Full text of Federal Reserve Notes : June 1983

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•

June 1983

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

FEDERAL RESERVE
CHECK FLOAT

VOLCKER REAPPOINTED

The Federal Reserve Board has

In his weekly radio broadcast on
June 18, President Ronald Reagan
announced his reappointment of
Paul Volcker to the chairmanship of

approved procedures to eliminate
or price all Federal Reserve check
float. Such float is the value of
checks for which the Federal Re

serve has given credit to the institu
tion that deposited the checks for
collection, but for which the Federal

Reserve has not yet received
payment.
In November 1982, the Board

requested public comment on a pro
posal to charge depository institu
tions for large ($50,000 or more)
interterritory returned checks as a

FED CHAIRMAN

the Federal Reserve Board. "I have

today asked chairman Paul Volcker
to accept reappointment for another
term. He's agreed to do so, and
I couldn't be more pleased." Later
in the day, Volcker expressed his
thanks and discussed the economy:
"...we now have a rare opportunity
to achieve sustained growth on a
firm foundation of stability."
Wall Street officials seemed to con

PAUL VOLCKER

Federal Reserve float because Re

cur with his assessment as they
endorsed Reagan's decision. They
had earlier encouraged Volcker's
reappointment, citing his efforts to

serve Banks are unable to debit

slow inflation and to check the com

posts including the presidency of

immediately the original depositing

plex problems associated with bor
rowing by developing countries. In
addition to support from market offi

the Federal Reserve Bank of New

result of a wire notification from the

returning Federal Reserve office.
Interterritory returned checks cause

institution's account for the returned
checks.

After reviewing comment received,
the Board decided not to adopt the

proposal but, instead, to defer credit
for interterritory returned items for
one day. This one-day deferral of

cials, Volcker also received boosts

Before his first appointment as
chairman of the Fed, Volcker had
served in three Federal Reseve

York. Prior to joining the Fed, he had
worked as an economist and longrange planner at Chase Manhattan

from the cental bankers of other

Bank and, before that, at the U.S.

countries and key legislators.

Treasury. | |

depository institution closes as per
mitted by state law and days on
which the paying bank is closed
because of a state or local holiday.

posals to price intraterritory trans
portation float and the other
remaining categories of check float.
The Board has approved the pro
posals to price these categories of
check float by adding the cost of

credit will eliminate $130 million of

interterritory return-item float; it will
be implemented on August 1, 1983.
Interterritory returned items will
continue to receive immediate avail

ability if deposited in separatelysorted return item letters.

In April 1982, the Board proposed
an amendment to Regulation J to

require paying banks to pay for
checks delivered or made available

to them on days the paying banks
are closed and on which the Re

serve Bank is open. Such days con
sist of regular weekdays on which a

In response to comment received,
the Board did not adopt the pro
posed amendment at this time. As
an alternative, the Board decided to

eliminate or price float arising from
midweek closings and nonstandard
holidays, beginning in October 1983.
The Board also had requested
comment in November 1982 on pro

such float to the cost of the check

collection service. This procedure
will begin in October 1983.
For further information, please

contact the Check Officer of your
local Federal Reserve Office. Wi

REGULATIONS AND OPERATIONS UPDATE

Regulation D—Reserve Requirements: The Federal
Reserve Board has issued an interpretation on bankers'
acceptances (12 CFR 250.164), effective July 30, 1983.
The interpretation relates to the recent change in the
Bank Export Services Act which raised the limits on the
aggregate amounts of eligible bankers' acceptances that
may be granted by (individual) member banks and certain
U.S. branches and agencies of foreign banks. (Bankers'
acceptances are short-term instruments used to facilitate
international trade.)

Regulations E and Z—Electronic Fund Transfers and
Truth in Lending: Slipsheets bringing the Regulation E
and Regulation Z commentary pamphlets (dated October
1981 and April 1981, respectively) up to date are avail
able from the Corporate Services Department at (415)

The Board also amended sections 204.2(a)(l)(viii),

effect on November 21, 1983. Brokers and dealers may,

204.2(c)(l)(ii), and 204.2(f)(l)(v) of Regulation D, effective
June 20, 1983, to treat as a reservable deposit any ineli
gible bankers' acceptance not held in the creating depos
itory institution's portfolio, regardless of whether the
institution that created the ineligible bankers' acceptance
subsequently discounts and sells it.

however, choose to operate under its terms now. The
revised regulation is shortened by approximately a third.

