Full text of Federal Reserve Notes : January 1977

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO • JANUARY 1977
Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

COMPUTER WORK GROWS
AT SAN FRANCISCO FED

NOBEL WINNER NAMED
VISITING SCHOLAR
Nobel

Laureate

Milton

During the past five years, Federal
Reserve computer applications have
accelerated dramatically in such
areas as checks, budget, research
and cost accounting. In the words of

Friedman

joined the San Francisco Federal
Reserve Bank this month as a Visiting
Scholar for the January-March winter
quarter.

Senior Vice President Richard T. Grif

"The Visiting Scholar position was
inaugurated at the Bank to encourage
creative

research

and

the

fith, who heads the Computer Servic
es Group at the San Francisco Feder
al Reserve Bank, "Our job is to
increase the Bank's productivity by
employing computer technology and
instituting new system approaches to
major Fed operations."

inter

change of ideas by practicing schol
ars in the specialty of economics,"
President John J. Balles said. "We're
honored to have Milton Friedman with
us in this role. He has altered the

course of economic thinking with his
contributions both to the theory and
practice of the science."
Friedman received the Nobel Prize in
economics last month in Stockholm.

In awarding the prize, the Swedish
Royal Academy of Science cited his

Friedman

grow in line with the growth of output
of goods and services to maintain
price stability. If money grows in ex
cess of real output it will create prob
lems of inflation.

achievements in the fields of con

sumption analysis, monetary history
and theory, and economic stabiliza
tion policy.
Friedman retired at year-end as the
Paul Snowden Distinguished Service

Friedman attended Rutgers Universi
ty and the University of Chicago,
before receiving a Ph.D. at Columbia
University. He began his professional
career as a research assistant with

the University of Chicago. During the

Professor of Economics at the Uni

1930s and the Second World War, he

versity of Chicago. He is nationally

served in a number of research posi

known for his column in Newsweek

tions with

and for his frequent service as advisor
to various government agencies.

search and the U.S. Treasury.

The most widely known monetarist,
he is a leader of the so-called "Chica

go School" of economic thought. This
group holds that the government's
most important economic tool is its
ability to regulate the basic money
supply, which consists of currency in
circulation plus most commercialbank deposits. According to this view,
the nation's supply of money should

National

such

institutions as the

Bureau of Economic Re

His teaching career spans four dec
ades, from the time he was a part-time
lecturer at Columbia University
through his period of association with
the University of Chicago. He has
been a Fulbright lecturer at Cam
bridge University (England) and a
Visiting Professor at Columbia Uni
versity, the University of California at
(continued on page 3)

R.T. Griffith

Griffith, who joined the Fed in 1975
after serving as Vice President of
Crocker National Bank and Executive

V.P. of Teknekron, Inc., was promoted
this month to Senior Vice President,
with responsibility for all dataprocessing activities in the Twelfth
Federal Reserve District.

The Bank installed its first major
general-purpose computer in San
Francisco in 1969. However, the
branch offices functioned independ(continued on page 2)

K.A. Grant

COMPUTER WORK

member banks will facilitate an even

(continued from page 1)

higher volume of money transfers.

ently, with different equipment and
procedures. Today, the Bank has the
latest computer equipment, and all
offices have begun to standardize
their computer hardware and operat
ing systems.

This effort has helped the success of
the new program of direct deposit of
social-security checks, which in
volves 2,000 financial institutions and

one million recipients in the Twelfth
District. The Bank is

now able to

transfer social-security payments
from the Treasury directly to a recipi
ent's savings or checking account in

The Computer Services Group is
playing an essential role in this tran
sition. To facilitate the process, man
agement reorganized the group into
functional activities, with staff sepa
rated from production, and with provi

The system saves time and expense
and eliminates the danger of loss or
theft for recipients of social security

sion made for District-wide coordina

payments.

tion under the Computer Services
Group.
Kenneth A. Grant, Director of Com

puter Systems, has a staff of about 40
analysts and programmers. His de
partment, which is responsible for the
development of new system projects
and applications, is organized along
three major lines following the Bank's
structure—Corporate Staff, Branch
Operations and District Departments.
Corporate Services is primarily con
cerned with the Bank's personnel and
budget and control functions. District
Services works on such projects as
econometric studies, monetary data,
operations research and bank exami
nations, while Branch Services fo

cuses on cash, check and fiscal oper

the financial institution of his choice.

In operating this program, the Bank
built on the experience it had already
gained with other recurring-payment
programs, such as Federal civilservice

retirement,

railroad

retire

ment, revenue sharing, and Air Force
payroll and retirement. This activity
will be expanded later to include Vet
erans Administration payments.

