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Winter 1995
2
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ov~~
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News and Views
for
Eighth District Bankers
t
SEP 2 7 2001
Fed Realigns Financial Services
7-
>>
_
The Federal Reser\'e Bank of
St. Louis, in concert with the Fed
System, recently reorganized its
financial ser\'ices functions to
respond more quickly to customer demands for new and
enhanced financial
ser\'ices and
I~ ,_ , ~ ~
to better
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Treasury
Modernizes
Tax Payment
System
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
f1nan_c1al :,2rnccs were 1~;11tgned
rnto lour new product offices
~retail. ,,holesale. cash/fiscal
,::;-md support ser\'ices (see sidebar for specific services).
Late last year, the St. Louis
Fed implemented a ne\\'
management structure to
reflect, in part, this realign ment (see organi1,ation chart
on page 2). In addition, it
consolidated all customer
n October 1991, the
Treasury's Financial
~lanagement Ser\'ice and
the Internal l~e\'enue Ser\'ice
announced plans to start converting the current tL'< payment
system to electronics in 1995.
The si\-phase plan requires
corporations with more than
$20.000 in employment taxes
1
coordinate and integrate
financial services across the
Federal Reser\'e System.
\\'ith the e\ception of a
few staff changes, business
relationships established
bet,,een Feel St Lollls and
financial institutions in the
Eighth District will remain
the same
1\t the national le\'el, Fed
to submit ta\ payments electronically through a financial
institution or a Treasun·
financial agent.
Phase one of the conversion
effort began on Jan. I, when
financial institutions, representing approximately 800
coq)(mttions, started processing
tax payments through either
Service Lines Redefined
Wholesale Services
Fedwire, book entry
Retail Services
Check and automated clearing
house (ACH)
Support Services
Accounting and automation
(Fedline~ etc.)
Cash/Fiscal Services
Currency/coin, savings bonds,
Treasury, Tax and Loan, noncash
support functions into a
new Employee and Customer
Relations Department.
( rn11li1111erl 011111'.\l / //1,~1'/
FechYire or the r\utornated
Clearinghouse. These corporations and their affiliates
pay more than S7 8 million
annually in employment taxes.
Feditorial
Integrity and Accountability at the
St. Louis Fed
he public's trust in
our nation's banking
system depends, in part,
on its confidence in the
ethics of bankers and bank
regulators.
Recently, the St. Louis
Fed revised its Code of
M<IIT II. Karr
Conduct for all employees.
As the new code affirms positions we've always
held, it will be almost invisible to those with
whom we do business.
Our code reflects a desire to be impartial and
fair in our business dealings, whether we are
acting as banking supervisors, as fiscal agents
for the U.S. Treasury Department, as providers
of payments services, or as buyers of goods and
services for our own use.
The ethical principles we follow guide us
in our daily dealings with the public to avoid
T
even the hint or appearance of bias. We ask
all employees to think about, recognize and
avoid even trivial situations that could raise any
question about our impartiality. For example,
we expect employees to refuse all but the most
inexpensive items that may be offered by a
financial institution or vendor.
In addition, we expect our staff to avoid
outside activities that could conflict with the
unbiased performance of their jobs. This may
limit our investments, our part-time jobs, even
our hobbies or political activities.
With this code we've renewed our resolve to
continue a long tradition of independence and
impartiality.
Jfm:r II. Karr is senior 1•ice president of t/Je Legal and Public r\[fairs
Dil'ision mu/ general counsel of t/Je Federal llesen •e Bank of St. Louis.
