Full text of Federal Reserve Notes : Number 4, 1980

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Reserve Notes

FEDERAL R^jj^y^ BANK OF SAN FRANCISCO

•

NO. 4, 1980

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

VAUGHAN, METTLER
RETURN TO FED BOARD
Southern California businessman

J.R. Vaughan and Ole R. Mettler, a
Central Valley banker, have been
re-elected to the Board of Directors
of the Federal Reserve Bank of San

Francisco by Twelfth District mem
ber banks.

Mettler, president and board chair
man of Farmers & Merchants Bank

of Central California in Lodi, won
his bid for a Class A Directors' seat,
C. E. Schmidt

SCHMIDT REAPPOINTED
TO FED ADVISORY BODY

Chauncey E. Schmidt has been
reappointed to the Federal Ad
visory Council for 1981 by the
Board of Directors of the Federal
Reserve Bank of San Francisco. He

is chairman of the board, president
and chief executive officer of the

Bank of California and its holding
company — BanCal Tri-State Cor
poration.
The Federal Advisory Council pro
vides a link between the banking
and financial community and the
Federal Reserve Board of Gover

nors. It is composed of 12 members
representing each of the districts
in the Federal Reserve System. The
Council advises the Board on a

wide range of topics, including
overall banking and monetary ob
jectives, the Fed's regulation of
member-bank activities, and the

effects of monetary policy on finan
cial institutions and the money

representing District member
banks, in a contest with W. Peter
Ramberg, vice chairman of the
board and chief executive officer of
Alaskan National Bank of the North

of Fairbanks. Vaughan, chairman
of the board of the Los Angelesbased Knudsen Corporation and
senior member of the law firm of

Richards, Watson, Dreyfus and
Gershon, was unopposed for a
second term as a Class B Director,

representing non-financial busi
nesses in the 12th District.

Both terms, which begin January 1,
are for three years.

Vaughan has been associated with
the Federal Reserve Bank of San

Francisco since 1973, when he was

appointed a director of the Los An
geles branch. He became a director
of Knudsen Corporation in 1962
while serving as a practicing part
ner in the law firm of Vaughan,
Brandlin, Robinson and Roemer.

He later became vice president of
finance, and then president, chief
executive officer and chairman of

market.

Knudsen.

Before joining the Bank of Cali
fornia in 1976, Schmidt was presi-

A native Californian, Vaughan at
tended Loyola Marymount Univer
sity where he earned A.B. and J.D.

(Continued on page 3)

J. R. Vaughan

O. R. Mettler

degrees. He is a member of the
State Bar of California, Economic

Round Table, Rotary Club, and
Board of Visitors of Loyola Law
School. Active in professional and
civic affairs, Vaughan is currently
a director of the National Dairy
(Continued on page 3)

SMALL INSTITUTIONS
GAIN FED EXEMPTION

MQAltfubte.

MCA WORKSHOPS SLATED
FOR EARLY JANUARY

financial institutions, was owned

Workshops detailing MCA-mandated reporting and reserve re
quirements for non-Fed member

With the aim of exempting many
small financial institutions from

reserve maintenance and reporting
requirements, the Federal Reserve
Board of Governors has simplified
procedures under the Monetary
Control Act of 1980.

The Board deferred, until next May,
all reserve and reporting require
ments for nonmember depository
institutions with less than $2 mil
lion in total deposits as of Decem
ber 31 , 1979. The earlier cutoff level

had been $1 million in deposits.
At the same time, the Board

adopted a procedure for quarterly
reporting and reserve mainte

primarily (75 percent or more) by
the financial institutions with which

it does business, and does not do

business with the general public.

institutions holding between $2
and $5 million in total deposits
have been scheduled for the first

half of January at all Federal Re

A banker's bank may act as a passthrough agent for the reserves of

serve Bank cities of the 12th Dis

other institutions if it enters into an

trict.

agreement with the Federal Re
serve to accept responsibility for
correctly maintaining passedthrough reserves, and if the Fed
eral Reserve (after consultation
with the appropriate supervisory
agency) is satisfied with the quality
of the management and financial

The seminars for quarterly-report
ing institutions will be held at the

resources of the bankers' bank.

