federal Reserve Bank of St. Louis
Please let me
Action assigned Mr. Kichline
2AUL TRIBLE
VIRGINIA
_
Unitd
tats eStnate
WASHINGTON, DC 20510
September 18, 1986
Honorable Paul Volcker
Chairman
Board of Governors of the Federal Reserve System
Twentieth Street and Constitution Avenue N.W.
Washington, D.C. 20551
Dear Chairman Volcker:
My constituent, Mr. William Peter Sherkey, has requested
me to ask you the following questions: What is the amount of the
National Debt outstanding, and what is the average maturity of
that debt?
I would appreciate it if your would reply directly to
Mr. Sherkey by letter. His address is: P.O. Box 623, Exmore,
Virginia, 23350.
Thank you for your response.
rely,
Paul Trible
PT:wly
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Federal Reserve Bank of St. Louis
•
•
•
BOARD OF GOVERNORS
•
•
•
•
••
•
rn
•
O.- •
••4.▪• •
•
•
.
Or THE
FEDERAL RESERVE SYSTEM
WASHINGTON, G. E.. ROSSI
....
September 26, 1986
PAUL A. VOLCKER
C0.1111 OMAN
The Honorable John D. Dingell
Chairman
Committee on Energy and Commerce
House of Representatives
Washington, D.C. 20515
Dear Chairman Dingell:
Enclosed is a study produced by the Board's staff on
the competitive effect of mortgage-related securities on corporate borrowing, especially in long-term markets. This study
was requested by your Committee in its report on the Secondary
Mortgage Market Enhancement Act of 1984. As agreed at a joint
meeting of the Committee and agency staffs, and affirmed in
your letter of January 30, 1985, this report was undertaken
exclusively by the Board staff members to avoid unnecessary
duplication of effort by the staff of the SEC.
Sincerely,
Enclosure
LETTERS ALSO SENT TO:
bcc:
RANKING MINORITY MEMBER LENT
CHAIRMAN WIRTH
Mike Prell
Jim Kichline
Mrs. Mallardi (2)
.
•
.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, EL C. 20551
September 26, 1986
PAUL A. VDLCKER
CHAIRMAN
The Honorable Norman F. Lent
Ranking Minority Member
Committee on Energy and Commerce
House of Representatives
20515
Washington, D.C.
Dear Mr. Lent:
Enclosed is a study produced by the Board's staff on
the competitive effect of mortgage-related securities on corporate borrowing, especially in long-term markets. This study
was requested by the Committee on Energy and Commerce in its
report on the Secondary Mortgage Market Enhancement Act of 1984.
As agreed at a joint meeting of the Committee and agency staffs,
this report was undertaken exclusively by Board staff members
to avoid unnecessary duplication of effort by the staff of the
SEC.
Sincerely,
Enclosure
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Federal Reserve Bank of St. Louis
_
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
September 26, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Timothy E. Wirth
Chairman
Subcommittee on Telecommunications,
Consumer Protection, and Finance
Committee on Energy and Commerce
House of Representatives
Washington, D.C.
20515
Dear Chairman Wirth:
Enclosed is a study produced by the Board's staff on
competitive
effect of mortgage-related securities on corthe
borrowing,
porate
especially in long-term markets. This study
requested
was
by the Committee on Energy and Commerce in its
report on the Secondary Mortgage Market Enhancement Act of
1984. As agreed at a joint meeting of the Committee and agency
staffs, and affirmed in your letter of January 30, 1985, this
report was undertaken exclusively by the Board staff members
to avoid unnecessary duplication of effort by the staff of the
SEC.
Sincerely,
Enclosure
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Federal Reserve Bank of St. Louis
•
• * *of Govt •.
*0
•
'i..
.-Kt
;,- '
-4 Vi:
•C
•co ,
..
BOARD OF GOVERNORS
OF THE
•
FEDERAL RESERVE SYSTEM
‘n•
WASHINGTON, D. C. 20551
September 25, 1986
RALRE5.
• •..• •
The Honorable Bill Archer
House of Representatives
Washington, D.C. 20515
Ls_Dear
Mr. Archer:
I am writing to acknowledge receipt of your letter of
September 16 requesting comment on correspondence you received
from Mr. Steve Pun
rl
el
Bank of
concerning First City Natinal
o
Houston's decisio n to no longer verify its customers' checks for
businesses.
Primary supervisory authority for First City National
Bank of Houston rests with the Comptroller of the Currency. I
have, therefore, taken the liberty of referring your request to
that agency for reply.
Please let me know if I can be of further assistance.
Sincerely,
Donald J. Winn
Assistant to the Board
cc:
Cong. Liaison Office
OCC
CO:vcd (V-191, 86-4133)
bcc:
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Federal Reserve Bank of St. Louis
Mrs. Mallardi
BILL ARCHER
WASHINGTON OFFICE
Referrin9 to OCC
7TH DISTRICT TEXAS
1135 LONGWORTH
HOUSE OFFICE BUILDING
(202) 225-2571
M E AftBE
WAYS AND MEANS
,COMMITTEE
Congretz of tbe tiniteb :4attz
JOINT COMMITTEE
ON TAXATION
3Doute of Repretentatibet
r
Yd.
DISTRICT OFFICE
FEDERAL OFFICE BUILDING
HOUSTON, TX 77002
(713) 229-2763
atbingion, riC 20515
A(
61
f
September 16, 1986
;
N
N.)
Chairman Paul A. Volcker
Federal Reserve System
Washington, D.C. 20551
(
0
.
:fl
Dear Chairman Volcker:
Enclosed tor your review is a copy of a letter I received from my
constituent, Mr. Steve Purnell.
I've sent you this correspondence because I wanted to share with
you his concerns regarding First City National Bank of Houston's
decision to no lonyer verify its own customers' checks for
businesses.
I would appreciate your looking into this matter and
apprising me of any actions which may be taking place by the
Federal Reserve Board to address this problem.
Thank you very much for your attention to this matter.
Si
e
,
1 A cher
Member of Congress
BA/cc
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Federal Reserve Bank of St. Louis
ALPIinrNERICHMOND
INST
ANT
PRIM
ING
AVE
HOUSTON, lEC4S 77061
moo
(711) 712 -
Congressman Bill Archer
515 Rusk
Ste. 7501
Houston, Texas 77002
First City National Bank of Houston, 1001 Main, Houston, Texas, has
announced that as of August 1st it will no longer verify (say whether or
not a check is good) when a businessman or anybody else calls up the bank.
With bad check passers already writing millions of dollars worth of bad
checks, this arrogant disregard of the public interest by First City
National Bank is the best news the criminal element has had in years.
Thanks to First City Bank, now anyone can write bad checks, safe in the
knowledge that the person these bad checks are being given to cannot even
call up the bank to find out if the check is good.
But this doesn't trouble First City National Bank, whose only interest in
the matter is reducing its expenses by not verifying checks and reaping a
fortune on the $ 15.00 it charges its customers for each bad check that
's written.
As soon as the other banks find out that they can get away with no longer
providing basic banking services that have been provided for decades, they
will no doubt follow suit.
When we tried to verify a customer's check today and First City National
Bank refused to say if it was good or not, we asked what we were supposed
to do. Their arrogant answer - "You'll have to take your chances."
Why is it that the government, who allegedly regulates these institutions,
is doing nothing to prevent this wholesale abandonment of the public trust?
Obviously, a specific regulation is required that will force banks to
adequately perform their basic civic responsibilities.
And iF that doesn't mean saying whether or not a check_is good.
know what does.
0 v"
Steve Purnell
President
ceb/SP
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Federal Reserve Bank of St. Louis
/inn' 1-
NMI
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
September 25, 1986
CHAIRMAN
The Honorable Jake Garn
Chairman
Committee on Banking, Housing, and
Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Chairman Garn:
Thank you for your letter of September 16 requesting
comments on a proposed amendment to permit national banks to buy
and sell precious metals. National banks are currently authorized to buy and sell gold and silver coin and bullion, which
historically have served as financial instruments, and the Board
has approved this activity for bank holding companies.
However, the term "precious metals" in the proposed
amendment is potentially much broader than gold and silver coin
and bullion and is obviously intended to include other metals
that are not primarily financial instruments and that may be
related to manufacturing uses. I would be concerned that the
proposed authorization could lead to acquisition of speculative
positions in assets and to involvement in commercial activities
that are inconsistent with the basic Congressional policy underlying the Bank Holding Company Act and other banking statutes.
If I can be of any further assistance in the matter,
please let me know.
Sincerely,
S Ea ul A. Wolcket
KB:CO:vcd (V-189, 86-4067)
bcc:
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Federal Reserve Bank of St. Louis
Ms. Bondehagen
Mr. Mattingly
G.C. Log 193
Legal Records (2)
Mrs. Mallardi (2)V
Action assigned Mr. Bradfield
JAKE GARN, UTAH. CHAIRMAN
IP
JOHN HEINZ. PENNSYLVANIA
WILLIAM L ARMSTRONG. COLORADO
ALFONSE M D'AMATO, NEW YORK
SLADE GORTON, WASHINGTON
MACK MATTINGLY, GEORGIA
CHIC HECHT, NEVADA
PHIL GRAMM, TEXAS
WILLIAM PROXMIRE, WISCONSIN
ALAN CRANSTON, CALIFORNIA
DONALD W. RIEGLE, JR, MICHIGAN
PAUL S SARBANES, MARYLAND
CHRISTOPHER J. DODD, CONNECTICUT
ALAN J. DIXON, ILLINOIS
JIM SASSER, TENNESSEE
M. DANNY WALL STAFF DIRECTOR
KENNETH A. McLEAN. MINORITY STAFF DIRECTOR
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Federal Reserve Bank of St. Louis
United gitatts e$tnate
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
-n
L-.71
—
WASHINGTON, DC 20510
b.
u
September 16, 1986
hi
,
Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D. C. 20551
Dear Paul:
I have been apprised that Senator Glenn
and others may offer
an amendment to any banking legisla
tion debated on the floor
which would permit national banks to
buy and sell precious
metals.
1 am enclosing a copy of the amendment
for your review, and
would appreciate any comments you might
have on this proposal.
JG:lzb
cc,
MEIN.
089920.537
. AMENDMENT NO.
S.L.C.
Calerdar Nc.
41•=1,••••••m.
: Purpose: To permit national banks to
buy and sell precious
'metals.
IN THE SENATE OF THE UNITED STATES-99th
Cong., 2d Sess.
S.
MIND MM.IMMIWIMM.
Referred to the Committee cn
ordered tc be printed
and
Ordered tc lie on the table and to be
printed
Amendment intended to be proposed by Mr.
Glenn
Viz:
1
At the appropriate -place in the bill
insert the
2 'following:
3
AUTHORITY OF NATIONAL BANKS TO BUY AND
SELL PRECIOUS METALS
4
Sec.
. Paragraph "Seventh" of section 513
6 of the
5
Revised Statutes (12 U.S.C. 24) is ame
nded by striking cut
6
'*bullion" and inserting in lieu thereof
"precious
7
metals".
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20E51
RAUL A. VOLCKER
September 22, 1986
CHAIRMAN
The Honorable John D. Dingell
Chairman
Committee on Energy and Commerce
House of Representatives
Washington, D.C. 20515
Dear Chairman Dingell:
In view of your interest, I am pleased to enclose a
copy of the Board's announcement of an informal hearing on the
I roposed acquisition by The Sumitomo Bank, Ltd., of a limited
I. rtnership interest in Goldman, Sachs & Company.
The hearing
will commence at 930 a.m. on October 10, 1986, here at the
Board in Washington.
Sincerely,
-2.11.
Enclosure
Vui•
(9/19/86 P.R.)
IDENTICAL LTR. TO CHAIRMAN ST GERMAIN
CO:vcd (see 86-3681)
bcc:
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Federal Reserve Bank of St. Louis
Mrs. Mallardi
Mr. Bradfield
Mr. Alvarez
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, a E. 20551
PAUL A. VOLCKER
September 22, 1986
CHAIRMAN
The Honorable John D. Dingell
Chairman
Committee on Energy and Commerce
House of Representatives
Washington, D.C. 20515
Dear Chairman Dingell:
In view of your interest, I am pleased to enclose a
copy of the Board's announcement of an informal hearing on the
proposed acquisition by The Sumitomo Bank, Ltd., of a limited
partnership interest in Goldman, Sachs & Company.
The hearing
will commence at 9:30 a.m. on October 10, 1986, here at the
Board in Washington.
Sincerely,
A.
Enclosure
(9/19/86 P.R.)
IDENTICAL LTR. TO CHAIRMAN ST GERMAIN
CO:vcd (see 86-3681)
bcc:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mrs. Mallardi
Mr. Bradfield
Mr. Alvarez
BOARD OF GOVERNORS
I
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
September 19, 1986
The Honorable Cardiss Collins
House of Representatives
Washington, D.C. 20515
Dear Ms. Collins:
I am responding on behalf of Chairman Volcker to your
letter to him dated September 11 requesting that you be furnished with "copies of any and all materials submitted to, or
generated by" the Board "which relate to Security Pacific's
proposed system of trading options on U.S. government
securities."
I am enclosing the documents that you have requested.
In response to our requests for information concerning Security
Pacific's proposal, Security Pacific has provided the Board with
certain information subject to a grant of confidential treatment
under the Freedom of Information Act in view of the fact that
the information consists of commercial information provided in
confidence. We agreed to this treatment. Security Pacific has
agreed to a limited waiver of its request for confidential
treatment so that we may provide the documents to you.
We have not included internal memoranda between staff
members concerning Security Pacific's original proposal, which
has been substantially restructured. These memoranda were not
sent to the Board and do not necessarily reflect its views.
Please do not hesitate to call Ms. Sara Kelsey
(452-3236) of the Board's Legal Division if we can be of furtheiassistance to you in this matter.
Sincerely,
Donald J.
Donald J. Winn
Assistant to the Board
Enclosures
MB:VM:SK:vcd (V-186, 86-4029)
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Federal Reserve Bank of St. Louis
Mr. Bradfield
Mr. Mattingly
Ms. Kelsey
Legal Records (?.)
Mrs. MallardiL,/
ENERGY AND COMMERCE COMMITTEE
suscommimEs
Acticn assiqned Mr. Bradfield
Congresz of tbe Ziniteb *tatto
HEA.TH AND THE ENVIRONMENT
TELECOMMUNICATION,
C1NSUMER PriOTECTION AND FINANCE
jtioufSe of RepreentatibesS
GOVERNMENT OPERATIONS COMMITTEE
SURCOMMITTEE
CHAIRWOMAN GOVERNMENT ACTIVITIES
AND TRANSPORTATION
SELECT COMMITTEE ON
NARCOTICS ABUSE AND CONTROL
CARDISS COLLINS
7TH DISTRICT, ILLINOIS
September 11, 1986
A0D,D\
Honorable Paul A. Volcker
Chairman, Board of Governors
of the Federal Reserve System
20th and Constitution Avenue, N.W.
Washington, D.C. 20551
c_C)
r-1
•••-•••
Honorable Robert L. Clarke
Comptroller of the Currency
Office of the Comptroller of the Currency
490 L'Enfant Plaza East
Washington, D.C. 20219
•—•■•
••••
Honorable L. William Seidman
Chairman, Federal Deposit Insurance
Corporation
550 17th Street, N.W.
Washington, D.C. 20249
Gentlemen:
As a member of the House Committee on Energy and Commerce, I have observed for more
than a year the process whereby Security Pacific National Bank, the nation's sixth largest national bank, seeks to introduce a system for trading options on U.S. government
securities. Throughout that process, it'has been unclear to me whether sufficient
regulatory review has been performed by the federal banking authorities with respect
to this proposal. Indeed, despite the grave legal and policy issues raised by the
proposed system--issues which go to the very heart of the soundness of the banking
system--Security Pacific's planned enterprise has not generated public acknowledgement by our federal bank regulators. Meanwhile reports indicate that the start-up
of the system is imminent.
I hereby request from each of you copies of any and all materials submitted to,
or generated by, your respective agencies which relate to Security Pacific's proposed
system of trading options on U.S. government securities.
Please have these materials delivered to my office by no later than Friday,
September 19, 1986. Should you require additional information, please do not hesitate
to contact Ms. Denise Wilson in my office at 225-5006. Thank you for your cooperation
in this matter.
Yours truly,
At,
1-ele
RDISS COLtINS
Member of Congress
CC/dw
0 2264 RAYBURN OFFICE BUILDING
WASHINGTON, DC 20515
(202) 225-5006
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Federal Reserve Bank of St. Louis
PLEASE SEND REPLY TO:
SUITE 3880
0 230 SOUTH DEARBORN STREET
CHICAGO, IL 80804
(312) 353-5754
0 3851 Win ROOSEVELT ROAD
CmicAcio, IL 80624
(312) 522-2442
0
328 LAKE STREET
OAS PARK, IL 60302-2604
(312) 383-1400
BOARD
EDVERNORE
E-i
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
September 17, 1986
CHAIRMAN
The Honorable George C. Wortley
House of Representatives
Washington, D.C. 20515
Dear Mr. Wortley:
Thank you for your letter requesting clarification of
manmy August 4 letter to Congressman Lehman as it related to
daily
dating use by depository institutions of the average
stated in
balance method in computing interest on deposits. As
is approthat letter, we do not believe that such a requirement
paid under
priate. In many cases the differences in interest
while condifferent interest computation methods will be small
computation
version costs to a mandated average daily balance
that the
method could be significant. Consequently, we believe
fits to
conversion costs would not be outweighed by the bene
consumers that such a requirement would provide.
nding
In part, this position is based on our understa
minority of
that the average daily balance method is used by a
if the day
depository institutions in the United States. Only
interest is
of deposit/day of withdrawal method of computing
method would
viewed as included within the average daily balance
of instithe average daily balance method be used by a majority
calculatutions. However, the two methods involve different
cases and,
tions and do not produce identical results in all
therefore, should not be considered identical.
prepared
I have enclosed with this letter a memorandum
detail. I
by the Board's staff discussing this issue in greater
me know if I
hope this information is useful to you. Please let
can be of further assistance.
Sincerely,
siSv4P
Enclosure
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
OII:DR:LSF:vcd (V-173, 86-3582)
bcc:
Mr. Ireland
Mr. Rhoads
Legal Files (2)
Mrs. Mallardi (2)
.
1
Interest Computation
computing
of
methods
use
institutions
depository
interest
that
believes
it
that
stated
of
minority
a
on
Staff has
od.
deposits other than the average daily balance meth
previously
which
about the extent to
raised
has been
A question
institutions use the average daily balance method.
several
by
interest
compute
institutions
Depository
al or end of
methods including day of deposit to day of withdraw
month or
interest period, average daily balance for the
period, and low balance for the month
return on
under
account
an
any of
variables
other
affected
by
interest
crediting
methods can
also
The
be
frequency,
compounding
practices,
payment
and
interest period.
or
these
as
such
interest
deposit
crediting
rest computation
practices and differences in the length of inte
periods.
The choice of methods of computing
vary
to
appears
balance
accounts
than
However, in
method.
(1985
the
when
method
this
use
neither
banks appear
computing
method
on
category do a
A recent report from
Retail
Deposit
account
of
type
For example, more
institution.
daily
with
Services
interest on deposits
the
and
to use an
interest
non -transaction
majority of
American
Report)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I'
banks
use
an
average
average
accounts.
banks
use
this
Bankers Association
indicates
balance
of
transaction
on
and
passbook savings accounts, between 6 percent
commercial
size
method
that,
for
29 percent of
to
compute
-2-
For statement
interest, depending on the asset size of the bank.
of banks use
savings deposits, between 15 percent and 32 percent
an
depending
method,
balance
average
bank
on
For
size.
percent of banks
transaction accounts, such as NOW accounts, the
ranges with
using an average balance method of computing interest
size from 31 percent to 48 percent.
that a significant number
The same ABA report indicated
deposit to day
of commercial banks compute interest on a day of
of
savings
passbook
For
basis.
withdrawal
between
accounts,
depending on
45 percent and 69 percent of banks use this method,
asset size.
The ABA data indicates that the smaller
For statement savings
the more likely it is to use this method.
69 percent, with
using
the
day
method
ranges
from
over 60 percent of banks
of
using
billion
$1
and
$50 million
this
of
use
deposits,
deposit
to
day
The
it.
33
with
to
percent
assets
between
banks
percentage of
method
withdrawal
of
bank,
the
for
as NOW accounts,
computing interest on transaction accounts, such
g on asset size.
ranges from 17 percent to 46 percent, dependin
With regard
based
on
believes
conversations
the
that
institutions
do
vast
not
computing interest.
80
to other
percent of
the
use
with
types of depository
industry
majority
an
of
average
representatives,
credit
unions
daily
balance
and
approximately
17,300
credit
Although
staff
thrift
method
For example, we have been advised
United States do not use this method.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
institutions,
unions
of
that over
in
the
there is a lack
-3
of
savings
on
data
and
associations,
loan
industry
rience, most
representatives have stated that, based on their expe
withdrawal
of these institutions use a day of deposit to day of
method.
It has been
average daily
that the
suggested
balance
method
method and the day of deposit to day of withdrawal
essentially the same and
method
daily balance
methods
computation
burden
are
different
we
and
depository
on
While these methods produce similar
institutions.
the average
therefore that specifying
will not impose any
are
results, the
many
that
believe
incur conversion costs in changing
depository institutions would
to the average daily balance method.
