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Operations of the Federal Reserve Bank
of St. Louis—1974
JEAN LOVATI

THE Federal Reserve System consists of the Board

of Governors, located in Washington, D. C., and
twelve Federal Reserve Banks located in districts
across the United States. The Federal Reserve Bank
of St Louis serves the Eighth Federal Reserve District which includes all of Arkansas and parts of 1111nois, Indiana, Kentucky, Mississippi, Missouri, and
Tennessee. To assist in servicing the area, branches
of the St. Louis Federal Reserve Bank are located in
Little Rock, Louisvffle, and Memphis.
The St. Louis Federal Reserve Bank and its
branches perform a variety of services for the public,
commercial banks, and the United States Government. These services include collecting and clearing
checks, transferring funds, distributing coin and currency to commercial banks, and conducting fiscal
agency operations for the Federal Government. The
Bank also extends credit to member banks and supervises certain commercial banks to promote sound
banking practices. This report reviews most of the
operations and functions of the St. Louis Federal Reserve Bank and its branches during 1974. The actions
of the Bank, along with the other eleven Federal
Reserve Banks and the Board of Governors, in formulating and implementing monetary policy are discussed In other issues of the Review.
Bank Supervision and Regulation
The Federal Reserve Bank of St. Louis, along with
the state banking authorities, supervises state chartered member banks in the Eighth Federal Reserve
District. Bank supervision encompasses a wide variety
of technical functions relating to the operations of
member banks. The Bank Supervision and Regulation
Department oversees the admission of state banks into
the Federal Reserve System, conducts annual bank
examinations, and analyzes periodic reports of condition. It reviews proposed mergers resulting in state
member banks and applications to open new branches
by these banks.
The most familiar form of supervisory activity is
bank examination, through which information is collected on the current financial condition of individual
banks. The examiners ascertain whether state member
banks are complying with the applicable laws and
regulations and evaluate each bank’s assets, liabilities,
capita], liquidity, operations, and management.
Page 8




The 88 state member banks in the Eighth District
were examined by St Louis Federal Reserve Bank
examiners in 197t These banks are also subject to
examination by state banking authorities. The 343 national banks in the Eighth District, which are required by law to be members of the Federal Reserve
System, are examined by the staff of the Comptroller
of the Currency. State nonmember banks that are insured by the Federal Deposit Insurance Corporation
(FDIC) are examined by the FDIC along with the
respective state banking authorities. The noninsured
banks in the District are examined by state examiners
only.
Federal Reserve Banks also supervise bank holding
companies. At the end of 1974~the Federal Reserve
Bank of St. Louis had jurisdiction over 17 multibank
holding companies and 73 one-bank holding companies. The Bank Supervision and Regulation Department, with the assistance of the Legal and Research
Departments, analyzes applications for bank holding
company formations and holding company acquisitions of additional banks and firms in industries closely
related to banking. In reviewing an application, these
departments consider the financial history, conditions,
and prospects of the institutions involved, and evaluate the quality of management. The legal aspects of
the proposal and its likely effects on banking competition are assessed. DurIng 1974, this Bank processed
11 applications to form one-bank or multibank holding
companies and 39 applications by holding companies
to acquire additional subsidiaries.
Bank holding companies are required to file annual
reports with the Reserve Banks. These annual reports are analyzed by the staff of the Bank Supervision and Regulation Department to verify accuracy
and completeness, to ascertain the financial conditions of the holding company and its subsidiaries, and
to determine compliance with applicable laws and
regulations. Examination reports submitted to the primary supervisory agency of the respective bank subsidiaries are also analyzed by the Federal Reserve
Bank to determine the overall conditions of such subsidiaries. In addition, the Bank conducts discretionary
on-site inspections of bank holding companies. The
purpose of these inspections is similar to that of examinations of subsidiary banks.

FEDERAL. RESERVE BANK OF ST. LOUIS

FEBRUARY 197!

Tabte

VOLUME OF OPERATIONS’
Nunsb
(thou ands)
1974
Checks handed
.
Transt r5 a unds
,
Cur ency ret ived en~counted

.

