Full text of Federal Reserve Notes : Number 3, 1980

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FEDERAL RESERVE BANK
op«

Federal

Notes

FEDERAL RESERVE BANK OF SAI^fftif^lSCO

•

NO. 3, 1980

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

S.F. FED SETS UP
OUTREACH PROGRAM

DEREG COMMITTEE
RULES ON NOW RATES

The Federal Reserve Bank of San

The Depository Institutions Dereg
ulation Committee (DIDC) ruled

Francisco has developed a number

of programs to assist depository
institutions in complying with the

that banks and savings institutions
will be able to pay as much as 5Va
percent on check-type NOW ac
counts beginning in 1981, but it left
intact current interest-rate ceilings
on regular savings accounts. In
another key decision, the commit
tee agreed to permit the continued
use of premiums or gifts that insti
tutions offer to people who open
new accounts or add to existing

new procedures mandated under

the terms of the Monetary Control

Act. Under the Act, Congress at
tempted to improve the effective

ness of monetary policy by apply
ing new Federal Reserve reserve

requirements to all depository in
stitutions with transaction (checktype) accounts and non-personal
time deposits.
To implement this goal, the Act
authorized the Federal Reserve to

collect reports from all depository
institutions. And among other key

ones.

G. H. Weyerhaeuser

WEYERHAEUSER HEADS
SEATTLE BOARD

George H. Weyerhaeuser has been

The DIDC ruled that the ceiling rate
on "negotiable order of with
drawal" accounts —

NOW ac

counts — will be raised to 51/4 per
cent, effective December 31. The

provisions, the MCA provided non-

named Chairman of the Board of

member institutions with access to

Directors of the Seattle Branch of

rate on "automatic transfer from

Federal Reserve borrowing privi

the Federal Reserve Bank of San

leges and other Fed services, and
required the Federal Reserve to set

savings" accounts — ATS ac
counts — will remain at 51/4 per

dent, Chief Executive Officer and

fees for these services.

Beginning September 22, the Fed
eral Reserve Bank of San Francisco

Francisco. Weyerhaeuser is Presi

Director of the Weyerhaeuser Com
pany, a forest-products company
with 49,000 employees and $4.5 bil
lion in annual revenues.

has organized a series of orienta
tion sessions for top executives of
depository institutions located in

The Tacoma executive was ap
pointed to the Seattle Board by the

the San Francisco Reserve District

Federal Reserve Board of Gover

— the nine westernmost states (see
list of sites below). These sessions,
held in 26 locations throughout the
District, have been designed to pro

nors, to fill out an unexpired term
ending December 1981. He re
places Lloyd E. Cooney, Seattle
broadcasting executive, who re
cently resigned from the board. He
also replaces Cooney as Seattle
board chairman, an annual posi
tion, at the designation of the

vide executives with an overview of

the implementation of the MCA.

In addition to these general orienta
tion sessions, a series of seminars

on reporting and reserve account
ing will be held in all Reserve Bank

Board of Directors of the San Fran
cisco Reserve Bank.

Later, technical seminars will be

Weyerhaeuser graduated with
honors from Yale University in

(Continued on page 4)

(Continued on page 2)

offices in the week of October 13.

cent. Similarly, ceilings were left
unchanged on other types of inter
est-bearing transaction accounts,
at 51/4 percent for commercial
banks and 51/2 percent for thrifts.
The committee also said that it in

tends to raise passbook-account
ceiling rates as soon as is "pru
dently practicable." It hopes to be
able to do so before September 30,
1981, when by law it is required to
vote on raising passbook rates.

On the "freebie" question, the
DIDC permitted the continued use
of premiums or gifts, but required
that the stated cost reflect the com

plete
Such
ping,
dling

cost of the merchandise.
costs would include ship
packaging and other han
expenses, as well as any

(Continued on page 4)

FED ATTACKS
CHECK FLOAT

WEYERHAEUSER

(Continued from page 1)

PRICING COMMENT
SOUGHT BY FED

In an effort to tighten its checkclearing procedures and signifi
cantly reduce "free float," the Fed

1949, with a degree in industrial

The Federal Reserve announced

administration. He has been asso

that public comment on its pro
posed pricing schedule for ser

eral Reserve has launched a two-

tiered program involving the
streamlining of transportation pro
cedures, electronic clearance of

larger checks, and revising of time
schedules by which depositing
banks receive credit for funds they
deposit.

