Full text of Federal Reserve Notes : April 1978

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

OL"

Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

APRIL 1978

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington
lw 1 c
FED AUTHORIZES ACH,
BANKWIRE SERVICES
The Federal Reserve Board of Gover

tapes. Most such transactions today are
cleared locally, but the planned nation
wide ACH connection will make po'ssible
the interchange of payments by some

nors this month authorized Federal Re

9,000 banks and 1,000 thrift institutions

serve Banks to provide services
necessary to create a nationwide net

that are members of the National Auto

mated Clearing House Association.

work for making electronic payments.
The Board also approved other Federal

Government payments through ACH's,

Reserve services to facilitate member

such as direct deposits of social-securi
ty checks, now total around seven mil

banks' transfers of funds over Bankwire,
a privately operated wire network.

lion a month. The nation's commercial
volume totals less than one million items

These actions, according to the Board,
should "enhance and improve financial

each month.

services to individuals and to financial in

The Board of Governors changed its
original plan of providing the interre
gional linkup free of charge, and will de
velop a pricing schedule for ACH
services. These charges would be con

stitutions; encourage the use of elec
tronic movement of funds as a more

efficient and less costly alternative to
check payments; and stimulate the de
velopment of non-governmental ser

sidered along with possible charges for

vices that will lower the cost of banking

all Reserve Bank services, with an

services to the public." The Board's ac
tions implement proposals that were is
sued for public comment last December.

allowance possibly being made for bal
ances held by users at Reserve Banks.

Under the new system, the Federal Re
serve will provide clearing and settle
ment services for electronic payments
made through local or regional automat
ed clearinghouse associations (ACH's).

Under the second Board action, the
Federal Reserve would provide net set
tlement services to member banks to

complete transfers of funds made over
the Bankwire communications network.

Bankwire, which is operated by the Pay

These facilities thus could be connected

ments and Communications Administra

into a national network for making funds
transfers electronically rather than by
check. This nationwide exchange of

tive Communications Corporation,
provides transfers of funds among some
200 banks throughout the country.

payments will begin next month, and

probably will be completed by yearend.
An automated clearinghouse associ
ation is a group of banks and other de
positories which initiate and receive

electronic funds transfers authorized by
customers of member financial institu

tions. The Federal Reserve currently op
erates 32 of these clearinghouses for
the sorting and clearing of payments
instructions recorded on magnetic

Under the terms of the new arrange
ment, member banks will appoint Bank
wire as their agent. Settlement for funds
transfers will be made by the crediting or
debiting of member-bank reserve ac
counts, with Bankwire being responsible
for supplying whatever information is
needed to make settlement. Member

banks will begin participating in this sys
tem as soon as final legal arrangements

can be made, iff

P. Coldwell

COLDWELL NOTES
STRONG FED RESULTS
In a report on Federal Reserve oper
ations to the Senate Banking Commit
tee, Federal Reserve Governor Philip
Coldwell said recently that Reserve
Banks spent $685 million in 1977 - an
increase of only 4.1 percent over 1976
operating expenses. "This modest
growth was achieved despite an expan
sion in the volume of our operations of
more than 7 percent and increases in re
source costs also in the 7-percent
range," he added.

Coldwell noted that Reserve Bank oper
ating expenses are projected to in
crease by 5.4 percent in 1978,
compared with average annual in
creases of 13.6 percent in the 1970-74
period and 7.7 percent in the 1974-77

period. Reserve Bank employment, after
an 8.1-percent decline over the past
three years, is projected to drop by an
additional 2:0 percent in 1978.
In 1977, the volume of measurable Fed

eral Reserve output increased about 7
(Continued on page 4)

DEBT COLLECTION
FACT SHEET ISSUED

TREASURY PROPOSES
NEW DOLLAR COIN

WEST LEADS IN
NEW BANK GROWTH

The Federal Reserve Board of Gover

The U.S. Treasury Department has pro
posed minting a new dollar coin - larger
than the quarter but smaller than the

fourth of all new bank activity last year,
as 35 banks opened for business in the

assist banks in complying with the law.

half-dollar -

to eliminate what it called

San Francisco Federal Reserve District.