Federal Reserve Bank of San Fran
cisco and its branch offices at Los

Angeles, Salt Lake City, Seattle and
Portland. Dates of these meetings
shall be included in an information

package to be mailed to all new
constituents required to report re
serves on a quarterly basis.

nance, beginning in January, for
nonmember institutions holding

The Board emphasized that it does

between $2 million and $15 million

direct supervision of such institu
tions, but would look to the Na

This will be the second series of

tional Credit Union Administration

the reserve maintenance and re

in total deposits. Earlier regula
tions required weekly reports from
all institutions with deposits of $5
million or more.

Approximately 17,000 institutions,

primarily credit unions, will be af
fected by the deferral of reporting
and reserve requirements for nonmembers with less than $2 million

in deposits. Previously, about
11,400 such institutions with total
deposits below $1 million were
exempted.
Another 10,000 institutions with

deposits between $2 million and
$15 million will be covered by the
quarterly reporting and reservemaintenance requirement. Conse
quently, the simplified procedures
will relieve reporting burdens for
27,000 institutions. These institu
tions, although numbering about
two-thirds of the total covered by
the new law, hold 4.3 percent of all
deposits.
Also exempt from reserve require
ments under the new guidelines
are "bankers' banks." These are

depository institutions, such as
corporate-central credit unions,
that primarily serve other financial
institutions. In amending its Regu
lation D, the Fed stated that a

bankers' bank could qualify for
exemption if it had been organized
solely to do business with other

not intend to involve itself in the

and the Federal Home Loan Bank

to review requests from constituent
institutions that wish to qualify as
bankers' banks.

As a result of information gathered
at MCA orientation meetings and
from analysis of other data, the
Board decided that it could adopt
simplified procedures for a larger

seminars held in conjunction with
porting requirements extended to
all depository institutions under
the Monetary Control Act. Opera
tional and procedural workshops
for institutions holding more than

$5 million in deposits were held in
October at San Francisco, Los An

geles, Portland, Salt Lake City,
Seattle, Spokane, Fairbanks, An
chorage, Honolulu and Phoenix.

number of small institutions with

out any substantive impact on the
System's ability to control the
monetary aggregates. Under the
MCA mandate, Federal Reserve

reserve requirements were extend
ed to all depository institutions
offering transaction (check-type)
accounts and non-personal time
deposits.

Following the October reservesreporting seminars, the Federal
Reserve broadened its group of
quarterly reporting institutions to
include those with deposits of be
tween $2 and $15 million. Previous
ly, all institutions with deposits of

$5 million or more were required to

Fed member banks have continued

issue weekly reports on reserves
starting in January. Weekly report
ing is now limited to institutions

with weekly reporting of deposit

with deposits in excess of $15

levels and reserves. Nonmember

million.

institutions with more than $15 mil
lion in total deposits began making

The Federal Reserve Bank of San

weekly reports for deposits as of
October30, and began maintaining
the newly mandated reserves on
November 13.

Francisco began its MCA sessions
in September with a series of gen
eral orientation meetings for top
executives of depository institu
tions located in the 12th District —

The new rules governing the main
tenance and reporting of reserves
do not affect the U.S. agencies and
branches of foreign banks or Edge
Act corporations.
W

the nine westernmost states in

cluding Alaska and Hawaii. Next,
the October seminars provided de
tailed information on reserve main

tenance and reporting require
ments.

VAUGHAN, METTLER
(Continued from page 1)
Council and Southern California

Building Funds. He also serves as
trustee of the Pacific Legal Foun
dation and Mount St. Mary's Col
lege.

