Full text of Federal Reserve Notes : November 1977

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•

NOVEMBER 1977

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington
-P.77
TRUTH IN LENDING
UNIFORM GUIDELINES
The five Federal agencies that regulate
banks, thrift institutions, and credit un
ions have asked for public comment on
proposed uniform guidelines for the en
forcement of Truth in Lending
legislation.

In addition to the Federal Reserve Sys
tem, the enforcement agencies include
the Comptroller of the Currency, the
Federal Deposit Insurance Corporation,
the Federal Home Loan Bank Board,
and

the

National

Credit

Union

Administration.

In a joint statement issued by the Feder
al Reserve System, the agencies said
that the guidelines are intended to "pro
mote improved and uniform enforce
ment of the Truth in Lending Act through
corrective action, including reimburse

John J. Balles and Arthur F. Burns

BURNS MEETS BAY AREA COMMUNITY LEADERS
Federal Reserve Chairman Arthur F.

inflation, we're going to have to work
hard on bringing down the budget
deficits."

overcharged or otherwise harmed by

Burns met with San Francisco Bay Area
community leaders last month at a lun
cheon sponsored by the Federal Re

violations of the Act."

serve Bank of San Francisco, and

Burns said he sensed a certain uneasi

ment, for borrowers who have been

Over the last decade, the statement

continued, a dozen Federal consumer-

protection laws and clarifications have
been enacted. The body of law has be
come so large and complex that stan
dard enforcement criteria have become

necessary in order to "provide notice to
consumers and creditors of the type of
action that can be expected when viola
tions resulting in overcharges are
found."

The proposed guidelines cover broad
aspects of Truth in Lending, but the
agencies specifically asked for com
ment on several questions believed to
be of "particular interest." A prominent
example is Guideline 4, which covers
violations involving improper disclosure

of the annual percentage rate (APR) or
finance charge. Among other points, the
agencies proposed:
(continued on page 2)

fielded questions from the audience on
a wide range of business and financial
issues. He emphasized the need for
dealing with inflation, creating a more fa
vorable business-investment climate,

solving the energy problem, and curbing
mounting Federal budget deficits.
"I believe that there is a growing realiza
tion that if we're going to have jobs in
this country, we have to encourage busi
ness investment," Burns argued. "The
fundamental duty of the government is
to establish the kind of environment that

encourages businessmen to invest and
create those jobs."

ness among business and financial
leaders as well as consumers. This ero

sion of public confidence makes it even
more imperative for the nation to get its
priorities straight and put its fiscal house
in order.

The Chairman restated many of the
themes he had emphasized during a
speech a day earlier at Gonzaga Univer
sity in Spokane, Washington. At Gonza
ga, the Chairman said that contrary to a
widely held impression, the profits being
earned by business are at an unsatis
factory level. This condition could be an
insurmountable barrier to the achieve

ment of full employment.

On the inflation problem, he said, "This
country has gotten into the habit of run
ning into deficits not only when the econ
omy is weak but when it is strong. To
make a lasting impression on unwinding

"My own judgment is that a deep-rooted
concern about prospective profits has in
fact become a critical factor affecting
economic performance in our country,"
(continued on page 4)

TRUTH IN LENDING
(continued from page 1)

* When the annual percentage rate
is understated and the finance

charge is either correct or not dis
closed, the creditor would be al

lowed to charge no more for the

FED SETS DATE FOR
DIVESTITURE PLANS
The Federal Reserve Board of Gover

nors this month asked bank holding
companies that are required to carry out
divestitures by the end of 1980 to submit
action plans by June 30, 1978.

fclJTAH
BANK

credit than the understated APR
indicates.

* When the APR is correctly dis
closed but the finance charge is

Although the date is voluntary, the
Board said it might later impose a man
datory deadline to facilitate timely action
on the divestitures and head off a last-

understated, the creditor would be

minute flurry of submissions. The Board

required to pay the difference be

added that it wanted to avoid situations

tween the actual and the under

stated finance charge to the
customer.

* When both the APR and finance

charge are understated, the credi
tor would be required to take cor
rective action based on the largest
overcharge.
The agencies also proposed three ways
to correct an understated APR. Credi

tors could pay a lump-sum rebate along
with reducing the amount of each re
maining payment, reduce the number of
remaining payments, or only reduce the
amount of each remaining payment.

Specific comment was also sought on
four other guidelines: Guideline 1 (Inten
tional Violations), Guideline 2 (Uninten
tional Violations), Guideline 3 (Period for
Which Corrective Action is Required)
and Guideline 5 (Violations Involving the

where bank holding companies might
have to sell off properties at a disadvan
tage to meet the legal deadline set by
the Bank Holding Company Amend
ments of 1970.

came a state-chartered member bank

with 754 subsidiaries fall into this class.

of the Federal Reserve System.

fourth of them are engaged in permissi
ble activities. That leaves about 500

subsidiaries that must be either divested

or reviewed by the Fed to see if they can
be lawfully retained.
In a letter sent to the chief executive offi

cers of the holding companies affected
by the law, the Board said that it has no
authority to extend the December 31,
1980 divestiture deadline. The Board

The deadline for public comment is De

added that the voluntary mid-1978 date
was set to encourage holding compa
nies to disclose their plans for divestiture
or retention, so that complex or novel

cember 6. Comments should be direct

circumstances could be evaluated as

ed to the Interagency Enforcement
Policy—Regulation Z, Washington,

early as possible.

