Full text of Federal Reserve Notes : March 1977

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Federal Fteserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•

MARCH 1977

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington
GARDNER SEES STRONG
BUSINESS CLIMATE

BURNS DESCRIBES
MEMBERSHIP PROBLEM

The national economy should im

Federal

prove as a consensus is reached on

Burns told the Senate Banking Com

major economic-policy issues, Fed
eral Reserve Vice-Chairman Stephen

mittee this month that the continued
attrition in Federal Reserve member

S. Gardner told an audience of 140

ship is a matter of major concern to
the nation's banking system. Last
year alone, 46 banks gave up mem
bership and 8 banks left the System
as a result of mergers with nonmem-

Federal Reserve officials and San

Francisco Bay Area community lead
ers this month. The luncheon meeting
was held in conjunction with the an
nual joint meeting of Directors (from
the Headquarters Office and

Reserve Chairman Arthur

ber banks.

Branches) of the Federal Reserve

"These banks have left mainly be

Bank of San Francisco.

cause of the high cost of the non-

S.S. Gardner

interest earning reserves that they are

Joseph F. Alibrandi, Chairman of the

required to hold as members of the

Reserve Bank's Board of Directors

Federal Reserve," Burns said in his

(and President of Los Angeles-based
Whittaker Corporation) and President

testimony. "Not a few of the banks

John J. Balles of the Federal Reserve

III

Bank of San Francisco also spoke
briefly at the luncheon meeting.

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Gardner listed a number of problems
confronting the nation, such as lag
ging productivity, energy shortages, a

especially because of the views held

profits."

Roughly two-thirds of a group of 250
banks which withdrew from the Sys

tax structure hindering capital invest
ment, and a Federal budget which

fails to balance even at full employ
ment. But he said that a stronger
business climate was now evolving,

that dropped out of the System, being
financially weak, faced a desperate
need to cut costs and to improve

tem during the past decade cited
reserve requirements as the reason,

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according to a study conducted by

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the Federal Reserve.
J.F. Alibrand

by Presidents of both parties on the

In 1960, member banks comprised 46
percent of all commercial banks, but

need for a revised tax structure and

in 1976 they amounted to only 39

for an end to government deficits and

percent of all banks. Over the same

regulatory burdens.

timespan, the member-bank share of
total domestic deposits dropped from
84 percent to 74 percent.

Gardner's audience included a di

verse group of Bay Area financial,
business, academic, professional

Noting these trends, the Chairman

and government leaders. The Federal

said, "Unless the trend toward non-

Reserve directors in the audience

membership is reversed, the sound
ness of the banking system will be

also represented a diverse cross-

section of the community. For exam

jeopardized by the fact that so many

ple, four women were numbered

banks will not have direct access to
the Federal Reserve discount win-

among the directors—the largest
number in any Federal Reserve dis

trict, fr

J.J. Balles

continued on page 3)

JACKSON URGES SIMPLIFIED CREDIT
Steps should be taken to simplify the
complex field of consumer-credit leg

Jackson argued that the public would

islation, Federal Reserve Governor
sumer Affairs Subcommittee of the

regarding the proper role of the states
versus the federal government in
consumer-credit protection statutes.

House

This determination should include not

Philip C. Jackson, Jr., told the Con
Banking

Committee

last

benefit if a determination were made

only which law should govern these

month.

"While it supports the basic public
purpose of consumer-credit legisla

activities, but also which jurisdiction
(state or federal) should police credit-

granting organizations in each state.

tion, the Board of Governors has

become increasingly concerned
about the degree of complexity and
overlap of existing laws and hopes the

As another simplification measure,
Jackson recommended that penal
ties provided as a result of private or

situation can be clarified and simpli
fied," Jackson said. "Congress and

substantive violations that impair the

the Board have received a substantial

quantity of complaints, particularly
from small creditors, stating that they
have difficulty understanding and

class-action suits

be

restricted to

consumer's capacity to comparisonshop for credit. Technical violations of
the statues could be handled by ad
ministrative measures.

P. Carter

complying with all of the laws. Some
responsible observers are now ques

tioning whether the existing regulato
ry framework is providing benefits to
the public commensurate to its
costs."

The Board of Governors first began to

regulate consumer-credit practices
in 1968, when it was assigned the

responsibility for developing regula
tions to enforce the Truth in Lending
Law. Since that time, ten more laws

have been passed in the consumercredit field, and nine of them have

required implementing regulations.
Official interpretations of the regula
tions

and

court decisions

further

complicate the issue.
As a result, Jackson said a system
has evolved which places, layer upon

layer, state laws and regulations, fed
eral laws and regulations, staff inter
pretations, and state and federal court
decisions.

