Full text of Federal Reserve Notes : September 1982

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Federal Reserve Notes
FEDERAL RESERVE BANK OF SAN FRANCISCO

September 1982

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

CITICORP
BID APPROVED
The

Federal

Reserve

Board

announced its unanimous approval
of the application of Citicorp to
acquire Fidelity Federal Savings
and Loan Association of San Fran

cisco on September 28.
The takeover will be the first acqui
sition across state lines of a savings
and loan by a bank holding company.
The Board's order, however, placed
seven conditions on the takeover:

1) Fidelity must continue to be oper
ated as a federally chartered savings
and loan with the primary purpose of
providing residential housing credit,
2) Fidelity Federal cannot establish
remote

service

units outside

California,

3) Fidelity Federal cannot set up
branches that do not comply with
rules for national or state banks in

Finishing details are put on the Fed's new headquarters building at 101 Market

California,

4) Fidelity Federal must be oper
ated as a separate and independent
subsidiary of Citicorp with no links to
other subsidiaries of Citicorp,

Street in San Francisco. This view, from the rear of the building, shows the
four-story low-rise section in the foreground.

MOVE TO NEW FED HEADQUARTERS BEGINS

The first phase of the San Francisco

5) Any funds transactions between
Fidelity Federal and Citicorp must
first receive the approval of the

Fed's five-month move has begun
as 250 Computer Services Group
and 10 Automated Clearing House

Federal Reserve Bank of New York,

staff members moved this month to

6) Fidelity Federal cannot use the
word "bank" in connection with its

name, and

7) Fidelity Federal cannot be con
verted to any other form of financial
institution such as a state-chartered

association without Fed approval.

Fidelity Federal operates 81 offices
in Northern California and has ap(Continued on page 4)

the third floor of the low-rise section

of 101 Market Street. Between now

and late January 1983, the Bank's
remaining 950 employees will relo
cate to the new 12th District home,

with most departments scheduled to
move on weekends and holidays.

ating departments, and the twelvestory office tower on Market Street.
The present headquarters building
at 400 Sansome Street and the ad

jacent Bank-owned Eastman Kodak
Building and surface parking lot
were recently purchased by Embarcadero Center West. The Rockefel

ler-based company, which plans to
expand its office building and retail
development into these three prop
erties, has announced its intention

Interior construction continues on

to preserve the architecturally sig

the remaining floors of the fourstory lowrise (shown in foreground
of photo), which will house the oper

some Street landmark. Wi

nificant features of the classic San

REGULATIONS AND OPERATIONS UPDATE

Regulation D—Effective September 1, 1982, the new 7to 31-day account authorized by the Depository Institutions
Deregulation Committee was classified as a time deposit
for reserve accounting purposes.

and was made effective September 17. Creditors have
the option of continuing to rely on the existing Regulation

Regulation Q—The Federal Reserve Board amended
Regulation Q, which concerns interest on deposits, to
remove existing limitations relative to the maturity and
automatic renewability of ceiling-free, small denomina
tion (less than $100,000) repurchase agreements on U.S.
Government and agency securities. This amendment
took effect in August 1982.

Some issues with which the revised commentary deals
follow: the use of creditor's commercial lending rate as the
base rate in variable rate open-end credit plans; applica
tion of the finance charge rules to the offering of cash
discounts in the sale of motor vehicle fuel; prepayment
disclosures in transactions involving prepaid finance

The Board issued on September 7 an interpretation of
Regulation Q concerning the arrangements a member
bank may enter into in helping to provide a secondary
market for negotiable time deposits issued by the bank,
without incurring early withdrawal penalty requirements.
On September 2, the Board issued notice of several other
amendments. One amendment permits member banks to
issue all time deposits in book entry form (computer re
corded) rather than by a paper instrument. The other
amendments are technical changes to make Regulation
Q conform to recent actions on deposits by the Depository
Institutions Deregulation Committee.
For further information, contact Robert M. Mulford in the

Legal Department at (415) 544-2256.
Regulation Y—The Federal Reserve Board has amended
Regulation Y, governing the activities of bank holding
companies, to expand and clarify the data processing
activities permitted to those companies.
The Board's action followed approval in July of an appli
cation by Citicorp to engage in similar expanded data
processing activities, provided that they were closely re
lated to banking (See Fed Notes July 1982).
For internal operations of the bank holding company and
its subsidiaries, permitted data processing and transmis
sion services include supplying data processing hard
ware, software, documentation and operating personnel.
For external operations, the amendment allows similar
activities on the condition that the data to be processed
are financial, banking, or economic data.

Z commentary until April 1, 1983 when reliance on the
revised commentary becomes mandatory.

charges; and disclosures for several types of mortgage
financing plans, including growth equity mortgages and
graduated payment adjustable rate mortgages.
For further information, contact David M. Vandre in Con

sumer Affairs at (415) 544-2762.
"Collection of Cash Items"—The Federal Reserve Bank

of San Francisco has expanded Appendix C of Circular 1,
"Collection of Cash Items" to clarify the procedures for
redeeming and packaging food coupons.
For further information, contact the Securities Services

Department of local Reserve Offices.

