The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Liberty looks at:
Energy leaders with
Oklahoma roots.
All Oklahom ans benefit
from the jobs and salaries
provided by the oil in
dustry. From world-wide
energy developers to re
gional independent oil
producers, hundreds of
oil com panies have grown
from Oklahoma roots,
many aided by financing
from Liberty Bankthrough
the years. Ju st one e x
ample is the Energy Com
pany which owns the
drilling rig shown here. It
all began in 1957 and con
tinues today, with Liberty
as its major source of
financing.
year, 60% of our com
mercial and industrial
loans will be energyrelated. With the help of
Lib erty’s billion (plus) dol
lars of resources, our
com m ercial bankers will
provide financial service
to encourage research,
exploration and new de
velopm ents in Oklahom a’s
oil industry.
Through this direct in
volvem ent, Lib erty’s pro
fessional and financial
resources constitute an
energy force that stimu
lates the growth of jobs,
paychecks and homes for
Oklahomans.
At Liberty, we realize the
important role of the oil
industry in Oklahom a’s
future. That’s why this
DOING MORE FOR YOU
"""Energy
W e’ve got th e answ ers
L IB E R T Y
THE BANK OF MID-AMERICA
The Liberty National Bank and Trust Company / P.O. Box 25848 / Oklahoma City, Oklahoma 73125 / (405) 231-6000 / Member FDIC
MID-CONTINENT BANKER is published monthly except semimonthly in May by Commerce Publishing Co., 408 Olive, St. Louis, Mo. 63102, Nov., Vol. 76, No. 12
Controlled circulation postage paid at Fulton, Mo.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
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staff or shavetails, biding
Thebank,
time in the correspondent
until they move
that gets in ondepartment
to something else.
Hobson, Gus Morris
the trenches. andLynn
Jim Newman are all
The Officers that lead the
Correspondent Bank Depart
ment at Memphis Bank &
Trust don’t direct operations
from behind a desk at HQ.
They get out there in the
trenches with you where the
battles are fought.
Unlike other banks,
Memphis Bank & Trust
doesn’t trust your corre
spondent needs with junior
Senior Vice Presidents, all
in the field putting their
senior experience and ability
on the front line with you.
VJith a full staff behind
them, they’ll give you fresh
reinforcements in transit,
data processing, Visa and
Master Charge, draft collec
tion, investments, federal
funds, safekeeping, credit
assistance, loan participa
tion, trust services, wire
transfers and business
referrals. Their arsenal
includes expert advice on
insurance, regulatory
affairs, advertising and
marketing, training
personnel...even the design
and supply of bank facilities.
Give our Officers acall.They
can help you win the war.
In Tennessee, 1-800-582-6277.
In other states, 1-800-238-7477.
MEMPHIS
BANKS’
TRUST
Member FDIC
r
I *
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MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Does your correspondent bank
bring full data processing
capabilities within reach?
We d o through regional processing centers.
Not one, but four regional centers in
Missouri help us respond to your pro
cessing needs faster. Usually over
night.
Just use the center most convenient
for you: Kansas City, Macon, Springfield or St. Louis. Each can provide
you with these essential services.
For Your Retail Custom ers. We pro
cess demand deposits, savings, in
stallment loans, certificates of deposit
and overdraft banking.
Central Group, Banking Dept.
M ercantile Trust Com pany N.A.
St. Louis, MO. (314) 425-2404
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
For Your Com m ercial Custom ers.
Come to Mercantile for processing of
payroll accounts, accounts payable
and receivable, general ledger
accounting, and account reconcilia
tion.
Don’t be afraid to ask. If your re
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others, call your Mercantile Banker
today.
We’re with you.
M = R c n n T iL =
BRfK
MID-CONTINENT BANKER for November, 1980
Convention Calendar
Nov. 16-18: ABA National Correspondent Banking
Conference, Atlanta, Hyatt Regency.
Nov. 16-19: Bank Administration Institute ATM Con
ference, New Orleans, New Orleans Hilton.
Nov. 16-19: Bank Marketing Association Officer Call
Sales Workshop, Chicago, Chicago Marriott.
Nov. 18-22: Bank Marketing Association Essentials of
Bank M arketing Course/Southw est Extension,
Houston, University of Houston.
Nov. 30-Dec. 2: Bank Marketing Association Product
Development/Product Management Conference,
New Orleans, Fairmont Hotel.
Nov. 30-Dec. 3: Bank Administration Institute Money
Transfer Conference, New York City.
Dec. 4-7: Independent Bankers Association of America
Seminar/W orkshop on Bank Ownership, Point
Clear, Ala., Grand Hotel.
Dec. 7-12: ABA National Commercial Lending Gradu
ate School, Norman, Okla., University of Oklahoma.
Jan. 18-20: ABA International Banking Conference,
New York City, Grand Hyatt.
Jan. 19-22: Bank Administration Institute Productivity
Through Automation/Technology/Human Resources
Conference, Dallas, Fairmont Hotel.
Feb. 1-4: ABA Bank Telecommunications Workshop,
New Orleans, Fairmont Hotel.
Feb. 1-6: ABA Conference for Community Bank CEOs,
St. Petersburg, Fla., Don Cesar Beach Hotel.
Feb. 2-3: Robert Morris Associates BHC/Branch Bank
Loan Administration Workshop, Dallas.
Feb. 5-8: 44th Assembly for Bank Directors, Hawaii,
Kuilima.
F eb. 8-10: ABA Bank Investm ents Conference,
Washington, D. C., Sheraton Washington.
Feb. 8-20: ABA National Installment Credit School,
Norman, Okla., University of Oklahoma.
Feb. 9-11: Bank Administration Institute Bank Security
Conference, Miami Beach, Fla., Fontainebleau Hil
ton.
Feb. 11-14: Bank Marketing Association EFTS Market
ing Conference, New Orleans, New Orleans Mar
riott.
Feb. 12-15: 44th Assembly for Bank Directors, Boca
Raton, Fla., Boca Raton Hotel/Club.
Feb. 14-20: ABA National Trust Conference, Honolu
lu, Sheraton Waikiki.
Feb. 15-18: ABA Community Banks Executive Confer
ence, Phoenix, Hyatt Regency Phoenix.
Feb. 18-20: ABA Corporate/Commercial Marketing
Seminar, Dallas, Fairmont Hotel.
Feb. 19-20: Robert Morris Associates Managing Inter
national Lending Risks Workshop, Houston.
March 15-18: Bank Marketing Association Community
Bank CEO Seminar, San Diego, Calif., Hotel Del
Coronado.
March 22-24: ABA National Credit Conference, Chica
go, Chicago Marriott.
March 22-25: ABA National Installment Credit Confer
ence, Los Angeles, LA Bonaventure.
Feb. 22-25: ABA Conference for Branch Administra
tors, Phoenix, Hyatt Regency Phoenix.
Feb. 22-25: Bank Marketing Association Consumer
Business Development Training Workshop, Dallas,
Regent Hotel.
March 2-5: ABA Risk & Insurance Management in
Banking Seminar, San Diego, Calif., Sheraton.
March 15-18: Bank Marketing Association Marketing
Research Conference, Dearborn, Mich., Hyatt Re
gency Dearborn.
March 15-18: 45th Assembly for Bank Directors, Hon
olulu, Sheraton Waikiki.
March 15-18: ABA National Compliance Conference,
Dallas, Fairmont Hotel.
March 22-26: Independent Bankers Association of
America Annual Convention, Las Vegas, Las Vegas
Hilton.
March 22-28: ABA National Compliance School, Nor
man, Okla., University of Oklahoma.
March 25-27: ABA Basic Secondary/Mortgage Market
Workshop, Atlanta, Omni International Hotel.
March 29-31: ABA International Systems Symposium,
Washington, D. C., Capital Hilton.
March 29-April 1: ABA Southern Regional Bank Card
Conference, Miami, Omni International Hotel.
March 29-April 2: Bank Administration Institute Bank
Auditors Conference, Dallas, Loew s Anatole.
FEATURES
19
INFLATION-FIGHTING PROGRAM UNVEILED
At ABA convention in Chicago
28
MUNICIPAL REVENUE BONDS
Should banks be allowed to underwrite them?
38
NEW INTEREST-RATE BEHAVIOR FOR BONDS
Due to shattered traditional analytical mold
42
MONEY-MARKET MUTUAL FUNDS
Small banks 'getting into act'
46
ERRORS AND OMISSIONS
Changing exposures under the law
62
CAN THE FED COMPETE WITH CORRESPONDENTS?
Yes, says panelist at ABA convention
63
FED'S ROLE AS CORRESPONDENT BANK COMPETITOR
Panelist predicts rough sailing for Fed
67
FED'S COMPETITIVE EFFECT WILL BE MINOR
Survey reveals correspondent bankers' opinions
DEPARTMENTS
8 THE BANKING SCENE
13 SELLING/MARKETING
14 BANKING WORLD
16 W ASHINGTON WIRE
STATE NEWS
90 ALABAMA
92 INDIANA
93 LOUISIANA
94 NEW MEXICO
90 ARKANSAS
92 KANSAS
94 MISSISSIPPI
94 OKLAHOMA
91 ILLINOIS
93 KENTUCKY
94 MISSOURI
96 TENNESSEE
96 TEXAS
M ilwaukee, W is., 161 W. Wisconsin A ve.,
53203, Tel. 414/276-3432.
EDITORS
Ralph B. Cox
P u b lis h e r
Lawrence W. Colbert
A s s is ta n t to th e P u b lis h e r
Rosemary McKelvey
E d ito r
Jim Fabian
A s s o c ia te E d ito r
A d ve rtisin g O ffices
St. Louis, Mo., 408 Olive, 6 3 102, Tel. 314/
421-5445; Ralph B. Cox, Publisher; Marge Bottiaux, Advertising Production Mgr.
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
November, 1980
Volume 76, No. 12
MID-CONTINENT BAN KER (publication No.
3 4 6 -3 6 0 ) is published monthly except
semimonthly in May by Commerce Publishing
Co., 408 Olive S t., St. Louis, Mo. 6 3 1 0 2 .
Printed by The Ovid Bell Press, Inc., Fulton, Mo.
Controlled circulation postage paid at Fulton,
Mo.
Subscription rates: Three years $27; two years
$20; one year $12. Single copies, $2 each.
Foreign subscriptions, 50% additional.
Commerce Publications: American Agent & Bro
ker, Club Management, Decor, Life Insurance
Selling, Mid-Continent Banker, Mid-Western
3anker and The Bank Board Letter.
Officers: Donald H. Clark, chairman; Wesley H.
Clark, president; James T. Poor, executive vice
president and secretary; Ralph B. Cox, first vice
president and treasurer; Bernard A. Beggan,
William M. Humberg, Don J. Robertson and Law
rence W. Colbert, vice presidents; David Baetz,
assistant vice president.
7
The Banking Scene
By Dr. LEW IS E. D A V ID S
Illinois Bankers Professor of Bank Management
Southern Illinois University, Carbondale
Side Results of the Fed's Fee Schedule
O R R E S P O N D E N T and resp o n entirely phased in as being charged.
d e n t bankers are analyzing the
A review of the proposed prices sug
figures that th e F ed eral R eserve Board
gested by the F ed makes for fascinat
released on its proposed schedule for ing reading.
services to financial institutions.
W ith m ore than a decade of experi
These fees involve transportation of e n c e w ith fu n c tio n a l cost analysis
c u rre n c y and coin, coin w rap p in g , (FCA) for its m em b er banks, th e F ed
check clearing and collection via tran s certainly is well experienced w ith FCA
fer of funds, use of F e d auto m ated application. Thus, it’s in teresting to re
clearinghouse facilities, n e t settlem en t view the various tables and F ed has
of debits and credits affecting accounts provided on th e proposed fee sched
held at the F ed, book-entry safekeep ule. R espondent banks will study these
ing and o th er services connected w ith tables carefully and probably on that
p u rc h a s e s o r sales o f g o v e rn m e n t basis will exam ine fees they are paying
securities. Also involved are noncash to th e ir co m m ercial c o rre sp o n d e n t
collection (receipt collection and cre d banks.
iting of accounts of depository in stitu
tions in connection w ith m unicipal and
corporate securities) and cost of F ed
" A c o r re s p o n d e n t b a n k
float (interest on item s, generally the
should
be able to price its ser
dollar value of checks cred ited by the
F e d ’s d e p o sito ry in stitu tio n befo re vices well below prices charged
being collected from an o th er in stitu
by the (Fed's) high-fee sched
tion).
The D epository Institutions D ereg ules in many a re a s."
ulation and M onetary C ontrol Act has
forced th e F ed to adopt certain p rin ci
The definitive study on this area was
ples. O ne is th at all services covered by
th e F e d ’s fee schedule be p riced expli m ade by R obert K night w hen he was
citly; th at services covered by the fee an executive of th e Kansas City Fed. It
schedule are to be available to non concluded that th ere was a substantial
m em b er depositories at th e sam e price variation in the pricing stru ctu re of ser
charged to m em b er banks, except that vices of c o rre sp o n d e n ts to re sp o n
nonm em bers may be subject to any dents. A similar com m ent can be m ade
o th er term s, such as clearing balances, for th e various costs of specific F ed
th a t m ay ap p ly to m e m b e r banks. offices. Table 1 of th e F e d ’s proposed
These fees are to be based on all direct fee schedule for com m ercial-check ser
and indirect costs actually in cu rred by vices shows a rath er am azing spread
F ed banks. The concept of float will be b etw een various F ed offices for th eir
an interest rate charged at th e c u rren t services.
It may be generalized that the New
m arket rate for F ed funds.
This is a ra th e r historic tim e in that York F ed has (with some exceptions) a
access to service pricing will start in m uch h igher cost stru ctu re than the
January, 1981, for w ire transfer and net o th er Feds. To illustrate: For cash le t
se ttle m e n ts. By A pril, 1981, check ters deposited directly at processing
clearing and collection as well as auto F ed offices, for city item s the New
m ated clearinghouse item s will be cov York F ed charges 2.50 p e r item w hile
th e C leveland d istrict charges only
e re d , w ith c u rre n c y in coin b e in g
0.90 p e r item . Moving on to country
priced as of July, 1981. Purchases and
sales of transfer securities will be effec RCPC and m ixed item s, again th e New
tive in O ctober, 1981, as w ell as non York F ed at 2.90 p er item is on the
high side, w hile in Indianapolis the
cash item s. By mid-1982, float will be
C
8
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
item cost is only 1.20. F or o th er F ed
cash-letter item s, the New York F ed
charges 5.10 p er item , while in the
D enver and Atlanta districts the cost is
3.30. For non-m achinable item s, the
New York F ed charges at its head office
70 p er item , b u t only 3.90 at its Buffalo
B ranch; how ever, in th e C h arlo tte
Branch of the Richm ond F ed, the price
is only 3.20.
F o r package-sort item s, th e New
York F ed price varies considerably
from most F ed districts. Item cost for
the New York F ed package sort is 0.20,
which is the same price charged by the
San Francisco Fed. H ow ever, Rich
m ond and some o ther districts charge
0.60 for package sort. For group sorts,
the Philadelphia F ed is high at 1.80,
w hile the Kansas City F ed is low with
10. For cash letters consolidated with
sh ip m en ts sen t from nonprocessing
F ed offices to processing F ed offices,
th e New York F ed again is on the high
side w ith 30 p e r item , while the C in
cinnati Branch of th e C leveland F ed is
low at 1.30. For cash letters consoli
dated for country NRCPCs, th e New
York F ed charge is 3.40, w hile the In
dianapolis Office of th e Chicago F ed
charge is 1. 60 .
F or autom ated clearinghouse ser
vices, the New York F ed charges only
0.30 p er item , while all o th er intraACH item s are charged 10 by the other
F ed districts. In view of th e volum e of
activity in Chicago, one m ust w onder
why the Chicago F ed charges 10 while
the New York F ed is able to charge
only 0.30.
O n the F e d ’s proposed fee schedule
for currency/coin-shipping services, it
w ould look as though th ere was a little
cost analysis hanky-panky and col
laboration by F ed offices in com puting
schedules of fees. F or exam ple, on the
high side, Buffalo, C incinnati, Rich
m ond, C harlotte, Birm ingham , Jack
sonville, N ew O rleans, Chicago, D e
troit, San Antonio-El Paso, San F ra n
cisco, Fos Angeles, Salt Fake City and
Seattle have the same fee schedule of
MID-CONTINENT BANKER for November, 198 0
A LITTLE THING
LIKE AUTHORIZED CHECKS
MAY BE
BKGGR
THAN YOU
THINK.
THIS IS AN A U T H O R IZ ED INST R U M E N
For many years your financial institution was mostly concerned with
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O F F IC IA L CFHECKS. They take the place of Cashier's Checks or any other authorized
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that's effective cash management.
Take a look at all the benefits that this new program offers:
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3. No cost for Official Check forms printed to your design. 4. You are relieved
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Like to make more profit? Call
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Checks Manager at 800/527-9210
or write to 410 Davis Bldg.,
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BANKER for November, 1980
DigitizedMID-CONTINENT
for FRASER
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Travelers
9
$2.74 for m ail-shipm ent delivery to or
from the post office. On th e low side,
Boston, New York, Cleveland, P itts
burgh, Louisville, M em phis, H elena,
Kansas City, D enver, Dallas and P o rt
land charge $1.82, w ith th e rem aining
offices charging in betw een.
F or city en d points for cu rrency/
coin-shipping services p e r b u n d le of
currency, th e p rice for D etro it is a
w hopping 400, w hile San Francisco
charges only 50. M ost of th e o th er F ed
offices charge e ith e r 100 or 200. Thus,
D etro it’s cost is eight tim es th e cost of
San Francisco’s.
T he sam e thing holds p e r bag of
coins shipped, w ith D etro it charging a
w hopping 620, w hile L ittle Rock and
Dallas charge only 120. But w hen one
looks at the per-stop pickup and/or d e
livery of coin and currency at city end
points, the high is for Buffalo at $20.96,
w hile the low is for C incinnati at $1.
For suburban end points p e r b u n d le of
currency, the high is for Seattle at 700,
while the low is for L ittle Rock, O kla
hom a C ity and San A ntonio at 100. For
suburban end points p e r bag of coin,
Little Rock is low on th e totem pole
w ith 120, w hile th e high is for Seattle
and Salt Lake C ity at 780. F or stop
pickup and/or delivery for suburban
end points, L ittle Rock shows a re
m arkable low of $2.10 and Seattle is
high w ith $22 p e r pickup stop.
T hese fees are noted sim ply to point
out the w ide spread of these item s, in
some cases over 800%. T he num bers
w ere necessary to make th e point that
cost-related fees vary significantly.
A c o rre sp o n d e n t bank should be
able to price its services well below
prices charged by th e high-fee sched
ules in m any areas. O n th e o th er hand,
th e low-fee schedules of the F ed dis
trict offices probably will be hard to
m e e t. H o w ev er, if w e look at th e
g e n e ra liz atio n of th e p ro p o se d fee
schedule by F ed district, it appears
that New York correspondent banks
are in th e most favorable position b e
cause of the generally higher costs of
th e New York F ed and the offices in its
d istrict. To th at ex ten t, th e h ig h er
costs seem to favor the com petitive
stance of m ajor New York C ity co rre
sp o n d en t banks over co rresp o n d en t
banks in some of th e o th er regional
districts.
But m ore than that, we note that
m ost of the calculations used by the
F ed in determ ining its adjustm ent fac
tor costs w ere predicated on 1979 data.
It plugged into the form ula use of the
average cost of capital before taxes of
13.1%. O bviously, using th e past as
the prologue for future pricing p re
sum es that those rates are in the ball
park. O ne argum ent could be m ade
that because of the rath er ponderous
procedure the F ed uses, it will have
difficulty pricing its services com peti
tively — especially as in terest rates in
crease. H ow ever, as labor and o p erat
ing overhead increase, correspondent
bankers will find the fixed rates of the
Fed pose a com petitive disadvantage.
How frequently the F ed changes its
fee structure will be im portant to both
correspondent and resp o n d en t bank
ers.
U nd o u b ted ly , a com m ercial bank
should be able to com pete w ith the
F ed in most all service areas. The F ed
typically has a higher salary structure
than the norm al bank, especially in
operating areas. Since personnel costs
are a significant factor in these areas,
we can anticipate that in a nu m b er of
areas the Fed will find that com m ercial
banks providing c o rre sp o n d e n t ser
vices should be able to com pete satis
factorily. That is, if the fees are based
on tru e functional costs.
M aybe th e G e n e ra l A c c o u n tin g
Office should look at how the F ed com
pu ted its fees! • •
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Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 1980
Left to Right: Abigail Woods,
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Federal Reserve Bank of St. Louis
Selling /Marketing
Premium Suppliers Pleased with Ban Defeat
som e changes in op- cision occasioned by the proposed ban;
. erations w ere m andated by the
in fact, Salem had th ree record m onths
new prem iu m policy laid down by theof sales during th e sum m er. “H ow ev
D epository Institutions D eregulation
e r ,” he said, “the question is: W ould
C om m ittee (D ID C ) for financial in we have had even b e tte r sales during
s titu tio n s in S e p te m b e r, p re m iu m
th at period if th e ban business was not
suppliers are relieved th at th e indeci in the new s?”
sion created by th e proposed ban of
"In effect, w e’ve gone through a p re
prem ium s is over.
m ium b a n ,” said Dick M artin of Pos
And they expect to see a renew al of sum Trot, M cKee, Ky. “E ven though
orders for prem ium s as financial in th e ban was n ever im posed, th e indeci
stitution m anagem ents gear up for new
sion it caused had its effect.” A new
m arketing thrusts.
problem facing suppliers is the fact that
“I’m confident th at we ll see a fur bankers are busy thinking about the
th e r u p tre n d in th e use of prem ium s by offering of N O W accounts and the high
financial in stitu tio n s,” said Jay K eller costs involved w ith such accounts. This
of Salem C hina C o., Salem, Ohio. H e
is taking th eir m inds off prem ium s, he
said his firm d id n ’t experience a d ro p said.
off in orders during th e p eriod of in d e
A good outlook for th e p rem iu m
lthough
A
D ID C Finalizes Premium/Rate Rulings
T
H E D ID C (D epository Institutions D eregulation C om m ittee) has
issued final rules for prem ium s, finders fees and prepaym ent of
interest. T he rules will becom e effective D ecem ber 13.
The D ID C said prem ium s in th e form of cash, m erchandise or credit
w on’t be regarded as paym ent of in terest if:
• The prem ium is given to a depositor only on opening a new account
or renew ing or adding to an existing account.
• No m ore than two p rem ium s are given p er account in any 12-month
period.
• Prem ium value or total cost of m erchandise is no m ore than $10 for
deposits of less than $5,000 or $20 for larger deposits.
Averaging of prem iu m prices w on’t be p erm itted and an officer of the
institution m ust certify m erchandise cost, including expenses of ship
ping, packaging and handling. Costs of developm ent, advertising,
prom otion or o th er expenses a re n ’t included.
Self-liquidating sales a re n ’t considered prem ium s, b ut continuity
program s are.
F inders fees are paym ent of in terest to the depositor and may be paid
only in cash, except for certain em ployee incentive plans. A two-year
phase-out of finders fees is proposed for institutions that have a history of
obtaining, on average, 25% or m ore of th e ir dom estic small tim e and
savings deposits through finders fees. (C om m ent on this aspect of the
program can be m ade through N ovem ber 17.)
U nder paym ent of in terest, th e D ID C will consider raising the pass
book savings rate no later than S ep tem b er 30, 1981, as the first phase in
elim inating Regulation Q rate ceilings. The com m ittee adopted a u n i
form ceiling of 5V4% on N O W accounts as of D ecem ber 31 and retained a
5% ceiling up to th at date for institutions authorized to issue NOW s in
eight eastern states.
A ceiling rate of 5 lA% applies to 14-90-day tim e accounts u nder
$100,000 at m em b er banks as of O ctober 30. The ceiling will apply to
nonm em ber banks if federal regnlators p erm it them to issue such
accounts. Rut S&Ls and m utual savings banks can pay 51/2% on the
accounts.
business is pred icted by M arsha Mosely of f. E dw ard Connelly & Associates,
Pittsburgh. The firm experienced an
im m ediate pickup in orders once the
ban th reat was elim inated. C ontinuity
program s are big now as banks try to
encourage people to save, she said.
“W e’ve had an influx of orders d u r
ing the past th ree w eeks, ” said Richard
C rouse of Fabcraft, F renehtow n, N. J.
A pparently a n u m b er of financial in
stitutions had held back on prem ium s,
not knowing w hat to do during the
p erio d of indecision, he said. Now
th ey ’ve decided to go ahead w ith th eir
prem ium program s. H e said his firm
norm ally doesn’t have such a surge of
business at this tim e of year, since most
cu sto m ers o rd e r for C hristm as and
therefore place th eir orders earlier in
the year.
Thom W elch in Brookhaven, Miss.,
is optim istic for the prem ium business
in the near future. After a period of
slow business, things are picking up.
“T h ere’s a lot of in terest out th e re ,” he
said, and added that his firm expects to
send out m ore proposals in the next 60
days than in any com parable period in
the last several years.
E verything looks very bright now
that the ban business had been dis
p e n se d w ith, said Carol Schultz of
Animal Fair in M inneapolis. She said
suppliers are still trying to d eterm in e
the exact m eaning of the D ID C ’s new
restrictions on prem ium s, b u t she sees
am ple opportunity for h er firm to cap
tu re a large share of the m arket.
“I’m unequivocably happy w ith the
results of the prem ium ban proposal, ”
said Neil Kanney of K anney M arketing
Services, H auppauge, N. Y. H e said
that every prem ium supplier experi
enced sales declines during the period
of uncertainty while the D ID C was
considering the prem ium ban.
The battle against the prem ium ban
involved a lot of work by a lot of peo
ple, said Al P artenheim er of W. M.
D alton & Associates, N ewtown, Pa. A
lot of firms w ere involved and many
lawyers w ere put to work to p resen t
th e case for prem ium s. H e said that the
fact that the Justice D ep artm en t came
down on the side of prem ium s by d e
claring that th ere was no legal basis for
(C ontinued on page 97)
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
13
BANKING WORLD
• Harris Bank, Chicago, has nam ed
Craig H. W hite, vice p resid en t, head
of the governm ent bond division and
o p e n e d an i n te r n a tio n a l m o n e y m arket re p re se n ta tiv e office in Los
Angeles. Mr. W hite, who serves in the
bank’s New York office, is responsible
for the governm ent b ond division’s o p
erations in Chicago and N ew York.
H arris Bank is one of th e 12 banks in
the U. S. designated as prim ary treas
ury dealers by th e F ed. T he new Los
Angeles office will serve bank custom
ers in th e w estern U. S. and Canada.
I t’s headed by R obert A. W hite, assis
tant vice president.
C. WHITE
Robert H. Boykin will becom e p resi
d en t of the Dallas F ed January 1. H e
will succeed E rn e s t T. B aughm an,
who will reach re tire m e n t age at that
tim e after serving nearly 35 years w ith
th e Fed eral R eserve System , th e last
six as p resid en t of the Dallas Fed. Mr.
Boykin has been first vice p resid en t of
th a t bank since 1976 and has h eld
several posts since 1953. W illiam H.
W allace will succeed Mr. Boykin as
first vice p resident. H e is staff d irector/
F e d e r a l R e s e rv e B ank a c tiv itie s ,
Board of G overnors, in W ashington,
D. C. H e joined th e R ichm ond, Va.,
F ed in 1967 after having b een assistant
econom ics professor, D uke U niversi
ty. In 1973-74, he was professor of eco
nomics and head of program in b u si
ness adm inistration, N orth C arolina
U niversity. In 1974, he jo in e d th e
F e d ’s Board of G overnors.
• Rita Garrett, school coordinator,
Farm ers & M erchants Bank, C en tre,
Ala., is th e w inner of a $1,000 cash
award from National L earning P ro d
ucts, Inc., St. Albans, Va., in a contest
in w hich b ank school c o o rd in a to rs
throughout th e nation told how they
14
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
dent, LeM oyne-O w en College, M em
phis, who resigned recently. The term
expires at the end of 1982.