In automated clearing-house (ACH)
activities, the Twelfth District current

ly clears 85,000 commercial items
and 1 million government items each
month. This work will grow considera
bly as the system expands to five
clearing-house operations for com
mercial use. Portland, Los Angeles
and San Francisco are already on
line, and Seattle and Salt Lake City will
be added later.

ations.
H.A. Martin

Hector M. Martin, Director of Com

puter Operations, heads a staff of 45
which is responsible for hardware
planning, computer processing and
branch-operations control.
Assistant Vice President Keith B. Da

vis heads a staff of 30 in Support
Services, with such responsibilities as

long-range planning, operating sys
tems, data base/data communica
tions
technology,
managementinformation reports and financial
analysis.
One of the Bank's major computer
accomplishments of 1976 was the
development of an enhanced "Fed
wire" money-transfer system, which
can transfer up to 20,000 messages a
day between the Fed and memberK.B. Davis

bank

terminals.

In

the

future,

computer-to-computer interface with

Elsewhere throughout the Bank, the
computer's impact is evident in a
number of service improvements. For
example, a new check-processing
control system, utilizing high-speed
check reader-sorters, now permits
member banks to deposit checks until
midnight and still receive immediate
credit for their cash letters. In this and

other ways, the full resources of the
computer are being used to improve
Federal Reserve services to commer

cial banks and the general public.%
ECONOMIC REVIEW

A new mailing list is being created
for the quarterly Economic Re
view based on the return of sub

scription cards included in the
last issue of that publication. If
you were on the mailing list and
wish to remain on it, please return
your card promptly.

BOOK-ENTRY MATERIAL

WESTERN BORROWING

NOW AVAILABLE

COSTS DECLINE

Claims for about $1 million in lost or

Business borrowing costs at West

stolen securities are received each

Coast banks continued to decline in

month by the Treasury Department.

the late fall months, according to the

For this and other reasons, the Treas

Federal Reserve Bank of San Fran

ury and the Federal Reserve System
have launched a program—"book
entry"—to eliminate millions of pieces
of paper that flow out of funding the

cisco's latest quarterly interest-rate
survey. This decrease reflected a
continued easing of money-market
rates, as well as a two-step drop in the
prime business-loan rate from the
level prevailing last summer.

national debt.

Loans Under

$10,000

The Federal Reserve Bank of San
Francisco now makes a film and a

Market

slide presentation available, explain
ing how book-entry operates and

rates charged by banks, have fluctu
ated since the November survey,
declining until about year-end and
then rising in early January.

what it means to commercial bankers.

As the film illustrates, the program is
designed to eliminate definitive secu
rities by making all public debt avail
able only in the form of computer
entries at a

Reserve

Bank or the

Treasury.
In the Treasury's view, book-entry is
an answer to the paperwork crisis, by
reducing substantially the cost of
issuing, storing and delivering Treas
ury securities. In addition, it protects
the investor against loss, theft and
counterfeiting.

rates, which

influence the

Between the August and November
survey periods, the average rate on
regular short-term loans dropped 63

basis points, to 7.52 percent. (One
hundred basis points equal one per
centage point.) Rates on revolvingcredit loans fell by 62 basis points to
an average of 7.11 percent.
The decline in interest rates occurred

in all loan-size categories. However,
Banks that are not Fed members will

Over 80 percent of the nearly $350
billion in outstanding marketable debt
is already in book-entry form, under a
system initiated in 1968. However, the
Treasury is continuing to improve the
program.

Eventually, all transactions will be
documented, providing the investor
with a confirmation that describes the

amount, maturity date and identifica
tion number of his holdings. But an
exception will be made for a small
number of institutional investors that

are prevented by law or regulation
from holding securities in book-entry
form. Definitive bills in $100,000 de
nomination will be available to such
investors for a limited time.

The Treasury moved last month to
require "book-entry only" for 52-week
Treasury bills, and it plans to expand
this rule to six-month bills in June and

to three-month bills in September. By
year-end, all Treasury bills should be
in book-entry form only, and buyers
will no longer have the option of taking
physical possession of their bills.

utilize the book-entry system, either
for themselves or for their customers'

accounts, through a member bank or
a Reserve Bank. The Treasury hopes
to convert all notes, bonds and bills to

book-entry form eventually. However,
savings bonds will continue to be
available in their present certificate
form.

A Treasury-produced film and a relat
ed slide presentation explain the key
parts of the book-entry program. The
12-minute film provides a general
description of the benefits of bookentry and the procedures involved. A
two-part, 25-minute slide show with
audio cassette provides more de
tailed information for bank employ
ees. Part I covers the need for com

puterizing paperwork and the devel
opment of telegraphic transfer of se
curities; Part II focuses on the actual

book-entry procedures.

