Full text of Federal Reserve Notes : August 1978

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Federal Reserve Notes
FEDERAL RESERVE BftN^Of^SAN PR&NCISCO

AUGUST 1978

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington
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CONGRESS PASSES
FOREIGN BANK BILL
Congress this month passed legislation
providing for Federal regulation of for
eign banks' U.S. affiliates, and restrict
ing the ability of foreign banks to
establish new branches in this country
outside of their home states. The bill

next goes to the White House for the

President's signature.
Under this legislation, the Federal Re

serve System would be given authority
to set reserve requirements for any U.S.
affiliate—either Federally or state char
tered—whose parent company has $1
billion or more in worldwide assets. For

eign bank affiliates subject to such re

5 1978

IJzftOl""i^edfatized institutions engaged
principally in foreign-trade financing on
the periphery of our banking system.
Those days are long since past. On the
contrary, what we have today is a di
verse array of institutions operating on a
very large scale in a wide range of mar
kets for banking services in this country.
"At the wholesale level, the foreign
banks are competing directly and suc
cessfully for the business of multination
al corporations. Foreign banks are
important participants in U.S. money
markets and are also major traders in
the U.S. foreign-exchange market. And
at the retail level, foreign banks are be
coming increasingly important, especial
ly in California."

R. T. Griffith

serve requirements also would have
access to Federal Reserve services, al

though affiliates would not be required
to become Fed members. The Federal

Miller noted that most of the 122 foreign
banks operating in this country have
worldwide assets of more than $1 bil

Reserve would be allowed to establish

lion, and that 45 of those banks have

reserve requirements for state-licensed
subsidiaries only after consulting with
state bank-supervisory agencies.

worldwide assets of more than $10 bil

The legislation would restrict the oper
ations of any new U.S. branches estab
lished by a foreign bank after July 27,

1978—the bill's "grandfather" date.
(The grandfather principle permits insti
tutions established before a certain date

to remain free of later restrictions.) A
foreign bank would be permitted to es
tablish branches outside of its home

state, but the new branches would be

limited to accepting foreign-source and
other deposits related to international fi
nancial transactions. A foreign bank
would be allowed to designate its home

lion. Between 1973 and 1978, foreign
banks' combined assets in the U.S.

jumped from $37 billion to $90 billion.
This spring, business loans of foreign
banks amounted to about 20 percent of
all such loans made by large banks in
this country. In California, their businessloan share was 33 percent; and in New
York, 37 percent.

Miller added, "It is incongruous that insti
tutions such as these can operate on
such a scale in this country without be
ing subject to Federal regulation of their
entry and activities, and without being
subject to the rules of the central bank."
He said that the Federal Reserve's legis

state and to conduct a retail business in

lative recommendations have consis

that state.

tently been grounded on the principle of

In recent testimony before the Senate
Banking Committee, Federal Reserve
Chairman Miller said, "Foreign banks in
this country can no longer be character-

tion—which means that the foreignbanking community should be incorpo
rated into the U.S. banking system on an

national treatment or nondiscrimina

equal footing with domestic banks, fl^

BANK REALIGNS
OPERATING FUNCTIONS
The Federal Reserve Bank of San Fran

cisco has realigned its operating func
tions in San Francisco, primarily by
creating a Bank Operations Division un
der Senior Vice President Richard T.

Griffith. In addition, Griffith becomes a

member of the bank's Management
Committee.

Other members of the Management
Committee include President John J.

Balles, First Vice President John B. Wil
liams, Senior Vice President John J. Car

son (Corporate Staff), and Senior Vice
President Kent O. Sims (District Depart
ments). Corporate Staff functions in
clude budget, personnel, purchasing
and similar responsibilities. District De
partment functions include economic re
search, bank supervision, statistical
services, and related responsibilities.
Both Griffith and Carson report to First
Vice President John Williams under the

new arrangement.
(continued on page 3)

SUMMARY OF KEY FED DEVELOPMENTS
INTEREST PENAL TY

REG Z "COOL OFF" PERIOD

The Board of Governors has proposed a change in its Regula
tion Q (Interest on Deposits) to lighten the penalty required for

The Board of Governors has adopted an amendment to Reg
ulation Z (Truth in Lending) that deals with the "cooling off"
period available to consumers when they pledge their homes
as security for consumer loans. Under the original regulation, a
lender must give notice that the borrower has a three-day peri
od in which to cancel any transaction. But this "right of recission" requirement has tended to prevent creditors from offering
"open end" credit (such as credit cards or overdraft checking)
when secured by personal residences, because of the impracticality of permitting the consumer to cancel each and every

early withdrawal of funds from certain types of time deposits.
The proposal is expected to benefit particularly depositors with
long-term Individual Retirement Accounts (IRAs) and Keogh
Plan retirement accounts. IRA and Keogh plans are special ac
counts developed to encourage retirement savings by individ
uals who are not covered by regular pension plans.
The proposal would affect two types of deposits: (1) deposit
contracts which provide that the maturity of existing funds on
deposit is extended whenever additional deposits are made in
the account, and 2) notice accounts, which have no specific
maturity date but permit withdrawal of funds only after a certain

transaction.