.

.

Ca,,, received and counted . .
11.5 Say ng Bands acid Savrngs Notes
0th r Coy nm at Secursties
U . Gavenim ntcavpon paid
Food stamps ece,v dead counted
To
iEtd

ci

Loin

~

*1 Tt k

ovusneothek

nic

,

ci

d

614, 04
61
2 7,873
.

.

.
.

I 29 .469
1 422
674
446
180 365

1973
58

713
494
273, 04
1 291 3
11,021
493
683
142,635

r at
Change
4.9°/a
24.
.7
0.1
3.6
4.7
54
26.5

Do to Amount
(a iRon

~

1974

1973

$210413
691,202,7
2400.1

$19 ,440 3
491 2449
2,147.0

1278
66$ 2
28,326 2
2579
4277

131
6426
822 0
2426
31 .6

2

ant

Chang
99%
407
11 8
27
0
18 9
63
355

o~nfl
y

ci

m

Check Collection
Checks drawn on commercial banks are the major
means of settling daily financial transactions, since in
most cases payment by check is more convenient than
lar
payment by currency. The use of checks is facilitated
by the collection and clearing operations of the Federal Reserve Banks, which provide a mechanism for
settlement of checks collected by commercial banks.
Settlement is made by entries to the reserve accounts
of member banks.

The four Eighth District Federal Resene offices
cleared 614 million checks with a dollar volume of
,
.
$210 billion in 1974. I his represents a 4.9 percent
increase in number and a 9.9 percent increase in dolvolume over 1973 (See 1 able I).

Electronic Transfer of Funds

has instituted a method to improve the handling.
clearing, and settling of checks and to increase the
speed of the payments mechanism. Regional Check
Processing Centers ( RCPCs ) have been established
in key cities across the country for these purposes.
RCPCs are facilities which serve a geograpluc area
wherein checks drawn on participating banks are
processed overnight.

In order to further increase the efliciency and speed
at which funds are transferred, the Federal Reserve
Bank of St. Louis is expanding its part of the Federal
Reserve Communications System. A computer at the
Bank serves as the communication and switching center for the entire Eighth District. Member banks may
use the System’s network to transfer to other member
banks funds of $1,000 or more for their own accounts,
or for their customers, anywhere in the country with—
out charge. These transf ers are most oftei used for
large transactions and for those requiring immediate
t
payment. Nonmember banks have access to this sen ice indirectly through member banks.

The Federal Reserve Bank of St. Louis and its
branches each have been defined as an RCPC. A zone
has been established for each center which corresponds to that portion of the Eighth District served
by the respective offices. Overnight check clearing
within the zones has been expanded smce 1972 to
include additional counties, thus providmg more banks
with this faster service, The RCPC zones of the Memplus and Louisville branches have already been expanded to cover the entire areas served by these offices. Approximately 90 percent of the dollar volume
of checks in the Little Rock zone and 80 percent of
the dollar volume in the St. Louis zone are on an immediate payment basis.

Significant changes in the structure of the communication network in the Eighth District were implemented in 1974. Recently, on—line terminals were
installed at the three St. Louis commercial banks having the largest volume of funds transferred through
the St. Louis Federal Reserve Bank. These terminals
are linked directly’ to the Bank’s computer and enable
the banks to initiate fund transfers directly from their
offices, Previously, banks usually telephoned or telety-ped the necessary information to the St. Louis Federal Reserve Bank for transmission. Now a transfer
initiated by means of an on-line terminal is switched
automatically by computer through the Federal Reserve Bank of St. Louis to the Federal Reserve office

Since the number of checks cleared has increased
rapidly in recent years, tile Federal Reserve System