1973

1974

1975

1976

large borrowers benefited more than
small borrowers, since many of them
were able to take advantage of the
declining prime rate. The average

rate for regular short-term loans of $1
million and over fell by 71 basis points
to 7.34 percent. In comparison, rates

on loans of $10,000 or less averaged
9.08 percent, representing a 19-point
decline.

In the November 1 -15 survey period,
the thirteen banks in the survey re
ported 1,983 short-term and
revolving-credit loans, for a total vol
ume of $833 million. Although the
number of loans was slightly greater
than reported in the August survey,
the dollar amount extended was less.

This is contrary to the normal pattern
in a recovery period, when a rise in the
average size of loan would generally

be expected.%
NOBEL WINNER NAMED

(continued from page 1)
Los Angeles, and the University of
Hawaii.

Friedman is the author of nearly 20

books and many scholarly articles.
His most famous book, written with
Anna Schwartz, is the definitive

Monetary History of the United States,
1867-1960. He is past-president of
the American Economic Association,

and holds memberships in many
scholarly societies.
His own assessment of himself is

ment of the nearest office of the Fed

characteristically simple. "It's not my
job to persuade people about things,"
Friedman says. "I just develop ideas
and leave them lying around for other

eral Reserve Bank of San Francisco.

people to pick up."ijflr

For information on the book-entryfilm
and the slide presentation, contact
the Bank and Public Relations depart

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FED ASKS FOR DATA
TO CHECK CREDIT BIAS

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BDX PROGRAM
NOW UNDERWAY

Banks choosing to utilize this service
simply provide the San Francisco Fed
with

The Federal Reserve Board of Gover

Banks

nors has asked creditors to provide
information for monitoring credit bias
on mortgage loans, through a pro
posed amendmentto its Regulation B.

Washington can now enroll in the
Branch Data Exchange (BDX) pro
gram, covering marketing data forthe
second half of 1976, by submitting

The proposed revision would enforce
the 1976 Amendments to the Equal
Credit Opportunity Act. The original
Act prohibited discrimination in any
aspect of a credit transaction on the

the nearest Federal Reserve office by
mid-February. All member and non-

in

Arizona,

California and

authorization and information forms to

basis of sex or marital status, and the

member banks in these states are

eligible for this free program, and
efforts are being made to extend the
service to Oregon.

1976 amendments extended these

prohibitions to cover discrimination in
regard to race, color, religion, national
origin, age, receipt of income from a
public assistance program, and
good-faith exercise of rights under
the Consumer Credit Protection Act.

These amendments go into effect on
March 23, 1977,
Since the amendments make sub

stantial changes in the Act, numerous
Reg B revisions have become neces
sary. The latest revision would require
creditors to monitor mortgage-loan
transactions to prevent credit bias.
The Board pointed out that a home is
generally the single most important
purchase a consumer makes, and
that access to mortgage credit should
be widely available, without threat of
discrimination. The dollar amount of

applications for mortgage credit is
large, and yet the per unit cost for
noting credit information would be
relatively small.

an

initial authorization to ex

change data with other participants.
The next step is to supply individual
branch data either on a schedule, on

punched cards, or on tape for each
survey date. The Fed processes and
compiles the information into a con
fidential report for each bank, detail
ing the bank's comparative position
for each county or market subarea in
which

it maintains

an

established

branch. The surveys are conducted
semi-annually, but the participants
themselves decide on the reporting
frequency and type of data they need.
The program has enrolled 125 banks
to date—13 in Arizona, 31 in Wash

ington, and 81 in California. Forfurther
The Reg B requirement would apply
to any creditor that receives a credit
application for the purchase of resi
dential real property secured by a lien.
The creditor would be required to
request information on race, national
origin, sex, marital status, and age, as
part of any written application.
Under the regulation, the applicant
would be informed that this informa

tion was being requested by the Fed
eral Government for the purpose of
monitoring compliance with Federal
anti-discrimination statutes. An indi

vidual would be asked to supply the
information, but would not be required

to do so. iff*

information about BDX, contact the

Bank and Public Services Depart
ment at the nearest Fed office or—in

San

Francisco—Paul

Van

Etten,

Manager of Banking and Statistical

Reports, (415) 544-2183.^,
FCA REMINDER

Functional Cost Analysis schedules
for 1976 are now being processed at
the San Francisco Office. California
member banks interested in submit

ting data for 1976 should contact Dick
Ranftle, Functional Cost Analyst,
(415)544-2351 or 2233. Outside Cal
ifornia, call toll free (800) 227-4133 or
4143.