Full text of Federal Reserve Notes : November 1978
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Lt^ Federal Reserve Notes FEDERAL RESERVE BANK OF SAN FRANCISCO a™*0 NOVEMBER 1978 Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington FED RELEASES PRICING PROPOSALS SCHMIDT APPOINTED TO ADVISORY COUNCIL The Federal Reserve Board of Gover Chauncey E. Schmidt has been ap pointed to the Federal Advisory Coun cil for 1979 by the Board of Directors nors released this month a prelimi nary schedule of prices for Federal Reserve check and automated clear of the Federal Reserve Bank of San Francisco. Schmidt is Chairman of inghouse services. The schedule was developed by the Board and the 12 the Board, President and Chief Exe Federal Reserve Banks as part of a comprehensive plan to provide a and its holding company—BanCal greater competitive equality among Tri-State Corporation. financial institutions. He replaces Gilbert F. Bradley, Chair The Fed does not plan to implement these prices for paymentsmechanism services until effective steps have been taken to alleviate the burden of membership in the Federal Reserve System. Meanwhile, it is developing pricing schedules for oth er services, such as the processing of coin and currency, wire transfers of funds and safekeeping of securities. The pricing of Federal Reserve services is part of an over-all effort to modernize the Fed's role in the na tion's financial system. In a package submitted to Congress last July, the Fed outlined proposals for interest payments on member-bank reserves, universal reserve requirements, and access to Fed services, as well as cutive Officer of the Bank of California man of the Board and Chief Executive Officer of Valley National Bank of Arizona. Bradley served three oneyear terms on the Federal Advisory Council. In 1978, his fellow members elected Bradley President of the Council. The Federal Advisory Council pro vides a link between the banking and financial community and the Federal Reserve Board of Governors. It is C.E. Schmidt Before joining the Bank of California in 1976, Schmidt was President of the First National Bank of Chicago. He is a graduate of the U.S. Naval Academy and the Harvard Graduate School of Business Administration. He is a member of the Association of Re serve City Bankers, as well as a mem ber of the International Monetary Conference, the American Bankers composed of 12 members represen ting each of the districts in the Federal Reserve System. By statute, the Association, the Advisory Council on Japan-U.S. Economic Relations, the council and the Japan-California Association. He is a director of the Bay Area meets with the Board of Governors at least four times a year in Washington, D.C. Itadvises the Board on a wide range of topics, including overall banking and monetary objec Stanford Research Institute Council, Council, the California Roundtable, and the San Francisco Chamber of Commerce. He is also a member of policy instruments, and the regulation the Advisory Board of the Pacific Rim Bankers Program, the Board of The proposed pricing schedule for of member-bank activities. The coun Governors of the San Francisco Sym check-collection services is based cil on the volume of Federal Reserve monetary policy on commercial banking and the money market. phony Association, and the Executive Board of the Bay Area Council of the pricing for those services. check clearings during the first half of 1978. The prices are meant to recoup both the direct and indirect costs of tives, the Fed's administration of its also discusses the effects of settlement services have been calcu Boy Scouts of America. % Before a final decision is made on lated to be competitive with check pricing, the System will decide wheth prices. The Fed has established ACH prices at this level to encourage er to establish different prices for banks and their customers to take serve Districts. advantage of the potentially lower asked for comments on the initial cost of electronic fund transfers, while reserves. still affording room for competing ACH services to develop in the pri pricing proposals to be sent to the Secretary of the Board (Washington, D.C. 20551) or to any Federal Re Prices for automated clearing and vate sector. serve office, iflff providing such services. These costs have been adjusted upward by 11 percent to reflect additional costs that would be borne in the private sectorsuch as capital costs, taxes, an allow ance for dividends, and provision for different zones in some Federal Re Meanwhile, it has SUMMARY OF KEY FED DEVELOPMENTS TT&L PROGRAM BEGINS TRUST DEVELOPMENTS The Treasury Tax and Loan Investment (TT&L) program began on November 2. Under the program, the Treasury earns interest by investing its operating cash balances, and at the same time, pays fees for certain services which it The Federal bank regulatory agencies—the Federal Re serve, Comptroller, and FDIC—this