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Autumn 1996
News and Views

Eighth District Bankers

Getting Ready for the Year 2000

on Direct
Federal Reserve Bank of St. Louis


s part of its joint campaign
with the National Automated Clearing I-louse Association to increase the electronic
initiation of payments, the
Federal Reserve System is approaching co1vorations nationwide to educate them about the
benefits of direct deposit.
Later this month, the Fed and
NACHA will send out roughly
15,000 informational brochures
about direct deposit to the
human resources directors or
controllers at companies with
200 to 500 employees. The
brochure explains the benefits

the century changes is that
their operating systems and
programs are set up for sixdigit date fields, with two of the
digil'i allocated for the year. If a
bank employee enters the year
as 00 for 2000, most computers
will read it as 1900, causing
obvious problems in date-sensitive calculations.
\\'hat should financial institutions be doing? The Board of
Governors advises the following:
1) Perform a risk ,:L'isessment
to determine which systems
and applications must be modified, how long it wi ll take to do

so and how much it will cost:
2) Investigate the computer
S\'Stems of service bureaus and
vendors to see if the\' are
addressing the issue and how
to compensate for them if
they're not:
3) Complete all reprogramming efforts in time for adequate testing-Dec ..1l, 1998
at the latest.
Infom1ation systems exrn11iners
will be looking at each financial
institution's awareness of the year
2000 issue during the regularly
scheduled examination process.

direct deposit can bring businesses and how they can go
about increasing usage at their
own organizations. Corn pan ies
also wi 11 receive a second
brochure titled, "A Consumer's
Guide to Direct Deposit." which
they can reproduce and distribute to their customers.
In addition to the direct company mailing, the Fed and
NACHA will also send 13,000 of
the corporation-oriented
brochures to the American
Payroll Association, which will
insert copies of it into its members' magazine.

The point of both mailings
is to increase the use of direct
deposit for payroll and to
encourage its use for other
types of recurring payments,
such ,L'i tuition reimbursement
and expense settlements.
.. Our goal is to see companies
begin to approach their financial institutions for help with
direct deposit ser\'ices ... says
Kathleen Paese, AC! I officer at
the St. Louis Fed.


The Electronic Challenge

lectronic payments
are hot news today and
gaining more coverage as
consumers become increasingly comfortable with the
technology that s pawns
them. Despite the well\
publicized benefits of e lecHank Bourg aux
tronic payments, howev e r,
we're not anywhere close to being the checkles s
society experts predicted 20 years ago. So
what's holding us back?
I believe one of the bigges t challenges financial
institutions face is the uncertainty that emerging payment methods present. By investing in
innovative technology, such as virtual banking
and electronic cash, bankers must take a chance
that a particular payment syste m will become
widely accepted. If a financial institution pre fe rs
a surer route, however, it could s tart expanding
its existing ACH systems and electronic payme nts
portfolios to include more advanced applications, such as electronic data interchange. The
time is also ripe for financial ins titutions to
encourage customers to make or receive pay m ents
using basic ACH se rvices.

Banks Get
with Check
Federal Reserve Bank of St. Louis



t's been just over eight
months since the St. Louis
Fed began offering its check
imaging service, and the number of uses for image continue
to multiply. The service was
originally envisioned as a way
for financial institutions to
reduce backroom expenses
such as paper handling and
postage costs, item retrievals and
storage. Now, some institutions
are discovering additional benefits-those that even Fed
employees hadn 't thought of.
"Some of our best ideas come
from customers," says Rick

Revenue is another concern. Financial institutions have made significant investments in their
curre nt pape r-based payment processing syste m s, and purchasing new technology is expens ive . Although revenues from paper-based
products aren't eas ily replaced with income
from e lectronic services, institutions can
achieve cost s avings by building electronic payment volumes.
While there are risks in the electronic payments
arena, there are also many incentives and opportunities. As a banker, you have the ability to
provide payments expertise, offer products individually or through alliances with others and
supply the s e ttle m e nt services that nonbank
e ntities lack.
The se advantages put you a step ahead of your
nonbank competitors in offering customers new
ele ctronic products and services . And as electronic p ayment mechanisms become as accepted
as ATMs in the n ext 10 years, you will be in a
prime pos ition to take advantage of these
opportunitie s.
flank Bo111gau.r is senior t•ice /)residen t <!/!he Fedeml Resen·e Bank <!/SI. Louis.

Johns, a St. Louis Fed account
executive. "They'll say, ·can you
do this for me?' and we'll say
'Not yet, but give us a little
while.· "
One use that h~L'i blossomed
considerably is image-enhanced
co,vorate cash management,
which enables banks and credit
unions to provide their customers with online histories
of their check transactions in
CD-Rm! format. Some institutions are using the service
:L'i a source of fee revenue by
obtaining it from the Fed and
then upcharging it.

