Full text of Federal Reserve Notes : August 1984

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Federal Re/erve flote/
Federal Re/erve Bank of /an Franci/co • flugu/t 1984
/erving Rla/ka, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah, & UJa/hington
POLICY DEVELOPMENTS

Electronic
Connection Policies

To provide reliable and secure electronic connection services, the San Francisco Reserve Bank has
reiterated standards of compatibility for the three modes of connection to its electronic network.
The following provides guidance in cases where depository institutions deviate from Fed-provided
hardware or software:

•

For FedLine or online services, the connection equipment must be an IBM PC or one capable of

accepting and using, without modification, the diskette provided by the Reserve Bank. The com
patible configuration must be certified by the Federal Reserve Bank of San Francisco.

•
Emulation of FedLine or online connection equipment in any form (hardware and/or software
to duplicate their functions) will not be supported by the Reserve Bank because it would limit net
work design and could severely degrade reliability and service.

The San Francisco Reserve Bank will make available to qualified depository institutions, upon
•
written request, its computer-to-computer interface protocol specifications and provide reasonable
technical assistance in implementing them.
For further information, please contact William V. Ott, Computer Services Group at (415) 974-2415.
NEW SERVICES

Mid-Day Balance

Since August 13, 1984, the San Francisco Reserve Bank has made mid-day balance information
available to all Twelfth District depository institutions using Funds Transfer on computer-tocomputer interface. The information is presented at about 1:30 p.m. every day and includes debit
and credit totals. Depository institutions can thus confirm that their mid-day balances agree with the

Information

Federal Reserve.

For further information, please contact Susan Andrews in Communications at (415) 974-2317.

FRBSF HOSTS PAYMENTS RISK EDUCATIONAL SEMINARS

During the past few years, the Federal Reserve has become increasingly concerned with interbank risk on large-dollar
funds transfer networks. Such networks include Fedwire, CHIPS, Cash Wire, and CHESS. The growth in the amount
of funds transferred over these networks has resulted in some banks having intraday net debit positions far in excess
of their capital. If an institution should fail unexpectedly during the course of the day, and thus be unable to cover its
position, the Federal Reserve and other network participants could suffer serious financial loss. Moreover, the failure
could disrupt the smooth operation of the entire payments system.
The Federal Reserve has requested public comment by October 29, 1984 on possible methods for reducing risk in
large-dollar transfer networks. To ensure full understanding of payments risk issues and the methods proposed for
comment, the San Francisco Reserve Bank will host a half-day seminar on payment system risks at three locations and
times listed below:

Locations and Dates of

Payments Risk Educational Seminars
Sheraton Grand Hotel, Los Angeles
Hyatt Regency Embarcadero Hotel,

September 18
September 19

9-11:45 a.m.
9-11:45 a.m.

September 20

9-11:45 a.m.

San Francisco

Westin Hotel, Seattle

The seminars are co-sponsored by the American Bankers Association and will include speakers from both corre
spondent and community banks in addition to representatives of the Federal Reserve. We hope a senior member of
your management team can attend. Please notify Maggie Saunders by September 4 at the Federal Reserve Bank of
San Francisco, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2439.

FOR PUBLIC COMMENT

Capital Adequacy
Guidelines

The Federal Reserve Board has requested comment by September 24,1984 on a proposed revision

of its guidelines regarding capital adequacy for state member banks and bank holding companies
and on a supporting regulation to establish procedures for enforcing compliance with capital re
quirements

The Board asked that comments focus on the differences between the proposed guidelines and

those being proposed by the other federal bank regulators. Specific issues include:
1. Issuing substantive capital requirements in a regulation oi in the form of guidelines
The Board's proposed capital guidelines increase minimum required primary and total capital for
all but smaller member banks and bank holding companies. All state member banks and all bank

holding companies would be required to have minimum primary capital equal to 5.5 percent of
total assets, and total capital equal to 6 percent of total adjusted assets

2. Relying upon the concept of capital zones as embodied in the Board's guidelines or only on a
requirement of a "minimum capital" level. The Board proposed to continue using- at higher
levels of capitalization for larger banks and bank holding companies- its "zone" concept of
appropriate capital for those institutions under its supervision. The standards are as follows:
Zone 1: Institutions with capital equal to at least 7 percent of total assets would be considered
adequately capitalized.

Zone 2: Institutions operating with total capital equal to 6 to 7 percent of their total assets
would be considered marginally capitalized, subject to consideration of other financial factors.

Zone 3: Banking organizations with total capital equal to less than 6 percent of their total
assets may be considered under-capitalized in the absence of clear extenuating circumstances.
3. Deducting intangible assets in deriving primary capital ratios

4. Whether to include equity commitment notes as a component of primary capital

The supporting procedural regulation proposes a number of supervisory actions such as sub
mission of a plan for achieving capital adequacy and possible administrative enforcement
actions, including possible denial of applications, that may be taken if a banking organization
falls below required minimum ratios.

The proposed rules emphasize giving the Board flexibility to deal with situations of under
capitalization in particular banks and bank holding companies, while insisting upon current and
continued progress toward adequate capitalization.

For copies of the Board's proposal, please contact Corporate Services at (415) 974-2752. For fur
ther information, please contact Merle Borchert in Supervision, Regulation, and Credit at (415)
974-2238.

Revised Quarterly

Reports of Assets
and Liabilities

The Federal Financial Institutions Examination Council (FFIEC) has asked for public comment on a

proposed revision of the Quarterly Report of Assets and t labilities of U.S. branches and agencies of
foreign banks (Form FFIEC 002) to become effective with the March 31, 1985 report date. The Coun
cil asked foi comments by September 10, 1984.

Proposed revisions reflect i hanging need:, lm minimal
h>i suptiivisoiy purposes and changing
banking conditions and practices (,iniespuiidin.| levismiis alioady have been incorporated in the
reports of condition and income icquiied In be hied guaiteily by II S ch.iiteied commercial banks.

MONETARY POLICY OBJECTIVES FOR 1984 AND 1985

On July 25, Federal Reserve; Board Chairman Paul Volckei presented a mid year report to the Congress on the Federal
Reserve's monetary policy objectives for the remainder of 1984 and its pioposals for 1985 Hie report includes a
review of economic and financial developments in the lust half of 1984 and the economic outlook heading into 1985.

Single or multiple copies of the report can be obtained upon request from the Public Information Department, Federal
Reserve Bank of San Francisco, P.O. Box 7702, San Francisco, CA 94120. Phone (415) 974 2246.