The Act, which became effective last

"the cumbersome size and weight of the
current dollar coin." More importantly,

Nationwide, 145 new banks began op
erations, according to figures released
by the Comptroller of the Currency.

nors has issued a fact sheet on the new

Fair Debt Collection Practices Act, to

month, makes it illegal for "debt collec
tors" to adopt abusive or deceptive
debt-collection practices. A debt collec
tor is defined as anyone who regularly
collects consumer debts for someone

else. The Act exempts bank trust-de
partment activities, as well as most ac
tivities by a bank when it is collecting

the Treasury said that a practical dollar
coin could displace one-dollar notes, at

substantial cost savings. Increasing de
mand for ones otherwise may necessi

tate a $100-million expansion of printing
facilities by the Bureau of Engraving and
Printing.

debts on its own behalf in its own name.

Any consumer who believes a bank has
violated the Fair Debt Collection Prac

About 60 percent of the Bureau's cur
rent production time is consumed by
printing one-dollar bills. Each of these

The West accounted for almost one-

There were 14,709 commercial banks

operating in the United States at yearend

1977. The San Francisco District

accounted for only 541 of these banks,
or about four percent of the national to
tal. However, Western banks operated
6,808 banking offices, reflecting the
strength of branch banking throughout
this District.

tices Act may lodge a complaint with the

notes wears out in approximately 18

California accounted for 15 of the 35

nearest Federal Reserve Bank or with

months and costs close to two cents to

the Board in Washington. The Federal
Reserve will follow up on all such com
plaints or refer them to the appropriate
regulatory agency. Regulatory agencies
may issue cease-and-desist orders to
halt violations, and may require affirma

produce. But coins, which last at least

new District banks last year. Oregon and
Utah each reported seven openings,
while Washington had four and Arizona
and Idaho, one each. Only Texas (17),
Illinois (13) and Florida (10) ranked with
the Western states in this regard.

15 years each, have a tenfold servicelife advantage.

"Considering the cost of the coin com
pared to the note, each coin would save

debt, the name of the creditor, and the

over 80 percent of the production costs
for the notes displaced," the Treasury
said. "With nearly three billion $1 Federal
Reserve Notes in circulation today, only
modest displacement by $1 coins could
result in savings of hundreds of millions

steps the consumer may take to dispute

of dollars in costs."

tive corrective action.

As the fact sheet points out, the law re
quires a debt collector to notify a con
sumer in writing of the amount of the

consumer

The Treasury also sees the $1 coin as
supplementing the two-dollar note. The
latter was introduced in 1976 to help re
lieve increasing demands for the one-

except to inform the individual that there

dollar note. Increased use of the two

will be no further communication or to

could save taxpayers up to $7 million
annually in production costs alone.

halt communications with a

detail what further steps will be taken to

ship, in the face of an unfavorable na
tional trend. After mergers and
consolidations, the number of Federal
Reserve member banks increased from

144 to 148 in this District during the year.
At the same time, the number of mem

the debt. This should be done at the out

set of the debt-collection process, but
no later than five days afterwards. Upon
written request, a debt collector must

The West also performed well from the
standpoint of Federal Reserve member

ber-bank offices increased by two per
cent to 4,979. *

BANKS JOINING FEDERAL
RESERVE SYSTEM IN 1977
Twelfth District
State Member Banks

close the case. A debt collector must

also use payments made by the con
sumer as the latter directs.

The Act prohibits certain practices, such
as contact by the debt collector with
third parties. For example, an employer

The Treasury stated that it does not in
tend to stop printing one-dollar notes in
the near future, despite the cost-effec
tiveness of such a step. It added, how
ever,

that it plans to continue
encouraging the use of the two. «?K»

cannot be contacted except to find out
where a consumer lives. The Act also

forbids communicating with the consum
er at any unusual time or place —for ex
ample, at work, if there is reason to
believe that the employer does not allow
such contact.

According to the fact sheet, the legisla
tion is designed to protect consumers,

but also to protect reputable debt col
lectors so that they are not competitively
disadvantaged by unscrupulous
practitioners.*

Yamhill County Bank (McMinnville, Ore
gon); Heritage Bank & Trust (Salt Lake
City, Utah); Sandy State Bank (Sandy,
Utah); Utah Independent Bank (Salina,
Utah).
National Banks
Pioneer National Bank (Yakima, Wash
ington); Citizens National Bank of Idaho
(Boise, Idaho); Fidelity National Bank
(Concord, California); National Bank of
Long Beach (Long Beach, California).

