Full text of Federal Reserve Notes : August 1981

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

Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•

August 1981

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

FED OFFICERS CHANGE

AT S.F., LOS ANGELES
The Federal Reserve Bank of San
Francisco has announced several

officer promotions and reassignments at various offices

At the San Francisco headquarters,
John W. Gleason has been elevated

to vice president of payment ser
vices, and four others have been

promoted to assistant vice presi
dent. In addition, two officers have
been named to the new Financial

Services Department in San Fran

H. M. Martin

cisco and Portland.

Gleason's areas of responsibility in
clude check processing, electronic
funds transfer and electronic pay
ments. The 32-year-old native of
San Francisco joined the San Fran
cisco Fed as director of payment
services in June 1980. Previously,
he had been vice president and
manager of item processing at

GARN MAKES VIDEO

APPEARANCE IN S.F.
A more optimistic outlook by the
business community and a slow
down in spending by Congress
should lead to a healthier economic

future, states Sen. Jake Garn,

chairman of the Senate Banking
Committee.

Crocker National Bank in Los An

geles, as well as a Bank of America
assistant manager in San Francisco.

At Los Angeles, the early retirement
of a 25-year veteran, James M.
Davis, opened the way for officer
changes involving Richard L.

In a videotaped presentation to San
R.L. Rasmussen

Garo Derounian was elevated from

Rasmussen and Hector M. Martin.

check officer to assistant vice presi
dent of checks. Gary Sanders, for
merly associated with Memorex
Corporation, became accounting

Rasmussen has moved from vice

officer at San Francisco.

president of operations to fill Davis'
position as vice president of admin

Martha Perry has joined the San

istration. Martin has moved from the

San Francisco office, where he was

vice president of computer opera
tions, to vice president of operations
in Los Angeles.

Francisco Fed as financial services

officer in charge of customer-ser
vice activities. She has had exten

sive commercial-banking experi
ence at Union Bank in Los Angeles.

Francisco Bay Area community
leaders sponsored by the Federal
Reserve Bank of San Francisco, the

Utah Republican said the major
cause of inflation and high interest
rates was "irresponsible spending
by Congress, budget deficits, and a
large Federal debt." His remarks,

recorded a day earlier, were pre
sented on videotape because Sen
ate business in Washington kept
him from appearing personally at
the San Francisco meeting.

has been

"Is it any wonder that interest rates

Promoted to assistant vice presi
dent on the corporate personnel

named financial services officer at

staff at San Francisco were Patricia

ving as bank and public services

are so high when you have govern
ment carrying nearly a trillion-dollar
debt, financing $50 to $60 billion of

K. Lang and Patricia A. Tarbutton.

manager.

Susan

L.

Robertson

Portland, where she had been ser

Iffa

(Continued on page 3)

MCA ADVISORY GROUP
HOLDS S.F. MEETING

COUNCIL OFFERS NEW ACCRUAL RULE
Examination Council has made a

savings banks to maintain their ac
counts on an accrual accounting

Federal Reserve Bank of San Fran

proposal to require all insured com

basis. The Council set an October

cisco met on July 29 to discuss a
number of issues facing the finan
cial community. The topics included
deregulation of interest-rate ceil
ings, Federal Reserve pricing

mercial and state-chartered mutual

15 deadline for public comments.

The MCA Advisory Group to the

The Federal Financial Institutions

At present, the Federal Reserve
would be a candidate for a clearing
account if it has transactions with

guidelines, clearing balances, NOW

the Fed.

accounts, "All Savers" certificates,

In regards to the Fed's discountwindow policy, Advisory Group
members discussed a July 13 letter

Federal Reserve credit policy, and

financial legislation pending before
Congress.
Ten representatives of thrift institu
tions, credit unions, Fed-member
banks and nonmember banks at

tended the session chaired by John
J. Balles, president of the Federal
Reserve Bank of San Francisco.