The new rule waives the notice requirement in open-end credit

period (such as 90 days) following written notice of withdrawal.

transactions when the creditor and seller are not the same—

For further information, call the San Francisco Reserve Bank's
Law Department at (415) 544-2254 or 544-2256.

chase merchandise from a store. The amendment is effective

for example, when a person uses a bank credit card to pur
this month.

SUBORDINATED LOANS
The Board of Governors has adopted an amendment to Regu
lation T (Credit by Brokers and Dealers) permitting any broker
or dealer to make a subordinated capital loan to another
broker or dealer. Previously, only members of national securi
ties exchanges could make such loans. The amendment went
into effect July 12. For further information, call the Reserve
Bank's Consumer Affairs Unit at (415) 544-2226.

The creditor still must notify the customer that he has a right to
cancel a transaction under certain circumstances. The cus

tomer also must be notified once a year that his home has
been pledged as security. For further information, call the Re
serve Bank's Consumer Affairs Unit at (415) 544-2226.

CIRCULAR INDEX A VAILABLE
CONSUMER CREDIT REPORT
The list of current circulars of the Federal Reserve Bank of San

The Board of Governors has extended for three years its
monthly survey of consumer credit at commercial banks. It also
made a number of changes to simplify the report and reduce
the reporting burden on banks. The revisions were made be
cause distinctions among certain kinds of consumer credit
were becoming blurred by changing market practices. For the
new report, the Board eliminated the number of loans made by

Francisco (as of July 1, 1978) has been distributed to District
Banks. This index (Circular A) lists each Bank circular, along
with the subject it covers and its effective date. Ifyou are miss
ing circulars bearing the effective dates shown in Circular A,
contact the Supply Department at your nearest Reserve Bank
office.

banks for new cars, used cars and mobile homes, and consoli

dated check-credit and credit-card figures. The Board re
duced the number of data items from 39 to 12, and reduced

CHECK VERIFICATION

the number of reporting banks from 567 to 298. The new form
will be used for the first time for the October report. The report
will be designated F.R. 2571 instead of F.R. 571, and it now will
be called the "Commercial Bank Report of Consumer Instal
ment Credit." For further information, call the Reserve Bank's

Statistical and Data Services Department at (415) 544-2186.

DISTRICT HOLIDAY

The Board of Governors has proposed an amendment to its
Regulation Y that would make check verification a permissible
activity for bank holding company subsidiaries. The Board act
ed after receiving an application from Barnett Banks of Florida,
Inc., to provide a check-verification service through a newly
formed subsidiary. The subsidiary would charge subscribing
merchants a fee for guaranteeing payment on validly autho
rized personal checks, and would pay the merchants for
checks that turned out to be bad. For further information, call

All offices of the Federal Reserve Bank of San Francisco will be

the Reserve Bank's Bank Holding Company Section at (415)

closed on Monday, September 4, in observance of Labor Day.

544-2235

REALIGNMENT
(Continued from p. 1)

The bank's new Bank Operations Divi
sion encompasses three functions—
custody, payments and computer ser
vices. Vice President Warren H. Hutch

ins is in charge of Custody Services,
which includes cash and fiscal responsi
bilities. Donald K. Carson has joined the
bank as Vice President - Payments Ser
vices, and in that capacity oversees
check processing, automated clearing
house and related functions. Kenneth A.

W. H. Hutchins
KHHHHUUI

Grant has been promoted to Vice Presi
dent of Computer Services. He super
vises computer operations, computer
support and computer services. The
bank has promoted William V. Ott to Di
rector of Computer Systems, and David
Christerson to Systems Officer of Com
puter Services Support. Hector M. Martin
continues as Director of Computer
Operations.

H. P. Franzel

The bank also assigned Vice President
Claude Woessner as officer in charge of
a Federal Reserve fiscal resource-shar

ing project. This assignment involves
coordination between the San Francisco
District and two other districts in the de

velopment and implementation of a new
automated fiscal system.
In the Corporate Staff area, the bank
has promoted John K. Davis to Account
ing Officer. He supervises Budget and
Expenditures and General Files.
J. K. Davis

In Branch Operations, H. Peter Franzel
D. K. Carson

has been promoted to Vice President Branch Operations. Franzel assumes

senior supervisory responsibility for the
operations analysis and transportation
functions, in addition to his current as

signment of District-wide operations
support.

