Full text of Federal Reserve Notes : Number 2, 1980

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:EPEKAL RESERVE B/SHKHIMU

Federal Reserve Notes
FEDERAL RESERVE BAN^j§fA^N FRANCISCO

•

NO. 2, 1980

Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

FED PROPOSES
RESERVE CHANGES

addition, reserves of non-member
institutions would amount to about

$3 billion.
The Federal Reserve has invited

comments on a proposed revision
of its Regulation D, that would im
plement changes in reserve re
quirements necessitated by the
Monetary Control Act of 1980. In
general, under the Act, reserve
requirements for Federal Reserve
member banks would be reduced

over a four-year period, while re
quirements for other depository
institutions with transaction ac

counts or non-personal time de
posits would be phased in over an
eight-year period.
The Fed thus proposes to reduce
reserves for members by oneeighth every six months, starting
September 4, 1980 and ending in
April 1984. Non-members would be
required to phase-in one-eighth of
their total requirement each year,
starting September 1, 1980 and
continuing to August 31,1988. The
proposal sets specific phase-in
procedures for agencies and
branches of foreign banks, de novo
banks, and new member banks.

The law sets reserve requirements,
for gradual phase-in, at 3 percent

on (initially) the first $25 million of
transaction accounts and 12 per

The

Under the Board's proposal, the

Reserve

has

an

term "transaction account" would

include demand deposits, NOW

March 14 as an anti-inflation mea

accounts, ATS accounts, share-

sure. "Recent evidence indicates

draft accounts and accounts sub

that the need for those extraordi

ject to telephone or pre-authorized

nary measures has ended," the Fed
said in its July 3 statement. This last
action follows a partial phase-out

transfer or payment, plus all ac
counts that permit third-party pay
ments through automated-teller

announced May 22.

machines or remote-service units.

The Fed is seeking specific com
ments on the feasibility or desira
bility of exempting from transac
tion reserve requirements those
accounts subject to a minimal
number of telephone or pre-autho
rized transfers per month — per
haps one or two — for special pur
poses such as mortgage or utility
payments.

A non-personal time deposit is de
fined by law as one that is transfer
able or held by a party other than a
natural person. Since many institu
tions have issued time deposits
that may be transferred by individ
ual depositors, the Fed proposes
to regard all time deposits in de
nominations under $100,000 is
sued to individuals prior to July 15
as personal time deposits. To be
considered a personal time deposit
thereafter, the certificate would

Based on December 1979 data, re

Under the proposal, the minimum
maturity of all time deposits would
be changed from the present 30
days to 14 days, "to help improve
the ability of domestic depository

(when fully phased-in) would
amount to about $131/2 billion for
member banks, compared to about
$321/2 billion last December. In

Federal

nounced plans to phase out all the
credit controls that were imposed

cent on remaining transaction ac
counts. The initial requirement on
non-personal time deposits would
be 3 percent.

quired reserves held at the Fed

FED TO PHASE OUT
CREDIT CONTROLS

have to be labeled non-transferable

and be issued to and held by an
individual.

(Continued on page 4)

Specifically, the Board said it
would eliminate the remaining 5
percent marginal reserve require
ment that had been set on man

aged liabilities such as large cer
tificates of deposit, beginning on
July 10. In addition, the Board will
eliminate at the same time the 2

percent supplementary reserve re
quirement on large time deposits
imposed in November 1978.
The Fed also scheduled elimina

tion of the remaining 7.5 percent
special deposit requirement that
applied to growth in consumer
credit. It said that no further special
deposits would be required after
the reporting period ending July
23. The special deposit require
ment for increases in assets of

money market mutual funds also
was lifted, effective July 28.
The Board said the 6 percent to 9
percent voluntary limit on loan
growth of banks and finance com

panies would be phased out after
filing of June 30 reports. "The
Board feels that normal competi
tive and market incentives can be

relied upon to assure the flow of
credit consistent with normal bank

ing standards."