Page 9

FEOERAL RESERVE BANK OF ST. LOUIS

of the receiving commercial bank with no direct in’
s’olvement by personnel at the St. Louis Federal Reserve Bank. If the receiving bank is also on-line, the
transfer is again automatically switched by computer
to that bank through its Federal Reserve office with—

ont being handled by the personnel at that office.
As the fnnd transfers are processed, the compnter
generates the accounting data and other information
needed to complete the transaction. This information
is then used to npdate member banks’ reserve accounts. Banks with on-line terminals receive an insmediate record of each transaction.
Three commercial banks in St. Lonis and two commercial banks in Memphis plus the St. Lonis, Louisville, and Memphis Federal Reserve offices are nOw
on-line to the hank’s compnter. A funds transaction
may reqnire as long as 2-3 honrs for completion when
information is telephoned or tehetyped to the Federal

Reserve Bank. Antornated switching has reduced that
time to 2-3 minutes, and has reduced the number of
transfers handled by the Bank’s personnel by 70 percent. An average of 937 transactions per day sent and
received are no longer handled by the personnel of
the Federal Reserve Bank of St. Louis since the installation of on-line terminals at the three St. Lonis

commercial banks.
The Federal Reserve Bank of St. Louis facilitated
the transfer of more than $290 hiillion of fnnds in
1974. This represents a 26 percent increase from the
$231 billion transferred in 1973. During 1975, the
Little Rock branch and nine additional large volume
banks in the Eighth District are expected to he directly linked to the compnter facilities at the St. Louis

Federal Reserve Bank through on-line terminals.

Coin and Currency
Although checks and wire transfers are the major
means of payment in this country in terms of dollar
vohnme, coin and paper currency are indispensible
and are used in the greatest number of transactions.
Currency is more widely acceptable than checks and
is a more convenient means of settling relatively
small transactions. To meet the public’s demand for
cash, a member bank orders currency from its Federal
Reserve Bank, which charges the order to tile member’s reserve account. On the other hand, if a member

bank has excess currency,

it

may deposit currency at

the Federal Reserve Bank and receive credit in its

reserve account. Nonmember banks generally receive
or deposit coin and currency through member banks.
Currency is sorted at the Reserve Banks and that
Page 12



FEBRUARY 1975

wInch is no longer usable is removed from circulation
and destroyed. During 1974. currency totalling $809
milhon was verified and destroyed.
Combined sorting, counting, and wrapping of coin
and currency at all four Reserve Bank offices in the
Eighth District amounted to slightly less than 7.6 million pieces per working day during 1974. This volume represents a decrease of 13 percent compared
to 1973.

Let ding
Federal Reserve credit is extended on a short term
basis to member banks which intend to use this
source of credit to meet their reserve requirements.
There are three types of credit available to members
from their Federal Reserve Banks short—term adjustment credit, seasonal cre(lit, and emergency credit.
The interest rate at svhich these banks may borrow
is called the discount rate. During periods when
shsort-term market interest rates are lower than the
discount rate, member banks may he reluctant to
borrow from the Federal Reserve to cover temporary

adjustment needs. Instead, they may obtain funds
through the Ferleral funds market ( where one cons—
mercial hank lends to another) or through the markets for other short-term instruments, On tile other
hand, if the discount rate is low relative to rates in

these markets, Federal Reserve lending is likely to
increase.
An ansenclment to Regulation A of time Federal Reserve Act was approved in 1974. This amendment

authorizes the application of a special discount rate
to certain types of lending to member banks. The
special rate applies to Federal Reserve credit to
member banks requesting large assistance over a prolonged period where there are exceptional circumstances involving only a particular member bank. The
special rate svould ordinarily he higher than the discount rate.
The discount rate at the beginning of 1974 was 7.5
percent. It was raised one time to a record 8 percent
on April 26, and then lowered once to 7.75 percent
on December 13. Short-term market interest rates remained above the discount rate throughout 1974.
ihe St. Louis Federal Reserve Bank made 2,164

advances totalling $11.1 billion to 111 Eighth District
member banks ill 1974. During the previous year,
1,759 advances totalling $11.1 bullion were made to
95 member banks. The daily average of outstanding
loans was roughly the same in 1974 and 1973, $54.9
million,

FEDERAL RESERVE BANK OF ST. LOUIS

The Federal Reserve Banks extend credit to
smnaller banks to tide these banks over peak seasonal
demands for funds. Nine banks itt the Eighth District
made use of this seasonal borrowing privilege during
1974. All of the banks winch used this privilege were
located in predominantly agricultural areas. No emergency loans were granted.

