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Summer 1991


News and Views


To Be


Realty loans
Prove Smart
Federal Reserve Bank of St. Louis

Eighth District Bankers

Within the next few weeks, if
you look very carefully, you
may notice a few additions to
the $100 note.
The Treasury and the Federal
Reserve, late last month, announced the gradual introduction of security-enhanced
currency, beginning with the
Series 1990 $100 note early
this fall.
Essentially, the security-enhanced note contains two new
features- the microprinting
of "United States of America"
around the portrait and a polyester security strip, with "USA


ad real estate loans, the
bane of bankers in 1990,
have caused less hardship in
the Eighth District than else-

where. Analysts cite the

District's relative concentration
of residential as opposed to
commercial real estate loans as
a reason for lower real-estaterelated losses.
Newly available data support this view. Ratios constructed from aggregated call
report data show that the residential real estate loans largely
favored by District bankssingle-family mortgages and
home equity loans-have
lower delinquency rates than

For more information,contact
100" printed in an up-andthe Cash Department, (314)444down pattern that is visible
only when held up to the light. 8330, or the Public Information
The enhancements have been office, (314)444-8310.
added to keep one step ahead of
copier technology and to deter
The security-enhanced currency will be put into circula~
tion by the Federal Reserve Sys- ~
tern. New and existing currency ~
~,-,·~ ~
.J..lllJ\;F,•~~~~1111~ ~
will co-circulate without recall. ¼
Both will be legal tender.
The St. Louis Fed sent deta_iled_ info~a~ion_to ~II Dis- ~
tnct financial mst1tut1ons at ·-· ~~~~~~
the end of July.


Real Estate Loan Ratios as of March 31, 1991

Percent of loons in nonperforming status:!"
Nonform, nonresidential
One-to-four family
Home equity lines of credit

Eighth District

~ loons 90 days or more post due or in nonoccruol status
t U.S. banks with overage assets of less than $15 billion

commercial real estate loans.
In addition, District banks
have lower nonperforming
loan ratios in all categories of
real estate loans than their U.S.
peers. The difference is most
pronounced in construction

U.S. Peersf
11 .37%

and multifamily loans, where
District banks average less than
half the nonperfom1ing ratios
of their national peers.
These new data became
available with the March 1991
call report.

Express Yourself: The Importance
of the Public Comment Process
ow often have you
pored o ver a new
Fed regulation, operating


procedure or priced service announcement and thought that it would
have benefited from some "real world" advice?
And, how often have you ignored Fed proposals out for public comment because you're convinced Washington pays little attention to the
opinions of bankers in the hinterlands?
In this issue of CB , we introduce a new
column,"Out For Comment," that will list Federal
Reserve System proposals out for comment at
th e time of publication.
We are adding this feature, first, as a reminder of the current proposals out for comment and their deadlines. But, second, we want
more people to become aware of the public comment process and to participate in it. Eighth District bankers have traditionally had relatively
low participation in the public comme nt pro-

Jam es R . Bowen

How Bank·
ers' Com·
ments Have
Affected Fed
Federal Reserve Bank of St. Louis

ce ss, and we would like that to change.
The public comment process is the best way
for bankers to influe nce policy. The comments
received are read and considered and can directly affect the outcome of proposals.
We realize it is impossible for you to comment
on every proposal, but we urge you to comment
on those issues on which you have a strong
We also understand the extensive time
required to s ift through the appropriate documents--which are often long and complex-and
draft a persuasive response. We can only point
out, though, that you can add a real-life dimens ion to policymaking.
So, next time you glance at a public comment
announcement, take a second look and consider
letting us know what you think. Effective service
from the Fed requires your input.
James R. Bowen is the first vice president of the Federal Reser/le Bank ofSt. Louis.


s the Feditorial above
points out, comments
from bankers can reshape Fed
policies. Here are just three
examples from the priced services area:
• In 1988, the Fed's proposal
on same-day settlement met
with overwhelming opposition.
Areview of the public comments revealed that the 2 p.m.
presentment deadline was
causing concern. Amodified
proposal for same-day settlement went out for comment
that included an 8 a.m. presentment deadline.
• Respondents to our proposal
for measuring daylight overdrafts in June 1989 voiced the

concern that the proposal
would disrupt cash management practices, without reducing payment system risk. A
modified proposal, issued in
January th is year, provides fo r
credit during the business day
for checks and ACH transactions, as well as other off-line
• The all-electronic ACH proposal issued for public comment last December was modified to eliminate a financial incentive in the form of a transaction surcharge. The change
was made after commenters ar-

gued that transaction fees
should continue to be based
solely on cost, consistent with
the Monetary Control Act.
Thus, for the price of a postage stamp, institutions have
made their opinions known.
Take a look at the new "Out
For Comment" column. If you
want your voice heard on a
proposal- but no longer have
a copy of it- please call
(314)444-8444, ext. 501 , and
we'll rush you one.

