Full text of Federal Reserve Notes : September 1981

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Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

•September 1981

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

SMITH, DUGAN TAPPED

FED DISCOUNT WINDOW
CENTERED IN S.F.

FOR VICE PRESIDENT
The Federal Reserve Bank of San

Beginning September 17, the Fed

Francisco has promoted W. Gordon
Smith to vice president of Credit and
Consumer Affairs, and has named
Ed Dugan vice president of Com
puter Operations.

eral Reserve Bank of San Francisco
centralized administration of its dis
count window at the Bank's San

Francisco headquarters office. Pre
viously, transactions at the Fed's
borrowing facility could be made at

Smith supervises discount-window

activities, consumer-affairs regula
tions, and securities-credit regula

the Bank's four other offices as well
as at San Francisco.

tions at the Bank's five offices. He

Reserve Bank President John J.

joined the Bank in 1968 and as

member in Washington and Assis

Balles said the change was made to
improve the efficiency of the Bank's
credit function, and also to separate
the personnel responsible for ap
proving extensions of Federal Re
serve credit from personnel respon
sible for the marketing of priced Fed

tant General Counsel at the San

services. Balles noted that the

Francisco Fed.

change involved only a shift in pro

sumed responsibility in 1977 for
Credit and Consumer Affairs. In the

W. Gordon Smith

interim, he served in several posi
tions, including administrative as
sistant to a Federal Reserve Board

cedure, and did not alter the Federal

A graduate of the University of

Reserve's basic credit policy and
lending guidelines.

Texas at El Paso, Smith received his

law degree from Golden Gate Uni
versity Law School. While there, he

Each borrowing institution's pledg

was a member of the school's Law

ed collateral will continue to be held
at the Reserve Bank office in whose
zone the institution is located. In

Review staff.

Dugan has rejoined the San Fran
cisco Fed, where he served as man

Ed Dugan

ager of computer operations from
1975 to 1977. He succeeds Hector

M. Martin, who has moved to the

Los Angeles branch as vice presi
dent of operations.

In recent years, Dugan has held a
senior management position at
Amdahl Computer Corporation in
Sunnyvale and has been vice presi
dent and director of computer oper
ations at Central Bank in Oakland.

Prior to 1975, he worked as an independent consultant in data-

processing operations.

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addition, the account used for ad

vances and repayments in conjunc
tion with discount-window borrow

CREDIT UNIT NUMBERS

ings will be maintained at that office.

The following telephone num
bers (all in Area Code 415) may
be used for requesting credit

The Monetary Control Act of 1980
directs the Federal Reserve to pro
vide credit facilities for any deposi
tory institution that maintains trans
action (check-like) accounts or nonpersonal time deposits. Under the
terms of the legislation, the Fed may
provide adjustment (short-term)
credit or extended credit to eligible

accommodations and informa
tion about the discount window:

544-2230, 544-2761, 544-2232
and 544-2229. Institutions lo

cated outside California may
call toll-free (800) 227-4133 and
ask the operator for any of the
last four digit extensions of the
four telephone numbers.

institutions.

(Continued on page 4)

DIDC RAISES RATES ON PASSBOOK SAVINGS

NOW ACCOUNT ELIGIBLES
CLARIFIED BY FED

The Depository Institutions Dereg

years and without any limit on the

ulation Committee (DIDC) this
month raised by half a percentage
point the maximum interest rate on

interest rate, starting December 1.
Under the new rules, institutions will

Following a favorable decision by a
Federal judge in Washington, D.C.,

be able to offer either fixed or float

the Federal Reserve Board of Gov

passbook-savings accounts. It also
approved several other decontrol
measures as part of moves man
dated by Congress under the Mone
tary Control Act.

ing interest rates on these retire

ernors set September 16 as the ef

ment accounts, and individuals will

fective date of an interpretation

be able to make periodic additions
to their accounts. Congress recently
authorized employees already en
rolled in employer pension plans to

governing depositors eligible to
maintain interest-bearing checking
(NOW) accounts at Fed member

The panel voted to eliminate in
terest-rate ceilings on savings cer
tificates used in IRA and Keogh
(retirement) accounts. It also gave
banks and thrift institutions an alter

native way to calculate the ceiling
rate on the six-month money market
certificate.

Effective November 1, thrifts will be

allowed to pay a maximum pass
book rate of 6 percent, and banks
5.75 percent—in each case, onehalf percentage point above their
present maximum on passbook ac
counts. This marked the first

change in that rate since a onequarter percentage-point rise in
July 1979.

Under the legislation creating the
Deregulation Committee, Congress

establish retirement accounts, ef
fective January 1.

Starting November 1, banks and
thrifts will have the option of using

the average of the six-month bill
rates from the preceding four
weeks, instead of continuing to peg
the rate to the most recently auc
tioned six-month Treasury bill, when
calculating the maximum allowable
rate on money-market certificates.

DIDC designed this new option to
keep certificate rates from dropping
as steeply as Treasury rates during
periods of declining market interest

banks.