• The Kansas City Fed has p ro
m oted James R. Bell to senior vice
p resident and nam ed D avid J. France
and K ent M. Scott assistant vice presi
d ents. Mr. Bell jo in ed th e bank in
1966; Mr. France joined th e bank in
1967, b ut left in 1972 and retu rn ed in
1978; and Mr. Scott started at the F ed
in 1972.
used teaching m aterials from the firm
in th e ir work. Mrs. G arrett has taught
classes on banking to approxim ately
2,100 students, each of whom has b een
included in tours of the bank. Mrs.
G arrett is shown receiving h e r award
from J. R. Thacker of National L earn
ing Productions.
• S. A. Constance has b een elected
s e n io r v ice p r e s id e n t an d d e p u ty
g e n e r a l m a n a g e r, M a n u fa c tu re rs
H anover T rust, New York. H e is officer-in-charge of a newly established
m erchant banking group, w hich has
responsibility for investm ent banking
activities worldwide. T he new group
includes M anufacturers H anover L td.,
London, and M anufacturers H anover
Asia, H ong Kong; in New York, invest
m en t banking functions of th e corpo
ra te finance d e p a rtm e n t, M H Ltd.
activities, international asset m anage
m ent and a consolidation of the bank’s
p ro je c t fin an ce activ itie s. Jo h n L.
M cC arthy, senior vice p resident, su
pervises the group in New York. Mr.
C onstance is based in London.
• C lifford W. S ton e, c h a irm a n /
C E O , W alnut Valley Bank, El D ora
do, K an., has been elected board p re s
id en t of Schools of Banking, Inc., a
nonprofit organization th at sponsors
sc h o o ls for b a n k e m p lo y e e s . T h e
organization is affiliated w ith the bank
ers associations of Nebraska, M issouri
and Kansas. Mr. Stone also is p resi
d en t-elect of the Kansas Bankers Asso
ciation.
• Paul C. Clendening, senior vice
president, Johnson C ounty National,
Prairie Village, K an., has b een elected
chairm an of the Kansas C ity G roup of
R o b e rt M orris A ssociates. T hom as
Papa, vice p resid en t, F irst National,
Kansas City, was elected vice chair
man and M ichael B rosnahan, senior
v ic e p r e s id e n t, C o lu m b ia -U n io n
N ational, Kansas C ity, was elected
secretary/treasurer.
• First National, Louisville, is the
first bank in K entucky to receive the
P resid en t’s “E ” aw ard for excellence in
exporting. The aw ard recognizes the
bank’s m arketing and prom otional ser
vices m ade available to, and used by,
exporters in th e developm ent and ex-
pansion of export m arkets. Shown ex
h ib itin g th e “ E ” flag are (from 1.)
A. S tev en s M iles, b an k p re sid e n t;
S en ato r W e n d ell F o rd ; G o rdon B.
Thomas, U. S. D ep artm en t of C om
m erce; and C harles M. W illiams, vice
p resident of th e bank’s international
division.
• Patricia W. Shaw, sen io r vice
p re sid e n t, U niversal Life Insurance
C o., M em phis, has b een appointed to
th e board of the M em phis Branch of
th e St. Louis Fed. She fills the unex
p ired term of W alter W alker, p resi
MID-CONTINENT BANKER for November, 1980
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MID-CONTINENT BANKER for November, 1980
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Federal Reserve Bank of St. Louis
Washington Wire
Comptroller Raises Capital, Mortgage Issues
R
E C E N T proposals by th e C om p ings. At the same tim e, inflation has
tro lle r o f th e C u rre n c y have
caused the stated value of assets to rise
raised new questions about two u n redram atically . T h e re fo re, banks are
lated areas of bank operations. The
faced w ith the possibility of having arti
proposals deserve th e atten tio n of the
ficially high asset levels and a reduced
entire banking com m unity. A lthough
capital base against w hich those asset
th e C o m p tro lle r’s regulations apply
levels will be m easured.
only to national banks, th ey still are
The ABA long has been aware of the
re le v a n t to s ta te - c h a r te r e d b anks.
com plexity of th e issue of capital ad e
“W ild card” statutes in m any states
quacy. In June, one m onth before the
give state-ch artered banks th e au th o r C om ptroller published his proposals,
ity to en g a g e in all a c tiv itie s th a t
th e ABA com m issioned a study of this
national banks engage in, and regula m atter by one of th e “big eig h t” ac
tions in m any states, th erefo re, are
c o u n tin g firm s. This study, d ue in
directly affected by regulations issued
by the C om ptroller.
O ne proposal is in ten d ed to open
W hat is bank capital in the
discussion of how bank capital should
first place, and what is the
be defined and w hat its role in banking
regulation should be. The o th er p ro p ro p e r level of a d e q u a t e
posal raises th e s u b je c t o f a d ju s t capital?
able-rate m ortgages (ARMs) and could
lead to a m uch w ider use of these in
F ebruary, 1981, will consider all facets
strum ents in th e future.
The first proposal is to change the of the capital-adequacy question. The
ABA has asked th e C om ptroller to d e
d e fin itio n o f “ s u rp lu s u n im p a ire d
funds” that a bank may count as its lay fu rth er action on his proposal until
c a p ita l. T h e d e f in itio n w o u ld b e th e ABA’s study is com plete.
C o m m e n ts th a t a c c o m p a n y th e
changed to exclude su bordinated notes
and deb en tu res and 50% of th e loan- proposed regulation suggest that the
loss reserv e funds th a t now are in C o m p tr o lle r is le ss in te r e s te d in
cluded in capital. Obviously, th e effect changing the definition of capital as a
of such a change w ould be to reduce m atter of regulatory fiat than in stim u
the capital of m ost national banks. (The lating a dialog w ith the banking com
C o m p tro lle r e stim a te s th a t for th e m u n ity . T h e a m e n d m e n ts are d e
average bank, capital w ould be re scribed by the C om ptroller as “part of a
duced 12.8% by th e deletion of su b larger project to develop an im proved
ordinated notes and d eb e n tu re s and regulatory and supervisory policy for
4.5% by the deletion of th e loan-loss this office, . . . enabling national banks
reserve.) A reduction in th e am ount of to im p ro v e th e ir capital evaluation
capital w ould be a serious change, for techniques and m aintaining the pivotal
that figure is used to d eterm in e the role of th e banking system in m eeting
bank’s legal lending lim its and o th er th e c re d it dem ands of a diversified
m atters, such as w h e th e r a bank may econom y. A n o th e r e le m e n t in this
com prehensive policy study is an eval
establish a branch.
This proposal com es at a difficult uation of the appropriateness of the
tim e for banks. The only sources of p resen t 10% lending lim itation and the
capital that w ould be p e rm itte d to a possible need for legislative am en d
bank if the proposed definitions w ere m ents to th e governing sta tu te .”
The C o m ptroller’s in terest in stim u
to becom e final w ould be equity and
re ta in e d earnings. Bank stocks are, lating a dialog w ith b an k ers is e n
and long have been , generally u n d e r couraging, because the dual questions
valued and inflation has low ered earn- of capital ratios and lending limits long
have frustrated bankers. The question
of capital adequacy is complex, involv
ing a careful balance of the desire to
Editors Note: This column was prepared pro tect depositors from loss and the
by the ABA’s public relations division.
need to provide enough leverage to
16
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
banks to allow them to operate profit
ably. The questions im plicitly raised
by th e C o m p tro ller are good ones:
W hat is bank capital in th e first place,
and w hat is the p ro p er level of ad e
quate capital?
At p resent, th ere is no unanim ity
am ong regulators, econom ists or even
am ong bankers about the pro p er def
inition of bank capital or the p roper
ratio of capital (how ever defined) to a
bank’s assets. The C o m ptroller’s latest
proposal suggests he is in terested in a
p erm an en t solution to the question of
capital and its p ro p er role in banking
regulation. The ABA believes its study
will provide valuable help to regulators
in this m atter.
On another front, the C om ptroller is
suggesting that the use of alternative
m ortgage instrum ents — in particular,
the adjustable-rate m ortgage (ARM) —
should be form alized and expanded.
T he pro p o sed guidelines provide
that in terest rates could be increased at
stated intervals during th e term of a
m ortgage. The increase could not ex
c e e d one half of 1% for ev ery six
m onths betw een adjustm ents, and in
no event could it exceed 5% for any
one adjustm ent period. The guidelines
also provide for a federal override of
state laws w here an ARM w ould be in
conflict w ith a state statute. The p u r
pose of the guidelines is not to p re
scribe m inim um increases but, rather,
to provide some standard for banks to
use in setting up innovative m ortgage
lending program s. At the same tim e,
the C om ptroller is providing a reason
able m easure of protection for the con
sum er.
National banks currently are autho
rized to offer any type of loan not for
bidden by statute, and ARMs are not
forbidden. W hat the C om ptroller is
proposing will formalize the right of a
national bank to exercise a pow er it
already has. The most im portant legal
feature of the proposal, therefore, is
th e override of state laws that prohibit
ARMs. State usury limits on fixed-rate
residential m ortgages w ere overridden
by th e O m n ib u s B an k in g Law in
M arch, b ut m any states still have laws
forbidding or restricting ARMs. W ith(C ontinued on page 82)
MID-CONTINENT BANKER for November, 1980
Nobody knows New Orleans
like the W hitney
*
When you have an important customer who
asks about banking in New Orleans and
Louisiana, tell him about the Whitney.
The Whitney, now in its 97th year, can
offer your customer the same high quality,
efficiency and excellence in banking that
your bank has so capably provided.
BANKER for November, 1980
DigitizedMID-CONTINENT
for FRASER
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
NATIONAL BANK OF NEW ORLEANS
Established 1883
A great bank for a great city
There comes a tim e when
you have to step outside and fight.
'Inflation is the single most important economic and social challenge
facing America today. I call on all bankers to lead the battle to eliminate
this destructive force from our nation. You can make a difference’.’
< & & !* * ,
C. C. Hope, Jr., President, 1980
American Bankers Association
And w e’ll do a lot more than just hold your co at In fact, the ABA has sent an Inflation
Fighting Kit to all m em ber-bank CEO’s free! T his kit will provide you with a great combination
of punches to fight inflation in your local m arket. It contains the following professionally
prepared items:
• a list of selected m essages stressing the importance of fighting inflation
• a speech which you can use before local groups on the subject of inflation
• a sample new s release to accompany your speech
• a radio script which can be used in your local m arket
• a print advertisem ent which you can place in your local new spapers with your own
bank’s logo
• a question-and-answer sheet to assist you in preparing for interview s
While your ABA is doing battle on a national level, we hope you’ll take advantage of
this m aterial and use it to slug it out with inflation on the local level. We’re all in this fight
together. And with your help, we can win!
For further information, phone or write Mr. Dan Buser, Director of Public Relations,
ABA, 1120 Connecticut Avenue, N.W., Washington, D.C. 20036. Phone (202) 467-4273.
Digitized for18
FRASER
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Federal Reserve Bank of St. Louis
AMERICAN BANKERS ASSOCIATION
© 1980 American Bankers Association
MID-CONTINENT BANKER for November, 1980
Registration area for ABA convention fronted exhibit area, said to be "largest ever7' for an ABA convention.
Program to Help Bankers Fight Inflation
Unveiled at ABA Convention in Chicago
Root of Inflation is 'Soaring Price of Government'-Rockefeller
N FLA TIO N — its real cause and a are far too m any regulations, m any of
program to help bankers fight it — th e m d u p licativ e, com ing from his
was a focal point of th e ABA’s annualagency, th e F D IC and the C om ptrol
convention in Chicago last m onth.
ler.
S p eak in g b lu n tly in his k e y n o te
Along th e sam e lines, F D IC C hair
speech, D avid Rockefeller, chairm an, man Irvine H. Sprague described a d i
C hase M an h attan , N ew York C ity, vided exam ination program in which
charged that th e root of inflation is “th e th e F D IC and qualified participating
soaring price of governm ent. ”
states alternate and exchange results
T h e A B A ’s o u tg o in g p r e s id e n t,
C. C. H ope Jr., vice chairm an, F irst
COVER: This is reproduction of cov
U nion N atio n al, C h a rlo tte , N. C .,
er of “Inflation Kit,” which was distri
buted to bankers during ABA conven
pointed out th at one of th e first actions
tion in Chicago last month. Quote on
of the association th e past year was
inflation is by C. C. Hope Jr., ABA
appointm en t of a select task force on
president, 1979-80, and vice chair
inflation. This group, he continued,
man, First Union National, Char
had w orked diligently durin g th e year
lotte, N. C.
to study th e causes of inflation in o rd er
to suggest ways th e e n tire A m erican
banking co m m u n ity could h e lp r e
v erse th e inflationary tre n d in this
country.
Then, he asked his fellow bankers to
carry on th e battle begun by th e task
force by taking hom e — and using — a
com prehensive “inflation k it,” w hich
was to be d istrib u ted to them . (See
story, page 20.)
Frank talk also cam e from o th er con
vention speakers, including C om ptrol
ler John G. H eim ann, who called for
consolidation of regulation into few er Keynoter David Rockefeller urged ABA
governm ent agencies; and F ed C h air members to join fight against inflation.
man Paul Volcker, who ad m itted th ere
He's ch., Chase Manhattan, New York City.
I
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
on a n n u a l e x a m in a tio n s o f n o n
p ro b le m in stitu tio n s. This red u ces
dual federal and state examinations.
The F e d ’s recently proposed sched
ule of fees was discussed at the conven
tion, and related articles on this sub
ject appear on pages 62, 63 and 67.
O ne of the m any and varied specialin terest sessions was devoted to “Im
p licatio n s of th e F a rm C re d it Act
A m en d m en ts” (HR 7548). See page
22 .
R o c k e fe lle r on I n fla tio n . D av id
Rockefeller cited deterioration of p ro
ductivity and personal savings as con
tributors to b u t not the cause of “an
inflation crisis of w orldw ide reach and
profound ramifications in the U nited
States. Inflation is a m u n d an e and
pervasive reality that should be consid
ered carefully in view of its effects and
causes, its natu re and its re m e d y .”
H e p ointed out that the popular m is
conception that rising prices are both
the cause and effect of inflation has
resulted in the view that “inflation is
som ething done by the private sector:
businesses lifting prices and pulling in
h ig h e r profits; w o rk ers d em an d in g
raises; bankers asking higher in terest
ra te s . . . g o v e rn m e n t is left o u t
alto g eth er, w hich is som ething like
giving a perform ance o f ‘H am let’ w ith
out the moody D anish prince — in this
19
Inflation K if Distributed at Convention
Reflects View s of A BA Task Force
A
C O M P R E H E N S IV E “Infla
tion K it” was d istrib u ted to
bankers at th e ABA convention
Chicago last m onth. It is an o u t
grow th of work done during th e
p a s t y e a r b y th e a sso c ia tio n s
select task force on inflation, c re
ated in th e fall of 1979. A ccording
to C. C. H ope Jr., outgoing ABA
p re s id e n t (vice ch airm an , F irst
U n io n N a tio n a l, C h a r lo tte ,
N. C .), th is g ro u p w o rk e d
diligently during th e year to study
causes of inflation in o rd e r to sug
gest ways th at th e e n tire A m erican
banking com m unity could h elp re
verse th e inflationary tre n d in this
country.
In preparing th e kit, th e ABA
drew heavily on th e advice and
g u id a n c e o f th e in fla tio n task
force, and Mr. H ope said th eir
sage co u n sel was in v alu ab le in
helping d eterm in e w hat m essages
and approaches should be em p h a
sized. H ow ever, th e ABA had final
resp o n sib ility for th e k it’s con
tents.
The ABA hopes bankers will use
th e kit to d iscuss p u b lic ly th e
problem of inflation and to g e n e r
ate in te re st in solving it am ong
residents and leaders of th e ir com
m unities.
The kit contains th e following
items:
• A list of selected messages d e
signed to tell bankers at a glance
th o se issu es th e ABA b e lie v e s
should be stressed in any discus
sion of inflation.
• A sample speech th at spells
out in detail ju st w here th e ABA
thinks th e problem s are w ith p u b
lic policy and w hat kind of solu
tions should be adopted by th e na
tion’s leaders. The speech, about
30 m inutes in length, may be used
as is or m odified or as a source
docum ent.
• A sample news release to go
w ith th e speech. It highlights the
im p o r ta n t p o in ts m a d e in th e
speech.
• A sa m p le q u e s tio n - a n d answ er lis t. The ABA has tried to
20FRASER
Digitized for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
America Faces A Grave National Crisis:
IMFLMTM
in
America's Bankers Are Ready To Help.
ABA suggests that this ad, part of its
"Inflation Kit," be used by banks in
their local newspapers, with banks'
logos inserted under "You Can Make a
Difference."
anticipate questions that m ight be
p u t to bankers by th e m edia based
on rem arks m ade in th e speech.
• Two sam ple radio statem ents,
one of approxim ately 30 seconds’
duration and one of 60 seconds.
T hese are m eant to be used as
public-service announcem ents on
local radio stations.
• A sam ple advertisem ent d e
signed to be used on or opposite
the editorial page of local new s
papers. Each bank is to add its
nam e and logo.
Basic m essages contained in in
form ation in the kit are that bank
ers are calling for: a sound m one
tary policy that refuses to allow the
m oney supply to grow faster than
th e real economy; a sound fiscal
policy and an end to deficit sp en d
ing except in exceptional circum
stances; an end to excessive gov
ern m en t regulation that o v erb u r
dens industry; a tax system that
p ro v id e s in c e n tiv e s for savings
and in vestm ent rath er than con
sum ption and fosters productivity
and grow th, and a vocal and active
electorate that tells our leaders to
follow these sound policies.
case, the moody A m erican A dm inistra
tion, Congress and F ederal Reserve
Board. Inflation is a decline in the
value of m oney — and only govern
m ent has the pow er to debase the cu r
rency by creating too m uch of it. ”
Mr. Rockefeller called on the new
Congress, which will convene in Jan u
ary, to recognize as a top priority a
m ore effective control over expendi
tures.
“O verspending by g o v ern m en t,” he
continued, “has created nightm arish
deficits for 19 of the past 20 years, w ith
a total deficit exceeding $400 billion —
th e resu lt of th e sociopolitical p ro
cess.”
He explained this by pointing out
th a t d u rin g th e past decade, social
program s that fell u n d er the nam e of
th e G reat Society m eant federal o ut
lays for education, health, social secur
ity and o ther benefits that increased by
$270 billion, with these outlays now
accounting for m ore than 60% of the
total budget.
Mr. Rockefeller em phasized that he
doesn’t w ant to have these program s
repealed, b ut the headlong expansion
of governm ent benefits m ust be cu r
tailed.
The New York banker urged that
fu rther changes in the budget-m aking
process be established so Congress will
be forced to control expenditures m ore
effectively than in the past. Among
changes he recom m ended for consid
eration are:
• A req u irem en t that any deficit has
to be approved by m ore than a simple
m ajority of Congress — perhaps by
tw o-thirds or m ore.
• Presidential authorization to w ith
hold expenditures that Congress has
authorized unless the P resid en t’s deci
sion is overridden by 60% of Congress.
• T ig h te r s ta n d a rd s fo r so cialentitlem en t program s, w ithout creat
ing hardship for genuinely needy re
cipients.
• A thorough scrutinization of the
practice and m ethod of indexing many
Edwin S. Jones (I.) w as honored with recep
tion during ABA convention on his retire
ment as ch., exec, com., First Nat'l, St.
Louis. In c. is Mrs. Jones; at r. is T. Barton
French, s.v.p./corres. head, First of St. Louis.
MID-CONTINENT BANKER for November, 1980
of these benefits to inflation.
• Reforms in depreciation taxes to
p ro v id e m o re w o rk in g c a p ita l for
businesses and incom e-tax cuts to e n
courage personal savings.
Mr. Rockefeller also cited th e ex
p en se of regulations and sug g ested
that “too m any regulations, issued too
rapidly and thoughtlessly, defeat th eir
very purpose. A crucial m andate is to
p ru n e th e forest of rules and let the
econom y grow. ”
H e asked bankers to convince th eir
constituents th at inflation, once and for
all, m ust be brou g h t u n d e r control.
Treasury Secretary’s V ie w p o in t. A
different opinion on th e c u rre n t infla
tion situation was p re sen te d by T reas
ury S ecretary W illiam M iller, who
p r e c e d e d M r. R o c k e fe lle r on th e
speakers’ stand. A ccording to Mr. M il
ler, “ . . . responsible fiscal, m onetary
and credit policies w ere able to help
break the extrem e inflationary fever of
last spring, and . . . th e re is every
reason to believe that a continuation of
such policies can lead to genuine, if
gradual, progress in our efforts to re
duce the underlying inflation ra te .”
H ow ever, he adm itted th at inflation
is the forem ost problem on th e nation’s
dom estic front. The econom y, he con
tinued, is com pleting th e first year of
th e 1980s w ith an underlying inflation
rate disturbingly close to th e d o u b le
digit range.
S ecretary M iller th e n p o in te d to
some encouraging signs. O ver th e past
th ree m onths, the C onsum er Price In
dex has risen at a 7% annual rate. The
P ro d u c e r P ric e In d e x for fin ish e d
goods rose at a 13% annual rate during
th e same period, b u t m o derated signif
icantly in Septem ber. A lthough these
are welcom e figures, he said, it would
be a m istake to use them as an excuse
for co m p la c e n cy . A c c o rd in g ly , h e
w ent on, inflation rem ains a m atter of
utm ost urgency.
NEW ABA OFFICERS installed at Chicago convention pose with Willis Alexander
(I.), e.v.p. They are (from I. of Mr. Alexander) C. C. Hope Jr., v. ch., First Union
Nat'l, Charlotte, N. C. — council ch.; Lee Gunderson, pres., Bank of Osceola, Wis.
— pres.; Virgil E. Solso, v. ch., Oregon Bank, Portland — treas. (for second term);
and Llewellyn Jenkins, v. ch., Manufacturers Hanover, New York — pres.-elect.
A related dom estic problem , said
Secretary M iller, is the gradual decline
in productivity grow th, a decline that
results from a n u m b er of factors, in
cluding an aging capital stock, p re s
ence in th e work force of an unusually
high n u m b er of inexperienced w orkers
and insufficient technological innova
tion.
Rockefeller Talk Available
The keynote address on inflation
given by David Rockefeller, ch.,
Chase Manhattan, New York City, at
the ABA’s 1980 convention is avail
able in booklet form.
For a copy of “Facing up to the
Hard Facts of Inflation, ” write: Pub
lic Relations Division, Chase Man
hattan Bank, 1 Chase Manhattan Pla
za, New York, NY 10081.
M r. M iller th e n d iscussed som e
challenges on th e international front,
including huge balance-of-paym ents
deficits and slow grow th rates that b e
set the global econom y. In tertw in ed in
both the dom estic and international
areas, he pointed out, is the energy
situation, w hich contributes to the cu r
ren t account deficits of less-developed
and developed countries alike, siphons
resources from our own econom y and
causes en o rm o u s in flationary p re s
sure.
W hat is needed, he said, is a decade
of u n p re c e d e n te d in v estm en t — in
m o d e rn p lan ts an d e q u ip m e n t, in
energy-saving technologies, in energyproducing technologies, in transporta
tion infrastructure and in developm ent
overseas.
H e told ABA m em b ers th ey are
most intim ately involved in one aspect
Pirm
Attention-getters among convention exhibits were (left photo)
Brother Dominic, known for his TV commercials for Xerox Corp.,
signing autographs for Robert K. Reese, ch./pres., Livestock Nat'l,
Kansas City, and Mrs. Reese at Xerox exhibit; and (right photo)
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Federal Reserve Bank of St. Louis
gasoline pump that operates sim ilar to ATM at Petro Vend ex
hibit, which interested Mr. and Mrs. Mel Schroeder, v.p., Mercan
tile Bank, Kansas City.
21
Three generations of
Hope fa m ily a t
tended ABA conven
tion. They are (from
I.) C. C. Hope Sr.,
C. C. Hope Jr. (ABA
p res.) and C. C.
Hope III.
of this task — th e financial aspect.
“On you and your colleagues in the
financial com m unity,” he said, “will
fall a m ajo r re sp o n sib ility for con
tinuing to devise m ore efficient ways of
u sin g a n d c h a n n e lin g c a p ita l r e
sources.”
The C om ptroller’s M essage. In his
appearance before th e ABA, C o m p
troller John G. H eim ann — in looking
at the 80 s — said financial services
cannot be provided successfully by re
lying on the old ways, nor can the old
ways of regulating financial institutions
be continued. In this context, he con
tinued, laws and regulations that d e
fine th e fram ework w ithin w hich banks
o p e ra te m u st be sy stem atically r e
exam ined and revised to make them
responsive to a dram atically different
set of circum stances, and, he added,
this process already has begun.
Mr. H eim ann called for m oderniz
ing th e regulatory stru ctu re, saying
th at num erous options have b een sug
gested, beginning as early as 1937.
Two basic options are to create a single
agency or separate agencies for fed er
ally and state-chartered depository in
stitutions.
H e also focused on effective, effi
c ie n t and e q u ita b le su p erv isio n of
sm aller banks, pointing out that larger
institutions can spread the fixed costs
of regulatory com pliance over a greater
volum e of assets or transactions than
can sm aller banks. M orever, he said,
th e rapidity of statutory and regulatory
change has exacerbated this problem .
“ To th e e x te n t p o s s ib le ,” M r.
H eim ann told his audience, “we m ust
revise statutes, regulations and su p er
v iso ry p ro c e d u re s to d iffe re n tia te
them according to th e capacities of
sm aller and larger banks. This requires
our urgent attention. . . . ”
H e spoke of his office’s senior task
force whose purpose is to review and
propose revision of exam ination and
enforcem ent efforts w ith respect to the
C om m unity R einvestm ent Act, civilrights laws and consum er-protection
laws.
“Beyond th is,” he continued, “we
m ig h t c o n s id e r re la x in g c e r ta in
prudential standards, such as p e rm it
ting sound and w ell-m anaged sm aller
banks to reduce m odestly th eir trad i
tionally high capital ratios and accept
(C ontinued on page 80)
Farm C re d it A ct A m en d m en ts Berated by A B A P anelists
P IR IT E D C R IT IC ISM of a m en d W alter W. M inger, senior vice presim ents to th e F arm C re d it Act d ent/agribusiness, Bank of America,
San Francisco, and a past chairm an of
w ere voiced during a special-interest
session at th e ABA co n v en tio n last th e ABA’s agricultural bankers divi
sion. Mr. M inger and H arlin D. Jackmonth.
W illis G. C andland, vice chairm an, son, c u rren t chairm an of the ag divi
ABA agricultural bankers division, and sion, and chairm an/president, Secur
p r e s id e n t, T r i- S ta te B ank, M o n t ity Bank, Paragould, A rk., spoke on
pelier, Idaho, said, “W ith th e excep th e issue during th e session.
Mr. M inger charged that the bill
tion of th e O m nibus Banking Bill of
1980, no o th er legislation will have as o pens th e door to co o p erativ e and
far-reaching im plications to banking in com m ercial financing, in tern atio n al
general, and — m ore specifically — to financing and to various kinds of finan
ag ricu ltu ral b anking, th an th e p ro cially related services. It will aid and
posed F arm C re d it A m endm ents of abet o th er businesses, basically credit,
an d w ill c h a n g e som e o f th e fu n
1980 (HR 7548).
H e said th e proposed legislation had dam ental m em bership regulations that
passed the Senate in th e basic form in p erm it farm -controlled co-ops to do an
which it was sub m itted by th e Farm increasing am ount of business in sub
C red it System and th at th e H ouse agri urban and rural areas of th e U. S.
U n d er the act’s export provisions,
c u ltu ra l c o m m itte e h ad p assed th e
he said, banks for co-ops will be p e r
m easure by a 41-0 vote.
The ABA’s position has b een attack m itted to do everything an in tern atio n
ed by o th er trad e associations and by al bank can do. T hey will be able to
th e F arm C re d it S ystem , h e said. finance trade credit, e n te r into transac
Since th e bill d id n ’t com e up before tions converting one kind of currency
Congress adjourned on O ctober 3, it’s into another, create bankers accept
likely th at it will com e up during the ances w ithout bank regulatory controls
lam e-duck session after th e elections. and create finance bills w ithout the
“This bill is an e n tre e into areas not b u rd en of eligibility req u irem en ts that
p erceiv ed by those w ho passed the banks are under, Mr. M inger said.