The average daily balance method of computing
the
involves
application
of
the
average daily balance maintained
to
rate
interest
daily
interest
the
in the account over an interest
of withdrawal
computation period while the day of deposit to day
method
applies the daily interest
rate
to the
balance
in
the
If there are no debit or credit
account at the end of the day.
utation period,
transactions in the account over an interest comp
the
amount
identical
interest
of
under
to day
deposit
assuming
that
during
earned
period
the average daily balance method
of
identical
withdrawal
method
for
interest compounding
and
computing
features.
will
be
a day of
interest,
Where
there
amount of interest
are transactions in an account, however, the
earned
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
under
the average daily
balance
method
generally
will
-4-
from
differ
that earned
withdrawal method.
frequency, size,
to
the day of deposit
of
day
Whether one method of computing interest will
type
depositors
to
return
greater
a
provide
under
of
timing
and
on
depend
will
transactions,
and
the
other
variables such as compounding frequency.
The
differences
in
365-day computation
percent,
a
365-day
under
the
two
by the following example which assumes
methods can be illustrated
a
interest
computing
period, a
and
year,
fixed
daily
rate of
interest of
1/
compounding.-
At
5
the
$20,000.
beginning of the computation period, the account has
On
with the remainder
the 31st day there is a withdrawal of $10,000
of the
Under
balance
staying on
deposit
for
the
rest of
the day of deposit to day of withdrawal
the formula for compound
the
year.
method, applying
in
interest, the account earns $82.355
next 335 days, resulting
the first 30 days and $473.430 over the
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
in
total
interest earned
of $555.78.
Under
the
average daily
steps are different.
balance method, however, the mathematical
interest is A = P
The basic formula for computing simple
the amount on which
(1 + RT) where A is the final amount, P is
simple interest,
interest is computed, P is the annual rate of
fraction where the
and T is the time period, expressed as a
utation period and
numerator is the number of days in the comp
the computation year.
the denominator is the number of days in
r than continuously is
The formula for compounding interest othe
amount, P is the amount
A = P (1 + R/M)N where A is the final
annual rate of simple
on which interest is compounded, R is the
periods in a year, and
interest, M is the number of compounding
which interest is
N is the actual number of periods for
or in a
With daily compounding, M = 360 or 365,
compounded.
leap year 366.
1/
-5
The
in
balances
compounding
account
the
formula
is
days)
[($20,000) (30
must
daily
applied.
(Average
($10,000)
(335 days)] /
the
balance
days
365
interest rate and
Applying the daily
$10,821.918.)
before
averaged
be
compounding
ts in
formula to the average daily balance of $10,821.918 resul
interest earned of $554.81.
The depositor
would earn $.97 more
method
in interest under the day of deposit to day of withdrawal
than under the average daily balance method.
As
the
foregoing
example
illustrates,
a
change
from
ce a
current methods of computing interest, even those that produ
require
similar result to the average daily balance method, would
operational
operational,
These
changes.
including
changes
could
changes
software,
involve
at
the
costly
majority
of
ge daily balance
depository institutions that do not use the avera
method at this time.
mandate is limited.
The extent of consumer benefit from such a
While the mandated
use of an average daily
the payment
balance method would eliminate some variables between
of interest on
deposit accounts
that are
not reflected
in
an
variables such
annual percentage yield, it would not affect other
as variations in crediting practices.
In
view of the limited
requirement and
the costs such
consumer
a
benefits from
requirement
would
a
such
impose
on
of requiring
depository institutions, we believe that the costs
computing interest
the use of an average daily balance method of
do not outweigh
change.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the
potential
benefits to consumers of such
a
27TH DISTRICT, NEW YORK
229 CANNON HOUSE OFFICE BUILDING
WASHINGTON, DC 20515
(202) 225-3701
COMMITTEES:
DISTRICT OFFICES:
GEORGE C. WORTLEY
BANK!NG, FINANCE AND
URBAN AFFAIRS
SUBCOMMITTEES:
FINANCIAL INSTITUTIONS
SUPERVISION, REGULATION AND
INSURANCE
ECONOMIC STABILIZATION
HOUSING AND COMMUNITY
DEVELOPMENT
OVERSIGHT AND RENEGOTIATION
Congress of the linked $t tates
. tont of Represtntattes
Washington, Be 20515
SELECT COMMITTEE ON AGING
TASK FORCE ON WOMEN AND
SOCIAL SECURITY
1269 FEDERAL BUILDING
SYRACUSE, NY 13280
(315) 423-5657
248 GENESEE STREET
CHITTENANGO, NY 13037
(315)687-5027
I3
STANDARDS OF OFFICIAL CONDUCT
August 14, 1986
ammift
1-71
1
CQ
The Honorable Paul Volker, Chairman
Board of Governors of the
Federal Reserve System
Twentieth Street and Constitution Avenue, N.W.
Washington, DC 20551
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Dear Mr. Chairman:
Representative Lehman shared a letter you wrote to him on August 4th with the
members of the House Banking Committee. In the attached staff comments to that
letter, the statement was made that "...this method [average daily balance] is
used by a minority of institutions." Also in the letter, you stressed your
opposition to mandating the average daily balance under the Truth in Savings Act
being considered by the Committee.
During the August 14th markup of this Act, the Financial Institutions
Subcommittee narrowly approved an amendment I offered removing the average daily
balance requirment from the Act. However, during the debate, Mr. Lehman claimed
that a majority of institutions use the average daily balance method of
computing interest.
Since you and Mr. Lehman seem to be in disagreement, I would appreciate a more
complete response from you on this issue to further clarify the matter. In
addition, a further explanation of your opposition to requiring this method
would be helpful.
Since
George
Wort ey
Membe of Congress
GCW:esc
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r•-i
:1,-2.;
•••-•...e. .
.:-.-.:
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
September 16, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Jake Garn
Chairman
Committee on Banking, Housing
and Urban Affairs
United States Senate
Washington, D.C.
20510
Dear Chairman Cam:
Thank you for your letter of September 11, recommending
Dr. Ramon Johnson for a position on our Consumer Advisory
Council.
I can assure you that Dr. Johnson will receive full
consideration when the Board selects seven new Council members
in the fall of this year.
In selecting new members, the Board makes a special
effort to achieve a geographic balance, to include an adequate
representation of women and minorities, and to maintain an even
balance of consumer and industry interests. We are fortunate to
have a large number of individuals recommended for Council
positions, and the Board appreciates your taking the time to
call our attention to qualified individuals who could contribute
to the Council's work.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Thank you, again, for your recommendation.
Sincerely,
SiPaul
CO:pte (V-187, 86-4038)
bcc: Mrs. Bray (w/copy of incoming)
Mrs. Mallardi (2)
CLO drafting response for Chairman
JAKE GARN. UTAH, CHAIRMAN
•
JOHN HEINZ, PENNSYLVANIA
WINLIAM L ARMSTRONG, COLORADO
ALFONSE N 0 AMATO, NEW YORK
SLADE GORTON, WASHINGTON
MACK MATTINGLY. GEORGIA
WILLIAM PROXMIRE, WISCONSIN
ALAN CRANSTON, CALIFORNIA
DONALD W RIEGLE, JR.. MICHIGAN
PAUL S SARBANES, MARYLAND
CHRISTOPHER J. DODD. CONNECTICUT
CHIC HECHT, NEVADA
ALAN J DIXON, ILLINOIS
JIM SASSER, TENNESSEE
PHILGRAMWTEXAS
M. DANNY WALL. STAFF DIRECTOR
KENNETH A. MCLEAN, MINORITY STAFF DIRECTOR
7.4-1
C.
United e tats Ernatt
. CiliiINICAuntr
COMMITTEE ON BANKINH
URBAN AFFAIRS
2:
t
WASHINGTON, DC 2011510,LIVEii
September 11, 1986
Honorable Paul A. Volcker
Chairman
Federal Reserve Board
Washington, D. C. 20551
Dear Paul:
I am writing to recommend Dr. Ramon Johnson to serve on the Federal
Reserve Board's Consumer Advisory Council, which will soon be replacing
seven of its current members when their three-year terms expire. I
believe that Dr. Johnson's educational qualifications, teaching
experience, and work with a variety of financial institutions in the Salt
Lake City area make him an ideal candidate for membership on the Consumer
Advisory Council.
Dr. Johnson's educational background includes a graduate business
degree and doctorate in finance. He has been a teacher, a researcher
responsible for consistently producing and presenting numerous papers on
finance and business management issues, and an administrator, including a
six-year term as the Chairman of the Department of Finance at the
University of Utah. His experience extends beyond academics, for Dr.
Johnson has been President of the University of Utah Credit Union, and
consulted with savings and loan associations, commercial banks, and other
corporate organizations in Salt Lake City. These cumulative activities
have enabled him to gain a perspective on the opportunities, costs and
problems associated with securing deposits and making consumer loans. Dr.
Johnson has also been involved with the federal regulatory level as a
member of one of the Federal Home Loan Bank Board's task forces, and has
devoted his time toseveral community projects in Salt Lake City.
believe that Dr. Johnson would bring valuable knowledge of
financial institutions and consumer credit issues to the Advisory Council.
He would bring special knowledge to the Council as a researcher
comfortable with writing and presenting reports on the technical elements
of accounting and financial principles. As President of a credit union
and consultant to other financial institutions, he has been involved with
the practical realities of operating in today's financial service
industries and meeting consumer's needs. I strongly recommend Dr.
Johnson's nomination to one of the upcoming vacancies on the Consumer
Advisory Council.
Sincerely,
LZ:eb
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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WASHINGTON, D. C. 20551
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September 15, 1986
The Honorable Clarence E. Miller
House of Representatives
Washington, D.C. 20515
Dear Mr. Miller:
Chairman St Germain has asked that the Board respond to
the concern expressed by one of your constituents, Mr. Paul
Oberhauser, about the practice of some banks requiring cosigners for guaranteed student loans. Mr. Oberhauser believes
that banks are acting unscrupulously by having some students
obtain co-signers and believes the law should be changed to
prevent such actions.
The Guaranteed Student Loan Program ("GSLP"),
administered by the Department of Education ("Department"),
provides for the Federal Gpvernment to guarantee all or part of
education loans to eligible students. Such guarantees may occur
either directly by the Department of Education or by state agencies or private non-profit agencies that have entered into
agreements with the Department. Officials of the Department
have informed us that approximately 99 percent of the loans made
under the GSLP are made through state agencies and private nonprofit agencies.
Although the guarantee agency programs must meet
certain federal requirements, there may be considerable variation among programs including requirements for co-signers for
student loans. Since guarantee agencies are obligated to do a
"best efforts" collection on defaulted student loans, some
guarantee agencies require, as part of their program, that student loans be co-signed. This practice is not prohibited by
federal law.
A prohibition against requiring co-signers for
guarantee agency GSLP loans may have an adverse effect on efforts to collect defaulted student loans since a co-signer on
the loan provides a second person against whom the Federal
Government or a guarantee agency may direct collection efforts.
As you may know, a Conference Committee of the House of
Representatives and the Senate has been meeting to resolve differences in the Higher Education Act, S. 1965, passed by the
Senate on June 3, 1986. An amended version of S. 1965 was
passed by the House on June 17, 1986. Among other things, this
The Honorable Clarence E. Miller
Page Two
bill seeks to enhance collection efforts for defaulted student
loans. A prohibition on obtaining co-signers for student loans
would appear to be contrary to the spirit of this bill.
I hope this information is useful to you.
me know if I can be of further assistance.
Sincerely,
SI Donald a. Winn
Donald J. Winn
Assistant to the Board
cc:
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Federal Reserve Bank of St. Louis
Chairman Fernand J. St Germain
DLR:OI:CO:LSF:vcd (V-182, 86-3813)
bcc:
Mr. Rhoads
Mr. Ireland
G.C. Log 182
Legal Records (2)
Mrs. Mallardi,/
Please let
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Federal Reserve Bank of St. Louis
September 12, 1986
The Honorable Jake Garn
Georgetown University Hospital
Washington, D. C. 20007
Dear Jake:
I Just want to join everyone else in
welcoming
and to wish
We all admire your family courage.
I'd promise to keereverything on the
-financial front quiet pending your return
but the stock market hasn't cooperateu very
well. With that exception, I'll try!
With warm regards,
PAV:ccm
.
.
.
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
AL RESt •
• • •..• • •
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
September 12, 1986
CHAIRMAN
The Honorable Slade Gorton
United States Senate
Washington, D.C. 20510
Dear Senator Gorton:
Thank you for your letter of August 11 regarding the
application of Rainier Bancorporation to acquire Mt. Hood
Security Bank, Gresham, Oregon.
The Board is currently reviewing South East Seattle
Community Organization's (SESCO) allegations and Rainier's
responses. The Board will examine the relevant facts and seek
to resolve the case fairly and expeditiously, in accordance with
its regulations. Both Rainier and SESCO are being given ample
opportunity to present evidence and arguments.
We appreciate your interest in this matter, and will
let you know of the Board's action on the application.
Sincerely,
Eteml
DEK:RSC:CO:vcd (V-171, 86-3580)
bcc:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Harry Green, VP, FRBk. of San Francisco
Messrs. Kline, Mattingly, Carnell; Ms. Cross
BS&R Clearing Unit
Mrs. Mallardi (2) I
JAKE GARN. UTAH, CHAIRMAN
JOHN HEINZ. f'ENNSYLVANIA
WILLIAM L. ABMSTRONG, COLORADO
ALFONSE M D'AMATO. NEW YORK
SLADE GORTON, WASHINGTON
MACK WITINGLY, GEORGIA
CHIC HtCHT, NEVADA
PHIL GRAMM, TEXAS
WILLIAM PROXMIRE, WISCONSIN
ALAN CRANSTON, CALIFORNIA
DONALD W RIEGLE. JR , MICHIGAN
PAUL S SARBANES. MARYLAND
CHRISTOPHER J DODD, CONNECTICUT
ALAN J DIXON. ILLINOIS
JIM SASSER, TENNESSEE
M. DANNY WALL. STAFF DIRECTOR
KENNETH A- MCLEAN. MINORITY STAFF DIRECTOR
United 5tates g5cnate .0-011A-e/17
COMMITTEE ON BANKING, HOUSING, AND
URBAN AFFAIRS
WASHINGTON, DC 20510
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August 11, 1986
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The Honorable Paul A. Volcker
Chairman
Board of Governors of the Federal Reserve System
20th and Constitution Avenue N.W.
Washington, D.C. 20551
Dear Mr. Chairman:
In recent weeks I have been made aware of a dispute between
the South East Seattle Community Organization (SE9:0) and
Rainier National Bank, over whether the bank has adequately met
the community lending requirements of the Community Reinvestment
Act.
I do not know the facts of the situation, and so have no
way of judging the accuracy of the allegations. I do believe,
however, that it is important that those protesting the bank
acquisition have an opportunity to present their case. I hope
that the Federal Reserve will review SESCO's alleTations
carefully and, if the allegations appear accurate, will proceed
promptly with such meetings or other intermediation as the
situation warrants.
I also urge that this action be taken as expeditiously as
possible, for the sake of all parties concerned.
Thank you for your attention.
Sincerely,
SLADE GORTON
United States Senator
SG:jws
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
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PAUL A. VOLCKER
September 12, 1986
CHAIRMAN
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
20515
Washington, D.C.
Dear Chairman St Germain:
This is the additional information that I indicated
would be provided for the record in response to questions about
certain Reserve Bank expenditures that were raised by Committee
members during my testimony on July 29, 1986.
Federal Reserve policy on expenditures states that "the
System as a whole is responsible for carrying out its responsibilities in the most effective and economical manner feasible,
taking cognizance of the government's residual interest in the
earnings of the System." Reserve Bank directors and management
are charged with primary responsibility for ensuring that
internal "discretionary" expenditure policies continue to be
maintained and enforced in a manner consistent with the System's
public nature while allowing sufficient flexibility to meet the
needs of each District and to recognize community practices,
when warranted and appropriate. The Board's examiners are
instructed to review Reserve Banks' internal policies and expenditures for consistency with System policy, for the adequacy of
controls, and for appropriate documentation of the business
purpose.
Generally, we have found Reserve Bank expenditures are
fully consistent with System policy and the public responsibilities of the organization. We do, however, keep the matter under
review, and in the course of Reserve Bank examinations take care
to review the record for any borderline or questionable items.
The questions arising at the hearing were, in fact, derived from
information contained in a memorandum from the Board's examiners
to Board members serving on the Reserve Bank Activities Committee, describing certain Reserve Bank expenditures that were
questioned during annual examinations of all Districts over an
eighteen month period. The specific expenditures referred to
#
..
The Honorable Fernand J. St Germain
Page Two
were flagged by our examiners precisely because there was a
question in the examiners mind as to whether they were fully in
the spirit of one or another of the review criteria mentioned.
Following is a description and evaluation of the
expenditures cited by Committee members:
Meetings of the Board of Directors of the Twelfth
Federal Reserve District. The Twelfth District regularly
schedules off-site meetings of its boards of directors in states
that constitute its territory. This provides the opportunity
for the directors and Bank officials to meet with community
leaders to exchange views on local and national economic conditions. The most common vehicles for this exchange are community
luncheons and dinners attended by Reserve Bank officers and
directors and by community leaders. District management
believes that these luncheons provide effective forums for beneficial exchanges of information and done without lavishness and
at suitable intervals appear to be a reasonable use of Bank
resources.
Expenses listed here differ in some cases from those
reported previously by the examiners generally because they
include the full amount of expense on each meeting, including
travelers from all Twelfth District offices. In some cases the
figures gathered by the examiners reflected only the cost for
travel to the meeting from the office under examination.
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Federal Reserve Bank of St. Louis
Joint Meeting of the San Francisco and Seattle Boards
of Directors in Anchorage, Alaska, on August 8-9,
1985. Total cost of the meeting was $29,719.52--$5,096
for lodging, $17,577.51 for travel, and $7,046.01 for
meals, meetings rooms, and other expenses associated
with the meeting activities. The meal expense included
$4,587.06 for the cost of a community dinner which was
attended by 125 local community and business leaders
and the Federal Reserve group and $590.79 for the cost
of a directors' dinner which was attended by 9 directors and officers and 4 community guests.
Meeting of the San Francisco Board of Directors in
Honolulu, Hawaii, on December 11-12, 1985. Total cost
of the meeting was $36,181.43--$18,672.14 for travel,
$8,612.75 for lodging, and $8,896.54 for meals, meeting
rooms and other expenses. The meal expense included
$3,859.75 for the cost of a community luncheon which
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The Honorable Fernand J. St Germain
Page Three
was attended by 214 local community and business
leaders and the Federal Reserve group and $2,163.20 for
the cost of a directors' dinner attended by 37 people.
Meeting of the Board of Directors of the Los Angeles
Branch at Las Vegas, Nevada, on October 21-22, 1985.
The meeting was held at a non-gambling hotel at a total
cost of $4,918.24--$1,735.74 for travel, $1,118.15 for
lodging, and $2,064.35 for meals, meeting rooms, and
other expenses. The meal expense included $1,352.40
for the cost of a community dinner which was attended
by 18 local community and business leaders and the
Federal Reserve group.
Meeting of the Board of Directors of the Los Angeles
Branch at Laguna Niguel, California, on November 25-26
1985. Total cost of the meeting was $9,176.73--$510.2
for travel, $1,782 for lodging, and $6,884.49 for
meals, meeting rooms and other expenses. The meal
expense included $4,508.60 for the cost of a community
luncheon which was attended by 228 local community and
business leaders and the Federal Reserve group and
$1,712.12 for the cost of a dinner for directors and
community guests.
Expenditures associated with the retirement of the Bank
president in the Twelfth Federal Reserve District. The District
spent $45,131 for two official receptions and a District-wide
employee luncheon to honor the retiring president. One reception was held off-site and was attended by 164 directors,
officials and spouses at a cost of $16,073. The second reception honoring the retiring and the new presidents was held at
the San Francisco Bank, attended by District officials and 13
spouses from branch offices, and cost $6,772. The employee
luncheon provided meals for 2,139 District employees at a cost
of $22,286. The extent of this recognition for the retiring
official is questionable in relation to System expenditures
policies and will not be repeated.
An additional $375 expense was incurred for a boat
rental in connection with a Los Angeles officers off-site
planning meeting at Newport Beach. This small expenditure was
inconsistent with System policy.
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Four
Joint Meeting of the Boards of Directors of the
Cleveland, Cincinnati, and Pittsburgh offices of the Fourth
Federal Reserve District on September 12, 1984. In connection
with the board meeting, $6,609 was expended for a dinner at the
Cleveland Bank and for associated activities to acquaint
attendees with progress made by the City of Cleveland since its
financial crisis of several years ago. The dinner and activities were planned for 61 directors, District officials, System
officials, and spouses, with a per capita expense of $100 for
the cost of food and the services and supplies associated with
the displays and presentations on Cleveland. The expense of the
dinner was $3,303 and the expense of the Cleveland presentations
and supplies was $3,306.
Joint Meeting of the Boards of Directors of the Dallas,
El Paso, Houston, and San Antonio offices of the Eleventh
Federal Reserve District at New York City on October 17-18,
1984. The meeting was held in New York for the expressed
purpose of promoting the directors' knowledge of Federal Reserve
operations, specifically, System Open Market Account operations
which are conducted at the New York Bank on behalf of all
Federal Reserve Districts.
