Full text of Federal Reserve Notes : March 1976

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO
•
MARCH 1976
Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

Annual Directors Meeting

POOLED FUNDS RULES

ALIBRANDI QUESTIONS REFORM PROPOSALS

The pooling of funds to earn interest
rates higher than the limits set by
Regulation Q on deposits of less than
$100,000 would be prohibited under
proposed rules issued this month by

The nation would benefit from main

taining the present insulation be
tween Congress and the conduct of
monetary policy, Joseph F. Alibrandi
told a luncheon meeting of bankers,
executives and community leaders in
San Francisco early this month. The
meeting followed the Annual Confer
ence

of

Directors

of

the

the Federal Reserve Board of Gover
nors.

The difficulty arises from the fact that
time deposits of $100,000 or more are
not subject to the interest-rate ceil
ings that govern deposits of less than
that amount. The guidelines are

Federal

Reserve Bank of San Francisco.

Alibrandi, who is President and Chief

aimed at prohibiting the pooling of
funds so as to contravene Reg Q's
basic intent. Similar guidelines have
been issued by the Federal Deposit
Insurance Corporation and the Fed

Executive Officer of the Whittaker

Corporation and Deputy Chairman of
the San Francisco Bank's Board of

Directors, said the economy could be
endangered if legislative proposals
were enacted which go beyond
Congress' present oversight function.
This could lead to political intrusion
into the monetary policy arena, he
said.

"As soon as a government puts the
power to print money in the same
hands that spend it, you have sown
the seeds of chaos," Alibrandi said.

"In many situations overseas, de
structive inflation has resulted from
such a course."

Alibrandi analyzed other recent legis
lative proposals for bank reform and
similarly found them wanting. In most
of these cases, he argued, proposed
reforms could be unnecessary or
even counter-productive in terms of
the nation's policy goals. He cited, for
example, the proposal to divorce
supervisory and regulatory functions
from

the

Federal

Reserve's

monetary-policy functions.

eral Home Loan Bank Board for the

J.F. Alibrandi

both activities, when, in reality, it will
have the opposite effect, since the
exercise of monetary policy without
the close and detailed knowledge and
understanding of the impact it will
have on bank liquidity is foolhardy."

institutions they supervise.
"In high-interest rate periods, the
practice has grown of pooling funds of
less than $100,000 to make up
deposits of $100,000 or more in order
to gain interest rates higher than

The Los Angeles-based executive
outlined how the public interest is
served by the contributions of the
directors of regional Federal Reserve
Banks. One of the primary duties of

would otherwise be available," the

directors

banking services throughout each

The Board said its proposal was
directed at rectifying situations in

District bank's area—in the case of

which a member bank has reason to

the San Francisco Reserve Bank, a

believe that the objective of pooling is
to circumvent Regulation Q rate
ceilings. However, it would exempt
four types of pooling that are not
intended primarily for the purpose of
achieving a higher rate of interest,

is

to

oversee

central-

nine-state area containing 33 million
persons and almost 6,500 banking
offices.

"Since most of our directors repre
sent the private enterprise sector, I
believe we bring to this task the
practical bottom-line kind of effec

Board said. "This practice could lead
to disruptive shifts of funds among
financial institutions."

and that do

not

interfere with the

regulation of interest
exceptions are:

rates.

The

tiveness and cost consciousness that

"The proponents of this idea believe
this will enhance the effectiveness of

is

characteristic

of

the

business

(continued on page 2)

* The

combination of funds by
(continued on page 4)

BUSINESS BORROWING

WELCOME TO THE DISTRICT

COSTS DECLINE

New National Banks

Business borrowing costs at West
Coast Banks declined in the early
winter months, reflecting relatively
weak loan demand and a drop in the

Northwest National Bank - Vancouver, Wash.

Security National Bank - Anchorage, Ak.
New Nonmember Banks

prime rate from the level prevailing

Bank of Selah - Wash.
Bank of Sumner - Wash.
Cache Creek Bank - Woodland, Ca.

last fall. According to the quarterly

survey conducted by the Federal
Reserve Bank of San Francisco, the

Cooper State Bank - Apache Junction, Ariz.
First Security State Bank of Helper - Utah

average rate on regular short-term
business loans reached 7.77 percent
in the first half of February—a drop of
90 basis points from the November 115 period. (One hundred basis points

Foothill Bank - Mountain View, Ca.

Pacific Valley Bank - San Jose, Ca.

Rocky Mountain State Bank - Salt Lake City, Utah
United Bank Alaska - Anchorage, Ak.

equal one percentage point.) Rates
on revolving-credit loans averaged
7.32 percent, an 83-basis point de
cline.