Fed staffers outlined for the group
the six guidelines issued recently by
the Board of Governors to help en

sure uniformity in the provision of
financial services across the Feder

al Reserve System, and to provide
Reserve Banks with the flexibility to
respond to an evolving pricing envi

from Fed Governor J. Charles Par-

tee to Chairman Benjamin Rosen
thal of the House Monetary Affairs

in the event of sustained outflows of

deposits from thrift institutions
which outstrip the resources of
Federal Home Loan Banks.

Separately, Advisory Group mem
bers gave their opinions of the All
Savers Act of 1981, which would al

low institutions to offer a one-year
certificate, at a rate pegged to 70
percent of the comparable Trea
sury-bill rate, with interest income of

attraction of new funds to thrifts

business firm.

from this source. But others favored

officials said that instructions for the
maintenance of such accounts will

be incorporated in an accounting
circular that will be distributed in

mid-September. They explained
that

balances

are

determined

through individual discussions with

quire them to keep their books on
that basis.

In recent years, new national banks
banks have been required to adopt
accrual accounting as a condition of
chartering or FDIC insurance.

Fed's role as "lender of last resort"

Several representatives anticipated
a shifting of funds but only a modest

Regarding clearing balances, Fed

on an accrual basis, but do not re

the Board's policy regarding the

taxes that would have been paid
and the return on capital that would
have been provided had the ser
vices been furnished by a private

banks across the nation. The Fed

with assets of more than $25 million

to report their condition and income

and state-chartered nonmember

$1,000 (single person) and $2,000

originally had adopted a 12-percent
mark up, but after further analysis,
changed the figure to 16 percent.

rency and the Federal Deposit In
surance Corporation require banks

Subcommittee. The letter reiterates

ronment. They noted that Reserve
Banks are adding a 16-percent pri
vate sector adjustment factor
(PSAF) to their costs to account for

The 16-percent factor was derived
from an analysis of cost data ob
tained from a cross section of large

System, the Comptroller of the Cur

(joint return) exempted from Feder
al income taxes.

the new certificates as contributing
to a climate of increased savings
and offering a greater variety of de
posits to financial institutions. More
over, one member suggested that
the new certificate could reduce

thrift costs by 60 basis points
annually.
The panel also heard a report of
NOW-account activity in the San
Francisco Reserve District. At the

end of April, Western banks held
$5.3 billion of NOW accounts and
thrifts $1.4 billion. NOW accounts

have grown faster at Western S&L's
than at their national counterparts,
due to large-scale operations and

Banks with assets of less than $25

million are permitted to file their con
dition and income reports on a modi
fied cash basis—except for certain
items such as installment-credit

loan income, bond-premium amor
tization, depreciation of fixed
assets, and income taxes.

The proposed guideline, if adopted,
would be implemented in two
stages. Banks with assets of more
than $10 million would be required
to institute accrual accounting prior
to January 1, 1983. Smaller banks
would have two more years to meet

the requirement.

1j|ji

FED AMENDS
INSURANCE RULE
The Federal Reserve Board of Gov

ernors has amended Regulation Y
to limit insurance-agency activities
authorized for bank holding com
panies.

One amendment deleted authority
of holding companies to act as in
surance agents as a matter of con
venience to the public.

Subject to approval of specific pro
posals, bank holding companies
may continue to act as agents or
brokers for the sale of insurance

count. If an institution meets requir

The next meeting of the Advisory

(including property and casualty
insurance) directly related to ex
tension of credit, or provision of
financial services, by banks or

ed reserves with vault cash, then it

panel is September 23.

bank-related firms.

each institution, and through an an

alysis of the types and volume of
transactions going through each ac

extensive branch networks.

3fc

"fifi

GARN VIDEO APPEARANCE

FED ANNOUNCES
CREDIT POLICY

(Continued from page 1)

new debt each and every year?"
asked the former mayor of Salt Lake
City. "Certainly that crowds out
available capital in the private sec
tor. It makes less venture capital
available. It has government com
peting with the private sector for the
available money."

