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Winter 1996
News and Views
Eighth District Bankers

1997 Priced Services Fees Announced

The St. Louis Fed has
announced its 1997 fee schedules and deposit deadlines for
priced services. Many of the
prices have changed to encour-

age progress toward a goal that
the federal Reserve System has
been pursuing for some
time-the movement of the
nation's payments from paper
to electronics.
Price changes that support
this goal include:
• a 5 cent reduction-to
45 cents-of the basic fee
for originating and receiving
Wire Transfers;
• a reduction in the ACH premi um surcharge to 0.5 cents
from 1.0 cents; and
• a reduction of the ACH
addenda fee from 0.4 cents to
0.3 cents.
To encourage electronic
check presentment, prices have
been adjusted in a number
of areas. MICR Presentment
fees will be decreased in the

St. Louis and ~1emphis zones,
and per item fees for fine sort
inclusion will be decreased in
Louisville and Memphis.
~1emphis will also reduce its
fee for electronic group sort
The Little Rock and Louisville
branches have increased their
per item fees for the MICR
Information service, while
keeping the price for :v1ICR
Presentment the same. The
Memphis Branch has raised the
daily minimum fee for its
MICR Information service by
50 cents, keeping the per item
fee the same.
In addition, the St. Louis
office has announced that it

n Oct. 1, the St. Louis Fed
extended its Automated
Clearing House (ACH) deposit
deadlines and implemented a
feature that enables customers
to route government and commercial items to two different
receiving points at no additional charge.
Beginningjan. 1, ACH customers will also be able to:

• perform more functionslike file and item trace
requests, and file and advice
remake requests- online
through Fedline;
• sort by item type and
settlement date;
• deposit items at a later premium processing deadline; and
• deliver files to separate locations at different frequencies.

The improvements are a
result of the Federal Reserve
System's centralization of ACH
software, Fed ACH, which was
completed this past August.
The Fed is currently studying
additional changes to its ACH
service for later in 1997.


Federal Reserve Bank of St. Louis


(continued 01111e.rl /J(lge)

Fed Adapts to Shifting Landscape
s innovations in
t]nancial products
and services pose new
challenges for bankers,
they likewise pose challenges for bank supervisors. Indeed, the Fed
is changing the way it
Joan P. Cronin
regulates nonbank
activities, as evidenced by its proposed revisions
to Regulation Y and some federal legislation
recently put into effect.
Our proposal to revise Reg Y reorganizes nonbanking activities into functional categories,
broadens many activities and eliminates most
tying restrictions between bank and nonbank
products. The proposal also removes outdated
limitations and replaces certain restrictions to
ensure prudent business practices with supervisory policy guidelines.
To provide additional flexibility and further
reduce regulatory burden, the Fed will no longer
review the transactions of well-capitalized and
well-managed organizations that begin providing
approved nonbanking activities de novo. Such
organizations will also be permitted to expand


their nonbanking activities through acquisition
by filing a notice 12 days before closing the
transaction. The new procedures are the result
of federal legislation that the Fed helped draft.
Finally, for transactions that require the full
30-day notice, our review will focus on analyzing
the effects of the specific proposal. Broader
supervisory and compliance issues, formerly
part of our applications review, will now be
addressed in the normal supervisory cycle.
As we change laws and regulations to make
them less burdensome, leaving banks to concentrate on profits and competition, we find that we
must also change our approach to supervising
institutions. Previously, such activities focused
primarily on verifying prudent practices and
financial conditions. Today, we place more
emphasis on evaluating an organization's
process for managing and controlling risk. To
accomplish this, our examiners spend more time
planning-identifying those areas of an institution that pose the greatest risk. The result, we
hope you will agree, is a more customized and
relevant review of banking organizations.

Prices Announced
(co11/in11ed/i·om fro1il fJaRe)

will combine the Country and
RCPC work types into a single
RCPC category, with new, later
deadlines. St. Louis has also
expanded its two-tier RCPC
pricing structure to three tiers.
Prices for fo1ward and return
checks deposited at Eighth
District offices have either
remained the same or
increased slightly for 1997.
For specific prices, contact
your account executive.
Federal Reserve Bank of St. Louis

Processing Consolidation Update
The St. Louis Fed's price
and deadline improvements
for 1997 reflect the progress
that has been made toward
the consolidation of centralized payment applications.
Following is a status report
on the consolidation efforts,
which were first announced
in 1991.