“T hese am endm ents w ould p erm it
Farm C red it Act in th e 1920s,” said
S
22
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Federal Reserve Bank of St. Louis
an ever-increasing volum e of exports, ”
he continued, b u t also w ould perm it
Banks for C ooperative (BCs) to finance
purchases m ade by p roprietary com
panies in the U. S. from co-op m em
bers. They w ould p erm it BCs to fi
nance purchases w hen U. S.-sourced
com m odities w ere to be exported. The
rationale for being able to do this is that
th e purchase by a U. S. grain m e r
chant would aid and abet th e farm erm em bers who belong to a U. S. co-op
who have p ut th e ir grains into the co
op for m e rc h a n d is in g .’’ This could
have a direct im pact on the kind of
business bankers are doing today with
p r o p r ie ta r y g ra in m e rc h a n ts , h e
added.
T he am e n d m e n ts also w ould au
thorize BCs to make deposits, take d e
posits, engage in th e buying and sell
ing of acceptances, notes and all kinds
of d eb entures, w hich, to some extent,
the system does now. “But, any way
you slice it, it becom es a full-blown
international b an k ,” he said.
These things all can be done w ithout
th e kind of m onetary constraints banks
have to work under, he said. “W e keep
reserves, we have insurance on d e
posits and banks are constrained from
(C ontinued on page 80)
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23
Financial Models Can Play Important Role
In Selecting Proper Investment Strategy
By Joe Meals
N R E C E N T YEARS, th e task of the
the one that provides the greatest re
in vestm ent portfolio m anager has
Assistant Vice President
turn.
increased in com plexity. Volatile in National Bank of Commerce
The approach taken by ALMS in
terest rates and bond prices have com
Memphis
analyzing various portfolio strategies is
p licate d p u rch ases o f secu rities for
described below. First, th e m odel d e
e a rn in g s, w h ile at th e sam e tim e,
term ines the need for collateral based
added em phasis on asset-liability m an
on the liability m anager’s estim ate of
ag em en t has in creased th e re q u ire th at pertains to investm ent m anage availability of fund sources that require
m e n t fo r h ig h e r p o rtfo lio y ie ld s .
m ent.
pledging. Collateral n eed ed is com
C hanging liability-m anagem ent con
The first step in constructing a m od p ared to th e am o u n t of p led geable
cepts have red u ced d ep en d en cy on the el is to establish and/or recognize the securities currently in the portfolio to
in v e s tm e n t p o rtfo lio for liq u id ity .
objective(s) for the portfolio and the d eterm ine w h eth er additional collater
Many tim es, how ever, this tre n d has constraints u n d er w hich it m ust o p er al m ust be obtained. If m ore collateral
increased th e n eed for collateral to ate. T hese constraints should include a is needed, the strategy suggested by
support the d esired liability strategy.
sta te m e n t(s) d efin in g c o llateral re ALMS will include the purchase of the
Such changes raise m any searching q u ire m e n ts, n e e d for secondary li highest-yielding securities that m eet
questions about portfolio m anagem ent quidity and am ount of tax-exem pt in th e stan d ard s set for collateral. In
in general and various m anagem ent com e acceptable. Also, a constraint on many instances, a “safety m argin may
te c h n iq u e s in p articu lar. O ne such m aturity distribution and/or security be desired.
technique is use of financial m odels as mix may be desired. O nce these condi
Next, the m odel will identify the re
an aid in d eterm in in g appropriate in tions are defined, security classifica q u irem en t for secondary liquidity as
vestm ent strategies.
tions to be included in th e portfolio set by m anagem ent policy. G enerally a
W hile portfolio m anagem ent is still strategy m ust be identified. At a m ini trade-off exists betw een yield and li
an art and not an exact science, finan m um , this classification should sepa quidity; therefore, the system will seek
cial m odels can play an im portant role rate taxable from tax-exem pt secu r to m aintain only the m inim um level of
in s e le c tin g p r o p e r in v e s tm e n t ities. In m any instances, it is desirable liquid securities. Again, input from the
strategy. C ertain basic factors should to break these classifications into fur liability m anager will be necessary to
be considered by the m anagem ent of th e r categories, id en tify in g various d eterm in e the am ount of liquid secur
any financial institution w hen evaluat issuing ag ents, d ifferen t m atu rities
ities required.
ing pro p o sed in v estm en t strategies.
and/or risk as shown in the box. The
The model also m ust assess the in
These are:
m odel th en is able to provide a m ore stitution’s overall tax position as this
• Does this strategy m eet re q u ire com plete analysis of th e various p o rt will affect the mix of taxable versus
m ents for collateral?
folio strategies available and identify tax-exem pt securities to be included in
• Does it provide th e desired sec
ondary source of liquidity?
• Does it ad h ere to th e in stitu tio n ’s
tax plan?
SECURITY CLASSIFICATION:
• Does it g enerate a positive spread
over cost of funds?
Also, these strategies m ust be evalu
ated in the context of th e in stitu tio n ’s
TAXABLE
TAX EXEMPT
total needs and req u irem en ts, not in
isolation. T herefore, inform ation from
0 - 1 YEAR
0 - 1 YEAR
the liability m anager, th e m anager of
LOW
RISK
LOW RISK
th e loan portfolio and th e financial
HIGH RISK
HIGH RISK
officer m ust be incorporated into the
1 - 5 YEARS
1 - 5 YEARS
d e c is io n -m a k in g p ro c e ss. E ach o f
these factors can be included in a finan
LOW RISK
LOW RISK
cial m odel, th ereb y ensuring that they
HIGH RISK
HIGH RISK
are applied consistently and objective
5 - 1 0 YEARS
5 - 1 0 YEARS
ly for e a c h p r o p o s e d in v e s tm e n t
LOW RISK
LOW RISK
strategy. National Bank of C om m erce
HIGH RISK
HIGH
RISK
has a m odel (which it m arkets u n d e r
1 0 - 2 0 YEARS
th e nam e ALM S®) that applies these
LOW RISK
co n cep ts to asset liab ility m an ag e
m ent. ALMS is a total asset-liabilityHIGH RISK
m anagem ent system , b u t this article
will concentrate only on th e portion
I
24
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MID-CONTINENT BANKER for November, 1980
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from Guatemala to Argentina; and we cover
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and representative offices in many other
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Federal Reserve Bank of St. Louis
25
the investm ent strategy. A nother use
of ALMS in this area is identifying th e
effect on the investm ent portfolio of
legislative changes p ertaining to tax
laws. F or exam ple, an institution may
wish to subdivide tax-exem pt secu r
ities into in-state m unicipal issues and
out-of-state issues. ALMS th e n can
test th e effect of legislative changes
pertaining to inclusion or exclusion of
in-state m unicipals in calculation of
local incom e taxes. D ifferences in tax
laws can th en be considered in th e d e
velopm ent of in vestm ent strategy. Use
of a m odel in this area is im portant
since failure to assess tax req u irem en ts
adequately may result in having to sell
or swap large am ounts of bonds in a
dep ressed m arket.
O nce th e above constraints have
been satisfied, the m odel can com plete
th e in vestm ent strategy based on the
potential for earnings. ALMS will seek
tho se in v estm en t o p p o rtunities that
provide a positive spread over the in
crem ental cost of funds. Also, the m od
el will indicate the spread (either posi
tive or negative) for each additional
security purchase. This statistic allows
th e portfolio m anager to evaluate the
im pact of future in terest-rate environ
m ents on the portfolio strategy being
developed. The sm aller the spread,
the m ore sensitive the strategy is to
changes in the interest-rate environ
m ent.
W hile investm ent m anagem ent still
is very m uch an art, rapidly changing
environm ents have increased the need
for using sophisticated tools in m anag
ing the portfolio. C om puter m odeling
provides a vehicle for quickly and ob
jectively evaluating various strategies
and th eir im pact on m anagem ent poli
cies and earnings. A m odel should n ev
e r make an investm ent decision, but
p roper use of a m odel can ensure that
correct investm ent decisions occur as a
result of studied ju d g m en t rath er than
pure luck. • •
Investment Policy Changes Result From Wild Rate Environment
• Tax-exem pt m aturities beyond 10
HAT HAVE B E E N term ed the
years have b een declared off limits.
m o st d ra m a tic in v e s tm e n t
policy changes in m odern historyThe
are average m aturity of the $ 16-billion
b e in g im p le m e n te d by com m ercial of m unicipal securities held by the re
banks in response to th e m ercurial rate porting banks was 8.2 years. The 1-5
environm ent of th e past th re e q u ar y e a r a n d 5-10 y e a r m a tu ritie s ac
counted for 58.5% of th e holdings in
te rs . T h is c o n c lu sio n co m es from
alm ost equal am ounts.
G erald S. R o b erts, vice p re s id e n t,
• A pproxim ately half the banks plan
John N uveen & C o., who released re
a m ore aggressive m unicipal posture
sults of th e firm ’s ninth sem i-annual
survey of regional com m ercial banks w ith new additions being m ade. The
o th e r h a lf w ill b e re d u c in g or not
recently.
“Banks have e n te re d a new era in changing the size of th eir m unicipal
po rtfo lio s, p artic u la rly those banks
sp read m a n a g e m e n t,” M r. R ob erts
said. “Banks have realized th e n eed for w hose p ro fit outlook is affected by
m ore flexible portfolio strategies that th e ir no-grow th locales.
• H o ld in g s of g e n e ral-o b lig atio n
com plem ent sp re a d .’
b o n d s e x p e rie n c e d a d ec lin e from
P o rtfo lio m a n a g e rs h a v e b e e n
directed to create a closer m aturity bal 57.7% of the m unicipal-bond account
ance betw een p u rchased liabilities and to 51.1%. The shift to revenue bonds
investm ent assets, he said. This results an d e sc ro w -secu red obligations, as
in the purchase of sh o rter m aturities of noted in N uveen’s year-end banks su r
fixed-rate assets and m ore active tra d vey, has continued.
• M anagers are em phasizing p u r
ing in m unicipal secu rities p rio r to
m aturity, based on anticipated rate cy chases of and switches to quality m uni
cipal bonds that are m ore m arketable
cles.
As of Ju n e 30, th e a v erag e tax- and less affected by in terest-rate fluc
exem pt re tu rn on th e m unicipal bond tuations.
• E scrow -secured bonds continue
a c c o u n ts o f r e p o r tin g b a n k s w as
5.65%, or th e equivalent of 10.46% at to be a p referred category. Eighty-six
the fully taxable 46% rate. O perating p ercen t of the respondents will add or
m aintain these item s to th eir histor
e a rn in g s g e n e r a te d b y m u n ic ip a l
assets increased a substantial 39 basis ically large positions.
• In te rest-rate futures still are in
points in 12 m onths. This reflected a
th e ir infancy b ut are being exam ined
large rise in tax-exem pt yields in the
m aturity ranges p referred by banks. At m o re closely by le v e ra g e -sen sitiv e
managers.
the same tim e, increasing yields m eant
Mr. Roberts noted that several fac
an 84 basis-point decline in m arket
value of m unicipal securities held by tors o th er than in terest rate swings
have im pacted bank m anagem ent poli
the survey group.
Bank portfolio m anagers particip at cies, including: phasing out of Regula
ing in th e survey are in th e process of tion Q, and paym ent of in terest on
N O W accounts beginning January 1.
changing po 'tfolio policies in th ese
U n q u e stio n a b ly , th e r e is a new
directions:
W
Digitized for 26
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Federal Reserve Bank of St. Louis
em phasis on funds m anagem ent and
especially on investm ent m anagem ent
of the bank’s portfolio to generate as
much earnings as possible from each
s e g m e n t o f a b a n k ’s a s s e ts ,” M r.
Roberts said.
Survey resp o n d en ts included 103
banks, located in all F ed districts. • •
Bankers Teach Economics
In Summer Youth Program
A special project for branch m an
agers at C en tral T ru st, C in cinnati,
during the sum m er was a youth em
ploym ent program for econom ically —
and som etim es physically — h an d i
c a p p e d y o u th in th e v ario u s local
school districts.
T h e p ro g ra m w as g o v e rn m e n tfunded through the C om prehensive
E m p lo y m en t T raining Act and was
organized and conducted u n d er the
a u sp ic e s of th e H a m ilto n C o u n ty
Board of Education. At the b oard’s in
vitation, about 20 C entral T rust m an
agers taught a basic financial course to
about 450 students, ages 14-21, who
participated in the program .
The m ajor goal of the eight-w eek
program was to prep are students for
the world of work, increasing th eir em
ployability potential in future unsubsi
d iz e d e m p lo y m e n t. T h e form at to
m eet this goal was a com bination of
classroom in stru ctio n , work ex p eri
ence and guidance and counseling.
C entral T rust m anagers appeared as
guest speakers at about 40 classroom
locations, instructing students on the
wise use of banking and credit ser
vices.
MID-CONTINENT BANKER for November, 1980
T h e Illin o is Team
of th e H a rris B a n k .
Meet some of Hubert’s friends, the Harris
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MID-CONTINENT BANKER for November, 1980
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27
M unicipal Revenue Bonds
Should Com m ercial Banks Be Allowed
To Underwrite and Deal in Them?
By Rosemary M cKelvey, Editor
H O U L D b a n k s b e a llo w e d to secured solely by revenues from such
u n d erw rite and deal in m unicipal m unicipal projects as highways, hous
revenue bonds (MRBs)? As one w oulding projects and th e like.
In 1968, legislation was passed p e r
surm ise, opinions follow “party lines. ”
That is, a m ajority of banks believe m itting banks to un d erw rite and deal
they should have this pow er, w hile in in investm ent-quality revenue bonds
issued to finance housing, universities
vestm en t firms are against it.
T he latest prop o sed legislation to and dorm itories.
GO bonds, according to the DBA,
allow banks to e n te r th e MRB field is
HR 1539, intro d u ced in January, 1979, are those based on th e full faith and
by R ep resen tativ e G ladys Spellm an c r e d it o f a g o v e rn m e n t. R e v e n u e
(D .,M d.). The bill w ould allow banks bonds are those payable out of speci
to und erw rite all m unicipal bonds ex fied sources of revenues, such as high
c e p t special-assessm ent obligations, way tolls and sew erage fees. The DBA
industrial-developm ent bonds secured points out that because of legislative
by lease paym ents and low er-quality language adopted in 1933, for descripMRBs deem ed not suitable for bank
purchase.
According to P e te r B. H arkins, ex
The D ealer Bank A ssociation
ecutive director, D ealer Bank Associa
(DBA), referred to in the accom
panying article, was founded in
tio n (D B A ), W a s h in g to n , D . C .,
1972. It is a nonprofit organization
th e re ’s little likelihood th at anything
whose purpose is to represent and
could happen on HR 1539 in th e lam epromote the common interest and
duck C ongress, w hich will convene
objectives of dealer banks and to
N ovem ber 12 and w hich will be focus
help develop its members’ skills and
ing on a lim ited n u m b er of bills. HR
activities as participants in the pub
1539, h e ad d s, p ro b a b ly w o n ’t be
lic-securities industry.
am ong them .
Currently, it is comprised of 165
H ow ever, Mr. H arkins says his asso
commercial banks in 37 states, Puer
to Rico and the District of Columbia.
ciation is gearing up right now for 1981
A dealer bank is defined as a com
and th e 97th C ongress, and R ep re
mercial bank that, through a “deal
sentative Spellm an again will be m uch
er’ division or department in the
involved, as she has b een since 1975.
bank,
underwrites, trades or deals in
M oreover, he continues, th e re are a
a variety of public securities, includ
nu m b er of o th er m em bers of Congress
ing federal, state and local govern
who have expressed a strong in terest in
ment securities, money-market in
the proposed legislation and will be
struments and foreign exchange.
equally as involved as R epresentative
However, according to a brochure
Spellm an. Thus, he foresees an ex
put out by the DBA, because the
dealer function relates to a broader
panded set of sponsors for the new bill,
range of bank activities, the DBA
w ith R epresentative Spellm an at the
recognizes the importance of these
heart of it.
interrelationships by involvement in
The Banking Act of 1933, usually
two other essential functions of its
called th e Glass-Steagall Act, au th o
members — investm ent manage
riz e d b an k s to u n d e r w r ite c e rta in
ment and funds (or liquidity) man
securities of th e federal governm ent,
agement.
as well as those backed by th e full faith
Peter B. Harkins is executive
and cred it of state or local (“m unici
director of the DBA, located in Suite
1014, 1800 K St., N.W ., Washing
pal”) governm ents. E xcluded from the
ton, DC 20006.
la tte r category of general-obligation
(GO) bonds w ere m unicipal securities
S
28
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Federal Reserve Bank of St. Louis
five rath er than restrictive purposes,
banks are allowed to underw rite GO
bonds, the prevalent form of state and
local borrow ing in 1933, b u t not rev
enue bonds, w hich virtually w ere u n
known at that tim e. The m odern trend,
co n tin u e s th e DBA, is to re v e n u e
bonds, which now exceed 60% of all
state and local bond issues. The asso
ciation believes the tre n d to revenuebond financing is likely to continue and
perhaps accelerate.
In 1979, th e S ecu rities and E x
change Com m ission (SEC) m ade and
released a study on “Bank Participa
tio n in M u n ic ip a l R e v e n u e B ond
U nderw riting: Im pact on SecuritiesIndustry R evenues.” This study found
that, u n d er the assum ption that banks
w ould attain the same underw riting
share of the overall MRB m arket as
they held in 1978 of MRBs currently
elig ib le for b a n k u n d e rw ritin g or,
alternatively, of GOs, the securities in
dustry could lose betw een $65 million
and $116 million in underw riting rev
enue. This w ould am ount to betw een
6.9% an d 12.4% o f to ta l in d u s try
u n d erw ritin g and selling group rev
enues. This estim ate, the study con
tinues, does not include any potential
loss of revenue from secondary-m arket
trad in g of m unicipal securities, nor
does it assum e that bank en try into
MRB underw riting will result in an in
c re a s e d b a n k -m a rk e t sh a re of GO
underw riting, since th e re ’s no factual
basis for estim ating eith er factor. The
SEC says a decrease in trading rev
enues or GO underw riting revenues
w ould increase th e im pact on brokerdealers.
According to the SEC study, the
estim ated rev en u e loss may not be
d eem ed a major fraction of all securities-in d u strv rev en u es, b u t it may
rep resen t a substantial loss to firms
specializing in m unicipal-bond u n d e r
w riting, prim arily the sm aller, region
al firms. O f the 977 firms that rep o rted
revenues from underw riting securities
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MID-CONTINENT BANKER for November, 1980
— c o rp o ra te or g o v e rn m e n t — in
1978, says the SEC, 132 firms earned
m ore than 50% of th e ir total revenues
from underw riting. O f these 132, only
one had m ore than $10 million in total
revenues, and only 41 had m ore than
$1 million. O f those broker-dealers re
p o rtin g u n d e rw ritin g re v e n u e , th e
study goes on to say, firms w ith less
than $1 million in total rev en u e d e
riv ed 18.4% of th e ir re v e n u e from
u n d e rw ritin g , w hile firm s w ith b e
tw een $1 million and $10 million in
total revenues and firms over $10 m il
lion in total revenues derived 14.9%
and 9.5%, respectively, of th e ir total
revenues from th at source.
“This progression in d icates,” says
the SEC study, “that, in general, the
sm aller b roker-dealers are consider
ably m ore d ep e n d e n t on u n derw riting
as a source of revenue than are the
larger firms.
“W hile it cannot be p red icted how
many, if any, firms w ould not rem ain in
th e se c u ritie s in d u s try d u e to ex
panded bank-M RB underw riting, the
potential exit of securities firms could
lessen any com petitive gains from bank
entry. M oreover, because of th e im
portance of th e sm aller firms in u n d e r
w riting sm aller issues, loss of these
firms could have an im pact on th e abil
ity of sm aller m unicipalities to m eet
th e ir financing n eed s. F inally, any
adverse im pact on sm aller, regional
broker-dealers may have serious im
plications for th e corp o rate capitalfo rm atio n p ro c e ss, p a rtic u la rly for
small businesses.
On the opposite side of th e fence,
the DBA — in “The R evenue-B ond
U nderw riting Kit published in June,
1979 — m aintains that state and local
governm ents w ant banks to participate
in u n d e rw ritin g rev e n u e bonds b e
cause of the low er borrow ing costs they
anticipate. The DBA goes on to say
that banks w ant to u n d erw rite revenue
bonds because (1) as active and in
volved financial institutions in th eir
state and com m unities, banks w ant to
participate fully in all reasonably safe
g o v ern m en t-fin an cin g activities; (2)
they are distressed to see th eir local
g o v e rn m e n ts p a y in g m u c h la rg e r
u n d e r w r itin g fees th a n w o u ld b e
necessary if th e re existed the greater
com petition they could bring; (3) they
dislike being restricted by legislative
language w ritten for a different tim e
and not yet m odernized, and (4) it is
safe and profitable financing.
The DBA also says state and local
g o v ern m e n ts th ro u g h th e ir various
associations have strongly su pported
this legislation in th e past. The U. S.
T reasury D epartm ent, the C om ptrol
ler of the C urrency, the F ed Board of
G overnors and the F D IC all strongly
supported this legislation in previous
years.
The ABA also is solidly behind pas
sage of this legislation. The association
points out that, w ith growth of cashm a n a g e m e n t-a c c o u n t serv ices and
m oney-m arket m utual funds, invest
m ent banking firms increasingly are
o fferin g financial serv ices d ire c tly
c o m p e titiv e w ith th e c o m m e rc ia l
b an k in g b u sin ess. This legislation,
according to the ABA, would provide
banks w ith an opportunity to begin to
redress this com petitive circum stance
MID-CONTINENT
BANKER for November, 1980
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Federal Reserve Bank of St. Louis
by allowing them to e n te r the field of
underw riting and dealing in m unicipal
revenue bonds, a business now exclu
sively in the province of investm ent
banking firms.
Richard F. Ford, president, First
National, St. Louis, and a m em ber of
th e ABA’s governing council, testified
on behalf of HR 1539 last June 26 b e
fore the Subcom m ittee on Financial
In stitu tio n s Supervision, Regulation
and Insurance of the H ouse C om m it
tee on Banking, Finance and U rban
A ffairs. H e w as a c c o m p a n ie d by
R aym ond A. M eany Jr., tre a su re r,
C o n n e c tic u t B ank, H a rtfo rd , and
Municipal Bonds
f lx c h tiiv v lt
Specializing in
ALL GENERAL MARKET BONDS
Your "Correspondent” for Municipal Bonds
Investment Bankers • Municipal Bonds
ONE TWENTY SEVEN WEST TENTH
KANSAS CITY, MISSOURI 64105
(
816) 221-4311
31
Proposed legislation would allow banks to underwrite
all municipal bonds except special-assessment
obligations, industrial-revenue bonds
secured to lease payments and lower-quality MRBs
deemed not suitable for bank purchase.
chairm an of th e ABA s bank invest
m ent division.
“G ranting this au th o rity ,’’ said Mr.
Ford, “w ould increase com petition to
th e benefit of state and local govern
m ents and the people they serve. L it
tle seem s to be said as in stitutions
o ther than banks begin to provide tra
ditional bank services in th e nam e of
com petitio n , b u t a g reat reluctance
seem s to exist on th e part of som e to
allow banks to provide th e advantages
of com petition to state and local gov
e r n m e n ts in th e r e v e n u e - b o n d
underw riting a re a .’’
Mr. F ord pointed out that th e in
vestm ent-banking com m unity now has
a virtual m onopoly on u n derw riting
and dealing in MRBs, and it’s u n d e r
standable that the securities industry
does not w ant to lose this monopoly.
T he St. Louis b anker referred to a
com m ent of Professor Sam uel Hayes in
th e January-F ebruary, 1979, H arvard
Business R eview th at “[m]ost of the
profitability apparently does not spring
from th e c o m p e titiv e -b id g e n e ra lobligation bonds of states and m unici
palities. . . . T he profitable business is
th e p re d o m in a n tly n e g o tia te d re v
enue-bond a re a .’ Mr. Ford added that
investm ent bankers do not need, nor
should they have, a p ro tected area of
the m arket.
Mr. Ford th en referred to another
study, this com pleted in 1978 by P ro
fessor Phillip Cagan of Colum bia U ni
versity on th e savings to states and
m unicipalities if banks w ere eligible to
underw rite rev en u e bonds. The study,
said Mr. Ford, concluded th at state
and local g o v e rn m e n ts w ould have
realized in 1977 a total savings w ith a
presen t value of $412 million if banks
had been eligible to u n d erw rite rev
enue bonds. T hese figures, he con
tin u ed , have b e e n d isp u te d by th e
securities industry, b u t th e fact re
mains that bank participation in this
m ark et w ould increase co m p etitio n
w ith th e expected resu lt being lower
costs to the issuers — state and local
governm ents th at will be th e prim ary
beneficiaries if banks are p e rm itte d to
underw rite rev en u e bonds. H e w ent
on to say th at expanding the d istrib u
tion netw ork of d ealer participants to
in c lu d e b a n k s w o u ld b ro a d e n th e
realm o f p o te n tia l p u rc h a s e rs and
would broaden th e secondary m arket
32
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Federal Reserve Bank of St. Louis
in these securities.
Mr. F ord cited several organizations
represen ting state and m unicipal offi
cials from aro u n d th e co u n try w ho
have announced th eir support of HR
1539.
“ T h e o v e rrid in g ‘th e m e ’ of th e
securities in d u stry ’s argum ents is the
frightening consequence of authoriz
ing b ank u n d e rw ritin g ,” M r. F o rd
said. “W e hear that this is b u t the first
step in our taking over the securities
industry. W e w ant to make it clear that
th e banking industry has expressed in
terest in and called for congressional
actio n for o b ta in in g only tw o new
securities services: underw riting rev
en u e bonds and collective investm ent
of agency accounts. Both of these ser
vices are essentially th e same as se r
vices h istorically offered by banks.
Banks u n d erw rite and deal in general
obligations of state and local govern
m ents and have b een authorized to
u n d erw rite and deal in select catego
ries of rev enue bonds over the years.
No bank, to our know ledge, has indi
cated any desire to seek m ore than
these two services, w hich are services
truly indistinguishable from ones cu r
rently being offered. ’’
A n o th e r a rg u m e n t a d v a n c e d by
opponents to the legislation, said Mr.
F ord, is that big banks will dom inate
underw riting revenue bonds if allowed
to offer this service. H e countered this
a rg u m e n t by saying th a t th e re has
b een h ealthy com petition in u n d e r
w riting GO bonds over the years. He
cited Professor Almarin Phillips of the
U niversity of Pennsylvania, who p re
pared an economic analysis of bank e n
try and com pared bank and nonbank
leading u n derw riters in 1967 and 1977.
According to Mr. Ford, Professor Phil
lips concluded that his data showed a
p a tte rn of decreasing concentration;
th e d ecrease occurring w ith the overall
c o m m e rc ial-b an k sh are falling and
overall share of in v estm en t bankers
constant or rising, even in those u n d e r
w riting activities w here the two are in
th e same m arkets. Professor Phillips
found, said Mr. Ford, that th ere is no
sign that com m ercial banks use their
alleged advantages over investm ent
bankers to the latter’s detrim ent.
Mr. Ford cited and then countered
o th er argum ents the securities indus
try was using to keep the legislation
from being passed, including the one
that banks should not be allowed to
underw rite revenue bonds because of
risks that would weaken the safety and
soundness of the banking system.
“ HR 1539 itself p rovides certain
safeguards,” said Mr. Ford. “It would
lim it a bank’s aggregate holdings of
revenue bonds of any one m aker or
obligor to no more than 10% of the
bank’s capital and surplus, and banks
could underw rite only those revenuebond issues approved by the C om p
troller of the C urrency for purchase by
national banks. M oreover, it m ust be
rem em b ered that the business of bank
ing is evaluation of credit and m arket
risks. Banks currently may and do in
vest for th eir own accounts in revenue
bonds, and, in underw riting m unicipal
securities, the bank typically would
hold the issue only for a very short
tim e. As to m arket risk, banks today
und erw rite general-obligation bonds
an d c e rta in c a te g o rie s of re v e n u e
bonds so they have had long experi
ence in handling this type of risk. ”
A rgum ents against passage of the
legislation w ere advanced by invest
m ent firms in answ er to a survey M id C o n t i n e n t B a n k e r conducted among
these firms and among banks. Surpris
ingly, a few of the latter don’t believe
banks should get into MRB un d erw rit
ing.