Expenses associated with the meeting totaled $16,311,
which included $5,686 for travel, $4,369 for hotel, and $6,256
for functions and meals associated with the trip. The $6,256
included $3,293 for the costs of a dinner meeting for 40 people
where the directors heard a presentation by the President of the
Federal Reserve Bank of New York on economic conditions and the
related operations of the System Open Market Account. The
balance of the $6,256 included: $563 for a breakfast meeting of
the Dallas District attendees, $504 for other miscellaneous
meals, and $1,896 for other miscellaneous expenditures including
registration fees for several Dallas officials to attend an
American Bankers Association meeting in connection with their
trip to New York.
Meeting of the Pricing Committee of the Chicago and
Detroit offices of the Seventh Federal Reserve District at Pine
Mountain, Georgia, on April 17-19, 1985. The meeting was held
at this location, approximately 40 miles from Atlanta, in order
to meet with Atlanta Reserve Bank management to discuss operational enhancements for the Chicago Reserve Bank because of the
Atlanta Bank's outstanding record of operations performance. A
site close to Atlanta was selected so that the. Atlanta management could conveniently attend the meeting. Chicago representatives advise that the cost of this site compared favorably with
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Federal Reserve Bank of St. Louis
The Honorable Fernand J. St Germain
Page Five
that of downtown Atlanta hotels. Total expenses for this
meeting were $6,618--$3,469 for travel, $1,840 for lodging and
$1,309 for meals and meeting rooms.
I should point out once again that each of these expenditures were identified by the Board's own examining staff as
part of our continuing efforts to assure that Federal Reserve
Bank expenditures comply with guidelines laid down by the Board.
The fact that, among 12 Reserve Banks and 24 branches, only 8
incidents, some involving small amounts, were deemed worthy of
review, and these were for understandable and legitimate purposes, suggests problems are not common. Steps have already
been taken to prevent a repetition of those few expenditures
that appear, because of their extent, questionable in relation
to System policy. I must again emphasize that it is the position of the Federal Reserve Board that Reserve Banks should
conduct their business in a manner that is above reproach.
Sincerely,
JSP:SMR:JRC:PAV:pte
bcc: John Parrish
Clyde Farnsworth
Mrs. Mallardi (2)/
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Federal Reserve Bank of St. Louis
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BOARD OF GOVERNORS
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WASHINGTON, D. C. 20551
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September 10, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Philip M. Crane
House of Representatives
Washington, D. C. 20515
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Federal Reserve Bank of St. Louis
Dear Mr. Crane:
I am writing to thank you for your letter concerning
the application of Continental Illinois Corporation to acquire
The First National Bank of
three suburban Chicago banks:
Deerfield, First Suburban Bank of Olympia Fields, and The First
National Bank of Western Springs.
While I cannot comment on applications pending before
the Board, please be assured that the Board will carefully
consider the applications and the arguments advanced by parties
The Board has already provided
protesting the applications.
those submitting written comments on the application an
opportunity to make an oral presentation on the applications
before the Chicago Federal Reserve Bank on September 19, 1986.
Sincerely,
oi.tMLt
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CRANE
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1035
LCRILIwoRTH ButLO:NG
WASHINGTON, DC 20515
202/225-3711
StATE
CONGRESS
of
fitiCT OF ILLINOIS
AYS AND MEANS
COMMITTEE
SUBCOMMTTEES
TRADE
SOCIAL SECURITY
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REPUBLICAN STUDY COMMITTEE
Congress of the United g5tats
toust of REprtscntattcs
EXECUTIVE COMMITTEE
SUrTE 101
1450 SOUTH NEW WILE ROAD
ARLINGTON HoGnYS. IL 50005
312/394-0790
Washington, BC 20515
56 NORTH WILLIAMS STREET
CRYSTAL LAKE, IL 60014
815/459-3399
312/223-3030
ROBERT C. COLEMAN
ADMINISTRATIVE ASSISTANT
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August 15, 1986
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Chairman Paul A. Volker
20th Street and Constitution
Avenue, N.W. Washington, D.C.
20551
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Dear Chairman Volker:
I want to state my very strong objections to
the application
of Continental Illinois Corporation to expan
d its banking
network in Illinois at the expense of othe
r bank
competitors.
It is patently unfair to permit Continental
to acquire
additional banks at a time when the Fede
ral Deposit
Insurance Corporation has suspended rebat
es of insurance
premiums because of Continental's previ
ous poor management
of loans and the subsequent heavy losses.
Since the FDIC in effect owns 80 percent
of Continental,
acproval of their application would be a move
completely
against our free 'enterprise system.
I am also concerned about the risk to FDIC funds
.
Continental is asking you to approve acquisitio
ns with money
supplied by competing banks through the premiums
they pay
for deposit insurance. These added costs will
eventually
have to be passed on to bank consumers.
I think these matters are serious enough to warrent publi
c
hearings in the House Banking Committee. The Feder
al
Reserve Board also should consider such hearings so these
ethical and financial questions can be thoroughly
discussed
by all sides.
rely,
Philip M. Crane, M.C.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PAUL A. VOLCKER
September 10, 1986
CMAIRMAN
The Honorable Henry J. Hyde
House of Representatives
Washington, D. C. 20515
Dear Mr. Hyde:
erning
I am writing to thank you for your letter conc
ion to acquire
the application of Continental Illinois Corporat
The First National Bank of
three suburban Chicago banks:
ds, and The First
Deerfield, First Suburban Bank of Olympia Fiel
National Bank of Western Springs.
ing before
While I cannot comment on applications pend
will carefully
the Board, please be assured that the Board
advanced by partieL
consider the applications and the arguments
The Board has already provided
protesting the applications.
application an
those submitting written comments on the
the applications
opportunity to make an oral presentation on
September 19, 1986.
before the Chicago Federal Reserve Bank on
Sincerely,
JAS:bas
IDENTICAL LETTERS SENT TO:
Congressmen Crane and Porter
(V-175, 86-3600; V-178, 86-3618; V-181, 86-3805)
bcc: Jim Scott
Mrs. Mallardi (2)L/
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Federal Reserve Bank of St. Louis
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BOARD OF GOVERNORS
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PAUL A. VOLCKER
CHAIRMAN
The Honorable Walter E. Fauntroy
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Finance and
Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Chairman Fauntroy:
As requested in your letter of June 17, enclosed please
rind responses to questions raised by the Subcommittee on
Domestic Monetary Policy in connection with my testimony on the
budgets and expenditures of the Federal Reserve Banks and the
Board of Governors. The response to the question on construction work involving the Security Courtyard of the Federal
Reserve Bank of Chicago is being sent under separate cover, as
you requested.
I appreciate having had the opportunity to appear
before the Subcommittee to discuss Federal Reserve budgets and
expenditures. I believe such hearings are important to Congressional understanding of Federal Reserve System spending and
welcome any additional questions the Subcommittee may have.
Sincerely,
a;.;1 A Vc1_-,
Enclosure
DR:pte (V-134, 86-2658)
bcc: Dave Robinson
Clyde Farnsworth
Ted Allison
Mrs. Mallardi (2)/
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Question 1:
Chairman Volcker stated before the Subcommittee in
January that the Federal Reserve intends to abide by Gramm
Rudman in spite of the decision made by CBO and OMB that
sequestration will not apply to the central bank.
Please
elaborate on what expenditures the Federal Reserve Syste
m
will reduce to attain this goal.
how will the Reserve hanks be treated in this process? How will their participation be ensured? how
will
the Federal Reserve Board monitor this program of
budget
reductions by the individuai reserve banks? Do you
feel
reasonably certain that one year from now, you will
be able
to state before this Subcommittee where each of the
Reserve
Banks made the necessary reductions?
Response:
The Board did decide to follow the spirit of GrammRudman in 1986, as mentioned in earlier testimony.
In Feb-
ruary, the Board took action to reduce by $18 million the
System's approved 1986 budget.
Information on the areas
targeted for reduction was provided on Tables 6 and 7
attached to Chairman Volcker's June 5 testimony.
In summa-
ry, the Banks and the Board are making reductions primarily
in the support and overhead areas by changing hiring plans,
delaying automation purchases, and taking fewer trips.
The Reserve Banks and the hoard were treated similarly in the process of reducing 1986 budgets.
The $16
million System target was prora.ted among the Board and
the
twelve Reserve Banks based on the relative size of the budget to the System's total budget and based cn the relat
ive
size of expense growth over the last three Years to the
System's growth.
This resulted in required.reductions of
$16.6 million by Reserve Banks and $1.4 million by the
Board.
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Federal Reserve Bank of St. Louis
••••
2
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Participation by the Reserve Banks has been assured
by assigning a specific portion of the total $18 million
reduction to each Bank and having them provide an adjusted
1986 budget.
Furthermore, each Reserve bank has submitted a
plan to achieve its budget target, which has been reviewed
and approved by the Board.
The Reserve Banks' adjusted 1986 budgets are being
monitored as part of our regular control process.
In addi-
tion, we have instituted a new reporting requirement that
will demonstrate each District's compliance with the budget
reduction target.
A report based on this information will
be submitted to the Board in January 1987.
The information
received from the Banks during the fall budget process,
along with the new year end report, will enable us to
determine where each Bank has made the necessary reductions.
Question 2:
Should the secuester be required for Budget year
1987, will the Federal Reserve again voluntarily agree to
abide by Gramm-Rudman?
Response:
The Reserve Bank budget planning strategy for 1987
is to anticipate the degree of spending restraint necessary
to comply with the spirit of Gramm-Rudman-Hollings in 1987,
and include this restraint in the overall budget target.
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Federal Reserve Bank of St. Louis
3
This strategy will be followed regardless of developments
that materialize in the federal government's fiscal year
1987 budget.
Accordingly, if sequestration is required for
the Federal government, we do not plan to further reduce
1987 Federal Reserve budgets because reductions in planned
budgets, in the spirit of Gramm-Rudman-Hollings, will
already be reflected in those budgets.
Question 3:
Priced services will be exempted from the reach of
Gramm-Rudman. Under one formula provided to the Subcommittee by the Congressional Budget Office, the inclusion of
priced services for purposes of Gramm-Rudman would have
increased the amount of the reduction by about $21.3 million. Why has the Federal Reserve System exempted priced
services from the base? What would have been the impact on
System operations if the amount attributed to priced services was sequestered from other functions?
Response:
Our priced services functions are required by
statute to recover costs through the charging of fees.
Expense reductions in these functions may lead to reduced
service levels resulting in lower revenues and return to
Treasury.
Given that there may not be an effect on the
government's deficit by a reduction in priced service
expenses and, given that there were other agencies'
business-like enterprises designed tc fully recover costs
that were exempted from Gramm-Rudman, priced service areas
were treated as exempt in some of the alternative scenarios
considered by the Board.
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Federal Reserve Bank of St. Louis
4
It is difficult to say what would have been the
impact on System operations if the reduction in the 1986
budget was double the amount.
It is safe to say that we
probably would not have been able to absorb a reduction of
this magnitude in a manner similar to the adopted reductions, largely through reducing discretionary Bank and Board
expenses.
The System would have had to look to program
reductions and possibly employee reduction programs.
Question 4:
Other "self-financed" budget accounts, including
thu Comptroller of the Currency and the FDIC, are not exempt
from Gramm-Rudman. What distinguishes the priced services
from these self-financed accounts justifying their exemption
from Gramm-Rudman? Are there other governmental entities
which are excluded on similar grounds?
Response:
Our expenses in the supervision and regulation of
financial institutions are analogous to the expenses of our
sister regulatory agencies.
As in the case of the OCC and
FDIC, we did not exclude our supervision and regulation
expenses in the development of alternative scenarios.
Also,
we understand that all but the administrative expenses of
the Post Office and the Tennessee Valley Authority (TVA)
were exempt from Gramm-Rudman since they are self-financing.
The Post Office and TVA perform somewhat similar services as
our priced services in that these services are business-like
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Federal Reserve Bank of St. Louis
5
in nature, i.e., their level is chosen by the public in a
free market environment.
To cut these services would be
contrary to the free market concept.
This is different from
the OCC and the FDIC's functions where the level and frequency of examination is chosen by the regulatory agency.
Question 5
You stated that you have been informed that the
current reimbursement scheme between the Federal Reserve
System and the Treasury will likely undergo modification due
to Gramm-Rudman. Please clarify exactly what it is that you
are currently discussing with Treasury and state what the
Federal Reserve will do should this take place.
Response
The Federal Reserve believes that direct reimbursement for fiscal services performed on the behalf of government agencies is consistent with appropriate budgetary policies and good budget practice.
We understand, however, that
the Treasury has had difficulty securing the necessary
appropriations.
In light of reducea reimbursements, we are
discussing with the Treasury a combination of two approaches
to address the impact of Gramm-Rudman.
First, we are discussing potential 1987 Federal
Reserve cost savings for existing fiscal services which
could be achieved without a deterioration in the level or
quality of the service provided to the Treasury or the
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Federal Reserve Bank of St. Louis
6
public.
Specifically, we are workin
g with the Treasury to
investigate the feasibility of
modifying workflows
prescribed by current Treasury
procedures and eliminating
scheduled enhancements to ex
isting systems. Second, we
are
considering, in conjunction
with the Treasury, the
feasibility of charging depo
sitory institutions a fee for
banking services of a fiscal
nature from which they receiv
e
clear benefits. We believe,
however, that there will stil
l
be a need for direct reimbu
rsements to cover the cost of
fiscal services of a purely
governmental nature that
directly benefit the Treasury
.
In the absence of direct reim
bursement, depository
fees, or cost reductions in
existing programs, the Federa
l
Reserve would still consider
providing new fiscal services
which would result in governme
nt-wide cost savings even if
this may increase our costs in
the short-run; we would
expect that such new services,
however, would be subject to
the constraints of our existing
budget resources and
objectives.
We believe this approach fulf
ills the spirit of the
Gramm-Rudman legislation withou
t upsetting our fiscal relationship with the Treasury. Our
discussions with the Treasury on this approach, howeve
r, are still in the initial
stages. We hope to have the
approach finalized with the
Treasury in the near future.
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Federal Reserve Bank of St. Louis
Question 6
Is there any centralized purchasing pro
cess for the
entire System which would enable the
Federal Reserve to
achieve greater economies of scale in
purchasing items such
as computer diskettes, furniture, and
other regularly purchased items? What consideration is
given to small and
minority businesses?
Response
There is a centralized purchasing
process for the
entire System where purchases of sim
ilar supplies and software are identified by the Board and
the Reserve Banks.
Requests are combined and submitted
to the winning vendor as
materials are required.
The Board uses this centralized
system only when the items are less exp
ensive than similar
items on the GSA schedule or on the ope
n market through
competition.
Because the Reserve Banks are not eligible
to
use the GSA schedule, the Banks utiliz
e the System Purchasing Service whenever centralized purcha
sing results in lower
costs than purchasing on the open market
.
The Board has approved a policy of aid
ing small and
disadvantaged businesses through Federa
l Reserve System
acquisitions; and to this end, the Boa
rd and Reserve Banks
have adopted procedures for acquiring
yoods and services
from such businesses.
These procedures are consistent with
the policies of the Small Business Act
and regulations.
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Federal Reserve Bank of St. Louis
8
Question 7
What outside space does the Board presently rent?
At what rates and for what purposes is such space used?
Response
The Board currently leases two outside facilities.
The Board rents 8,050 square feet of office space at Colum
bia Plaza, 2400 Virginia Avenue, N.W.
The cost for the
period Nay 1, 1986 through April 30, 1987 is $85,000 or
$10.55 per square foot.
This space is used for the Board's
Bank Examiner Training School.
The Board also rents 12,176 square feet of warehouse space at 618-C and 620 Pickett Street, Alexandria,
Virginia.
The cost for the period October 1, 1985 through
September 30, 1986 is $37,877 or $3.11 per square foot.
This space is used primarily for storage of publications and
supplies, and for short-term storage of furniture and equip
ment.
Question 8
What requ rements are imposed on individuals who
are reimbursed for educational expenses? Are they required
to be enrolled in a degree program; must they achieve a
certain minimal grade or grade point averaye; are all or
only certain courses reimbursed; and what institutions are
eligible for reimbursement?
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Federal Reserve Bank of St. Louis
a
9
Response
Generally, the Banks and the Board will pay the
costs of educational programs that are either directly
related to the employee's current job responsibilities or
development of the individual for future advancement within
the organization.
Such decisions are normally made by the individual's supervisor and the training and development section of
the personnel department.
Employees are not required to
enroll in a degree program, but must obtain a satisfactory
or better grade in order to be reimbursed.
Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management
Association, American Institute of Banking, etc., are eligible for reimbursement.
Question 9
What guidance or counseling does the Board and/or
the System provide for persons whose wages are garnished or
attached? With respect to persons who are determined to
have severe financial difficulties, are there any security
assessments made with respect to them and their access to
sensitive data?
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Response
Upon receipt of a court order to garnish wages, a
Personnel Officer meets with the affected employee.
The
Personnel Officer counsels the employee concerning his/her
obligation and provides guidance to the employee on how
best
to resolve the matter.
If the case is severe, an assessment
is made by the Personnel Officer of possible System impac
ts
which may include those related to physical and data secur
ity.
Appropriate individuals are notified and steps taken to
guard against unauthorizea disclosure or access.
Question 10
What actions has the Federal Reserve undertaken to
lower the cost of printing the currency? Has consideration
been given to the use of offset printing for some portions
of the $1.00 bill? What impact on costs might the new proposals for counterfeit protection impose? With respect to
lower denomination notes, what consideration has been given
to changing the paper composition to increase the useful
life?
Response
The cost of printing new currency is established by
the Bureau of Engraving & Printing (BEP).
However, the
Federal Reserve Board endeavors to control its costs associated with the printing of new currency to the extent possible by:
o
Consulting with the BEP on its major printing
operations to assure ourselves that they are
cost effective.
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Federal Reserve Bank of St. Louis
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Monitoring Reserve Bank currency processing
operations to guard against premature destruction of currency.
o
Scrutinizing annual Reserve Bank printing order
requests in order to minimize the amount of new
currency ordered while still meeting Federal
Reserve System guidelines on currency quality.
o
Supporting legislation relating to the use of
offset printing for the backs of $1 denomination
notes.
Both now and in the past, the Federal Reserve Board
has supported the Department of the Treasury's proposal to
print the backs of one dollar notes by the offset printing
method.
The Board's support for this proposal is grounded
on the very favorable impact it would have both on the BEP's
capacity to produce new currency and on its cost of printing
one dollar notes.
With respect to the cost impact of counterfeit
protection proposals, the BEP has given the Pcard preliminary indication that there will be no increase in the cost
of printing new currency in fiscal year 1987.
According to
the BEP, this is due to the fact that the changes to the
currency will be relatively small and will be phased in
during the year; consequently, the costs associated with
these changes will be absorbed by the BEP.
Thus, the cost
will remain $26.00 per thousand notes for fiscal year 1987.
However, for fiscal year 1988 the cost is expected to
increase $1.00 per thousand notes, which translates into an
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increase of approximately $7 million based on an expected
FY'88 printing order of approximately 7 billion notes.
This
increase in cost will be due in part to the changes in the
currency.
If more significant changes to the design of
currency are adopted, there will likely be a further
increase in printing costs.
Finally, the Bureau of Engraving and Printing has
the responsibility for research and development efforts with
respect to currency paper.
It is our understanding that the
BEP conducts ongoing research on the composition of currency
paper and on extending the useful life of the paper used to
print U.S. currency of all denominations.
Question 11:
What consideration was given to using the Culpeper
Contingency Center in serving as a backup facility for the
Federal Reserve Bank of New York or other nationally sensitive systems on a real-time basis?
Response:
The Second Federal Reserve District has done extensive evaluation of a number of options in order to provide
adequate, timely contingency backup facilities in the event
of an extended outage of computing capability at the Head
Office location.
Of the alternatives examined, the most
viable were: 1) the establishment of a dedicated contingency
site in close proximity to New York City; and, 2) the use of
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the Contingency Processing Center (CPC) in Culpeper,
Virginia.
The Bank processes over 70 percent of the System's
book-entry securities transactions and over 28 perce
nt of
the System's funds transfer transactions.
The combined
daily average value of these exceeds $500 billion.
While
some very limited alternatives exist for electronic
funds
transfer volumes, there is no effective alternativ
e for
supporting book-entry securities transfers.
New York main-
tains exclusive ownership records for those securities, the
value of which exceeds $1 trillion.
Given the sheer volume of transactions and the
staggering monetary values involved, an outage of even
a
single day could pose a serious problem to the nation's
financial markets.
New York has estimated that recovery of its critical systems at the Culpeper facility (including travel time
,
reconcilement of transactions, completion of the day's processing, and end -of-day processing) could require in excess
of 34 hours which is obviously unacceptable from the standpoint of risk.
Recovery at the interim Blue Hill Plaza office
center site in Pearl River, New York, is estimated to be
possible within 18 hours from the time of occurrence of the
outage, making it clearly the better choice.
IMMM1116.
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In addition to the time involved in relocation,
reconfiguration, and recovery that would be required at
Culpeper, the communications facilities available at the CPC
from the local telephcne utility are inadequate to completely backup those needed by the Second District, whereas those
provided at the District site are fully capable of supporting the requirements.
A number of secondary benefits accrue from the use
of the Blue Hills location, including personnel familiarity
with the systems, minimal disruption to the other eleven
Districts' processing over the network, and the ability to
do verification of backup plans and procedures on a continuous basis.
Question 12
The Federal Reserve includes in the body of the
PACS reports a section in which it rates the various Reserv
Banks. How are those Banks operating at less than average
cfficiency encouraged or compelled to improve their efficiency? What tools does the Board use to employ the findings of the PACS reports and improve efficiency?