Trust Companies
Independent Bankers Trust Company
(San Rafael, California).

SUMMARY OF KEY FED DEVELOPMENTS
INSIDE INVESTMENT INFORMA TION

OVER-THE-COUNTER STOCKS

The Federal Reserve Board of Governors has issued a policy

The Board of Governors has proposed a change in its regula
tions G, T and U, affecting the Board's list of Over the Counter
(OTC) stocks that are subject to margin requirements. The

statement alerting state member banks to penalties that can
arise from the misuse of inside investment information. The

Board offered examples of steps that could be taken to avoid

amendment would require dealers to submit bids and offers for

violation of Federal law in this field, including the development

an OTC stock to an automated quotation system, in order to

of written policies and procedures to prevent the misuse of ma

be counted as market makers in that stock, The best-known

terial inside information.

system of this type of NASDAQ - National Association of Secu

The policy statement primarily affects trust departments of
state member banks. Federal law generally prohibits persons
who possess material inside information about securities from
purchasing or setling those securities prior to public disclosure
of such information.

The Board urged each state member bank to adopt written
policies and procedures to ensure that privileged information is
not misused. It also urged banks to review present policies and
procedures to make sure this purpose is achieved. For further
information, contact the Supervision, Regulation and Credit De
partment at the San Francisco Reserve Bank. (415) 544-2264.

rities Dealers Automated Quotations, The NASDAQ system,
which links major brokers throughout the country, publishes in
formation on all stocks on the Board's list. At present, dealers
are required to publish bids and offers on a regular basis, gen
erally through "pink sheets," but most such published data has
been made redundant by the development of NASDAQ. For
further information, call the Consumer Affairs Unit at the San

Francisco Office (415) 544-2226.
MAIL CODING PROGRAM
Early this year, the San Francisco Reserve Bank instituted a

mail-coding program to speed up the processing of registered
DISHONORED ITEMS
Effective last month, Federal Reserve Banks no longer handle
as cash items checks that have been dishonored on two sepa
rate occasions. The first time an item does not clear, the pay

ing bank should mark its face with a star to indicate that it is a
dishonored item. The second time this occurs, the paying bank
is required to star the item again and also invalidate the MICR
routing number. The dishonored check should then be re
turned to the depositor. For further information, contact the
Check Officer at the nearest Federal Reserve office.

EQUAL CREDIT AMENDMENT MAILING
The San Francisco Reserve Bank has mailed copies of an
amendment to Regulation B (Equal Credit Opportunity) to all
member and nonmember banks and branches in the District.

The amendment, which deals chiefly with credit-card transac
tions, specifies what constitutes adverse action in a credit
transaction at the point of sale. The adopted amendment is
one of two alternative proposals published for comment by the
Board of Governors last fall. For further information, contact

the Consumer Affairs Unit at the San Francisco Office (415)
544-2226.

REPORTING PROCEDURES FOR MUNICIPAL
SECURITIES

and certified mail, so as to expedite the crediting of banks'
accounts. However, many commercial banks are not comply
ing with the coding program. When dispatching certain items such as savings bonds, savings stamps, Treasury and Agency
coupons, securities, letters of credit, currency and coin, and
government deposits -- banks and thrift institutions should
identify containers with the proper code. In addition, containers
should hold only one type of shipment. The Reserve Bank has
sent out letters reminding banks about the mail-coding pro
gram. Questions about the program can be addressed to the
mail section of your nearest Fed office.

FOREIGN

OFFICES

NONBANKING

SUBSIDIARIES
The Board of Governors this month proposed a set of rules by
which nonbanking subsidiaries of U.S.-based bank holding

companies may establish new foreign offices. This would for
malize current procedures as an amendment to the Board's
Regulation Y. The Board said that confusion over procedures
has created the mistaken impression that domestic nonbank
ing subsidiaries of bank holding companies cannot set up new
offices abroad. Under the proposed procedure, a bank holding

company would have to notify the appropriate Reserve Bank
45 days before the opening of any office of this type. However,
it would not have to publish a notice of its intentions in general
circulation newspapers in communities to be served. Such pub

The Federal Reserve this month implemented an amendment

lication notices are required when opening a new domestic

outlining reporting procedures for bank holding companies and

branch.

subsidiaries that deal in municipal securities. The requirements

facilitate compliance with rules, set by the Municipal Securities
Rulemaking Board, which concern the qualifications of munici
pal securities' principals and representatives. Inquiries can be
directed to the Bank Holding Company Unit at the San Francis
co Reserve Bank (415) 544-2235.