Under the Fed's Regulation Q, the
following depositors can establish
such accounts:

—All individuals, including busi
nesses operated as sole proprietor

ships (only these individuals will
continue to be eligible to hold Auto
matic Transfer Service accounts);
—Non-profit organizations that are
exempt from Federal income tax;
—Government units operated pri
marily for philanthropic, educational
or charitable purposes, such as
schools, hospitals and libraries.

FCA STUDIES READY

These interpretations were to take
effect originally on September 1, but
were suspended pending outcome
of litigation brought by the American
Bankers Association (ABA) against

rates.

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mandated a phaseout of interestrate ceilings on passbook accounts

Two functional-cost analyses con

the Federal Home Loan Bank Board

taining information about member-

by 1986. The Act also ordered the
panel to consider, by this Septem

bank costs and earnings are now

(FHLBB) and Federal Reserve. Not
ing that the two agencies had issued

available from the Federal Reserve

different rules for NOW-account eli

Bank of San Francisco. The basic

gibility, the ABA alleged that the

report is the 1980 National Average

broader FHLBB regulations gave
savings-and-loan associations an
unfair advantage.

ber 30, a one-quarter percentage-

point minimum increase in the pass
book rate.

This deregulation procedure was
designed to improve the return
savers can earn on federally in
sured deposit accounts. The regu
lators also anticipated that a higher
passbook rate would draw funds to
institutions suffering deposit drains
due to higher-yielding financial in
struments. Passbook accounts now

total roughly $340 billion at all such
institutions.

The committee left unaffected the

ceiling rate of 51/4 percent which can
be paid on interest-bearing check
ing (NOW) accounts at banks and
thrifts.

The DIDC action will allow IRA and

Keogh accounts to be established
with a minimum maturity of 11/2

of Functional Cost Analysis, which
contains data furnished by 640 par
ticipating banks nationwide. Also
available is the Performance Char

acteristics of High-earning Banks.
Because of its uniform reporting

procedures, the FCA program
serves as a tool for bank manage
ment in evaluating performance.

FCA develops individual-bank in
come and cost data along functional
lines, and provides annual compar
isons of these data within each bank

and with groups of other banks.

have allowed S&L's to offer the in

terest-bearing checking accounts to
all nonprofit groups or to all state
and local governments.
The Fed, in its ruling, "grandfather
ed" those NOW accounts which

Copies of the FCA reports may be
obtained from the Reserve Bank's

San Francisco office at (415-5442351); or from Los Angeles (213683-8357); Salt Lake City (801-3227926); Portland (503-221-5787);

and Seattle (206-442-7910).

On September 15, the U.S. District
Court issued an order upholding the
Federal Reserve Board's interpre
tation, and invalidating the interpre
tation on NOW-account eligibility
issued by the FHLBB, which would

«*•

would no longer qualify under the
revised eligibility standards but
were established at a member bank

before September 1.

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Financial Services Department

FINANCIAL SERVICES

UNIT OPERATING

San Francisco

The Federal Reserve Bank of San
Francisco has created a new Finan

Portland

Financial

Salt Lake City

Services

Seattle

Group

cial Services Group, to respond to
the new environment created by the
Monetary Control Act mandate re

Los Angeles

garding the access of all depository
institutions to priced Federal Re
serve services. Following a June 1

start-up date, the Bank has defined
the Group's objectives, drawn up
guidelines, put in place an organiza
tional structure (see chart), and it is
now in the process of completing its
initial staffing requirements.
Responsible for administration of
the new department is Senior Vice

Product

Customer

Management

Relations

Product

Planning and

Price

Customer

Administration

Services

Development

1 Product Managers/
Analysts

•

Analysts

•

Service Center

•

Account

Service

Representatives

Managers

Services

tions. Each is headed by a Financial

Officer

Services officer.

President Richard T Griffith, who

rejoined the Reserve Bank's staff

Product Management, centralized

this summer. Griffith also has as

in the San Francisco office, is re

sumed senior-officer responsibility

dent for the Bank's operational ac

sponsible for product planning and
development and price administra
tion. In charge of these Districtwide

tivities at its San Francisco, Los

functions is Maureen Shields, who

Angeles, Portland, Salt Lake City

has been promoted from manager
of price administration.

under the Bank's First Vice Presi

and Seattle offices. Director of Fi
nancial Services under Griffith is

David J. Christerson, who has
served as head of the Bank's MCA

Project Team for the past year.
In a recent report, Christerson noted
that the Fed has entered a new era,

dealing with a much broader range
of the nations' financial institutions
underthe MCA. He added that in the
Twelfth Federal Reserve District

alone, the Fed is involved with near

ly 4,200 depository institutions,
compared to 146 member banks in
the pre-MCA environment.

A group of product managers and
analysts is working with Ms. Shields
and other operations and Computer
Services personnel to evaluate ser
vice quality levels, operational is
sues, market innovations, and cost-

reduction opportunities. In the area
of price administration, analysts
have helped develop service-fee
schedules, and they will closely
monitor product performance, vol
ume changes and revenue levels.