Response
The sense of competition among the Reserve Banks is
very keen with regards to operating efficiency.
Naturally,
all Reserve Banks would like to be above average.
This
sense of competition spurs continued efforts for increased
efficiency not only at the Banks ranked below average but
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also at the highly ranked Banks that would like to maintain
(in the case of the Bank with the highest operational
efficiency) or Improve their ranking (at all other Banks).
It is important to recognize in this connection that a
below-average performance in a particular operation may be
perfectly satisfactory in an absolute sense
where, for
example, all Reserve Banks are meeting or exceeding a targeted level of performance.
Measures of operational efficiency are used by the
Reserve Banks in setting their performance objectives and by
Board staff in preparing performance evaluations of the
Reserve banks, the results of which are communicated to the
board of Directors of each Reserve Bank.
Question 13
What process is used to determine whether a major
computer system should be purchased or leased?
Response
An operating expense analysis is performed, taking
into account such items as straight-line depreciation, maintenance, power and cooling consumption, building modification, additional personnel, and software.
As a result of
the Monetary Control Act (MCA) of 19E0, the Private Sector
Adjustment Factor (PSAF), reflecting the imputed costs for
taxes and return on capital that would be incurred if cer-
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tam n services were to be provided by a private business
firm, is also included as an operating expense.
Operating
expense streams, on average monthly and annual bases, for
both lease and purchase alternatives are compared to determine the most advantageous method of acquisition.
In addition, a cost/benefit analysis is performed,
comparing the expense streams expected with a purch
ase
against those projected over the life of a comparable
lease.
Both are discounted to net present value using the current
average yield rate in the secondary market for Government
securities having a maturity corresponding to the expec
ted
useful life of the equipment.
TC
a break-even or payback
period does not occur within the expected useful life, then
leasing is indicated as the more appropriate option.
Exceptions to the above may occur in those instances where equipment is to be acquired late in its product
life cycle or when announcements of more advanced technology
are imminent.
In those cases, equipment may be leased to
provide the Bank or Board with incieased flexibility.
Question 14
How often are consultants used by the cistrict
banks? What is the policy with respect to employment
of
consultants? For what purposes are consultants gener
ally
employed? What was the total value of contracts with
consultants last year for all Banks?
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Response
Reserve Banks may periodically employ consultants
but most utilize them on an infrequent basis.
Consultant
services have been obtained to provide architectural and
engineering services, outside legal assistance, employee
benefits, and other services where special expertise is
required and not available from current staff or not justified on a permanent basis.
Where applicable, the policy and procedures adopted
by the Federal Reserve System to acquire goods and services
from small and disadvantaged businesses are considered in
selecting a consultant.
Also, most of the Reserve Banks
require that a senior official committee approve any proposal to engage a consultant.
During 1985, the 12 Reserve Banks spent a combined
total of app/oximately $4 million (of a total $1,023 million
in net Reserve Bank expenses) for consultant services.
Question 15
A number of Banks have purchased, at varying prices, several popular PC software systems. Some Banks purchase copies of the same software. Recognizing that copyrights need to be respected, what efforts have been made to
enter into site agreements with firms like LOTUS that would
apply, if not to the whole system, at least to each Bank.
Failing to enter into such agreements, what considerations
have been given to using competing softwares? Does the
System have an overall software management policy for personal computer use? When personnel develop software routines or formulas, what process is used to check their
validity and to assure that errors are not carried into
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other systems or into System policies? What is the understanding about ownership of work products developed by individuals using System-owned equipment or software? What if
such work product is developed at home?
Response
Site licensing agreements for personal computer
software are a relatively new concept.
The Reserve Banks
and the Board investigated the possibility of site licen
se
agreements with several vendors.
Initially, when contacted
by the System, major software vendors were reluctant to
offer such site licensing arrangements.
The Reserve Banks
and the Board have addressed this situation by negotiating
Volume Purchase Agreements (VPAs).
The Board also utilizes
the General Services Administration (GSA) price lists for
software applications.
The Federal Reserve System has established a System
Purchasing Service (SPS), based at the Federal Reserve Bank
of Minneapolis, that investigates and represents the Federal
Reserve System in System-wide purchasing contracts.
The SPS
has negotiated a number of VPAs that cover software applications as well as personal computer peripheral devices.
In
addition to the VPAs negotiated by the SPS, the Board has
taken advantage of GSA prices offered by vendors.
As part
of the System's continuing program to reduce costs, the
benefits afforded by the GSA 'computer store' were investigated.
The study revealed that the price structure offered
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by the GSA 'computer store' was, in many cases,
substantially higher than the prices available from individu
al vendors.
Theretore, all Board purchasing under the GSA pric
e schedule
is coordinated directly with the vendors.
The study also
indicated that the cost reductions afforded
by VPAs and the
GSA price schedule often were equivalent
to those that would
be gained under a site licensing agreemen
t.
The Federal Reserve System is constantly evaluati
ng
many suppliers of software in
a
continuing effort to estab-
lish the lowest cost alternatives possible.
To contain
costs System-wide, Volume Purchase Agreements
are utilized
whenever available.
When personnel develop personal computer software
,
that software is subject to rigorous test and acce
ptance
standards used for maintrame software to ensure
its validiLy.
All work products developed using System-owned equi
p-
ment or software are the property of the System rega
rdless
of whether it is developed on System premises or
in an
employee's home.
Question 16
Since District Banks may not use GSA stores, are
local firms which sell such supplies required,
at least, to
Lieet either the best government or corporate pric
e? Are
some materials purchased on a System-wide basi
s? What consideration might small and minority businesses rece
ive in
these contracts and purchases? Should District Bank
s have
access to GSA stores?
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Response
Reserve Banks competitively bid office supply
acquisitions.
Although local firms are not required to meet
the best government or corporate price, the competitive
bidding process generally results in acquisitions at the
best possible price.
The Reserve Banks also subscribe to a
System Purchasing Service (SPS) administered by the Federal
Reserve Bank of Minneapolis to take advantage of volume
purchase agreements.
Currently the SPS has 49 national
buying agreements, covering such items as coin bags, poly
bags, computer paper, magnetic media, high tech supplies,
software, and microcomputers and peripherals.
It is esti-
mated that the System realizes savings of 20 percent on
goods for which it has been able to negotiate SPS agreements.
Each Bank's acquisition guidelines include procedures designed to assist small and disadvantaged businesses
in providing goods and services to the Bank.
These guide-
lines provide for acquisitions with an anticipated value of
$10,000 or less to be set aside for small and disadvantaged
businesses.
Procedures and criteria as noted in the
response to Question 17 have been established to give preference to such businesses in the case of larger acquisitions.
In addition, where a contract for goods or services
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has subcontracting possibilities, vendors are advised that a
factor in evaluating bids or proposals will be the inclusion
of a subcontracting plan.
If the Reserve Banks were allowed access to GSA
stores, the GSA price would be viewed as simply another bid
on the acquisition.
We do not believe any significant cost
savings to the Reserve Banks would be realized as a result
of such access.
Question 17
What specific efforts are being undertaken by each
Reserve Bank to provide opportunities for small and minority
businesses? Are there certain lines of purchases where
these firms are given special consideration?
Response
As previously noted in the response to question 6,
in August 1985, the board adopted uniform System procurement
procedures that give due consideration to Small and Disadvantaged Businesses.
(S&DB PROGRAM)
These procedures require:
o Establishment of a "Small Business Specialist"
position at the Board and each Reserve Bank to oversee compliance with the Program.
o Identification of Small and Disadvantaged businesses and placement on each Bank and the Board's bidder
lists.
o A $10,000 procurement set-aside for small and
minority businesses with authority to set aside laryer contracts for exclusive participation.
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o That responsive bids go to S&DB firms if bid
price is within 3 percent of low bid on contracts up to
$500,000 and within 1 percent of low bid on contracts greater than $500,000.
o That equal bids between small businesses and a
minority firm be awarded to the minority business.
Efforts to aid small and disadvantaged businesses
have been taken by the Federal Reserve System, in varyi
ng
degrees, for some time.
For example, the Boston Reserve
Bank has had a program since 1975.
The formal S&DB Program
was initiated in 1985.
SPECIFIC PRODUCTS OR SERVICE CATEGORIES THE SYSTEM
HAS FOUND MOST ACCESSIBLE TO S&DB PARTICIPANTS
Audio-Visual Equipment
Automobile Sales & Service
Business forms
Cable
Carpet Installation
(Hardware & Software)
Corrugated Containers
Disposal Services
Employment Agencies
Electric & Electronic Supplies/
Services
Florists
Food Service
Fuel Oil/Gasoline
Hardware Stores
Interior Design
Local Trucking
Maintenance/Janitorial
Supplies/Service
Paper Products
Photographic Supplies
Plumbing Supplies & Repairs
Printing & Engraving
Reuphoistery & Furniture
Sales/Repairs
Stock Forms
Travel Arrangements
Window Cleaners
Question 18
What efforts are being undertaken to control and
limit telecommunication costs? Is there a telecommunications task force? Do they have a report? To the extent
that the System may have excess capacity, what consideration
has been given to selling that capacity?
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Response
The Federal Reserve System is continually researching ways to curb telecommunications costs.
The System has
undertaken strong initiatives including the use of new technolcgy to reduce costs, as illustrated in several examples:
o
The System has directed the Districts to conform
to a common communication architecture for networks within each District that reduces the
amount of equipment required and, consequently,
the costs.
o
An efficient switching technology is used in the
communications system that interconnects the 12
Federal Reserve Districts, the Board, the
Culpeper Contingency Center, and the Treasury.
This system is known as FRCS-80 and it allows
many users to communicate over common equipment.
The system also routes traffic to achieve efficient use of existing capacity. This communications system has proven cost effective for the
Treasury and the Federal Reserve System. The
Treasury Department is realizing substantial
savings by using FRCS-80 and software applications developed by the Federal Reserve System.
o
New cabling systems are being implemented in new
. buildings and in the renovation of existing
buildings. These systems reduce costs by eliminating redundant cabling in the elder systems.
o
Some Reserve Banks are replacing obsolete voice
systems with Private Automated Branch Exchanges
PABX's) that can act as switching mechanisms for
voice and data, eliminating redundant equipment
costs. The New York Bank estimates that its new
PABX, when completed, will save the Bank about
$2 million annually.
The Board has been particularly vigilant with
respect to monitoring telecommunications utilization and
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achieving savings in equipment where possible
.
The follow-
ing are examples of the Board's efforts to cont
rol its telecommunications costs.
o
The Board purchased much of its telephon
e equipment including a Private Branch Exchange
(PBX).
Savings of $360,000 are anticipated over the
three-year life cycle of this equipmen
t.
o
The Board analyzes traffic and uses less
expensive tie lines where warranted.
o
A computerized telephone traffic monitoring
system was installed in 1964. The Board has
since realized savings by monitoring phone
bills, and has been able to curtail improper
use
of government long distance lines. Other government agencies are following our example
and
now adopting similar controls.
o
Certain frequently called local numbers have
been blocked through our PBX and cannot be
called from Board phones.
Communications officers from the 12 District
s and
the Board meet on a regular basis to identify
telecommunication issues.
A report is then distributed to keep the
System abreast of these issues.
Additionally, the System Communications Cent
er
Capacity Planning Group performs capacity anal
ysis to identify present and future needs and how best to
utilize existing capacity to meet those needs.
detailing these activities.
A report is generated
Presently, the System network
is operating near the 70 percent utilization
level, a point
where response times begin to degrade.
It is, however,
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technically feasible to increase the capacity of
the network
when necessary.
Question 19
What requirements are imposed on individuals
who
are reimbursed for educational expenses? Are they
required
to be enrolled in a degree program, must they achi
eve a
certain grade or grade point average, are all or
only certain courses reimbursed, and what institutions are
eligible
for reimbursement? Is an identical or similar poli
cy followed at all Banks and the Board?
Response
As noted in the response to Question 8, the Banks
and the Board will pay the costs of educational programs
that are either directly related to the employee
's current
job responsibilities or development of the individu
al for
future advancement within the organization.
Such decisions are normally made by the individual's supervisor and the training and development section of
the personnel department.
Employees are not required to
enroll in a degree program, but must obtain a satisfac
tory
or better grade in order to be reimbursed.
Courses taken at accredited colleges and universities or offered by recognized institutions providin cont
g
inuing education courses, such as the American Manageme
nt
Association, American Institute of Banking, etc., are
eligible for reimbursement.
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Question 20
Do the District Banks intend to continue their
policy of providing employee loans to their lower paid
employees? What is the policy governing these loans? What
efforts have been undertaken to assure that large dollar
loans are not made to senior officers of a Bank? Is it a
proper policy for the Federal Reserve to make loans to its
employees at rates approximating the Discount Window Pate
for any purpose?
Response
These loans to bank employees are for emergency
purposes and are made only after the employee has exhausted
all other legitimate loan sources.
"tor any purpose."
These loans are not made
The Board believes such emergency loans
are appropriate and believes it is desirable to continue the
loan program.
The crigin of such loans dates back to 1921, before
consumer loans and credit were available to the working
public.
The original purpose of such loans remains the
guiding principle today:
to assist needy employees in emer-
gency financial situations where alternative sources of
funds are not available.
System policy permits emergency loans to Bank
employees under closely circumscribed conditions:
the pur-
pose of the loan must be of a truly emergency nature; the
employee has exhausted all alternative legitimate loan
sources; such loans should be limited to employees in the
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lower salary grades, should be written for a maximum duration not to exceed one year, and should be made at a rate of
interest at least equal to the District's basic discount
rate at the time the ican is made.
At many Reserve Banks, loans to officers are prohibited.
At the others, the general guidelines and a dollar
limit on the aggregate _Loans outstanding preclude large
loans to senior officers.
Considering the relatively small number of emergency loans made, the purpose for which these loans are made,
the socioeconomic characteristics of the majority of borrowers and that the rate of interest charged is 1) no less
than the banks charge for discount loans to financial institutions and 2) frequently higher than other employers in the
Reserve Districts charge their employees for similar loans,
we believe the practice and the rate charged are proper.
Question 21
Are Bank vehicles purchased or leased? For whom
are cars available? Are cars of foreign manufacture ever
purchased?
Response
The current practice among all Reserve Banks is to
purchase rather than lease automobiles due to the cost
advantages of purchasing.
In current practice, no cars of
foreign manufacture are purchased.
Generally, cars are made
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Federal Reserve Bank of St. Louis
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available during the business day to the President, First
Vice President, senior officials, account executives and
others whose duties require visits to other financial institutions in connection with Bank business.
At some Reserve
Banks, bank e::aminers use bank cars, in lieu of other transportation, while conducting examinations of financial institutions.
Question 22
What long range space and
Reserve Banks undergo? What plans
ing the useful life of branch bank
Are there any plans for opening or
facilities planning do
dc the Eanks have regardfacilities and RCPCs?
closing other facilities?
Response
Each of the Federal Reserve Banks prepares an annual projection of staff and space needs for 5, 15, and 25
years into the future.
The results of this exercise .1/.e
forwarded to the Board of Governo/s and subsequently compiled into a systemwide floor space utilization and needs
projection report.
Based on individual Bank Management
perceptions of facilities needs, additional studies are
occasionally conducted.
Such studies are routinely imple-
mented in accordance with the Planning Guidelines for
Federal Reserve Bank Facilities.
Studies of this nature are
routinely conducted to facilitate the evaluation of major
construction/renovation decisions.
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For planning purposes, all Bank-owned facilities
including branches are assigned useful lives of thirt
y to
fifty years.
The functionality of such buildings is assured
as a result of comprehensive maintenance and renovation
as
required.
In addition, the planning procedures outlined
above are employed to evaluate replacement facility
needs.
All RCPC facilities are leased, not owned by the Federal
Reserve.
Other than the planned computer contingency site
and remote operations center in New York, the Reserve Banks
have no current plans for opening or closing ocher facilities.
These facilities are described more fully in the
response to question 29.
Question 23
How does the System control expenditures when they
are billed to a relative of an official of the Federal
Reserve System? Would a statement of expense be required in
every case?
Response
The System is very sensitive to the potential conflict of interest resulting from services performed by a
relative of an official of the System.
The System has a
number of controls in place to ensure that an actual conflict of interest situation does not: arise in the rare
instances in which relatives of officials perform services
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Specifically, there is a strict
separation
of duties in the purchasing and pay
ment processes, an official is not permitted to be involved in
the approval of
payment to that official's relative,
standard competitive
biddina procedures must be follow
ed, a complete statement of
expense must be presented, and sen
ior management and audit
staff review are generally req
uired.
Question 24
How often do the directors of Res
erve Banks meet in
cities located in other Districts
? What would be the purpose of such meetings? Which cit
ies are the most prominent
cities for such meetings? How oft
en do Boards meet in the
Head Office city of other Reserve
Bank districts?
Response
The directors of Reserve Banks mee
t in cities
loci.ted in othur Districts, includ
ing the Head Office city
of other Districts, very infrequen
tly.
Most out-of-District
meetings are held with the direct
ors of other Reserve Banks
to provide directors with a wider ran
ge cf views on current
and prospective developments in the
national economy, to
gain additional insight regarding
conditions in different
economic regions, and tc benefit fro
m discussions with
directors in other Districts experi
encing similar banking
conditions.
The cities most frequently visite
d include New
York, to provide directors with an
opportunity to observe
open market and foreign exchange ope
rations, and Washington,
4111.
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D.C., to meet with members of the Board and Senior Board
staff.
Question 25
The Federal Reserve Bank of Boston purchased .38
caliber revolvers from a local distributor. Were the prices
comparable to those which the United States government might
have paid under a GSA schedule? Are items like revolvers
replaced according to a fixed schedule at this or other
Banks? Is there a uniform policy on such expenditures for
all Banks? ref: voucher 16677
Response
As you know, Federal Reserve Banks are not authorized to use GSA schedules.
In the case cited, written com-
petitive bids were sought from local
purchase of the revolvers.
vendors for the
Award was made to the bidder
offering the lowest price, in accordance with System Purchasing Guidelines.
The quoted prices were, therefore, no -c_
comparable with GSA schedules.
Items such as revolvers are replaced on an "as
needed" basis when they become unserviceable.
Such replace-
ment is typically infrequent.
System purchasing guidelines exist that detail
procedures that must be followed in acquisitions.
Question 26
Has any thought been given to changing the boundaries of the Federal Reserve BanK of Boston in light of its
small size? Might this Bank become the site for additional
System responsibilities?
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Federal Reserve Bank of St. Louis
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Response
There are no plans to change the boundaries of the
First District.
While the Boston District is small geo-
graphically -- essentially comprising the six New England
states -- its volumes in many key operations are sizable;
for example, it has the eighth largest check processing
volume and the sixth largest funds transfer volume among the
twelve Districts.
In addition to providing services to
depository institutions within its boundaries, the Boston
Federal Reserve also provides services to some institutions
that lie within the boundaries of the Second District.
There are no current plans to make the Boston Bank
the site for additional responsibilities.
ly has significant System responsibilities.
The Bank currentIt is the man-
agemelit site for the Check Collection service and the
Interdistrict Transportation System.
On behalf of the Sys-
tem, the First District is overseeing the testing of new
technoloyies for the processiny of paper checks.
Question 27
The Federal Reserve Bank of New York expended
$1440.74 for private guard service at the Cranford Office.
Why did this Bank not use its own guard force? Ref: voucher
D167512.
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Response
Outside private guard service is used at all
leased premises in the second District, either because of
lease requirements or because such arrangements are less
expensive.
At the Cranford RCPC, the Bank elected to use a
private guard service because such a service could be
acquired for a flat fee with no overtime or fringe benef
it
expenses to the Dank.
The use of this service also allows
for greater flexibility in guard services and guaranteed
coverage for the facility in the event of Illness.
Question 28
The Fuderai Reserve Bank of New York shows payments for several kinds of copiers. What is the policy for
rental of such equipment? 1.that kinds of economies might
there be from renting several kinds of copiers from several
firms? What preference does this or other Banks extend to
minority firms in these types of rentals? Ref: vouchers
D167509 (Ricoh), D167515 (Panasonic), and D167541 Wcyal)
Response
The lederal Peserve Dank of New York prefers tu
rent rather than to purchase copier equipment.
This deci-
sion is based primarily on the limited useful life of such
equipment (two years or less) and concerns about the rapidly
changing technological environment and number of vendors in
the field.
In addition, the Bank prefers to deal with sev-
eral vendors in order to provide more competition and to
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The System is currently following
its small and disadvantaged business policy in seeking such
firms for copier equipment rentals.
This policy is
described in the response to question 17.
Question 29
The Annual Budget Review notes that the establishment of a contingency computer site for the Federal Reserve
Bank of New York is expected to produce some long-run savings. What might these savings be
Response
Because of the financial risk of a computer outage
at the Federal Reserve Bank of New York, the District has
begun preliminary planning work on the establishment of a
Remote Operations Center outside Manhattan.
It is estimated
that the center will have a staff of more than 500 people
supporting check and cash processing operations, and will
provide cssential computer backup capabilities for the Second District.
This center is projected to provide the Bank
with longer term opportunities to contain costs and will
also present opportunities for improvement in operating
efficiencies in priced services.
Although this Remote Operations Center will provide the Bank with needed backup capability, it is not
planned to be completed until 1991.
To protect against the
financial risk of a computei cutage in the interim, the Bank
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is in the process of implementing a contingency computing
center in Pearl River, New York.
This interim center is not
expected to provite the District with any lung-run savings
but is being implemented in order to provide the Bank with a
necessary backup capability.