Cletus C. Cougbli"
Federal Reserve Bank of St. Louis

State and
Local Fiscal
Woes: What
Do They Mean For
hen Bridgeport,
Connecticut, declared
bankruptcy in June and New
York City and the state of New
Jersey laid off thousands of government workers shortlv thereafter, the brows of com~1ercial
bankers across the nation
started furrowing. What happened? Could it happen here?
Commercial bankers have
good reason to worry: their
holdings of state and local
bonds make the weakening fiscal position of these government entities a big concern.


Commercial bankers
have good reason to
worry: their holdings
of state and local
bonds make the
weakening fiscal
position of these
government entities
a big concern.
In the Eighth District, a com-

bination of tax law changes
and economic developments
induced bankers to decrease
their holdings of state and local
bonds throughout the 1980s.
Nonetheless, at year-end 1990,
holdings of such bonds were 16
percent of their securities holdings and 4.3 percent of their
total assets. The proliferation
of state and local government
budgetary crises now raises
concern about the creditworthiness of these borrowers.

Arecent report by the
National Conference of State
Legislatures highlight'l the
mounting fiscal problems. The
worst of these appear to be in
New York, California and New
Problems, however, exist for
many states in the Eighth District. The projected deficit for
fiscal year 1991 as a percentage
of the original budget for states
m our region was: Missouri5.5%; Mississippi-5.2%; Tennessee-4.8%; Illinois-3.9%; Indiana-1.8%; Arkansas-0.4%; and
Except for Kentuckv, , everv.
state government in the District
will have to cut spending, raise
taxes or both to eliminate their
deficits. In late June, such cuts
began, as Missouri Governor
John Ashcroft vetoed $50 million of spending and announced additional spending
cuts (which can be reinstated if
revenue picks up) of $150. 5


he fiscal problems of state
and local governments can
be traced to many factors. One
is the national business cycle.
As the national economy expands, most state and local
economies also expand. The
expanding economic activity
usually means more govern-

ment revenue and less spending on certain social service
programs. On the other hand,
in a recession like the one that
began in July 1990, tax and
nontax receipts decline, falling
below expectations, while
spending for some social services tends to rise.
Compounding these business
cycle problems have been pressures, since the mid- l 980s, to
increase state and local spending on education, public infra-

structure (roads, bridges, sewer
and water facilities) , health
care for the needy and prisons.
Making matters even worse,
federal aid to state and local
government'l has shrunk.


imply pL_1t, governments to
day are facing particularly
difficult choices. While raising
taxes may help balance the
budget or fund public services,
these same taxes may deter
economic growth by inhibiting
businesses and households
from locating or remaining in
the area. Th us, the tax base
may ultimately shrink because
of high taxes.
On the other hand, such an
effect may be mitigated if the
higher taxes go for certain
types of public services, such as
education and infrastructure
that can lead to long-tenn e;onomic growth.
Many analysts expect the
spending cuts and higher taxes
enacted by state and local governments to prolong the recession and decrease the strength
of the recovery. Because commercial bank perfomiance is
tied to the strength of the
economies in which thev do
business, how state and 'local
governments respond to their
fiscal problems will very likelv
affect bank performance for ,
some time to come.
Cletus C. Coughlin is a research
<lficer at the Federal Resen e Bank
q[St. Louis.

Regional Roundup

The following are Federal Reserve
System proposals currently out for
■ The Federal Reserve,
along with the OCC and the
FDIC, issued a request for
public comment on the supervisory definition of highly-leveraged transactions (Hl Ts).
Comments are due by August
26 (Federal Reserve Docket

Direct all comments to William
Wiles , Secretary of the Board ,
Board of Governors of the Federal
Reserve System , 20th and Constitution Avenue , N.W., Washington ,
D.C. 20551 . For copies of proposals out for public comment, contact the St. Louis Fed's Public
Information Office at (314) 4448444, ext. 501 .