Services Realigned
l<Willlltl('( / jm111/i'()}i/ j)(l,!!.<'I
In conjunction \\"ith the
financial services realignment,
a new national-level Financial
Services Policy Committee
(FSPC) w:Lc.; created to establish
strategic direction and policies
for the Federal Rese1w's finan cial serrices. St. Louis Fed
President Tom :\lelzer was
named chairman of this new
committee, which oversees
the product offices.
t\11 l{eserw Banks \\·ill con tinue to participate on System
ac.h iso1~· groups. pro\'iding input
on local issues and helping
develop System-level plans.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Strategic planning will he
the first order of business for
the new FSPC and other man-
agement groups. The Fed
intends to consu lt with depository institutions on issues
Eighth District
Realignment
affectin g the future shape of
payments systems to ensure
their needs are effectively met.
Thomas C. Melzer
President
and FSPC Chairman
I
Jomes R. Bowen
First Vice President
I
Henry H. Bourgoux
Kristi D. Short
Senior Vice President
Operations and
Administration Division
Senior Vice President
Financial Services Policy
Committee Support
I
Jeon M. Lovati
I
Martha L. Perine
I
Raymond H. Laurence
I
Vice President
Corporate Support Services
Vice President
Employee and Customer
Relations
Vice President
Financial Services
Branches
The Limited Value of Race and Gender
Data in Small Business and Farm Loans
I
1/(lrk IJ. I r111gl//l
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
n September, the Federal
l~eserve Board solicited
comments on a revised version
of the interagency Community
Reinvestment Act (CRi\) proposal. The new version contains
a provision requiring hanks to
request race and gender data
from applicants for small busi ness and small farm loans. In
this unique market, however,
such data are unlikely to help
supervisors identify banks with
lending records that suggest
discrimination .
i\s our experience with
Ilome ~lortgage Disclosure Act
(I l\11)/\) data In~ demonstrated,
the statistical analrsis of race
and gender data h~L~ drawbacks.
Currently, supervisors use a
three-stage statistical approach
to look for evidence of discrimination in the mortgage-lending
market. 1n the first stage, they
analyze 1-l~J])i\ data for a given
institution with a technique
called regression analysis. This
analysis uses three \'ariables
reported under Il~IDi\- the
race of the ho1Tmver, the income of the borrower and the
loan amount requested by the
horro\\'er- to predict the prohabi lity that the institution will
approve a mortgage loan.
If stage one reveals a strong
statistical relationship between
race and probability of loan
acceptance, supervisors collect
additional data on variables
related to mortgage loan eval uation and conduct another
regression analysis. If the
second-stage regression still
suggests possible discrimination ,
supervisors continue to a third
stage. In the third stage, the
regression model is used to
match up pairs of applicants
with similar characteristics
except for race: examiners
then compare approval rates
for these matched pairs.
The lack of a relationship
between race and loan acceptance in stage one or stage two
indicates that the institution
probably does not discriminate
and exempts it from further
scrutiny. In this way, supervisors
can concentrate their examiner
resources on banks whose lending practices are most likely
to result in discrimination.
Collecting enough
data to reduce
false signals of
discrimination would
prove prohibitively
expensive, if not
impossible.
Regression models can, however, fa lsely signal discrimination . False signals occur when
the models exclude variables
that are important in lending
decisions. For instance, the
stage-one regression on m!Di\
data excludes credit histo1y If
minorities have weaker credit
histories. on a\·erage, than
other applicants, the regression
model \\'ill signal racial discrimination when , upon closer
e\amination, no difference in
treatment actually exists.
In principle, supervisors
could eliminate false signals
completely by including all
relevant explanatory variables
in the second-stage regression.
Ilowever, accounting properly
for all the \'ariables relernnt to
umle1writing criteria is difficult
and e\pensi\'e- e\'en for a
relatively homogeneous market
like the mortgage market.
False signals in the small
business and small farm loan
market are an even bigger
problem than they are in the
mortgage market. Compared
with mortgage loans, small
business and small farm loans
are highly idiosyncratic. Small
business loans, for example,
\'ary widely in funding terms,
payment structures and collateral arrangement.;;. Gi\'en these
characteristics, using only race,
income and loan amount to
predict loan acceptance in
stage-one regressions will likely
generate numerous false signals
of discrimination . ~1oreover,
collecting enough additional
data to reduce false signals in
the second-stage regressions
would prove prohibitively
expensive, if not impossible.