Long-run savings are not pro-
jected to occur until the Remote Operations Center is established and the cash and check operations are relocated.
Question 30
What actions will the Federal Reserve Bank of New
York undertake to improve its supervision of non-Fea high
dollar fund transfer systems like CHIPS: Will this be
accomplished separately or within the expected resource
strengthening of the Banks supervisory initiatives?
Response
As a part of its bank examinations program, the
Federal Reserve Bank of New York will increase its focus oi
the examincd banks' electronic payments activities, both in
book-entr
government securities and in funds transfers
(Fedwire as well as private payments networks)
This will
be done as an expanded part of the regular examination as
well as in speciai, targeted examinations.
In addition, the
Bank plans, in conjunction with the New York Clearing House
Association, to (a) develop standards for determining the
eligibility of institutions to become settlement participants in CHIPS, and (b) review the issue of finality in
CHIPS payments.
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Question 31
The Federal Reserve Bank of Philadelphia has
incurred certain costs attributable to the developm
ent and
operation of the systems on behalf of the
Treasury. Are
these costs reimbursable? Are all expendit
ures made by the
Federal Reserve for fiscal agency services
reimbursed? Are
they directly reimbursed by Treasury or must
they be recovered from other parties?
Response
The agreement with the Treasury under whic
h the
Treasury Direct initiative was undertaken prov
ides for
direct reimbursement of the full cost of
design, development, and implementation.
This commitment was honored by
the Treasury until its funds were exhausted
in January of
1986.
Not all expenditures made by the Reserve Bank
s
fiscal agency services are reimbursed.
or
In 1966, we antici-
pate fiscal expenses of approximately $170
million, of which
about $30 million is likely to be covered by
reimbursement.
At this time, all reimbursement received for
Treasury services is paid directly by the Treasury
.
None is
paid by other parties—e.g., users of the serv
ices.
The
Reserve banks do provide $22 million worth of
fiscal services to other agencies, .he full cost of whic
h is reimbursed
by the respective agencies.
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Question 32
How much money did the Federal Reserve Bank of
Cleveland expend on its Annual Report over the past two
years? What do other Banks spend?
Response
The Bank incurred $58,233 in 1984 and $49,416 in
1985 for related expenses related to its Annual Report.
This is higher than but generally comparable with amounts
spent by other Banks.
Question 33
What services cud US Cargo and Courier provide to
the Federal Reserve hank of Cleveland for $22,573.45? The
voucher is unclear. Ref: voucher 182845
Respcnse
The service represents shipments of checks to and
from FRB Cleveland.
US Cargo transports items in conjunc-
tion with the Interdistrict Transpertation Service (ITS)
from the Cleveland-Hopkins airport.
Question 34
Following the Ohio savings and loan difficulties,
what has the Federal Reserve Bank ot Cleveland done to
assure that is has better information on all depository
institutions whether or not members of the Federal Reserve?
Vas there been an increase in demands for various Fed services as a result of these problems? What is the increase
in the size of the bank supervision staff? To what extent
is supervision and examination automated?
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Response:
Following the savings and loan difficulties, the
Federal Reserve Bank of Cleveland upgraded access to information on all depository institutions.
Channels of regular
communication have been established with other federal and
state regulators for the express purpose oi assessing critical information on an ongoin9 as well as emergency basis.
Reports of condition, ratio analysis, and performance
reports are now maintained at the Reserve hank for all
insured thrifts and credit unions located in the District.
information on banks continues to be maintained at the
Reserve hank.
While the number of Cleveland's savings and loan
customers increased frcm 217 in December 1984 to 241 in
December 1985, the increase has not been attributed to savings and loan problems occurring in 1985.
The supervision department is in the process of
increasing examination staff by 24 employees in 1986 from 88
budgeted employees at year end 1985 as a result of the
Board's prudential supervision policy.
Question 35
The Annual Report of the Federal Reserve Bank of
Cleveland details extensive assistance given by the Federal
Peserve Bank of Cleveland during the crisis. Did the Federal Reserve bill the FHLBB for the services rendered?
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Response
The Federal Reserve examiners were extensively
involved in two types of activities during the Ohio S&L
crisis in 1985.
First, the examiners spent several days
early in the crisis preparing the privately insured S&Ls to
borrow at the Federal Reserve discount window.
This
involved obtaining signed loan documentation, securing collateral either through a field warehousc or actual possession at the Federal Reserve hank, and preparing a very
quick financial review of each institution to determine
their financial condition prior to the time we made a loan.
This could all be considered costs that the Federal Reserve
should bear as lender of last resort.
The second type of
activi ,7 Federal Reserve examiners engaged in was assisting
the FHLB exariners and in some cases the FDIC arid State
examiners with deposit Insurance qualifying Examinations.
This activit17 was undertaken in the spirit of cooperation
among regulatory agencies, and we did not believe it was
appropriate to L_11 the FHLE, FDIC or State for Federal
Reserve services.
Question 36
The Annual Budget Review notes that the Federal
Reserve Bank of Richmond expects to proceed with construction of a new Branch at Charlotte. Are there sufficient
funds to accomplish this? Are there activities at Charlotte
which might be transferred to either the Richmond Head
Office or Culpeper? What studies have been undertaken to
justify this undertaking as it is planned?
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Response:
The Federal Reserve Bank of Richmond expects to
proceed with the construction of a new building in Charlotte
to replace the 43-year-old existing facility.
There are
sufficient "building proper" funds to accomplish this.
The
project was one of the proposed new buildings mentioned in
the justification to Congress in connection with the Board's
request to increase the "building proper" limitation that
was subsequently enacted in 1974.
The activities at the Charlotte Branch cannot be
transferred to either the Richmond Head Office or to
Culpeper.
The Charlctte Branch serves both North and South
Carolina with coin, currency and check services.
of the large original Branches in the Systula.
It is one
Since 1979,
its territory has experienced large rates of increase in the
volume of pieces paid out for both currency and coin.
The
growth rates at the Charlotte Branch exceed those at both
the Richmond and Baltimore branches (Fifth District also)
and in the System as a whole.
Further, the Federal Reserve
Bank of Richmond and Culpeper would not have sufficient
space to accommodate the Charlotte branch operations and
could not economically provide good financial services to
North and South Carolina due to long distances.
A number of studies have been undertaken to certify
the need for a new building at the Charlotte Branch in
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accordance with the Planning Guidelines for the Federal
Reserve Bank Facilities.
The Charlotte Branch has been experiencing, over
the years, serious operation problems and inefficiencies due
to lack of sufficient space in its present facility.
The
Branch facilities have the following deficiencies:
o
Inadequate vault space for coin and currency
(less than 1,600 square feet of combined
vault space)
o
Inadequate work space and storage for
processing valuables (coin stored in small
rooms and restroons)
o
Inadequate space to alleviate crowded
conditions (old existing building and
remote storage facility)
o
Inadequate and vulnerable executive space.
(Executive located in the main lobby-problem of security and privacy)
Question 37
The Federal Reserve Bank of Richmond makes eNpenditures for a local gasoline service station. Doesn't the
hank have its own gasoline service and storage facility? If
not, why not? Do the prices the Bank pays reflect a negotiated price that is better than otherwise? Additionally,
what controls are there to assure that the gasoline chargeC,
is actually dispensed into bank equipment?
Response:
All Richmond Bank automobiles purchased in recent
years have diesel engines.
Late last year, the Bank pur-
chased its first gasoline-powered vehicles in some time.
also has an older van an
panel truck that are gasoline-
It
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The gasoline referred to was purchased for these
vehicles and for lawn maintenance equipment.
Gas storage facilities are not presently maintained
due to the limited use of gasoline, but the Bank does
have
its own storage facility for diesel fuel.
The prices paid
for fuel are negotiated in accordance with the
System's
Uniform Acquisition Guidelines.
As the Bank replaces its
diesel-powered vehicles with gasoline-powered
vehicles, it
will convert its present storage facility from
diesel fue,.
to gasoline.
Question 38
The Federal Reserve Bank of Richmond paid another
Reserve Bank registration fees for attendance at
a conference held at that Bank. It is customary fcr the Bank
s to
impose registration costs upon one another':
Response:
This particular invoice represents attendance ty
two members of the Richmond computer staff at a Data
Security Conference held at the Minneapolis Reserve Eank.
That
conference was being cOnduCtCL mainly for the depo
sitory
financial institutions in the Ninth District.
The main
purpose of the Richmond staff's attendance was to gain
ideas
for a future Data Security Conference in the Rich
mond District.
Reserve offices typically charge other offices for
their attendance at classes, System meetings, and
ccnferenc-
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es, when fees are charged to outside registrants.
This
practice has the effect of reflecting expenses on the books
of the appropriate Reserve Banks with no distortion in the
level of System expenses.
Question 39
For what purpose is the Burroughs B4925 Computer
System purchased by the Federal Reserve Bank of Richmond
being used? Is this system compatible with other systems
within this Bank and within the System generally? What is
the expected useful life of this system?
Response:
The Richmond Bank is using the Burroughs B4925
computers primarily for check processing.
Five B4925s are
installed in the Richmond Office, Baltimore, Charlotte and
the Columbia and Charleston Regional Check Processing Centers (RCPCs).
The District has been using Burroughs proces-
sors since 1962.
These systems were installed during 1985
in order to meet memory capacity requirements resulting from
increased check processing volumes.
In addition to providing check processing services,
the B4925s provide intiadistrict data communications services for Automated Clearing House (ACE) functions.
The
Baltimore and Charlotte Branches also use them for general
internal data processing functions.
Burroughs equipment is
widely used throughout the System, and they operate communications functions that coexist with other types oi processors in the System.
Consequentiv, the Burroughs computers
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successfully exchange data using compatible telecommunications systems.
The useful life is expected to be four years and,
based on their installation dates, these computers should be
in use for three more years.
Question 40
What is the value cf expenditures made by the Federal Reserve Bank of Atlanta for additions and renovations
of the head Office? What is the average number of square
feet allocated to employees before and after these renovations? How does this compare with other Federal Reserve
facilities and with other government facilities?
Response:
The Atlanta Bank is planning to spend about $7.'
million for the proposed addition to the Head Office which
is scheduled to start in November, 1906.
The Bank expended
$4.7 million in the renovation program between 1974 and
1984.
The average square feet per employee was 122 before
the addition and will be 136 after the addition.
pares with an average of 159 for the System.
This com-
The other
government agencies compute net square rect per employee on
a different basis, therefore comparable numbers are not
readily available.
Question 41
What is the policy of the Federal Reserve Bank of
Atlanta with respect to flowers tor death of close relatives? Does this apply to all employees? Are these Bank
funds or employee funds?
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Response:
Flowers may be sent upon the death of any employee
or retiree, his or her spouse, child, mother, father, grandchild, or any other relative whose relationship to the
employee or retiree is so close that failure to send flowers
would create in the mind of the employee or retiree a sense
of neglect by the Bank.
Expenditures should not exceed $35.
This applies to all employees.
Bank funds are used for this
purpose.
Question 42
Why is the Federal Reserve Bank of Chicago facing
declines in priced service volumes? Has an effort been
undertaken to reverse this trend? If so, please detail what
has been done. If not, why not?
Response:
The declines in check volume faced by Chicago are
primarily due to implementation of clearing exchanges within
the District by the large correspondent banks.
The clearing
exchanges have had a greater impact on volume in the Seventh
District since they were not prevalent prior to implementation of the Monetary Control Act.
In order to provide effi-
cient and effective check clearing services during
period
of declining volumes, the Chicago Lank responded by implementing:
o
Stringent cost control measures.
o
Improved service levels.
o
Enhanced education efforts.
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Selected price changes.
These efforts have stabilized check volume in the
District.
Through April 1986, processed volume is 1.6 per-
cent above the same period last year.
Question 43
Why did the Pricing Committee of the Federal
Reserve Bank of Chicago meet at Calloway Gardens, Pine Mountain, Georgia?
Response
The Chicago Pricing Committee deciaea to meet with
Atlanta Reserve Bank management to discuss operational
enhancements for the Federal Reserve Bank of Chicago because
of the Federal Reserve Bank of Atlanta's outstanding record
of operation performance.
Atlanta management was scheduled
to be involved for only part of the two and one-halt day
meeting.
A site close to Atlanta was selected so that the
Atlanta management could conveniently attena their part of
the meeting.
The Federal Reserve Eank of Chicago requested
information from many locations in the Atlanta area and
found the Calloway Gardens site to be most economical.
Question 44
What renovations are being planned for the Federal
Reserve Bank of Chicago? What are these renovations expectea to cost? What improvements will be made during the renovation to increasing security in the Security Courtyard and
the FRCS-80 control center? (Answers relating to security
matters should be provided in a separate document.)
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Response:
The Chicago Bank is currently implementing a comprehensive renovation and addition project which has been
named the Facilities Improvement Program (FIP).
Under this
program, all office space and many operational areas are
being updated and, in many instances, relocated.
This will
allow the Bank to more fully realize the operating benefits
possible with current Federal Reserve System technology.
The total target budget for the FIP is $89.4 million.
Of this, $23.5 million is for an addition to the
building and $65.9 million is expected to be spent on renovations to the existing building.
(As requested, we arE submitting the response
relating to security matters under separate cover.)
Question 45
The Federal Reserve bank of St. Louis has planned
one of the smallest merit pay increases. What has been the
trend for pay increases over the past and how does it compare with other Reserve Banks? What is the potential impact
on morale and the continued employment ot quality personnel?
Response:
For the past three years, the merit increase program has been judged sufficient and appropriate.
The
increases have been distributed on a pay-for-performance
basis, resulting in the highest performers receiving
increases above the average merit increase, with offsetting
lower increases for other personnel.
This distribution
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has significantly contributed to the ret
ention of
key employees without disruption to the
total population as
evidenced by a modest separation /ate (13
.3 percent
Districtwide for 1985).
Question 46
How many examiners does the Federal
Reserve Bank of
Kansas City currently have and how man
y will they have after
they allocate additional resources to
this area?
Response:
At year-end 1985, the Federal Reserv
e Bank of Kansas City had 169 examiners, up from 83
at year-end 1984.
Since then, the Bank has added nine
examiners to its staff,
bringing the current total to 118.
Another seven examiners
Ere expected to be added by the end of
1986.
Question 47
What is the total cost of the Federal
Reserve Bank
of Kansas City's renovation? How does
this renovation cost
compare with other planned or previous
renovations and how
would it have compared with construction
of a new facility?
Response:
The total cost of the renovation is $13
.2 million
from 1971 to 1985.
It is difficult to compare this renova
-
tion with others because the degree of
renovation varies
from project to project.
However, the renovation cost of
this project appears to compare favorably
with other planned
and previous projects.
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A new facility would have cost approximately $58.3
million to construct.
Question 48
The Federal Reserve Bank of Dallas expended $2,350
in February to Ted's Auto Park as d management fee.
What
services does this firm provide the Dallas Bank?
Response:
Ted's Auto Park provides administrative management
of the Bank's parking lot, including providing parki
ng
attendants to operate the lot.
The expense for managing the
lot is fully recovered through parking fees charged
to the
employees.
Question 49
Why did the Directors of the Federal Reserve Bank
of Dallas meet in New York City?
Response:
The New York meeting of the Directors of the Federal Reserve Bank of Dallas was held to promote the Direc
tors'
knowledge of the unique Federal Reserve operations conducted
in New York -- particularly open ii;drket and foreign operations and surveillance of the securities markets.
The New
York meeting included a presentation by Mr. Solomon, then
President of the Federal Reserve Bank of New York, and other
sessions concerning open market operations.'
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Question 50
In light of the alleged difficulties that some
Eleventh District banks may be experiencing, what actions
have the Federal Reserve Bank of Dallas undertaken to assure
timely information on the condition of these institutions
and to assure that any developing institutional problem does
not affect the integrity of the payments system?
Response:
The Federal Reserve Bank of Dallas has taken the
following actions to assure timely information on the condition of financial institutions in the Eleventh District:
(1)
Increased the authorized staff in its Supervision and
Regulation Department by 33 persons during 1985 and 1986, or
33 percent.
This will support:
u 470 scheduled field activities in 1986 (primarily bank examinations and bank holding company
inspections), an increase of 31 percent over
the total done in 1985.
o A significantly increased surveillance workload aue to an increasing number of state member banks (currently 84) and bank holding companies (currently 758), a major increase in the
number of bank holding company reports reviewed
(e.g., about 1,700 FR Y-9 reports in 1926 compared with just 275 as recently as 1984, and an
increasing volume of special reports of problem
organizations.
(2)
Staff has also been added to support the Federal
Reserve System's Payments System Risk Program, and considerable time has been required of our accounting, data processing, and supervision and regulation staffs relative to this
program.
Currently, six officers devote substantial por-
tions of their time to this program, supported by monitoring
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and counselling staff and bank examination personnel.
In
support of this program:
(3)
o
450 sender net debit caps have been received
from District financial institutions to date
and,
o
Several software programs, including one to
facilitate the rejection or interception of
Fedwire transfers causing overdrafts, have
been implemented or are in process.
Telephone contacts and face-to-face meetings betwe
en
Federal Reserve staff and regional offices of OCC, FDIC
,
FHLB, and state banking supervisors have been increased
to
reflect the growing numbers of problem institutions in
this
District.
Dallas staff are in telephone discussions several
times each day with regional OCC and FDIC personnel, and
information so obtained is promptly conveyed to Board of
Governors' staff in Washington.
(4)
The Reserve Bank is closely monitoring conditions at a
number of banking organizations in the District that seem to
be experiencing the greatest degree of strain.
Also, vari-
ous actions have been taken to assure that the discount
window will be available to such organizations should they
need funding assistance.
Question 51
The Federal Reserve bank of Dallas intends to lease
commercial office space. What is the value of this lease
and how was it negotiated? Will the space be needed for a
short or a long period?
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Response:
The District has not formulated a plan to
lease
additional commercial office space.
However, it is present-
ly leasing office space at certain location
s.
The terms of
each lease are given below and, since the
Bank's workforce
is projected to grow commensurately with incr
easing work
volumes,it is likely that the Bank will ente
r into new leases at the expiration of these leases.
St. Paul Place - 13,379 square feet at $14.25
per square
foot, housing approximately 30 employees.
A Bank task
force, assisted by real estate brokers, eval
uated sites in
the central business district on the basis of
location and
price. Date of lease: August 28, 1985. Leas
e term: five
years, with five one-year extension options.
Employers Insurance Building - 45,000 sauare
feet at $14.50
per square foot, housing approximately 150 employee
s. The
Bank had been leasing space at another location
when space
became available at the Employers Building at
a lower price.
It is located adjacent to the Bank. The pric
e of the previous space was $15.36 per square foot. Negotiat
ion was
directly with the management of the Employers
Building, and
other sites were explored at the same time.
Question 52
The Federal Reserve Bank of San Francisco appe
ars
to use a corporate credit card. Is this correct?
Do other
Banks use a corporate card? Has any assessment
been made of
the efficiency and cost savings associated with
such use?
Do cash advances continue to be necessary when
such a card
is in use?
Response:
The Federal Reserve Bank of San Francisco and
most
other Reserve Banks issue corporate credit card
s to a limit-
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ed number of management and staff.
This is for convenience
and efficiency and no explicit study has been made to determine the cost savings.
All expenditures, whether paid by
credit card, cash advances, or reimbursement, must be justified and approved.
Cash advances may still be necessary,
depending upon the level of non-credit card expenditures
incurred by the individual involved, although most Reserve
Banks have realized a reduction in such advances.
Question 53
What services did the Zivic Group provide to the
Federal Reserve Bank of San Francisco?
Response:
The Zivic Group is a personnel search firm.
The
Twelfth District utilized the services of the Zivic Group to
recruit personnel for vacant positions.
Question 54
The substantial increase in the Federal Reserve
Bank of San Francisco has in part been attributed to certain
nonrecurring costs associated with the move of the Los
Angeles Branch to a new building. Are these costs being
capitalized into the Los Angeles building? Does such a
capitalization affect the cap on Branch building construction?
Response:
The one-time costs incurred in moving into the new
Los Angeles branch buildinc will be treaued as operating
expenses, thus their large impact on the 1986 Reserve Bank
budget.
Only expenditures of a capital nature that are
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associated with the actual construction of the building are
capitalized, with depreciation systematically allocating
those costs to current expenses over future periods.
Only
these capital expenditures are subject to the "building
proper" limitation on the cost of Reserve Bank branch buildings.
Question 55
What was the policy of the Federal Reserve Bank of
San Francisco with respect to functions and activities
intended to honor the retiring Reserve Bank President? Who
approved the expenditures and what controls were followed?
Were these expenditures comparable to those expended by
other banks in recent years? How did these expenditures
compare to the Federal Reserve Banks of Atlanta,
Minneapolis, New York and St. Louis?
Response:
The System has a discretionary expenditures policy.
However, the Federal Reserve Bank of San Francisco had no
stated policy for honoring the retiring Reserve Bank
President.
When the President of the San Francisco Reserve
Bank retired in 1986, after 13 years, the Bank determined
that community practice should be a guiding factor in
planning retirement functions.
Bank management determined
what arrangements were considered consistent with community
practice in the San Francisco area, and the First Vice
•
President was required to approve all significant
expenditures.
The amount spent by the Federal Reserve Banks
,
•
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of Atlanta, Minneapolis, New York, and St. Louis in recent
years was less than the amount spent by the Federal Reserve
Bank of San Francisco.