Federal Reserve Bank of St. Louis

Fed Speakers
Bureau Expanded
In an effort to reach new audi ences, one of the St. Louis Fed's
long-standing public services-it'i speakers bureauhas recently been expanded.
The Fed is offering educational presentations to depository institutions, schools and
community organizations in
the Eighth Federal Reserve District. The purpose of the presentations is to provide a better
understanding of the Federal
Reserve System and it'i role in
the economy.
Topics range from current
banking issues and the economic outlook to the revolution in electronic payments.
Presentations typically last


n a nationwide survey,
Fedline customers rated the
service 4.88 out of a possible
high of 6.00 for overall satisfaction.
The survey, mailed late last
year to more than 2100 customers, received 944 responses.
In general, the longer a respondent had been a Fedline
customer, the higher the satisfaction rating. Medium-to
small-sized institutions rated
Fedline slightly higher than
those with more than $1 billion
in deposits.
Several Fedline software functions received high ratings.
Customers were happiest with
the Fedline sign-on and security features. Also rated highly
were ease in moving between
Fedline services, menus and
functions, Fedline's assistance

about an hour and include
ample opportunity for discussion .
To ensure availability of a
speaker, request'i should be
made at le,L'it one month before
the speaking engagement.
When possible, speakers wi ll
travel to conduct a presentation.
If you would like more information on the speakers bureau,
please contact the Office of
Public Information at (314)
444-8421, or (800)333-0810.

FR2900 on Fedline
Scheduled for Early
The Fed wi 11 add a new free
service to Fedline in the first
quarter of 1992. Weekly reporttools (function keys and windows), and the speed with
which Fedline creates, verifies
and queues transactions for
The two most freq uently
mentioned problems were slow
response/processing time and
Fedline commun ication errors.
While the majority of respondents reported "never or rarely"
having these problems, about
39 percent reported a problem
in these areas at least monthly.
Of the services offered on
Fedline, the funds transfer service had the highest satisfaction rating at 5.23. Satisfaction
ratings for other Fedline services were: 5.04 for return
check notification, 4.98 for
TT&L, 4.84 for ACH, 4.80 for
securities transfer and 4.74 for
savings bond ordering.

ers to the FR2900, "Report of
Transaction Accounts ... " will be
able to transmit their report'i
electronically over Fedline. A'i
an added benefit, Fedline users
can receive reserve requirement
estimates for current and future
More detailed infomiation
will be sent to current FR2900
reporters in December. In the
meantime, call Patty Goessling
at (314) 444-8596 if you have
If you currently are not a
Fedli ne customer, but are considering the opportunity, call
the customer support office at

The most desirable future enhancements, according to respondents, were: receiving and
sending document images with
Fedline, multi-tasking within
Fedline and multi-tasking between Fedl ine and other software. (Multi-taski ng means
perfom1ing several tasks simultaneously, for example, printing an incoming wire transfer
while working in another software package.)
The survey's customer feedback will help focus the Fed's
efforts at improving and developing future enhancements to

All-Electronic ACH: When To Convert?
Federal Reserve Bank of St. Louis

hen the
in December 1990, the conversion to
an all-electronic ACH (AEACH),
bankers endorsed the initiative.
With this endorsement, bankers seemed to agree that allelectronic ACH processing
would ultimately mean improved reliability and timeliness of ACH delivery, more flexible processing schedules, reduced credit risk, greater security and improved contingency
With the final AEACH deadline less than two years
away-July 1, 1993--does it

make sense to convert now or
wait till later? Let's take a brief
look at two major benefits of
early conversion: cost savings
and access to additional services.
To begin, institutions that
convert to electronic ACH del ivery wi ll realize an immediate
savings in tape and paper delivery fees (currently $5.25 per de-

livery or $4.50 per messenger
pick-up) and the $6.00 tapedeposit fee paid by J\CH originators.
Even greater savings wi ll result after January 1992 when
significant fee increases-SO
to 100 percent-take effect to
recover the increased cost5 of
off-line ACH origination and
Savings to ACH participant5
that convert now wil l again increase in January 1993 when
off-line deposit and delivery
fees may further increase.
Second, an early conversion
to Fedline wil l provide immediate access to additional Fed services. Such services include
funds transfer, book-entry securities, MICR infonnation,
check autocharges, reserve
account statements, TT&L advice entries and savi ngs bond
Conversion wi ll also improve
the integrity of ACH items.
Transmissions to and from Reserve Banks are secured
through data encryption, and
electronic delivery of ACH items
will also el iminate postal or
courier delays or lost infom1ation due to bad weather or
natural disasters.
For those financial institutions that receive a small number of ACH payments and can't
justify an electronic connection, the AEACH initiative offers
an alternative. ACH items can
be sent to their correspondent
or data processor for posting.
With a conversion lead time
of several months, the time to
initiate conversion and avoid
the 1992 fee increase is now.
In fact, the Federal Reserve
Board recommends initiating a