Fiscal Agency
The Federal Reserve Bank provides a number of
services as a fiscal agent of the Federal Government.
As banker for the Government, the Reserve Banks
carry the principal checking accounts of the United
States Treasury through whicil the Government receives and spends its funds. Goverunsent receipts
come mainly fronl taxpayers amId purchasers of Federal Government securities, and are deposited initially
in Treasury tax and loan aeeoumsts at designated commercial banks, Periodically, these funds are transferred
to Treasury accounts at tile Federal Reserve Banks
and spent.
The Reserve Banks also act as aim agent for the
Government in issuing and retiring Federal Government securities. Wilen the Treasury offers new securities, the Reserve Banks publicize the sale and receive
bids from banks, dealers, and others who wish to buy.
In accordance witil instructions from the Treasury,
allotments of securities are made by the Reserve blanks
whiell collect payment on the Government’s behalf,
After the securities Ilave been issued and delivered,
the Reserve Banks pay the interest on the securities
and redeem them at maturity with funds from the
Government’s account,
In 1974, 11.4 million savings bonds and notes and
674,000 other Treasury issues with a combined dollar
value of rougilly $29 billion were issued, serviced
or redeemed by the four Eighth District Federal Reserve offices. During the year, 646,000 Government
bond coupons valued at $257.9 million \vere paid by
these offices.
Another fiscal activity is the redemption of U.S (;overnment food stamps. A total of 180 million food
stamps with a value of $428 million were received
and counted by the Federal Reserve Bank of St. Louis
and its branches in 1974.

Research
The Research Department contributes to national
monetary policy through its collection and analyses
of a wide range of regional, national, and interna-




FEBRUARY 1975

tional economic data. The information is usedl by tile
President of the Bank in making monetary policy reeornmendations at meetings of the Federal Open Market Committee. This Committee, which consists of the
Board of Governors and five of the twelve Reserve
Bank Presidents, directs the purchase audi sale of
Treasury and Government Agency securities on the
open market by the Federal Reserve System. The
economic analyses of the Research Department are
also useful to the Bank’s Board of Directors in establishing, subject to approval by the Board of Governors,
the Bank’s discount rate.
The public also has access to data and information
relating to economic developments through the Research Departnsent’s 10 regular pubheations. The Review, with a monthly circulation of 35,000, incorporates much of the analytical research done by the
Research staff. Research staff members are encouraged
to publish studies in professional j()rIr1l~~1s’’as
~vell.
In addition to these functions, the Research Dcpartmnent engages in studies of bank market structure.
These studies include review amIdl analysis of proposed bank iloidhing company acquisitions and batik
mergers. In tins analysis, consideration is given to the
expected effects of the proposed acquisitions and
1
mergers on competition and On the ci In\-enienee amid
needs of thearea to lie served,

Bank Relations and Public Information
The St. Lotus Femleral Reserve Bank endeavors to
maimltain persottal contact with all banks in the Eighth
District and aids member banks in tlteir actions dlealing with the Federal Reserve, The Bank Relations
audi Public Infonnation Department makes available
to all Eighth Distm’iet member banks the Federal Reserve Functional Cost Anaix-sis Program which provides a cost-income profile of the participating bank’s
major functions. The utdividual bank can compare
its current operating costs and revenue for individlual
services not only with its past performance hut also
with average figures for member banks of similar size,
There were 46 banks participating in the program
last year in the Eighth District.
Through this departnleut, the Bank also maintains
contact with the public. Officers and staff members
of the St. Louis Federal Reserve Bank and its branches
presented 227 addresses before groups of bankers,
businessmen, and educators in 1974. The Bank was
representeml at 314 banker, 151 professional, and 225
miscellaneous meetings. During the year, 235 groups
Page 13

FEDERAL RESERVE BANK OF ST LOUIS

cOM? ~

A

FEBRUARY 1975

ycar (sec Table II). \ $111 nnllmon mttcrea e in Lcdem ii kg ncv oblig’ltiomls ‘mud i 81o9 mud lion i mmcm tsr
im the Gold C m tifie’mtc Adeount xx em d thc major sources

ND }~R

of tIm imlcrease itt total assc ts. Approximatc lx 71 per
ccnt of thc B’usk ‘issdts ii d mc imc Id in U.S. ( .nx’em ml
nlent s( curitid s. 1 lmc rem mm in m” as ets mmmclii liii the
Si

1

c.

