Full text of Federal Reserve Notes : February 1979

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15

Reserve Notes

KH»

FEDERAL RESERVE BANK OF SAN FRANCISCO

•

FEBRUARY 1979

LIBRARY

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

FED PROPOSES NEW
EDGE ACT POWERS
The

Federal

Reserve

Board

of

Governors this month proposed a
major expansion of the powers of
Edge Act corporations. "Edges"
are corporations engaged in cer
tain international banking and fi
nancial operations, under the terms
of the 1919 Edge Act and the
amendments to that act contained

in the International Banking Act of
1978.

The proposed revisions of the Fed's
Regulation K would allow Edge Act
subsidiaries, for the first time, to
provide a full range of deposit and
other banking services to a
(From left) John J. Balles, President, Federal Reserve Bank of San Francisco, greets
G. William Miller, Chairman of the Board of Governors.

MILLER GIVES VIEWS OF WAR ON INFLATION
In a series of speeches to com
munity leaders last month in San
Francisco and Los Angeles,
Federal

Reserve

Chairman

G.

Fed could not do the job by itself,
and that the war against inflation
needed to be fought on many fronts.
He also cautioned that defeating in

inflation

flation would involve more than a

was "a clear and present danger"

short skirmish. "The inflation we

to our nation's economic

have today has built up over a
dozen or so years, and has become
deeply imbedded in our economy.
Rooting it out will involve time."

William

Miller

said

that

health.

Miller was introduced in San Fran

cisco by Joseph F. Alibrandi, Chair
man of the Board of Directors of the
Federal Reserve Bank of San Fran

cisco, and in Los Angeles by
Caroline Leonetti Ahmanson,
Chairman

of

the

Bank's

Los

Angeles Board. President John J.
Balles also spoke at the San Fran
cisco meeting.
Reviewing the Federal Reserve's
key role in fighting inflation, Miller
said that the System is committed to
"pushing the rate down toward
zero, where it ought to be."
However, he emphasized that the

Miller said that the President and

Congress should be commended
for a recent shift in fiscal policy, in
volving a sharp reduction in
Federal deficit financing. He noted
that the deficit for fiscal 1979, origi
nally planned at $61 billion, had
been reduced subsequently to $38
billion — a reduction of over a third.

The $29-billion deficit planned for
fiscal 1980 would involve a further
substantial decline. One side-effect

(Continued on pg. 2)

specially-designated category of
domestic customers. Edges also
would

be

allowed

to

establish

branches throughout the United
States, even though their parent
banks are prohibited from doing so
by the McFadden Act. These sub
sidiaries are limited on a transac

tion-by-transaction basis to certain
export and import services: they
now would be permitted to finance
the production of goods in the U.S.
for export.
Edge Act units and banks, along
with their holding companies,
would be permitted under the pro
posals to invest in a variety of
designated types of operations
without first obtaining specific
Federal Reserve approval. This
should help to stimulate the estab
lishment of foreign branches and
subsidiaries by such institutions.
The Board listed several important
national goals which Congress in
tended to achieve through last
year's Edge Act amendments.
(Continued on pg. 4)

MILLER GIVES VIEWS
(Continued from pg. 1)

of reducing the deficit, the Chair
man noted, will be to reduce the
role of government in the economy.
Following up on this thought, Miller
agreed that the American economy

may be over-regulated. "Reduction
of regulation, however, does not
mean that we must give up legiti
mate social objectives; it simply
means that we explicitly examine
the cost of regulation and compare
this

MINT BEGINS PRODUCING ANTHONY DOLLAR COIN

Treasury Secretary W. Michael Blumenthal struck the first San Fran
cisco

version

of the

Susan

B.

Anthony dollar coin at the San
Francisco Mint in early February.
President John J. Balles and other
officials

of

the

Federal

Reserve

Bank of San Francisco also partici
pated in the ceremony. Treasury
participants included Undersecre
tary Bette B. Anderson and Director
of the Mint Stella B. Hackel, as well
as Chief Engraver Frank Gasparro,
the coin's designer.
More than 500 million of the new
coins will be minted over the next
several months at the San

Fran

cisco, Denver and Philadelphia
mints, and will then be released to
the public in July. The "S" mint
mark will be used to designate the
Anthony dollars struck at the San
Francisco Mint, and the "D" and
"P" mint marks will be used for the

Denver and Philadelphia coins,
respectively.

weighs only one-third as much as
the like value in quarters.
The Treasury expects production-

cost savings of more than $4 million
a year, compared to the cost of producing the Eisenhower dollar.
Much larger savings could be ob
tained, however, to the extent that

dollar coins replace dollar bills in
circulation. Treasury officials claim
that, while it costs $28 million an
nually to maintain a circulation
pool of 2.4 billion one-dollar notes,
with each note replaced every 18
months, it would cost only $5
million annually to maintain the
same-size pool of dollar coins — a
net savings to the Government of
$23 million.