• ACH-As of August 1996,
all 12 Federal Reserve Banks
had converted to a central
processing site using the
new Fed ACH software.
• Funds Transfer-After the
New York Fed converts in
early 1997, the System-wide
consolidation of funds transfer will be complete.

• Book-Entry-Consolidation of book-entry processing
of securities is also under way
and will be completed early
in 1998 when all Districts
have converted to the National Book-Entry System.
The Eighth District is scheduled to convert in July of
1997; customers will be
asked to begin testing with
us in February.

Why We Shouldn't
Settle for Nonbank

R. Alton Gilbert
Federal Reserve Bank of St. Louis

s bankers, you provide your customers
with various options
for making payments, including checking
accounts, and credit, debit and
ATM cards. As your customers
use these payment options,
you incur obligations to pay
other banks.
:v1any interbank payments
are settled through third-party
agents that provide settlement
services for various payment
associations. Payments processed through these associations are vulnerable to
disruption if certain events,
such as technical problems in
transmitting information or
bankruptcy of a settlement
agent, occur.
Suppose such a disruption
were to occur, and the payments association involved
could not establish settlement
arrangements for several days.
Would banks in the association continue to honor the
payments decisions of their
customers, even if they could
not settle with other banks in
the association?
For instance, would banks in
an AT:v1 network continue to
permit customers of other
banks to withdraw cash from
their ATMs if they could not
collect from the other banks?
There are rea<;ons to believe
that they would.
First, all banks have a large
investment in the uninterrupted
use of payment arrangements
by customers. There would be
major, and perhaps pem1anent,

damage to the reputation of a
particular payments option in
the minds of customers if they
could not use the option as they
have in the past.
If, on the other hand, banks
were to continue to honor the

Would nonbank
fin11s continue
to credit the
of those who
receive their
credits fro111
other firn1s?
payments decisions of their
customers, they could face
liquidity problems because of
their inability to collect from
the other banks in their associations. Because they are banks,
however, one reliable source of
liquidity would be the Federal
Reserve discount window.
Now consider an alternative,
hypothetical, situation.
Suppose nonbank firms are
successful in marketing
stored-value cards to consumer-s. Each nonbank firm
accepts for deposit the stored
value credits of their merchants that were issued by
other nonbank firms in their
payments association. These
nonbank firms then settle

among themselves by
exchanging the liabilities of
another nonbank firm.
Now, suppose the operation
of this nonbank settlement
agent is disrupted. Would
these nonbank firms continue
to credit the accounts of their
customers who received storedvalue credits issued by other
nonbank firms?
As new entrants to the payments system, these firms
would likely have less to
banks if they refuse to accept
such credits. In addition,
because they are not banks,
they would not have routine
access to the Federal Reserve
discount window to help them
deal with the liquidity prob!ems that could result from a
disruption in the settlement
These scenarios illustrate
why a policy of limiting the
payments business-in all il<;
emerging forms-to banks
would, in all likelihood,
enhance the safety and soundness of the payments system.
R. Alto11 Gil/Jeri is a t •ice presidc:111 i11 /be Research /Jit •isiO/t
al Ilic: Federal Resc:n •c: 8a11k

o/ St.

l,ou is.




Request for public comment on proposed revisions
to Regulation Z, Truth in
Lending. The proposed
revisions provide guidance
on the treatment of some
fees paid in connection with
mortgage loans and tolerances for accuracy in disclosing the finance charge
and other costs. Comments
due Jan. 6, 1997. (Docket
No. R-0942)


Request for public comment on the interpretation
of margin regulations,
Regulations G, Tand U, in
response to the enactment
of the National Securities
Market Improvement Act
of 1996. Comment is also
requested on proposed
amendments to Regulations G, Tand U, which
implement the statutory
amendments to the

Securities Exchange Act.
Direct all comments to William
W. Wiles, Secretary, Boar d of
Governors of the Fed e r a l
Reserve Sy ste m, 2 0th St. and
Constitution Ave., N. W.,
Washing ton, D.C 2055 1.
Federal Reserve Bank of St. Louis