The rate decline was greater on loans
of $1 million and overthan on smallersize loans. Typically, small loans at
banks adjust more slowly than large
loans to shifts in basic rate trends, in

either an up or down direction.
In the February 1-15 survey period,
the thirteen banks

in the survey

reported 1,867 short-term and revolv
ing credit loans, for a total volume of
$690 million. The number of loans

was larger than the number reported
three months earlier, but the dollar

amount involved was smaller. 1|p
(continued from page 1)
sector, but that is all too often lacking

in government operations."
Another major duty is to provide
advice regarding the thrust of mone

FED GATHERS EXPERTS'
NUCLEAR ENERGY VIEWS
Eleven economists from a variety of
educational and research institutions

present their views on the energy
problem in the report, "California
Energy: The Economic Factors,"
which will be published next month by
the Federal Reserve Bank of San
Francisco.

This publication is designed to pro
vide information on the economic

aspects of energy usage and energy
technology, with special emphasis on
California nuclear power. The volume
does not come to any single conclu
sion on the merits of this particular
issue, since the authors' assess

ments of economic factors depend

upon

their

different

assumptions

about future technical trends or risk

probabilities. However, by making
appropriate adjustments for the vari

tary policy. He pointed out that
initiating changes in the Fed's dis
count rate is only a minor part of

ous authors' views, readers can draw
their own conclusions from the array

directors' duties. "The overriding job
is to bring a commonsense, grass

papers.

roots point of view to bear upon
overall monetary-policy decisions,"
he said.

of

information

contained

in

these

Copies of "California Energy: The

TRAVEL AGENCY

OPERATIONS VETOED
The operation of a travel agency is not
a permissible activity for a bank
holding company, the Federal Re
serve Board of Governors ruled last

month. The Board announced that it

had considered two major issues:
first, whether the activity was closely
related to banking or managing or

controlling banks, and second,
whether the operation of a travel
agency was properly incident to
banking and in the public interest. The
Board said that the only standard
under previous criteria was whether
banks generally had provided the
proposed service.
"At the
banks
agency
150, or

present time, the number of
currently providing travel
services number only about
less than one percent of all

commercial

banks

in

the

United

States. They account for less than two
percent of all travel agencies in the
nation. Furthermore, nearly two-thirds
of the travel agencies affiliated with
banking organizations have been
established within the past fifteen
years."

Economic Factors" will be distributed

can help the Fed anticipate changing

automatically to the Federal Reserve
Notes mailing list. Other readers can
obtain single copies upon request to

trends in the economy, and can

the Public Information Section, Feder

provide a useful insight into consumer
and business psychology. "Bottom
line, our job is to see that the
bureaucracy doesn't spend its time
talking to itself, thereby creating a

al Reserve Bank of San Francisco,

nature of banking activities to meet

P.O. Box 7702, San Francisco, Ca.

the "closely relating to banking" test.

94120. Phone (415) 544-2184. 1j§

This conclusion in itself ruled out

Alibrandi noted that outside directors

In the Board's view, this demonstrat
ed

that

an

insufficient

•historical

relationship existed between the
operation of a travel agency and the

travel-agency operations as a per
missible activity, and made it unnec

short circuit, but rather listens to what

essary to consider the second issue

the public has to say." 1fp

of possible public benefits. Ijflp

TWO-DOLLAR

BILL BACK IN THE MONEY

When commercial banks open for
business on April 13, a great many
Americans will get their first glimpse
in a decade of a two-dollar bill. That's

the day when the bill makes its
nationwide reappearance as an
integral part of the country's currency
system after a hiatus that dates back
to 1966.

annually in production costs alone. At
the present time one-dollar bills
consume from 55 to 60 percent of the
total currency-production time at the
Bureau of Engraving and Printing.
Acceptance of the twos could as
much as halve the proliferation of
one-dollar bills. The savings in paper,
ink, labor and press time alone would
be considerable—not to mention the

From a bicentennial standpoint, the
date is also significant. The two-dollar
bill

bears

a

likeness

of

Thomas

Jefferson on its face and a picture of
the Signing of the Declaration of
Independence on the reverse side.
Appropriately enough, Jefferson's
Birthday is April 13.

additional benefits to the banking
system of reduced warehousing,
shipping,
handling,
sorting and
counting.
It costs the government less than one

The two is a sure bet according to Senior
Vice President Richard C. Dunn, Officer in

Charge of the Los Angeles Branch, and
Stafford R. Grady (right), Chairman of the
Board and Chief Executive Officer of

cent to print a note, whether it's a $1 or

Lloyd's Bank of California. Grady is also

a $100 bill. But from then on the tab for

President of the California Bankers Asso
ciation.

Senior Vice President Gerald R. Kelly,
who is in charge of Branch Opera

the $1 bill starts to mount up. For
example, $100,000 in hundreds
weighs about 2 pounds, but the same

tions for the Federal Reserve Bank of

amount in ones comes to over 200

San Francisco, views the introduction

pounds and a stack 36 feet high.

of the two as a double opportunity—a

The government hopes to improve

chance

for

commercial

banks

to

provide a service for their customers
and a chance for the Treasury
Department to cut down sharply on
rising production costs. "Widespread
acceptance of the $2 bill can pay rich
dividends," Kelly said, "in greater
efficiency and productivity for the
entire banking system."