In this complex situation, he said it is
not surprising that the loan officer of a
small bank may be hard-pressed to
comply. Such an officer may have not
only the responsibility of keeping

Jackson listed several Federal Re
serve actions which deal with the

complexity of consumer credit-laws.
The Board of Governors last year
established a Consumer Advisory
Council representing a broad spec

NATIONAL BANK
OF LONG BEACH
National Bank of Long Beach, a new
Federal Reserve member bank, may

trum of consumer and creditor inter

be

ests. Council study groups are now

opened for business only in January.
But it is certainly long on experience
in the banking field; President Perry

planning to make on-site investiga
tions of large and small creditors, to
analyze the ramifications of

short

on

tradition

because

it

Carter and his four officers together

consumer-credit laws. In addition, the

have a total of 80 years' experience in

University of Michigan is conducting
a survey for the Board to evaluate
consumers'
perceptions
of

commercial banking.

consumer-credit laws, as a means of

determining how regulations can be
more responsive to consumer needs.

Again, the Board has issued sample
forms to assist creditors—especially
small businessmen—in dealing with
consumer-credit problems. By using
these forms, creditors can submit
information without fear of violating

technical provisions of consumercredit statutes or regulations.

abreast of consumer-credit regula

As supervisor of state member banks,
the System also is expanding its com
pliance and enforcement activities

tions, but also such varied duties as

under the various consumer-credit

making installment loans, buying
dealer paper, overseeing credit-card
operations, making home mortgage
loans, extending construction credit

statues. This move should improve

and arranging for credit insurance.

Welcome to the District

public understanding of the impact
that

consumer-credit

regulations

exert

statutes and

on

banks and the public.^

commercial

Carter

himself

has

dealt with

all

phases of banking, including adminis
tration, operations and lending. His
career spans two decades and in
cludes banking experience with
several
independent
California
banks. Most recently he served as
President of The Bank of Montecito.
Norman E. Miller is Vice President and

Cashier, while Robert P. Johnston is
Vice President - Loans. Anna B. Padil-

la, the Operations Officer, will be
primarily responsible for supervision
of operations and personnel.
The bank is now housed in temporary

quarters, but it has drawn up plans for
a permanent headquarters. Mean
while, the bank offers a full line of
services, including such features as
extra late hours and Saturday banking

at its drive-in and walk-up window.^

MEMBERSHIP PROBLEM

$2 BILL CAMPAIGN

(continued from page 1)

SCORES IN OREGON

dow." The availability of the discount
window—demonstrated so dramati

The two-dollar bill has been ignored in
many parts of the nation after a rous
ing bicentennial debut last April. But
the Federal

cally during the near-crisis period of
1974—contributes importantly to the
stability of the nation's banking sys
tem. Correspondent banks cannot
always be counted on to supply such

Reserve Bank of San

Francisco and some enterprising
Oregon businessmen have been
keeping the two in the spotlight.

assistance to nonmembers, he noted.
»

Angelo Carella, Vice President and
officer in charge of the Portland
Branch, credits Percy Loy as the cat
alyst for the Oregon program. Loy is a
member of the Federal Reserve Sys
tem's Consumer Advisory Council
and president of Portland-based Kubla Khan Food Company.
"At Loy's initiative, a representative
group of leading retail merchants in
the Portland area met at our branch

last month and pledged cooperation
in promoting use of the two," Carella
said. "We held our ceremony in front
of a cart loaded with $400,000 in twos,
and this captured widespread media
and public attention."

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M. Timothy Can, Operations Officer at
the Portland Branch of the Fed, fans a
hand of $2 bills over 50 "bricks" which
contain $400,000 in new twos. This

promotion was used to kickoff a cam
paign to encourage Portland merchants
to circulate two-dollar bills.

$2 bill because of the ease in making
change, which results in reduced
check-out lines.

win up to 151 times the value of a bill
with the right serial number. Each
week the chain used $2 bills in mak

$19,000. The Plaid Pantry stores dis

ing change, and these included 47
bills with serial numbers that paid off
to those persons holding them. In its
advertising, Plaid Pantry prominently
mentioned the potential savings to the

tributed an average of $35,000 per
day during the first two weeks of their
promotion.

Contest" that enabled customers to

Government

which

would

be

Not only at Portland but also at other
branches

of the

Federal

Reserve

achieved with full utilization of the bill,

Bank of San Francisco, the virtues of

and it solicited the public's help in

the two have been publicized through

circulating $10 million in new twos

feature stories in major dailies and on
radio and television. For example,
Senior Vice President Wes DeVries,
officer in charge of the San Francisco
Branch, has become a "regular" on
this subject on Bay Area radio and

during the month of March.

Other Oregon merchants involved in
this campaign are changing their use
of cash drawers, making room for
twos by placing twenties underneath

must

be

made

more

attractive—

"perhaps by providing for lower re
serve requirements or allowing the
System to pay interest on the reserve
balances that member banks main
tain."

System spokesmen have argued
consistently that the burden of re
serve requirements is borne unevenly
between Federal Reserve members
and nonmembers with state charters.

