Full text of Federal Reserve Notes : September 1976

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Its

Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO .SEPTEMBER 1976
Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah & Washington

WESTERN LOAN RATES

TREASURY'S BOOK-ENTRY PROGRAM EXPANDS

RISE IN SUMMER PERIOD

Later this year, the Treasury Depart
ment expects to offer 52-week Treas
ury bills in book-entry form only, and
in mid-1977 these mandatory proce

Business borrowing costs increased
at West Coast banks in the early
summer period, reflecting a generally
rising trend in prime business-loan
rates.

The upturn in rates represented a
reversal of the downward rate move
ment that

had been evident since

early last fall. However, the reversal

apparently was only temporary, since
banks lowered their prime rate twice
in August and September.
According to the quarterly survey
conducted by the Federal Reserve

Bank of San Francisco, the average
rate on regular short-term business
loans reached 8.1 5 percent in the first
half of August—a rise of 40 basis
points from the May survey period.
(One hundred basis points equal one
percentage
point.) Rates on
revolving-credit loans averaged 7.73
percent, a 58-basis point increase.

The rate increase was greater on
loans of $500,000 and over than on

smaller-size loans. Typically, small
bank loans adjust more slowly than
large loans to shifts in basic rate
trends, either in an up or down direc
tion.

In the August 1-15 survey period, the
thirteen banks in the survey reported
1,958 short-term and revolving credit
loans, for a total volume of $836
million. Both the number and dollar

amount of loans were larger than they
were three months earlier, but lending
activity continued to lag behind yearearlier levels, somewhat surprisingly

for a business-recovery period, "iff

dures will

cover 26-week and 13-

week bills as well. These moves rep

resent decisive steps toward the
Treasury's long-range goal of elimi
nating the issuance of all definitive

In announcing this latest phase of the
book-entry program, the Treasury
disclosed that certain institutional in

vestors required by law or regulation
to hold actual documents would be

able to obtain physical certificates in
the $100,000 denomination, but only
for a limited period of time.

new

According to Treasury plans, any
subscriber who elects not to pur
chase T-bills through a commercial

Book-entry securities are not repre
sented by engraved pieces of paper.
They are maintained as computerized
records by Federal Reserve Banks

bank or other financial institution will

and branches in the names of mem

cost to subscribers, who may present
tenders and payments either through
a Reserve Bank or directly to the
Treasury in Washington, D.C. In gen
eral, the Treasury's direct-account

securities

in

connection

with

public-debt borrowings.

ber

commercial

banks.

Member

banks, in turn, keep separate ac
counts for securities they own, as well
as for the securities they hold for
individuals, corporations, other inves
tors, and correspondent financial in

be

able to

establish an

individual

book-entry account with the Treas
ury. This service will be provided at no

Treasury securities may choose, as
his securities custodian, any bank or

system is designed to serve the nontrading investor, who plans to retain
T-bills until maturity. It does not pro
vide secondary-marketfacilitiessuch
as those available through member

other financial institution that main

banks.

stitutions. An investor in marketable

tains book-entry procedures.

Book-entry offers important benefits
to all participants in the Government
securities market by substantially in
creasing operating efficiency. This
procedure reduces piece counting
during processing, audits and exami
nations, and it aiso eliminates coupon
cutting and physical inventories.
The procedure reduces risks in secu
rity and handling. There is no piece of
paper to be lost, stolen, destroyed or
counterfeited. Payment at maturity is
automatic and does not require pre
sentation of a security. Over fourfifths of the marketable public debt is
already in book-entry form.

Since 1968, when the book-entry
program was first initiated, the num
ber

of

securities

in

this form

has

grown dramatically. Eight years ago,
about 15 percent of total holdings
were in book-entry form. This year
book-entry accounts for 82 percent of
the $397 billion in marketable govern
ment securities.