"Wire Chargeback"—The Reserve System has con
cluded its evaluation of the wire chargeback procedure
for interterritory cash letter adjustments of $50,000 or
more. Due to the potential effects this program may have
on reserve account performance, adjustments will not be
made after 3 p.m. local time. The System began imple
menting this program on September 23, 1982. Any ques
tions concerning the associated operational details
should be addressed to the Check Officer at local
Reserve Offices.

The wire chargeback procedures for return items of
$50,000 or more will be published for comment later this
year when the Reserve system announces its program to
deal with Federal Reserve float.

FOR PUBLIC COMMENT

Regulation Z—The official Fed staff commentary on Reg

Regulations D and Q—The Federal Reserve Board has
issued for comment a proposal to amend Regulations D
and Q to make the minimum maturity seven days on all
time accounts (including large certificates of deposit of
$100,000 or more). Comments must be received by the
Board of Governors of the Federal Reserve System by

ulation Z, applying to truth in lending, has been revised

October 29,1982 and should refer to Docket No. R-0417.

For further information, contact Robert A. Johnston in

Bank Examination at (415) 544-2352.

NATION STARTING ROAD TO RECOVERY
An impending economic recovery
for the nation depends critically on
fiscal discipline and continued
monetary restraint. This was the
message of John J. Balles, presi

size the control of the quantity of
money and credit and the results of
these changes, Balles stated, have
been dramatic: a drop in consumer
and wholesale price increases and
an appreciation of the U.S. dollar.

dent of the Federal Reserve Bank of

Balles spoke at length about inter

San Francisco, as he spoke to audi
ences of community and business
leaders in Coos Bay, Oregon and
Honolulu, Hawaii on September 2
and 20, respectively.

est rates which, until recently, have
remained unexpectedly high de

spite the drop in inflation. He said
that the high rates are caused by
continued uncertainty about the
size of deficits, by how they will be
financed, and by the competition
they pose to private borrowing in the

In a brief review of the present sta
tus of the economy, Balles noted
some recent signs of an economic
upturn but stressed that, overall, the
economy is still weak and that a re
covery will be slow.

credit markets.

He added that the three-year $128
billion reduction in deficits recently

voted by Congress "deals with only

He said that the drop in retail sales
of .9 percent in August offset most of
the 1.2 percent gain in July, that in
dustrial production continued to de
cline by .1 percent also in August,
and that the unemployment rate re
mained at 9.8 percent as in July.
"More than 1 million jobs have dis
appeared since last summer" and
"...the nation's industrial plant is
operating at less than 70 percent of
its capacity."
On the other hand, he cited some

positive signs such as the fourth
consecutive monthly increase in the

Commerce Department's index of
leading economic indicators and re
cent increases in real personal dis
posable income. He attributed the
latter to the 10 percent income tax
reduction and the IV2 percent in
crease in Social Security benefits
effective last July 1 combined with
recent success in slowing inflation.
He said that the consumption sector
would improve before the end of this
year and, along with defense-re
lated industries, lead the economic
recovery.

He claimed that the recent drop in
interest rates should provide an
additional boost to the demand for

durable goods by households and
improve the foreign trade picture.
With regard to the business sector
Balles felt that restocking inven
tories should give a temporary lift
to the economy although businessfixed investment will continue to lag

John J. Balles

a small part of the problem" as the
present deficit, at 3V2 percent of

GNP, is larger than any past deficit

"Looking at the current economic

since fiscal year 1976 when the
economy suffered its worst reces
sion in 50 years. He mentioned that
reductions in social programs to
balance the budget have almost
been offset by increases in defense
spending and that the Administra
tion conservatively estimated a defi

scene, we appear to be at or near

cit of $115 billion in 1983 alone.

behind other investments as low-

capacity utilization and continued
high long-term bond rates make
capital expenditures less attractive.
In this area, he forecasts no major
improvement until mid-1983.

the trough of the recession. Total
real output rose slightly in the sec
ond quarter after declines in the ear
lier two quarters....At best we may
be described to be 'bumping along
the bottom' of the current recession."
The Fed official rooted the econ

omy's troubles in a history of rapid
inflation and "unrelenting and un
precedented federal government
deficits," especially in the 1970's.
Double-digit inflation, he said, had
masked substantial losses in pur

chasing power in past years and
pushed many citizens into higher
real tax brackets, reducing their real
disposable income. For the busi
nessman, high inflation made it diffi
cult to project future sales, revenues
and costs, and contributed to the