Carella reports that during the threeweek period following the public an
nouncement of the campaign, pay
outs of $2 bills by the Portland branch
averaged $60,000 daily compared
with a previous daily average of

Soon thereafter, the Plaid Pantry
chain announced a "Lucky $2 Bill

Consequently, Burns argued that
membership in the Federal Reserve

television stations.

For example, nine states require re
serve percentages that are lower than
those of the Federal Reserve on all

classes of deposits, while 22 states
permit commercial banks to hold se

curities or other interest-earning as
sets as a portion of their reserves.

The situation has been aggravated by
the recent environment of inflation

and high interest rates. Treasury bill
rates averaged only 2 percent during
the 1950's, but they have approached
or exceeded 6 percent during much
of the 1970's. Thus, member banks

now forego more earnings than for
merly by maintaining reserves at Fed
eral Reserve Banks instead of invest

ing them in bills.if1
can rest assured that plenty of twos
are on hand for their convenience.

The Treasury and the Federal Re
serve frequently have pointed out that
the two-dollar bill can save taxpayers
up to $7 million annually in production
costs alone. One-dollar bills consume

the drawer. Others have gone to

DeVries said. "Banks can contribute

up to 60 percent of the total currency
production time at the Bureau of En
graving and Printing, so greater use of

merchants have shown that some of

by ensuring utilization of the bill in

twos could mean considerable sav

their original concerns for the difficul
ties in handling this denomination

their own organizations and by en
couraging the public to make maxi

drawers that can accommodate the

"I try to point out that twos could be a

two-dollar bill without any other ad
justments. Comments received from

valuable addition to our currency,"

were unfounded. In fact, some retail

mum use of the two." Meanwhile,

ings in paper, ink, labor and press
time. Warehousing, shipping, han
dling, sorting and counting costs

ers say that their clerks like to use the

DeVries says, bankers and the public

could also be slashed.^

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RCPCs HELP IMPROVE CHECK-CLEARING TIME

With 43 regional check-processing
centers fully in place, the Federal
Reserve System improved its checkclearing times more last year than at
any other time since the 1972 intro
duction of automated RCPCs. This

improvement was highlighted in a
study prepared by Phoenix-Hecht
Inc., a Chicago cash-management
firm.

The study said that clearing times had
improved generally among banks in
103 cities across the country, but
added that the greatest 1976 reduc
tion in check-clearing float had oc

curred among major metropolitan
cities

with

RCPCs.

When

RULE CHANGE

Between two 1976 survey dates,
clearing times from Los Angeles to
New York improved 0.02 day to a
1.62-day average. Checks drawn on
a San Francisco bank and deposited
in New York cleared in an average of
2.75 days, down 0.27 day from the
earlier 1976 study.
The authors of the study did not com
pile any nationwide averages. How
ever, they noted that based on 1975
Federal Reserve check-clearing vol
ume of $4.2-trillion, each 0.01-day
improvement in check-clearing time
would represent a $42-billion reduc
tion in clearing float.

RCPCs

were first begun, check volume was
outstripping the capacity of new pro
cessing facilities and clearing times
were lengthening, but the collective
efficiency of RCPCs has now caught
up with the growing check volume,

In each study, checks drawn on 109
banks in 103 cities are deposited daily
in banks around the country for ten
consecutive days. Using the times
stamped on the check when deposit
ed and when presented for payment,

the authors said.

average clearing times for each set of
origin-destination cities are calculat
ed, and the historical data base is

Some of the most improved clearing
times last year were those for checks

OPEN MARKET

used to smooth out one-time aberra

drawn on East Coast banks and de

tions such as poor weather or trans

posited on the West Coast. For exam
ple, checks drawn on a New York
bank and deposited in San Diego

portation difficulties. %

A rule change governing the pur
chase of Federal agency securities
was implemented late last month by
the Federal Open Market Committee.
Henceforth, the Federal Reserve will

limit its purchases of Federal agency
securities to those agencies that are
not eligible to borrow funds from the

Federal Financing Bank.
The Federal Financing Bank opened
in 1974 to handlefinancing operations
for such agencies as the General
Services Administration, the U.S.

Postal Service, the Washington Met
ropolitan Area Transit Authority, the
Export-Import Bank, the Farmers
Home Administration and the Gov

ernment National Mortgage Associa
tion. Securities of these agencies will
no longer be purchased by the Fed,
although the System may purchase
securities of the Federal Financing
Bank itself.

The securities of such governmentsponsored agencies as the Federal
Home Loan Banks, the Federal Na
tional Mortgage Association, the Fed
eral Land Banks, the Federal Interme
diate Credit Banks and the Banks for

cleared more than one-half day soon

Cooperatives will continue to be eligi

er than they did in 1975, improving to

ble for System purchase, ijfp

a 3.15-day average.