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carol Thaxton



AG 311978
Federal Reserve Bank of St. Louis

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Community Reinvestment Act
The Federal Reserve System, as well as the Comptroller of the
Currency, Federal Deposit Insurance Corporation, and Federal Home
Loan Bank Board, will be affected by implementation of the new
"Community Reinvestment Act" (CRA) on November 6, 1978. The
legislation was signed by President Carter last October.
Draft regulations have been prepared by all four agencies bound
by the substance of the Act, accommodating the respective regulatory
responsibilities of each agency. The Act joins fair housing and equal
credit opportunity legislation in broadening the regulatory agencies'
duties to include enforcement of consumer protection laws.

The purposes of the Community Reinvestment Act are: to require
banks and savings and loan associations to demonstrate that their
offices serve the convenience and needs of their communities; to provide guidance to these institutions with regard to how the regulatory
agencies will assess their records in satisfying their continuing and
affirmative obligations to help meet the credit needs of their local
communities, including low- and moderate-income neighborhoods,
consistent with safe and sound operating procedures; and to provide
for the consideration of these records, and those of other pertinent
institutions, in connection with applications for new services, expansion, and other bank proposals.

Each institution will be required to adopt, within 90 days after
the regulations formally take effect, a Community Reinvestment Act
Statement to be posted in all offices and including the address of the
appropriate regulator to whom public comments regarding the statement may be directed. The statement must encompass the bank's
delineation of its entire community and local communities, and the
types of credit that are being extended (mortgages, consumer loans
or loans for housing rehabilitation, home improvement, small business, community development or commercial development, and
any special bank programs). While not specifically defining "community," the regulations require a bank to take into account for that
definition such factors as its size, geographic area, and effective lending territory -- the area where substantial portions of its loans are made.
The use of maps is encouraged.
Each institution must review its Community Reinvestment Act
Statement, including the delineation of its "community," at least on
an annual basis and maintain for at least two calendar years a public
file of all comments it has received on the CRA.


In connection with the scheduled examination of State member
banks, the Board will assess each bank's record in helping meet the
credit needs of its entire community. The examiners will review the
bank's CRA statement and marketing and lending policies to determine
whether they are designed to help meet these needs, and assess its
record of performance. A number of factors will be considered in
assessing a bank's record, including activities undertaken by the institution in ascertaining community credit needs; consultations by
bank officials with members of the local communities regarding the
bank's plans and policies on credit services; the extent and effectiveness of bank marketing programs to make the community aware of
available credit services; the extent of participation by the bank's
board of directors in formulating and reviewing the bank's policies
and performance with respect to CRA; geographic distribution of
loans; the bank's history of opening and closing offices; and the
bank's participation, including investments, in government-sponsored
local community development projects or other local community redevelopment programs.

The regulating agencies will also take the Community Reinvestment Act into consideration in the evaluation of applications for charters, deposit insurance, establishment of domestic branches or other
deposit facilities, relocation of domestic branch offices, mergers, or
The financial regulators will report annually to Congress on
actions taken to carry out CRA re pon ibilitie .

C larif. cation on Variab e Rate CDs
Federal Reserve Bank of St. Louis

The Board of Governors recently issued a clarification of its
amendment to Regulation Q authorizing member banks to pay interest on nonnegotiable time deposits of $10,000 or more with maturities of exactly 26 weeks at a maximum rate equal to the discount
rate on six-month Treasury bills.
•Ceiling Rate: The ceiling rate corresponds to the discount rate
(auction average) on six-month Treasury bills issued on or immediately
prior to the date of deposit. The ceiling rate is not established with
reference to the coupon-equivalent or effective yield on Treasury bills.
If a bank desires to round-off the ceiling rate, it may do so, but may
only round this rate downward. For example, a member bank may
round a ceiling rate of 7.471 percent to 7.47 or 7.4 percent.
Twenty-six week Treasury bills are auctioned weekly by the
Treasury Department, usually on Monday, and are usually issued the
following Thursday. Beginning on the date the bills are issued, member
banks may pay interest at a rate not to exceed the discount rate (auction
average) established the previous Monday, and may continue to issue
certificates at such rate until the next issue date (normally a Thursday). On that date a new ceiling rate wouldg0into effect. For example, the ceiling rate payable on Thursday, September 14, would be
fixed at the discount rate (auction average) established on Monday,
Federal Reserve Bank of St. Louis