The large number of false
signals virtually eliminates
the adrantage of this approach
to detecting discrimination.
R
egression models :L~ide,
the regulation, :L~ written,
does not explicitly state how
race and gender data are to be
used in calculating an institution's CRA rating. This fact
combined with the data's
extremeh· limited value in
the small business and farm
market, indicates that the
additional burden imposed on
institutions cannot he justified.
.I/ark IJ. I r111glill is r, senior 111m1ager
{II/(/ eco110111is/ i11 !he 8a11ki11g
S11j)ert'1'sio11 and Neg11/ali1m /Ji1•isio11
al !be Fcdeml Nesen·e !3r/llk r!f'
SI. /,011is
RegionalRoundup
OUT FOR
COMMENT
The following are Federal Reserve
System proposals currently out for
comment:
■ Proposed amendment to
Regulation K(International
Banking Operations). Comments
due by February 13. (Docket
No. R-0862)
■ Proposed revisions to the
Federal Reserve Board's official
staff commentary for Regulation
B(Equal Credit Opportunity).
Comments due by February 1S.
(Docket No. R-0865)
■ Additional comments on
proposal to extend Fedwire
hours, specifically, potential
benefits, costs and market
implications of early Fedwire
opening. Comments also
sought on new service capabilities and a firm closing time for
Fedwire book-entry securities.
Comments due by April 28.
(Docket No. R-0866)
Direct all comments to William
W Wiles, Secreta1J 1, Board of
Governors of tbe Federal Reserve
System, 20tb St. and Constitution
Ave. , N. W , Wasbington, D.C.
20551.
Greenwood, Leslie
Join St. Louis Bank
Lynn ~1. Greenwood and
Willicm1 C. Leslie both joined
the official ranks of the
St. Louis Fed in December 1994.
Greenwood w;L<.; appointed vice
president of the Public Affairs
Department. During her 20year career in communications
and public relations, Greenwood
served as senior vice president
of operations at Landmark
Bank, and most recently at
llnited Missouri Bank, both
in St. Louis.
served ;L<.; director of corporate
relations at the Federal Ilome
Loan ~lortgage C01v. and most
recently, <L"l public relations
director for A.G. Edwards &
Sons Inc .. St. Louis.
Leslie w<Lli appointed \'ice
president of the Bank's newly
fo rmed !Mai I Operations area,
which includes check and J\CI I
you ready for the
Renaissance Arerenaissance
of rural
conference,
The
America?
that is.
in Rural
On ~larch 7-8, the Federal
Banks of St. Louis,
Reserve
America
Atlanta, Dallas and Richmond
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
processing. During Leslie's
20-plus years in banking, he
are sponsoring a conference at
the Peabody Ilotel in ~lemphis,
Tenn., that focuses on rural
economic development.
The Renaissance Conference
will cover a wide range of topics
including: common themes in
rural development, utilizing
New Community
Profile Available
Later this month , the
St. Louis Fed will rele;L<.;e a
new community profile of the
lower ;\1ississippi delta region.
The profile includes an
analysis of census and other
demographic data, along with
information on community
credit needs obtained through
interviews with community
organizations, go\'ernment
secondary markets, strategic
planning for rural community
diversification and financing
small businesses.
St. Louis Fed President ThrnmL"l
C. ~1elzer and Lawrence Lindsey,
a member of the Federal Reserve
Board of Governors, will be
featured speakers at the conference. Other speakers include
Eobert D. ~lcTeerjr., Dalhli Fed
president: J. Alfred Broaddus Jr. ,
Richmond Feel president; and
representati\'es from Ill'D and
the l\ural Development Agency.
officials and residents in
the area.
Descriptions of organizations
and programs that help address credit needs will also
be provided.