Heading the Customer Relations
section in San Francisco is Finan
cial Services Officer Martha F.

The aim of the new department, said
Christerson, is to retain flexibility in
responding to an evolving pricing
environment and to help ensure uni
formity in providing central-banking
services to Western depository in
stitutions. Previously, these ser
vices were provided free to member
banks, but now under MCA they are
being uniformly priced and offered
to all depository institutions in this
new competitive environment.
The department is divided into two
major functional areas—Product

Management and Customer Rela-

Perry, who previously served in
Union Bank's Financial Institutions

Division in Los Angeles. She man
ages a group of account managers,
who are now calling on present and
prospective users of Fed services to
discuss customer requirements and
the Fed's ability to satisfy those re
quirements. In addition, Ms. Perry's
section is helping to implement new
services developed by product
planning and development, and by
the Bank's operating departments.
Similarly, a Financial Services Offi
cer heads up a Financial Services

Customer

Service Centers

Services

a

Account

Managers

•

Service

Representatives

Center at each of the Bank's other

offices. At Portland, the officer is

Susan L. Robertson (formerly man
ager of bank and public services); at
Salt Lake City it is William W. Hall
(formerly vice president of market
ing with Zions First National Bank);
and at Seattle, it is William C. Fer-

ensen (formerly manager of bank
and public services). The Los
Angeles position has not yet been
filled.

Service inquiries for centralized op
erating functions, such as wire
transfers, are directed to the San
Francisco office. However, all of

fices handle inquiries from institu
tions in their areas relating to locally
provided services—such as check
collection and clearing, coin and
currency transport, automated
clearinghouse functions, settlement
entries, securities handling and
noncash collection.
For information on Federal Reserve

services, users may call:
San Francisco:
(415) 544-2555
Los Angeles:
(213)683-8358
Portland:
(503)221-5909
Salt Lake City:
(801)322-7926
Seattle:
(206)442-7910

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FED DISCOUNT WINDOW
(Continued from page 1)

Any institution seeking to establish
a borrowing relationship or informa
tion about Federal Reserve credit

policy may contact the District
Credit Unit in San Francisco, which

is headed by W. Gordon Smith, Vice
President of Credit and Consumer

FED CUTS SURCHARGE TWICE
The Federal Reserve acted twice in the last month to reduce the

surcharge that applies to large depository institutions which borrow
frequently from the discount window. On September 22, and again on
October 9, the Board of Governors approved one-percentage-point
reductions in the rate, which now stands at 2 percent. The Fed made no
change in the basic discount rate of 14 percent on either occasion.

These adjustments represented technical adjustments to the decline

Affairs. Other contact personnel in

over recent weeks in short-term money-market rates. The Fed took

that unit are Kenneth Parker, man

these actions within the context of its continuing policy to restrain growth

ager of credit, and Betty Willis and
Randall Young, both senior credit
analysts.

in money and credit.

Meanwhile, Federal Reserve Chair

man Paul A. Volcker reported on the
status of thrift-industry use of the
discount window in a letter to House

Banking Committee Chairman Fernand J. St. Germain. Volcker said

that about 1,000 thrifts had filed, or

were in the process of filing, the
general lending agreement needed

Affected by the new rule are institutions with total deposits over $500
million which borrow for two or more consecutive weeks, or for more than

four weeks during a quarter. In the latter case, according to a recent rule
modification, the surcharge applies to institutions borrowing more than
four weeks during a 13-week period which includes the current week and
the 12 preceding weeks.
market circumstances, to maintain
fund flows from usual sources, in

cluding special industry lenders."
"If an institution is a member of the

made "for up to 9 to 12 months and,
if necessary, beyond that period."
The guidelines also place limits on
the investment-growth and loanportfolio expansion of institutions

before credit can be extended at the

Federal Home Loan Bank System, it

discount window. Prior to his state

is expected that its local Home Loan

ment, the Board established a new

Bank will maintain its outstanding

borrowing-rate schedule for ex

credit to the institution and will ordi

In the nine western states served by

tended credit to banks and thrifts

the Federal Reserve Bank of San

that encounter sustained liquidity

narily also provide a portion of the
new borrowing need," commented

pressures.

Volcker in his letter. "Other borrow

filed lending agreements with the

In his letter, Volcker said that the

ing institutions are expected, as
may be reasonable under existing

expressed interest in obtaining

Board had provided administrative
guidelines to Reserve Banks as a
framework for appraising individual
applications for extended credit. To
be eligible, an institution "will have

to show that it is experiencing sus
tained liquidity pressures despite
reasonable efforts, under prevailing

that borrow under the extended-

credit program.

Francisco, about 100 S&L's have
Fed—"and about half of them have

market circumstances, to show evi

credit," said Smith. He added that

dence of a continuing effort to main
tain inflows from deposits and other
market sources and, as appropri
ate, to draw on existing bank lines."

"Each request will be considered on

He noted that advances under the

tution requesting extended credit.^fji

extended credit program could be

an individual basis. The District

Credit Unit will closely consult with
supervisory agencies" before any
decision is made to lend to an insti