Kelly said that using the $2 bill can
save taxpayers up to $7 million

this situation as soon as the two-

dollar bill displaces ones. Starting
April 12, some $60 million in twos will
be

released

to

commercial

banks

throughout the nine-state area served
by the San Francisco Fed. This will
enable commercial banks to have the

twos on hand the following day to
meet the public demand for the new

Independence Day, again through the
bank's branches in San Francisco,

Los Angeles, Portland, Salt Lake City
and Seattle.

"The support of the commercialbanking system is crucial to the
successful introduction of this note/'
Kelly said. "Banks can contribute in
two significant ways—first, by ensur
ing successful utilization of the twodollar bill in their own organizations,
and second, by encouraging the
public to make maximum use of the
two."

denomination.

A second release will be made on

According to Kelly, evidence of strong
public demand for the two is already
apparent in the West. The San
Francisco Fed has been flooded by
calls

and

letters—some

with

checks—requesting twos. "We have
informed the public through the media
that individuals should call or visit the

institution where they bank for further
information on the availability of the
new bill," he said.

To help banks publicize the new $2
bill, the Federal Reserve has pub
lished a new pamphlet on this subject
called Back in the Money. Individual
copies (or bulk shipments) may be
obtained upon request from your
nearest Fed office or:

Public Information Section
Federal Reserve Bank
of San Francisco

New two-dollar bills are shown by Richard Heldridge (left), President of the Community
Bank of San Jose, and Wesley G. DeVries, Senior Vice President of the San Francisco
Fed. Heldridge is also Treasurer of the California Bankers Association.

P.O. Box 7702

San Francisco, Ca. 94120

Phone (415) 544-2184.

fj

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(continued from page 1)
member-bank trust department offi
cers to make temporary use of idle
funds from a number of trust accounts

where the pooling is incidental to a
bona fide trust relationship;

individual or organization that previ
ously held its funds in various ac
counts;

FDIC and the Federal Home Loan

Bank Board set April 16 as their

* The offering of large certificates of
deposit by member banks to those
mutual funds which have a

stated

member bank;

investment objective of investing in
other than deposit obligations, and
whose deposit obligations normally
constitute a minimal percentage of
the fund's overall portfolio.

* The consolidation of funds by an

Comment on the proposed Reg Q

FED RULES ON

er's checking-account balance falls
below a predetermined level, and to
allow removal of savings to the bank
directly, without transfer to the check
ing account, in case of an overdraft.

* A similar combination of funds by
an attorney or individual acting in a
custodial or fiduciary capacity for
funds being held in escrow at a

COVERING OVERDRAFTS
The Federal Reserve Board of Gover

nors and the Federal Deposit Insur
ance Corp. announced proposals this
month to allow their member banks to

cover overdrafts by transferring funds
automatically from a customer's
savings account to a checking ac-'
count. The proposals were designed
to overcome the costly bookkeeping
problems resulting from the growing
use of overdrafts.

Under the plans, a depositor with
savings and checking accounts at the
same member bank would be permit
ted to have specified amou.nts of
funds, in $100 multiples, transferred
from the savings account in case of
an overdraft; to authorize an automat
ic transfer of funds when the custom

amendment will be accepted by the
Board of Governors until May 10. The

To pay for the service, the proposals
call for a depositor to forfeit at least 30
days' interest on the amount of
savings funds transferred. In addition,
as currently required, a bank would
continue to reserve the right to
impose 30 days' notice prior to a

close-off date for comment. 1jfp
CORRECTION
In the December 31, 1975 Compara
tive Statement of Condition, published
in the Annual Report of the Federal
Reserve Bank of San Francisco, the

figure for "All other assets" in in error.
The correct figure for "All other
assets" is $243,071 (in thousands).
w

PACIFIC BASIN

PUBLICATION STARTS
The

Fed

has

started

a

new

publication—Pacific Basin Economic
Indicators—and copies are now
available from the Public Information

institutions. Comments on the pro
posals should be received by May 14.

Section. The quarterly is a compendi
um of statistics giving annual rate of
change data for 13 Pacific Basin
countries on gross national product,
money supply, international reserves,
consumer prices, wholesale prices,
manufacturing employment, industri
al production, imports and exports.
The countries included in the survey
are Australia, Canada, China, Hong
Kong, Indonesia, Japan, Korea, Mal
aysia, New Zealand, Philippines,
Singapore, Thailand and the United

w

States. Ifr

customer's

transfer

of funds

from

savings.
If the proposals are adopted, they
would apply to all Federal Reserve
member

banks

and

FDIC-insured