In discussions with Treasury offi
cials following the Mint ceremony,
Balles pointed out that the Federal
Reserve System handles more than
17 billion coins and 8 billion pieces
of currency a year, maintaining a
smooth flow of cash between the

Treasury and the banking system.

Congress selected the Anthony
design in recognition of Susan B.
Anthony's lifelong struggle to
achieve women's right to vote. The

cisco district, which serve a market
of 35 million Westerners, by them

reverse side shows an

selves

American

eagle landing on the Moon. Like all
large coins, it is made of a coppernickel alloy bonded to a 100-per
cent copper core.
The

new

coin

is

one

inch

in

diameter, eight grams in weight,
and has a distinctive 11-sided inner

border. The coin is only two-thirds
the

diameter

and

one-third

the

The five offices in the San Fran

handle

about

two

billion

coins and one billion pieces of cur
rency a year.

Balles added, "Anything which im
proves the efficiency of the nation's
payments mechanism thus should
be very helpful to the Federal
Reserve System. For that reason, I
welcome the appearance of the
Anthony dollar, and I pledge that

cost

to

the

benefit

to

be

gained." He said that regulation in
creases the cost of doing business,
which in turn exerts upward pres
sure on consumer prices — a rela
tionship that cannot be ignored in
inflationary times like these.
As part of the anti-inflation fight,
Miller called for an improvement in
the productivity of the American
economy. For the first several
decades following World War II,
productivity grew more than 3 per
cent a year, but in the past halfdecade the growth rate has fallen to
only about 1 percent.
As might be expected, this rate is
considerably smaller than that of
other major countries. The cure
seems to involve stimulating invest
ment, for while Japan and West
Germany devote roughly 20 percent
and 15 percent of their total output,
respectively, to the creation of new
plant and equipment, the U.S. has
failed to muster even 10 percent of
its GNP to renew its productive
capacity.

U.S. energy policy is another impor
tant factor in the inflation fight, ac
cording to Miller. He noted that the
very large U.S. trade deficit has
been blamed as a major cause of
the decline of the dollar, which in
turn has been regarded as a source
of the higher-than-expected infla
tion experienced in 1978. "Since
the tremendous

U.S.

demand for

foreign oil is an important part of
our trade imbalance, clearly we will
have to switch to other sources of

energy." The Chairman specifically
mentioned the recent natural-gas
legislation, which eliminated the
pricing distinction between interand intra-state gas and thus helped

weight of the Eisenhower dollar,
and thus should avoid the problem
of cumbersome size and weight

effort

that has limited the usefulness of

the many advantages of the new

cause a sudden shift from a short

the older coin. Each new dollar coin

coin."^

age to a surplus of natural gas. ifr

our staff will make a whole-hearted

to

impress

bankers,

merchants and their customers with

FED PUBLISHES
CONSUMER HANDBOOK
The

Federal

Reserve

Board

FED TO BREAK GROUND

FOR NEW HEADQUARTERS
of

The Federal Reserve Bank of San

Governors last month published a

Francisco is preparing to break
ground for a new headquarters
building later this year, with a plan
designed to improve working con
ditions for employees and to im
prove levels of services for the fi
nancial community and the general
public. The 12-story, 653,000square foot building will be built

"Consumer Handbook to Credit

Protection Laws," the latest in a
series of System publications
designed to improve the public's
understanding of consumer legis
lation.

The handbook explains consumer

rights under the major credit-pro
tection laws. Specifically, it ex
plains how the consumer-credit
laws can help borrowers shop for
credit, apply for it, keep up their
credit standings, and complain
about possible abuses. The booklet
also points out how the laws have
helped deal with credit practices
that formerly had tended to dis
criminate against women and
minorities.

Copies of the
Handbook

to

"Consumer

Credit

Protection

Laws" may be obtained, singly or in
bulk, free of charge from the Public
Information Section, Federal
Reserve Bank of San Francisco,
P.O. Box 7702, San Francisco
94120. Phone (415) 544-2184.

near the foot of San

Francisco's

the convenience of its staff and the

The new building will be designed
to welcome Bay Area residents and
tourists, in contrast to the restricted

access to the present building. The
lobby will host historical exhibits of
the Western financial community
and of the Federal Reserve's role in

the regional and national
economies. The displays will be
chosen for their instructional value
as well as attractiveness. The cash

vault and associated functions re

quiring heavy security will be lo
cated in the rear of the new build

ing.

Chairman Miller noted that support
for the President's wage and price
guidelines appeared to be growing.
An increasing number of major cor
porations have pledged their sup
port, and the voluntary guidelines
were also respected in the first
union test with the Oil, Chemical
and Atomic Workers. The Chairman

strongly emphasized that there was
no plan to reintroduce mandatory
controls, mainly because they just

The bank is choosing a downtown
rather than a suburban location for

the new building, partly because of
its strong commitment to maintain
ing the vitality of the central city.
With its widespread respon
sibilities, the bank believes that it
can serve the Bay Area best by
locating its new facility adjacent to
the downtown business district.