O ne of the most vocal opponents in
th e su rv e y w as F lo y d H. B e atty ,
corporate vice president and m anager/
fixed incom e d ep artm ent, A. G. E d
wards & Sons, Inc., St. Louis. Mr.
Beatty wrote:
“W e strongly oppose the term ina
tion of Glass-Steagall to allow com m er
cial banks to underw rite and distribute
m unicipal revenue bonds. Such issues
have m any of th e characteristics of
corporate securities as opposed to the
general obligations, which are based
on taxes, assessed valuations, etc.
“The proposal that we rev ert to the
days before Glass-Steagall could well
b rin g back the excesses w hich p ro
m oted passage of that act. Banks dealt
generally in com m ercial-type secur
ities w ith results that w ere detrim ental
to th e dep o sito rs, th e ir custom ers,
tru st accounts and shareholders. The
po ten tial conflict of in te re st arising
from a bank acting in both a fiduciary
a n d m e rc h an d is in g /u n d e r w ritin g
MID-CONTINENT BANKER for November, 1980
Tax Exempts Held
By Largest Banks
~ « From 1950 to 1977
MUNICIPAL REOFFERING YIELD
--
n L T iS - .- - «
s4
I
-
Tax-Exempt Hospital;
I JB 5
«
|
•
0-Day
I Rates
to 1%
to PA
to
F re e
Sink Reserves
If millions)
500 to t
1/0 to i
9ÜÛ
wm
-
¡976
¡976
....
¡975
S i i fio/ §
¡974
*15%% (Q2/,;!
7-«
1 2 /i*
Prime Comm. 19/3.
¡ ¡ j .......... 7
50 to 700
200
/int ♦
tn« *«"
fed. Reserve
Dis. Rates
%
^
lend. Rate
the
| | 1 Ib
• 1*
BONO
INDEX
M V I ' * BUYER'S
—-
Federal Income Tax Rates afa
Selected Factors Affecting
and Local Finances— 19
te
3! .....................
214,659
$1,373,51!
$6,399
Revenue from Ow
State
Governments Gov(.000,080)
$107,400./
$93
197/
1976,
1975..
19/4
1973.
/» )
#*»
High
Migft Yield
Yiey
5.57% ( 2/24}
5 A * y*J
6-57%
5 36% ny
7-
g.71%
5,45%
20
ton
Fet>.
Feb.
1%)
1971
5,89
5.90
5.92.
5.39
5.50
5.51
5.54
iuiy
5.93
5.86
5.54
5,49
Aug.
Aug-
(%)
6 5.78
tan. 13
Jan, 20
Jan. 27
3
IQ
D
July
July
July
( 5/27)
7356 (io/
2 12
5.94/0 ( 2
/ 7,,,'
(I i
1 8/ 2/
_
5 04% { 2,
4.87% ( g
--------
and Local Total Exp
lcoMpitEO WEtKO)
tan.
Population
Persona! Income
July 1
Amount
Per
,000 Omitted {,000,000)
Capita
.. . ,
» ____ Vîûiik
, Bond. Average
'fields
TUo t M t below c m
117,3271^,265,6
1ire ws*'".
5,,e,”°nd Buyers
lndex
ELEVEN
BONDS
fl£KN B
ONDS
| ’g j
627% 12/13)
1:7)
••
197]
4 1928,
27l 7S9.fi
*
BONOS
-."WsENT/
e —*
,
Approximate Range —— .— ~— _
Borrowings from
Fed. Reserve
I? millions)
has compiled, at the end of each
nf the 100 largest
5 .53V A ‘
low
’: l , 5,45%
t a iYield
«l i /171
« .
7 no- , 7 , J
j
IS78
¡Js’SM'OCO
39,000
178,580,810
S in c e 1 9 5 0 , “ T h e D a i l y B o n d B u y e r ’
Yearlv * Z
Money Market , Indicators Sine S/7
___
>fC4i)f of m0i
^
Selected Rsca
(Millions
20
D
5.63
5.64
5.62
5.62
5.36
5.37
5.35
5.36
flS l,966
156,171
132,134
5.63
5.63
5.63
5.36
5.36
5.36
98,840
Bonds Bonds
{%)
W
Tetti (t)
118,836
109,243
1
85,055
74.227
Oireet
f ¡24,108
104,193
86,19 3
78,014
72,483
66,200
56,163
leal
Direct
f 179,980
161,04/
139,498
127,181
116,342
104,566
91.880
Tetti SU
A L e c e ! (,
$304,67
261,6 11
237,911
217,579
189,724
166,090
Now available,
Th e1980Edition of The Bond Buyer’s
Municipal Finance Statistics
The Bond B uyer’s 1980 edition of its
M unicipal Finance Statistics is the industry’s
authoritative reference book covering all
aspects of tax-exem pt financing,
A com plete review of the past year including
hospital and m edical care facility financing,
pollution control financing, reoffering yield
averages, State and Local housing financing,
The Bond Buyer index and m uch more.
C om prehensive historical
____
data, too, such as ex
penditures com pared
to state and local
revenue and debt from
1902 thro u g h the past
year are show n, allow
ing m eaningful trend
analysis. H oldings of
tax-exem pt securities by
the 100 largest banks
for each year since 1950
are show n. Bond elec
tions by m onth are
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
reviewed for the last 10 years while overall
bond election returns and purposes of bonds
are reviewed since 1926.
Cost is just $ 2 0 .0 0 for individual volum es.
Q uantity prices available upon request as are
im print prices. Call (collect] 212-943-9427.
The Bond Buyer
Dept. DM
One State Street Plaza, New York, New York 10004
Gentlemen:
Please send me____________ copies of the 1980 edition of
The Bond Buyer's Municipal Statistics book at $20.
□ Payment enclosed □ Bill me
□ Please contact me with prices on quantity orders.
(print or type)
-Z lp _
Phone NumberL
AT LAST.
A DEFERRED INCOME PLAN
DESIGNED SPECIFICALLY
FOR BANK DIRECTORS.
Most Bank Directors would willingly defer their
directorship fees for greater future income. It’s
simply a matter of sound financial sense. The
problem is, until we came along, nobody came up
with a sensible alternative.
Our plans are tailor-made to provide sub
stantially more future income for Bank Directors
through the deferment of current fees.
If your bank is interested, we will be glad
to prepare a program for your Board Members to
evaluate —without cost or obligation. You may
write or call:
GROUP
1002 W alnut, Kansas City, M issouri 64106 (816/842-8842)
M id w est R epresentatives
W alter M . B irm ingham
Bruce A. B lum e
I. L. " S w ed e" M alm
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Emery L. M onroe
D on ald J. O hi
Affiliated With BRICK AND COMPANY
W alter R. Ross
N orbert J. Schindler
V an O. S w an son
capacity was violated in those days,
and th ere is no reason to expect that
th e sam e w o u ld n o t o c c u r ag ain .
Should the banks’ bond dep artm en ts
discover them selves underw riting an
issue with which they are not familiar
and, faced with the necessity of dispos
ing of that block, the tem ptation to
distribu te those securities in control
led accounts w ould be tem p ered only
by th e u n d e rsta n d in g th at it is not
right. Econom ic necessity could well
influence that view.
“The investm ent-banking fraternity
has functioned adm irably to provide
funds for our in dustry and for m unici
palities’ rev en u e needs. C om m ercial
banks’ insistent search for new re v
enue sources in w hich to invest th eir
m a ssiv e c a p ita l w o u ld s e rio u s ly
w eaken th at inv estm en t-b an k in g in
dustry. It may lead to th e potential
dem ise of a large group of m unicipal
bond houses that could well be forced
o ut of b u sin ess b ecau se of th e d e
creased re v e n u e available to them .
Many sm aller regional m unicipal bond
houses specialize in serving in v est
m ent needs of sm aller com m unities. If
that occurred and if the large com m er
cial banks that logically w ould be ex
pected to o perate in th e reven u e-b o n d
business decided th at it was uneco
nomic to handle th e small bond issues,
those sm aller com m unities and thentaxpayers could suffer. Those sm aller
com m unities w ould be forced to deal
to an increasing d eg ree w ith the fed er
al governm ent w ith its resu ltan t o n e r
ous controls.
“C om m ercial banks’ argum ent that
increased co m petition will resu lt in
lower in terest costs to m unicipalities
was d isp ro v ed in a w ell-research ed
U n iv e rsity of C hicago re p o rt. T h e
minim al potential im provem ent in in
terest cost to m unicipalities is m uch
m ore than offset by th e potentially se
rious violations of th e conflict of in
terest, req u irem en ts of th e banks, u n
fair im position of the im m ense capital
th a t w o u ld d ra w th e in v e s tm e n t
banking in dustry and the probable d e
mise of a large n u m b er of m unicipal
bond houses.
“W e strongly oppose banks en terin g
into the reven u e-b o n d b u sin ess.’
John E. McTavish, vice p resid en t/
general counsel, John N uveen & Co.,
Inc., Chicago, sent a brochure p u b
lished by th e Securities In d u stry Asso
ciatio n (SIA), w h ich has offices in
W ashington and N ew York City. The
brochure, “Is Bank U n derw riting of
R evenue Bonds a Trojan H o rse?,’ dis
p u ted several claims m ade by banks in
su p p o rt of th e ir efforts to g et into
MRBs. F or instance, th e b rochure says
banks claim th at th e ir participation in
th e r e v e n u e -b o n d b u sin e ss w ould
broaden the m arket as a result of banks
selling to th eir “preferred custom ers, ”
who are inaccessible and unknow n to
n o n b a n k d e a le rs . T h e b r o c h u r e
answ ers by pointing to data collected
by the Senate Judiciary C om m ittee in
1972 that indicated that prim ary cus
tom ers of bank underw riters w ere the
banks them selves. In addition, it said,
substantial am ounts w ere sold to bank
tr u s t a c c o u n ts an d c o rre s p o n d e n t
banks. The brochure added that twothirds of tax-exem pt bonds are bought
by the institutional m arket, w ith which
dealers are in daily contact.
T h e o w n e r o f N o rfle e t & C o .,
S hreveport, La., believes passage of
H R 1539 or sim ilar legislation would
be the first step tow ard allowing banks
to u n d erw rite corporate issues, “and
those w ith long m em ories will recall
th e horrible results of this policy prior
to 1933.”
An officer of Stifel, Nicolaus & Co.,
W ichita, m aintains banks have plenty
of dom ain as it is.
A Nashville investm ent firm re p re
sentative says that aside from the possi
bility of repeating the excesses of the
’20s, such legislation w ould place a
f u r th e r c o n c e n tra tio n of p o w e r in
banks.
Two officers of Parham & Co., Inc.,
L ittle Rock — R. G. Parham Jr., p resi
d ent, and Richard E. Cross, vice presi
d e n t — point to banks’ unfair advan
tage of having unusually large capital
bases and of being able to purchase
bonds for them selves or place them
with th eir dow nstream banks.
W . W . S a tte r f ie ld , p r e s id e n t,
Powell & Satterfield, In c ., L ittle Rock,
b e lie v e s it w ould be a fu rth e r e n
croachm ent by banks into nonbanking
businesses. H e points out that banks
can deal in bonds, b ut securities deal
ers can’t engage in banking, and the
legislation would be detrim ental to lo
cal an d re g io n a l d e a le rs, w ho are
n e c e ssa ry for p ro v id in g an o rd erly
m a rk e t for sm a ll, lim ite d - m a r
ketability issues.
Jam es D. R u tte r, w ho is in th e
securities business in Tulsa, says one
reason banks desire entry into the rev
enue-bond business is that after having
overthrow n one provision of the GlassSteagall Act, it will be easier to get into
th e corporate-bond business later. H e
adds that, having been in the bond
b u s in e s s b e fo re p assag e of G lassSteagall, he sees the latter as a surely
n eed ed piece of legislation.
E ven some bankers surveyed voiced
objections to the proposed legislation.
E. G. P o tter Sr., vice chairm an, C om
m ercial National, Anniston, Ala., says
being able to underw rite such bonds
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
was one of the reasons banks w ere in
th e condition they w ere in during the
early ’30s. O th er bankers cited the
risks involved and lack of personnel
trained in that area.
A Texas banker believes th ere is a
place for brokerage firms that are in d e
p en d en t of banks; this is an area in
which they are allowed to participate
free of the influence of large banks and
that com petition would be stifled by
allowing large banks to e n te r the rev
enue-credit field.
For the Legislation. Bankers in the
survey who support the legislation give
a variety of reasons, including that of
n e e d in g n ew r e v e n u e so u rc e s to
g e n e ra te p rofits. Jam es G. B oyer,
p r e s id e n t, G u lf N a tio n a l, L ake
Charles, La., points out that brokers
a re in th e b a n k in g b u s in e s s , and
th e re ’s no reason for the rule pro h ib it
ing banks from dealing in securities.
H e believes G lass-Steagall has o u t
lived its usefulness.
A Mississippi banker believes banks
should be able to ascertain the creditw orthiness and repaym ent ability of
the underlying credit as well as m o rt
gage bankers and bond dealers. H e
adds that this should add to the com
petitive situation and could help gov
ern m en t agencies obtain b e tte r rates.
A Texas banker says banks that are
underw riting GOs and governm ents
successfully also should be successful
in underw riting revenue bonds. Banks
ten d to be some of the largest p u r
chasers of these bonds, says a H ouston
banker, and they are becom ing a larger
part of the tax-exem pt m arket. In addi
tion, he says, banks have becom e so
phisticated underw riters.
P ete M. D rexler, vice p resid en t/
cashier, American Bank, H oum a, L a.,
says b a n k s p a r tic ip a tin g s h o u ld
broaden the m arket, making it m ore
orderly than it is now. H e adds that
m any revenue bonds are excellent in
vestm ents for banks.
A W ichita banker gives four reasons
for his “yes” vote: 1. Banks are close to
the credit and, therefore, should be
fa m ilia r w ith local p ro b le m s an d
needs. 2. It would provide m ore com
petition in bidding and pricing bonds.
3. M any d e a le rs , such as M e rrill
Lynch, are com peting directly w ith
banks for deposits and providing other
traditional banking services. If they are
allowed to provide these, banks should
be allowed to com pete on services they
provide. 4. If banks are allowed to
trade in MRBs, it would make another
in v e stm e n t a lte rn a tiv e available to
small, less sophisticated investors. • •
35
Banks Fin an cin g T en d e r O ffe rs
M ust W a tch Legal, F in a n cia l R ules
Bank 'Takes off Gloves/
Fights Money-Mkt. Funds
With Ads, Commercials
ANKS m aking loans th at finance
te n d e r offers m ust pay scru p u
lous atten tio n to legal and financial
strategies. Chicago attorneys Leo H erzel and Richard R osenberg claim such
transactions pose legal problem s that
can endanger rep ay m en t of such loans
and cause a bank to becom e a defen d
ant in troublesom e litigation. M essrs.
H erzel and R osenberg are p artn ers in
M ayer, Brown & Platt, Chicago.
Banks are m ost vulnerable w hen the
target com pany is an old custom er and
th e w ould-be borrow er isn’t. Such a
situation could look sufficiently like a
violation of confidential inform ation to
bring about lawsuits, th e attorneys say.
A lth o u g h a b a n k ’s legal co u n sel
should be able to disprove claims of
breach of confidentiality, it’s b e tte r to
base loan consid eratio n on publicly
available inform ation about a targ et
firm rath er than on research already on
file, M essrs. H erzel and R osenberg
claim. At th e sam e tim e, th e bank
s h o u ld b u ild a ty p e o f in te r n a l
“C hinese wall to separate officers in
volved in tender-offer financing from
officers w ith know ledge of the target
firm.
W hile M essrs. H erzel and R osen
berg em phasize th e protection of all
confidential relationships, they set out
th ree o th er potential problem s:
• The bank m ust take great care in
cases w here it relies on the use the
borrow er expects to make of the target
firm ’s assets and earnings to repay a
loan. F o r exam ple, any use of th e
target firm ’s assets to pay all or part of a
loan may be subject to attack by the
public m inority in a stockholder suit as
a breach of fiduciary obligation. C lear
ly, banks m u st p ro te c t th em selv es
against such a suit, the attorneys state.
• Legal suits can arise out of aiding
and abetting situations; that is, a bank’s
involvem ent in a loan w here th ere are
violations of securities laws.
• T he bank m u st carefully avoid
violating Regulation U which provides
that “a bank loan to finance a ten d er
offer for ‘m argin sto c k ,’ if secu red
directly or indirectly by any stock, may
not exceed the maximum loan value of
th e collateral as d eterm in ed in good
faith by the bank. C onsequently, a
violation of Regulation U could affect
th e enforceability of the loan. M essrs.
H erzel and R osenberg point out that if
th e loan is not secured by stock, suspi
cion of involvem ent with an invest
m ent banker would be a violation of
Regulation T — a fu rth er com plica
tion.
D e sp ite th e se four serious expo
sures, th e attorneys assert that banks
can p ro tect them selves against sub
stantial legal expense and unfavorable
publicity. • •
Phone Network Can Save
Banks $22 Million Annually
form ation to vendors and suppliers of
telecom m unications products and ser
vices inviting inform ation on th eir abil
ity to provide a cost-efficient bank-tobank telephone service. Responses are
due this m onth and will be review ed
by th e ABA telecom m unications sub
com m ittee.
The question of the legality of such a
netw ork has yet to be addressed. C om
m unications system s are regulated by
th e F ed eral C om m unications C om
mission and the netw ork can’t be im
p lem en ted until it’s d eterm in ed that
th e proposed system is w ithin FCC
policy.
Copies of the study are available to
ABA m em ber banks for $25. O rders
should be sent to the ABA O rd er Proc
essing D ep artm en t, 1120 C onnecticut
Ave., N. W ., W ashington, D C 20036.
R equests should indicate publication
n u m b er 06400.
F o r m an y m o n th s , c o m m e rc ia l
banks have seen potential deposits go
to m oney-m arket funds in such firms as
M errill Lynch, b u t these banks have
been reluctant to come out and fight
th e investm ent firms for such business.
M ore recently, how ever, th ere have
been signs that banks are “taking off
th eir velvet gloves’’ and are actively
seeking the m oney th a t’s going into
m oney-m arket funds.
A case in point is C ity Savings Bank,
M eriden, C onn., w hich has started an
ad program designed to counter the
appeal of th ese funds. Its th em e is
“ T h e G ood G uys vs. th e M o neyM arket F u n d s.’’
O ne recent such ad — described by
P resident R obert K. M ontgom ery as “a
public-service m essage” — began by
asking the po in ted question, “W hat
have m oney-m arket funds ever done
for M eriden?’’ The ad w ent on, “How
m uch do they loan out locally in m o rt
g ag es? H ow m u c h in in s ta llm e n t
lo an s? H ow m an y jo b s h a v e th e
m o n e y -m a rk e t fu n d s c r e a te d in
M eriden? How m uch have they in
vested in local buildings? W hat local
charities and com m unity organizations
do they support? T he answ er in every
cases is: nothing.
“W hat’s m ore, m oney-m arket funds
are not insured, not regulated, and
th eir in terest rates are not guaranteed
— they can change o v ern ig h t.”
The ad then com pared the record of
m o n e y -m a rk e t fu n d s w ith th a t of
m oney deposited w ith City Savings. It
pointed out that m oney deposited in
the bank is safe because the bank is
regulated by state and federal agencies
and insured by the F D IC , and its rates
are guaranteed. In addition, dollars
deposited w ith City Savings, said the
ad, will be reinvested to help M eriden
and its residents. T hen, the ad gave
several exam ples of such reinvestm ent
in the areas of m ortgages and install
m ent loans and told how this m oney
has helped create jobs. The ad also told
how the bank has invested in buildings
and eq u ip m en t and has contributed to
local charities.
Besides new sp ap er ads, th e bank
uses this th em e in d irect mailings,
radio com m ercials and a large lobby
sign.
Have the ads paid off? According to
Mr. M ontgom ery, they have, attrib u t
ing one $40,000 and one $20,000 CD
d ire c tly to th em . H e has receiv ed
many favorable com m ents on them .
B
An ABA/AT&T study estim ates that
a $22 million savings is possible in te le
phone bills if 60% of the nation’s banks
p articip ate in a telep h o n e netw ork.
Banks w ith assets of $1 billion or m ore
can expect to save about $100,000 a
year in long-distance phone tolls. S ub
stantial savings can be achieved by
sm a lle r b a n k s, d e p e n d in g on th e
physical location of bank offices in rela
tion to netw ork trunking lines, accord
ing to the study.
The study, begun in 1978, is avail
able to th e public, and followed a p re
lim inary investigation into th e feasibil
ity of a nationw ide telep h o n e system
for* bank-to-bank calling m ade by the
ABA.
The ABA has m ailed requests for in
36FRASER
Digitized for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 1980
National Detroit Corporation
Statement of Conditimi
C O N S O L ID A T E D B A L A N C E S H E E T - S e p t e m b e r 30,1980
(dollars in thousands)
BOARD OF DIRECTORS
Robert M. Surdam
Chairman of the Board
ASSETS
Cash and Due From Banks (including Foreign Time
Deposits of $1,296,914)........................................................ $ 2,449,468
Investment Securities—At Amortized Cost
(Market value $1,641,449)....................................................
1,781,579
Trading Account S ecu rities—At Lower of Cost or
Market (Market value $1,554)..............................................
1,554
Money Market Investm ents......................................................
1,296,041
Loans:
Com m ercial...............................................................................
2,602,344
Real Estate—Construction....................................................
67,599
Real Estate —Mortgage..........................................................
1,145,458
Consum er.............................
645,286
Foreign.......................................................................................
621,772
5,082,459
Allowance For Loan L o sse s..................................................
(63,456)
Unearned Incom e......................................... ..........................
(81,693)
4,937,310
Lease Financing...........................................................................
24,538
Bank Premises and Equipment (at cost less
accumulated depreciation of $78,405)..............................
105,098
Customers' Liability on A ccep tan ces.....................................
368,984
Other A sse ts.................................................................................
168,859
Total A sse ts................................................................. $11,133,431
LIABILITIES A N D S H A R E H O L D E R S EQUITY
Deposits:
D em and...................................................................................... $ 2,150,166
326,716
Certified and Other Official C h e c k s ..........................
Savings. .................................................................................. .
1,439,986
T im e.............................................................................................
628,088
Certificates of Deposit............................................................
810,709
985,394
Money Market Certificates...................................................
Foreign O ffice..........................................................................
1,441,817
Total D eposits...........................................................
7,782,876
Short-Term Borrowings..............................................................
2,028,483
Liability on A cce p ta n ces...........................................................
368,984
Accrued Exp enses and Sundry Liabilities............................
197,387
Long-Term D ebt............................................................................
111,699
Total Liabilities.......................................................... 10,489,429
Shareholders' Equity:
Preferred Sto ck —No Par V alue...........................................
—
N o . o f S h a re s
Authorized
1,000,000
Issued
—
Common Stock —Par Value $6 .2 5 .......................................
76,640
N o . o f S h a re s
Authorized
20,000,000
Issued
12,262,475
i cso i c c
Capital S u rp lu s........................... .................................
1oo, I DO
384,206
Retained Earn in g s..........................................................
644,002
Total Shareholders’ Eq uity...............................
----------J----$11,1 33,431
Total Liabilities and Shareholders’ Equity
Charles T. Fisher III
President
Joseph G. Conway
Vice Chairman of the Board
Richard H. Cummings
Vice Chairman of the Board
A. H. Aymond
Director and Former Chairman
Consumers Power Company
David K. Easlick
President
The Michigan Bell Telephone Company
Bernard M. Fauber
Chairman of the Board
Kmart Corporation
Richard C. Gerstenberg
Director and Former Chairman
General Motors Corporation
Martha W. Griffiths
Griffiths &Griffiths
Robert W. Hartwell
President
Cliffs Electric Service Company
Joseph L. Hudson, Jr.
Chairman
The J. L. Hudson Company
Walton A. Lewis
Chairman of the Board
Lewis &Thompson Agency, Inc.
Richard Manoogian
President
Masco Corporation
Don T. McKone
President
Libbey-Owens-Ford Company
Jam es H. McNeal, Jr.
President
The Budd Company
Irving Rose
Partner, Edward Rose &Sons
Arthur R. Seder, Jr.
Chairman and President
American Natural Resources Company
Robert B. Semple
Chairman
BASF Wyandotte Corporation
Peter W. Stroh
President
The Stroh Brewery Company
Assets carried at approximately $966,000,000 (including U.S. Treasury Securities carried at $23,000,000) were pledged at
September 30, 1980, to secure public deposits (including deposits of $62,572,000 of the Treasurer, State of Michigan) and
for other purposes required by law.
Outstanding standby letters of credit at September 30,1980, approximated $46,000,000.
For m ore inform ation about National D etroit C orporation, write Financial Com m u
nications for a copy of our latest financial report. Or call (313) 225-1066.
National Detroit Corporation is listed on the New York Stock Exchange (Ticker Symbol NBD).
NATIONAL DETROIT CORPORATION
National Bank of Detroit
Me mber FDIC
611 Woodward Avenue, Detroit, M ichigan 48226
National Bank of D etroit and its in tern atio n al banking and financing subsidiary, In tern atio n al Bank of D etroit; NBD C om m erce Bank, Lansing;
NBD Port Huron Bank; NBD Troy Bank; NBD D earborn Bank; G ran d Valley National Bank, G randville; First State Bank of Saginaw; NBD Portage Bank;
Peoples Bank & Trust of Alpena; Farm ers & M erchants National Bank in Benton H arbor; W est M ichigan Financial C orporation and its banking subsidiaries.
T h e Cadillac State Bank and First Natioftal Bank qf Evart; Instaloan Financial Services, Inc.; NBD M ortgage Com pany;
NBD Insurance C om pany; NBD Financial Services of Florida, Inc.
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
37
Bond Markets See New Interest-Rate Behavior
Due to Shattered Traditional Analytical Mold
N E W in terest-rate behavior has
em erg ed in the m arkets that
will re q u ire fix ed -in co m e p o rtfolio
m anagers to struggle to gain new foot
ings, according to H en ry Kaufman,
general p a rtn e r and m em b er of th e ex
e c u tiv e c o m m itte e o f S alo m o n
B rothers, New York City.
‘T he trad itio n al analytical fram e
work for the cred it m arkets and in
terest rates is being sh attered by th e
financial and econom ic excesses in the
real w o rld ,” he said.
“In less than two decades, trad itio n
al conventions have vanished. O u t
standing d eb t exploded; innum erable
credit in stru m en ts w ere introduced;
distinctions am ong financial in stitu
tions blurred; individual investors b e
cam e m ore so p h isticated ; and only
short-tim e horizons w ere allotted for
m easuring th e perform ance of in stitu
tional portfolios.”
In th e past 15 years, Mr. Kaufman
said, th e U. S. e x p e rie n c e d c re d it
crunches and financial crises w hen in
te re s t rates H ared, in stitu tio n s and
debtors failed and u ncertainty becam e
th e dom inant factor dictating business
and financial decisions.
As a co n seq u en ce, nin e new d e
velopm ents in in terest-rate behavior
have been perceived by Mr. Kaufman:
• Highs and lows o f interest rates
don’t remain constant. E ven though
th ere have b een only two b rie f periods
of double-digit in te re st rates in the
postw ar p e rio d , yields of 101/ 2% to
H l/ 2% on high-grade long-term tax
able bonds now are considered low, an
unthinkable p erception a decade ago.