PUBLICATION AVAILABLE
A summary of the proceedings of the
Ninth Pacific Trade and Development
Conference focussing on mineral re

coming the first new banking institution
in that city in over 70 years. Upon open
ing its doors, Utah Independent also be

So far the Board has ruled that about a

Improper Disclosure of Credit Life, Acci

D. C, 20219. if.

Late in August, Utah Independent Bank
opened for business in Salina, Utah, be

Under the 1970 legislation, firms that
had become bank holding companies
have 10 years to divest their non-bank
activities or get Board approval for
keeping them. Some 357 companies

dent, Health or Loss of Income

Insurance).

UTAH INDEPENDENT BANK

President Rawlin V. Jacobson says that
Utah Independent will provide innovative
banking practices and competitive mar
keting services to the local community.

"Our officers, directors and employees
believe in and emphasize fast, friendly
home-town banking service," Jacobson
says. "Our motto is 'neighbor to friend,
building our home town'."
Backing up Jacobson is Executive Vice
President Robert B. White, Jr., and
Cashier Mike Shaw. White, the chief ex

ecutive officer, has over 25 years' bank
ing experience—the last five of them at
American Security Bank of San Bernar
dino, California, where he served as
President and Chief Executive Officer.

"Divestiture plans should set forth, in as
much detail as is presently known, the
manner in which the company intends to
accomplish the divestiture and the esti
mated time required to complete the
process," the Board stated. "Progress
reports will be requested at appropriate

ficers, along with George Burton, Curtis
Armstrong, and Reuel Christensen. To
gether the officers and employees of

intervals."

tral and Southern Utah.

The Board added that filings by banks
generally will be considered in the order
they are received. The earlier a com
pany files, the earlier it may expect to re
ceive final Board action on its proposal.

"We're proud to be part of the banking
scene in Utah," summed up Jacobson.
"We plan to bring our customers the
highest-quality banking services on the

Directors of the bank include its three of

Utah Independent have combined bank

ing experience of over 70 years in Cen

sources in the Pacific area will be avail

able soon from this Bank. For copies
contact the Public Information Section,
Federal Reserve Bank of San Francisco,
P.O. Box 7702, San Francisco, 94120,

phone (415) 544-2184. fj>

market." ^fr

TEACHERS BECOME
BANKERS FOR A DAY
Some 60 teachers from the greater Los
Angeles area did some role-switching
this month to discover first hand what
it's like to be a banker.

, <%
It happened at a series of workshops
sponsored by the Los Angeles Branch
of the Federal Reserve Bank of San
Francisco and the California Bankers

Association. Also participating were the
Centers for Economic Education at four

California State University campuses—
Dominguez Hills, Long Beach, Northridge and Los Angeles.

\

"This marks the first time that the Califor

nia Bankers Association and the Feder

al Reserve have undertaken a joint
project of this nature," said Senior Vice
President Richard Dunn, Officer in

J. F. Alibrandi

C.C. Maier

ALIBRANDI, MAIER AGAIN HEAD BOARD

Charge of the Los Angeles Branch. "The
community stands to gain when profes
sionals get together to exchange ideas
about a subject as important as eco
nomic education for the young. I know
that we at the Fed gained a great deal

Joseph F. Alibrandi and Cornell C. Maier
were redesignated this month as Chair
man and Deputy Chairman of the Board

tration at the University of Southern

of Directors of the Federal Reserve

California.

Bank of San Francisco by the Board of
Governors of the Federal Reserve Sys

Maier is president and chief executive

from this experience, and I believe that
the teachers at the workshops did too."

tem. The one-year terms are effective

officer of Kaiser Aluminum & Chemical

January 1, 1978. Maier was also reap
pointed to a three-year term as a Direc

Corporation. He joined Kaiser Aluminum
in 1949 immediately following gradu
ation from the University of California,
where he earned a degree in electrical
engineering. His experience spans virtu
ally every major activity in the corpora
tion's operations. Maier moved into the

The series of workshops focused on a
simulation game produced by the Min
neapolis Federal Reserve Bank, entitled
"You're The Banker." Its purpose is to in

struct in the fundamentals of banking, as
well as the effects of money on the
economy.

Three workshops were held in Tor
rance, Van Nuys and Los Angeles, at
tended by 60 teachers from the Los
Angeles Unified School District and an
equal number of local bankers. Each
game involved at least two bankers and

tor of the bank.

