Full text of Federal Reserve Notes : April 1977

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•

APRIL 1977

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

FED PROPOSES END OF
KEOGH DIFFERENTIAL
The Federal Reserve Board of Gover

nors

announced a

proposal this

month which would allow member

banks to pay the same deposit inter
est rate as thrift institutions on longterm retirement accounts, effective

July 6. Thrift-industry spokesmen crit
icized the action for undermining the
present 1/4-percent rate differential on
savings accounts, but the Board not
ed that Congress gave preferred tax
treatment to retirement accounts "to

encourage saving for retirement, and
not to extend a competitive advan
tage for a particular class of financial
institution."

Banks now may pay a maximum IV2percent rate on individual retirement
accounts (IRAs), established for per
sons not covered by on-the-job retire
ment programs, and on Keogh ac
counts, similar plans for
self-employed persons. Under the
Board proposal, the maximum rate
would go to 7% percent on July 6.
Over a 30-year period, a Keoghaccount saver at a thrift institution

could receive an additional $50,000,
and an IRA-account holder $10,000
more, than a bank saver could obtain

under the old 7'/2-percent ceiling. In
the Board's view, "Such a penalty for
choosing deposits at a particular type
of institution is clearly inconsistent
with the objectives of maximizing the
total amount of earnings on retire
ment savings that the Congress
sought."

San Francisco Fed employee Christine McCoy unloads checks from one of the bank's new
reader/sorters. Thanks to machines like this one, which is capable of sorting up to 110,000
items an hour, the bank processed a record 1.2 billion checks last year.

RESERVE BANK MOVES CHECKS FASTER
Last year the Federal Reserve Bank
of San Francisco handled 7 percent
more checks than it did in the previ
ous year—a total of 1.2 billion in all.
Despite this substantial increase, the
bank managed to stay ahead of the
swelling tide of paper with the help of
new high-speed reader-sorter ma
chines.

Reader-sorters are computer-driven
document processors for handling
checks. The machines read and list

the magnetic encoded numbers and
The report noted that a large number

amounts on checks, and then sort the

of people eligible to establish IRA or
Keogh accounts have not done so,
perhaps because of lack of
(continued on page 2)

checks by payor bank so they can be
unloaded into shipment trays. The

most from their very inception, but not
the type of sophisticated equipment
now available. For example, new
reader-sorters recently installed at
Los Angeles, Seattle and San Fran
cisco are at least 50 percent faster
than previous equipment, with as
many as 110,000 checks being han
dled every hour.

Senior Vice President Gerald R. Kelly,
in charge of Branch Operations, says,
"Because of equipment upgrading,
there are fewer adjustments and re
turns, and items are easier to trace.

Federal Reserve Bank of San Fran

Our new reader-sorters print eightdigit item numbers in sequence on all
checks as they pass through the

cisco has utilized reader-sorters al

(continued on page 4)

FED SETS UP NEW

RESERVE BANK OPERATES SECURITIES HOT LINE

CONSUMER PROGRAM

The Federal Reserve Bank of San
Francisco has instituted a 24-hour-a-

The Federal Reserve Board of Gover

nors this month established a pro
gram designed to improve memberbank
compliance
with
consumer-credit laws and regula

day telephone line at three of its
branches—Los Angeles, San Fran
cisco and Seattle—to provide com
mercial bankers and investors with

the latest information on the govern

tions. This scheme involves an advi

ment securities market. The recorded

sory program for member banks,
along with a special examination pro
gram to assess compliance of state

message provides highlight informa
tion on the types of securities being

member banks with consumer-credit

protection laws.
Consequently, each Federal Reserve
Bank will establish an advisory serv

ice for all member banks requesting
advice on consumer-credit matters.

On their visits, Fed staff specialists
answer bankers' questions about
consumer-credit laws and regula
tions, and discuss regulations, their
current interpretations, background
or any other areas which will assist
bankers in understanding the regula
tions and compliance aspects.

The special examination program will
begin with a test period running
through the end of 1978. Reserve
Banks will examine all state member

banks in their Districts by the end of
March 1978, with follow-up examina
tions if needed. Reserve Banks will

conduct these compliance examina
tions utilizing specially-trained exam
iners from the System's commercialbank examination force.

Under the new examination program,
examiners who find what they regard
as evidence of discrimination in credit

transactions will report their findings
to the appropriate Reserve Bank, and

offered, interest rates from the latest

FED RULES ON

Bank

staff

members

are

(213) 683-8563 in Los Angeles; (415)
392-6637 in San Francisco; in Seattle,
(206) 442-1650 for information on
Treasury issues, and (206) 442-1655

1 and October 31, 1973, when there

KEOGH DIFFERENTIAL
(continued from page 1)

was no rate ceiling for certificates
maturing in four years or more with
minimum denominations of $1,000.