Mettler joined Farmers & Mer

NOW GUIDELINES SET
BY FED STAFF
The Federal Reserve Board staff

has issued guidelines for member
banks to use in determining cus
tomers eligible for "negotiable
order of withdrawal" (NOW) ac
counts when such accounts can be

chants Bank in 1960 as president

offered nationwide after December

and was elected chairman of the

30. The guidelines are nearly iden

board in 1977. He is a past-presi

tical to those currently used by

dent of the California Bankers

banks that already offer NOW ac
counts in New England, New York,
and New Jersey.

Association and the Independent
Bankers Association of Northern
California.

A graduate of the University of Cali

The Federal Deposit Insurance
Corporation and Federal Home

fornia, he has served on numerous

Loan Bank Board retain a similar

committees associated with the

authority for institutions subject to
their jurisdiction.

American Bankers Association —

the Executive Council, Governing
Council, Agriculture Committee,
Agriculture Credit Task Force and

on the University of California's
Agricultural Advisory Committee.

Under the Depository Institutions
Deregulation and Monetary Con
trol Act of 1980, banks may offer an
interest-bearing checking, or
NOW, account only to individuals
and to non-profit organizations
operated primarily for religious,
philanthropic, charitable, educa
tional or similar purposes. Added
to the list of eligibles by the Fed
staff were "fraternal organiza
tions," which Congress uninten

He also has been a trustee of Elm-

tionally omitted from the DIDMCA.

Communications Task Force. He
also served on the Executive Coun

cil of the Western Independent
Bankers Association and has been

active on several key committees of
the California Bankers Association.

A native of Lodi, Mettler has served

hurst College.
He is director of Lodi Memorial

Hospital, president and director of
the East-Side Winery, and a direc
tor of the Independent Bankers
Association of Northern California,
Northern California Fruit Co., Cali

Meanwhile, the Depository Institu
tions Deregulation Committee es
tablished an interest-rate ceiling of

fornia Future Farmers of America

51/4 percent on NOW accounts at
all depository institutions, effective
December 31. The current 5-per
cent ceiling on such accounts,
where already offered, remains in

Foundation, Lodi Grape Festival

effect for the rest of 1980.

and National Wine Show, and San

Joaquin County Farm Bureau. -^

Meanwhile, an MCA Information

Center has been set up at each Fed
office in the District to answer

questions pertaining to the Act.
Here are the numbers to call:

San Francisco
(415) 544-2128
Los Angeles
(213) 683-8592
Portland
(503) 221-5909
Salt Lake City
(801) 355-3131, ext. 218
Seattle
(206) 442-2754
(206) 442-0630
(206)442-7910

Depositors eligible to hold NOW
accounts at Fed-member banks in

clude individuals, sole proprietors,
husband-and-wife unincorporated
businesses, local housing authori

ties, residential tenants' security
deposits, pension funds, trade
associations, labor unions, inde
pendent school districts, redevel
opment authorities, and certain
escrow funds, trust and other fidu
ciary accounts (where the entire
beneficial interest is held by indi
viduals or qualifying organiza
tions).

vestment trusts, credit unions,

business and professional corpo
rations, health and hospital plans,
political parties, hospital districts,
purchasing cooperatives, military
exchanges, trustees in bankruptcy,
partnerships operated for profit,
and most state and governmental
units. Yet to be decided by the Fed
is whether non-profit hospitals can
qualify for NOW accounts.
Earlier, the Board of Governors,
the Federal Deposit Insurance Cor
poration, the Federal Home Loan
Bank Board and the Office of the

Comptroller adopted a policy state
ment allowing advance promotion

of NOW accounts, but only if the
advertising makes clear that NOW
accounts are not available before

December 31. Where an institution

plans to advertise a specific rate of

interest, its ads must comply with
its regulatory agency's rules re
garding the advertising of interest
on deposits.
In addition, the Board reminded

member banks that under existing
guidelines, advertising for auto
matic transfer accounts (ATS)
should state that ATS consists of

two separate accounts, and that

ATS may not be advertised as an
interest-bearing checking account.
The Board said it is important to
distinguish between ATS and
NOWs, because each is covered by
different reserve requirements. 2£
SCHMIDT REAPPOINTED
(Continued from page 1)
dent of the First National Bank of