Others are beginning to use
image to store their official
checks. And at least one credit
union h;L'i decided to have all
of its customers· items imaged
so that it has an e:L'i)' and efficient long-term storage method.
Johns says that because the
image service is flexib le by
nature, it can help banks and
credit unions streamline operations in many ways. For a
demonstration of the Fed ·s
check imaging service, contact
your account executive.

Should Nonbank E·Cash Providers Be
Treated Like Banks?



Alton G'ilber/
Federal Reserve Bank of St. Louis

he recently completed
Olympic games in Atlanta
not only showcased great athletic competition, they also
unveiled a new means of making payment through the use
of what is commonly called
electronic cash. Although it
has yet to be determined
whether Atlanta's experiment
with \'isa's version of a stored
value or "smart" card was a
success, we do know that some
larger issues must be examined
before the countt)' makes a
full-scale shift toe-cash.
Among the most salient is
what to do about the nonbank
firms that have begun offering
electronic payment se1vices
directly to the public. Should
these new entrants to the payments business be required to
get bank charters, and be
supe1vised and regulated as
banks by government agencies?
~1y answer to this question is
based on the impact these new
entrants could have on the safeW
and soundness of the payments
system. One view is that market
forces will ensure a stable payments system by limiting the
risk assumed by nonbank
providers. Therefore, according to this view, no government
supe1vision or regulation of
these nonbank payment se1vice
providers would be necessary to
ensure the safety and soundness
of the payments system.
I disagree. My views are based
on U.S. banking history. Prior
to the formation of the Federal
Rese1ve in 1914 and the creation
of federal deposit insurance in
the 1930s, the U.S. payments
system was vulnerable to major
disruptions whenever depositors
lost confidence in the soundness

of their ban ks. For example,
between the Civil War and the
formation of the Federal
Reserve System, major banking
panics occurred in the United
States in 1873, 1893 and 1907.
During these panics, banks
suspended payment of currency
to their depositors, which created
major disruptions in economic
activity. Market discipline
clearly did not ensure a safe
payments system in these
cases. In contrast, consider the
performance of the payments
system in the United States
since the 1930s: No major disruptions have occurred.

Extension of
supervision and
regulation to
e-C,l)h providers
is a logical step.
Almost all nations have government safeguards-central
banks and agencies that supervise and regulate all payment
service providers-in place to
prevent such disruptions. Even
the non bank providers of small
denomination payment instruments, such as travelers checks
and money orders, are supervised and regulated-by state
governments. Governments
have established these institutions to deal with the vulnerability of their economies to
disruption in their payments

systems. Thus, extension of
government supe,vision and
regulation to all providers of
electronic money is a logical
step in the progression of
banking history.
Is it, therefore, necessary to
subject all providers of payment services to government
supervision and regulation at
this time? Probably not.
Currently, there is a significant
amount of research and development in the payments systern, and the dollar amounts
of payments settled through
electronic cash are small. The
government should limit any
actions that would discourage
this research and development.
If electronic money does sueceed, however, I expect the
firms in thee-cash business to
be supe1vised and regulated as
banks-a point that may be
reached either through deliberate planning, or through some
future crisis brought on by the
inclusion of new entrants to
the payments business. With
foresight, we could increase the
chances of the former and
decrease those of the latter.
R. Alton Gilbert is a t•ice president i11
the Research /Ji1 isio11 al the Federal
Resen·e Bank q/St. Louis.

lhis article is based 11/)011 a longer
l'ersio11. Ll'hicb is amilableji'()Jll !be
author upon request. as !l-efl as 011
this Bank's /11/emel site, hlljJ:/1
ll'll'll'.s/l.1-Ji·b. OJ;r,lresearcbl,r;ilbert. bl 111/

New Memphis
Account Exec Named
Susan Bivens h~Ls been hired
~Ls the Eighth District's new
~lemphis Branch account
executi\'e. Bivens brings O\'er

Lueckenhoff's previous experience, both ~Ls an account executive and as a manager of the
Fed's ACH and Wire Transfer
Department, h~Ls prepared him
well for his new duties.
Rickjohns has replaced
Lueckenhoff as the account
executive who will serve
Illinois institutions. Johns will
also retain responsibility for
his current customers. Rick
Sires will continue to serve as
account executive for institutions in the :\1issouri portion of
the St. Louis Zone.

25 years of commercial banking
experience to the District. :\lost
recently, she served as assistant
vice president/manager at
\'ictory Bank & Trust Co., in
Cordova, Tenn., where she
directed daily operations.
Before that, Bivens spent seven
years in a similar position at
NationsBank of Tennessee. In
her new position, Bivens will be
responsible for servicing the 300
financial institutions in the
St. Louis Fed's :\lemphis area.