The Federal Reserve Bank of San

Francisco invites banking institutions
to discuss any difficulties encoun
tered due to legal or other impedi
ments in making full use of the book-

entry

procedure.

Comments

or

inquiries can be'directed to the near

est Fed office, "if"

COLDWELL NOTES

Welcome to the District

the Southern Arizona Bank and Trust

CHANGE IN BANKING

THE "ACTION BANK"

The banking environment is changing
because of increased public scrutiny,
Federal Reserve Governor Philip
Coldwell told a Virginia banking
school last month. One of the major
aspects of this new situation is the
growing involvement of more and
more regulators in the banking indus
try, he added.

The city of Anaheim boasts the slo
gan "Program for Progress," and
many of its municipal vehicles bear
the standard "City of Action." So it
seemed only natural when a new,
progressive bank with Anaheim in its
name opened for business last
month, that it should promote its cor
porate image with the fitting words:

Company, and then advanced sepa
rately through several southern Cali
fornia banking institutions. Dailey is
now

Anaheim

National's

President

and Board Chairman, while Ledbetter
is Executive Vice President and Vice
Chairman of the Board. Vice Presi

dent Shirley Jones backs up the new
management team.

"The Bank of Action."
"For some of the new entrants into

bank regulation, banking is just anoth
er industry to be treated the same as
other industries in its dealing with the
public," Coldwell said. For example,

bankers are required to disclose their
positions with sufficient clarity that
investors and depositors can make
fully informed judgments on the
strengths and weaknesses of particu

All this corporate vigor at Anaheim
National Bank is the work of not one,

but two chief executive officers. They
are John Dailey and James Ledbetter,
who together bring more than 41
years of banking experience to the
Anaheim scene. Coincidentally, both
began their careers in the 1950's with

lar banks.

"Some of these new regulators dis
count the argument that banking data
should be confidential to protect cus
tomer relationships, or to maintain
confidence in the integrity of the insti
tution. So you, as the bankers who
must

live

under this environment,

should be actively participating in the
definition of the public interest in this
field."

Coldwell noted that another publicinterest problem concerns the imple
mentation of policies needed to
achieve non-discriminatory access
to credit. "The fundamental publicinterest objective is that credit be

FCA PUBLICATIONS
NOW AVAILABLE
More information is now available on
the

Federal

Reserve's

Functional

Cost Analysis Program, which was
described in the June issue of this

publication. This free service has
been available for the past decade to
Federal Reserve member banks.

Inadditiontothe 1975 Average Banks
report, the following FCA publications
are now available:

extended without discrimination. The

* 12th District Unit Banks

problems arise in the means to assure
this and the potentials for interference
with the legitimate measuring of credit
worthiness, as well as the degree and
type of monitoring required."

* 12th District Group I Banks (under
$50 million)
* 12th District Group II Banks ($50
million to $200 million)
* 12th District Group III (over $200
million)
* Billion-dollar Banks (Nationwide)

Referring to the pressure for in
creased competition in financial
markets, Coldwell said, "Whatever

your definition or your position, I urge
you to make your voices heard in
defining the competitive environment
within which the banking industry
must operate in the years to come,
because both banking competition
and regulation are to a considerable
extent reflective of a well-defined,

* Performance

Characteristics

of

High Earning Banks (Nationwide)
To obtain a free copy of any of these
reports, write to:
Functional Cost Analyst
Bank and Public Relations

Federal Reserve Bank
of San Francisco

J.E. Ledbetter

The bank's goal is to recycle funds in
the community. This community ori
entation is strengthened by the local
ties of the board of eight directors, all
of whom reside in the close-knit cities

of Anaheim, Orange and Santa Ana.
Management has gathered an oper
ating staff of 15 experienced bankers
to provide extra service. The bank
boasts extended weekday banking
hours, Saturday opening, drive-up

enunciated, and evaluated public in

P.O. Box 7702

teller facilities, and a "welcome area"

terest."^

San Francisco, CA 94120

for customers in its new building. %

IRA CEILINGS

BDX—ANOTHER FED

NEW SEASONAL

UNDER SCRUTINY

BANKING SERVICE

BORROWING RULES

The Federal Reserve Board of Gover

Have you ever wondered how well
your bank or branch has been per
forming in relation to local-area
competition? If you're a banker in
California, Arizona or Washington,
you can find out by taking advantage