His economic staff estimated that

government borrowing to finance
this debt may increase from 19.5
percent of total funds raised in credit
markets in 1981 to 35 percent in
1983. Balles warned that borrowing
such a large amount will crowd out
some private investments and slow
improvements in that recovery year.
In conclusion, Balles stated: "The
road to recovery is a difficult one,
but we are heading in the right direc
tion.. . .The strength and duration of
the recovery will depend critically
upon: 1) avoiding another accelera
tion in inflation; and 2) a further re
duction in interest rates from their

still very high level. Success on in
flation depends on the Fed continu
ing to gradually reduce money

value decline of the dollar in interna

growth in the years to come. Suc

tional markets.

cess on interest rates will depend

The Federal Reserve's response in
1979 was to change its operating
procedures for monetary control to
reduce inflation. It began to empha

government deficits.'"ij|ji

upon further reductions in federal

NOIingiblSIQ 1VN«|1NI
1SA1VNV *SI031-dAV
NOiSNHOr y 31«3A

f8l.2-^9(9^)9UOqd
031^6 BjUJOjUBO 'oosjouejd ues '20ZZ

1006

-":''\; "-L'vt'h?*.'""

xog od 'oosjoubjj ues jo >|UBg aAjasay
IBjapaj 'uonoas uoijblujojui OHqn^ aqi

Aq suoijrmisu! Ajonsodap 0} painqujsip S| pus
Amiuouj paonpojd si saiON aAjasau |ejapaj

dnvo oosiONvud nvs
ZSl ON ilV\IU3d
aivd
aovisod s n
iivw ssvno lsuid

0Ztfc6 VO 'oosioubjj ues 'IS euiosues 00*

oosioubjj ues 1°

>|ueg aAjasaa lejapaj

August 30 that it will participate in a

FEDERAL RESERVE
OFFERS NEW VIDEOTAPE
A new 23-minute videotape on the
history and uses of money is

multilateral financial transition pro

available from the Federal Reserve

gram under the aegis of the Bank for
International Settlements to provide
short-term financing to Banco De

Bank of San Francisco.

FEDERAL RESERVE LOANS
TO BANCO DE MEXICO
The Federal Reserve announced

Mexcio.

The Federal Reserve and the U.S.

Treasury Department, in a consor
tium of central banks representing

the Group of Ten countries, will
participate along with Spain and
Switzerland in aiding Mexico's cen
tral bank. The mutlilateral arrange
ment will provide financing totalling
$1.85 billion, of which the Treasury
will provide $600 million and the Fed
eral Reserve $325 million through
swap arrangements.

The arrangement is one part of an
overall program to support Mexico's
efforts to strengthen its economic
and financial position. It provides for
borrowing by Mexico in line with its
progress toward agreement with the
International Monetary Fund (IMF)

Titled "Money: Summing It Up," the
three-quarter-inch tape was pro
duced by the National Geographic
Society in cooperation with the
Federal Reserve Bank of New York.

The videotape recounts the history
of the development of money includ
ing the varied forms it has taken over
the centuries from salt, to coins,

paper currency and checks. A vo
cabulary of money terms is included
in a teacher's guide to the tape.

Copies of "Money: Summing It Up"
can be obtained from the Public

Information Department of the Fed
eral Reserve Bank of San Francisco

and its offices at Los Angeles, Port

CITICORP BID
(Continued from page 1)

proval to open three more. Its assets,
according to the Fed, totaled $2.9
billion on June 30,1982.

In approving the takeover, the Board
cited its authority under the Bank
Holding Company Act to decide the
case in the absence of national leg
islation. It stated that potential
adverse effects were outweighed by

"the substantial public benefits that
are expected to result from the re
storation of Fidelity as an effective
competitor."
The approval for takeover came
three weeks after informal public
hearings were held in Washington,
D.C. and San Francisco on Septem
ber 8 and 9, respectively.

land, Salt Lake City and Seattle.^

At the hearings, Citicorp officials
had stressed the financial strength

well as Mexican discussions with
international banks on Mexico's
external debts. This overall multi

and commitment to consumer bank

lateral effort is designed to ensure an

ing of their institution.
Citicorp, A New York-based holding
company, had won the bidding to
acquire Fidelity, which was seized
by state and federal regulators in
April when it was determined to be in
financial difficulty. In August, the

that will enable Mexico to qualify for
borrowing from the IMF's Extended

orderly transition to an economic
adjustment program that the Mexi
can government has said it is

Fund Facility.

developing.

The overall multilateral arrange
ment includes an interrelated pro

The consortium of ten central banks

Federal Home Loan Bank Board,

represents Belgium, Canada,

gram of snort-term and longer-term

France, the West German Federal

credits for Mexico. The total pro

gram involves the Bank for Interna

Republic, Italy, Japan, the Nether
lands, Sweden, the United King

tional Settlements and the IMF as

dom, and the United States, ijp

regulator of most of the nation's sav
ings and loan associations, ap
proved the takeover. Only Federal
Reserve Board approval was needed
to complete the proposed acquisition.

on an economic transition program

w