Cyclical climbs in in terest rates have
lasted longer than th e ir declines, in a
sw eeping secular upsw ing spanning
about 35 years. This was a direct result
of each cyclical high and low in infla
tion m oving successively upw ard. In
fact, Mr. Kaufman pointed out, on ex
am in a tio n o f th e fu n d a m e n ta ls , it
would not be rash to conclude that
double-digit in terest rates will prevail
for the foreseeable future. In addition,
on the basis of certain statistical b e n c h
m arks, th e c u r r e n t cyclical low in
yields for high-grade utility bonds of
10 V2% to 11% is already beh in d us.
A m o n g th e u n d e r ly in g f u n d a
A
38
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Federal Reserve Bank of St. Louis
m entals that point to a continuation of
double-digit in terest rates, he stated,
a re d o u b le - d ig it in fla tio n for th e
seco n d c o n secu tiv e bu sin ess cycle;
conduct of only a lim ited war against
inflation, with virtually all the b urden
placed on the F ed in the absence of
fiscal constraints; governm ent projec
tions for 1981 of a 10% increase for the
G N P deflator; continuing annual wage
gains of 9% to 11%; expectations of
higher dom estic oil prices; less than
cyclical im provem ent in productivity;
and an aggravation of inflation from
possible tax cuts and increased m ilitary
outlays that are not offset by expendi
tu re cuts.
• S iza b le in te r e s t-r a te v o la tility
needs to be incorporated into portfolio
and fin a n cing decisions. In terest-rate
volatility has increased substantially,
Mr. Kaufman pointed out. H e attrib
u ted th e w ide fluctuations to increas
ing sensitivity to inflation; enhanced
ability of borrow ers and investors to
respond to rising prices; and the F e d ’s
new m o n etary ap p roach w hich has
abandoned a m oney-m arket condition
target and adopted a banking reserves
provision objective.
Analyzing credit-m arket price fluc
tu a tio n s since 1974, M r. K aufm an
pointed out that the w eekly average
price swings in long Treasury bonds in
the past year w ere 3p2 tim es greater
than in 1974 and, for T reasury bills,
twice as great as in the preceding four
years.
• Bonds are now bought fo r price
appreciation potential and not fo r in
come p ro tectio n . The attractiveness of
incom e p rotection offered by bonds
has been w hittled away by the corro
sive effects of inflation, Mr. Kaufman
stated. The recent poor perform ance of
bonds, m easured by total rate of re
turn, has not gone unnoticed by p o rt
folio m anagers nor has the negative gap
betw een the costs and m arket values of
institutional long-bond holdings. The
consequence of high and volatile in
terest rates has been the rush to risk
aversion and to m inim ize price risks in
bonds. A nother consequence may be
re g u lato ry and accounting re q u ire
m ents that fixed-income investm ents
b e show n at c u rre n t m a rk e t value
r a th e r th a n p u rc h a s e p ric e . B oth
stren g th en tren d s to buy bonds for
p ric e a p p re c ia tio n p o te n tia l w h en
occasional upswings in bond prices are
anticipated.
H e ig h te n e d b o n d -p rice volatility
has im proved the relative m erits of
com m on stocks over bonds, he added.
D uring the past year, the m ean weekly
price change of long bonds was 2%
c o m p a re d w ith 1.9% for com m on
stocks as m easu red by S tandard &
Poor’s 500. By contrast, Mr. Kaufman
noted, from early 1977 to Septem ber,
1979, stock volatility was 1.5% and
bond volatility was 0.5%.
• Positive yield curve essential to
long bond m arket v ia b ility. In the past,
M r. Kaufman noted, bond m arkets
functioned well w hen the yield curve
shifted gradually away from its most
positive slope. W hen the yield curve
fla tte n e d , th e change was c o n c e n
trated in short-term rates; the change
in long-bond yields was substantially
less. Now, quickly rising short rates
are perceived as a th reat to the stability
of long-term rates. A contracting posi
tive yield-curve differential now can do
nothing b ut destabilize bond prices,
cau se a sh a rp falloff in lo n g -b o n d
financing as investors back away and
c re a te c ro w d ed b o rro w in g s in th e
short-term m arket.
• The U. S. governm ent m arket is
the pricing pacesetter o f the bond m ar
ket . Because of th e federal govern
m en t’s continuously large cash needs,
th e publicly held Treasury d eb t has
risen from $237 billion in 1960 to $707
billion in Septem ber, 1980. This has
given an increasing pricing leadership
to the Treasury securities m arket, Mr.
MID-CONTINENT BANKER for November, 1980
Let
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Harold McClendon
Animal Fair, Inc.
P O Box 1326
Minneapolis, MN 55440
(612) 831-7200
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Our national sales rep resentatives are
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Kaufman said, so that th e hom ogeneity
of this m arket contrasts sharply w ith
th e h e te ro g e n e ity of th e c o rp o ra te
bond m arket. “In o th e r w o rd s,” he
said, “governm ents are im proving as a
trading vehicle, while corporates are
becom ing less liquid.
• M ortgage securities are alterna
tives to bonds, especially corporate
bonds. W ith the advent of packaging
m ortgages in securities form, th e m o rt
gage m ark et has b e e n tran sfo rm ed
from a regional m arket into a national
m a rk e t, M r. K aufm an sta te d . T h e
m ortgage m arket has becom e a m ore
uniform cred it in stru m en t than it was a
few decades ago, while th e corporate
b o n d m a rk e t has lo st so m e o f its
h o m o g e n e ity . M ortgage se c u ritie s,
com pared w ith bonds, have larger and
quicker cash-flow schedules and offer
viable in terest rates to lenders. Both
are great benefits in an inflationaryb iased econom y. B ut, p e rh a p s th e
greatest challenge to th e traditional
bond in stru m en t is the b irth this year
of the m ortgate-appreciation sharing
obligation. This gives th e le n d e r th e
opportunity to share in the apprecia
tion of th e hom e over th e life of th e
m ortgage and provides th e borrow er
w ith an in te re s t cost w ell b elow a
straight m ortgage. L enders and b o r
row ers have every incentive to resort
to this c re d it in stru m e n t. T reasu ry
se c u ritie s w ill w ith sta n d th is ch al
lenge, b u t corporate bonds can only
suffer.
• Bond portfolios w ill em phasize in
te re st-r a te -a n tic ip a tio n sw a p s a n d
m inim ize m ost oth er types o f swaps.
The inflationary bias in m ost portfolio
stra te g ie s su ggests a p re fe re n c e to
shorten m aturities by passive and ac
tive portfolio decisions, Mr. Kaufman
noted. H ow ever, this strategy will be
reversed from tim e to tim e w hen th e
expectation loom s g reat for a price
appreciation in bonds. T hen, shorterterm securities will be sw apped for
lo n g er-te rm . H o w ev er, som e o th e r
types of swaps, based on traditional
yield re la tio n sh ip s am ong d ifferen t
bonds, are likely to dim inish because
h eig h te n e d b o n d -p rice volatility ex
acerbates th e risk.
• F in a n cia l f u t u r e s are an in te
g r a te d p a r t o f an in te r e s t- r a te
stra teg y. A lthough financial fu tu res
are controversial, th ey will be an im
portant part of in terest-rate strategy,
Mr. Kaufman stated. T hrough in tri
cate hedging operations, they reduce
th e underw ritin g risks in h e re n t in ex
trem ely volatile m arkets and, u n q u e s
tionably, it w ould have been difficult
w ithout financial futures to u n d erw rite
th e record volum e of new bond offer
ings so far this year. They have e n
hanced th e dom inance of U. S. govern
m ent securities because they are most
applicable to huge hom ogeneous m ar
kets.
• Interest rates in the U. S. are in
ternationally linked. The sensitivity of
U. S. to foreign in te re s t rates has
soared, Mr. Kaufman said. Now, two
w o rld forces are b e a rin g dow n on
dom estic in terest rates. The first is the
perform ance of the dollar in foreignexchange m arkets. A weak dollar, for
ex am p le, w ould lim it an easing in
m onetary policy for dom estic reasons.
Second is the perform ance of the in
tern atio n al bond m arkets. T he p e r
form ances of some of these m arkets
have been superior to the Am erican
bond m arket. From 1972 to 1979, the
least attractive of foreign opportunities
w ould have resulted in an im prove
m en t in perform ance of 3.6 percentage
points p er year in the m oney m arket
and 3.5 percentage points in bonds. A
diversified investm ent in six foreign
m a rk e ts a n n u a lly w o u ld h a v e in
c reased portfolio perfo rm an ce over
U. S. d o lla r in v e s tm e n ts by six
percentage points in the m oney m ar
k e t an d 8 .6 p e rc e n ta g e p o in ts in
bonds. • •
A special “C om m unity Youth Corps
Project” to provide sum m er jobs for
inner-city youths aged 15 to 19 has
b e e n financed by D E T R O IT B A N K
Corp. The project was initiated by a
$250,000 contribution to New D etroit
from the H C, whose lead bank is D e
troit Bank.
New D etroit is a coalition of busi
ness, labor, governm ent and the com
m unity dedicated to im proving social
and economic conditions in D etroit,
particularly for m inorities.
The com m unity Youth Corps Proj
ect is adm inistered through the C om
prehensive Youth Training and C om
m unity Involvem ent Program which is
a part of New D etro it’s activities. D e
veloped by the H C, the project is d e
sig n ed to h elp ease th e eco n o m ic
crunch for inner-city youths — the
people hit first and hardest by the city’s
rising unem ploym ent rate.
Young people have been hired to
work five days a w eek through August
15 at a wage of $3.10 p er hour. Jobs
ra n g e from a ssistin g city cle a n -u p
crews at inner-city parks to paint-up,
fix-up, clean-up chores in 21 D etroit
com m unities.
PRIORnY.
You. You’re the number one
priority at First National of Mobile.
What you say goes. When you do
your correspondent banking with us,
you call the shots. You’re in command.
You set the priorities.
And since we're one oi
the leading
spondent banks
in this area,
chances are,
we’ll have
all the ser
vices you'll
need. Rapid
cash letter co
lection, flexible
loan participation
and over lines.
Investment know how. Experience as
the oldest international bankers in
the southeast. All the standard services
but with an approach to service that’s
anything but standard.
Call Jack Andrade, in Ala
bama; 1-800-672-6709,
other states, 1-800633-6710. Or write
Post Office Drawer
1467, Mobile, AL
;
36621. We'd like to
tell you more.
At First
National we’re
good at putting
first things first.
Because we always
start with you.
I P First National Bank of Mobile
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Community Youth Corps
Financed by Detroit HC
A First Bancgroup-Alabama, Inc. Affiliate. Member FDIC.
41
On Money-Market Mutual Funds:
Door Is Opened
For Small Banks
To 'Get Into Act'
On August 15, a Pittsburgh money-market
fund started investing in $ 1 0 0 ,0 0 0 C D s of small
banks in a recycling -of-cash program d e
veloped with the assistance of the Independent
Bankers Association. The program is said to
have been extrem ely successful in its early
phase, and it is hoped that the initial efforts in
Minnesota will have a meaningful impact in
recycling back to smaller banks cash with which
to make agricultural loans, etc.
ONEY-M ARKET m utual funds (M M Fs) have en
joyed im m ense success across the country, with
about $77.1 billion now invested in them (after reaching a
high of $81.5 billion last August). As bankers are well
aware, m uch of this is m oney that has been w ithdraw n from
small and regional banks. Thus, it is m oney that has left the
com m unities in w hich these banks are located because
M M Fs invest th eir assets in C D s of large m oney-center
banks.
At least, th a t’s the way it was until last sum m er, w hen the
way was opened for small banks to get into the “M M F act. ”
On August 15, a P ittsburgh m oney-m arket fund called
F ed erated Cash M anagem ent Systems started investing in
$100,000 CD s of small banks in a recycling-of-cash program
developed w ith the assistance of the In d ep en d en t Bankers
Association of America.
The first two purchases w ere of one six-m onth $100,000
C D each from two M innesota banks — th e $23-milliondeposit Citizens State, C lara City, and the $8-milliondeposit F irst State, Fake Fillian.
Since then, 56 additional such C D s have been p u r
chased.
F ed erated expects to buy $5-million lots each w eek until
it reaches the maxim um allowable. Its p resident, Glen R.
Johnson, says th at as m ore m oney funds and banks get into
the business, a secondary m arket will develop, as it usually
does. H e pointed to G overnm ent National M ortgage Asso
ciation (Ginnie Mae) pass-through securities as a recent
example.
F ed erated expects to go into a relationship, continues
Mr. Johnson, w ith th e intention of holding the C D s to
m aturity, w hich will be six m onths in most cases. Rates on
C D s bought by F ed erated are secondary-m arket rates for
180-day C D s of m ajor New York City banks.
At m aturity, says Mr. Johnson, his firm will make it easy
for banks to roll the C D s over simply by phoning the banks
th ree days before m aturities. In this way, according to Mr.
Johnson, logistics will be kept sim ple and paperw ork to a
m inim um .
The $100,000 figure is significant because it is the max
imum F D IC coverage, and it’s th e m inim um size for a CD
to avoid Regulation Q limits.
F ed erated Cash M anagem ent System s was created in
mid-1973 by F ed e ra te d Investors, Inc., also of Pittsburgh,
which foresaw a need by institutional investors, specifically
bank trust d epartm ents, for an adm inistratively conve
nient, conservatively m anaged cash-equivalent fund that
could be used to move surplus cash into and out of in
response to th eir perception of equity and bond m arkets.
F ed erated Investors is a financial services holding com
pany, whose subsidiaries create, m anage, adm inister and
m arket open-end investm ent com panies (m utual funds). As
of this w riting, m utual funds w ithin the F ed erated complex
have aggregate assets of about $11 billion.
The new C D program for small banks is being operated
u n d er F e d e ra te d ’s six-year-old M oney M arket M anage
m ent, In c ., a short-term m oney-m arket fund whose invest
m ent objectives and policies lim it it to purchases of bank
CDs.
The m oney-m arket-fund industry — alm ost exclusively
on the retail side — has enjoyed enorm ous investor accept
ance throughout the U. S. A lthough the am ount of money
that has been w ithdraw n from bank savings or checking
accounts to be invested in M M Fs is virtually unquantifiable; nevertheless, the m utual-fund industry and the bank
ing com m unity are aware that substantial shifts of assets
have taken place from sm aller banking institutions to
M
(C ontinued on page 44)
42
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Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 198 0
CORRESPON DEN T BANKING.
W H O HAS THE KEY TO PROHTABLY APPLYING
YOUR IDLE FUNDS?
At Fourth, correspondent
banking is advanced, high-speed
communications and computer
technology. It’s rapid, smooth
transactions when your needs
are critical.
It’s financial resources. For
loan participations. For cash letter
services. For quick check clear
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to ease your liquidity problems.
It’s people. Specialists.
Talented professionals who have
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21
FOURTH
NATIONAL
BANK
THE FOURTH NATIONAL BANK OF TULSA
515 SOUTH BOULDER
TULSA, OKLAHOMA 74103
(918) 587-9171
MEMBER FDIC
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
43
M M Fs, which th ereu p o n invest th eir
assets in large m o n ey -cen ter b anks’
CDs.
Dislocations caused by this red is
tribution have not been lost on eith er
the F ed Board of G overnors or C on
gress, points out E u g en e F. M aloney,
corporate counsel for th e F e d e ra te d
complex. Mr. M aloney illustrates this
point by referring to th e A ugust 5th
te s tim o n y o f F e d C h a irm a n P au l
Volcker, reporting to C ongress on re
sults of the initial m eeting of th e D e
p o sito ry I n s titu tio n s D e re g u la tio n
C om m ittee, w h erein he advised Sena
tor R obert B . M organ (D ., N . C .) th at in
his (C h a irm a n V o lc k e r’s) o p in io n ,
banks and S&Ls — ra th e r than fighting
am ong them selves — perhaps should
join forces and recognize th at th e sin
gle bigg est th re a t facing th em was
M M Fs. In ad d itio n , says M r. M a
loney, various hearings have been held
by appropriate H ouse and Senate com
m ittees for the purp o se of probing the
effect of M M Fs on th e thrift and bank
ing industries.
“ P erh ap s o u r o rg a n iz a tio n ,” con
tin u e s M r. M a lo n e y , “ w ith its
trem endous exposure in th e bank-trust
com m unity, is u n iq u ely situ a te d to
understan d th e sensitivity of this issue.
Many m onths ago, G len R. Johnson (as
p resid en t of our various M M Fs) te sti
fied before C ongress as to his aw are
ness of and sensitivity to this problem .
Shortly thereafter, Mr. Johnson sent a
le tte r to S en ato r W illiam Proxm ire
(D .,W is.), advising him of our will
ingness to initiate a program w hereby
our m oney-m arket funds w ould p u r
chase CD s of sm aller banks. Mr. John
son pointed out in his le tte r that it
appeared to him that certain problem s
existed as a result of th e rules and reg
u latio n s of th e S e c u ritie s and E x
change C om m ission (SEC), prim arily
in the area of credit-w orthiness of small
banking institutions and liquidity of
th eir d e b t instrum ents.
“Senator Proxm ire took th e initia
tiv e in c o n ta c tin g S E C C h a irm a n
Harold M. W illiams for the purpose of
resolving our concerns. Sim ultaneous
ly, through th e good offices of th e In
v e s tm e n t
C om pany
In s titu te ,
W ashington, D. C. (the m utual-fundindustry association), a m eeting was
held last May b etw een various m em
bers of th e m utual-fund industry and
re p re se n ta tiv e s of th e In d e p e n d e n t
Bankers Association of A m erica for the
twofold purpose of discussing differ
ences that existed b etw een the two
organizations, as well as th e possibility
of initiating a program such as that
proposed by Mr. Johnson.
“P resen t at the m eeting was Noel H.
Busch, executive vice p resid en t, Inde-
44
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
p e n d e n t S ta te B ank of M in n e so ta
(M inneapolis). This bank can be d e
fined roughly as a b an k er’s bank for
sm aller banking institutions in M inne
sota. Mr. Busch’s bank previously had
u n d ertak en program s to place small
bank C D s issued by M innesota banks
w ith th e M innesota State Board of In
vestm ents. Accordingly, we engaged
in a dialogue w ith Mr. Busch for the
p u rp o se of having him canvass his
m em b er banks to seek indications of
in terest as to w h eth er they w ould be
willing to sell to M oney M arket M an
ag em en t $100,000 p rinciple-am ount
CD s, insured by the F D IC .
“The program has been extrem ely
successful in its early phase, and we are
optim istic that our efforts in the state of
M innesota will have a m eaningful im
pact in recycling back to sm aller banks
cash w ith which to make agricultural
loans, e tc .”
Mr. M aloney reports that his firm is
negotiating with o th er banking in stitu
tions to serve in similar roles in other
states. Also, banks are being solicited
on a direct basis through various p u b
lications and F e d e ra te d ’s own m onthly
new sletter. This solicitation program
has been successful, and F ed erated is
m oving aggressively to expand it.
Mr. M aloney says F ed erated cannot
single-handedly make a sizable im pact
on the disinterm ediation caused by all
M M Fs. Accordingly, both F ed erated
and the Investm ent C om pany Insti
tu te have urged o ther m em b er M M Fs
to initiate similar program s.
Mr. M aloney explains that moneym arket funds are open-end investm ent
com panies reg istered with the SEC
u n d e r the Investm ent C om pany Act of
1940 and Securities Act of 1933. In
th e ir registration statem ents and pro
spectuses, each fund m ust set forth an
in v estm en t policy that typically d e
scribes the types of securities they in
tend to acquire. Most M M Fs, includ
ing several within Mr. M aloney’s own
organization, have placed size req u ire
m ents on CD s they can acquire. An
example would be a F ed erated M M F
that purchases only C D s of banks hav
ing capital and surplus in excess of $100
million. To modify these policies, con
tinues Mr. M aloney, it’s necessary to
secure shareholder approval, which he
describes as a som ew hat cum bersom e
an d tim e -c o n s u m in g p ro c e ss. H is
organization is moving swiftly to se
cu re such approval, and he u n d e r
stands o ther M M F groups are con
sidering similar action.
However, th ere doesn’t seem to be a
stam pede of o th er M M Fs to this new
p ro g ra m . ID S C ash M a n a g e m e n t
F und, M inneapolis, is looking at the
possibility of starting one, and G overn
m ent Investors Trust, Arlington, V a.,
would consider buying $100,000 CD s
from small banks. G radison Cash Re
serves, Inc., Cincinnati, is not able at
this tim e to handle the large n u m b er of
individual transactions such purchases
would require. How ever, Paul J. W es
ton, the firm ’s vice president, says it is
looking into it because it would like to
buy the CDs.
Several firms that are not going into
this p rogram gave such reasons as
being prohibited by th eir prospectuses
or having $l-billion m inim um s on size
of CD purchases. The prospectus of
Capital Preservation F und, Palo Alto,
Calif., limits its portfolio positions to
U. S. T re a su ry bills and T re a su ry
secu rities u n d e r re p u rc h a se a g re e
m ents. A p artn er in a Chicago firm says
its guidelines do not perm it such in
vestm ents and if these guidelines w ere
am ended by a shareholder vote, such
investm ents would be considered only
if a prem ium rate was available.
Perhaps as the F ed erated program
o u t of M in n e a p o lis g ro w s, o th e r
M M Fs will follow suit and initiate
similar program s. As F ed erated s Glen
Johnson says, “ . . . we are convinced
of the nationw ide im portance of recy
cling cash back into small banks of
America. W e at F ed erated will do our
best to help in m aintaining the econo
mic vitality in the different regions of
th e c o u n try . W e h o p e th a t o th e r
m oney funds will follow our lead in this
m atter so that the program will make a
difference. • •
MID-CONTINENT BANKER for November, 19 8 0
“Everybody says,
‘We want your
business. ’
We say,
Here’s what
we do to
deserve your
‘
business. ’ ”
H e rb L o v e ll *
As your correspondent bank we assign a staff of
skilled professionals to service your account. Their
involvement and commitment to helping you is com
plete. Their function is to work as an extension of
your own organization. This close working relation
ship motivates all of us to do our best because your
success contributes to our success.
In addition
We offer you one of the best and most efficient
check clearing services available anywhere.
We can provide credit overlines to help you
reach your growth objectives.
We offer the expertise of our Investment Group
to help you enhance your bank's investment
portfolio.
H IB E R N IA
Matlonal Bank
New Orleans, Louisiana
Membe,FDIC
In Louisiana call toll free
Wanting your business is one thing, doing the right
things to earn it is another. We work hard at doing
the right things for you.
Call me, Herb Lovell, and let's see if we can be of
service to you.
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1-800-562-9007.
In Alabama, Arkansas, Oklahoma,
Mississippi and Texas call
1-800-535-9054.
*Vice President and Manager, Financial
Institutions Department.
45
Erro rs and O m issio n s:
Changing Exposures Under the Law
ACH service your bank offers its
c u sto m e rs an d e m p lo y ees —
from tru st d ep artm en ts and Individual
R etirem e n t/K e o g h accounts to e m
ployee-benefit and pension program s
— increases your b ank’s vulnerability
and legal exposure at th e same tim e
that it increases your custom er base. It
is fairly clear why this occurs.
The m ore com plex th e regulations
and the greater n u m b er of decisions
and adm inistrative d uties each officer
and em ployee is involved in, th e m ore
possible it becom es th at e ith e r som e
one in the bank will com m it an e rro r or
th a t a c u sto m e r w ill see cause for
bringing suit in a particular situation
for a variety of reasons. As an exam ple,
tru st d ep artm en ts and o th er areas w ith
fiduciary responsibility o p erate in a
complex legal and regulatory environ
m en t w ith im m ense responsibilities
and stag g erin g p o te n tia l liabilities.
D ecisions your officers m ake today
may prove years later to have been
im prudent.
Second, while th e econom y is show
ing some small signs of spotty recov
ery, the general population continues
to be hard pressed. In such an atm o
sphere, you can expect litigation to in
crease. People who ru n into financial
trouble trying to live on sums paid out
of a tru st closely scrutinize th e bank s
in v estm e n t p ro c e d u re s and gen eral
handling of th e funds in th e ir trusts.
A lthough bank tru s t d e p a rtm e n ts
have not b een view ed traditionally as
profit centers, increased com petition
and earnings squeezes will increasing
ly cause those d ep artm en ts to becom e
m ore aggressive and profitable. At th e
sam e tim e, you are w orking u n d e r
close adheren ce to th e term s of th e
E m ployee R etirem en t Incom e Secur
ity Act (ERISA), w hich specifically
states that . . . a fiduciary shall dis
charge his duties w ith respect to a plan
. . . w ith th e care, skill, p ru d en ce and
d ilig e n c e u n d e r th e c irc u m sta n c es
th en prevailing th at a p ru d e n t man
E
46FRASER
Digitized for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
By Edward D. Norris
Executive Vice President
MGIC Indemnity Corp.
Milwaukee
sify the investm ent or to be relieved of
th e financial responsibility over the
trust. H ow ever, the beneficiary never
rep lied to th e bank’s req u ests, and
over a five-year period, the tru st lost
m ore than $130,000 in principal and
interest.
2. A nother bank incurred a loss from
acting in a like capacity and familiar the overpaym ent of distributions to 13
w ith such m atters w ould use in the
beneficiaries of an estate. The bank,
conduct of an en terp rise of a like char acting as executor of the estate, distrib
acter and w ith like aims. . . . ”
u te d m ore th an $88,000 in assets,
M any suits result in staggering costs w hich w ere to have been used to estab
of litigation and som etim es loss of p u b lish a scholarship program at a local
lic confidence w hen a tru st beneficiary
college. W hen the erro r was discov
takes legal action. This is especially
ered , the bank asked the beneficiaries
tru e for small- to m edium -sized banks
to retu rn the excess paym ents, b u t at
th at not only provide a new mix of p resen t it has not been able to collect
services to rem ain com petitive, b ut from any of th e 13 beneficiaries.
that also m anage th e ir own in-house
3. A shareholder of a m ortgage trust
pension plans.
filed suit against th e tru st com pany
charging th at defendants o verstated
L itig a tio n C ontinues to Increase.
th eir assets in financial statem ents to
Just w hat does this scenario m ean in
term s of th e specific suits that can be
those shareholders for the purpose of
brought? W hat are some of the expo
g en e ra tin g excessive advisory fees.
T he plaintiffs fu rther alleged that the
sures your bank, its directors, officers
and em ployees face in term s of breach
tru s t m ade irre sp o n sib le loans th e
h o lding com pany w ould n ot m ake.
of duty, neglect, error, m isstatem ent,
m isleading statem ent or omission? The
Specifically, the suit charged the tru s
following examples of recen t cases will
tees and officers w ith violation of feder
al se c u ritie s law, m ism an ag em en t,
help dem onstrate some of the areas of
m is r e p r e s e n ta tio n an d b re a c h of
potential concern:
1.
In one case currently being set fiduciary duties.
tled, a bank faces potential suit from
4. A nother suit charged that a bank,
by its actions, violated provisions of
the beneficiary of a sim ple tru st that
ERISA, Section 405 (A) (3). A benefici
held 4,500 shares of stock in a single
ary and participant in a retirem en t plan
corporation. W hen th at corporation
sponsored by a bank custom er alleged
ex p erien ced financial problem s, the
that the bank failed to discharge its
bank attem p ted to contact the b e n
fiduciary duty w ith regard to the reeficiary e ith er for perm ission to diver
MGIC Indemnity Corp. is said to be the nation's
largest writer of directors' and officers'
(D&O) liability insurance for financial institutions.
Edward D. Norris has spent the past 14 years
specializing in various coverages
designed exclusively for financial institutions,
with particular emphasis in D&O and bonding areas.
MID-CONTINENT BANKER for November, 1980
Now you can
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Until now, $20,000 ^
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$50,000 loan.
was the credit life
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Now you can cover a
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volved is m ore secure —
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paperw ork.
th at com es from helping p eo p le.
W ith the $20,000 limit, it
It’s just one m ore way we
to o k th ree policies, from three
help you get the m ost out of life.
different com panies, with three
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Home Office: Raleigh, N.C. 27611 P.O. Box 27807, Tel. 919/782-6110
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tirem en t plan. The bank had failed to
d e te rm in e w h e th e r sufficient assets
w ere retained in the plan in case any
participants chose to call for d istrib u
tion of th eir vested benefits on plan
term ination.
5. Action was b ro u g h t against a bank
acting as tru stee of a radio station. The
charges w ere restrain t of trade, dam
ages to business rep u tatio n and in
terference w ith contractual obligations
by not allowing com m ercials produced
by the plaintiff to be played on th e air.
The plaintiff claim ed dam ages exceed
ing $285,000.