199 5 HMDA Data
Reports of 1995 mortgage
lending activity are now available to the public at central
depositories throughout the
nation. The reports include
individual disclosure statements
and aggregate data for each
metropo Ii tan area. They reflect
the lending activity for more
than 9,500 institutions covered
by the Horne Mortgage
Disclosure Act.
The 1995 figures include
11.2 mil lion reported loans and
applications-a decre~se of
8 percent from 1994 that largely
reflects a drop in refinancing
activity. Despite the overall
decrease in the number of conventional home purchase loans,
however, those made to Black,
Hispanic and Native American
applicants increased.
For a copy of the 1995
!-1:\lDA data, contact the Federa] Financial Institutions
Examination Council at
(202) 634-6526.

St. Louis Account
Execs Swap
J\ndy Lueckenhoff, the
St. Louis Fed account executive
who formerly visited Illinois
institutions, has been ~Lssigned
new duties :Ls Automated
Clearing House account executive for the entire Eighth District.
In this capacity, Lueckenhoff
\\'i 11 promote Fed J\CH ser\'ices
District-wide, including helping
financial institutions explain
J\CI I to their customers.
Federal Reserve Bank of St. Louis

New Louisville VP
On :\lay 16, Ron Byrne w:Ls
appointed vice president of the
St. Louis Fed's Louisville Branch.
As such, Ron is responsible for
the Eighth District's marketing
and product development
activities, as well as serving
as managing officer over the
Louisville Support Services
and Check/Data Processing
departments. Ron comes to

the St. Louis Fed with 30 years
of commercial banking experience. :\lost recently, he was
president of Liberty Payment
Services Inc. in Louisville.

Fedline to Warn of
Late Postings
:\lany account holders have
taken advantage of the Fedline
Monitor Balance Reports to
supplement their internal
records. We realize, however,
that occasional operational
delays can cause transactions
to be posted later than normal
and that institutions may have
difficulty reconciling the totals
reported through Fedline with
their own internal reports.
To minimize confusion,
when we know that there will

be a significant delay in the
posting of transactions-especially one in the late afternoon-the St. Louis office will
send a broadcast to all online
institutions alerting them of
the situation, so they can accurarely compute their end-of-day
balances. If the Fedline system
is not operating, we will send the
broadcast to institutions by fax.
As always, institutions that
are having difficulty in reconciling their account totals are
encouraged to contact Payments
Risk ;v1anagernent in St. Louis
or their Accounting Department
in the Branch offices.

Second Chance for
Risk Management
The Federal Financial
Institutions Examination
Council is conducting a second
risk management planning
conference on Sept. 26-27
in Kansas City, :\lo. Executives
and officers from banks, thrifts
and credit unions who would
like help establishing or
improving institutional risk
management standards are
encouraged to attend. For
more information, contact the
FFIEC at (703) 516-5487.

Word-of-Mouth Grows Fed's Truncation Service
Federal Reserve Bank of St. Louis

hen :\faxine
president of
the SWIC
SI ll Credit
llnion in
Edwards\'ille. Ill., first heard
the cost savings the Fed's truncation service would bring her
institution, she was skeptical.
"It just sounded to good to be
true," she says. "We kept saying, 'There's got to be a catch
Three years later, Pakovich
h:L-; yet to find that catch and
is eager to provide a ringing
endorsement of the Fed's truncation service to any credit
union willing to listen- and
even those who won't. .. , can't
understand why anyone in their
right mind wouldn't do this, "
she tells them. Pako\'ich h:L-;
e\'en gone so far as to become
a sort of satellite St. Louis Fed
sales office, showing other
interested credit unions how the
Fed service works before they
make the decision to switch
O\'er. At least three ha\'e signed
on with the Fed so far. "We keep
waiting for our commission."
Pakovich jokes.
\\'hat is it about the Fed 's
truncation service that Pako\'ich
finds so irresistible?
• Cost- Pako\'ich says that
this is \\'hat initially con\'inced
her to make the Feel her trun cation service provider. "We
sa\\' a definite sa\'ings," she says.
When she looks at other credit
unions· charges now. she is
;L-;tounded. ·'Their cost-; are :L-;tronorn ical compared to ours ...
• Efficiency- The time and
paperwork saved by having the
Fed truncate her credit union ·s