The Federal Reserve Board of Gover

nors has announced that it will give
further consideration to the question
of whether commercial banks should

be permitted to match thrift institu
tions in the rates of interest they can
pay on Individual Retirement Ac
counts (IRAs).

IRAs are retirement savings deposits
that can be established by individuals
not covered by an employer retire
ment plan. Individuals can deposit up
to $1,500 a year, or 15 percent of
gross income—whichever is less—
under special tax arrangements.
Member banks may pay up to 7V4percent interest on four-year time
deposits or up to 7'/2-percent on time
deposits of six years or more. Thrift
institutions may pay one-quarter per
cent more.

Although the Board's findings are still
inconclusive, it has unearthed evi

dence that banks may lose out to thrift
institutions in competing for IRA de
posits because of the present
interest-rate differential.

"In enacting the IRA provisions, it was
the intent of Congress that individuals
whose employers do not have private
retirement plans should be encour
aged to provide for their retirement
needs through the establishment of
IRAs," the Board stated. "In order to

accomplish Congress's intent, as a
matter of public policy the Board
believes that IRA participants should
be permitted to obtain the highest
rates of interest permissible on their
retirement savings regardless of
where the deposits are maintained. In
the Board's estimation, a differential

on IRA deposits may be viewed as
inconsistent with the objective of pro
viding IRA depositors with the means
of obtaining the highest earnings
possible on funds saved for retire
ment purposes."
The Board indicated that further mon

itoring would be conducted before a
final conclusion is reached. Possible

action would be appropriate, the
Board concluded, in early 1 977 when
Congress is considering an extension
of interest-rate ceilings for financial

institutions. %

of BDX. That's the Federal Reserve
Bank of San Francisco's Branch Data

Exchange program.

The program, which is unique to this
Federal Reserve Bank, is provided
free-of-charge as a service to Twelfth
District banks. BDX provides partici
pants with information not readily
available from other sources for the

measurement of market penetration,
success of advertising efforts, ade
quacy of services, and general
branch efficiency.
A semi-annual survey gives each
bank management a tool to measure
the relative performance of various
competing offices in respective coun
ty or statistical areas. Reports show,
for individual banks and branches,

market shares for key deposit and
loan categories, changes from previ
ous periods, and operating character
istics.

The program originated at the request
of marketing representatives from
several California banks, and has

since proven to be well suited to
branch systems as well as unit banks.
From an initial enrollment of just over
20 banks in 1 972, BDX has increased
fivefold. At the end of 1975 there were

59 banks participating in the program
in California, 13 in Arizona, and 26 in
Washington.
To take advantage of BDX, all a bank
has to do is provide a letter authoriz
ing the exchange of data with other
participants. The next step is to com

plete and return data, preferably
monthly averages, in schedule or
punched-card format for each bank
ing office. To protect the confidentiali
ty of data, the San Francisco Fed
releases individual branch informa

tion only to authorized participants
that have a presence in respective
market areas.

Planning has already begun for the
next survey for BDX, covering data for

nors

has

liberalized the conditions

which govern seasonal borrowing by
member banks from the 12 Federal

Reserve Banks. The change is de
signed to help member banks that are
subject to significant seasonal-loan
demand or deposit fluctuations—
particularly smaller banks—to meet
the financial needs of their communi
ties.