Federal Reserve intended to follow

The new location also provides
strong transportation advantages
and operating efficiencies. For ex
ample, the check operations and
central cash vaults of the large

along the policy line adopted last
November 1, as a means of fighting

downtown San Francisco, so that a

do not work.

Finally, Miller noted that the

inflation and supporting the dollar.
He admitted that this policy could
run the risk of recession. However,
the more likely outcome would be a
period of slow economic growth
accompanied by a modest increase
in the unemployment rate. He said
that an outright recession, defined
as two or more quarters of actual
decline in real GNP, did not seem to

be in the cards.#

Kjr.

Market Street — opposite the Hyatt
Regency Hotel — replacing the
bank's present Sansome Street
headquarters.

commercial banks are located in

central location produces the most
efficient and least costly operation.
The present offices, built in the
early 1920's, in contrast are small
and inefficient from the standpoint
of 1980-style banking operations.
The bank presently is utilizing
space in two other buildings as well
as the headquarters building, and it
needs to consolidate operations for

financial community.
The bank's currency and coin
operations have increased about 60
percent over the past decade alone,

and its check-processing activities
have increased at double that rate.

Again, the bank has undertaken a
major expansion of data-process
ing and computer-services
facilities, to accommodate such in
creasingly important functions as
automated check handling and
electronic funds transfers.

The site for the new building is the
block bounded by Market, Mission,
Main and Spear Streets. The
architectural firm of Skidmore,
Owings and Merrill is handling the
architectural work, and Dinwiddie
Construction Co. is the construc

tion manager for the project, which
is due for completion in 1982. The
total budget for the new building is
$80 million, which includes the cost
of planning, construction and
specialized equipment.

The cost of the new building will be
met in part from the sale of the pre
sent structure, and in part from
Federal Reserve System earnings
— mostly earnings on its portfolio
of government securities. The
System as a whole earned about
$8.5 billion last year, but turned
over more than 80 percent of that
amount to the U.S. Treasury. The
remainder was required for the
operations and capital budgets (in
cluding buildings) of the Board of
Governors

and the

12

Reserve

Banks, plus statutory dividends to

Federal Reserve member banks.#

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EDGE ACT POWERS
(Continued from pg. 1)

resident with an Edge Corporation
must be directly related to an inter
national transaction. This has made

"Congress declared that Edge cor
porations are to have powers suffi
ciently broad to enable them to
compete with foreign banks in the
United States as well as abroad,

and to provide all segments of the
United States economy a means of
financing international trade and, in
particular, exports.
"In addition, Edge corporations are
to serve as a means of fostering the
participation of regional and
smaller

banks in

international

banking and financing and, in
general, to stimulate competition in
making those services available
throughout the United States."
Regarding banking operations in
the United States, the regulatory
revisions would create for Edge
corporations a new class of interna
tional customer, whose deposit and
loan business would be presumed
to be for international purposes.
Customers having more than twothirds of their purchases or sales in
international commerce would

it difficult for Edges to compete

effectively for international busi
ness. However, international
customers that meet the new test

would be able to conduct a

full

banking business with Edge cor
porations. Also, for all customers,
these corporations would be per
mitted to finance the production of
U.S. goods for exports, and not
simply their shipment and storage
as at present.

Again, Edge corporations would be
allowed to establish branches in

the United States with specific prior
Board approval. Under current
regulations, banks or other spon
sors have been required to incor
porate separate domestic Edge cor
porations whenever they wanted to
provide international banking ser
vices at different locations inside

this country.
The proposal would be consistent
with the International Banking Act's
directive

to

make

international

arising from multiple incorpora
tions, to promote use of Edge cor
porations by smaller and regional
banks, and to contribute to the effi
ciency of Edge corporations.
Regarding regulatory approvals,
the Fed's proposal would provide
expanded and simplified pro
cedures for investments by banks,
Edge corporations, and bank hold
ing companies. The Board would
grant general consent for invest
ments of up to $2 million in foreign
subsidiaries and joint ventures if
they are engaged in permissible
activities specified in the regula
tion. It also would grant consent for
limited portfolio investments in
other companies. The activities
specified in the regulation are
those the Board generally has
allowed foreign subsidiaries,
because they are either of a finan
cial character or are related to in

ternational banking and financial
operations.
Further information on Regulation
K and the new Edge Act proposals
can be obtained from the Supervi
sion, Regulation and Credit Depart

qualify as international customers.

banking and financial services
available throughout the United

Under current rules, each deposit

States. It is intended, further, to

of San Francisco, P.O. Box 7702,
San Francisco, 94120. Phone (415)

and credit transaction by a U.S.

reduce costs and inconveniences

544-2266. *§r

ment of the Federal Reserve Bank