^

REGULATORS ADJUST RATE CEILINGS

The newly formed Depository Insti
tutions Deregulation Committee

has adjusted interest-rate ceilings
on six-month and thirty-month sav
ings certificates, and also has
toughened the penalty for early
withdrawals from all time deposits
that are entered into, renewed or
extended on or after June 2, 1980.
The committee took these actions

as "a step toward giving the public
a market return on savings," and
within that context, to help "depos
itory institutions compete for de
posits more effectively, to enhance
the ability of small banks to serve
the agricultural and small-business
needs of their communities, to help
thrift institutions increase liquidity,
and to permit banks and savings
institutions to better serve the

nation's needs for financing home-

building and home ownership."
The committee consists of the Sec

retary of the Treasury and the chair

the popular $10,000 six-month cer
tificates, regardless of how low the
Treasury bill rate drops below Tk
percent.

A differential favoring thrift institu
tions will be part of the ceiling
structure only when the six-month
Treasury bill rate is between 71/4
and 8% percent. Previously, banks
could pay the same rate as thrifts
only when the six-month bill rate
was 9 percent or more. Incidentally,
banks are always permitted to pay
the thrift rate on IRA and Keogh
(retirement) accounts and on gov
ernmental funds.

In addition, the Deregulation Com
mittee is allowing banks, when the
differential is in effect, to pay the
same rate as thrifts when renewing
maturing six-month certificates
with the same depositor. Such re
newals are allowed only one time
per account during the period May
29, 1980 through November 30,

NOMINEES SOUGHT
FOR CONSUMER PANEL
The Federal Reserve Board of

Governors is seeking nominations
for its Consumer Advisory Council,
which advises the Board on mat

ters pertaining to consumer pro
tection laws and other consumerrelated matters.
From a list of nominees submitted

in 1979 and 1980, the Board will

make eight appointments to the
1981 Council. Nominations should

be submitted in writing prior to
August 1 to Janet Hart, Director,
Division of Consumer and Com

munity Affairs, Board of Governors
of the Federal Reserve System,
Washington, D.C. 20551.
The nominations should include

the name, address and telephone
number of the nominee; past and
present positions held; and special
knowledge, interests or experience
relating to consumer matters.

1980.

The Consumer Advisory Council
was established by Congress in

men of the Federal Reserve Board

of Governors, Federal Deposit
Insurance Corporation, Federal

Under the revised format for six-

1976. Its 1980 chairman is William

month instruments, banks and

Home Loan Bank Board and the

thrifts at all times would be per
mitted to pay more than the Trea

D. Warren, dean of the UCLA Law
School, Los Angeles. Also serving
on the Council from the 12th Fed

sury-bill rate (auction average on a

eral Reserve District are Roland E.

National Credit Union Administra

tion Board. The Comptroller of the
Currency is a nonvoting member.
In an action which took effect June

2, the committee eliminated the full
1/4-percent interest-rate advantage

enjoyed by savings and loan asso
ciations on six-month certificates

when the Treasury rate rises above
8% percent or falls below Tk per
cent. And under a new minimum-

rate ceiling rule, the committee
permitted all depository institu
tions to pay at least 7% percent on

discount basis). Likewise, regard
less of the average 21/2-year yield
for Treasury securities (as deter
mined by the Treasury Depart
ment), thrifts would be permitted to
pay at least 91/2 percent on their 30month, small-saver certificates,
while banks could pay a minimum
of 91/4 percent. Maximum interest
rates on the 21/2-year instruments
can range to 12 percent for thrifts
and 11% percent for commercial
banks.