Currently, average daily float is
running at about $5 billion. The Fed
hopes the new procedures will re
duce float to a daily average of
about $2 billion. Based on an aver
age federal-funds rate of 11.2 per
cent last year, Fed economists esti

ciated with the Weyerhaeuser
Company since 1947, and has been

phase-in of fees due to begin in

holds directorships in a number of
major companies, including the
Boeing Company, the Standard Oil
Company of California, and the

January.

Safeco Insurance Company.

Foundation. He is a member of the

Advisory Board of the University of

mate the Fed could have earned

$650 million from float and, in

Sound Law School.

revenues to the U.S. Treasury.
Float occurs in the Fed's check-

clearing operations when the sys
tem credits one bank's account for

a check drawn on another bank be
fore it debits the other bank's ac

count. In the interim, both banks
have use of the funds so that, in

effect, the Fed is extending an
interest-free loan to one of the two
banks.

Under the plan adopted by the
Board of Governors, the interdis-

trict transportation system for
moving checks is being upgraded
to provide for a quicker return of
checks among banks using the Fed
service. Also, the Fed is examining
ways to clear checks for large
amounts electronically, rather than
waiting for the checks to be re
turned physically to the regional
Fed bank for the institution on
which the checks are drawn.

In addition, the Fed has proposed
to slow the schedule by which the
depositing banks receive credit for
funds they deposit. The new sched
ule, expected to be put into effect
in September 1981, would be
based on the actual time it takes to

clear checks.

Last spring as part of a major revi-

The Tacoma executive is also

noted for his memberships in a

numberof major national and inter
national organizations. These in
clude the Council on Foreign Rela
tions, the Emergency Committee
for American Trade, the JapanCalifornia Association, the Busi
ness Council, and the Business

Roundtable.

Mandated by the Monetary Control
Act of 1980, prices would be based
on all direct and indirect, long-run
costs incurred for the various ser

Weyerhaeuser is a trustee of the
Rand Corporation, the Charles
Wright Academy, the Taft School,
and the Weyerhaeuser Company

Washington's School of Business
Administration, and of the Board of
Visitors of the University of Puget

directly, saved taxpayers that
amount by following its usual
policy of turning over most of its

vices ends October 31, with the

President and CEO since 1966. He

^

sion in banking laws, Congress
directed the Fed to eliminate check

float or start charging institutions

vices, plus a 12 percent "markup"
that takes into account the financ

ing and tax costs that a private firm
would encounter if it offered simi

lar services. The same prices would
apply to all depository institutions.
Federal Reserve services to be

covered under the proposed pric
ing schedule include check-clear
ing, currency and coin, wire trans
fers, automated clearinghouse ser
vices (ACH), settlement services
affecting accounts held by the Fed
eral Reserve, securities safekeep
ing, noncash collection and Fed
eral Reserve float.

The Fed plans to publish final
pricing regulations in January.
Pricing of wire transfer and net
settlements, which are wire trans
fers done by privately owned

groups, should begin during Jan
uary. Pricing of checks and ACH

for it, because float could be re

services is scheduled for April.

garded as a government subsidy to
the private banking industry. The
law also required the Fed to impose

They could range from a fraction of

charges on services, such as
check-clearing, that it previously
provided free.
As a result of the congressional
order, the Fed said it would try to

eliminate nearly all free float from
its check-clearing operations by
the middle of 1982. Some float is

expected to remain beyond that
date, and the Fed has proposed to
start charging institutions explicit
ly for this remaining float. Interest
on float would be charged at the
prevailing market rate for federal
funds — the unused reserves lent

by depository institutions to one

a cent a check to seven cents a

check, depending on distance, de
gree of computerization and other
factors. The pricing of currency
and coin would follow in July, and
securities and noncash collection
in October.