6. A nother bank was found liable to
the In tern al R evenue Service for fail
ure to file a federal estate tax ex ten
sion. This failure resu lted in a penalty
against th e esta te for $98,241. The
bank settled w ith th e IRS for $43,241.
7. A class-action suit was b rought
against a bank for im properly charging
a “term ination fee after the bank re
signed as tru stee for four testam en tary
trusts. Since th e suit was filed on b e
half of the estim ated thousands of b e n
eficiaries of tru s ts th a t hav e b e e n
charged a “term ination fe e ,” the loss
potential for th e bank could be e n o r
mous.
Assess Y our B a n k’s N e e d s. W hat can
be seen clearly from these cases is that
tru st d ep artm en ts exist in an ex trem e
ly sensitive environm ent. The “p ru
dent-m an ru le ” is not new; b u t your
exposures u n d e r ERISA increase and
change as you offer new services to
your custom ers and as th e courts set
new guidelines via th e ir in te rp re ta
tions and legal decisions.
Since 1974 banks have been h an
dling IRA and Keogh plans. In ad
m inistering these types of retirem en t
accounts, you m ake decisions about
and safeguard the funds held. IRAs
benefit you and your custom ers, b ut
they also provide yet an o th er area in
w hich actions could be questioned at
some future date.
Since passage of ERISA, the p o ten
tial for suit also has increased w ith re
gard to a bank’s in-house em ployeeb enefit plans. Reneficiaries of these
plans have brought and will continue
to bring suits on grounds of alleged
breach of fiduciary duty.
In light of the potential for costly
litigation, you know that you need to
set up safeguards to p rotect your bank,
its officers and em ployees. W hat does
this m ean in specific term s?
M ore than ever, you n eed to exer
cise great care in recruiting and hiring
com petent, professional people. This
m eans selecting your staff for th eir
abilities, ethical standards and astu te
ness in keeping up w ith the latest d e
velopm ents in the banking industry.
S eco n d , rev iew e d u c atio n al p ro
grams and formal procedures w ithin
the bank for training new em ployees
and for circulating new ideas and reg
ulations th ro u g h your c u rre n t staff.
Since p ro ced u res and req u irem en ts
change so quickly today, and invest
m ent m arkets move ju st as quickly,
w ell-inform ed staff m em bers and good
internal controls are essential to the
security and integrity of your bank.
T h ird , m a in ta in f r e q u e n t c o m
m unication w ith the bank’s legal coun
sel, keeping abreast of cu rren t issues
and review ing trends of th e banking
Total C o m p uter Program
or In d iv id u a l P ick-an d -C h o o se Program
Property Im p ro ve m e n t Loan In su ra n ce
LET’S TA LK A B O U T IT.
w
I
48
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
INSURANCE
EN TE RP RISE S,
5811 HAMPTON AVE.
ST. LOUIS, MO. 63109
PHONE: 314/832-2717
INC.
industry.
F ourth, consider the specialized in
surance coverages that have been d e
signed to p rotect banks and directors
and officers from loss exposures associ
ated with the banking industry.
Exam ine th e forms of errors and
omissions insurance that protect trust
departm ents, IRA/Keogh accounts and
in-house pension plans and m ortgagee
interest. In each of these services, the
bank, its directors, officers and em
ployees face increased accountability
for m istakes, m isju d g m e n t, a lessthan-spectacular investm ent strategy
or w hatever else a beneficiary or cus
tom er may perceive as not being p ru
dent, discreet or honest.
You owe it to yourself and your in
stitution to evaluate the way exposures
change as laws and regulations are in
te rp re te d and new bank services b e
com e m ore popular. A ttorneys and
d o c to rs p r o te c t th e ir p ro fe ssio n a l
standings w ith m alpractice insurance.
Today’s bankers n eed to exercise the
sam e p recau tio n s in an ev er-m o recom plex world of m anaging assets. • •
Doll Houses Given Away
At Bank's Open House
Doll houses w ere given away last
year by Peoples Savings Bank, E vans
ville, Ind. The occasion was the grand
opening of the new W estside Branch.
A “W ashington” doll-house kit was
aw arded every business hour, on the
hour, during the grand-opening week
last D e c e m b e r. A fully a ssem b led
“Van B uren doll house was given
away during Santa’s visit on a Friday
during opening week. T hree “H arri
son” doll-house kits w ere given to w in
ners from am ong persons who took d e
m o n stratio n s on th e b an k ’s “Ready
T e lle r ” ATM a n y tim e d u rin g th e
week. These presentations w ere m ade
after the celebration was over.
Little girl examines "Harrison" doll house,
which, along with "Washington" model (I.)
and "Van Buren" (top), were given aw ay in
forms of kits for week before Christmas last
year by Peoples Savings Bank, Evansville,
Ind. One fully assembled "Van Buren"
model was presented by Santa to its w in
ner. Bank w as celebrating grand opening
of its new Westside Branch.
F irst N B C
First NBC in New Orleans offers a complete network of more than a dozen
separate correspondent services. . . from basic banking fundamentals to sophis
ticated, future-oriented concepts.
If you would like to plug into our netw ork of correspondent services, call
Doug Lore on one of the tol-free Wats lines listed below'.
La. Wats: 1-800-462-9511 M iss,/Ala./Ark./Tex. W ats: 1-800-535-9601
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Member F
How to Reduce Kidnap/Hostage Risks
For Bankers and Their Families
BANKER faces a dilem m a. On should be out of sight. Do not allow
th e one h an d , b ecau se of his anyone to look over your shoulder or
position, he usually is a com m unity walk beh in d your desk w hen you are
leader or at least is called on to be an working on confidential or proprietary
extrem ely visible p articipant in chari m aterial.
3. Follow the “need-to-know ” rule.
table and civic activities. O n th e oth er
hand, he is advised to keep a low p ro Do not discuss your plans w ith anyone
file to reduce th e possibility of becom not directly involved.
4. C onduct your personal conversa
ing involved in a kidnap/hostage situa
tions carefully. Avoid all discussions of
tion.
travel plans in public restaurants, ele
How can he solve this problem ?
For one thing, says H. E. W illiams, vators or any place you may be over
director, W illiams & Associates, Au heard.
5. S ecu rity “leaks” usually com e
rora, Colo., a b anker should be con
stantly alert to th e possibility of kid from w ell-m eaning, loyal em ployees
napping and extortion and to organize w ho in ad v erten tly disclose inform a
a lifestyle that affords th e m ost p ro tec tion. I t’s only natural to discuss with
friends and co-workers item s that are
tion, around th e clock. Mr. W illiams
com pany is a security consulting firm. in teresting and new sw orthy.
B a n k-E xecutive G uidelines. H ere
T here are six hours of high-risk vul
nerability for a banker, according to are guidelines Mr. W illiams suggests
Mr. W illiams, if his bank is secure for th at bank executives should follow:
1. Vary your daily routines. Avoid
eight hours, and his hom e is secure for
habitual patterns kidnappers look for;
10 hours.
“The kidnapper/extortionist selects alternate travel as to tim e and route to
a victim w ho offers him th e m ost a n d from th e b an k . U se d iffe re n t
opportunity w ith the strongest likeli doors, different parking places. Do not
hood of s u c c e ss,” he adds. “ In all w ork late th e sam e days and same
planned abductions, crim inals and te r hours.
2. Be alert to strangers on business
rorists spend a great deal of tim e k eep
ing their victim u n d e r surveillance to
a c q u a in t th e m s e lv e s w ith h is /h e r
routine. A potential victim m ust learn
There were 25 Hobbs Act viola
to recognize a surveillance, th en alter
tions in the Mid-Continent area dur
his routine to reduce or elim inate kid
ing the first six months of this year,
nap risks.”
according to FBI statistics. This act
Bankers are advised by Mr. W il
prohibits any attem pt to obtain
liams to give careful thought to re
money from financial institutions,
quests for photos of them selves and/or
mainly through kidnap/extortion
th e ir fam ilies b e c a u s e p ic tu re s in
plots. Here’s how the 13 states in the
Mid-Continent area fared in number
new spapers may be used by kidnap
of violations:
pers to identify th e bankers and th eir
Alabama
4
families. In interview s, bankers are
Arkansas
2
cautioned not to give th eir addresses,
Illinois
3
tentative travel plans, itineraries, chil
Indiana
2
d re n ’s school(s) or sim ilar inform ation.
Kansas
0
M r. W illiam s lists th e follow ing
Kentucky
0
rules for bank staffs to consider:
Louisiana
0
1.
Know callers. In some cases, you
Mississippi
3
Missouri
4
may not know them personally, b u t
0
New Mexico
you should know them by nam e or by
Oklahoma
2
th e nam e of the firm they rep resen t.
0
Tennessee
2.
Put away papers. W hen you are
Texas
5
away from your desk or out of th e
office, any m aterial you are working on
A
0 FRASER
Digitized 5for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
property for no apparent reason. M ain
tain control of strangers and visitors.
3. In struct your family and business
associates not to provide inform ation to
strangers about you or your family.
4. Avoid giving unnecessary p e r
sonal details in response to inquiries
from such publicatio n s as b u siness
d irectories, social registers or com
m unity directories.
5. If your bank has security officers,
know them by sight. A man in uniform
could be your abductor. Personal rec
ognition is the surest m ethod of estab
lishing positive identification.
6. R e q u ire y o u r g u a rd s to b e
trained.
7. If a definite th reat exists and your
building or bank has uniform ed secur
ity officers, ask one of them to m eet
you and walk you to your car.
8. Avoid w o rk in g alo n e in your
office at n ig h t. If you m u st, k eep
drapes closed late at night. D on’t stand
in front of windows.
9. Always tell a business associate or
family m em ber your destination and
anticipated return w hen leaving the
bank or hom e. Refuse to m eet with
strangers away from the bank at u n
known locations or secluded places.
10. Establish simple, effective sig
nal systems, which, w hen activated,
will alert your business associates or
family m em bers that you are in dan
ger.
11. R eview your b an k ’s security
plans at least m onthly to evaluate their
effectiveness. M ake certain all em
ployees are aware of these plans. This
will ensure security consciousness.
Access C ontrol. Offices of bank offi
cers likely to be targets should not be
d ire c tly a c c e ssib le to th e p u b lic ,
a d v ise s M r. W illiam s. W h e n e v e r
possible, executive offices should not
be located on the ground floor.
T h e p rim a ry p u rp o se of accesscontrol systems is to ensure that only
authorized personnel are allowed to
e n te r sensitive areas inside a bank.
Any access system should be sim ple in
its operation and should not adversely
(C ontinued on page 54)
MID-CONTINENT BANKER for November, 1980
-jQ C Q
ly JO .
Something called
M ICR coding baffles
A m erican chec\ writers,
the newest best-seller is
‘Dr. Zhivago” and \ids go
wild over the Hula Hoop.
*
jP
America’s m oney picks up speed w ith electronic processing.
It w a s 1958 and
electronic processing
came together w it h M IC R
check coding to p rovid e
a h e r e to fo r e im p o ssib le
degree o f accuracy and
speed to th e h a n d lin g o f
th e n a tio n ’s an n u al 11
b illio n checks.
M IC R coding w a s
developed j o in t ly b y th e
A m erican B ankers A sso cia tio n , b a n k equipm ent
suppliers and ban k station ers, represented b y
D eluxe. T h e biggest single
advance in check proc
essing, it occurred 43 years
after D elu xe first began
serv in g A m erica’s banks.
M uch has changed
since th at tim e. B ut one
th in g h a s n ’t. A n d th a t’s
ou r d e v o tio n to quality.
To accuracy. A n d to
h o ld in g exception item s
to a bare m inim um .
W hich, in setting
\
the standards, is absolutely 7
essential.
j§
A b so lu tely essential ,1
******
ms&m
:
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s » D ELU X E
C H E C K PR IN TE R S , IN C
Setting the Standards
WHAT W ERE YOU D
TH E FU TU R E BEGA
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Federal Reserve Bank of St. Louis
1NG WHEN
Banking has changed more in the
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The future is happening so quickly, keep
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Yet the changes are only beginning,
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c
m
c
o
R
P
O
affect day-to-day operations, says Mr.
Williams.
Some of th e most com m only used
sy ste m s, h e p o in ts o u t, a re passcontrol, photo and escort systems.
P recautions f o r F a m ily. B ecause
wives and children of bank executives
can be targ ets of extortionists, Mr.
Williams suggests they should be:
1. Constantly alert for surveillance.
2. Continually alert to anything u n
usual or out of th e ordinary in th e
neighborhood.
3. Aware of strangers loitering in
th e n e ig h b o rh o o d . (B oth m en and
w om en qualify as potential threats to
safety.)
4. Alert for cars, trucks, m otorcy
cles or bicycles that spend m ore than
norm al tim e in the neighborhood.
5. Aware of any vehicle parked in
the neighborhood that d oesn't belong
there. Such vehicles should be noted
and licenses recorded and rep o rted to
the police.
6. A lert for persons who may be
posing as p u b lic -u tility em p lo y ees,
s tre e t re p a irm e n or serv icem en in
o rder to observe actions of a banker or
of a family m em ber.
Like the bank executive, continues
Mr. W illiams, his spouse should avoid
establishing routines that are re p e ti
tious — shopping at the sam e stores at
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th e same tim e each week, going to the
beauty shop at the same tim e. In addi
tion, th e w hereabouts of family m em
bers should be known at all tim es.
It’s a good idea, says Mr. W illiams,
for family m em bers to devise signals to
indicate the presence of in truders, and
these signals could be oral or visual.
All th e s e g u id e lin e s and advice
sound like a lot of work. H ow ever, any
banker who has been through a kidnap/
hostage situation will be the first to say
he would have done anything to avoid
it. • •
Kidnap/Extortion Plots Perpetrated
Most on Com m ercial Banks
w ere the
victims in 94 of th e 107 viola
tions of the H obbs Act betw een last
January 1 and June 30, according to a
rep o rt issued recently by the FBI. The
H obbs Act prohibits any attem p t to
obtain m oney from financial in stitu
tions, m ainly th ro u g h kidnap/extortion.
M u tu al savings banks and S&Ls
w ere victim ized six tim es each, and
one credit union was a victim.
In th e area covered by M i d -C o n
t in e n t B a n k e r , th ere w ere 25 H obbs
A ct v io la tio n s d u rin g th e first six
m onths of this year. Texas suffered the
greatest n u m b er of violations — five,
follow ed by A labam a and M issouri
w ith four each. Next cam e Illinois and
M ississip p i w ith th r e e each , th e n
Arkansas, Indiana and O klahom a w ith
tw o each. Kansas, K entucky, L ou
isiana, N ew M exico and T ennessee
had none.
N ationw ide, California led w ith 16
violations. Next cam e M innesota, New
York an d P e n n sy lv a n ia w ith e ig h t
each.
M oney was not obtained in 98 of the
107 v io latio n s. In th e o th e r n in e,
C
o m m e r c ia l b a n k s
$392,007 was obtained, and $54,373
was recovered. The telephone was the
most popular m ethod of extortion, hav
ing been used 83 tim es. T hreats also
w ere m ade in dem and notes and with
bom b devices and firearm s. Som e
tim es, various com binations of these
m ethods w ere used.
Eight of the violations involved vio
lence, w ith one resulting in injury to a
financial-institution em ployee and one
in the death of a m em b er of a financialinstitution em ployee’s family. Tw enty
hostages w ere taken during these eight
violations. F o u r hostages w ere em
ployees, and 16 w ere family m em bers.
The latter w ere taken hostage in their
homes. T hree of th e em ployees w ere
taken hostage in th eir hom es, and one
was taken hostage elsew here, b u t not
at his job.
Figures com piled by the ABA show
that from July 1, 1979, to June 30,
1980, th ere w ere 235 H obbs Act viola
tions, a 29.1% increase over the same
period the year before. Just about ev
ery category show ed increases, too:
19.6% of the violations this past year
involved hostages, com pared w ith 17%
the previous year; 9.4% resu lted in
Bankers w orried about the possibility of becom ing involved in
kidnap/hostage situations are offered help by the ABA in the form oi a
b o o k let, “ K id n ap /H o stag e — C o n fid e n tia l,” and a fo ld er-ty p e
brochure, “K idnap/H ostage G u id elin es.” Both are described in the
accom panying article.
The booklet, No. 211601, is offered to ABA m em bers as follows:
1-10 copies, $3 apiece; 11-30 copies, $2.50 apiece; 31-50 copies, $2.25
apiece; 51-100 copies, $2 apiece, and over 100 copies, $1.75 apiece.
F or nonm em bers: 1-10 copies, $3.75 each; 11-30 copies, $3.50 each;
31-50 copies, $3.25 each; 51-100 copies, $3 each, and over 100 copies,
$2.75 each.
The brochure, No. 211200, costs: one, $2 each; 2-5, $1.90 each;
6-10, $1.80 each; 11-50, $1.70 each; 51-100, $1.60 each, and 101 and
over, $1.50 each. (Each brochure includes five wallet-size cards.)
Contact: O rd er Processing D ep t., Am erican Bankers Assn., 1120
C onnecticut Ave., N .W ., W ashington, DC 20036. T elephone: 202/
467-4118.
L
54FRASER
Digitized for
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
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v iolence this y ear, c o m p a re d w ith
7.1% last year; m oney obtained in
creased from $700,000 last year to $1.7
million this year, and, in situations
w here hostages w ere taken, n e t ran
soms w ent up from $13,500 to $37,000.
To help banks reduce th e ir chances
of becom ing kidnap/hostage victims,
the ABA offers som e aids. A chapter
from the Bank Protection M anual has
been rep rin ted in booklet form. Called
“K idnap/H ostage — C o nfidential,” it
provides a clear, objective review of
the controversial kidnap/hostage p ro b
lems w ith suggested m ethods of h an
dling th em . It contains precautions
and protection plans to help concerned
bankers com bat extortionists.
A b r o c h u r e , “ K id n a p /H o s ta g e
G uidelin es,” contains suggestions for
maximum security and effectiveness.
It also includes plastic w allet-size cards
listing these guidelines. The ABA sug
gests that bankers carry these cards at
all tim es and refer to them w hen faced
w ith po ssible k id n ap /h o stag e situ a
tions. O f course, th ese cards and book
lets are never to be left out w h ere o u t
siders could read them . • •
For lasier
service on
■
Ü
A:
CREDIT
INSURANCE
CALL THESE SPECIALISTS
Harold E. Ball • Carl W. Buttenschon
John E. King • Milton G. Scarbrough
214/559-1173
®
Foster (Horsey) Latimer
Missouri General Agent
INDUSTRIAL
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IF
EIN
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U
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2727 Turtle Creek Blvd., Dallas. Texas 75219
Amember companyot
Republic Financial Services. Inc
5 6 FRASER
Digitized for
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Federal Reserve Bank of St. Louis
Bank Takes Self-Insurance Route
To Hold D ow n H ealth-Care Costs
about
so a rin g
health-care costs has prom pted
m any banks to evaluate the benefits of
self-insuring th eir health-care plans.
National Bank of C om m erce (NBC),
M em phis, e lected to self-insure its
e m p lo y e e h e a lth /d e n ta l-c a re p lan ,
and, on July 1, becam e financially li
able for health/dental-care claims in
cu rre d by its em ployees as well as
delivery.
“W e felt our adm inistrative costs
w ere on the high side and probably
could be red u ced u n d er alternative
a p p ro a c h e s. As a b an k , w e re in
terested in im proving cash flow, he
added.
A ccording to M r. L eC av e, selfinsurance allows the bank to maximize
its cash flow. U nder an insured con
those of th e bank’s two subsidiaries —
Jam es E. M cG ehee & Co. and C om
m erce G eneral Corp.
The bank elected to self-insure for a
v a r ie ty o f re a so n s a fte r s p e n d in g
alm ost a year on research and analysis
of plan designs w ith the assistance of an
outside benefits consultant (actuarial
firm), said B renda H aughney, m ana
ger of com pensation and benefits.
“Basically, we w anted to provide a
m ore cost-efficient delivery of health
benefits to em ployees w hile trying to
offset rising health -care co sts,” she
said. “M any tim es people begin to take
third-party paym ents for granted w hen
a com pany is insured for health/dentalcare b en efits.”
A nother reason for the change was
elim ination of the n eed for reserves
being held at an insurance firm. D e
posits are req u ired by insurance car
riers in o rd er to handle health-care in
surance for a com pany. Claim pay
m ents are m ade from th e reserves.
“Self-funding or self-insurance, con
trary to popular belief, w on’t low er the
cost of a firm ’s claims, b u t should lower
adm inistrative costs and im prove cash
flow, said John LeCave, vice presid e n t/d ire c to r of p erso n n el. “Claims
costs are a function of plan design, u ti
lizatio n p a tte rn s , em p lo y ee d e m o
graphics and local trends in health-care
tract, the insurance com pany collects
m onthly prem ium s to cover incurred
claim s. U n d e r th e pro v isio n of an
adm inistrative-services-only contract,
th e insurance com pany, acting in a
claim s-processing capacity, draw s a
draft against an account established in
the bank. The m oney to cover th e draft
is held in this special account until the
draft clears the bank.
“ A n o th e r a d v a n ta g e o f selfinsurance is elim ination of the necessi
ty to pay state prem ium taxes, which
run from 2% to 3% of prem ium s paid in
most states.” he said.
“By self-insuring, NBC is able to
contain the m ajor liability w ithin the
com pany and to gain b e tte r control
over claims through upgraded rep o rt
ing capabilities, so m anagem ent knows
w here the m oney is being spent, ” said
Mr. LeCave. “Self-insurance has sim
plified adm inistrative procedures for
enrollm ent and eligibility.”
B efore se lf-in su ra n c e , NBC was
dealing with several insurance firms.
Now the bank has one carrier and re
ceives a consolidated coverage and
claims rep o rt, w hich has sim plified
record-keeping procedures, according
to Mrs. H aughney.
The bank w anted to rem ain highly
com petitive in the area of em ployee
benefits, so the investigation into self-
C
o ncern
MID-CONTINENT BANKER for November, 1980
Good news.
M GIC now offers
"really bad news"
insurance.
"YOU KNOW THAT MORTGAGE PROPERTY
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is
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co ve^ e o
M G IC'5 F A M IL Y O F {0AV IVLIN S'
POLICIES. "
/HOCH O F A F U T U R E * .. "
MGIC has now expanded its coverages for the
“ really bad news” situations that can face financial
institutions and their directors and officers.
These policies cover Mortgagee Interest, IRA/
Keogh E&O, Pension Trust Liability, Trust Department
E&O and Directors' and Officers' Liability Insurance.
The “ good news'' is thatyou can now purchase these
coverages from the one company that specializes in
meeting the unique insurance needs of financial
institutions, MGIC.
[" MGIC Indemnity Corporation
MC11 ~j
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Milwaukee, Wisconsin 53201
I Send me more information about your “ good news”
j policies for:
I □ Mortgagee I nterest
I □ IRA/Keogh E&O
j □ Pension Trust Liability
□ Directors’ and Officers’ Liability
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A.M. Best rating is A+, XIII.
Availability subject to approval of insurance filings.
j Address _______________________________________________ |
I City ________________________State---------- Z ip ------- |
M G IC
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
M G IC Indemnity Corporation
a subsidiary of M G IC Investment Corporation
57
insuring was thorough. Ten regional
firm s w e re s u rv e y e d to c o m p a re
NBC’s level of benefits to o th er banks
and com panies in th e area. T hat data
was instrum ental in th e plan design,
Mrs. H aughney said.
“W e w orked with th e benefits con
sultant to tailor th e plan to our needs, ”
she said. “I think it’s helpful to use a
consultant in such an u ndertaking to
ensure objectivity from a source o u t
side the insurance in d u stry .”
The bank looked for certain criteria
w hen deciding w hich insurance com
pany to select. A recording system that
would yield specific claims data as well
as record th e inform ation was a highpriority item . Also taken into consid
eration was th e care given by th e car
rier w hen scrutinizing claims. N ine in
surance firms sub m itted bids.
R eg a rd in g th e co n d itio n s a firm
m ust m eet in o rd er to self-insure, Mrs.
H aughney said, “W e have been told by
several carriers th at $500,000 in claims
p er year is the cut-off figure, and a
m inim um n u m b er of em ployees m ust
p articip ate.”
Mrs. H aughney was asked if selfinsurance is an approach that sm aller
banks m ight elect. “I w ould doubt that
a n y o n e w o u ld r e c o m m e n d selfinsurance to a small com pany,” she
said. “ H ow ever, a n o th er approach,
such as a m inim um prem ium , could be
considered by a sm aller com pany.”
After th e carrier was chosen, NBC
set th e maximum am ount for claims
paym ents (based on previous claims
experience). Beyond that maximum,
th e insurance carrier pays the claims.
NBC pays the carrier an annual p re
m ium for this coverage.
M rs. H au g h n ey em p h asized th at
self-insurance doesn’t affect the pay
m e n t stab ility of em p lo y ee claim s.
“T h ere’s no hidden cost involved, ” she
said. “W e have seen o ther com panies
th at have im plem ented sim ilar plans
successfully. T heir m otivation also was
cost-effectiveness.
“Since we changed carriers and a
portion of the plan design at the same
tim e we self-insured, we experienced a
Nebraska BA Sues Reg Agencies
O ver TIL Guideline Enforcement
H E F D IC and th e F ed are being
sued by th e N eb rask a B ankers
Association (NBA) and six N ebraska
banks over enforcem ent of a guideline
th a t c o u ld d is c o u ra g e c o m m e rc ia l
banks from providing cred it life and
disability insurance to th e ir custom ers.
At issue is an en forcem ent guideline
adopted earlier this year by th e two
re g u la to r y a g e n c ie s th a t r e q u ir e s
banks to make extensive file searches
to d eterm in e if past cred it life and dis
ability insurance coverage provided to
T
custom ers m eets c u rren t federal tru th in-lending requirem ents.
T he enforcem ent guideline that re
q u ire s a d d itio n a l in su ra n c e n o tice
com pliance prior to the tim e th e guide
line was adopted is placing an undue,
expensive and unfair b u rd en on banks
th a t h ad o rig in ally b e e n follow ing
app ro v ed p ro ced u res, said an NBA
spokesm an. The result could be that
som e banks will be forced to quit offer
ing this insurance as a service to cus
tom ers, m any of whom aren ’t o th e r
THE T O T A L BANK SYSTEM
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g reater im pact than if we had changed
only to self-insurance. The only p ro b
lem s we have experienced are in the
c la im s -p ro c e d u re s a re a . M e d ic a l
claim s are p ro cessed locally, w hile
dental claims are handled out of town.
It will take tim e to sm ooth out the
procedures.
“Since we are spreading the liability
over th ree com panies (NBC and two
su b sid ia rie s), th e r e also are som e
th in g s to b e o v e rc o m e in v o lv in g
account p ro ced u res,” she said.
N BC’s m anagem ent feels the p ro
gram is too new to be evaluated accu
rately. A tentative review will be m ade
six m onths into the plan. After a full
year of operation, a com parison is ex
pected to be m ade of estim ated experi
e n c e to actu a l e x p e rie n c e an d an
appraisal made.
“W e are dedicated to making it work
and anticipate the self-insurance p ro
gram will be successful,” Mr. LeCave
said. • •
wise insurable.
The suit seeks a declaratory ju d g
m en t by th e co u rt, restrain in g th e
F D IC and the F ed from enforcing the
guidelines.
Banks joining the NBA in the suit
include F irst Bank, Cozad; Brunswick
State; M inden Exchange Bank; City
State, Sutton; Lexington State; and
C ulbertson Bank.
The spokesman said the com pliance
problem on credit life had been partial
ly “p ut on a back b u rn e r” a year ago
following the filing of a suit by the AB A
against the F D IC , the F ed and the
C om ptroller of the C urrency on re t
roactive reim bursem ent.
The suit was dism issed by a federal
ju d g e who ruled the guideline lacked
enforcem ent pow er and “m erely con
stitutes a w arning” to banks.
The ABA then held that the ruling
achieved one of the ABA s purposes in
filing its suit, namely, that T IL guide
lines “can no longer be used to enforce
any dem ands for searches of records or
reim bursem ents to borrow ers because
of alleged violations of the tru th -in
lending act.”
