Full text of Federal Reserve Notes : November 1978

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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§>

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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. ;&,