St. Louis Fed Makes
Officer Changes
The Federal Reserve Bank of
St. Louis has announced the
following officer assignments
and promotions, which will
take effect Feb. 1, 1997.
John P. Baumgartner,
Memphis vice president and
branch manager, will return
to the St. Louis Bank as vice
president over Wholesale and
Cash Operations, as well as
Treasury Relations.
Martha L. Perine, vice president, Personnel and Customer
Relations, St. Louis, will
become Memphis Branch vice
president and branch manager.
Marilyn K. Corona, Little
Rock assistant vice president,
will be promoted to vice president and return to St. Louis to
head Corporate Accounting
and Customer Relations.
Michael J. Mueller, assistant
vice president, Personnel and
Customer Relations, St. Louis,
will be promoted to vice president with responsibility for the
District's Personnel function.
Action on Regulation
E Stalled
Amendments to Regulation E
regarding stored value cards
have been postponed until the
Federal Reserve Board submits
to Congress a study analyzing
the impact the regulation will
have on the cards. The study,
which was required by the 1997
budget appropriations act, is
due to Congress by March 30,
1997. The Board must wait
three months after the submission-or nine months from
the Sept. 30 budget enactment

date, whichever is longerbefore finalizing stored value
card amendments to the
Electronic Funds Transfer Act.

EFTPS Deadline
The IRS has given the 1.2
million taxpayers mandated to
file and pay their taxes electronically six more monthsuntil July 1, 1997-to begin
doing so.
IRS code requires taxpayers
who made deposits of more
than $50,000 in federal
employment taxes for calendar
year 1995 to begin making
payments using the Electronic
Federal Tax Payment System.
If you have questions about
EFTPS, contact Susan Hackney
at (314) 444-8485.
CRA Data Due Soon
The first data collection
under the revised CRA regulation is due March 1. The data
for 1996 that must be submitted by that date are:
• loans to small businesses
and farms;
• aggregate number and
amount of community development loans;
• home mortgage loans as
required under Regulation C;
• a list for each assessment
area showing the geographies
within the area;
• affiliate lending if it is
being considered; and
• consortium or third-party
lending if it is being considered.
Help with the data submission is available through the
CRA assistance phone line,
(202) 872-7584, or via

Internet e-mail at

Treasury To Sell
Inf lation·lndexed
This January, the Treasury
will begin auctioning its new
inflation-indexed bonds, which
will be pegged to the CPI. The
bonds will initially be available
only as 10-year notes valued at
$1,000 or more. They will
have an interest rate that is
lower than usual government
bonds; however, the principal
value of the bonds will increase
by the amount of the official
inflation rate, and interest will
be paid every six months on
that principal. Both the interest and the principal increase
on the new bonds will be subject to taxes as interest.
Bankers' Paperwork
Load Lightened
The recently enacted Economic Growth and Regulatory
Paperwork Reduction Act
amends a variety of laws that
pertain to bankers. Akey provision in the act imposes a onetime special assessment fee on
all deposits assessable to the
Savings Insurance Fund and
requires banks to contribute to
interest payment on Financing
Corporation bonds. Bankers
should consult with their attorneys to determine how the provisions of the new law will
affect their institutions.

Fed Briefs Bankers on Range
of Treasury Initiatives

Are You Ready?
Banks can capitalize
on the Treasury initiatives outlined at right
by becoming:
• ACH originators,
which will enable you
to provide Electronic
Federal Tax Payment
System services, as well
as Direct Deposit; and
• electronic data interchange (EDI)-capable,
which will allow you
to send and receive
detailed addenda
records for the ACH
payments you process.
For more information on signing up for
these services, contact
Andy Lueckenhoff,
account executive,
at (314) 444-8647.
Federal Reserve Bank of St. Louis

- - ~ - • o bring bankers
up to speed on
the range of federal government
payment initiatives that have
unfolded recently, this past
October the Federal Reserve
Bank of St. Louis jointly sponsored an educational seminar
with the Treasury's Financial
Management Service (FMS)
and the Mid-America Payment
Exchange. Representatives
from each organization gave
presentations on the various
government initiatives, which
are summarized below.