In late August, the Federal Reserve
Board of Governors established a

new borrowing rate for extended
credit to banks and thrift institutions

that encounter sustained liquidity
pressures.
The new discount rate will be the

basic rate of 14 percent for the first
60 days of borrowing, 15 percent for
the next 90 days, and 16 percent

Also contributing to the nation's
economic problems, added Garn,
"is an inflationary psychology that

thereafter. The basic discount rate

has been going on for a long time."

of 14 percent and the 4-percent sur
charge that applies to large, fre
quent borrowers of short-term ad
justment credit were not affected by

He said investment markets, bank
ers and business leaders have

shown a

Sen.Jake Garn

reluctance for several

years to believe that government
expenditures can be reduced and

this action.

inflation curbed.

The Board acted at this time in view

With passage of the Administra
tion's tax bill and trimming of the
government budget, however, Garn
feels more Americans may become

of several applications received in
recent weeks for borrowing under
the Fed's extended-credit program.
This program, established after the
passage of the Monetary Control

optimistic about chances of lift

ing the nation out of the economic
doldrums.

The Senate chairman defended the
Federal Reserve's efforts to return

the nation to a path of non-infla

tionary growth through its monetary
policy. "You can't have an irre
sponsible fiscal policy and a tightmoney policy and expect the tightmoney policy to reduce inflation.
They must be coordinated; they
must go hand-in-hand."

FED REVISES MERGER
MEMBERSHIP FORMS
The Federal Reserve has revised its

forms for membership and bank
merger applications, and for reports
on changes in foreign bank

In an exchange of letters between

investment.

Effective August 31, the revised
forms for bank-merger applications
and Fed membership will include
questions on the applicant's com
munity-investment efforts under the
Community Reinvestment Act. New
disclosures also will be required on
management interlocks with other
companies.

John J. Balles, president of the Fed

Also approved was a new form for

eral Reserve Bank of San Fran

banking companies that report
changes in foreign investment
under Regulation K. Currently, the

cisco, made similar comments in

remarks following Garn's video
taped talk. Balles said the nation is
showing progress in fighting infla
tion, partly because of the easing of
oil- and food-price pressures, but
largely because of slower growth of
money and credit.

The process of slowing inflation can
lead to strains, said Balles, espe
cially when the Federal Reserve
carries so much of the task. "As long
as strong credit demands persist,

and inflationary expectations re
main intense, restrained monetary
growth may be accompanied by

high interest rates."

Ifjff

Act of 1980, is available to commer
cial banks and thrift institutions.

Chairman Richard Pratt of the Fed
eral Home Loan Bank Board and
Chairman Paul Volcker of the Fed

eral Reserve Board, Chairman Pratt
indicated that "it is now desirable

and prudent for the Federal Home

Loan Bank System to encourage
the Federal Reserve to supplement
its own efforts in funding members'
liquidity needs." Chairman Volcker
replied, "We greatly appreciate your
cooperation, and that of your staff in
developing practical approaches to
our provision of extended credit to

banks submit the information in let

members of the Federal Home Loan

ters within 30 days of such changes.
The new one-page form asks for the
names of the parties to the transac

Bank System."

tion, the cost of the investment, the

resulting percentage of control, and
other details. Approximately 200
U.S. banking companies currently
have foreign investments, but only
20 reported changes in these in
vestments last year.
As required by law, the Fed will send
the proposed forms to the Office of
Management and Budget for final

approval.