month announced several actions affecting trust-department activities. The regulators revised an earlier proposal to establish uniform formerly received free from financial institutions. In addi standards for recordkeeping, confirmation and other procedures followed by trust departments in handling securities transactions. The agencies asked for comment on this proposal by December 18. tion, the Treasury amended its regulations dealing with the maturity limitation on commercial and agricultural paper and bankers' acceptances used as collateral security. As of November 2, the maturity of such collateral was ex tended from one year to two years. For further information, contact the Fiscal Department at your nearest Federal Reserve office. HOLDING COMPANY APPLICATIONS The Board of Governors made several technical changes last month affecting the registration of bank holding com panies and applications for expansions. The Board set specific time limits for action on requests to reconsider Board decisions on applications, to ensure that prompt attention is given to such requests. It also announced time limits for public comment on holding-company applica tions, to facilitate processing of applications and schedu ling of hearings. In a further step, the Board eliminated the requirement that new bank holding companies must file certain registration forms with the Board within a 180-day period. Instead, the Board will collect essential registration data from responses to a standard letter sent to all new bank holding companies. The changes became effective October 19. For further information, call the Reserve Bank's Bank Holding Company Section (415) 544-2235. DATA PROCESSING RATING SYSTEM The Federal Reserve and other regulatory agencies adopt ed a joint system for rating data-processing centers last month, in line with an earlier agreement to eliminate separate examinations by more than one regulator. The system resembles the uniform interagency bank-rating system which provides an overall evaluation of bank performance (see Federal Reserve Notes, June and Octo ber 1978). Each rating is based upon the evaluation of four critical functions—audit, management, system develop ment and programming, and computer operations. The ratings of these four functions then are combined into a composite rating from 1 (the highest) through 5 (the lowest). For additional information, contact the Reserve Bank's Supervision, Regulation and Credit Department (415) 544-2242. CONSUMER COMPLAINTS The Board of Governors has issued a new pamphlet entitled "How To File A Consumer Credit Complaint." The pamphlet includes a tear-off form that can be used by consumers in making complaints involving commercial banks. Free copies of the pamphlet are available through the Reserve Bank's Supply Department (415) 544-2016. For further information, call Consumer Affairs (415) 5442224. In a separate action, the agencies announced thatthey will use similar forms in a revised annual survey of trust assets. The survey has been designed to "provide more meaning ful information regarding the extent of investment authority and control over trust and agency assets administered by banks and trust companies." The report will be limited to assets over which these institutions exercise "investment discretion"—where they have authority to buy and sell securities for an account or make recommendations for purchases or sales. For the first time, the survey will cover state-chartered trust companies that are members of the Federal Reserve System, in addition to trust departments of Fed member banks. For further information, contact the Reserve Bank's Supervision, Regulation and Credit De partment (415) 544-2238. CAPITAL STOCK The Reserve Bank's Circular 25 (Capital Stock) has been updated to reflect the current practice of automatically charging or crediting a member bank reserve account for increases and decreases in capital stock and accrued dividends. Before adoption of this new system, a bank had to authorize any changes affecting its capital stock. For further information, contact the Reserve Bank's Budget & Expenditures Department (415) 544-2403. EQUAL CREDIT OPPORTUNITY The Board of Governors has proposed several amend ments to Regulation B (Equal Credit Opportunity). One amendment would bring arrangers of credit, such as real estate brokers, within the scope of the regulation. Other amendments would eliminate the business-credit exemp tion, first from recordkeeping and notification requirements in certain transactions under $100,000, and second from restrictions against asking an applicant's marital status. The Board proposal also would require creditors to give applicants for business credit prompt notice—oral or written—of action taken on an application or an existing account. Written comments should be submitted by De cember 26 to the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, with reference