The revised Regulation A will permit a
member bank to be eligible for sea
sonal

credit

from

the

Fed,

even

though it maintains a portion of its
liquid assets in the form of Federal
funds, so long as such holdings con
form to the bank's normal operating
experience. (Fed funds are loans of
excess reserves to other banks.) In
the past, seasonal credit at the dis
count window was not available to

banks while they were net lenders of
Fed funds.

The new rules also liberalize seasonal

borrowing in other ways. Formerly, a
bank qualified for seasonalborrowing assistance if its need for
funds in its peak season exceeded
five percent of average total deposits
in the preceding year. The new rules
lower this formula to four percent of
the first $100 million and

include

somewhat higher percentages for
larger deposits. Also, in computing
eligibility for seasonal assistance, the
revision reduces from eight to four
weeks the minimum period during
which the seasonal need must be
evident.

The revised seasonal-credit arrange
ment normally will not be made avail

able to banks with deposits of $500
million

or

more.

Smaller

banks in

areas which are subject to seasonal
peaks in credit demands, such as
farming areas, should bethe principal

beneficiaries of the new rules. 1§P
year-end 1976. A list of present par
ticipants, along with other BDX infor
mation, is

now available from the

Bank and Public Relations Depart
ment at your nearest Federal Reserve
office. You can also contact Paul W.

Van Etten, Manager of Banking and
Statistical Reports at (415) 544-2183,

or Diane Fong at (415) 544-21 76. Ijfi

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NEW REG Z CHANGES

COUNTERFEIT DISPLAY

ON CHARGE ITEMS

ATTRACTS ATTENTION

The Federal Reserve Board of Gover

It may be part fake, but the San Fran

nors has adopted changes in its Reg
ulation Z (Truth in Lending) for
identifying transactions charged to
consumers using open-end charge

cisco Fed's Counterfeit Currency Ex

accounts,

serve members in the Twelfth District.

such

as

credit-card

or

hibit rates as a genuine attraction for
bankers and their customers—and
it's available free to all Federal Re

^OUNTERR
CAN YOU TELL?

department-store accounts.

The new provisions state that in a
two-party transaction (generally in
volving only the customer and the
merchant) if the seller cannot provide
a description of the property or serv
ices otherwise required to identify
the transaction on a billing statement,
a voucher number may be used in
stead.

The self-contained educational ex

hibit displays real and counterfeit bills
side by side—in an attractive 16-by28-inch unit just a little larger than an
attache case. Each bill is keyed to a
button. It'sthen uptothe viewertotest
his ability in distinguishing the gen
uine from the counterfeit bills. A light
flashes when a genuine bill is select

)|it»ir p* fac """L,

BUZZER

..PESEI^8

is-""

ed, while a buzzer sounds in the case

If, however, the

identify

customer cannot

the transaction

from

the

of a dud.

voucher number, the creditor would

be required to treat any resulting
inquiry from the customer as a billing
error. This would trigger the billingerror settlement procedures under
the Fair Credit Billing Act, including:
no finance charge on the transaction
until the matter is settled, an addition

al period free of finance charges ifthe
creditor normally allows such a period
after billing, and provision of a copy of
the sales voucher to the customer

without charge.

The amendments also provide that,
when a transaction did not take place

at a seller's fixed business location,

an appropriate identifying designation
may be used for transactions that
take place by mail, by phone, or at a
customer's home.

The displays are available exclusively
to District member banks (and
branches) for up to one week's time.
The Fed pays all costs, including
shipping charges. The compact ex
hibit is especially suitable for display
in bank lobbies on counters, racks or
stands.

In the case of purchases in a foreign
country, Reg Z now allows the credi
tor to identify the transaction by date
of debit, instead of date of purchase,
and requires the creditor to treat any
resulting inquiry by the customer as
triggering the Fair Credit Billing Act

billing-error procedures, "ijfp

For information on the Counterfeit

Currency Exhibit, contact the Bank
Relations Department at your nearest
Federal Reserve office. Because of

heavy demand for these displays,
requests are filled on a first-come,

first-served basis, ijjflf