Charges for float (the interest on
items credited by the Fed to one
depository institution before being
collected from another) won't be
instituted until mid-1982. Mean

while, the Fed has announced a

two-step program to reduce float
by improving its interdistrict trans
portation system for moving
checks, and by modifying its time
schedules, beginning in Septem-

another.

At present, the Fed clears about 44
percent of all the nation's checks.
W

(Continued on page 4)

FED OUTLINES BORROWING, RESERVES PLANS
In carrying out provisions of the
Monetary Control Act (MCA) of
1980, the Federal Reserve has re

vised its regulations covering re
serve requirements of depository
institutions (Reg D) and access to
the Fed'sdiscount window (Reg A).

years or more will be zero percent.
Eurocurrency liabilities will have
reserve requirements of 3 percent.
Under the Act, transaction ac

counts include demand deposits,
NOW (negotiable order of with
drawal) accounts, ATS (automatic
transfer from savings) accounts,

institutions, mostly credit unions,

with total deposits below $1 million
are exempt from reserves-posting
requirements and reporting until at
least May 1981.
At the same time, Fed member

ginning September 1. Previously,

fers a

discount-window services were

such accounts are regarded as

banks will begin a four year phasedown of reserve requirements, be
cause their present requirements
are considerably higher than the
ones stipulated in MCA. Beginning
November 13, reserve require
ments will be reduced by onefourth during the first 10 months,
and one-eighth every succeeding

limited to Fed member banks.

transaction accounts. Thrifts na

six months thereafter.

Depository institutions offering
transaction accounts or nonpersonal time deposits — all of which
are now subject to reserve require
ments — became eligible to use the
Fed's credit-extension facilities be

Under Reg A, Federal Reserve
credit will be offered under two

major programs — adjustment
credit and extended credit. Adjust
ment credit will be made on a very
short-term (overnight) basisto help
depository institutions adjust to
sudden changes in their need for

share-draft accounts, and ac

counts permitting telephone or
pre-authorized transfers of pay
ments to third parties. Up to three
telephone or pre-authorized trans
month are allowed before

tionwide may offer interest-bearing
checking (NOW) accounts for the
first time starting next January 1,
and this transaction account will

be subject to the Fed's full reserve
requirement at that time.
A nonpersonal time deposit is de
fined as one which is transferable

funds. Extended creditwill be avail

or held by a party who is not a natu

able to assist institutions in coping

ral person. Time deposits do not
become transferable by reason of
being pledged for a loan, or due to
transfer following death, bank

with unusual credit needs due to

particular problems covering
somewhat longer periods:

The Fed said it would offer tempo
rary adjustment credit to nonmembers only if they are unable to gain
timely access to their specialindustry lenders, such as Federal
Home Loan Banks or the Central

Liquidity Facility of the National
Credit Union Administration. Non-

ruptcy or judicial attachment. As a
transitional measure, the Fed said

it would regard all time deposits
issued to individuals prior to Octo
ber 1,1980 as personal time depos
its, even if they are transferable.
Personal time deposits are not sub
ject to reserve requirements.

members seeking extended credit

New Fed constituents with depos

from the Fed will be consulted in

its in excess of $1 million will begin
an eight-year phase-in of reserves
starting November 13, 1980. On

regards to why funds are not avail
able from other sources.

In amending Reg D to conform to
MCA, the Fed listed reserve re
quirements to be imposed after a
phase-in period. The reserve re

quirement on the first $25 million of
an institution's transaction ac

counts will be 3 percent. Reserves
of 12 percent must be held on
transaction accounts above $25
million.

The reserve requirement on nonpersonal time deposits with origi
nal maturities of less than four

years will be 3 percent, while simi
lar deposits with maturities of four

that date, most institutions must

set aside one-eighth of the reserve
requirement applicable to them.
Subsequently, they will post an
additional one-eighth of their total
reserve requirement in September
during each of the following seven
years.

Institutions with $5 million or more
in total deposits will have to report
reserves on a weekly basis begin

ning November 13. Smaller institu
tions, with $1 to $5 million in de
posits, must report quarterly begin

ning January 1, 1981. Some 11,400

Roughly 18,000 institutions will be
subjectto reserve requirements, in
cluding about 5,400 Fed members,
9,000 nonmembers and, initially,
about 3,400 savings and loan asso
ciations and mutual savings banks.
One major purpose of uniform re
serve requirements is to assist the
Fed in carrying out its Congres
sional mandate for effective mone

tary control.

