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October 6, 1978 AugeanStables In order to improve the regulatory process, the Administration has ordered executive agencies to simplify the language of regulations and to unravel any red tape that might frustrate the attainment of underlying legislative goals. The Federal Reserve and other independent agencies are sharing in this task - with the Fed developing Augeas, named after the mythological king whose stables were cleaned out in a day by Hercules after long years of neglect. The Fed has already begun a substantive review of its 26 regulations, with each Federal Reserve Bank responsible for a specific group of regulations. Each analysis uses a zero-base approach to address issues such as the legal requrrements of regulations, the costs and benefits involved, the need to amend the underlying statutes, and the possibility of substituting non-regulatory tives for regulations. N fed's assignment Legislators can't be expected to cross every and dot every when they put new -laws on the books. Instead, Congress assigns an administrative agency the responsibility for devising supplementary regulations that will make a given law work. The Federal Reserve System has received so many of these assignments since its inception in 1914 that its roster of alphabetically designated regulations has now used up the entire alphabet. In fact, the list now extends to Regulation AA. (There is no existing Regulation W.) The Fed has concentrated its (egulatory efforts in the field of bank regulation, it has also touched on areas of monetary policy, .consumer credit and securities credit. While some of the regulations are of recent vintage, others are much-amended versions of rules first issued decades ago. Thus, Fed task forces will redraft the present 26 regulations in an attempt to improve their format, their public benefits, and their relevancy to current policy goals. The revision process is expected to be substantially completed by the end of 1979. Reasons foli' regulation But why are regulations necessary? To some extent, bank regulation is designed to promote competition, but primarily it is designed to promote economic stability. The conventional view is that, because banks accept and invest large volumes of public funds, regulations are needed to restrain behavior that could result in substantial losses to the public. In addition, bank liabilities have been insured by the FDIC since the mid '30s, (continued on page 2) @i,lfCC 1& Ia@JTI1 1 (G) k Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San francisco, nor of the Board of Governors of the Federal Reserve System. and under such insurance banks may have a built-in incentive to increase their risk beyond the social optimum. Still, this concept of financial stability concerns attitudes toward risk, which may change over time. Several trends developing in recent decades - the spread of management'" practices, the prevalence of low capital ratios, and the expansion of bank holding companies - have demonstrated the banking system's willingness to live with greater risk. These trends thus have attracted increased attention by the regulatory authorities, although all concerned realize that some regulations which stemmed from the Depression Era's overly protective legislation are too restrictive in the present economic. environment. Consumer lI'eglUllatnorDs Much recent interest has centered around consumer-credit regulations, whiCh were created in the wake of Congress' several attempts to deal with consumer problems, beginning in 1968 with the passage of the in Lending Act." Lenders generally have 2 been critical of the amount of paperwork generated by several of the regulations dealing with consumer credit (B,.C, and Z). But more regulations are almost certain to be developed over time, as Congress deals legislatively with such issues as consumer cooperative banks and electronic-banking safeguards. Most Fed regulations are written by and for professionals, so that a certain' amount of jargon can be tolerated. However, a different situation exists with consumer-credit regulations, which should be understandable to the average citizen. Obscurity of language breeds the need to repeat, explain and qualify - and helps to solve the legal profession's unemployment problems. Precision is thus essential in the current regulatory review. Potential borrowers must be made fully aware of their rights through pamphlets and other informational But in addition, banks' interests must be protected, through clear statements of lenders' responsibilities under the law. What consumersIkraow Today, a decade after the passage of the Truth in Lending Act, about 45 percent of borrowers with auto, appliance, or personal loans don't even know the annual percentage rate on their loans. That represents significant progress, however, because the comparable figure a decade ago was 85 percent. Thus, consumer regulations apparently have had some success in heightening consumers' awareness of their costs of borrowing.· In an attempt to reduce the regulatory burden on lenders while continuing to provide borrowers with ample infor- matian, the Senate has passed a Truthin-Lending Simplification Act which would require the Federal Reserve to issue model disclosure forms. These forms would contain short explanations of such key terms as percentage rate'" or "'total of payments." The forms would make comparison shopping easier, although they would reduce the amount of information disclosed. The House is considering bills with similar provisions. With developments such as this, and with progress under the Fed's Project Augeas, the goal of simple yet effective regulations may yet be reached. JoanWaRsh GUIDE TO fE D REGULATIONS A Guideto Federal Reserve Regulations/ which gives a general overview of the subject in easy-to-understand terms, is now available through the Federal Re.serve Bank of San Francisco. The rules deal with such matters as the use of credit in securities transactions, holding-company activities, consumer-credit transactions, interest on savings deposits, the clearance and settlement of checks, and other payments involving the use of Federal Reserve facilities. For copies of this guide write the Public Information Section, F.ederalReserve Bank of San Francisco, P.O. Box 7702, San Francisco, CA. 94120. For phone order, call (415) 544-2184. 3 !!EMEH CI 0 uo8aJO • EpEAaN .. o4EPI E!UJoJ!IE:) EUOZPV CI E)j5EIV to CD) 'l!I1?310;)SpU1? J:JUl?S ZS.! ·Of'.J al Vd :i9VlS Od 'S'O 11\fWSS\fl) )J\ill m)JJJ\2?<W DATA-TWElfTH FEDERAL RESERVE DISTRDCT (Dollar amountsin millions) Selected Assetsand liabilities \LargeCommercial Banks Loans(gross,adjusted)and investments* Loans(gross,adjusted)- total Securityloans Commercialand industrial Realestate Consumerinstalment U.s. Treasurysecurities Other securities Deposits(lesscash items)- total* Demand deposits(adjusted) U.s. Government deposits Time deposits- total* Statesand political subdivisions Savings deposits Other time depositst LargenegotiableCD's Weekly Averages of Daily figures Member 8ank ReservePosition Excess Reserves( )/Deficiency (-) + Borrowings Net free(+ )/Net borrowed (-) Federal Funds-Seven large 8anks Interbank Federalfund transactions Net purchases )/Net sales( (+ -) Transactions with U.s. security dealers Net loans(+)/Net borrowings (-) Amount Outstanding 9120178 117,858 94,479 1,766 27,715 32,892 17,558 9,415 13,964 114,154 30,756 1,157 80,452 6,485 31,613 38,719 -19,682 Week ended 9/20178 33 54 87 + + 117 281 Change from 9/13178 + + + + + + + + - + + - + + + Changefrom year ago Dollar Percent 630 450 31 47 211 71 150 30 501 1,236 681 272 43 33 230 236 + 16,930 + 16,263 9 + + 3,657 + 7,04·1 + 3,931 947 + 280 + 15,833 + 2,809 629 + + 12,152 + 1,207 52 + 9,614 + 8,211 Week ended 9/13178 + + + + + + + - + + + + + - 16.77 20.79 0.51 15.20 27.24 28.85 11.18 1.97 16.10 10.05 119.13 17.79 22.87 0.16 33.03 71.58 + + . Comparable year-agoperiod 47 11 36 + 30 42 12 + 1,932 697 + + 902 426 + + + *Includes items not shown separately.tlndividuals, partnershipsand corporations. Editorial comments may be addressedto the editor (William Burke) or to the author.... !Freecopies of this and other Federal Reserve publications can be obtained by calling or writing the Public Information Section, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120.Phone (415) 544-2184.
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