BOARD OF GOVERNORS
OF THE
• 47
•0
• •ri
FEDERAL RESERVE SYSTEM
Ft •
cn •
•
WASHINGTON, D. C. 20551
og"
•
RAL Ri•S
• •.• • • •
EP
36
PAUL A. VOLCKER
CHAIRMAN
The Honorable Walter E. Fauntroy
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Finance and
Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Chairman Fauntroy:
As requested in your letter of June 17, enclosed please
find responses to questions raised by the Subcommittee on
Domestic Monetary Policy in connection with my testimony on the
budgets and expenditures of the Federal Reserve Banks and the
Board of Governors. The response to the question on construction work involving the Security Courtyard of the Federal
Reserve Bank of Chicago is being sent under separate cover, as
you requested.
I appreciate having had the opportunity to appear
before the Subcommittee to discuss Federal Reserve budgets and
expenditures. I believe such hearings are important to Congressional understanding of Federal Reserve System spending and
welcome any additional questions the Subcommittee may have.
Sincerely,
Enclosure
DR:pte (V-134, 86-2658)
bcc: Dave Robinson
Clyde Farnsworth
Ted Allison
Mrs. Mallardi (2)
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Federal Reserve Bank of St. Louis
Question 1:
Chairman Volcker stated before the Subcommittee in
January that the Federal Reserve intends to abide by GrammRudman in spite of the decision made by CEO and OMB that
sequestration will not apply to the central bank. Please
elaborate on what expenditures the Federal Reserve System
will reduce to attain this goal.
how will the Reserve Banks be treated in this process? How will their participation be ensured? How will
the Federal Reserve Board monitor this program of budget
reductions by the individual reserve banks? Do you feel
reasonably certain that one year from now, you will be able
to stdte before this Subcommittee where each of the Reserve
Banks made the necessary reductions?
Response:
The Board did decide to follow the spirit of GrammRudman in 1986, as mentioned in earlier testimony.
In Feb-
ruary, the Board took action to reduce by $18 million the
System's approved 1986 budget.
Information on the areas
targeted for reduction was provided on Tables 6 and 7
attached to Chairman Volcker's June 5 testimony.
In summa-
ry, the Banks and the Board are making reductions primarily
in the support and overhead areas by changing hiring plans,
delaying automation purchases, and taking fewer trips.
The Reserve Banks and the board were treated similarly in the process of reducing 1986 budgets.
The $16
million System target was prorated among the Board and the
twelve Reserve Banks based on the relative size of the budget to the System's total budget and based cn the relative
size of expense growth over the last three years to the
System's growth.
This resulted in required reductions of
$16.6 million by Reserve Banks and $1.4 million by the
Board.
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Federal Reserve Bank of St. Louis
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Participation by the Reserve Banks has been assured
by assigning a specific portion of the total $18 million
reduction to each Bank and having them provide an adju
sted
1986 budget.
Furthermore, each Reserve bank has submitted a
plan to achieve its budget target, which has been revi
ewed
and approved by the Board.
The Reserve Banks' adjusted 1986 budgets are bein
g
monitored as part of our regular control process.
In addi-
tion, we have instituted a new reporting requirement
that
will demonstrate each District's compliance with the
budget
reduction target.
A report based on this information will
be submitted to the Board in January 1987.
The information
received from the Banks during the fall budget proc
ess,
along with the new year end report, will enable us to
determine where each Bank has made the necessary reductio
ns.
Question 2:
Should the sequester be required for Budget year
1987, will the Federal Reserve again voluntarily agree
to
abide by Gramm-Rudman?
Response:
The Reserve Bank budget planning strategy for 1987
is to anticipate the degree of spending restraint nece
ssary
to comply with the spirit of Gramm-Rudman-Hollings in 1987
,
and include this restraint in the overall budget
target.
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Federal Reserve Bank of St. Louis
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This strategy will be followed regardless of developm
ents
that materialize in the federal government's fisc
al year
1987 budget.
Accordingly, if sequestration is required for
the Federal government, we do not plan to further
reduce
1987 Federal Reserve budgets because reductions
in planned
budgets, in the spirit of Gramm-Rudman-Hollin
gs, will
already be reflected in those budgets.
Question 3:
Priced services will be exempted from the reach of
Gramm-Rudman. Under one formula provided to
the Subcommittee by the Congressional Budget Office, the incl
usion of
priced services for purposes of Gramm-Rudman woul
d have
increased the amount of the reduction by about
$21.3 million. Why has the Federal Reserve System exem
pted priced
services from the base? What would hav6 been the impa
ct on
System operations if the amount attributed to priced serv
ices was sequestered from other functions?
Response:
Our priced services functions are required by
statute to recover costs through the charging of
fees.
Expense reductions in these functions may lead
to reduced
service levels resulting in lower revenues and retu
rn to
Treasury.
Given that there may not be an effect on the
government's deficit by a reduction in priced service
expenses and, given that there were other agencies
'
business-like enterprises designed to fully recover cost
s
that were exempted from Gramm-Rudman, priced service
areas
were treated as exempt in some of the alternative
scenarios
considered by the Board.
Ii
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Federal Reserve Bank of St. Louis
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It is difficult to say what would have been the
the 1986
impact on System operations if the reduction in
budget was double the amount.
It is safe to say that we
ction of
probably would not have been able to absorb a redu
reducthis magnitude in a manner similar to the adopted
and Board
tions, largely through reducing discretionary Bank
expenses.
The System would have had to look to program
.
reductions and possibly employee reduction programs
Question 4:
Other "self-financed" budget accounts, including
not exempt
the Comptroller of the Currency and the FDIC, are
services
from Gramm-Rudman. What distinguishes the priced
r exemption
from these self-financed accounts justifying thei
entities
from Gramm-Rudman? Are there other governmental
which are excluded on similar grouncis?
Response:
of
Our expenses in the supervision and regulation
nses of cur
financial institutions are analogous to the expe
sister /egulatory agencies.
As in the case of the OCC and
lation
FDIC, we did not exclude our supervision and regu
arios.
expenses in the development of alternative scen
Also,
expenses of
we understand that z,11 but the administrative
y (TVA)
the Post Office and the Tennessee Valley Authorit
-financing.
were exempt from Gramm-Rudman since they are self
services as
The Post Office and TVA perform somewhat similar
business-like
our priced services in that these services are
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Federal Reserve Bank of St. Louis
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in nature, i.e., their level is chosen by the publ
ic in a
free market environment.
To cut these services would be
contrary to the free market concept.
This is different from
the OCC and the FDIC's functions where the level and
frequency of examination is chosen by the regulatory
agency.
Question 5
You stated that you have been informed that the
current reimbursement scheme between the Federal Reserve
System and the Treasury will likely undergo modification
due
to Gramm-Rudman. Please clarify exactly what it is that
you
are currently discussing with Treasury and state what the
Federal Reserve will dc should this take place.
Response
The Federal Reserve believes that direct reimbursement for fiscal services performed on the behalf of government agencies is consistent with appropriate budgetar poli
y
cies and good budget practice.
We understand, however, that
the Treasury has had difficulty securing the necessary
appropriations.
In light of reduced reimbursements, we are
discussing with the Treasury a combination of two appr
oaches
to address the impact of Gramm-Rudman.
First, we are discussing potential 1987 Federal
Reserve cost savings for existing fiscal services which
could be achieved without a deterioration in the level
or
quality of the service provided to the Treasury or
the
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public.
Specifically, we are working with the Treasury
to
investigate the feasibility of modifying workflow
s
prescribed by current Treasury procedures and elim
inating
scheduled enhancements to existing systems.
Second, we are
considering, in conjunction with the Treasury,
the
feasibility of charging depository institutions
a fee for
banking services of a fiscal nature from whic
h they receive
clear benefits.
We believe, however, that there will still
be a need for direct reimbursements to cover the
cost of
fiscal services of a purely governmental nature
that
directly benefit the Treasury.
In the absence of direct reimbursement, deposito
ry
fees, or cost reductions in existing programs, the
Federal
Reserve would still consider providing new fisc
al services
which would result in government-wide cost savi
ngs even if
this may increase our costs in the short-run; we
would
expect that such new services, however, would be
subject to
the constraints of our existing budget resources and
objectives.
We believe this approach fulfills the spirit of
the
Gramm-Rudman legislation without upsetting our
fiscal relationship with the Treasury.
Our discussions with the Trea-
sury on this approach, however, are still in
the initial
stages.
We hope to have the approach finalized with the
Treasury in the near future.
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Federal Reserve Bank of St. Louis
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Question 6
Is there any centralized purchasing process for
the
entire System which woula enable the Federal Rese
rve to
achieve greater economies of scale in purchasi
ng items such
as computer diskettes, furniture, and othe
r regularly purchased items? What consideration is given to
small and
minority businesses?
Response
There is a centralized purchasing process for
the
entire System where purchases of similar supplies
and software are identified by the Board and the Reserve
Banks.
Requests are combined and submitted to the winn
ing vendor as
materials are required.
The Board uses this centralized
system only when the items are less expensive than similar
items on the GSA schedule or on the open market through
competition.
Because the Reserve Banks are not eligible to
use the GSA schedule, the Banks utilize the System Purchasing Service whenever centralized purchasing results in lower
costs than purchasing on the open market.
The Board has approved a policy of aiding small and
disadvantaged businesses through Federal Reserve Syst
em
acquisitions; and to this end, the Board and Rese
rve Banks
have adopted procedures for acquiring goods and services
from such businesses.
These procedures are consistent with
the policies of the Small Business Act and regulations.
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Federal Reserve Bank of St. Louis
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Question 7
What outside space does the Boa
rd presently rent?
At what rates and for what
purposes is such space used?
Response
The Board currently leases
two outside facilities.
The Board rents 8,050 square
feet of office space at Colu
mbia Plaza, 2400 Virginia Av
enue, N.W. The cost for the
perioa May 1, 1986 through
April 30, 1987 is $85,000 or
$10.55 per square foot. Th
is space is used for the Bo
ard's
Bank Examiner Training School
.
The Board also rents 12,176
square feet of warehouse space at 618-C and 620
Pickett Street, Alexandria,
Virginia. The cost for the
period October 1, 1985 throug
h
September 30, 1986 is $37,877
or $3.11 per square foot.
This space is used primarily
for storage of publications and
supplies, and for short-term
storage of furniture and equi
pment.
Question 8
What requirements are impose
d on individuals who
are reimbursed for educationa
l expenses? Are they requir
ed
to be enrolled in a degree pro
gram; must they achieve a
certain minimal grade or grade
point average; are all or
only certain courses reimburs
ed; and what institutions are
eligible for reimbursement?
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Federal Reserve Bank of St. Louis
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Response
Generally, the Banks and the Board will pay the
costs of educational programs that are either directly
related to the employee's current job responsibilities or
development of the individual for future advancement within
the organization.
Such decisions are normally made by the. individual's supervisor and the training and development section of
the personnel department.
Employees are not required to
enroll in a degree program, but must obtain a satisfactory
or better grade in order to be reimbursed.
Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management
Association, American Institute of Banking, etc., are eligible for reimbursement.
Question 9
What guidance or counseling does the Board and/or
the System provide for persons whose wages are garnished or
attached? With respect to persons who are determined to
have severe financial difficulties, are there any security
assessments made with respect to them and their access to
sensitive data?
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Response
Upon receipt of a court order to garnish wages, a
Personnel Officer meets with the affected employee.
The
Personnel Officer counsels the employee concerning his/her
obligation and provides guidance to the employee on how best
to resolve the matter.
If the case is severe, an assessment
is made by the Personnel Officer of possible System impacts
which may include those related to physical and data security.
Appropriate individuals are notified and steps taken to
guard against unauthorized disclosure or access.
Question 10
What actions has the Federal Reserve undertaken to
lower the cost of printing the currency? Has consideration
been given to the use of offset printing for some portions
of the $1.00 bill? What impact on costs might the new proposals for counterfeit protection impose? With respect to
lower denomination notes, what consideration has been given
to changing the paper composition to increase the useful
life?
Response
The cost of printing new currency is established by
the Bureau of Engraving & Printing (BEP).
However, the
Federal Reserve Board endeavors to control its costs associated with the printing of new currency to the extent possible by:
o
Consulting with the BEP on its major printing
operations to assure ourselves that they are
cost effective.
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Federal Reserve Bank of St. Louis
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o
Monitoring Reserve Bank currency processing
operations to guard against premature destruction of currency.
o
Scrutinizing annual Reserve Bank printing order
requests in order to minimize the amount of new
currency ordered while still meeting Federal
Reserve System guidelines on currency quality.
o
Supporting legislation relating to the use of
offset printing for the backs of $1 denomination
notes.
Both now and in the past, the Federal Reserve Board
has supported the Department of the Treasury's proposal to
print the backs of one dollar notes by the offset printing
method.
The Board's support for this proposal is grounded
on the very favorable impact it would have both on the BEP's
capacity to produce new currency and on its cost of printing
one dollar notes.
With respect to the cost impact of counterfeit
protection proposals, the BEP has given the Pcard preliminary indication that there will be no increase in the cost
of printing new currency in fiscal year 1987.
According to
the BEP, this is due to the fact that the changes to the
currency will be relatively small and will be phased in
during the year; consequently, the costs associated with
these changes will be absorbed by the BEP.
Thus, the cost
will remain $26.00 per thousand notes for fiscal year 1987.
However, for fiscal year 1988 the cost is expected to
increase $1.00 per thousand notes, which translates into an
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Federal Reserve Bank of St. Louis
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increase of approximately $7 million based on an expec
ted
FY'88 printing order of approximately 7 billion notes.
This
increase in cost will be due in part to the changes in the
currency.
If more significant changes to the design of
currency are adopted, there will likely be a further
increase in printing costs.
Finally, the Bureau of Engraving and Printing has
the responsibility for research and development efforts
with
respect to currency paper.
It is our understanding that the
BEP conducts ongoing research on the composition of currency
paper and on extending the useful life of the paper used
to
print U.S. currency of all denominations.
Question 11:
What consideration was given to using the Culpeper
Contingency Center in serving as a backup facility for
the
Federal Reserve Bank of New York or other nationally sensitive systems on a real-time basis?
Response:
The Second Federal Reserve District has done extensive evaluation of
a
number of options in order to provide
adequate, timely contingency backup facilities in the event
of an extended outage of computing capability at the Head
Office location.
Of the alternatives examined, the most
viable were: 1) the establishment of a dedicated contingenc
y
site in close proximity to New York City; and, 2) the use
of
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Federal Reserve Bank of St. Louis
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the Contingency Processing Center (CPC) in Culpeper,
Virginia.
The Bank processes over 70 percent of the System's
ri
am
book-entry securities transactions and over 28 percent of
the System's funds transfer transactions.
•leg
The combined
daily average value of these exceeds $500 billion.
D
t
While
some very limited alternatives exist for electronic funds
transfer volumes, there is nu effective alternative for
supporting book-entry securities transfers.
New York main-
tains exclusive ownership records for those securities, the
value of which exceeds $1 trillion.
Given the sheer volume of transactions and the
staggering monetary values involved, an outage of even a
t
single day could pose a serious problem to the nation's
financial markets.
,ur
New York has estimated that recovery of its critical systems at the Culpepei facility (including tfavel time,
reconcilement of transactions, completion of the day's processing, and end -of-day processing) could require in excess
of 34 hours which is obviously unacceptable from the standpoint of risk.
Recovery at the interim Blue Hill Pliia office
center site in Pearl River, New York, is estimated to be
possible within 18 hours from the time of occurrence of the
outage, making it clearly the better choice.
_La
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Federal Reserve Bank of St. Louis
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In addition to the time involved in relocati
on,
reconfiguration, and recovery that would be
required at
Culpeper, the communications facilities avai
lable at the CPC
from the local telephone utility are inadequa
te to completely backup those needed by the Second District
, whereas those
provided at the District site are fully
capable of supporting the requirements.
A number of secondary benefits accrue
from the use
of the Blue Hills location, including pers
onnel familiarity
with the systems, minimal disruption to the
other eleven
Districts' processing over the network, and
the ability to
do verification of backup plans and procedur
es on a continuous basis.
Question 12
The Federal Reserve includes in the body of the
PACS reports a section in which it rates the vari
ous Reserve
Banks. How are those Banks operating at less than
average
efficiency encouraged or compelled to improve
their efficiency? What tools does the Board use to empl
oy the findings of the PACS reports and improve efficien
cy?
Response
The sense of competition among the Reserve
Banks is
very keen with regards to operating efficien
cy.
Naturally,
all Reserve Banks would like to be above aver
age.
This
sense of competition spurs continued efforts
for increased
efficiency not only at the Banks ranked belo
w average but
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Federal Reserve Bank of St. Louis
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also at the highly ranked Banks that would like to maintain
(in the case of the Bank with the highest operational
efficiency) or improve their ranking (at all other Banks).
It is important to recognize in this connection that a
below-average performance in a particular operation may be
perfectly satisfactory in an absolute sense
where, for
example, all Reserve Banks are meeting or exceeding a targeted level of performance.
Measures of operational efficiency are used by the
Reserve Banks in setting their performance objectives and by
Board staff in preparing performance evaluations of the
Reserve Banks, the results of which are communicated to the
F,oard of Directors of each Reserve Bank.
Question 13
What process is used to determine whether a major
computer system should be purchased or leased?
Response
An operating expense analysis is performed, taking
into account such items as straight-line depreciation, maintenance, power and cooling consumption, building modification, additional personnel, and software.
As a result of
the Monetary Control Act (MCA) of 19E0, the Private Sector
Adjustment Factor (PSAF), reflecting the imputed costs for
taxes and return on capital that would be incurred if cer-
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tam n services were to be provided by a private business
firm, is also included as an operating expense.
Operating
expense streams, on average monthly and annual bases, for
both lease and purchase alternatives are compared to determine the most advantageous method of acquisition.
In addition, a cost/benefit analysis is performed,
comparing the expense streams expected with a purch
ase
against those projected over the life of a comparable
lease
Both are discounted to net present value using the curr
ent
average yield rate in the secondary market for Governme
nt
securities having a maturity corresponding to the expected
useful life of the equipment.
If
a break-even or payback
period does not occur within the expected useful life, then
leasing is indicated as the more appropriate option.
Exceptions to the above may occur in those instances where equipment is to be acquired late in its product
life cycle or when announcements of more advanced technolo
gy
are imminent.
In those cases, equipment may be leased to
provide the Bank or Board with inc/eased flexibility.
Question 14
How often are consultants used by the cistrict
banks? What is the policy with respect to employment
of
consultants? For what purposes are consultants generall
y
employed? What was the total value of contracts with consultants last year for all Banks?
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Federal Reserve Bank of St. Louis
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Response
Reserve Banks may periodically employ consultants
but most utilize them on an infrequent basis.
Consultant
services have been obtained to provide architectural and
engineering services, outside legal assistance, employee
benefits, and other services where special expertise is
required and not available from current staff or not justified on a permanent basis.
Where applicable, the policy and procedures adopted
by the Federal Reserve System to acquire goods and services
from small and disadvantaged businesses are considered in
selecting a consultant.
Also, most of the Reserve Banks
require that a senior official committee approve any proposal to engage a consultant.
During 1985, the 12 Reserve Banks spent a combined
total of app/oximately $4 million (of a total $1,023 million
in net Reserve Bank expenses) for consultant services.
Question 15
A number of Banks have purchased, at varying prices, several popular PC software systems. Some Banks purchase copies of the same software. Recognizing that copyrights need to be respected, what efforts have been made to
enter into site agreements with firms like LOTUS that would
apply, if not to the whole system, at least to each Bank.
Failing to enter into such agreements, what considerations
have been given to using competing softwares? Does the
System have an overall software management policy for personal computer use? When personnel develop software routines or formulas, what process is used to check their
validity and to assure that errors are not carried into
•
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other systems or into System policies? What is the understanding about ownership of work products developed by individuals using System-owned equipment or software? What if
such work product is developed at home?
Response
Site licensing agreements for personal computer
software are a relatively new concept.
The Reserve Banks
and the Board investigated the possibility of site license
agreements with several vendors.
Initially, when contacted
by the System, major software vendors were reluctant to
offer such site licensing arrangements.
The Reserve Banks
and the Board have addressed this situation by negotiating
Volume Purchase Agreements (VPAs).
The Board also utilizes
the General Services Administration (GSA) price lists for
software applications.
The Federal Reserve System has established a System
Purchasing Service (SPS), based at the Federal Reserve Bank
of Minneapolis, that investigates and represents the Federal
Reserve System in System-wide purchasing contracts.
The SPS
has negotiated a number of VPAs that cover software applications as well as personal computer peripheral devices.
In
addition to the VPAs negotiated by the SPS, the Board has
taken advantage of GSA prices offered by vendors.
As part
of the System's continuing program to reduce costs, the
benefits afforded by the GSA 'computer store' were investigated.
The study revealed that the price structure offered
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Federal Reserve Bank of St. Louis
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by the GSA 'computer store' was, in many cas
es, substantially higher than the prices available from indi
vidual vendors.
Therefore, all Board purchasing under the
GSA price schedule
is coordinated directly with the venaors.
The study also
indicated that the cost reductions afforded by
VPAs and the
GSA price schedule often were equivale
nt to those that would
be gained under a site licensing agre
ement.
The Federal Reserve System is constantly
evaluating
many suppliers of software in
a
continuing effort to estab-
lish the lowest cost alternatives possible
.
To contain
costs System-wide, Volume Purchase Agreemen
ts are utilized
whenever available.
