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March 11} 1977

C om p u ter Money
fecting the terminals and clearingThe computer will remain a revolutionary force for changein the
houseswhich handle electronic
American financial system}espepayments.But these could be Iifecially in view of the pressureit
or-death decisionsto many of the
createsfor a standardizedsystemof
institutions involved. One such ismoney payments.That seemsto be
sue was the question of computer
the gist of the message the Naof
terminals vs. bricks-and-mortar
tional Commissionon Electronic
branches}on which the CommisFund Transfers}which releasedlast
sion made probably its most conweek what is in effect the first draft
troversial recommendation-that
banksand other EFT
firms
of its final report. In this report} the
rEFT
Commissiontried to define the ."
future roles of the financial institu-rOaccom-m'oaate--crecHfand
debit
tions} regulatorsand consumers
transfersin contiguous" national
who are participating in the rapidly
market" areas.In face 4 of the 26
evolving world of computer-based
banking.
commissioners(generally members
of state regulatory agencies)}
rejected that recommendation because
The Commissionexplicitly accepted the argument that electronic
they felt it ignored the" precipitous
money is here to stay.Somemarket changesor seriousconsequences)}
participants might still question that resulting from any such attempt to
notion} in view of the low volume
restructure the financial industry.
and high lossesexperienced by
some of the pioneers in the field.
The issuegoes back to the legal
But they tend to forget that this
overturning of the decision made
happenswith most such
two yearsago by the Comptroller of
innovations-credit cards}for exthe Currency}where he ruled that
ample} which eventually gained
customer-bankcommunications
universalacceptancedespite the
terminals (CBCT's)-the general
problems encountered by many
classificationof automated-teller
early participants. In the present
machi n
case}cost-savingpossibilitiesseem
devices-would not be considered
of nationally chartered
to dictate growing use of the computer} since unit automaiLuncosts
banks.Sincethe SupremeCourt
tend to decline
year as much
refused last October to hear an
asunit labor costsincrease-about
appeal in those severalcasesin
7 percent annually.
which the Comptroller}s ruling had
been overruled) CBCT'smust still
Hardware: terminals
be considered bank branches.But
J\1any of the Commissioris recomunder terms of the 1927 McFadden
mendationson the surfaceseemed Act} national banksmay branch
to be only hardware decisions}afonly to the sameextent that the

,f'.

(continued on page 2)

1[5)

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§@ID) f
Opinions expressed in this newsletter do not
necessarily reflect the vievvs of the management of the
Federal Reserve Bank of San Francisco, nor of the Board
of Covernors of the Federa! Reserve System.

statesin which they are located
permit their state-charteredbanks
to branch-which meansnot at all
in unit banking states.

financial institutions that establish
members' responsibilitiesand operational procedures.Two of the 28
ACH's now operating-one in Chicago and the other in New Yorkare privately operated. I n all other
cases,
regional FederalReserve
banksprovide the facilities for the
clearing operations,at no charge to
users.

The EFT
Commissionrecommended lifting restrictions on
national-bank CBCT'swithin individual states,and moreover permitting state-wide branching for all
financial institutions. The CommisThe operation of these 28 ACH's
sion also would have Congressperhasbeen oriented to specific geomit the interstate deployment of
graphic areas,but the FederalReterminals(between contiguous
states)for Fe'c:i"erally'regulated''. ' "serveplansan e"xp'erime'ntaliink-up
financial institutions after some
of seve
..
".
fixed date. Under this approach,
eC:!LQ..
nic
individual stateswould then be
items.On this point, the EFT
Comforced to change restrictive branchn
ing laws if they wanted stateof whether priyategr public entities
chartered institutions to have a fair
'na't;lonaLEFT
chanceto compete. Otherwise, the
network which may ultimately develOpTfom-reglon"arl
ps".
In
Commissionwould recommend
that both state- and federallyaddition, it
for the forechartered depository institutions be
seeablefuture, the FederalReserve
empowered to offer debit services
should not
into the businessof
offering point-of-sale switching and
(but not deposit taking) nationally
clearing facilities for storesor other
through terminal-basedEFT
systems.
merchant locations,and it should
not discriminate againstprivate
firms that might want to ofter their
Hardware: dearanghouses
The Commissionalso considered
own
networks.
severalpolicy issues
surrounding
the operation of automated clearThe Commissionrecommended
inghouses(ACH's).Thesefacilities
that the FederalReservecharge
clear paymentsin the sameway that
banksfor the ACH servicesit now
conventional clearinghouseshanprovidesfree, but with ((due condle checks,but they do so much
sideration" to the reservebalances
more efficiently by substituting
held by participating member
magnetic tapesfor checksand othbanks.In addition, it argued that
er paper items. ACH's have been
the Fedshould force bank-run
organized regionally by groups of
ACH's which operate with a Fed
computer to permit access any
to