Counties in the following
areas are covered in the profile:
• 7 in northeast Arkansas
• 8 in southeast Arkansas
• 11 in western Kentucky
• 11 in southern Illinois
• 8 in northwest Tennessee
• 11 in northwest ~1ississippi
• 12 in southwest ~lississippi
•6 in northeast Missouri.
Copies of the profile will be
mailed to CRA officers at all
financial institutions in the
Eighth District portion of the
lower Mississippi delta region .
Stay tuned for additional
profiles coming soon. J\ communi~' profile of the Little Rock,
J\rk., i\1SJ\ is being developed
and will be available to banks
in that area later this year.
Th is is the first time four Fed
districts have joined together to
offer a conference of this size.
The conference is designed
for financial institution officers,
government officials, and business, community and nonprofit
organization leaders interested
in rural community and economic development lending.
If you would like more information, contact Diana judge
at (314) 444-875 1or toll-free
at 1-800-333-0810, ext. 8751.
Interstate Branching: States Begin Their Work
hough interstate
banking and
branching are
now ··done deals··
at the federal
level, they remain
very much live issues at the
state level. Over the ne:..:t vear
or two, state legislatures will be
asked to make several important decisions regarding the
branching provisions of the
_._..._
new Reigle-Neal fnterstate
Banking and Branching
Efficiency Act of 199'-f. Their
decisions could have a tremendous effect on the branching
acti\'ities of banks across the
country.
Because the law prohibits
states from discriminating
against oul-qfs/{{/e banks and
hank holding companies, states
need to review and possibly
amend many of their existing
banking laws. States also have
to decide whether to allow banks
mih/11 !heir bo,dm' to participate in interstate mergers or
protect them from such acti\'ity.
The big day for interstate
branching is.June 1, 1997. By
th is date, states 111 ust decide
whether to:
• Oj)I out- enact laws that
prohibit out-of-state banks
from merging with in-state
banks, which will also prevent
in-state banks from making
acquisitions out-of-state. If
a state does not opt out, interstate mergers ,rill be permitted
after.June l, 1997.
• Oj)I !11 ear(J'- enact laws
that permit mergers of inand out-of-state banks before
June I, 1997.
• Ch{{11ge co11ce11/mlio11
lim !ls- enact, repeal or
amend limits on the proportion of deposits one banking
organization may control in
the state. A50 percent limit
will apply if states are silent.
Tax Application (ETA). will
enable staff at the taxpayer's
financial institution to enter
the tax inforrnation into
pre-formatted screens.
By the year 2000, all financial
institutions will send ta:..: payments through a ne,,· system
called the Electronic Federal
'fax Processing System (EFTPS).
EFT PS wi 11 incre<L-;e the speed,
efficienc,· and accurac,· of
revenue collection and taxpayer
account posting. It also will
expedite the government's funcb
availability. while providing
critical investment decisionmaking information to the
Treasu1Y
The Federal Reser\'e, acting
as the fiscal agent for the
government, will play a role in
If states already have a limit
in place, that limit will apply.
• C1/)(111ge {{ge requireme11/senact, repeal or amend limiL-;
on how long a bank must
exist before it can be acquired
by another bank. No limit
will apply if states are silent,
and states cannot enact limib
greater than five years.
• Pem11I de 11orn bm11chi11genact laws that perrnit out-ofstate banks to acquire a bank
branch or establish a new
branch in the state. Neither
will be permitted if states
are silent.
Despite the fanfare in
W~L-;hington O\'er the p~L-;sage
of this bill, it is these state
decisions that will determine
whether interstate branching
is ushered in \\'ith a \\'himper
or a roar.
Tax Payment System
( COI i/iil 11£'1/ji'///n /i'()}I/ j J(l,!.!,1')
In April, two additional
payment mechanisms will
be offered. The first is a new
"non-value'' Fedwire message,
which will replace the current
typecode 1000 message.