Chicago. He is a graduate of the
U.S. Naval Academy and the Har
vard Graduate School of Business
Administration.
Schmidt is a director of the Asso

ciation of Reserve City Bankers. He
is also a member of a number of

other organizations, including the
International Monetary Confer
ence, the American Bankers Asso

ciation, the Advisory Council on
Japan-U.S. Economic Relations,
and the Stanford Research Insti
tute International Council. He is a

director of the Bay Area Council,
the California Roundtable, and the

Accounts found ineligible for NOW

San Francisco Chamber of Com

accounts include real-estate in

merce.

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FED PLACES LIMITS

state. A branch is an office that

ON FOREIGN BANKS

accepts deposits; an agency is
an office that keeps credit bal

The Depository Institutions Dereg
ulation Committee (DIDC) has
adopted a rule prohibiting the pre
payment of interest to depositors,

The Federal Reserve Board of Gov

ances but cannot accept deposits

in either cash or merchandise, on

that limit the interstate banking
activities of foreign banks in the

INTEREST PREPAYMENT
BANNED BY DEREG GROUP

all deposits of less than $100,000.

ernors has amended Regulation K

to implement provisions of the
International Banking Act (IBA)

from U.S. citizens or residents. The

Board has adopted minimum cri
teria for state regulatory agencies
to assure that credit balances are

distinguished from deposits.

United States.

"The Committee believes that the

prepayment of interest, particularly
in the form of merchandise, can re
sult in confusion as to the actual

rate of return earned on a deposit
and presents increased problems
of enforcing deposit interest rate
ceilings," said the DIDC.

The revised rules require a foreign
bank operating in the United States

to designate a "home state" if
it engages in domestic deposittaking activities. The rules also
restrict

the

establishment

of

branches (but not agencies) of a
foreign bank outside its home

"Accordingly, depository institu
tions may pay interest, as it is

deposits becomes effective De

earned, in the form of merchandise

cember 31, 1980.

rather than in cash or in a credit to

a deposit account. For purposes of
determining compliance with in
terest-rate ceiling limitations, the
cost of any merchandise given in
lieu of cash interest must include
the total cost of the merchandise."

The Committee also stated that an
executive officer of an institution

offering merchandise in lieu of
cash interest "must certify that the
total cost includes shipping, ware

housing, packaging and handling
fees, and that no portion of the cost
has been attributed to develop
ment, advertising, promotional, or
other expenses." The new rule pro

hibiting prepayment of interest on

The DIDC also issued final rules

concerning the payment of finders
fees and premiums for deposits.
Effective December 31, the Com
mittee ruled that finders fees for

deposits of less than $100,000 may
be paid only in cash and will be
regarded as payment of interest to
the depositor. Certain incentive
plans for employees of institutions
are exempted from this rule. For
those institutions that have a his

tory of obtaining, on the average,
25 percent or more of their domes
tic time and savings deposits
through finders fees, the Commit
tee proposed a two-year phaseout

program.

q$

Under the IBA, foreign banks can
not have branches outside the

home state except those "grand
fathered," i.e. those established or

applied for prior to passage of the
IBA on July 27,1978. Foreign banks
may continue to operate the grand
fathered offices indefinitely. Mean
while, the Board said it would re

gard offices of foreign banks that
accept foreign-source deposits but
not domestic deposits — as certain
offices may do under California
law — as agencies rather than
branches.

Three basic rules cover home-state

selection. If a foreign bank has one
branch or one subsidiary bank and

no other banking office in the U.S.,
the state with that branch or sub

sidiary is the foreign bank's home
state. A foreign bank that has one
or more deposit-taking offices in
one or more states must select one
of those states as its home state

by next March 31, or have one se
lected for it by the Board. Foreign
banks without a deposit-taking
office in the U.S. need not select a

home state.

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