"Eligible" bankers' acceptances are not subject to Fed
eral Reserve requirements. They must meet criteria in
Section 13 of the Federal Reserve Act, including require

ments that the acceptance (1) grow out of a trade transac
tion involving exporting, importing or domestic shipment
of goods or storage of readily marketable staples and (2)
have a maturity of less than six months. "Ineligible" ac
ceptances are those not meeting these requirements.
For further information on ineligible acceptances and
associated reserve requirements, please contact Gail

Taylor, reports officer, at (415) 974-2055, or Sara Gar
rison, vice president, at (415) 974-2169. Copies of the
Federal Register documents are available from our Cor
porate Services Department at (415) 974-2752. Other
questions concerning bankers' acceptances can be
directed to Rodney Reid in Supervision, Regulation, and
Credit at (415) 974-2266.

Regulation Q—Interest On Deposits: The Board of
Governors has temporarily suspended the Regulation Q
penalty for the withdrawal of time deposits prior to matu
rity from member banks for depositors affected by severe
storms, landslides and flooding in the Utah Counties of
Carbon, Emery, Utah, Davis, Salt Lake, Sanpete, Juab,
Millard, Sevier, and Beaver.

A member bank should obtain from a depositor seeking to
withdraw a time deposit pursuant to this action a signed

statement describing fully the disaster-related loss. This
statement should be approved and certified by an officer
of the bank.

This action is retroactive to April 30, 1983 for the Utah
counties of Carbon, Emery and Utah; June 3, 1983 for
Davis, Salt Lake and Sanpete; and June 7,1983, for Juab,
Millard, Sevier and Beaver. It will remain in effect until

12 midnight, December 2, 1983. For further information,
please contact Robert Mulford at (415) 974-2256 or
William Cooper at (415) 974-2254.

974-2752.

Regulation T—Credit by Brokers and Dealers: As part of
its regulatory improvement program, the Federal Reserve
Board has adopted a completely revised and simplified
version of Regulation T. The new regulation will go into

For further information, please contact David Vandre
in Consumer Affairs at (415) 974-2965. Copies of the
revised Regulation T are available from our Corporate
Services Department at (415) 974-2752.
FOR PUBLIC COMMENT

Regulation B—Equal Credit Opportunity: The Federal
Reserve Board intends to review Regulation B, Equal
Credit Opportunity, as part of its Regulatory Improvement
Project, and is asking for comment by August 30, 1983.
Since the Equal Credit Opportunity (ECO) Act has not
been amended, the Board does not expect extensive

changes similar to the revisions of Regulations Z (Truth
in Lending) and C (Home Mortgage Disclosure), which
followed substantial statutory amendments. The Board
wishes to lighten the burden of compliance while preserv
ing the consumer protections mandated by the ECO Act; it
therefore contemplates that the principal revisions will be
to update Regulation B.
For further information, please contact David Vandre in
Consumer Affairs at (415) 974-2965.

Participations in Bankers' Acceptances: The Board has
issued a proposed definition of participations in bankers'
acceptances with respect to the acceptance limitations
in the Bank Export Services Act (refer to discussion of
changes in Regulation D, above). Under the proposal,
such participations would have to meet certain minimum
requirements that are consistent with the Act and the
legislative history. The Board has requested comments
by August 5,1983.
For further information on this proposal (12 CFR 250.165),

please contact Rodney Reid in Supervision, Regulation,
and Credit at (415) 974-2266. Copies of this proposal are
available from the Corporate Services Department at
(415)974-2752.

Regulation Y—Bank Holding Companies: The Board
has extended its deadline for public comment on a pro

posed complete overhaul and updating of Regulation Y
(Docket R-0470) from July 18,1983 to August 1,1983.