When personnel develop personal computer soft
ware,
that software is subject to rigorous test
and acceptance
standards used for mainframe software to
ensure its validiy•
All work products developed using System-ow
ned equip-
ment or software are the property of the Syst
em regardless
cf whether it is developed on System prem
ises or in an
employee's home.
Question 16
Since District Banks may not use GSA stores, are
local firms which sell such supplies required
, at least, to
meet either the best government or corporate
price? Are
some materials purchased on a System-wide basi
s? What consideration might small and minority businesses
receive in
these contracts and purchases? Should District
Banks have
access to GSA stores?
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Response
Reserve Banks competitively bid office supply
acquisitions.
Although local firms are not required to meet
the best government or corporate price, the competitive
bidding process generally results in acquisitions at the
best possible price.
The Reserve Banks also subscribe to a
System Purchasing Service (SPS) administered by the Federal
Reserve Bank of Minneapolis to take advantage of volume
purchase agreements.
Currently the SPS has 49 national
buying agreements, covering such items as coin bags, poly
bags, computer paper, magnetic media, high tech supplies,
software, and microcomputers and peripherals.
It is esti-
mated that the System realizes savings of 20 percent on
goods for which it has been able to negotiate SPS agreements.
Each Bank's acquisition guidelines include procedures designed to assist small and disadvantaged businesses
in providing goods and services to the Bank.
These guide-
lines provide for acquisitions with an anticipated value of
$10,000 or less to be set aside for small and disadvantaged
businesses.
Procedures and criteria as noted in the
response to Question 17 have been established to give preference to such businesses in the case of larger acquisitions.
In addition, where a contract for goods or services
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has subcontracting possibilities, vendors are advised that a
factor in evaluating bids or proposals will be the inclusion
of a subcontracting plan.
If the Reserve Banks were allowed access to GSA
stores, the GSA price would be viewed as simply another bid
on the acquisition.
We do not believe any significant cost
savings to the Reserve Banks would be realized as a result
of such access.
Question 17
What specific efforts are being undertaken by each
Reserve Bank to provide opportunities for small and minority
businesses? Are there certain lines of purchases where
these firms are given special consideration?
Response
As previously noted in the response to question 6,
in August 1985, the Board adopted uniform System procurement
procedures that give due consideration to Small and Disadvantaged Businesses.
(S&DB PROGRAM)
These procedures require:
o Establishment of a "Small Business Specialist"
position at the Board and each Reserve Bank to oversee compliance with the Program.
o Identification of Small and Disadvantaged businesses and placement on each Bank and the Board's bidder
lists.
o A $10,000 procurement set-aside for small and
minority businesses with authority to set aside laryer contracts for exclusive participation.
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Federal Reserve Bank of St. Louis
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o That responsive bids go to S&DB firms if bid
price is within 3 percent of low bid on contracts up to
$500,000 and within 1 percent of low bid on contracts greater than $500,000.
o That equal bids between small businesses and a
minority firm be awarded to the minority business.
Efforts to aid small and disadvantaged businesses
have been taken by the Federal Reserve System, in varying
degrees, for some time.
For example, the Boston Peserve
Bank has had a program since 1975.
The formal S&DB Program
was initiated in 1985.
SPECIFIC PRODUCTS OR SERVICE CATEGORIES THE SYSTEM
HAS FOUND MOST ACCESSIBLE TO S&DB PARTICIPANTS
Audio-Visual Equipment
Automobile Sales & Service
Business forms
Cable
Carpet Installation
(Hardware & Software)
Corrugated Containers
Disposal Services
Employment Agencies
Electric & Electronic Supplies/
Services
Florists
Food Service
Fuel Oil/Gasoline
Hardware Stores
Interior Design
Local Trucking
Maintenance/Janitorial
Supplies/Service
Paper Products
Photographic Supplies
Plumbing Supplies & Repairs
Printing & Engraving
Reuphoistery & Furniture
Sales/Repairs
Stock Forms
Travel Arrangements
Window Cleaners
Question 18
What efforts are being undertaken to control and
limit telecommunication costs? Is there a telecommunications task force? Do they have a report? To the extent
that the System may have excess capacity, what consideration
has been given to selling that capacity?
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Federal Reserve Bank of St. Louis
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Response
The Federal Reserve System is continually researching ways to curb telecommunications costs.
The System has
undertaken strong initiatives including the use of new technology to reduce costs, as illustrated in several examples:
o
The System has directed the Districts to conform
to a common communication architecture for networks within each District that reduces the
amount of equipment required and, consequently,
the costs.
o
An efficient switching technology is used in the
communications system that interconnects the 12
Federal Reserve Districts, the Board, the
Culpeper Contingency Center, and the Treasury.
This system is known as FRCS-80 and it allows
many users to communicate over common equipment.
The system also routes traffic to achieve efficient use of existing capacity. This communications system has proven cost effective tor the
Treasury and the Federal Reserve System. The
Treasury Department is realizing substantial
savings by using FRCS-80 and software applications developed by the Federal Reserve System.
o
New cabling systems are being implemented in new
buildings and in the renovation of existing
buildings. These systems reduce costs by eliminating redundant cabling in the older systems.
o
Some Reserve Banks are replacing obsolete voice
systems with Private Automated Branch Exchanges
PABX's) that can act as switching mechanisms for
voice and data, eliminating redundant equipment
costs. The New York Bank estimates that its new
PABX, when completed, will save the Bank about
$2 million annually.
The Board has been particularly vigilant with
respect to monitoring telecommunications utilization and
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Federal Reserve Bank of St. Louis
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achieving savings in equipment where possible.
The follow-
ing are examples of the Board's efforts to control its tele
communications costs.
o
The Board purchased much of its telephone equipment including a Private Branch Exchange (PBX).
Savings of $360,000 are anticipated over the
three-year life cycle of this equipment.
o
The Board analyzes traffic and uses less expensive tie lines where warranted.
o
A computerized telephone traffic monitoring
system was installed in 1984. The Board has
since realized savings by monitoring phone
bills, and has been able to curtail improper use
of government long distance lines. Other government agencies are following our example and
now adopting similar controls.
o
Certain frequently called local numbers have
been blocked through our PBX and cannot be
called from Board phones.
Communications officers from the 12 Districts and
the Board meet on a regular basis to identify telecommunication issues.
A report is then distributed to keep the
System abreast of these issues.
Additionally, the System Communications Center
Capacity Planning Group performs capacity analysis to iden
tify present and future needs and how best to utilize exis
ting capacity to meet those needs.
detailing these activities.
A report is generated
Presently, the System network
is operating near the 70 percent utilization level, a
point
where response times begin to degrade.
It is, however,
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technically feasible to increase the capacity of the network
when necessary.
Question 19
What requirements are imposed on individuals who
are reimbursed for educational expenses? Are they required
to be enrolled in a degree program, must they achieve a
certain grade or grade point average, are all or only certain courses reimbursed, and what institutions are eligible
for reimbursement? Is an identical or similar policy followed at all Banks and the Board?
Response
As noted in the response to Question 8, the Banks
and the Board will pay the costs of educational programs
that are either directly related to the employee's current
job responsibilities or development of the individual for
future advancement within the organization.
Such decisions are normally made by the individual's supervisor and the training and deveiopment section of
the personnel department.
Employees are not required to
enroll in a degree program, but must obtain a satisfactory
or better grade in order to be reimbursed.
Courses taken at accredited colleges and universities or offered by recognized institutions providing continuing education courses, such as the American Management
Association, American Institute of Banking, etc., are eligi
ble for reimbursement.
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Question 20
Do the District Banks intend to continue their
policy of providing employee loans to their lower paid
employees? What is the policy governing these loans? What
efforts have been undertaken to assure that large dollar
loans are not made to senior officers of a Bank? Is it a
proper policy for the Federal Reserve to make loans to its
employees at rates approximating the Discount Window Pate
for any purpose?
Response
These loans to bank employees are for emergency
purposes and are made only after the employee has exhausted
all other legitimate loan sources.
"tor any purpose."
These loans are net made
The Board believes such emergency loans
are appropriate and believes it is desirable to continue the
loan program.
The origin of such loans dates back to 1921, before
consumer loans and credit were available to the working
public.
The original purpose of such loans remains the
guiding principle today:
to assist needy employees in emer-
gency financial situations where alternative sources uf
funds are not available.
System policy permits emergency loans to Bank
employees under closely circumscribed conditions:
the pur-
pose of the loan must be of a truly emergency nature; the
employee has exhausted all alternative legitimate loan
sources; such loans should be limited to employees in the
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lower salary grades, should be written for a naximum duration not to exceed one year, and should be made at a rate of
interest at least equal to the District's basic discount
rate at the time the loan is made.
At many Reserve Banks, loans to officers are prohibited.
At the others, the general guidelines and a dollar
limit on the aggregate Joans outstanding preclude large
loans to senior officers.
Considering the relatively small number of emergency loans made, the purpose for which these loans are made,
the socioeconomic characteristics of the majority of borrowers and that the rate of interest charged is 1) no less
than the banks charge for discount loans to financial inE-Aitutions and 2) frequently higher than other employers in the
Reserve Districts charge their employees for similar loans,
we believe the practice and the rate charged are proper.
Question 21
Are Bank vehicles purchased or leased? For whom
are cars available? Are cars of foreign manufacture ever
purchased?
Response
The current practice among all Reserve Banks is to
purchase rather than lease automobiles due to the cost
advantages of purchasing.
In current practice, no cars of
foreign manufacture are purchased.
Generally, cars are made
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Federal Reserve Bank of St. Louis
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available during the business day to the President, First
Vice President, senior officials, account executives and
cithers whose duties require visits to other financial institutions in connection with Bank business.
At some Reserve
Banks, bank el:aminers use bank cars, in lieu of other transpertation, while conducting examinations of financial institutions.
Question 22
What long range space and
Reserve Banks undergo? What plans
ing the useful life of branch bank
Are there any plans for opening or
facilities planning do
do the Lanks have regardfacilities and RCPCs?
closing other facilities?
Response
Each of
eadera
Reserve Banks prepares an annu-
al pro-lection of staff and space needs for
years into the future.
and 25
The results of this exercise are
forwSrded to the Board of Governors and subsequently compiled into a systemwide floor space utilization and needs
projection report.
Based on individual Bank Management
perceptions of facies needs, additional studies are
occasionally conducted.
Such studies are routinely imple-
mented in accurdance with the Planning Guidelines for
Federal Reserve Bank Faces.
Studies of this nature are
routinely conducted to facate the evaluation of major
construction/renovation decisions.
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For planning purposes, all Bank -owned facilities
including branches are assigned useful live.s of thirty to
fifty years.
The functionality of such buildings is assured
as a result of comprehensive maintenance and renovation as
required.
In addition, the planning procedures outlined
above are employed to evaluate replacement facility needs.
All RCPC facilities are leased, not owned by the Federal
Reserve.
Other than the planned computer contingency site
and remote operations center in New York, the Reserve Banks
have no current plans for opening or closing other facilities.
These facilities are described more fully in the
response to question 29.
Question 23
How does the System control expenditures when they
are billed to a relative of an official of the Federal
Reserve System? Would a statement of expense be required in
every case?
Response
The System is very sensitive to the potential conflict of interest resulting from services performed by a
relative of an official of the System.
The System has a
number of controls in place to ensure that an actual conflict of interest situation does not arise in the rare
instances in which relatives of officials perform services
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for the System.
30 -
Specifically, there is a strict separation
of duties in the purchasing and payment processes, an official is not permitted to be involved in the approval of
payment to that official's relative, standard competitive
biddinc procedures must be followed, a complete statement of
expense must be presented, and senior management and audit
staff review are generally required.
Question 24
How often do the directors of Reserve Banks meet in
cities located in other Districts? What would be the purpose of such meetings? Which cities are the most prominent
cities for such meetings? How often do Boards meet in the
Head Office city of other Reserve Bank districts?
Response
The directors of Reserve Banks meet in cities
located in other Districts, including the Head Office city
of other Districts, very infrequently.
Most cut-of-District
meetings are held with the directors of other Reserve Banks
to provide directors with a wider range of views on current
and prospective developments in the national economy, to
gain additional insight regarding conditions in different
economic regions, and to benefit from discussions with
directors in other Districts experiencing similar banking
conditions.
The cities most frequently visited include New
York, to provide directors with an opportunity to observe
open market and foreign exchange operations, and Washington,
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D.C., to meet with members of the Board and Senior Board
staff.
Question 25
The Federal Reserve Bank of Boston purchased .38
caliber revolvers from a local distributor. Were the prices
comparable to those which the United States government might
have paid under a GSA schedule? Are items like revolvers
replaced according to a fixed schedule at this or other
Banks? Is there a uniform policy on such expenditures for
all Banks? ref: voucher 16677
Response
As you know, Federal Reserve Banks are nct authorized to use GSA schedules.
In the case cited, written com-
petitive bids were sought from local
purchase of the revolvers.
vendors for the
Award was made to the bidder
offe/ing the lowest price, in accordance with System Purchasing Guidelines.
The quoted prices were, therefore, not
comparable with GSA schedules.
Items such as revolvers are replaced on an "as
needed" basis when they become unserviceable.
Such replace-
ment is typically infrequent.
System purchasing guidelines eist that detz..11
procedures that must be followed in acquisitions.
Question 26
Has any thought been given to changing the boundaries of the Federal Reserve Bank of Boston in light of its
small size? Might this Bank become the site for additional
System responsibilities?
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Federal Reserve Bank of St. Louis
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There are no plans to change the boundaries of the
First District.
While the Boston District is small geo-
graphically -- essentially comprising the six New
England
states -- its volumes in many key operations are
sizable;
for example, it has the eighth largest check proc
essing
volume and the sixth largest funds transfer volu
me among the
twelve Districts.
In addition to providing services to
depository institutions within its boundaries, the
Boston
Federal Reserve also provides services to some
institutions
that iie within the boundaries of the Second District
.
There are no current plans to make the Boston Bank
the site for additionai responsibilities.
The Bank current-
ly has significant System responsibilities.
It is the man-
agement site for the Check Collection service and
the
Interdistrict Transportation System.
On behalf of the Sys-
tem, the First District is overseeing the testing of
new
technolocjies for the processiri j of paper checks.
Question 27
The Federal Reserve Bank of New York expended
S1440.74 for private guarc service at the Cran
foru Office.
Why did this Bank not use its own guard force?
Ref: voucher
D167512.
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Response
Outside private guard service is used at all
leased premises in the second District, either because of
ledse requirements or because such arrangements are less
expensive.
At the Cranford RCPC, the Bank elected to use a
private guard service because such a service could be
acquired for a flat fee with no overtime or fringe benefit
expenses to the Dank.
The use of this service also allows
for greater flexibility in guard services and guaranteed
coverage for the facility in the event of illness.
Question 28
The Federal Reserve Bank of New York shows payments for several kinds of copiers. WhLt is the policy for
rental of such equipment? What kinds of economies might
there be from renting several kinds of copiers from several
firms? What preference does this or other Banks extend to
minority firms in these types of rentals? Ref: vouchers
D167509 (Ricoh), D167515 (Panasonic), and D167541 Wcyal)
Response
The federal reserve Bank of New York prefers tu
rent rather than to purchase copier equipment.
This deci-
sion is based primarily on the limited useful life cf such
equipment (two years or less) and concerns about the rapidly
changing technological environment and number of vendors in
the field.
In addition, the Bank prefers to deal with sev-
eral vendors in order to provide more competition and to
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secure adequate service.
34 -
The System is currently following
its small and disadvantaged business policy in seeking such
firms for copier equipment rentals.
This policy is
described in the response to question 17.
Question 29
The Annual Budget Review notes that the establishment of a contingency computer site for the Federal Reserve
Bank of New York is expected to produce some long-run savings. What might these savings be?
Response
Because cf the financial risk of a computer outage
at the Federal Reserve Bank of New York, the District has
begun preliminary planning work on the establishment of a
Remote Operations Center outside Manhattzan.
It is estimated
that the center will have a staff of more than 500 people
supporting check and cash processing operations, and will
provide cssential computer backup capabilities for the Second District.
This center is projected to provide the Bank
with longer term opportunities to contain costs and will
also present opportunities for improvement in operating
efficiencies in priced services.
Although this Remote Operations Center will provide the Bank with needed backup capability, it is not
planned to be completed until 1991.
To protect against the
financial risk of a compute/ outage in the interim, the Bank
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is in the process of implementing a contingency computing
center in Pearl River, New York.
This interim center is not
expected to provide the District with any long-run savings
but is being implemented in order to provide the Bank with a
necessary backup capability.
Long-run savings are not pro-
jected to occur until the Remote Operations Center is established and the cash and check operations are relocated.
Question 30
What actions will the Federal Reserve Bank of New
York undertake to improve its supervision of non-Fea high
dollar fund transfer systems like CHIPS? Will this be
accomplished separately or within the expected resource
strengthening of the Banks supervisory initiatives?
Pesponse
As a part of its bank examinations program, the
Federal Reserve Bank of New York will increase its focus oi
the examined banks' electronic paynents activities, both in
book-eutrl, government securities and in funds transfers
(Fedwire ab well as private payments networks)
This will
be done as an expanded part of the regular examination as
well as in speciai, targeted examinations.
In addition, the
Bank plans, in conjunction with the New York Clearing House
Association, to (a) develop standards for determining the
eligibility of institutions to become settlement participants in CHIPS, and (b) review the issue of finality in
CHIPS payments.
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Question 31
The Federal Reserve Bank of Philadelphia
has
incurred certain costs attributable to the deve
lopment and
operation of the systems on behalf of the Trea
sury. Are
these costs reimbursable? Are all expendit
ures made by the
Federal Reserve for fiscal agency services
reimbursed? Are
they directly reimbursed by Treasury or must
they be recovered from other parties?
Response
The agreement with the Treasury under whic
h the
Treasury Direct initiative was undertaken prov
ides for
direct reimbursement of the full cost of
design, development, and implementation.
This commitment was honored by
the Treasury until its funds were exhausted
in January of
1986.
Nct all expenditures made by the Reserve Banks
tor
fiscal agency services are reimbursed.
In 1986, we antici-
pate fiscal expenses of approximately $170 mill
ion, of which
about $30 million is likely to be covered by
reimbursement.
At this time, all reimbursement received for
Treasury services is paid directly by the Treasury
.
None is
paid by other parties--e.g., users of the serv
ices.
The
Reserve banks do provide $22 million worth of
fiscal services to other agencies, .he full cost of which
is reimbursed
by the respective agencies.
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Question 32
How much money did the Federal Reserve Bank of
Cleveland expend on its Annual Report over the past two
years? What do other Banks spend?
Response
The Bank incurred $58,233 in 1984 and $49,416 in
1985 for related expenses related to its Annual Report.
This is higher than but generally comparable with amounts
spent by other Banks.
Question 33
What services cud US Cargo and Courier provide to
the Federal Reserve bank of Cleveland for $22,573.45? The
voucher is unclear. Ref: voucher 182845
Response
The service represents shipments of checks to and
from FRB Cleveland.
US Cargo transports items in conjunc-
tion with the Interdistrict Transpertation Service (ITS)
from the Cleveland-Hopkins airport.
Question 34
Following the Ohio savings and loan difficulties,
what has the Federal Reserve Bank ct Cleveland done to
assure that is has better information on all depository
institutions whether or not members of the Federal Reserve?
}as there been an increase in demands for various Fed services as a result of these problems? What is the increase
in the size of the bank supervision staff? To what extent
is supervision and examination automated?
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Response:
Following the savings and loan difficulties, the
Federal Reserve Bank of Cleveland upgraded access to information on all depository institutions.
Channels of regular
communication have been established with other federal and
state regulators for the express purpose oi assessing critical information on an ongoing as well as emergency basis.
Reports of condition, ratio analysis, and performance
reports are now maintained at the Reserve Bank for all
insured thrifts and credit unions located in the District.
information on banks continues to be maintained at the
Reserve hank.
While the number of Cleveland's savings and loan
customers increased from 217 in December 1984 to 241 in
December 1985, the increase has not been attributed to savings and loan problems occurring in 1965.
The supervision department is in the process of
increasing examination staff Ly 24 employees in 1986 from 88
budgeted employees at year end 1985 as a result of the
Board's prudential supervision policy.
Question 35
The Annual Report of the Federal Reserve Bank of
Cleveland details extensive assistance given by the Federal
Peserve Bank of Cleveland during the crisis. Did the Federal Reserve bill the FHLBB for the services rendered?
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Response
The Federal Reserve examiners were extensively
involved in two types of activities during the Ohio S&L
crisis in 1985.
First, the examiners spent several days
early in the crisis preparing the privately insured S&Ls to
borrow at the Federal Reserve discount window.
This
involved obtaining signed loan documentation, securing collateral either through a field warehouse or actual possession at the Federal Reserve hank, and preparing a very
quick financial review of each institution to determine
their financial condition prior to the time we made a loan.
This could all be considered costs that the Federal Reserve
should bear as lender of last resort.
The second type of
activity Federal Reserve examiners engaged in was assisting
the FHLB exariners and in some cases the FDIC and State
examiners with deposit Insurance qualifying examinations.
This activity was undertaken in the spirit of cooperation
among regulatory agencies, and we did not believe it was
appropriate to bill the FHLE, FDIC or State for Federal
Reserve services.
Question 36
The Annual Budget Review notes that the Federal
Reserve Bank of Richmond expects to proceed with construction of a new Branch at Charlotte. Are there sufficient
funds to accomplish this? Are there activities at Charlotte
which might be transferred to either the Richmond Head
Office or Culpeper? What studies have been undertaken to
justify this undertaking as it is planned?