St. Louis Fed
Offers Electronic
In the Eighth Federal Reserve
District, the AEACH initiative means
a change for more than 500 ACH
participants who currenriy receive
and/or originate commercial ACH
payments on magnetic tape or
paper register.
The St. Louis Fed offers three
electronic connection alternatives-FLASH-Light, Fedline and
Fedlink Bulk Data. Choosing a
connection type depends on the
needs of each financial institution.
The Fed will also be hosting
AEACH workshops at several
District locations this foll. These
free one-day workshops will
provide information on all
connection alternatives as well as
hardware requirements and
installation steps.
Also starting this fall, the St.
Louis Fed will begin providing
Fedline training to off~ine ACH
participants at their institution.
Thisprogram is intended for
institutions looking to install
Fedline primarily for ACH functions.
If you'd like toknow more
about the all-electronic ACH
initiative, or if you're interested in
attending an informational work·
shop or registering for on-site train·
ing, please call Kathy Poese in our
Electronic Services office at (800)
333-0810 or (314) 444-8706.
conversion by September 30,
1991. An institution that commits to an electronic connection by this date will not be assessed the 1992 off-line deposit
and delivery fee increase.
Financial institutions converting to all-electronic AC! I
now can reap big benefits and
get a jump on the future.


New Mixed Deposit
Deadline in Memphis
On July 15, the Memphis
Branch introduced a 7:30 p.m.
mixed deposit deadline that
provides next-day availability
for items drawn in five additional "other Fed" cities and
seven "other Fed" RCPCs. At
the same time, Memphis lowered the per-item fee for other
Fed items from $ .052 to $ .050,
giving depositors better availability at a lower price. For
more information, call David
Garavelli or Travis Smith at
(901)523-7171, ext. 365 or 203.
New Payor Bank
Service Fees in Louis•
The fees for magnetic tape and
electronic transmission of
MI CRline data at the Louisville
Branch have both been
changed to$ .002 per item.
This represents a$ .001




Post Office Box 442
St. Louis, Missouri 63166

CB is published quarterly by the
Public Information Office of the
Federal Reserve Bank of St. Louis.
Views expressed are not necessarily
official opinions of the Federal
Reserve System or the federal
Reserve Bank of St. Louis.
Federal Reserve Bank of St. Louis

per-item reduction for electronic delivery, but a corresponding increase for magnetic
tape delivery. Those institutions currently using this service via Fedline or bulkdata
should see a substantial savings as a result of this change.
Institutions that previously did
not use the service because of
cost may now find it more attractive. For more information, call Ralph Ising or Ron
Hadom at (502) 568-9200,
ext. 224 or 290.

Payroll Savings Bond
Orders Offered on
In a few weeks, depository institutions will be able to submit
their orders for payroll savings
bonds to the St. Louis Fed as
they do now for over-thecounter bonds--on Fedline. To
simplify the process of issuing
payroll bonds, the Fed devel-

oped a PC-based software package, called BOS (Bond Ordering System), that creates files
which can be transmitted
through Fedline. The software
is free and will be available in
late August. For more information, call our Savings Bonds
Unit at (314) 444-8705 or

Fed-sponsored Events
for Eighth District
Depository Institutions
September 19,20
"Rural Community Development Lending"sponsored
jointly by the Kansas City and
St. Louis Feds
Lake of the Ozarks, MO

All-Electronic ACH
September 10
Little Rock, AR

St. Louis Fine Sort
Inclusion Fee Reduced
In response to customer requests, the Fed lowered its fine
sort inclusion fee from 2 cents
to 1cent per item for institutions in the St. Louis zone. As a
result, payor bank services are
now more affordable than ever
before. For more information,
please call your account executive at (800)333-0869 or the
Check Department at
(800)333-0810, extension


.. ,;: \-.· !-' 1:,


September 11
Memphis, TN

September 13
Oxford, MS

September 17
Mount Vernon, IL

September 18
Louisville, KY

October 8
Springfield, MO

October 9
St. Louis, MO

October 10
Quincy, IL
For more information on
these meetings, please call

.- . CJ .. ... t..: ~-


rcn1v111 IIJU. 444