The realignment of functions at the San
Francisco office followed the retirement

of Senior Vice President Wesley G.
DeVries. He was responsible for the Re
serve Bank's provision of cash, fiscal,
check-processing and other services
throughout an area that covers northern
California, western Nevada and Hawaii.
DeVries retired with 33 years of service

The Federal Reserve Bank of San Fran

cisco has approved the applications of
two organizations—Cottonwood Bancorporation and First Bancorporation—
to become bank holding companies in
the Salt Lake City area. The former or
ganization controls Cottonwood Securi
ty Bank, and the latter controls Utah
Firstbank.

fices in Portland and Los Angeles. He
assumed charge of the San Francisco

More than 20 banking organizations cur
rently operate in the Salt Lake City met
ropolitan banking market. In approving
the applications, the Reserve Bank said
that these two institutions represent an
additional source of banking services
and thus would have a favorable impact

operations in 1973. %

on competition in that market, ifr

in San Francisco and at the bank's of

K. A. Grant

TWO HOLDING COMPANY
REQUESTS APPROVED

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BOARD SEEKS MEMBERS
FOR CONSUMER COUNCIL
The Federal Reserve Board of Gover

School of Business Administration, Uni

Taxation, and was an economist with

versity of California at Berkeley; and
Percy W. Loy, President of Kubla Khan
Food Company, Portland, Oregon.

the Canadian Prices and Incomes Com

mission in Ottawa. From 1968 to 1975,
he was Assistant Professor of Econom

nors is now accepting nominations from
the public to fill several upcoming vacan
cies on its Consumer Advisory Council.

Dean Warren is also Vice-Chairman of

ics at Stanford University. He then joined

the council.

the Council of Economic Advisors in

The terms of 9 of the 28 current mem

Nominations for the Consumer Advisory

bers expire at year-end, and the new

Council should be submitted to the Sec

present position at the University of To

members will serve for the 1979-81

retary, Board of Governors of the Feder
al Reserve System, Washington, D.C.,
20551, by September 1, 1978. The

ronto in 1976.

Dr. Oakland is Professor of Economics

nomination should include a brief biog

and Public Administration at Ohio State

period.

The Consumer Advisory Council was
established by Congress, at the Board's
suggestion, to provide advice on the

Washington, D.C., as Senior Staff
Economist. Dr. Scadding assumed his

raphy of the candidate, along with infor

University. From 1964 to 1973 he was

mation on the individual's special

Assistant Professor and then Associate

System's responsibilities under the Con

knowledge and experience relating to

Professor of Political Economy at Johns

sumer Credit Protection Act and on oth

consumer matters. *

Hopkins University. He assumed his pre
sent position in 1973. Dr. Oakland has

er consumer-related matters. The

Council generally meets with the Board
four times each year. The meetings are
open to the public.
Six persons from the San Francisco Dis

trict currently serve on the council. The
term of one of these council members—

Joseph F. Holt III, Special Projects Offi
cer for Weyerhaeuser Mortgage Com
pany in Los Angeles—will expire at
year-end. The other Council members

been a consultant to a number of gov

TWO VISITING
SCHOLARS NAMED
John L. Scadding and William H. Oak
land have been appointed to five-month
terms as Visiting Scholars at the Federal

ernment agencies and private organiza
tions including the U.S. Department of
Transportation, the Maryland Council of
Economic Advisors, the Economic De

velopment Administration, the U.S. Envi
ronmental Protection Agency, the

Reserve Bank of San Francisco. The

National Science Foundation, and the

Visiting Scholar position was inaugurat

U.S. Department of Housing and Urban

ed at the San Francisco Fed to encour

Development.

from the West are William D. Warren,

age creative research and the
interchange of ideas by practicing

Dean of the UCLA School of Law, Los

economists.

Angeles; Roland E. Brandel, Partner,

Since the Visiting Scholar program was
initiated, economists from Brown Univer

sity, Stanford, Ohio State, the University
of Oregon and the University of Chicago

Executive Officer, California Federal

Dr. Scadding is Associate Professor of
Economics at Scarborough College at
the University of Toronto. He served as

Savings and Loan Association, Los An

Assistant to the Director of Economic

Milton Friedman, the 1976 Nobel Laure

geles; Dr. Richard H. Holton, Professor,

Research for the Ontario Committee on

ate in Economics. «jffp

Morrison & Foerster, San Francisco;
Robert R. Dockson, Chairman and Chief

have been named to the position. Re

cent Visiting Scholars have included Dr.