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Response:
The Federal Reserve Bank of Richmond expects to
proceed with the construction of a new building in Charlotte
to replace the 43-year-old existing facility.
There are
sufficient "building proper" funds to accomplish this.
The
project was one of the proposed new buildings mentioned in
the justification to Congress in connection with the Board's
request to increase the "building proper" limitation that
Was
subsequently enacted in 1974.
The activities at the Charlotte Branch cannot be
transferred to either the Richmond Head Office or to
Culpeper.
The Charlotte Branch serves both North and South
Carolina with coin, currency and check services.
of the large original Branches in the SysteLL.
It is one
Since 1979,
its territory has experienced large rates of increase in the
volume of pieces paid out for both currency anci coin.
The
growth rates at the Charlotte Branch exceed those at both
the Richmond and Baltimore branches (Fifth District also)
and ir the System as a whole.
Further, the Federal Reserve
Bank of Richmond and Culpeper would not have sufficient
space to accommodate the Charlotte branch operations and
could not economically provide good financial services to
North and South Carolina due to long distances.
A number of studies have been undertaken to certify
the need for a new building at the Charlotte Branch in
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Federal Reserve Bank of St. Louis
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accordance with the Planning Guidelines for the
Federal
Reserve Bank Facilities.
The Charlotte Branch has been experiencing, over
the years, serious operation problems and inef
ficiencies due
to lack of sufficient space in its present faci
lity.
The
Branch facilities have the following deficien
cies:
o
Inadequate vault space for coin and currency
(less than 1,600 square feet of combined
vault space)
o
Inadequate work space and storage for
processing valuables (coin stored in small
rooms and restroors)
o
Inadequate space to alleviate crowded
conditions (old existing building and
remote storage facility)
o
Inadequate and vulnerable executive space.
(Executive located in the main lobby-problem of security and privacy)
Question 37
The Federal Reserve Bank of Richmond makes e:Te
nditures for a local gasoline service station.
Doesn't the
bank have its own gasoline service and storage
facility? If
not, why not? Do the prices the Bank pays
reflect a negotiated price that is better than otherwise?
Additionally,
what controls are there to assure that the
gasoline charged
is actually dispensed into Bank equipment?
Response:
All Richmond Bank automobiles purchased in rece
nt
years have diesel engines.
Late last year, the Bank pur-
chased its first gasoline-powered vehicles in
some time.
It
also has an older van and panel truck that are gaso
line-
A
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Federal Reserve Bank of St. Louis
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powered.
42 -
The gasoline referred to was purchased for these
vehicles and for lawn maintenance equipment.
Gas storage facilities are not presently maintained
due to the limited use of gasoline, but the Bank does have
its own storage facility for diesel fuel.
The prices paid
for fuel are negotiated in accordance with the System's
Uniform Acquisition Guidelines.
As the Bank replaces its
diesel-powered vehicles with gasoline-powered vehicles
, it
will convert its present storage facility from dies
el fuel
to gasoline.
Question 38
The Federal Reserve Bank of Richmond paid another
Reserve Bank registration fees for attendance at a conference held at that Bank. It is customary for the Banks to
impose registration costs upon one another?
Response:
This particular invoice represents attendance by
two members of the Richmond computer staff at a Data Secu
rity Conference held at the Minneapolis Reserve Bank.
That
conference was being conducteu mainly for the depository
financial institutions in the Ninth District.
The main
purpose of the Richmond staff's attendance was to gain idea
s
for a future Data Security Conference in the Richmond District.
Reserve offices typically charge other offices for
their attendance at classes, System meetings, and ccnferen
c-
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Federal Reserve Bank of St. Louis
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es, when fees are charged to outside registrants.
This
practice has the etfect of reflecting expenses on the books
of the appropriate Reserve Banks with no distortion in the
level of System expenses.
Question 39
For what purpose is the Burroughs B4925 Computer
System purchased by the Federal Reserve Bank of Richm
ond
being used? Is this system compatible with other
systems
within this Bank and within the System generally?
What is
the expected useful life of this system?
Response:
The Richmond Bank is using the Burroughs B4925
computers primarily for check processing.
Five B4925s are
installed in the Richmond Office, Baltimore, Charlotte and
the Columbia and Charleston Regional Check Processing Centers (RCPCs).
The District has been using Burroughs proces-
sors since 1962.
These systems were installed during 1985
in order to meet memory capacity requirements resulting from
increased check processing volumes.
In addition to providing check processing services,
the B4925s provide intradistrict data communications servi
ces for Automated Clearing house (ACE) functions.
The
Baltimore and Charlotte Branches also use them for general
internal data processing functions.
Burroughs equipment is
widely used throughout the System, and they operate communications functions that coexist with other types oil processors in the System.
Consequently, the Burroughs computers
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Federal Reserve Bank of St. Louis
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successfully exchange data using compatible telecommunications systems.
The useful life is expected to be four years and,
based on their installation dates, these computers should be
in use for three more years.
Question 40
What is the value of expenditures made by the Federal Reserve Bank of Atlanta for additions and renovation
s
of the head Office? What is the average number of squar
e
feet allocated to employees before and after these
renovations? How does this compare with other Federal Reser
ve
facilities and with other government facilities?
Response:
The Atlanta Bank is planning to spend about $7.1
million for the proposed addition to the Head Office which
is
scheduled to start in November, 1906.
The Bank expended
$4.7 million in the renovation program between 1974 and
1984.
The average square feet per employee was 122 before
the addition and will be 136 after the addition.
pares with an average of 159 for the System.
This com-
The other
government agencies compute net square IL:et per employee
on
a different basis, therefore comparable numbers are not
readily available.
Question 41
What is the policy of the Federal Reserve Bank of
Atlanta with respect to flowers tor death of close relatives? Does this apply to all employees? Are these Bank
funds or employee funds?
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Response:
Flowers may be sent upon the death of any employee
or retiree, his or her spouse, child, mother, father, grandchild, or any other relative whose relationship to the
employee or retiree is so close that failure to send flowers
would create in the mind of the employee or retiree a sense
of neglect by the Bank.
Expenditures should not exceed $35.
This applies to all employees.
Bank funds are used for this
purpose.
Question 42
Why is the Federal Reserve Bank of Chicago facing
declines in priced service volumes? Has an effort been
undertaken to reverse this trend? If sc., please detail what
has been done. If not, why not?
Response:
The declines in check volume faced by Chicago are
primarily due to implementation of clearing exchanges within
the District by the large correspondent banks.
The clearing
exchanges have had a greater impact on volume in the Seventh
District since they were not prevalent prior to implementation of the Monetary Control Act.
In order to provide effi-
cient and effective check ciearing services during a period
of declining volumes, the Chicago Dank respunded by implementing:
o
Stringent cost control measures.
o
Improved service levels.
o
Enhanced education efforts.
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Selected price changes.
These efforts have stabilized check volume in the
District.
Through April 1986, processed volume is 1.6 per-
cent above the same period last year.
Question 43
Why did the Pricing Committee of the Federal
Reserve Bank of Chicago meet at Calloway Gardens, Pine Mountain, Georgia?
Response
The Chicayo Pricing Committee decided to meet with
Atlanta Reserve Bank management to discuss operational
enhancements for the Federal Reserve Bank of Chicago because
of the Federal Reserve Bank of Atlanta's outstanding record
of operation performance.
Atlanta manayement was scheduled
to be involved for only part of the two and one-halt day
meeting.
A site close to Atlanta was selected so that the
Atlanta management could conveniently attend their part of
the meeting.
The Federal Reserve Eank of Chicago requested
information from many locations in the Atlanta area and
found the Calloway Gardens site to be most economical.
Question 44
What renovations are being planned for the Federal
Reserve Bank of Chicago? What are these renovations expected to cost? What improvements will be made during the renovation to increasing security in the Security Courtyard and
the FRCS-80 control center? (Answers relating to security
matters should be provided in a separate document.)
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Response:
The Chicago Bank is currently implementing a comprehensive renovation and addition project which has been
named the Facilities Improvement Program (FIP).
Under this
program, all office space and many operational areas are
being updated and, in many instances, relocated.
This will
allow the Bank to more fully realize the operating benefits
possible with current Federal Reserve System technology.
The total target budget for the FP is $89.4 million.
Of this, $23.5 million is for an addition to the
building and $65.9 million is expected to be spent on renovations to the existing building.
(As requested, we are submitting the response
relating to security matters under separate cover.)
Question 45
The Federal Reserve Bank of St. Louis has planned
one of the smallest merit pay increases. What has been the
trend for pay increases over the past and how does it compare with other Reserve Banks? What is the potential impact
on morale and the continued employment ot quality personnel?
Response:
For the past three years, the merit increase program has been judged sufficient and appropriate.
The
increases have been distributed on a pay-for-performance
basis, resulting in the highest performers receiving
increases above the average merit increase, with offsetting
lower increases for other personnel.
This distribution
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Federal Reserve Bank of St. Louis
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has significantly contributed to the retention of
key employees without disruption to the total population as
evidenced by a modest separation rate (13.3 percent
Districtwide for 1985).
Question 46
How many examiners does the Federal Reserve Bank of
Kansas City currently have and how many will they have after
they allocate additional resources to this area?
Response:
At year-end 1985, the Federal Reserve Bank of Kansas City had 169 examiners, up from 83 at year-end 1984.
Since then, the Bank has added nine examiners to its staff,
bringing the current total to 118.
Another seven examiners
ere expected to be added by the end of 1986.
Question 47
What is the total cost of the Federal Reserve Bank
of Kansas City's renovation? How does this renovation cost
compare with other planned or previous renovations and how
would it have compared with construction of a new facility?
Response:
The total cost of the renovation is $13.2 million
from 1971 to 1985.
It is difficult to compare this renova-
tion with others because the degree of renovation varies
from project to project.
However, the renovation cost of
this project appears to compare favorably with other planned
and previous projects.
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Federal Reserve Bank of St. Louis
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A new facility would have cost approximately $58.3
million to construct.
Question 48
The Federal Reserve Bank of Dallas expended $2,350
in February to Ted's Auto Park as a management fee. What
services does this firm provide the Dallas Bank?
Response:
Ted's Auto Park provides administrative management
of the Bank's parking ict, including providing parking
attendants to operate the lot.
The expense for managing the
lot is fully recovered through parking fees charged to the
employees.
Question 49
Why did the Directors of the Federal Reserve Bank
of Dallas meet in New York City?
Response:
The New York meeting of the Directors of the Federal Reserve Bank of Dallas was held to promote the Directors'
knowledge of the unique Federal Reserve operations conducted
in New York -- particularly open luarket and foreign operations and surveillance of the securities markets.
The New
York meeting included a presentation by Mr. Solomon, then
President of the Federal Reserve Bank of New York, and other
sessions concerning open market operations.,
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Federal Reserve Bank of St. Louis
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Question 50
In light of the alleged difficulties that some
Eleventh District banks may be experiencing, what actions
have the Federal Reserve Bank of Dallas undertaken to assure
timely information on the condition of these institutions
and to assure that any developing institutional problem does
not affect the integrity of the payments system?
Response:
The Federal Reserve Bank of Dallas has taken the
following actions to assure timely information on the
condition of financial institutions in the Eleventh District
:
(1)
Increased the authorized staft in its Supervision and
Regulation Department by 33 persons during 1985 and
1986, or
33 percent.
This will support:
o 470 scheduled tieid activities in 1986 (primarily bank examinations and bank hoiding company
inspections), an increase of 31 percent over
the total done in 1985.
o A significantly increased surveillance workload aue to an increasing number of state member banks (currently 84) and bank holding companies (currently 758), a major increase in the
number of bank holding company reports reviewed
(e.g., about 1,700 FR Y-9 reports in 1986 compared with just 275 as recently as 1984, and an
increasing volume of special reports of problem
organizations.
(2)
Staff has also been added to support the Federal
Reserve System's Payments System Risk Program, and cons
iderable time has been required of our accounting, data proc
essing, and supervision and regulation staffs relative to
this
program.
Currently, six officers devote substantial por-
tions of their time to this program, supported by monitori
ng
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Federal Reserve Bank of St. Louis
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and counselling staff and bank examination personnel.
In
support of this program:
(3)
o
450 sender net debit caps have been received
from District financial institutions to date
and,
o
Several software programs, including one to
facilitate the rejection or interception of
Fedwire transfers causing overdrafts, have
been implemented or are in process.
Telephone contacts and face-to-face meetings betwe
en
Federal Reserve staff and regional offices of OCC,
FDIC,
FHLB, and state banking supervisors have been increased
to
reflect the growing numbers of problem institutions in
this
District.
Dallas staff are in telephone discussions several
times each day with regional OCC and FDIC personnel,
and
information so obtained is promptly conveyed to Board of
Governors' staff in Washington.
(4)
The Reserve Bank is closely monitoring conditions at a
number of banking organizations in the District that seem to
be experiencing the greatest degree of strain.
Also, vari-
ous actions have been taken to assure that the discount
window will be available to such organizations should they
need funding assistance.
Question 51
The Federal Reserve Bank of Dallas intends to lease
commercial office space. What is the value of this lease
and how was it negotiated? Will the space be needed for
a
short or a long period?
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Federal Reserve Bank of St. Louis
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Response:
The District has not formulated a plan to lease
additional commercial office space.
However, it is present-
ly leasing office space at certain locations.
The terms of
each lease are given below and, since the Bank's workforce
is projected to grow commensurately with increasing work
volumes,it is likely that the hank will enter into new leases at the expiration of these leases.
St. Paul Place - 13,379 square feet at $14.25 per square
foot, housing approximately 30 employees. A Bank task
force, assisted by real estate brokers, evaluated sites in
the central business district on the basis of location and
price. Date of lease: August 28, 1985. Lease term: five
years, with five one-year extension options.
Employers Insurance Building - 45,000 sauare feet at $14.50
per square foot, housing approximately 150 employees. The
Bank had been leasing space at another location when space
became available at the Employers Building at a lower price.
It is located adjacent to the Bank. The price of the previous space was $15.36 per square foot. Negotiation was
directly with the management of the Employers Building, and
other sites were explored at the same time.
Question 52
The Federal Reserve Bank of San Francisco appears
to use a corporate credit card. Is this correct? Do other
Banks use a corporate card? Has any assessment been made of
the efficiency and cost savings associated with such use?
Do cash advances continue to be necessary when such a card
is in use?
Response:
The Federal Reserve Bank of San Francisco and most
other Reserve Banks issue corporate credit cards to a limit-
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Federal Reserve Bank of St. Louis
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ed number of management and staff.
This is for convenience
and efficiency and no explicit study has been made to determine the cost savings.
All expenditures, whether paid by
credit card, cash advances, or reimbursement, must be justified and approved.
Cash advances may still be necessary,
depending upon the level of non-credit card expenditures
incurred by the individual involved, although most Reser
ve
Banks have realized a reduction in such advances.
Question 53
What services did the Zivic Group provide to the
Federal Reserve Bank of San Francisco?
Response:
The Zivic Group is a personnel search firm.
The
Twelfth District utilized the services of the Zivic Group to
recruit personnel for vacant positions.
Question 54
The substantial increase in the Federal Reserve
Bank of San Francisco has in part been attributed to certain
nonrecurring costs associated with the move of the Los
Angeles Branch to a new building. Are these costs being
capitalized into the Los Angeles building? Does such a
capitalization affect the cap on Branch building construction?
Response:
The one-time costs incurred in moving into the new
Los Angeles branch buildinc. will be treated as operating
expenses, thus their large impact on the 1986 Reserve Bank
budget.
Only expenditures of a capital nature that are
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54 -
associated with the actual construction of the building are
capitalized, with depreciation systematically allocating
those costs to current expenses over future periods.
Only
these capital expenditures are subject to the "building
proper" limitation on the cost of Reserve Bank branch buildings.
Question 55
What was the policy of the Federal Reserve Bank of
San Francisco with respect to functions and activities
intended to honor the retiring Reserve Bank President? Who
approved the expenditures and what controls were followed?
Were these expenditures comparable to those expended by
other banks in recent years? How did these expenditures
compare to the Federal Reserve Banks of Atlanta,
Minneapolis, New York and St. Louis?
Response:
The System has a discretionary expenditures policy.
However, the Federal Reserve Bank of San Francisco had no
stated policy for honoring the retiring Reserve Bank
President.
When the President of the San Francisco Reserve
Bank retired in 1986, after 13 years, the Bank determined
that community practice should be a guiding factor in
planning retirement functions.
Bank management determined
what arrangements were considered consistent with community
practice in the San Francisco area, and the First Vice
President was required to approve all significant
expenditures.
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Federal Reserve Bank of St. Louis
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The amount spent by the Federal Reserve Banks
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of Atlanta, Minneapolis, New York, and St. Louis in recent
years was less than the amount spent by the Federal Reserve
Bank of San Francisco.
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Federal Reserve Bank of St. Louis
I
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. E. 20551
SEP 9 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Walter E. Fauntroy
Chairman
Subcommittee on Domestic Monetary Policy
Committee on Banking, Finance and
Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Chairman Fauntroy:
Enclosed, as you requested in your letter of June 17
please find our response to the question on construction work
involving the Security Courtyard of the Federal Reserve Bank of
Chicago. It was requested that this response be provided in a
separate document from the responses to the remaining questions.
Accordingly, I am forwarding today our other responses under
separate cover.
Sincerely,
'
-"
Enclosure
DR:pte (V-134, 86-2658)
bcc: Dave Robinson
Clyde Farnsworth
Ted Allison
Mrs. Mallardi (2) v/
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Federal Reserve Bank of St. Louis
•
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Federal Reserve Bank of St. Louis
Question 44
What improvements will be
e during the renovation to increasing security in the security Courtyard and
the FRCS-80 control center?
Response
The response with regard to security enhancements
to the Chicago building, requested to be provided under
separate cover, is as follows:
The Security Courtyard, which consists of the concourse area and the vestibule between the concourse and the
Bank, will be renovated.
The concourse will be modernized,
new, faster doors will be installed, the guard quarters will
be relocated to increase visibility, and additional stalls
will be provided.
The vestibule will continue to utilize a
"man trap," a guard and television cameras for security.
The FRCS-80 control center will be provided the same security as the Bank's general computer facilities--namely:
card-key systems, man-trap systems, complete fire security,
and halon systems for tape vaults.
In addition, the System
Communication Center can now be operated from Detroit,
should circumstances require it.
BOARD OF GOVERNORS
• co
•0
• -n
• -4
„
OF THE
FEDERAL RESERVE SYSTEM
i- •
‘.1 •
(
.3
44
.
,•
WASHINGTON, D. C. 20551
September 9, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Sam M. Gibbons
Chairman
Subcommittee on Trade
Committee on Ways and Means
House of Representatives
Washington, D.C.
20515
Dear Chairman Gibbons:
Thank you for your letter inviting me to participate
in your Subcommittee's hearing on a number of international
economic issues and their relationship to the U.S. trade
deficit.
I look forward to appearing at the hearing on
Wednesday, September 24, at 9:30 a.m. and to joining you for
breakfast at 8:00 a.m.
Sincerely,
BlEaul
CO:DJW:pte (V-177, 86-3616)
bcc: Ted Truman
Mrs. Mallardi (2) y
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.•
. 0 GOVi ••
;
/1‘.`
BOARD OF GOVERNORS
°•
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
September 8, 1986
PAUL A. VOLCKER
CHAIRMAN
The Honorable Fernand J. St Germain
Chairman
Committee on Banking, Finance
and Urban Affairs
House of Representatives
Washington, D.C.
20515
Dear Chairman St Germain:
In your letter of August 6, you raised again your
interest in encouraging the Federal Reserve to cooperate with
other central banks and bank supervisors in efforts to curtail
money laundering. In particular, you suggested a role for the
Basle Supervisors Committee.
The problem of money laundering was raised with members
of the Basle Supervisors Committee when that committee met in
Washington in June. The discussion that took place revealed a
good deal of sympathetic awareness about a problem that infects
most of the societies represented on the committee. The problem
was characterized as going beyond organized crime and the drug
business to encompass all types of illegal activities that can
benefit from the use of international banking transactions.
On the other hand, doubts were expressed about the
ability of supervisors, collectively or bilaterally, to deal
effectively with the problem. In a number of countries, the
supervisors possess limited powers vis-a-vis the affairs of bank
customers. In general, supervisors do have responsibilities to
inform their law enforcement agencies when they encounter transactions of uncertain legitimacy. Many are bound by secrecy laws
from transmitting any such information to any other authorities.
For this reason, these supervisors believe that international
cooperation must take place largely between national law
enforcement authorities. Any contribution by bank supervisors
was thought likely to be marginal at best.
At the end of the discussion, there was a consensus
that because of the community of interest involved, more thought
should be given to the role that bank supervisors might usefully
play to supplement the efforts of law enforcement authorities.
To this end, we intend to send to each member of the Basle
Supervisors Committee a copy of your Committee's report on the
Comprehensive Money Laundering Prevention Act. In addition, the
Federal Reserve intends to continue to explore this important
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Federal Reserve Bank of St. Louis
V
The Honorable Fernand J. St Germain
Page Two
topic with other central banks and bank supervisors, both within
and outside the Basle Supervisors Committee.
I hope this information is useful.
if I can be of further assistance.
Sincerely,
FD:CO:pte (V-166, 86-3486)
bcc: Fred Dahl
Mrs. Mallardi (2)
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Please let me know
@FedFRASER