In its ruling, the Fed said that "banks
presently have a large measure of
flexibility underthe existing rate struc
ture to bid forfunds in orderto replace
maturing wild-card deposits."
During the period when these certifi
cates were issued, the Board limited
the amount that an institution could

issue to five percent of its total time
and savings deposits. The rate ceil
ings imposed on wild cards on No
vember 1, 1973 were 7Va percent on
four-to-six year maturities and 71/2
percent on maturities of six years or
more.

The total amount issued during the

wild-card period approximated $3.3

gation is needed, and what if any

Governors

decided

that

banks

In the event of overcharges, member
banks generally will be required to

The Board said that the current 71/2-

reimburse customers fortheamounts

years or longer compares favorably

involved. In other violations, banks will

with rates on competitive instruments.
It added that banks having problems

to avoid similar future violations. ^

Reserve

The securities

should be able to manage the prob
lem of maturing certificates without
undue difficulty.

be instructed to make prompt correc
tion of their policies or practices so as

or consultation. The call is automati

cally transferred at the end of the
recorded cycle to a bank specialist.

nors has refused banks permission to
renew or extend appreciably the "wild
card" certificates of deposit which will
begin reaching maturitythis July. Wild
cards are consumer savings instru
ments that were issued between July

of

corrective measures are needed.

who have additional questions can
stay on the line for further market data

The Federal Reserve Board of Gover

Consumer Affairs, will determine in

sultation with the Board's Division of

Commercial bankers and investors

"WILD CARD" CDs

each case whether additional investi

directors. The Reserve Bank, in con

made.

available to answer questions from 8
a.m. until 4:30 p.m. weekdays.

billion. These certificates, which carry
interest rates up to 9.3 percent, begin
coming due on July 1. After conduct
ing a staff study and consulting with
other regulatory authorities, the Board

also to the member bank's board of

Treasury auction, and other timely
market news. The information is up
dated every time new offerings are

percent ceiling on time deposits of six

hot

line number is

for information on savings bonds, ^r

commercial-bank

advertising

for

such accounts due to their noncom

petitive position. As of last December
31, banks had obtained only 35 per
cent of the IRA market, while holding
47 percent of total household timeand-savings accounts. The Fed also
acted to make these retirement ac

counts more attractive for banks, in

view of a Congressional report which
showed that roughly half of all privateindustry employees are not covered
by retirement plans.

Persons eligible for IRA savings ac
counts are allowed tax-deferred con

tributions up to $1,500 annually, or 15
percent of gross income, whichever is
less. The Keogh law allows selfemployed persons to deposit taxdeferred contributions up to $7,500
annually, or 15 percent of gross in
come, whichever is less.

In addition to the higher savings rate,
the Board proposed several other
rulings applicable to new IRA and
Keogh accounts, or to modifications
of existing bank agreements. As of
July 6, no minimum denomination
would be required for this class of
deposit. Also, a maturity of three years
or more would be required, except
that withdrawals could be made with

with run-offs could be assisted on a

out early-withdrawal penalty if the
depositor reaches the age of 591/2 or

case-by-case basis, ifp

becomes disabled. %

FED UNDERTAKES
CONSUMER SURVEY
The Federal Reserve Board of Gover

nors has commissioned a survey to
determine the public's attitudes about
recent consumer-credit legislation.

Governor Philip C. Jackson, Jr., told
members of the House Consumer

Affairs Subcommittee that the Board

wants to discover what problems
consumers are facing in obtaining
credit, and the extent to which con

sumer legislation is benefiting the
public. As he noted, many bankers
claim that consumers are not taking
full advantage of much of the informa
tion banks are required to furnish
under Truth in Lending and Equal
Credit Opportunity legislation.
"It is our hope that the survey will
enable us to understand better the
various circumstances in which con

sumers use credit, to evaluate con

sumers' perceptions of and interest in
the

benefits

that

consumer-credit

laws provide, and to gain insight as to
how regulations can be more respon

NEW STATE MEMBER—Yamhill County Bank (McMinnville, Oregon) is the first statechartered bank in Oregon to become a member of the Federal Reserve System since 1969.
Shown here are Angelo Carella, Vice President and OfficerinCharge of theSan Francisco

Fed's Portland Branch(left), andAssistant VicePresidentMaynard Peterson (right) as they
present the certificate of membership to Ivan Lowe, President of Yamhill County Bank. In
accepting the certificate, Lowe said his bank was "proud to be a part of the Federal
Reserve System and a member of the Federal Reserve Bank of San Francisco." Since its
opening two years ago, the bank has doubled its deposits and increases its loans fivefold.
Photo courtesy of News-Register Publishing Company, McMinnville.

sive to consumers' needs," Jackson

told the panel.