Maxine E. Pak01 •ic/J, jJresident, srnCS/l.: Credit l '1lio11

checks after processing them
is significant, Pakovich says.
"All we eliminated w:L'i a middle
man. \X'hen \\'e had to retrie\'e
anything, it got cumbersome.
Why deal with going through a
third partyt·
• Serl'ice- Pako\'ich says
that although the cost of the
Fed's truncation sen·ice is what
hooked her. the good customer
ser\'ice she gets is \\'hat keeps
her. "You develop a personal
kno\\'ledge of the people \\orking there," she says.
• Ease of transitionFor those who are concerned
that S\\'itching to the Fed \rnuld
he too much trouble. Pakorich
says not to worry. "One beautiful thing was that the change
w:L'i transparent to us, " she says.
"\\'e didn ·thaw to do a lot of
work to prepare for it. We didn 't
hare to make a lot of changes ...
With all of that in mind.
Pako\'ich says there's no wa~
she could keep her knowledge

of the Fed's truncation se1Yice
to herself. "Credit unions
e:-.:change ide;L) all the time.
and if you ha\'e a good idea.
you want to spread the news, ..
she sa\'s.
Ron Iladorn, account e:-.:ecuti\'e at the St. Louis Fed's
Louisville Branch, says that
ne\\'s of the Fed's truncation
service has spread around the
Louis\'ille area, too. Since the
beginning of the year. the
Branch ·s customer b;Ls;e h:L'i
incre;L-;ed by 60 percent. and
the volume of items processed
has more than doubled , thanks
in large part to the addition of
L&'.\ Credit l 'nion- one of the
biggest credit unions in the
state. "J\nd \\·e·re still going
strong, " Iladorn says.
For more information on the
Fed's truncation service, contact
rnur account ewcuti\'e.


Fed to Answer Taxing
The Eighth District will hold
several half-day seminars this
fall to help those who have
questions about EFTPS, the
Electronic Federal Tax Payment
System. Internal Revenue
Service code requires taxpayers
who made deposits of more than
$50,000 in federal employment
taxes for calendar year 1995 to
begin making payments using
EFTPS startingJan. 1, 1997.
This summer, the IRS began
notifying the 1.2 million taxpayers who will be mandated
to file and pay their taxes electronically.
The seminars will give an
overview of EFTPS and address
topics such as EFTPS reporting
methods, the enrollment process,
the tax payment process, the
impact on financial institutions
operations, and the way to send
EFTPS over Fedline. For more
information on seminar dates,
times and locations, check the
Calendar section at right or
contact Susan Hackney of the


Post Office Box 442
St. Louis, \lissouri 63166

CB is published quarterly by the
Public Affairs Office of the Federal
ReserYe Bank of St. Louis. \'iews
expressed are not necessari ly official
opinions of the Federal Reserve
System or the Federal Reserve Bank
of St. Louis.
Federal Reserve Bank of St. Louis

St. Louis Fed's Treasury
Relations Department at
(314) 444-8485.

District Advisory
Council Members
The Eighth District has
several openings available on
its Economic Advisory Council,
an eight-member body that
advises the St. Louis Fed and
its Branches on small business
and agriculturally related matters. The council meets twice
a year with St. Louis Fed
President Thomas C. Melzer
and other senior officers to
offer advice and observations
on emerging District conditions.
Those interested in being nominated to the council should
contact Randy Sumner at
(314) 444-8644.
Members are also needed to
serve on the Board of Governors'
Consumer Advisory Council,
which represents consumer
and community interests and
the financial services industry.
Those interested in serving on

the Consumer Advisory Council
should contact Deanna AdayKeller, council secretary, at
(202) 452-6470.
Positions for both councils
begin in January 1997 and run
for three years.

Board Weaves
Wider Web
The Board of Governors has
expanded its Internet World
Wide Web site to include:
• the Humphrey-Hawkins report
and testimony;
• pictures and biographies of
Board members and Fed presidents, both current and former;
• the Beige Book;
• a calendar of Federal Open
Market committee meetings, as
well as recently released FOMC
minutes; and
• five additional statistical
The Board's web site can be
found at http://www.bog.frb.fed.
The St. Louis Fed's web site,
which links to the Board's site,
is at

Fed-sponsored Events
for Eighth District
Depository Institutions
Community Affairs
Oct. 7 - Columbia, Mo.
Oct. 22 - Little Rock, Ark.

District Dialogues
Sept. 25 - St. Louis
Oct. 22 - Springfield, ~1o.
Oct. 23 - Fort Smith, Ark.

EFTPS Seminars
Oct. 28 & 29 - St. Louis
Nov. 5 & 6 - Little Rock, Ark.
Nov. 13 & 14- Louisville, Ky.
Nov. 18 & 19 - Memphis,

Treasury Issues/ ACH
Origination Seminar
Oct. 16 - St. Louis
For more information on
the above meetings, contact
Bernie Berns of Public
Affairs at (314) 444-8321.