September 11, and would remain in effect through Wednesday, September 20, after which date the ceiling rate would correspond to the
discount rate (auction average) established on Monday, September 18.
• Minimum Deposits and Maturities:
The certificate may be
issued in any denomination of $10,000 or more and its maturity must
be exactly 182 days (26 weeks), not six calendar months. However,
where the certificate would mature on a legal holiday, it may be issued
with an original maturity in excess of 182 days so that it would mature
on the next succeeding business day. Should such an instrument be renewed, it must be renewed for exactly 182 days.
• Interest Computation and Withdrawal Penalty: Interest on the
new certificate is computed like any other time obligation. Compounding is permissible within the scope of Regulation Q. Interest, as specified
in the issuer's contract, can be computed daily, monthly, quarterly,
end of term, etc. Forfeiture of interest is also computed like other time
The twenty-six week certificate is treated like other time deposits
for the purposes of the Regulation Q early withdrawal penalty.
• Discount Form: As with other time deposits, banks may offer this
certificate in discount form where the face amount of the certificate is
received by the depositor at maturity, so long as the bank initially receives at least $10,000 from the depositor and the rate paid on the net
amount deposited does not exceed with applicable six-month Treasury
bill discount rate.

A- Z :Regulations Review
A two-stage program to implement"zero-base regulating" within
the Federal Reserve System will involve an exhaustive evaluation over
the next two years of all 26 Federal Reserve regulations and related interpretations and rules to determine whether they should be eliminated, simplified, or revised.
Federal Reserve Governor Philip C. Jackson, Jr., is overseeing the
review, which will be carried out under the direct supervision of Richard
H. Puckett, managing the newly approved "Regulatory Improvement
Project." Federal Reserve Banks throughout the nation are being
assigned specific regulations and related rules for review and any necessary redrafting.

The project is the first of its kind undertaken by the Board of
Governors since the Federal Reserve System began operations 64 years
ago. Initially, regulations affecting commercial banks, bank holding
companies, and other institutions outside the Federal Reserve will be
examined, followed by a review of all other Federal Reserve regulations,
interpretations, policy letters, and operating circulars. A principal objective is the alleviation of part of the burden of regulatory paperwork
on the nation's banks.
A study of the regulations' format will precede analysis of content,
and recommendations will be made to the Board of Governors regarding organizational structure, identification (by letter or an alternate

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The Fed Letter is published bi-monthly by the Federal Reserve Bank of St. Louis to help Eighth Federal Re'serve District bankers keep informed on topics of importance to the banking industry. The Federal Reserve
Bank of St. Louis is solely responsible for the contents of The Fed Letter. The publication does not necessarily
represent the official or unofficial views of the Board of Governors of the Federal Reserve System.

means), and whether they should be grouped, consolidated, combined,
or otherwise changed in presentation.
Proposals for regulatory changes will range from language simplification to elimination of portions of a regulation found not to be
required by law. Redrafting of the regulations is expected to improve
their format, elucidate their relationship to current policy goals, and
increase their benefit to the public.

Many of the Federal Reserve regulations, such as "A" (relating to
lending by the System to member banks) and "D" (relating to member
bank reserve requirements) are much-amended versions of the Board's
earliest regulations. Others, such as "Z" (Truth in Lending), "B" (Equal
Credit Opportunity), and "C" (Home Mortgage Disclosure), were
written in the last IO years, at the direction of Congress, to implement
recent consumer credit protection laws. The review project will also
establish a system to preserve the anticipated improvements in future
regulatory structure and content.
The review, and any regulatory revisions or recommendations to
Congress for legislative changes, are expected to be completed by late

Record Retention Requirements Change
Federal Reserve Bank of St. Louis

Certain lenders must retain for more than two years all records of
credit transactions in their possession, according to a recent Federal Reserve amendment to RegulatiQn Z (Truth in Lending).
The Federal Reserve action supports proposed uniform enforcement guidelines for Regulation Z issued last October by the Comptroller
of the Currency, FDIC, FHLBB, FRS, and National Credit Union Administration, calling for reimbursement to consumers for certain violations which may have occurred more than two years before discovery.
The previous record retention requirement was a maximum of two
The amendment requires creditors and lessors subject to the
agencies to retain credit transaction records until the enforcing agency
has published final guidelines, completed one examination for compliance, and assured that any corrective action has been taken.