Alibrandi is president and chief execu
tive officer of Los Angeles-based Whittaker Corporation. He received his
Bachelor of Science Degree from the
Massachusetts Institute of Technology,
and currently serves on the Corporation
Development Committee and the Sloan
School of Management Visiting Commit
tee at MIT. Active in professional and
civic affairs, he serves as Chairman of
the Business Advisory Council of the
University of California at Los Angeles,

and is a member of the Board of Counci

lors of the School of Business Adminis

company's international division in

1964, and served successively as depu
ty managing director of James Booth
Aluminum Ltd., in Great Britain; as man
aging director of Kaiser Aluminum
Werke, Inc., in Germany; and as vice
president and European regional man
ager of Kaiser Aluminum International.

two teachers.

To begin the game, participants drew
cards which presented them with loan
situations that might occur during an ac
tual banking transaction. Players then
assumed the banker's role and made

appropriate lending decisions. At the
end of each round, participants went
through a separate deck of cards indi

cating the effect of the player's deci
sions on bank earnings and community

The learning process for participants is
twofold. They must maximize the earn
ings of "their" bank. But they must also
maximize the welfare of the community
in which their bank operates. Teachers
find this approach to be very useful for
presenting complex educational materi
al in an interesting manner for classroom
application.

NOTE

An article in last month's Federal Re

serve Notes inadvertently left United

California Bank out of the list of major
banks participating in the San Francisco
Reserve Bank's computer-interface pro
gram. The new service enables member
banks to connect their computers di
rectly to the nationwide network known

as Fed Wire. The service is operated by
The game can be ordered for $15 per

the Federal Reserve System to transfer

were injected into the game to make it

set from the Office of Public Information,
Federal Reserve Bank of Minneapolis,

throughout the country on each busi

more realistic.

Minneapolis, Minnesota, 55480. ^

ness day. ^jr

economic welfare. Random events also

an average of $120 billion in funds

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CHANGES PROPOSED
IN REPORTING RULES

BURNS MEETS

Federal regulatory agencies last month
proposed new reporting rules, in order

he argued. "Anyone who wonders why
capital spending has been so halting or
why stock prices have behaved so
poorly for so long would be well advised
to study this dismal record of what
American business has been earning."

to obtain additional financial data from

large banks and those with foreign oper
ations. The rules were proposed by the
Federal Reserve System, the Federal
Deposit Insurance Corporation, and the
Comptroller of the Currency.
The reporting changes would affect
banks with foreign offices and those
with consolidated total assets of more

than $300 million. About 140 banks

have foreign branches, subsidiaries or
branches, or Edge Act subsidiaries. An
other 280 banks that meet the assetsize criterion would also be affected.

Banks would be asked to provide sepa
rate subsidiary-income statements for

domestic and foreign-office operations,
and new loan and deposit schedules for
foreign offices. Within these reports,
certain types of accounts would be

broken down between foreign and do

(continued from page 1)

by year-end. This would help bring bank
reports into line with recent standards
proposed by the Financial Accounting
Standards Board.

Under the proposals, smaller banks
would no longer have to file detailed re
ports on Federal-funds transactions.
Moreover, the regulatory agencies are
considering introducing a condensed
version of a condition report to help re
duce the reporting burden for small

able and reasonable course of action.

He said that business people are rightly
uneasy about the uncertainties sur
rounding energy, environmental codes,
and
proliferating
government
regulations.
"We have still not adjusted to the past
quadrupling of oil prices," Burns de
clared. "This is one of my deepest con
cerns—to solve the energy problem.
We waste too much energy. If we're go
ing to bring inflation under control, we
have to deal with the energy question.
Otherwise we will only deepen our trade
deficit and intensify inflation."
Turning to monetary policy, he said that
the Federal Reserve fully appreciates
the critical linkage between money cre
ation and inflation. He added that the

eliminate details that seldom occur in the

Fed has no intention of letting the money
supply grow at a rate that will add fuel to

reports of small banks.

the fires of inflation.

The agency proposals are part of a fullscale revision, begun two years ago, of

The Chairman recognized the grave
fears of many business people but reaf
firmed his confidence in the ability of the
American people to overcome the cri
ses now facing the country.

banks. The condensed version would

mestic customers.

The proposed changes would be imple

In response to questions on the energy
crisis, Burns said that the country must
move decisively to establish a predict

mented with the March 1978 Income

the basic statements of bank condition

and Condition reports. Additional de
tailed supplements would also be re
quired for loan interest and fees, and for

and income. The revision is designed to

Federal funds and related transactions.

able about commercial-bank domestic

"This is the greatest country in the world
for businessmen to invest in," he con

The regulatory agencies plan to pro
pose changes in lease-accounting rules

and foreign operations, and improve the
flow of information on banking and mon
etary developments.

increase the effectiveness of bank su

pervision, make more information avail

cluded. "If I were a businessman, I would

not sell the dollar short." ^r