to Docket #R-0185. For further information, contact the Reserve Bank's Consumer Affairs Unit (415) 544-2224. HOLIDAY NOTICE All offices of the bank will be closed Monday, December 25, and Monday, January 1, in observance of Christmas and New Year's Day. Welcome to the District LIBERTY BANK OF SEATTLE "We have the capital inourcommunities. It is just a matter of pooling it and getting it properly directed. We minor PORTLAND BRANCH HOSTS CONSUMER TALK Liberty Bank of Seattle, although one ities buy nearly $250 billion worth of of the newest member banks in the The Portland Branch of the San Fran credit. Since 1968, the bank has dou consumer goods annually. Ifwe could retain just 10 percent of that in our communities for capital development, we would be on the road to reducing the poverty level among Blacks and bled its deposits.to almost $16 million. other minorities." i§< giving creditors and the public a bet ter understanding of consumer-credit protection laws. established banking rules without sacrificing a compassionate attitude toward community risk-taking. "We are here not only to take people's deposits but also to put some of it back to help build up the community—yet we have a responsi bility to shareholders and that means S.F. FED HOLDS ACADEMIC CONFERENCE The seminars, held in Eugene and Portland, involved panel discussions Over 30 teachers and researchers cation, banking, business and gov from academic institutions through ernment. Federal Reserve Governor we can't make unbankable loans. A cisco this month. In opening remarks, San Francisco Reserve District, has been in existence for ten years, and has an impressive growth record to its To attain that kind of growth, Presi dent JonesC. Purnell says that he and his Board of Directors have followed minority Board of Directors scruti nizes profits just as hard—maybe harder—than any other board." Liberty Bank's Board of Directors is headed by Dr. James E. Jackson, Chairman; Dr. Robert Joyner, ViceChairman; and Mardine Purnell, Secretary-Treasurer. The bank's offi cers, in addition to President Purnell, are Milton H. Bledsoe, Jr., Senior Vice President and Cashier; Betty Willis, Operations Officer; and James W. Burton, Loan Officer. Jim Purnell is a firm minority banking, nationally as well as regionally. He is immediate past pres ident of the National Bankers Association—an organization dedi cated to increasing the number of minority banks throughout the coun try. He says, "Minority banks not only cater to the smaller personal and business-loan customer, but they are also natural conduits for attracting more funds into the inner-city com munities which most of us serve," he says. Purnell expects minorities to close the capital and opportunity gap—but seminars last month, as a means of with authorities from the fields of edu out the West attended the Fall Aca demic Conference sponsored by the Federal Reserve Bank of San Fran Fed President John J. Balles encour aged the participants to continue their close scrutiny of the conduct of monetary policy. "This region has always attracted some of the finest minds in monetary economics," Balles said. "The Feder al Reserve System generally—and our own bank especially—should rely more on research being conducted at the West's colleges and universities. We should look more seriously at the Philip C. Jackson, Jr., covered con sumer protection from the standpoint of the regulator. Executive Vice Presi dent Daniel Dinges of First National Bank of Oregon and Vice President Jo-Gus Turner of U.S. National Bank of Oregon represented the regulated industry—lending institutions. Eric Sten, Oregon's Assistant Attorney General in charge of Consumer Pro tection, provided a perspective from the beneficiary of the regulations— the consumer. ing a free exchange of ideas between According to Vice President Angelo Carella, officer in charge of the Port land Branch, the two meetings at tempted to resolve some of the con troversial aspects of consumer legislation. "No one can argue with the good intentions of Congress in passing these laws," Carella said. "But some argue that these laws have been ineffective or have only created new problems. Others contend that the Reserve Bank's staff and aca these laws sometimes cancel each various advocate of cisco Reserve Bank and the Universi ty of Oregon's College of Business Administration co-sponsored two criticisms that have been raised from time to time by you and your colleagues." The Fed convened the Academic Conference as a means of maintain demic economists. Conference par ticipants included professors from the University of California, the University of Southern California, the University of Nevada, Stanford University, the University of Oregon, the University of Washington, Claremont Men's Col and two Stanford-based lege, institutes—the Hoover Institution and other out or create unintended costs for the economy." Dean James