But the issue came up again w hen
the F D IC renew ed strict enforcem ent
of the guidelines, perm itting no excep
tions. • •
(303) 753-0295
1650 South Colorado B oulevard, Denver, Colorado 80222
ÎS J
58
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Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 1980
A few hundred miles of Ma Bell’s
cable may be great for conducting
some business. But in correspondent
banking, we at Liberty National think
long distance falls short most of
the time,.
We prefer the face-to-face version
of person-to-person. And that
means driving instead of dialing.
By doing this, our financial banking
specialists are better able to under
stand you and your bank’s prob
lems—whether it concerns data pro
cessing, cash management ideas, a
big loan to a good customer or any
of the other services Liberty olfers.
Services you might not be ready to
handle alone.
Proven fact: Specialized financ al
areasof banking deserve special ized
personal attention.
Fora personal appearance, pick up
the phone and give Liberty National’s
Correspondent Department a cal;.
502-566-2022. After that, we’ll start
letting our actions do the talking.
Liberty National Bank
Louisville, Kentucky.
We do our corresponding in person.
Member F.D.I.C.
H o w o u r c o rre s p o n d e n t d e p a rtm e n t
m a k e s lo n g d is ta n c e c a lls .
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Im proved Bank Productivity to Be Researched
SER IES of research projects and
ed u catio n al activities d ire c te d
tow ard increasing productivity w ithin
the banking industry has b een initiated
by the Bank A dm inistration In stitu te s
o p eratio n s and technology com m is
sion. B A I’s “ P ro d u c tiv ity T h ro u g h
Autom ation, Technology and H um an
R esources ’ (PATH) se rie s was a n
n o u nced recen tly by D avid Van L.
T ay lo r, s e n io r v ice p r e s id e n t an d
director, banking services division.
T he division’s operations and te c h
n o lo g y g ro u p w ill a d m in is te r th e
series, including several surveys and
studies, publications, sem inars and a
m ajor conference, all addressing the
com plexities involved in m easu rin g
and increasing productivity in a service
industry.
PA TH in c o rp o ra te s c u r r e n t and
ongoing BAI productivity efforts, as
well as new projects designed to define
and dissem inate inform ation on th e
m ost prom ising m eans of productivity
im provem ent, Mr. Taylor said.
“Productivity has becom e a critical
bank m anagem ent issue in today’s in
flationary and highly com petitive e n
v iro n m en t,” he said. “Im proved p ro
ductivity is essential for th e attainm ent
of bank profit goals and m aintenance of
high levels of c ustom er service. ”
Specific PATH projects include an
industry-w ide survey to acquire com
parative bank productivity data, a com
m unications and autom ation study to
be conducted jointly w ith Sears Bank,
Chicago, and a m ajor conference early
A
next year. In addition, several joint
projects are being discussed w ith the
consulting firm of Booz Allen & H am il
ton and o th er service organizations.
A three-day PATH conference is set
for Ja n u a ry 19-21 at th e F a irm o n t
H otel in Dallas. In addition to p re
lim inary results available on the new
BAI studies, the conference program
w ill ex a m in e c u r r e n t p ro d u c tiv ity
theories and practices and strategies to
com bat soaring space, facilities and
energy costs. The results of a com pre
h ensive survey of office autom ation
technologies will be p resented.
T he co m parative p ro d u ctiv ity re
search project will provide inform ation
n eed ed to define standards by w hich
an organization’s effectiveness can be
com pared to o th er institutions of sim i
lar size and w ith sim ilar operating e n
v iro n m en ts. T he first p h ase of th e
study will focus on determ ination of
labor productivity norm s and will e n
compass m arketing and adm inistration
system s as w ell as bank operational
areas.
T h e BAI has d e v e lo p e d a co m
m unications matrix analysis technique
to help d eterm ine w hat productivity
im p ro v em ent benefits a bank m ight
expect from a selectively applied office
autom ation plan. In a long-term , joint
re se a rc h p ro ject, BAI m ethodology
will be applied to Sears Bank’s trust
d e p a rtm e n t; w h en p u b lish e d , case
stu d y findings will serve as a doc
u m en ted guide for bankers consider
ing th e applicability of office autom a-
A free copy is available from Bank
G raphic System s, P. O. Box 24287,
Seattle, WA 98124.
Emergency Guide for Kids
Offered to Banks, Thrifts
A b o o k le t e n title d “ In C ase o f
E m ergency . . . ” is being offered to
financial institutions to be used to train
children to dial for help in em ergency
situations. The booklet is designed to
b e offered to paren ts to help teach
sm all c h ild r e n h o w to sav e liv e s
through p ro p er use of th e telephone.
T h e b o o k let was re se a rc h e d and
tested by two U niversity of W ashing
ton experts in th e psychology of early
learning. Its eight pages outline p ro p er
training m ethods for children of var
ious age levels and includes a picturebook page for small children.
The booklet can be used as part of an
advertising cam paign, in special p ro
motions, in consum er inform ation cen
ters or as giveaways in a public rela
tions or publicity prom otion.
60
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
tion in th eir institutions.
In cooperation with Booz Allen &
H am ilton, the BAI has identified sig
nificant possibilities for developing
tools and techniques to pursue produc
tivity im provem ent in banks’ m anage
rial and professional ranks. Booz Allen
recently com pleted a study focusing on
productivity im provem ent to be d e
rived from autom ation technology that
serves the decision-m aker. According
to Booz Allen Vice P resident H arvey
Poppel, “M ajor banking institutions
could increase noninterest operational
incom e by 35% by 1985 if they install
autom ated office systems in a way that
im proves productivity of m anagerial
and professional em ployees.”
“Practical inform ation is the main
objective of all PATH series projects,
em p h asizin g id en tificatio n an d d e
velopm ent of opportunities for banks
to im prove significantly th eir o p era
tions and bottom -line num bers, Mr.
Taylor said. H e added that a steering
com m ittee of bank officers, w hose re
sponsibilities w ithin th eir banks in
clude productivity im provem ent, has
been appointed to oversee PATH ac
tivities.
Among steering com m ittee m em
bers are: Mike Bickley, vice p resid en t/
d e p u ty co m p to ller, F irst N ational,
F ort W orth; Jeffrey Bond, vice p resi
d en t, F irst C ity N ational, H ouston;
M. L. B ond, vice p re s id e n t, F irst
National, St. Louis; and W illiam Swift,
vice president, First National, Chica
go. • •
“ DIM ( M
IF EMERGENCY „
”
Instructions fo r teaching small children
how to use the telephone in an emergency
• A m erican M unicipal Bond A ssur
ance C orp. This firm has published a
booklet that outlines how institutional
investors such as com m ercial banks,
th eir tru st dep artm en ts and insurance
com panies can boost th eir n et average
retu rn s by 50-100 basis points by tu rn
ing to m edium -grade m unicipal bonds
and insuring them . An insert gives spe
cific yield sam ples. The booklet lists
“special im plications” lor tru st d ep art
m ents. O th er topics covered include
reinsurance, credit research, cost and
th e process involved in startin g an
AMBAC m unicipal-bond-portfolio in
su ran ce p rogram . W rite: A m erican
M u n icip al B ond A ssu ran ce C o rp .,
M G IC Plaza, M ilw aukee, W I 53201.
MID-CONTINENT BANKER for November, 1980
Mr. Bank President,
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MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
61
Fed headquarters in Washington — where the decisions are made.
Can the Federal Reserve System
Com pete W ith Correspondent Banks?
H E F E D E R A L R eserve has been
By Gerald Corrigan
accused, by som e, of being u n re
President
sponsive in its service policies to the
Federal Reserve Bank
banks th a t it serves. In fact, I will
Minneapolis
adm it that th e re is an elem en t of valid
ity to that observation. The F ed has, in
m any cases, b een satisfied to provide
its own version of a “no frills” service. v irtu e o f th e m a in te n a n c e of n o n
O ne ban k er — p araphrasing H en ry e a rn in g F e d re s e rv e s . A nd, m any
F ord — described the F e d ’s a ttitu d e as bankers had concluded that th e im plic
follows: “You can have any color you it price of the services was greater than
want, as long as it’s black.” In defense th e value of the services — hence, one
of the F ed, though, I ’d like to note that critical elem ent of the so-called F ed
our basic black was a p re tty reliable m em bership problem .
product and th at basic black was able to
U n d er the new program of pricing,
blend into a n u m b er of different color th e F e d ’s services will be available to
schem es.
all depository institutions on th e same
Rut, th e F ed is changing — indeed, basis and will be explicitly priced. The
it has to change. It is in th e m idst of a F ed will set a fee for each of the ser
major reassessm ent of its service poli vices it offers, so that it recovers its
cies and attitudes. That reassessm ent costs — including th e so-called private
is a natural outgrow th of th e legisla sector m arkup — as if it w ere a private
tively im posed m andate th at we price firm. At the same tim e, essentially all
our services. Rut, from my personal institutions will be subject to reserve
vantage point, th at fundam ental reas requirem ents. Thus, th e re still will be
sessm ent m ust go beyond — consider a cost associated w ith reserves, b u t
ably beyond — th e narrow questions of th at cost will no longer give one d e
how we d eterm in e our prices, how we p o sito ry in s titu tio n a c o m p a ra tiv e
respond to shifts in p attern s of dem and advantage over another. M em bers and
for our services, and how we adapt our nonm em bers alike will have to play the
operations to this new environm ent. In gam e by the same rules.
that light, I w ould like to share som e of
H ow ever, the underlying rationale
my tentative im pressions about some for F ed pricing and, indeed, the con
of these bro ad er im plications of F ed gressional in ten t regarding F ed pric
pricing.
ing, goes beyond the creation of the
The new program of F ed pricing is so-called “level playing field .” At its
q u ite d ifferen t from p ast practices. root, th e move tow ard F ed pricing re
U nder th e p resen t program , th e F e d ’s flects a desire — one shared by the F ed
services are, for th e m ost part, avail — to ensure that paym ents services are
able only to m em bers, and at no ex
plicit charge — b u t th e services, of
course, are not free. T he im plicit price This article is based on remarks by Mr.
of these services is th e am ount of in Corrigan given at the ABA convention in
come m em b er banks have foregone by Chicago last m onth.
T
62
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
provided in the m ost efficient m anner.
As I see it, th e m arket for paym ents
services that is unfolding is fully com
patible w ith that objective, in that it
will produce a m ore efficient paym ents
m echanism , if by efficient we m ean
that it produces the desired am ounts of
goods or services at th e least cost.
C om pare the F e d ’s p resen t approach
to the new approach. C urrently, the
F ed really doesn’t have a good way to
make decisions about th e quantity and
quality of the services it provides. How
fast should checks be cleared? How
often should coin and currency be d e
livered? It can’t answ er such questions
clearly, because it can’t readily d e te r
m ine if the benefits of im proved ser
vice are w orth th e additional costs. So
the F ed generally makes its production
decisions — educated guesses — and
th en proceeds to m inim ize its costs.
U n d e r th e n e w c o m p e titiv e
approach, in contrast, th e F ed will
have an unam biguous way of knowing
if its production decisions are yielding
b e n e fits c o m m e n s u ra te w ith th e ir
costs: the bottom line.
The change is that it will know for
sure w hich services are really w anted
at w hat price. If the F e d ’s price is too
high, the dem and for its services will
shift to those w ith low er prices — those
that are presum ably m ore efficient —
and the objective of overall efficiency
will be served. In those circum stances
the F ed will be faced w ith the need to
m atch those efficiencies or get out of
th e particular line of service in ques
tion. The reverse is also tru e if the
business shifts to the Fed. But in eith er
case, the m arket — not the am biguities
associated w ith a particular regulatory
(C ontinued on page 70)
MID-CONTINENT BANKER for November, 19 8 0
Exploring the Role of the Fed
As a Correspondent Bank Com petitor
By Thomas P. Rideout
President/CEO
Savannah (Ga.) Bank
L
E T ’S E X PL O R E th e role of the
J F ederal R eserve as a corresp o n
d en t bank com petitor.
O n the surface, it w ould appear that
th e F ed m eans business in th at th e
prices for its basic paym ents system
services seem to be q u ite com petitive.
In addition, pricing principle n u m b er
seven, w hich w ould grant th e F ed the
ability to ad m in ister prices flexibly,
certainly should serve as a w arning to
corresp o n d en t bankers th at th e F ed
m ight low er prices to achieve or m ain
tain adeq u ate service volum es despite
specific cost considerations in various
product lines. This w ould seem possi
ble due to th e F e d ’s ap p aren t initial
approach of cross-subsidizing specific
services w ith revenues from those that
are priced at a good profit m argin.
It should be p o in ted out th at sailing
for the F ed is not g u aranteed to be
sm ooth, esp ecially in th e servicing
area.
F or instance, by pricing packages o rt c h e c k s , th e c le a r in g h o u s e
m echanism could m ig rate from th e
F ed into private-sector local and re
gional clearing houses. In addition, the
plan to lengthen availability schedules
to actual clearing tim es as p art of th e
F e d ’s float reduction effort should p ro
vide op p o rtu n ities for private-sector
co rresp o n d e n ts w ho co n cen trate on
direct-send program s.
I think th e F e d ’s m ove from artificial
to actual availability is constructive in
the sense that it will c reate com petitive
opportunities th at should resu lt in im
proved availabilities for the paym ents
system overall. If th e private sector
should increase its share of this m arket
in the process, it should be of little
concern to the F ed if paym ent-system
efficiencies are im proved.
In addition, it should be re m e m
b ered th at th e F ed has not had m uch
practice in the business of com peting.
Historically, it has te n d e d to off-load
work on the private sector. In addition,
it has not had a consistent system of
incentives to b u ild volum e, though
some of that may change — as a result
of the M onetary C ontrol Act.
By contrast, the private sector has a
n u m b er of things going for it. F irst is
the apparent distrust that many bank
ers have for dealing w ith governm ental
en tities of any kind. Second is that
pricing should stim ulate a m uch m ore
com petitive attitu d e on the p art of the
private sector for operational business,
w ith a stressing of th e historic private
sector quality differential being the
m ain em phasis. Finally, the traditional
b roader range of correspondent ser
vices — in loan assistance, for instance
— will provide the private sector with
a packaging advantage over the Fed,
w hich traditionally hasn’t offered such
services.
I ’d like to touch on th ree item s that I
think are im portant in the private sec
to r’s adju stm ent to the F ed s proposed
regulations. T hey are the pass-through
concept, im plications for financial re
porting and exam ination and the clear
ing-balance concept.
The law states that reserves should
be m aintained by all depository in
stitu tio n s offering e ith e r transaction
acco u n ts a n d /o r n o n -p e rso n a l tim e
accounts. Reserves may be m aintained
This article is based on remarks by Mr.
Rideout given at the ABA convention in
Chicago last month. Mr. Rideout is chairman, ABA correspondent banking divi
sion’s executive committee, and a member
o f the ABA’s Federal Reserve task fo rce.
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
in the form of vault cash, and, that
b e in g in su ffic ie n t, th ro u g h e ith e r
direct deposit of reserves at the F ed or
by passing them through an institution
that m aintains its reserves directly at
the Fed. The F ed will perm it those
banks p assin g th ro u g h re se rv e s to
establish separate accounts in which
they m ight com m ingle reserves for all
depository institutions they represent.
But it also has created com plications by
r e q u ir in g th a t s e p a r a te r e s e r v e
accounts be m aintained in o ther F ed
districts for respondents whose head
offices m ight b e in th o se d istricts.
M any correspondent bankers feel this
is a needlessly com plicated, u n neces
sary and potentially discouraging reg
ulation.
The law provides that all depository
institutions subject to reserves shall
have access to th e F e d ’s priced ser
vices. The question of how those ser
vices m ight be purchased directly and
settled for raises some additional q u es
tio n s. I m p o r ta n t am o n g th e s e is
w h e th e r th e c o rre s p o n d e n t w ould
agree to its resp o n d en t purchasing ser
vices directly and yet allowing settle
m ent for that transaction in eith er its
pass-through reserv e account or its
regular reserve account. Using the ex
am ple of a correspondent utilizing the
F ed W ire directly, a question is raised
of contingent liability. I feel that m any
correspondent banks are going to be
nervous w ith such an arrangem ent due
to loss of both the control feature of the
pass-through service and the incom e
incentive as well.
A nother question is w h eth er co rre
s p o n d e n ts w ill p e rm it th e ir p a s s
th ro u g h re sp o n d e n t banks to m ove
th e ir re s e rv e s a ro u n d as m e m b e r
banks now do. T here are some signs
that a nu m b er of correspondents will
not perm it this because of th eir liabil
ity for insufficient reserves as well as
for the bookkeeping nightm are that
would be required by such activity.
T h e p ass-th ro u g h co n cep t raises
o th er questions. O ne has to do with
w h eth er pass-through banks will need
to report as both an asset and a liability
the reserves that are passed through.
W ere this to be required, the unfor
tunate effect of ballooning the balance
sheet of pass-through correspondents
63
18 y e a rs in b a n k in g g iv e s m e
th e e x p e rie n c e to k n o w w hat
b a n k s n e e d in a n y o ffic e r
p o s itio n — a n d to fin d a b a n k
fo r e x p e rie n c e d b a n k e rs lo o k in g
fo r a d v a n c e m e n t. C o m p le te ly
c o n fid e n tia l.
Don Schooler, Jr.
Bryant Bureau.
could occur, opening correspondents
to criticism by both exam iners and the
in v e stm e n t public. T he F ed , along
w ith the appropriate accounting stan
dard boards, should address itself to
this question at an early date.
In addition, th ere is a question of
c o n c e n tra tio n of assets. As is w ell
known, it is a common practice for the
various banking agency exam iners to
criticise banks that have concentrated
m ore than 25% of th eir capital with
upstream correspondents in th e form
of eith er due-from -bank balances and/
or F ed funds sold. The passing through
of req u ired reserves as a part of the
definition of such concentrations could
severely discourage the developm ent
of the pass-through m echanism , given
th e p reference of correspondent banks
for both dem and balances and sources
of F ed funds. Bank regulators should
address this question soon.
The final point I w ant to cover is the
F e d ’s clearing balance proposal. As
part of th e M onetary Control Act, C on
gress authorized the F ed to require
c le a rin g balances, if necessary, for
those depository institutions wishing
to purchase services directly b u t who
w ere not otherw ise req u ired to m ain
tain reserve balances with the Fed.
The F ed would req u ire that an indi
vidual clearing-balance level be estab
Call Jim m y Gaskell, Chairman and President of First
Alabama Bank of Montgomery. For your correspondent
needs, 2 0 5 / 8 3 2 - 8 2 1 9 .
Personal Banking From Professionals.
R rs t/ A Ola
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a
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f M ontgom ery N. *MemberFDIC
64
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Federal Reserve Bank of St. Louis
lished, on some basis, by the district
bank for each such institution. Since
that balance would not be req u ired for
reserve purposes, the F ed is proposing
to pay a soft-dollar earnings credit us
ing the 91-day Treasury-bill rate. Two
observations m ight be m ade about this
procedure.
First, the bill did req u ire that Fed
services be priced explicitly and p re
sum ably th a t im plies th at p aym ent
would be m ade on an explicit basis.
Since Congress d id n ’t give the F ed the
pow er to pay in terest on reserves, it is
seeking to use a soft-dollar alternative
as a way of providing com pensation for
th e req u ired clearing balances. W hile
not having any disagreem ent with the
equity of the proposed approach, it
could be argued that utilization of the
soft-dollar credit doesn’t satisfy the in
te n t of the law in this regard. P resum
a b ly , th e F e d has r e v ie w e d th is
approach with the staffs of the various
b an k in g c o m m itte e s and found no
objection.
Second, th ere could be some confu
sion in that no standards have been set
forth w ith regard to the m an n er in
which clearing balances will be d e te r
m ined. G iven the relative disparity
am ong F ed districts concerning the
aggressiveness w ith which paym entssystem business is sought, th ere could
be an inconsistent approach around
th e c o u n try . T h u s, som e d istric ts
m ight te n d to set clearin g -b alan ce
levels artifically high w ith the hopes
that an accum ulation of unused softdollar credits would induce the trans
fer of even m ore service volum e to the
F ed system.
T h ere is no assurance this w ould
happen, given the risk that too high a
clearing balance level could have the
reverse effect of discouraging service
flows. H ow ever, it presents a potential
problem to the system overall.
As a result, it would seem ap p ropri
ate that the Fed set forth some realistic
nationw ide standards for the establish
m en t of clearing balances, so as to
avoid both the potential for internal
abuses and for confusion am ong the
com m ercial banking public as well. • •
Dividend Direct Deposit
Offered by Chicago Bank
Shareholders of M idland Bancorp,
p aren t of Sears Bank, Chicago, can
have th eir dividends deposited direct
ly into a checking or savings account of
th eir choice, utilizing the ACH sys
tem .
A spokesm an said the bank is b e
lieved to be the first in the nation to
offer the service using th e ACH n e t
work.
MID-CONTINENT BANKER for November, 1980
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Federal Reserve Bank of St. Louis
When you look better,
you feel better . . .
When you feel better,
you work better . . .
Wear the best in
business fashions . . .
a
^ a rly le
^ t rINCORPORATED
u v e n
F A S H IO N S F O R B U S IN E S S
300 West Congress Parkway
Chicago, Illinois 60607
(312) 922-8448
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Fed's Competitive Effect W ill Be Minor;
Correspondent Relationships W ill Thrive
MCB Survey Reveals Correspondent-Bank Confidence
O R R E S P O N D E N T BANKERS,
well as the increasing role we are play
By Jim Fabian
fo r th e m o st p a r t, fe e l th e
ing in the continuing education of our
Associate Editor
step p ed -u p com petition of th e F ed, as
respondents.
evid en ced in th e issuance of a fee ing and to participate in overloans and
• W e are stressing additional fea
pricing schedule, will have little effect lines of credit to th eir custom ers.
tures we offer in our services that the
on c o r r e s p o n d e n t-re s p o n d e n t re la
• W e will m arket our bank as we
F ed doesn’t offer. And we are stressing
tionships.
credit-related services that are valu
h av e in th e p a st, o ffe rin g ab oveC orrespondents feel they can negate a v erag e q u a lity of serv ice and r e able and com plem entary to some of the
any com petitive effect from th e F ed by sponse. The best way to discourage re priced services.
continuing to offer “personal-touch” spondent banks from dealing w ith the
C o rresp o n d en ts w ere asked w hat
services th a t resp o n d en ts n eed and F ed will be to let them try it — the few
reaction th eir banks w ere getting from
that can’t be obtained from th e Fed. who wish to!
resp o n d en ts concerning w h eth er or
T h e m ajority of re s p o n d e n t banks,
• W e haven’t had to sell our respon not respondents will rem ain w ith their
especially sm aller institutions, are ex dents on th e advantages of the co rre correspondents or go directly to the
p ected to opt for th e convenience of spondent relationship. W e can offer
Fed.
one-stop service offered by co rrespon th e p a s s -th ro u g h c a p a b ility w hich
• All indications point to our re
dents.
spondents continuing with us. Some
makes it possible for respondents to
T h is is th e g e n e r a l c o n s e n s u s avoid opening another account with
will be com pelled to utilize F ed ser
obtained from tabulation of a survey of the F ed that m ust be m aintained. C on vices to take advantage of price dif
c o rre sp o n d e n t banks c o n d u c te d by venience of handling investm ents, re ferentiations.
• None of our respondents has given
M i d - C o n t i n e n t B a n k e r . O th e r su r serv es, e tc ., at one c o rre sp o n d e n t
any indication about severing or alter
bank rem ains the best advantage for
vey results included th e following:
• Few corresp o n d en t bankers feel respondents not using the F e d ’s ser ing relationships w ith our bank. Re
spondents are reticen t about replacing
the F e d ’s prices are hig h er than theirs. v ic e s. M o st c o r r e s p o n d e n t ban k s
an arrangem ent w ith w hich they are
• O pinion is split on w h e th e r the h a v e n ’t in c re a s e d th e ir a c c o u n tF ed has b itten off m ore than it can analysis service charges, so th eir prices
pleased with one w ith the F ed, esp e
chew w ith its pricing schedule.
cially w hen the quality of F ed services
are below those of the Fed.
• The F ed will not be com pletely
p ro v id e d to m e m b e r banks leaves
• W e will sell against the F ed ju st as
successful in elim inating float.
we do against o ther com petitors.
m uch to be desired.
• Few banks have expressed their
• W e d o n’t feel th ere is any m otiva
• A m ajority of banks expected to
views. Those that have are awaiting
com m ent on th e F ed pricing schedule tion for our respondents to m igrate to
prior to the O ctober 31 deadline.
our counter program s. O ur largest re
th e Fed.
Bankers w ere asked w hat they w ere
spondents have indicated they will re
• W e will continue to supply faster
telling th eir respondents in regard to availability w ith no sorting re q u ire view the F ed alternative and make d e
the advantages of continuing th e ir cor m ents. In addition, we will offer later
cisions based on bottom -line benefits.
resp o n d en t relationships. R esponses deadlines and provide low-cost tran s
• Reaction has been positive with
included: offering b e tte r service and portation program s.
the exception of some who will con
m ore tim ely responses to problem s
• W e are stressing th e custom ertinue to use the F ed for RCPC items.
p resen ted by respondents, offering a service aspect of our relationships as
• C om m unity respondents appear
w ider variety of services, m aking it
m ore profitable for a resp o n d en t to
continue banking w ith its co rrespon
A candid assessment of the Fed's pricing policy by a
d en t, em phasizing th e pass-through
midwestern correspondent banker:
capability th a t co rre sp o n d e n ts have
and m ore personal service.
"W e think the Fed will have problems in billing for
Some banks rep o rt that, since they
priced services, in handling all the new reserve accounts
are located closer to th e ir respondents
and in curbing internal float. It will muddle through on the
than the resp o n d en ts are to th e F ed,
it’s geographically m ore feasible for re
first point; phase-in of Regulation D will allow it to survive
spondents to receive th e m ajority of
the second problem; it has artfully refused to set public
th eir services from th e correspondent.
objectives for solving the third and intends to stick banks
O th e r com m ents:
• M any of our respondents look to
with the problems in any event!"
us to provide accom m odation financ-
C
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
67
to be willing to stay with us for the tim e
being. L arg er resp o n d en ts indicate
m ore aw areness of selecting various
services, influenced by availability and
price sensitivity.
• I t ’s too ea rly to te ll on la rg e
accounts; small ones seem to w ant to
stay with 11s w ithout question.
The overall effect F ed pricing is ex
pected to have on co rrespondent rela
tionships was com m ented on by bank
ers responding to th e survey:
• • If we can’t com pete through p ro
viding h ig her-quality services, com
petitively priced, or develop new ser
vices that can be m arketed profitably,
we ll be out of business. H ow ever, it
will take a period of years for the effect
to be fully realized.
• T h e effect will b e n e g lig ib le .
W hile the Fed will be in a position to
resp o n d w ith m ore m echanical se r
vices, m any respondent relationships
go m uch deeper. R espondents look to
11s for lending assistance, advice, in
form ation and the personal touch. I t’s
doubtful that respondents will look to
th e F ed for such services in lieu of
rem aining with th eir correspondents.
Some will look to the F ed to provide
m echanical services sim ply because
th e F ed may be m ore com petitive in
p rice. H ow ever, m ost re sp o n d e n ts
will ignore the pricing differential and
Reuss Calls for Fed Re-Examination
CALL for re-exam ination of th e en tire F ederal Reserve System
has been m ade to th e U. S. C om ptroller G eneral by H enry S.
Reuss (D .,W is.), chairm an of th e H ouse C om m ittee on Ranking, F i
nance and U rban Affairs.
Purpose of th e study, to be m ade by th e G eneral Accounting Office,
would be to d eterm in e th e estim ated m arket value of all F ed real estate
and all o th er p ro p erty and to d eterm in e all operating expenses and
categorize them by functions, such as check-clearing, currency storage,
bank supervision, fiscal agency operations and research.
Mr. Reuss said th e F ed was established in 1913 to serve the banking
needs of th at era. In this era im portant questions should be asked,
including: “Is th e vast F ed eral R eserve bureaucracy that has developed
still n eed ed to serve th e essential functions of a central bank? Should its
bank regulatory functions be transferred to the C om ptroller of the
C urren cy and th e F D IC ? C ould its vast clerical and check-clearing
services be carried out b e tte r by th e private sector, w here com petition
would produce cost-saving efficiencies?