7 6

31

Nat

1~

01

4oldl cdt tifie ttc itoumit titc speci ml di us imm,r m iuimts
eeitifie’ttc tecount mmotes Omi othd r Re cr5 e Banks audi
dasil

billion

items

pin ‘c’s

iii

ni

d’oiid

etioi m tot’dled

$1.3

t

Li’lbmhties of the St. I ouis F cderai Resen e Bank
1
4

and it brinches increised 104 percent ox er the 1973
leveL to $4.3 hilhon. Timis inure ise pm ins mrmix rc-sultm’mi

5

I

S

f omn a 14.1 p m Cd nt inereise in F c dcral Resers e Notes

~

~

~

o
I

ma

fl
2

o

*

~

~

I

S

tat

0

8

the p mmmciple tx pc of curt cues in circulation. Ti e c
not 5 ansounted to 83.0 billion appm’oxinsitc lx 69 percemtt of the B’umk’s tot ii liabilities at yc ar end 1974.
Dc posits cmiii ‘1 stmw’ mnainix of member bank re ers e
accounts amoummtc d to $1.0 billion an imscrease of 4.0
percent.

AflL~~ tQtJ$t

COJAPAL&TWE PROfiT AN

b
97
S

0

~

Mm
Cii

NIISN

I

amA

4

Papa

I

vtbty

Cm

a
TM

ma
tu4Dxd

97
2~

4

MILl

4

PS

4

78
901

at

l’P41n

3Q0

.

3007

$

cIA TA ACCU 15

API ALACCOUNTS

o

-

0

5

.

,

006
438 120
C

9

2 485
2

48

6,970
9887

m

1

equested film
mud 3 80? visitor. tourcd tile B utk
and its brauchics. lime B ink s tt ix cling cuirc mlcy ~1
hibits xver displa) cdl at ten banks ~ umimmc,
1974,

I ott1 as cts of the I ccl ‘r ii Re cmxc B’umk (IF St.
Louis mud its hr mucltd s at thc end of 1974 W did $4.4
billion ma mere m C of 10.3 petcemit fromn tlmc pm evious

Page 14



ttammt

N

.

Namer

LOSS

To
14

$9&9
13

tearnimp

ddno s

TAItMEN

mrnd
9

$7

7°.
17

~‘

90/a

155

a
6
9 e

24
19,4

10(70

57

6

pay

meaa t
Tea my
D,stmm~aion a N I an,

I,

CflIIAL ACCOUNTS
Cpa

Sm

~344

09

0

.

a

7

5

staim

2

6

.

DIMS
Pet

1

maIm

((dOS
.
late ~temmcFe4
mat Re emye

1,764
19143

194 744

299%

5.8%

1 67
14682

P,oa~

304
2

a!

I eder il Resers - B inks’ eai numigs rcsult from iilter
est on Gove nn cut securities intc Ic st on loans to
member banks amId rc imbur enseut of cci tin fiscal
~
fumleticiml In 1974. the pothon ol time Feclei al
Rcs mx c Systems e irmuimgs llloc’ltcdl to th e St. I ouis
B’mnk ‘md its branches totalled 8230 million an ine case of 17.2 ~d reent from the pi mx ions x dir ( s( e
Tchie III). Aftc’m . tatutorv dividends of 81.7 million
xx crc pa ‘dl to member b im tks and opm mating ‘xpemsses
of ~39,7 mihliomm xx re cox ered $1.5 mIliou xx ‘is trails
fen ed to surplus ‘mud $191 million xx as paid to the
Treasurx as intere t omi F deral Reserx e msotes.