PORTLAND DEVELOPS MICROFICHE PROGRAM
The Portland Branch of the Federal

Branch, says, "COM speeds up our

The Survey Research Center of the

Reserve Bank of San Francisco has

reaction time so that we can resolve

University of Michigan is conducting

developed a Computer Output Micro
fiche (COM) program that improves
service to the financial community
while eliminating thousands of pages
of computer paper. The system con
denses 690 computer data pages
onto one four-by-six microfiche card.

exceptions brought to our attention by
commercial banks in the processing

the project for the Fed. About 2,500

consumers will be interviewed during
the survey, which is scheduled for
completion in July. Among the areas
to be explored are the current use of
credit, consumer knowledge and use
of information and protection pro

vided by laws and regulations, opin
ions about simplifying existing regula
tions, and consumer savings
patterns. The interviews will also
cover opinions on interest-rate ceil
ings and electronic funds-transfer
systems.
Jackson told the subcommittee that

the Board strongly supports the basic
public purpose of consumer-credit
legislation. However, he added that
the Board has become increasingly
concerned about the degree of com

Previously, the Branch generated
thousands of pages of computer re
cords routinely in the course of its
check, automated clearing-house
and government-payments opera
tions.

Data

were

transferred from

computer disks to eleven-by-fourteen
computer paper and kept on file as a
permanent record. But under the new
system, the data are reproduced on
microfilm at about one-seventieth of

the former size. About 40 percent of
the computer output will not even
need to be printed.

plexity and overlap of existing laws,
and hopes to obtain some simplifica

tion of the relevant legislation. ^

Angelo Carella, Vice President and
Officer in Charge of the Portland

of cash letters. In most instances we

have been able to respond on a
same-day basis to inquiries concern
ing the receipt and credit of cash
letters deposited with us."

Carella reported productivity benefits
also from COM. The system enables
the staff to retrieve data 20 percent
faster than with the previous paperbased format, and "we expect further
improvements as we gain more expe
rience working with the new proce
dures."

As another key benefit, microfiche
has begun to free up badly needed
space. Over the next year, the new
system should open up as much
space as a large family room—over
440 square feet—that otherwise
would

have

been

devoted

computer-paper storage.^

to

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CHECKS MOVE FASTER
(continued from page 1)

CONSUMER LEASING
RULES ADOPTED

NEW BOOKLET
AVAILABLE

The Consumer Leasing Act became

requiring the disclosure of terms un

A new 12-page booklet describ
ing the history, purpose and
operations of the Federal Re
serve System is now available.

der which bankers and others lease

For individual or bulk copies

effective on March 23, 1977—and

with it, Federal Reserve regulations

personal property.
The new Fed amendment to Regula

tion Z (Truth in Lending) carries out
legislative provisions regarding the
leasing of autos, furniture and other
personal property. The act requires
accurate disclosure of lease terms

covering personal property leased
primarily for personal or household
use for more than a four-month peri
od. The act covers personal property
for which the total contractual obliga
tion is less than $25,000.

Enforcement is the responsibility of
the same agencies that handle Truth
in Lending. For banks, these agencies
are the Comptroller of the Currency,
the Federal Deposit Insurance Cor
poration and the Federal Reserve
System.
The main disclosure requirements in
clude:

* A brief description of the leased
property, adequate to identify it to
both parties to the lease;

* Information covering the total
amount of any payment or payments

contact the Public Information

Section, Federal Reserve Bank
of San Francisco, P.O. Box
7702, San Francisco, CA 94120.

Phone (415) 544-2184.
amount of any payment or payments
at the consummation of the lease; the

number, amount and due dates of

periodic payments and theirtotal; and
the total amount of taxes, fees and

other charges involved;

or

servicing the

leased property;

* Information concerning the deter
mination of any penalty or delinquen
cy charge;
* Information

concerning

when commercial banks call us about

exception items."

The

equipment

also

boasts

a

vacuum-assisted document separa
tor to reduce double feeds or so-

called "piggy-backing." By prevent
ing checks from sticking together,
the equipment cuts down on tracking
time in adjusting checks to cash let
ters. For a Federal Reserve Bank-

where reduction of float is a primary
concern—the equipment permits
more handling of items on a "same

day" basis and thus enhances availa

* Identification of those responsible

for maintaining

machines. This enables us to track

documents in our processing stream
so that we can respond more rapidly

the

lessee's option (if any) to purchase
the property, including price and other
terms of purchase;

bility of funds.
The San Francisco Reserve Bank's
dollar volume of check collections

exceeded $417 billion last year—up
from $327 billion in 1975. According
to the broadest measure of bank

operating efficiency, aggregate out
put per manhour, the San Francisco
Fed ranked first in the Federal Re

serve System in 1976—with check
operations being especially efficient.
w

* A statement of the conditions gov

erning termination of the lease, in
cluding determination of any penalty
charges. %