FED APPROVES

BALLES ON SUSTAINING

SEAFIRST TAKEOVER

THE RECOVERY

On June 22, the Federal Reserve
Board announced its approval of the

application of BankAmerica Corpo

To sustain the economic recovery
and to allow further progress in low
ering interest rates, the president of

ration, based in San Francisco, to

the Federal Reserve Bank of San

acquire Seafirst Corporation, Seat

Francisco again stressed that
record government deficits must be
curbed. In a speech before approx
imately 250 community leaders at a

tle. Seafirst's shareholders, on June

28, gave their approval to the
merger by a 79 percent vote of out
standing shares. Only 66 percent
approval was needed according
to Seafirst Chairman Richard P.

luncheon on June 10, 1983 in Los

Angeles, John J. Balles said that the
biggest threat to prolonged recov

Cooley. The shareholders' favor
able vote was the third and final step
needed to complete the merger that
is the largest bank acquisition ever

ery was government borrowing,
which is expected to reach $208

across state lines.

fiscal 1984:

The first step was completed on
June 2, when the State Banking
Supervisor of Washington found
that the proposed acquisition of
Seafirst met the requirements of the
April 1983 amendment to the
State's banking laws. Approval by
the Board of Governors of the Fed

eral Reserve System constituted
the second step. In announcing its
decision, the Board referred to the

State of Washington's earlier deci
sion, saying that it satisfied the crite
rion set out by the Douglas Amend
ment to the Bank Holding Company
Act governing interstate bank acqui
sitions. The amendment allows

such acquisitions only if the state in
which the operations of the bank
and bank subsidiaries to be ac

quired are principally conducted
allows them.

zation in California and the second

largest banking institution in the
United States. Seafirst Corporation
is the largest commercial banking
organization in the State of Wash
ington. Taking their sizes into ac
count, the Board stated that it be

lieved the public benefits to result
from the acquisition "are substan
tial and mitigate the effects of any

Balles also discussed monetary pol
icy in the context of the rapid rise in
M1 (cash and checkable deposits)
experienced since last year. Speak
ing in early June, when money
supply figures for early May were
showing very rapid money growth,
he cautioned against focusing too
heavily on week-to-week move

ments in the money supply: "They
can often be misleading. In addition,
there can be serious technical prob
lems with interpreting April and May
money data because of the move

billion in fiscal 1983 and range

ments of funds during the tax-

between $150 and $202 billion in

payment and tax-refund season."

"These deficits could amount to as

much as 85 percent of available net
savings from the private sector and
the surpluses of state and local
governments...This will leave little
room for net private investment,
which is the key to growth in new
housing and business capital."
Balles said that the United States is

The Fed president said he expected
M1 to grow at a slower rate for the
remainder of 1983. "If that does not

appear to be happening, then the
Federal Reserve, in my opinion,
should take steps to assure that it
does, even at the expense of some
moderate rise in interest rates. Fail
ure to do this could result in an

intensification of inflationary ex
pectations and an even bigger

on its way to "a solid recovery this
year, but certainly no boom." He

increase in interest rates later on."

forecast an increase in real GNP for

Retaining a Flexible Policy

1983 close to 5 percent. Most of the
strength, he believed, would come

from consumer spending as declin
ing inflation and the 1983 income
tax cut add to consumers' purchas
ing power. In contrast, Balles cited
possible declines in capital spend
ing and exports because of excess
plant capacity and a strong U.S.
dollar.

BankAmerica Corporation is the
largest commercial banking organi

Slowing M1 Growth

For the non-inflationary recovery to
continue, the Fed official warned,

"will be almost impossible if Con
gress and the Administration fail to
curb the enormous budget deficits
which threaten either to short-circuit

the recovery or to unleash a new
round of inflation."

In conclusion, Balles argued that it
was important that the Federal Re

serve System retain its flexibility in
setting monetary policy "and not be
endangered by either rigid interestrate targeting or rigid money-growth
targeting."