2

kind of depository institution that
wants.to join.
Bask issue: consumers
Throughout the report, the Commissionemphasizedits primary
concern with the welfare of the
American consumer in any new
electronic system.It said that consumerscan benefit in a number of
significant waysfrom EFTS,
primarily from a more conv_C;l1jent,
and
__
method of
To securethese benefits,
however, legislation might be required to set forth consumers'specific rights and responsibilities.
The report recommended that financial institutions generally be
liable for all billing and crediting
errors in an EFT
system,unlessthey
couTCI
prove fraud or negligenceon
the part of customers.However,
consumerswould have to report
statementerrors within a reasonable time}} to obtain redress.Financial institutions would not have to
utilize a specific type of form or
descriptive bill, although competitive pressures
would probably force
them to provide adequate reports
to consumers.
It

The Commissiondid not side with
all consumer demands.It saw no
problem with the lossof Itfloat/' or
payment delaysfrom checks in the
processof collection. It found scant
evidence that consumerswould be
damagedby the lossof ability to
stop payments,especiallysince
"only 0.29percent}}of all checks

3

are actually stopped in the present
system.Both problems of this type
must still be dealt with, involving as
they do some intrusion into what
consumersmight consider their inalienable rights. At the sametime,
the Commissionexpressed
fears
that EFT
would create the potential
for increasedabuseof pefl2.Qal
privacy. It said that government
access computerized financial
to
records should be obtained only
with the depositor's permissionor
with a court order, and it called on
Congressto passlegislation tb safeguard consumer rights in this respect.
The Commission'sfinal report, due
this fall, may not add much to the
just-releasedinterim report. The
fireworks may come later, when
Congresstries to evaluatethe merits of the Commission'srecommendations amid all the conflicting
pressures
generated by consumers,
regulators, banks,thrift institutions,
and myriad other interests.(For
example,small banksin unit banking stateshave already objected
strenuouslyto the proposal to permit interstate operation ,of electronic terminals.) Nonetheless,the
EFT
Commission report, like other
recent studies of the nation's financial system,underlines the fact that
technological and other pressures
are pushing the nation in the direction of a simplified type of payments systemoperating through a
standardizedtype of depository institution.
",VilliamBurke

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B AN KI N G D A T

TWEl LfTH !FEDERAlLRESERVEDI S TRI CT

Loans (gross, adjusted) and investments*
Loans (gross, adjusted)-total
Security loans
Commercial and industrial
Real estate
Consumer instalment
U.S. Treasury securities
Other securities
Deposits (less cash items)-total*
Demand deposits (adjusted)
U.S. Government deposits
Time deposits-total*
States and political subdivisions
Savings deposits
Other time depositst
Large negotiable CD's

92,094
70,356
1,546
23,035
21,933
12,370
8,747
12,991
91,320
25,324
313
63,968
5,773
31,063
25,192
8,692

Weekly Averages
of Daily figures

Week ended
2123/77

Change
from
2/16/77

Change from
year ago
Dollar
Percent

-

Amount
Outstanding
2/23/77

SelectedAssetsand liabilities
large Commercial Banks

+ 5,341
+ 5,903
+ ,836
0
+ 2,347
+ 1,611
- 850
+ 288
+ 5,016
+ 1,995
5
+ 2,607
- 1,015
+ 6,364
- 2,174
-.3,405

+
+
+

-

+
-

205
12
97
175
32
30
111
82
418
630
81
54
55
124
95
163

Week ended
2/16/77

+ 6.16
+ 9.16
+ 117.75
0.0
+ 11.98
+ 14.97
- 8.86
+ 2.27
+ 5.81
+ 8.55
- 1.57
+ 4.25
- 14.95
+ 25.77
- 7.94
- 28.15

Comparable
year-ago period

Member Bank ReservePosition
ExcessReserves (+)/Deficiency
Borrowings
Net free(+)/Net borrowed H

H

+

23
2
25

+

28
7
21

+

61
2
59

+

716

+

539

+ 1,588

+

67

+

196

+

+

federal funds-Seven large Banks
Interbank Federal fund transactions
Net purchases (+)/Net sales H
Transactions with U.S. security dealers
Net loans (+)/Net borrowings H

101

*Includes items not shown separately. tlndividuals, partnerships and corporations.

Editorial comments may be addressedto the editor (William Burke) or to the author. . . .
Information on this and other publications can be obtained by calling or writing the Public
Information Section, federal Reserve Bank of San Francisco, P.O. Box 7702,San Francisco94120.
Phone (415) 544-2184.

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