Mandatory EFT Law
The Debt Collection
Improvement Act signed by
President Clinton in April
requires all federal government
payments, except IRS ta,x
refunds, to be paid electronically via electronic funds transfer (EFT) by Jan. 1, 1999. All
businesses and individuals that
became eligible for government payments (e.g., federal
benefits, vendor payments,
etc.) after July 26, 1996, must
now receive their payments
electronically. Those who had
been receiving payments prior
to July 26 have untiljan. 1,
1999, to sign up for direct
I RS code requires taxpayers
who made deposits of more
than $50,000 in federal
employment taxes for calendar
year 1995 to begin making
payments using the Electronic
Federal Tax Payment System
(EFTPS) by July 1, 1997.

EFTPS is an application that
enables coq)orations to file and
pay federal taxes electronically
through the ACH network.

Payment Cycling
rn rnid-1997, the Social
Security Administration will
add three new benefit payment
dates for Social Security recipients to help spread out the
workload of processing payments, which are estimated to
reach 80 million by 2020. In
addition to the third of the
month, payments will also be
distributed on the second, third
and fourth Wednesdays. This
initiative, called payment
cycling, pertains only to recipients who sign up for benefits
after cycling takes effect.
Payment dates for the current
50 million beneficiaries will
not change.

EBT, or electronic benefits
transfer, is a way of disbursing
state and federal benefits to
recipients who do not have
accounts with financial institutions. With EBT, recipients
access their benefits using a
debit card, with settlement
occurring electronically
through the ACH network.
Recipients can use their
EBT cards to withdraw benefitrelated cash at ATM machines
or to purchase food through
assistance programs.
Direct Deposit Too
FMS recently introduced the
term Direct Deposit Too, which
is a suggested name for a
banking service that any financial institution can offer.

Specifically, Direct Deposit Too
refers to limited-service,
deposit-only accounts (sometimes called lifeline accounts)
that can be offered to people
who do not currently have
bank accounts. ms is encouraging financial institutions to
offer these types of accounts to
give both the public and private sectors more opportunities
to use direct deposit.

Vendor Express
The \'endor Express Program
enables federal agencies to
electronically transfer money
through the ACH network to
commercial payees, such as
vendors, universities and state
governments. This program
has recently been enhanced
with additional electronic data
interchange (EDI) capabilities.
which expand the amount of
addenda information that can
accompany each ACH payment.
The number of government
payments made through the
Vendor Express Program is
expected to increase even more
in the future , due to the newly
enacted Debt Collection
Improvement Act.
If you have questions about
any of the above Treasury ini tiatives, or when a similar
seminar will be held in your
area, contact Kathleen Paese,
St. Louis Feel operations officer,
at (314) 444-8453.

- · FedFacts
New Round of Mutual
Median Family Incomes
Funds Seminars
List Available
Alisting of median family incomes,
The Federal Reserve Bank of St. Louis
are used to classify the income levels
will be offering a second series of mutual
funds educational seminars for bankers in of borrowers for Community Reinvestment
Act exams, is now available. The list can
early 1997. The seminars are part of a
help banks determine how many loans
nationwide System campaign called,
they are making to low- to moderateMutual Funds: Understand the Risks,
income borrowers.
which is primarily intended to highlight
If you would like a copy of the list,
the differences between deposit and nondeposit investment products sold at banks. or have questions about it, contact
Judy Armstrong of the St. Louis Fed's
The seminars will help ensure that
Community Affairs Department at
bankers comply with the Interagency
(314) 444-8646. The list can also be
Statement on Retail Sales of Nondeposit
Investment Products, which was originally accessed through the Bank's home page,
issued in 1994. Seminar dates, times and which is at
locations will be listed in future issues of
this publication.

Post Office Box 442
St. Louis, Missouri 63 166

CB is published quarterly by the
Public Affairs Office of the Federal
Reserve Bank of St. Louis. Views
expressed are not necessarily offici al
opinions of the Federal Reserve
System or the Federal Reserve Bank
of St. Louis.
Federal Reserve Bank of St. Louis

New Community
Profiles Released
Aprofile of the Fayetteville/Springdale/
Rogers, Ark., MSA has been released by the
St. Louis Fed's Community Affairs Department. The profile provides information on
investment opportunities within the area,
as well as general demographic and economic information. Asecond profile, on
the Springfield, Mo., MSA, will be available
by year-end.
To receive a copy of the Fayetteville
profile, call Judy Armstrong at
(314) 444-8646, or access it on the
St. Louis Fed's home page, which is