MEMORIAL DA Y HOLIDA Y
All offices of the Federal Reserve Bank of San Francisco will be

closed on Monday, May 29, in observance of Memorial Day

0ZLt>6 VO 'oospuBJj ues ''IS aujosues OOfr
dllVO 'OOSIONVUd NVS
ZSL ON lllMH3d
aivd
aovisod s n
1IVIAI SSVIO ISHId

HOLDING COMPANY
INSURANCE RULES
The Federal Reserve Board of Gover

nors has proposed a regulation which
could prohibit bank holding companies
from selling insurance to themselves
and to nonbank subsidiaries. The revi

sion was prompted by a series of deci
sions by the U.S. Court of Appeals that
upheld Regulation Y but required certain
changes in keeping with the court's
rulings.
Despite the restrictions, the revised reg
ulation would allow a bank holding com
pany to handle any insurance for the
holding company's banking subsidiary.
A holding company could also sell insur
ance that is directly related to a credit
extension by a bank or bank-related firm
or to the provision of other financial
services.

The revised Reg Y also would eliminate
a second type of insurance known as
"convenience" insurance. This is defined

as any type of insurance provided by a
bank holding company simply for the
convenience of customers.

oosioubjj ues 1°
)|ueg eAjesey lejepaj

COLDWELL (continued from page 1)
percent, while the aggregate unit cost of
operations decreased by more than 2
percent. These measurable activities in
cluded clearing checks, processing cur
rency and coin, and issuing and
redeeming Treasury and other Govern
ment agency securities.

For 1978, Coldwell projected a 10-per
cent increase in output per hour, in line

with the gains achieved in each of the
past several years. "This productivity
gain, adjusted for the substitution of
capital for labor, yields a total factor
productivity increase of 8.3 percent,
which is considerably larger than esti
mates of productivity growth for the pri
vate sector."

Coldwell reviewed the status of several

projects which will involve increased
Federal Reserve responsibilities during
1978. In the area of bank supervision,
the System is instituting an annual in
spection of most bank holding compan
ies with consolidated assets over $300

million, and is implementing a standard
ized holding-company examination re
port. (Both programs were implemented
in the San Francisco Reserve District in

The courts have also directed the Fed to

1977.)

reconsider insurance regulations which
authorize bank holding companies or

The System also is involved in the Trea
sury's check-truncation effort, whereby
tapes and microfilm copies of paid
checks are sent to the Treasury for pro
cessing while the original checks are
sent to a government facility for storage.

their subsidiaries to sell insurance in

communities with population of 5,000 or
less. The Board said it would reconsider

this matter in the near future, ^jflr

BANK PRACTICES
UNDER STUDY
Consumer-affairs examiners from sev

eral regulatory agencies recently sur
veyed about 900 commercial banks
regarding certain practices followed in
handling consumer accounts. The study
was undertaken to comply with the Fed
eral Trade Commission Act's charge to
regulators to identify "unfair or deceptive
banking practices." Federal Reserve re
searchers are now analyzing the data,
and will present their findings and re
commendations to the Board of Gover

nors later this year.

The survey covered four specific bank
practices which can create problems for
consumers. The first such practice was
failing to tell new customers about the
contract terms governing the use of ac
counts or failing to give reasonable ad
vance notification to existing depositors
regarding changes in contract terms. A
second practice was advertising "free"
checking-account services when a bank
actually imposes charges or precondi
tions before the depositor receives nocost checking.
Another criticized practice was attach
ing, freezing or closing a depositor's ac
count without prompt notification of the
customer. A fourth such practice was
imposing an inordinately long waiting pe
riod before customers could withdraw

funds deposited in the form of checks.

Full text of Federal Reserve Notes : April 1978

FRASER