Reinmuth, of the Univer sity's Business Administration School, noted that the "need for some regulation is evidenced by the fact that consumer installment credit out standing has risen from $4 billion in "through hard work, not gifts." He the Economic 1946 to over $185 billion in 1977—an continues, "Our young people are Research. During the two-day meet ing, seven papers were presented on various aspects of monetary policy, .incredible increase of over 4,500 per cent." The participants generally agreed on the value of consumer both domestic and international. The credit legislation, but they urged au thorities to make the regulations less complex and to avoid areas of overlap and duplication. *jfr showing a new level of interest in entering the economic mainstream and learning the intricacies of the financial world. Give us that equal National Bureau of conference ended with a roundtable opportunity and we will do it on our discussion on current monetary poli own. cy developments. 4§> t>9L2-t7fS (Slfr) 9U0Md Ay 02 rf6 'BIUJOIHBO 'OOSpUBJJ UBS 'ZOLL XOg O'd 'OOSjOUBJJ UBS 1° >|UBg 9AJ3S -ay lejepsj 'uoipas uoi)blujo|U| onqnd aq) Aq s>)UBq ibiojbujluoo o; pajnqujsjp si uojjbo -liqnd am ^sriy u8jb>| pue z)8Q p|Buoy 'e>|jng lubjihm Aqpaonpojd si satON a/uasaa |ejapaj 'dl~IVO 'OOSIONVHd NVS S5Z ON JJWfcGd aivd 0Zlfr6 VO 'oospuBJj ues '"IS sujosues OOfr dovisod sn iivw ssvio isaid oospuejj ues *° Mueg aAjesea [Biapsj BOARD CANCELS REGULATION E FED POSTS RECORD DISCOUNT RATE The Federal Reserve Board of Gover The Federal Reserve System raised its discount rate to a record high 91/2 percent at the beginning of this month. The one percent increase, from 81/2 percent, was the largest ever made by the Fed. nors cancelled one of its regulations this month, as its first action under a program to clarify and simplify all Fed regulations. The affected regulation (Reg E) governed the purchase by the dollar exchange rate has ex ceeded any decline related to funda mental factors, is hampering progress toward price stability, and is damag ing the climate for investment and growth." Federal Reserve Act was amended to As part of the credit-tightening pro gram, the Federal Reserve imposed a 2-percent supplementary reserve re quirement on banks' large certificates of deposit. Previously, reserve re quirements on large CD's ranged from 1 percent for longer-term depos its to 6 percent on deposits with less than six months' maturity. The Fed said that this action would help to moderate the recent rapid expansion give the System alternative means of purchasing such securities, called of bank credit, and would also lead banks to borrow funds from abroad, warrants, in the open market. thereby strengthening the dollar by improving the demand in financial Federal Reserve Banks of short-term state or local securities issued in anticipation of tax or other assured receipts. Regulation E has been on the Federal Reserve's books since 1915. It has not been used since 1933, when the Separately, the Board decided against taking any action at present to amend its Regulation C, which imple ments the Home Mortgage Disclo sure Act. The Act will expire in June 1980 unless extended by Congress. To assist Congress in making its decision, the Federal Reserve and other regulatory agencies are con ducting studies of the cost and bene fits resulting from the required disclo sures about the volume of local mortgage lending. In its review of the 26 Federal Reserve regulations, the System is trying to determine not only the costs and The increase was part of a package of moves, announced jointly by Federal Reserve Chairman G. William Miller and Secretary of the Treasury W. Michael Blumenthal, to stem declines in the exchange value of the dollar. They said that "recent movement in benefits of regulation, but also wheth er each regulation, in whole or in part, is required by law. In addition, it is trying to determine whether underly ing statues need revision, and wheth er there are more desirable alterna tives than regulations to resolve issues. The review process may in volve improving the format of regula tions, simplifying the language, and eliminating sections found not to be required by law—and, as in the pres ent case, cancelling obsolete regula tions. The Fed may also make recom mendations to Congress for statutory changes needed to permit regulatory modernization. 3. markets overseas for dollar- denominated assets. Additionally, the U.S. arranged facilities—totalling $30 billion in marks, yen, and Swiss francs—for a coordinated program of marketintervention activities to support the dollar. Among other steps, the Federal Reserve practically doubled its recip rocal currency (swap) arrangements with the central banks of Germany, Japan and Switzerland, to $15 billion. Also, the Treasury announced that it would increase its gold sales to at least 1V2 million ounces monthly, be ginning in December. ;&,