^

The Federal Reserve's extended-

credit program is designed to help
depository institutions—commer
cial banks, savings-and-loan asso
ciations, savings banks, and credit
unions—adjust to sustained liquid
ity pressures. However, the Federal
Reserve noted that deposit growth
in the thrift industry has continued
this year, and that the industry in
general has sustained a high level
of liquidity despite pressure on the

earnings of individual institutions.ijlii

fr8l-S-frfrQ (Ql.fr) auoqd
OZI-t'6 'BjUJOJUBO 'OOSjO
-UBJJ UBS 'ZOll XOg O'd 'OOSjOUBJJ UBS
jo >(UBg 9Ajasafc| iBjapaj 'uouoag uojibuj

-jojui oiiqnd am Aq suojiniDSu; Ajojjsodap
o) pajnqujsip S| uojiBonqnd au,i >|sny
uajB>j puB i^smdns uoy 'a^jng iubwim

Aq paonpojd Sj sbjon aAjasau lejapaj

dnvo 'OOSIONVUd NVS
ZSl ON illftld3d
aivd

0Zl»6 VO "oospuBjj ubs 'IS auiosuss 00V

aovisod 'sn
~iivw ssvno isuid

OOSIOUBJJ UBS |0
Mueg aAiasay jeiapaj

CAPITAL REDEFINED

FED SIMPLIFIES HOME-MORTGAGE REG

FOR REGULATORS

A broadened definition of bank capi
tal has been proposed by the Fed
eral Financial Institutions Examina

tion Council to promote uniformity
among Federal bank-regulatory
agencies—the Federal Reserve,

Comptroller of the Currency, and
Federal Deposit Insurance Cor

poration. Comment on the proposal
will be received until August 31.
Under the plan, bank capital would
be considered either primary or
secondary. Primary capital would
be resources that reflect perma
nence, while secondary capital

The Federal Reserve Board of Gov

closures on the location of their resi-

ernors has completed revision and
simplification of its home-mortgage
disclosure rules (Reg C). The regu

dental-mortgage and home-im
provement loans. Henceforth, data
must be itemized by census tract
and county (but not by zip code).

lation affects financial institutions

with more than $10 million in assets.

The revised Reg C was designed to
focus disclosure requirements in
the most pertinent areas at the most
reasonable cost.

One of the major revisions involves
the requirement which forces finan
cial institutions located in standard

metropolitan

statistical

areas

(SMSAs) to make annual public dis-

would be resources that mature or

ordinated notes and debentures. A

bank's total secondary capital could
total no more than 50 percent of the
amount of primary capital.
Financing instruments in secondary
capital must have an original final
maturity of at least 10 years and an
original weighted-average maturity
of at least seven years. Any install
ment repayments, once begun,

use either 1970 or 1980 censustract boundaries to calculate the

geographic breakdown of its mort
gage loans—at least until a full
series of 1980 census tract maps
become available to all lenders.

To avoid duplicate reporting, branch

are phased out over time.

Primary capital would consist of
common and perpetual preferred
stock, surplus and undivided profits,
contingency and other capital re
serves, mandatory convertible in
struments, and 100 percent of the
allowances for possible loan losses.
Secondary capital would consist of
limited-life preferred stock and sub

The data will be sent to primary Fed
eral regulators on standard disclo
sure forms to be provided by the
Federal Reserve. The new regula
tion also permits an institution to

must be made at least annually, with
each payment no less than the pre

offices located in the same SMSA
as an institution's home office need

vious one. The instruments would

not make disclosures of their lend

be phased out of bank capital once
they approached maturity.

ing activity anymore. Branch offices

Although the proposal is aimed at
promoting uniformity in capital defi

nitions, each Federal regulatory
agency has the flexibility to depart
from the guidelines when particular
circumstances warrant.

The Council's basic function is to

coordinate examination policies of
regulatory agencies. The Council's
membership includes the Federal

located in other areas must con

tinue to make disclosures of lending
activity within their own SMSAs.

The revised regulation generally
allows a lender that has lost its ex

emption from mortgage-disclosure
rules to begin compilation of data
the following year, rather than for
the year preceding the loss.

tion, in addition to the bank regula

All of the changes are effective im
mediately—except a rule requiring
depository institutions to display
public lobby notices concerning the
institution's mortgage lending,

tory agencies.

which is effective September 30. ijjfc

Home Loan Bank Board and the
National Credit Union Administra

^