The second option is a new
software application for the
Fed's Fedline®or Computer
Interface connections. This
application, called the Electronic
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,
,
the system by providing sameday reporting and payrnent
mechanisrns (e.g., Fedwire
and ETA).
If you would like more
detailed information about
electronic ta:..: payments,
call Ilarriet Siering at
(.') 14) 44'-f-8502.
Calendar
I
FedFacts
1995 Price Changes
Announced
In November 1994, Fed
St. Louis announced its 1995
prices for Eighth District check,
electronic and securities services.
While most prices remained
the same, selected changes were
made. Among the changes were
increases in check return item
fees and decreases in check
deposit and wire transfer fees.
The only ACH price change was
an increase in paper government
NOCs to $10. If you have questions or would like additional
copies of the price booklets,
contact Customer Access Support
at (314) 444--0869 or toll-free
at 1-800-333-0869.
Switch to Presentment
MICR Under Way
Since November 1994,
over 60 St. Louis Zone check
customers have switched
from Informational MICR to
Presentment MICR, where the
MICR transmission (rather
than receipt of paper items)
■
I
I
I
Post Office Box 442
St. Louis. ~lissouri 63!66
CB is published quarterly by the
Public Information Office of the
Federal l{ese1Ye Bank of St. Louis.
\'iews expressed are not necessaril~·
official opinions of the Federal
l{eserve System or the Federal
l{eser ie Bank of St. Louis.
1
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
constitutes legal presentment.
Most of these customers said
they made the switch to take
advantage of a lower mini-mum daily fee of $5. These
customers will get an added
bonus on Feb. 15, when all
rejects will be included in tl1eir
transmissions for free. If you'd
like more information on either
of these check services or would
like to join the 315 institutions
in the District that receive
MICR transmissions, contact
Customer Access Support at
(314) 444--0869 or toll-free
at l--800--333--0869.
Louisville Office
Announces Check
Price Changes
Effective Feb. 1, the Louisville
Branch lowered the per-item
fee for RCPC Regular deposits
from 1.8 cent-; to 1.7 cents and
increased fees for local items
in mixed cash letters from
1.8 cents to 1.9 cents. These
changes were made to encourage customers with sufficient
volume to deposit their items
at the later RCPC deadline.
Also effective Feb. 1, the
per-item fee for the trun-cation/ChecKeeper service
was reduced from 1.3 cents
to 1.1 cents.
St. Louis Fed Seeks
Efficiency With ACH
The St. Louis Fed is taking
some of its own advice and converting its internal payments
from check to ACH. The Fed
initially targeted 450 of its
vendors for the conversion,
providing them with benefit
information and educational
materials on ACH.
The results of this initiative
are noteworthy. To date, over
300 vendors have signed up
to receive their payments via
ACH. The St. Louis Fed is seeing
tangible improvements as a
result-its payments processing
efficiency has improved, steps
to complete payment transactions have been eliminated and
payment reconciliation time
has decreased.
Upcoming
Fed-sponsored Events
for Eighth District
Depository Institutions
Renaissance in Rural
America Conference
~larch 7--8 -- ~Iernphis, Tenn.
199S District Dialogues
~1arch l - Paducah, Ky.
~larch 22 - Quincy, Ill.
~lay 17 --Cape Girardeau, ~lo.
October 2 -- Eransvi Ile, Ind.
October 3 -- Mt. Vernon, 111.
199 S Economic Forums
April 25 -- Greenville, ~liss.
April 26 -- Camden, Ark.
October 18 - Jackson, Tenn.
f\1ovember 8 -- Columbia, ~lo.
For more information on the
Rural America Conference
call Diana.Judge at (314)
444-8751 or toll-free at
l-800-333-0810 ext. 8751.
For more information
on Economic Forums or
District Dialogues, call
Bernie Berns at (314)
444--8321 or toll-free at
l--800-333-0810 ext. 8321.
@FedFRASER