Rate Ceilings for 6-Month Money Market Certificates
6-MONTH
TREASURY BILL
RATE

COMMERCIAL BANK
CERTIFICATE
RATE

SAVINGS BANK
CERTIFICATE
RATE

Above 8.75%

Treasury bill rate
plus 25 basis points

Treasury bill rate
plus 25 basis points

None
None

8.50%-8.75%

Treasury bill rate
plus 25 basis points

9.00%

0 to 25 basis

7.50%-8.50%

Treasury bill rate
plus 25 basis points

Treasury bill rate
plus 50 basis points

25 basis

7.25%-7.50%

7.75%

Treasury bill rate
plus 50 basis points

25 to 0 basis

Below 7.25%

7.75%

7.75%

None

DIFFERENTIAL

points

points
points

Brandel of Morrison & Foerster,

San Francisco; Shirley T. Hosoi of
Western Bankcorporation, Los An
geles; and Richard A. Van Winkle
of Lockhart Finance Company,
Salt Lake City.

Regarding withdrawal of funds
before maturity from a post-June 1
time deposit, the new rules of the
Deregulation Committee require a
minimum penalty of three months'
simple interest where the maturity
of the deposit is three months
through one year, and six months'
interest in the case of a longer ma
turity. On time deposits with matur
ities of less than three months, the

penalty is simple interest for the
contracted maturity of the deposit.
In the past, the minimum required
penalty did not exceed interest ac
crued or already paid, but now the
penalty may require a reduction in
the principal sum of the account.

DISCOUNT WINDOW
ACCESS EXPANDED
•

The Federal Reserve has moved to

implement the March legislation
which permits access to the Fed's
discount window by all financial
institutions holding transaction ac
counts or non-personal time de
posits subject to reserve require
ments. Previously, only Fed mem
ber banks could use that borrow

ing facility.

,

Under a proposed regulation, Fed
eral Reserve credit would be of

fered under two major programs —
1) regular adjustment credit, and
2) extended credit, including sea
S.F. Fed President Balles meets with

President Li Baohua of the People's
Bank of China in San Francisco.

FED OFFICIALS
VISIT CHINA

A Federal Reserve delegation
headed by Chairman Paul A.
Volcker, and including Governor
Nancy H. Teeters and San Fran
cisco Fed President John J. Balles,
visited China in June to culminate

an exchange of visits that brought
China's central bankers to the

United States in early May.
After beginning the trip June 13
with two days of meetings with
bankers and businessmen in Tokyo,
the Fed delegation arrived at Bei
jing and was greeted by Li Baohua,
president of the People's Bank of
China. The visiting Americans later
toured the Great Wall and attended

various business meetings and
functions in Shanghai, Hangzhou
(Hangkow), Guangzhou (Canton)
and Hong Kong.

Others in the delegation were
Thomas Timlen, first vice president
of the Federal Reserve Bank of New

York; Charles Siegman, associate
director of the Board's Division of

International Finance; and HangSheng Cheng, assistant vice presi
dent and economist of the Federal

Reserve Bank of San Francisco.

In May, President Li headed a
group of Chinese central bankers
which visited the San Francisco
Fed and other Federal Reserve

offices.

H

sonal credit and special credit for
institutions facing "particular
problems." The seasonal credit
facility would be available to small
er institutions that lack ready ac
cess to national money markets or
to special industry lenders. An
arrangement for seasonal credit
would take into account historical

patterns of fluctuations in an insti
tution's loans and deposits, to
gether with evidence of recent or

L. E. Gramley

GRAMLEY NAMED
FED GOVERNOR

Lyle E. Gramley, a member of the
President's Council of Economic

Advisers, was sworn in May 29 as
a governor of the Federal Reserve
Board by Vice President Walter F.
Mondale.

prospective changes in needs for

Gramley succeeds Philip E. Coldwell, whose term expired January
31. Gramley's 14-year term will end

funds.

in 1994.

Other extended credit would be

The new governor is no stranger to
the Federal Reserve System. Gramley first became affiliated with the

available to accommodate the

needs of depository institutions
that may experience difficulties ad
justing to changing money-market
conditions over a longer period,
particularly at times of deposit disintermediation. Other extended

credit may also be provided to an
individual institution that experi
ences financial strains arising from
particular circumstances or prac
tices affecting that institution —
including sustained depositdrains,
impaired access to money market

Fed in 1955 as a financial econo

mist at the Kansas City Reserve
Bank. He served as associate pro
fessor of economics at the Univer

sity of Maryland in the 1961-64
period, and then shifted to the
Board of Governors. He held senior

research positions and statistical

positions there until he was ap
pointed to the President's Council

of Economic Advisers in 1977. ^

funds, or sudden deterioration in

loan repayments. All institutions
would be expected to use "other
reasonably available sources of

funds" before turning to the Fed
discount window for assistance.