He noted that this flexibility had
been critical in 1982 to allowing
monetary policy to stay on course
when the public's demand for
money unexpectedly rose. He said
that this episode illustrated again
the case for a strong, independent
central bank within government:
"The technical complexities of ad
justing the nation's monetary and
credit needs to a fast-changing
financial environment and pay
ments system cannot be handled

operates subsidiary banks in the

existing competition in any relevant
market. With regard to BankAmerica's application to acquire the nonbanking subsidiaries of Seafirst
Corporation, the Board came to the

well by a large deliberative body
such as Congress." He added that
Congress was correct 70 years ago
when it delegated authority over the
conduct of monetary policy to the
central bank "while keeping ulti

same markets, the transaction

same conclusion.Wf

mate control over the Fed's actions."

increase in concentration of re

sources resulting from the proposed
acquisition."
The Board added that since neither

would have no adverse effects on

w

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S.F. FED
OFFERS AUTOMATED
CASH ORDERING

NEW INSTRUCTIONS
FOR FR2900 AND FR2950

NEW ACCOUNTING
FOR CASH SHIPMENTS

Because of extensive changes as

New accounting procedures for
cash order and cash deposit entries
were adopted by the Federal Re

Since July 1, 1983, the San Fran
cisco Fed has been offering auto
mated cash ordering services to all
Twelfth District depository institu
tions through FedLine. Automated
cash ordering is the latest in a series

sociated with the revision to the

of enhancements to the FedLine

of Certain Eurocurrency Transac
tions (form FR2950) have been
developed.

system and allows a depository in
stitution to send its coin and cur

rency orders on-line directly to the
Federal Reserve Bank. Cash order

ing is not a priced service, and is
therefore available at no additional
cost to FedLine users.

Automated cash ordering should
save time by allowing institutions to
place orders up to 12:00 noon one
and one-half business days in ad
vance of the scheduled dispatch
date, allow closer coordination of
orders to transportation and deliv
ery schedules, provide immediate

Report of Transaction Accounts,
Other Deposits and Vault Cash (form
FR2900), revised versions of the
instructions booklets for prepar
ing the FR2900 and the Report

These booklets and additional infor

mation are available through Darlene
Choy at (415) 974-3083 or Cameron
Lundstrom at (415) 974-3104. Out
side California, their toll-free num

bers are (800) 227-4133, extensions

3083 and 3104, respectively. Ijflji

serve Bank of San Francisco and

took effect July 1, 1983. When a
depository institution orders coin or
currency from the S.F. Fed, the
Bank will debit the amount of the

order to the institution's reserve,

clearing, or designated correspon
dent account on the anticipated
delivery date instead of on the dis
patch date.
Also effective July 1,1983, the Bank
changed its procedures for giving
credit for deposits of currency or
coin from certain institutions. A

depository institution that is ex
empt from reserve requirements, or
whose vault cash exceeds reserve

verification of orders, eliminate the

who desire to add the on-line cash

need for paper forms and manual

ordering enhancement. In addition,
the Bank provides an easy-to-read

requirements, may be eligible to
receive credit for a cash shipment
on the day it sends the cash to the
Bank. Institutions meeting these
requirements and wishing to partic
ipate in the early credit arrangement

User Guide.

should contact their local Financial

FedLine was introduced in the

Please contact the Financial Ser

spring of 1982 and is an inexpensive

al computer that can currently be

vices Officer in your zone, at the
number listed below, to request fur
ther information on ordering Fed
Line or requesting the cash ordering

Services Representative to deter
mine eligibility.

leased from the Federal Reserve

enhancement: San Francisco —

information on these new proce

Bank of San Francisco for $175 per
month. Experienced installers pro
vide training as needed for both new
and existing FedLine customers

(415) 974-2127, Los Angeles —
(213) 683-8318, Portland — (503)
221-5909, Salt Lake City — (801)
322-7927, Seattle—(206) 442-2754.

dures, please contact the Cash
Services Department or Financial
Services representative at your

filing, and afford a high level of builtin security.

means to access Federal Reserve

services on-line via an IBM person

These provisions on debits and
credits do not alter the risk-of-loss

provisions in Circular 9. For further

local Federal Reserve Office.1j|ji