Reserve requirements can be satis
fied by vault cash as well as by bal
ances held at a

Federal Reserve

Bank. Nonmember institutions

may hold their reserves directly
with the Fed, or indirectly by pass
ing the reserves through another
institution.

The first period for reporting de
posits and determining the status
of institutional reserves begins Oc
tober 30, 1980. The Federal Re
serve Bank of San Francisco is

mailing reporting forms, manuals
and other material to all depository
institutions in the 12th District

during September.

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PRICING COMMENT
(Continued from page 2)

ber 1981, for making funds avail
able to institutions that have pre
sented checks for clearance (see
story, page 2). Interest on float
would be charged at the prevailing
market rate for federal funds.

In situations where an institution

with only a small reserve balance
(or none) wishes to obtain services
directly from a Federal Reserve
Bank, the local Fed bank could

DEREG COMMITTEE

(Continued from page 1)

OUTREACH PROGRAMS
(Continued from page 1)

advertising-type fees paid to a pro
motional agency.

six weeks prior to the time at which

The DIDC ruled, moreover, that

dollar limits on premiums could be

raised to $10 for deposits of less
than $5,000, and to $20 for deposits
of $5,000 or more. Each depositor
would be permitted only two gifts

held at those offices, about four to
various Fed services are offered to

depository institutions under new
pricing schedules. Meanwhile, an
MCA Information Desk has been

set up at each Fed office to answer
questions.

The schedule of general-orienta

per year.

The committee in effect prohibited

tion sessions follows:

establish the need for a clearing

finders fees for amounts under

San Francisco Zone — Reno (Sep

$100,000 —specifically, by regard

tember 22), Honolulu (September

balance. Size of the balance would

ing such fees as deposit interest
and thus including them under the
appropriate ceiling-rate regula
tion. However, it listed two possible
exceptions to this rule. Institutions
could pay incentive bonuses to em
ployees, provided such bonuses
weren't related to any specific
deposits but rather to some total
amount of deposits. Also, institu
tions that had obtained 25 percent
or more of depositsthrough finders
fees could be permitted a phasedown over a two-year period.

22), Sacramento (September 23),

be set in advance to minimize re

serve deficiencies, with adjust
ments on a monthly or less-fre

quent basis. Required clearing bal
ances would receive an earnings
credit equal to the weekly average
of the 91-day Treasury bill rate.
Also, institutions could use the re
serve account of another institu

tion (with prior authorization) to
pay for Fed services.

According to Fed proposals, fees
would be imposed nationwide for
services that are uniform across

The DIDC asked for comments on

the Federal Reserve System, such

this subject, especially with re
spect to depository institutions'
ability to identify the deposits ob
tained through finders fees and the

as wire transfer and ACH services.

However, differing schedules
would be used where significant
cost differences exist among Fed
eral Reserve districts or offices,
such as coin-wrapping and securi

individuals to whom the fees were

Fresno (September 24), San Jose

(September 25), San Francisco
(October 1-3).
Los Angeles Zone — Bakersfield
(September 22), Santa Barbara

(September 23), Las Vegas (Sep
tember 24), Tucson (September
25), Phoenix (September 26), Van
Nuys (September 29), Los Angeles

(September 30), Riverside (Octo
ber 1), Newport Beach (October 2),
San Diego (October 3).

Portland Zone — Portland (Octo
ber 1), Pendleton (October 2),
Eugene (October 3).
Salt Lake City Zone — Salt Lake
City (September 22), Boise (Sep
tember 23), Pocatello (September
24).

district level, and currency and

paid. The purpose would be to
minimize problems for specific in
stitutions that have been heavily
dependent on finders fees for an

coin shipping at the office level. n|j

Seattle Zone — Yakima (Septem
ber 25), Spokane (September 26),
Seattle (September 29), Anchorage

extended period.

(September 30).

ties and noncash collection at the

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