The Fed emphasized that shortterm adjustment credit would con

more persistent fund outflows
pending an orderly adjustment of a
borrower's assets and liabilities.

The proposed regulation states
that interest on adjustment credit
underthe program generally would
be at the basic discount rate. How

tinue to be the primary form of Fed

ever, the Fed would retain the

lending. It would be available on a
very short-term basis to assist bor

addition to the basic rate, as it did

rowers in meeting temporary re
quirements forfunds, orto cushion

option of imposing a surcharge in
temporarily under this spring's

credit-restraint program.

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RESERVE CHANGES

ECCLES NAMED DIRECTOR

VIDEOTAPE PROGRAM

(Continued from page 1)

Spencer F. Eccles, president and
chief operating officer of First
Security Corporation and First
Security Company, Salt Lake City,
has been appointed a director of
the Salt Lake City branch of the

The Federal Reserve Bank of San

San Francisco Reserve Bank.

tional institutions and other in

institutions to compete with bank

ing offices located abroad and with
issuers of short-term paper in this
country."

The Fed also proposes to initiate a
3-percent reserve requirement on
certain Eurodollar activities to

eliminate any artificial incentive
that would favor raising funds off
shore instead of in the domestic

Eccles replaces Robert E. Bryans,
former chairman of the board of

Walker Bank & Trust Company, Salt

Lake City, who is retiring from the

market.

Fed branch board after serving as
director since January 1977.

In addition, the Fed is seeking

Eccles' term ends in 1981.

specific comment on the following
issues relating to reserve require

T-Bill Trading

ments:

The Federal Reserve Board

• Whether required reserves
should be based on deposits held
two weeks earlier, as presently
computed, or on deposits held in a

said it has no objections to
allowing the proposed futures

current statement week.

unit of the New York Stock

Exchange to trade contracts
based on Treasury bills and
bonds.

• Whether institutions should be

required to calculate reserve re
quirements on the basis of five
weekdays within a statement week
(or four, if a holiday is involved) in
order to eliminate the possibility of
some institutions artificially raising
certain categories of accounts
prior to weekends or holidays in
order to lower reserve require

In a letter to the Commodity
Futures Trading Commission,
which regulates futures ex
changes, the Fed indicated
that its approval hinges on the

Big Board's success in merg
ing its unit with the American
Stock Exchange's futures
unit. Such a merger would
avert Fed concern over "pro

ments.

liferation of contract markets"
• Whether to remove reserve re

in trading of Treasury bills

quirements from demand deposits
"due to" depository institutions.

and bonds.

W

Francisco has produced a series of
19 videotapes in its "Economic
Issues" series, and is offering them
on a free-loan basis to commercial-

bank training departments, educa
terested groups. Each videotape
runs between 15 and 25 minutes
and features a Bank economist's

discussion of some current issue of

economic activity.

The topic of inflation receives con
siderable attention in these discus

sions, in such areas as the history
of inflation, international sources

of inflation, money demand and
inflation, food-price increases, and
the differences among price in
dexes. Monetary policy also is a
major topic of discussion. Other
tapes describe the international
value of the dollar, the Japanese

economy, the energy problem,
housing prices, consumer debt,
and the uses of economic analysis.
A complete listing of the three-

quarter inch tapes in the Economic
Issues series is available from the

Public Information Section, Fed
eral Reserve Bank of San Fran

cisco, P.O. Box 7702, San Fran
cisco 94120. Phone (415) 544-2184.
Tapes can be borrowed from that
unit, or from the Bank and Public
Services Departments at the
Bank's branch offices.