“The F ed cu rren tly costs th e taxpayers m ore than $1 billion annually
to operate, even w ithout considering its enorm ous investm ent in capital
facilities,” M r. Reuss said. “T he system has 12 regional reserve banks,
25 branches, 48 check-clearing facilities and 22,000 em ployees. Its
banks and branches occupy som e of th e choicest and most valuable real
estate in our urban centers. In recen t years, the New York Federal
Reserve Bank has p urchased additional prim e land next to Wall Street
and the San Francisco Bank has assem bled a large land package.”
As part of th e study, Mr. Reuss asks that a detailed analysis of all
operating expenses be m ade concerning any one reserve bank. The
report, he said, should include th e n ature of expenses that would
com m only be classified as adm inistrative. Mr. Reuss also called on the
study com pilers to give recom m endations on the abolishm ent of F ed
services and/or th e transference of som e services to o th er agencies.
Mr. Reuss’ req u est includes a rep o rtin g date of F ebruary 1, 1981.
H e cited the nation’s continuing h uge b udgetary deficits as reason for
requesting th e study. T hese deficits, he said, are forcing cutbacks in
many highly desirable program s and “req u ire that we re-exam ine every
aspect of federal operations to d eterm in e w here econom ies can be m ade
w ithout loss of essential governm ent fu nctions.”
Mr. R euss’ estim ate of th e F e d ’s cost to taxpayers, while technically
accurate, has been te rm e d as being som ew hat misleading. T he Fed
receives alm ost all its incom e from the T reasury as interest on Treasury
securities that it owns. O f $10.3 billion in in terest earned on Treasury
securities in 1979, th e F ed tu rn e d alm ost $9.3 billion back to the
Treasury.
A
68
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
will m aintain th eir p resen t all-purpose
relationships.
• I n c re a s e d m o v e m e n t to feepricing for correspondent services may
actually help us price services closer to
actual costs.
• The overall effect I see is a b e tte r
future for correspondent banking!
• W e see o u r p rim a ry m a rk e t
changing from the small bank that does
everything with us to the larger bank
that can’t m eet the F e d ’s sorting re
quirem ents and the large bank that
m ight deposit with us to get a lower
price.
• In the long run, the effect will be
positive as we don’t feel the F ed can
provide the level of service that co rre
spondent banks offer.
• F ed pricing will have a negative
im pact on the Fed's earnings as well as
on the earnings of respondent banks.
• The effect will be m ore cash m an
agem ent by large correspondents, few
e r free balances, spirited pricing in the
private sector and no m ore free ser
vices.
• The effect will be a b ette r, m ore
efficient job by correspondents on a
com petitive basis.
W h e n ask ed w h a t lo n g -ra n g e
changes are in store for the typical cor
re sp o n d e n t relationship due to th e
F e d ’s com petitive stance, correspon
den t bankers replied as follows:
• W e will be m anaging our busi
nesses better!
• Banks will have to offer th eir ser
vices in a most professional m anner,
getting away from the “Hi, H ow dy”
way of doing business. R espondents
will be depending on th eir correspon
dents m ore than ever for services and
advice in the 1980s. If com m ercial cor
respondents don’t provide satisfactory
service and price th eir services com
petitively, respondents will take their
business elsew here.
• M ore local clearinghouses will be
organized to clear direct to respon
dents.
• I believe the Fed getting into the
act will help the correspondent bank
system.
• The F ed will soon find that it can’t
provide the degree of service dem and
ed by custom ers at the price quoted.
• Em phasis will be placed on quali
ty of service and pricing m ore than it
has b een in the past.
• O ne probable change will be a
m ovem ent to fee com pensation in lieu
of balances. A nother change will be a
m uch m ore selective use of a bank’s
services by respondents. And corre
sp o n d en ts probably will drop some
services due to Fed com petition.
• I t’s possible that service charges
MID-CONTINENT BANKER for November, 1980
By jo in in g h a n d s w e can do a lo t b e tte r for o u r
c u sto m e rs a n d o u rselv es.
N a tio n a l B o u lev ard can h e lp a u g m e n t
y o u r b a n k in g o p e ra tio n s, e x p a n d in g th e sco p e
of ex istin g serv ices a n d im p le m e n tin g n e w
o n es for y o u r re s p o n d e n t cu sto m ers.
O u r “O n e -O n -O n e ” c o rre s p o n d e n t b a n k
in g p ro fe ssio n a l w o rk s clo se ly w ith h is c o u n
te rp a rt at y o u r b ank. H is job: to c o o rd in a te
fin a n c ia l reso u rces, facilities a n d cap a b ilitie s
for m a x im u m b enefit.
A t N a tio n al B o u lev ard th e re ’s o n ly one
w ay— th e O ne-O n -O n e w ay— for u s to w o rk
together. A n d w h e n w e do, w e m ake a co m b i
n a tio n th a t’s p ra c tic a lly irre sistib le — a n d
h ig h ly p ro fitab le.
NATIO NAL BOULEVARD
The Bank for the New Downtown.
400-410 N. M ICHIGAN AVE., C H IC A G O , IL 60611
ONE ILLINOIS CENTER (111 E. W acker), C H IC A G O , IL 60601
(312) 836-6600 • MEMBER FD IC
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
69
will be based on hard-dollar ra th e r
than analysis charges.
• T h ere’s a possibility of correspon
d en t banks establishing dow nstream
direct-send service.
• Changes will include explicit pric
ing on every service, price shopping by
large banks and m ore freq u en t rela
tionship changes.
• The F ed always was in the act. It is
m erely rew riting its p art in the play. At
most, correspondent banks may lose
som e volu m e and co n co m itan t d e
m and balances. No structural changes
are likely.
C orrespondents w ere asked if they
expected the F ed to elim inate float.
Among th e responses w ere th e follow
ing:
• If the F ed adheres to its schedule
and actions as outlined, it could well
elim inate float — especially if the F ed
charges banks for float.
• T h e re alw ays w ill b e w ays to
escape float charges.
• Float is a part of th e com m ercial
banking system that will rem ain until
we have ultim ate EFTS. The F ed now
will no longer subsidize th e banking
system by passing float along to com
mercial banks rath er than absorbing it.
• It’s possible that the F ed will be
able to reduce float, but' it w on’t be
able to elim inate it.
• Float is a fact of any processing
condition. The F ed may be able to re
duce float below c u rren t levels, but
th ere always will be transportation d e
lays, eq u ip m en t failures, etc. , th at will
prev en t the com plete elim ination of
float.
• In the long term , float will be su b
stantially reduced. This will benefit
those co rrespondent banks w ith high
levels of direct-send cash-letter activ
ity.
• It will be too costly to elim inate
float. T h e re ’s no way to place th e b u r
den of float on th e party causing it. • •
BANKERS WANTED
COMM’L LN .............................. Minn., Ks. 3 0 ,0 0 0
C A S H IE R ..................................... Ks., la. . . 2 0 ,0 0 0
CO N TRO LLER........................... Io w a .......... 2 0 ,0 0 0
PRESIDENT .............................. Mo............... 3 5 ,0 0 0
AGRI LO A N ................................ Mo., Neb. 22 ,0 0 0
TRU ST OFFICER .................... Ks., Mo.
3 0 ,0 0 0
SR. AG. LOAN ......................... Neb............. 3 0 ,0 0 0
COLLECTOR .............................. Mo............... 12,000
Sample listing of available positions. Please for
ward resume and salary history.
TOM HAGAN & ASSOCIATES
OF KANSAS CITY
P .0 . Box 1 2 3 4 6 / 2 0 2 4 Sw ift
North Kansas City, Missouri 6 4 1 1 6
(816) 474-6874
70
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Federal Reserve Bank of St. Louis
Can Fed Com pete?
(C ontinued fr o m page 62)
stru ctu re — will make the decision.
W h at I have ju s t d e sc rib e d is a
ra th e r straig h tfo rw ard textbook d e
scription of how things should work in
a com petitive environm ent. In fact,
m arkets and institutions seldom con
form to th e sim plicities of the textbook
m odel. The case in point is no excep
tion. T here are characteristics associ
ated with the m arket for paym ent ser
vices and ch aracteristics associated
w ith th e players in that m arket that are
not readily captured in my synopsis as
to how things should work. Those char
acteristics will, how ever, have an im
p o rta n t b earin g on how things will
work.
F o r example, one of the textbook
prerequisites for a m arket is that th ere
be perfect knowledge about prices on
th e part of all m arket participants. This
will hardly be the case in the m arket
for paym ents services. F ed prices and
our costs m ust be laid out in detail for
scrutiny — if not nit-picking — by
co m p etito rs and custom ers and the
C ongress itself. O ur com petitors —
th e large correspondent banks — do
not have th at constraint. Sim ilarly,
they do not have to publish th eir prices
and possibly even some price changes
for p u b lic com m ent. T he re su ltin g
advantage is not inconsequential, since
I am not so naive to believe that prac
tices such as “loss lead er’’ pricing do
not or will not exist in the m arket for
paym ents services.
W hen I look at the Federal Reserve
banks relative to th eir potential com
petitors u n d er this regim e, I am also
inclined to believe that certain “nonp rice” considerations will weigh heavi
ly in th e m anner in which the dem and
for p ay m ents services ultim ately is
m et. For exam ple, the full array of ser
vices offered by large correspondent
banks to th eir prospective custom ers
— c o m p u te r services, loan sharing
agreem ents, investm ent advice — is far
w ider than the services provided by
th e Fed. In short, large correspondent
banks are, in fact, superm arkets for
b anking services, w hile th e F ed is
som ething m ore akin to the corner d el
icatessen. G iven our society’s p refer
ence for convenience shopping, here
too, I suspect that the F ed banks are at
a real disadvantage, even if its charges
for — say — processing a check are
close to or even below charges avail
able in the private sector.
I don’t want to leave you w ith the
im pression th at th e F ed is w ithout
som e com parative advantages of its
own in these areas. W e have consider
able expertise; we have considerable
capital, both hum an and physical; and
we have a solid, if not spectacular,
reputation for the delivery of services.
T here also may be areas in w hich the
F ed has an in h eren t advantage in p ro
viding services, if for no o ther reason
th a n th e fact th a t c u s to m e r r e la
tionships are not divulged to prospec
tive com petitors for loans and deposits.
And, as with the Fed wire or n et settle
m en t services, th e re may be som e
areas in which the F ed has its own
nonprice com petitive advantage. But,
even if I make some generous allow
ances as to the significance of those
factors in a com petitive environm ent, I
am inclined to the view that we in the
F ed will not be able to fully m atch the
scope and types of com petition we will
face in the new environm ent.
All of this raises the question as to
how the F ed should go about the busi
ness of being a m arket com petitor —
stated differently, ju st how vigorously
should the F ed com pete? Should the
F ed advertise? And if so, how and how
m uch? Should it draw the line at in
formative mailings, at a billboard cam
paign, or at hiring Bob H ope to be its
national spokesman? Should it hire a
public relations firm to change its im
age? Should it sponsor a television
show like “Dialing for D ollars” ?
O r consider the gifts or prem ium s
that private firms give away to custom
ers. Should th e F e d im itate th ese
firms? Should it give football tickets to
institutions that buy a lot of services?
Should it give toasters or teddy bears
to in s titu tio n s th a t o p e n c le a rin g
accounts at the Fed?
Although these examples may be a
little fa rfe tc h ed , offering d em an d deposit accounting services to deposi
tory institutions — if priced to cover
our costs — may not be so farfetched.
A nd, in such less exotic are a s, it
doesn’t seem To me that offering a full
er range of services, if priced appro
priately, would be incom patible with
th e in ten t of the Congress that the Fed
com pete. I am not predicting any such
result, b ut I do think we in the Fed
m ust consider the question of how we
will com pete w ithin a framework in
which we realistically appraise the na
tu re of the com petition we face.
In fact, we in the F ed cannot answer
the question of our com petitive pos
tu re in the same ways that a privatesector firm would. W e have u n d e r
lying public and statutory responsibili
ties relating to the paym ents and bank
ing systems that transcend our role as a
com petitor in the m arket for paym ents
MID-CONTINENT BANKER for November, 1980
Decision 1980
Success or Surrender!
technological advances such as data processing
requires review and analysis by your officers
and directors.
The thought process necessary to cope with
these immediate and comprehensive needs
is a full time occupation. That is why Professional
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our key staff collectively acquired over fifty
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future.
Our services are as varied as the needs of your
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What does the future hold for your bank?
Can the changes and challenges of this decade be
met from within? Where should internal expertise
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How will tomorrow’s challenges be met and
what changes will tomorrow bring? What
happened to the fun in banking? The answers to
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and even the answers are changing. Is a consulting
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why not rely on the expertise of an organization
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We’re PBS . . .
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-The increased complexity of regulations in
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Regulatory Compliance
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Compilation of Official Reports and
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• Consultant Service to Bank Directors
PBS pursues one endeavor, one objective,
one comprehensive service . . . providing a
program of total support for the community
bank through a continuous monitoring of the
evolving needs and requirements of our industry
while applying practical solutions to today’s
problems. We are dedicated to a concept that the
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Change and challenge are coming your way
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we may be the consulting firm with a solution
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PROFESSIONAL
BANK SERVICES,
150Thierman Lane, Louisville, Kentucky 40207 (502) 895-6521
INCORPORATED
M e m b e r A m e ric a n B a n k e rs A s s o c ia tio n P re fe rre d G ro u p B o n d in g P la n
BANKER for November, 1980
DigitizedMID-CONTINENT
for FRASER
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Federal Reserve Bank of St. Louis
71
services. T hese public responsibilities
may, at some point, com e into conflict
w ith the m andate to com pete or, at
least, the m andate to com pete in th e
m ore traditional ways th at private in
stitutions m ight com pete. In a w ord,
we could e n c o u n te r situ atio n s th a t
from the perception of the public in
terest m ight pose serious dilem m as.
L et m e give an exam ple or two:
Is it possible — looking down the
road a few years — that econom ies of
scale are, or will be, such th at the
clearing and co rrespondent business
for the nation as a whole will en d up
concentrated in a handful of electro n i
cally in te rd e p e n d e n t large banks, and
if so, is that result in the public in
terest?
Is it possible that th e c u rre n t F ed
share of th e m arket for check clearing
will be “cherry picked’ to th e point
w here th e F ed is serving only th e most
rem ote of locations w ith th e result that
prices of such services in those loca
tions will be m any tim es in excess of
prices available in o th er locations —
that is, the post office problem — and,
if so, will th at result be acceptable?
Finally, is th e re any real risk —how ever rem ote — that, in the nam e of
com petition, operational practices or
c re d it risk insensitivities w hich are
contrary to the public in terest could
crop into the paym ents m echanism ?
W e in this country are fortunate in
deed to have a highly efficient, reliable
and flexible paym ents m echanism — a
paym ents m echanism that ultim ately
rests on the confidence we all have in
th e paym ents we make and receive.
That confidence is central to the func
tioning of our banking system and our
econom y at large. W hatever we in the
F ed and you in the banking system do
in response to this new environm ent,
we m ust preserve that confidence.
I don’t know the answers to these
questions, and I don’t know if events
will unfold in a m anner that will re
quire th at we answ er these questions.
But, I do know that from my personal
vantage point as a central banker it
w ould be as inappropriate to ignore
th em as it is devilishly in tricate to
answ er them .
If I ve raised m ore questions than
I’ve answ ered, it’s because I have m ore
questions than answers. T hat’s an in
dication of w here I stand. To get at the
answ ers — indeed, to be sure we know
all the questions — will take tim e and
some careful thinking. But, in spite oi
all th e unansw ered questions, I b e
Bank Directors . . . Find out about what new legislation means for banks . . .
new powers for thrifts . . . banking structure trends for the 80s . . .
at the
44TH ASSEMBLY FOR BANK DIRECTORS*
February 12-15, 1981
Boca Raton Hotel and Club
Boca Raton, Florida
* Cosponsored by the Foundation of the Southwestern Graduate School of Banking, the Florida
Bankers Assoc., and The School of Banking of the South at LSU.
The Assembly will feature . . .
• Eight addresses by leading bankers and regulators, including “ How
lieve that the move to F ed pricing is
the right move. Pricing is m ore effi
cient — it should provide services in
the desired am ounts at the lowest cost.
Pricing is m ore equitable — it makes
the institutions that use the F e d ’s ser
vices pay for them in proportion to use.
And pricing is perhaps w hat the F ed
needs to further im prove its services.
In a few years — who knows? — the
F ed may offer not ju st the standard
black, but a whole rainbow of choices.
Employees, Customers
Appear in Bank's Ads
To give its TV ads credibility, C en
tral Bank, D enver, uses its own cus
tom ers and personnel in com m ercials.
“W e feel the people to make the
strongest claims on th e bank’s behalf
are those who have real connections —
our custom ers and em ployees,’’ says
Betty Lou C arp en ter, m arketing vice
president. “A custom er can say things
about the bank we feel uneasy claiming
for ourselves.”
E m p lo y e e s an d c u s to m e rs a re
chosen by the bank’s advertising agen
cy following auditions for a given part
in a commercial. The following criteria
are used: ability to be directed, good
personality projection on tape and abil
ity to appear relaxed on camera.
E m ployees are encouraged to rec
om m end custom ers to audition and
those chosen are paid standard union
wages. Since com m ercials are m ade
d u ring regular w orking hours, bank
em ployees are paid $1 for each app ear
ance.
T hem e of the advertising is “b e tte r
b an k er.” It attem pts to project the h u
man elem en t into th e institution to
give the bank a position in the m arket
place that is identifiable w ithout re
lying on a slogan, says Miss C arpenter.
C ustom ers participating in the ads
enjoy the experience. Some have had
a c tin g e x p e r ie n c e , b u t m o st a re
am ateurs.
Legislation will Affect Banks in the 1980s,” “ Changing Responsibili
ties of Bank D irectors,” “ Sell or Surrender Your Bank in the 1980s,”
“ What Happens to the Thrift Industry N ow ,” and “ The McFadden Act
and the Douglas Amendment — What is the Future?”
• Discussion Sessions in which directors may ask questions and discuss
issues with the speakers.
• A Special Session on the Trust Business
• A Program for Directors’ Spouses
For registration information and a program brochure write
THE ASSEMBLIES FOR BANK DIRECTORS
SMU Box 214
Digitized for72
FRASER
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Dallas, Texas 75275
or call (214) 691-5398
Central Bank Pres. Donald D. Hoffman
(standing) participated in TV commercial
with John Pung, bank's marketing research
analyst, one of more than 40 "extras" used
to make commercial.
MID-CONTINENT BANKER for November, 1980
“Skip the frills. Just tell me in 100
words why United Missouri Bank
computer processing is better and
more dependable!”
“We have tested and proven systems
and procedures.”
“That sound s like ad talk! D o e sn’t
everybody?”
“ Not everybody has system s that are
geared to what banks really need.”
“You’ve already used up more than 20
words. What do banks really need that
you have?”
“W hat banks really need is a system that
takes work in at night and gets it out
every morning, not just m ost m ornings.”
“Why can’t every computer processor
do that?”
“ Because most haven’t tailored their
operations to do the m eat-and-potato
jobs most subscribers need most. Their
systems are over-designed, over
engineered, too com plex.”
“And y o u r s . . . ? ”
“ Ours is highly sophisticated, but simple
and flexible.”
“Okay, your system Is sophisticated, but
simple and flexible. Focused on what
banks really need. B u t so far that’s ju st
you talking. What do other people say
about how good your system is ? ”
“ I can tell you what an impartial profes
sional said about us: W e ll managed.
Sm oothly functioning. Quality data
service.’ ”
“Actually, that’s close to what we heard.
And, congratulations!”
“ W hat fo r? ”
“It took you only 91 w o rd s!”
UNITED
MISSOURI
BANKS
COMPUTER SERVICES DIVISION
Kansas City
10th and Grand, Kansas City, Missouri 64141
(816) 556-7000
St. Louis
312 North 8th Street, St. Louis, Missouri 63188
(314) 621-1000
Carthage
300 Grant St., Carthage, Missouri 64836
(417) 358-2135
Members FDIC
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
73
Pricing the N O W A ccount
A Return-on-Capital Approach for Pricing Bank Services
H E A D D IT IO N O F N O W ac
counts constitutes a m ajor change
in a bank’s p roduct line. Bankers are
asking one another, “How is your bank
going to price N O W s?”
The New E ngland experience p ro
v ides a v a rie ty o f ex istin g p ric in g
strategies and ATS accounts p resently
offered by m any banks give fu rth er in
dication of how N O W accounts may be
priced. In addition, p rior to pricing
th e ir N O W s, b a n k e rs a re b e in g
a d v ise d to pick a specific stra te g y
based on th eir goals w ith respect to this
new product. They should d eterm in e
w h eth er th eir philosophy will be pas
sive (offer th e service on a low-key
basis), defensive (with a goal of re ta in
ing presen t deposits and c u rre n t prof
itability) or aggressive (NOW s seen as
a tool to increase deposits and d eep en
custom er base).
After a bank’s strategy has been d e
term ined, the p roduct m ust be priced
and the strategy’s effect on th e bottom
line evaluated, using th e b e st e sti
m ates available.
In making a N O W -account evalua
tion, a m yriad of factors m ust be con
sidered. In o rd e r to d e te rm in e th e
p o ssib le e x te n t o f co n v e rsio n , th e
b a n k ’s c u sto m e r b ase m u st b e ex
am ined. In stratifying its accounts with
respect to balances and activity, the
com petition also m ust be exam ined.
After this broad analysis is com plete,
m anagem ent still finds itself asking the
same question, “ How do you price the
By Donald R. Perdue
Vice President
Central Trust Bank
Jefferson City, Mo.
N O W account?” T he questions about
w h eth er or not a bank should m eet
com petition, price high or low or com
bine NOW s w ith o th er services can’t
b e a n s w e re d e ffe c tiv e ly w ith o u t
apprehension unless the banker can
evaluate the results quantitatively.
W h e n v ie w e d by a q u a n tita tiv e
approach, an amazing n u m b er of sim i
larities appear in m uch existing w ritten
m aterial about N O W -account pricing.
Most of this m aterial is based on the
same data — th e F e d ’s functional cost
analysis (FCA) and the com posite data
of th e New E ngland experience with
NOW s. The FCA data is used to d e te r
m ine the cost of account m aintenance
and check processing, w hereas th e
N ew E n gland ex p erien ce data p ro
vides inform ation such as th e rela
tionship b etw een m inim um and aver-
age balances and the percen t of con
v e rs io n from c h e c k in g to N O W
accounts. A break-even analysis can be
constructed using the data from these
two sources.
Prior to constructing a break-even
analysis, how ever, the banker should
list his evaluation criteria (see Exhibit
1). Evaluation of data used in this ex
hibit requires the banker to relate the
NOW account to future earnings, in
te re st and operational costs and in
terest rates. In evaluating this criteria,
most bankers will discover som ething
else — they don’t know th e ir o p er
ational costs. If this is the case, FCA
data can provide thé cost of account
m aintenance. The transaction cost for a
prospective N O W -account custom er
ideally should be developed from strat
ifying or exam ining the bank’s existing
accounts. An exam in atio n of th ose
accounts th at fall w ithin a possible
N O W -account range (say, checking
accounts w ith a $500-or-higher aver
age) can provide th e banker with a
com posite of the nu m b er of checks,
E x h ib it 2
NOW-ACCOUNT BREAKEVEN ANALYSIS
Exhibit 1
Bank Evaluation Criteria
—NOW Accounts
• Pay 5 .2 5 % compounded d aily,
which equates to effective annual
rate of 5.39% .
• Interest will not be paid on uncol
lected funds.
• M aintain capital/assets ratio of
8%.
• A verag e cost of NOW account
(account maintenance and trans
actions) is $70.
• Reinvestment rate on bank funds
is 9.5% (net) of operational ex
penses on asset side of bank.
Digitized for74
FRASER
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Av. B al
$ 1 ,0 0 0
(from New England e x p e r ie n c e )
Min. B a l.
$ 550
2 ,0 0 0
3 ,0 0 0
4 ,0 0 0
5 ,0 0 0
6 ,0 0 0
1 ,2 0 0
1 ,80 0
3 ,0 7 5
3 ,8 0 0
4 ,65 0
MID-CONTINENT BANKER for November, 1980
Dallas is
flying high as a major transportation center.
From the days of cattle trails to the
days of supersonic jets trailing off in the sky,
Dallas has been a transportation hub. A
crossroads of the n a tio n ... and now
the world.
D/FW Airport is among the world’s
largest airports. And many of the travelers
who pass through D/FW Airport are
bankers... coming to Dallas for one reason...
Republic National Bank.
Our correspondent banking departm ent
is known across the United States. Through
Republic National Bank of Dallas, you can
offer your customers a complete range of
financial services such as tru st and
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
investment, petroleum and minerals,
even international.
Republic’s help and cooperation are
sought by correspondent banks in virtually
every state. Because we offer our corre
spondents the capabilities and financial
services of the Southwest’s preeminent
commercial bank.
Republic is one reason th a t Dallas
has become a lead city in correspondent
banking. Yet even though bankers pass
through D/FW Airport on a regular basis,
they’re only a hint of w hat the future holds.
For u s— and for D allas— the best is
yet to come.
Republic National Bank is Dallas.
REPUBLIC
M em ber FD IC
Interest Income - Interest Expense
or Assets X Yield - Liabilities X Yield
=
=
or (A) (R)
=
-
(.92A) (.0539)
B/T Return on Capital
B/T Income
Capital
(.26) (.08A)
where R = the required reinvestment rate on total assets that
will meet the bank's profit goals assuming no
operating expenses
deposits and transit item s w ritten on
th e s e ta rg e t acco u n ts. If th e b ank
doesn’t know its own costs, FCA data
can be used to provide them for th e
size of bank in question. T hese costs
then can be com piled to provide an
annual operational cost p e r account. If
account stratification isn’t possible for
th e bank, th e N ew E ngland experi
ence suggests th at N O W -account cus
tom ers w rite from 15-20 checks p er
m onth and that transaction costs are
about $35 p e r year p e r account. W ith
small variances, m ost banks will find
th eir fixed costs (account m aintenance
and transaction costs) to average about
$70 p er year p e r account.
Using th e criteria in E xhibit 1, a
break-even analysis can be calculated
for a range of balances (averages and
th eir related m inim um s based on the
N ew E ngland experience). T he $70
fixed-account cost, th e 5.39% in terest
expense and th e 9.5% rein v estm en t
rate show a break-even point at ap
proxim ately an $1,800 average balance
or a $950 m inim um balance. (See Ex
hibit 2 on page 74.)
G e n e ra lly sp eak in g , q u a n tita tiv e
analysis stops at th e N O W account
b re a k -e v e n p o in t. C e rta in ly banks
aren ’t in business to break even b u t to
retu rn a profit for shareholders. The
final ch ap ter in quantitatively evaluat
ing the N O W account m ust be w ritten
to system ize th e pricing of the service
for the desired profit.
To do this, bankers should begin
w ith the basic relationship form ula for
all accounting: Assets = Liabilities +
C apital (A = L + C). R eferring to the
evaluation criteria in Exhibit 1, it was
d eterm in ed that a capital/assets ratio of
8% is n eed ed by the bank. T herefore,
“C ” in th e equation can be replaced
w ith “ .08A .” At this point, “L ” easily
can be solved in term s of “A .”
W h ere C
A
L
L
=
=
=
=
.08A
L + .08 A
A .08A
.92A
I t’s now been d eterm in ed that the
bank’s liabilities equal 92% of its total
assets. It also can be stated that a bank
(or bank product) derives its gross prof
it before operating expenses (or gross
re tu rn on capital) by th e sp read it
m aintains b etw een its retu rn on assets
(interest income) less its cost on liabili
ties (interest expense). If it is assum ed
th at operating expenses w ere zero, this
spread relationship w ould provide a
b ank’s re tu rn on capital as follows:
In te re st In co m e-In terest Expense
= B/T R eturn on Capital
In re la tin g th e two eq u atio n s to
N O W accounts, the evaluation criteria
again are referred to. These criteria
state th at th e bank is going to pay
5.39% on NO W -account balances and
that a 26% before-tax retu rn on equity
is required. A form ula now can be con
stru c te d to arriv e at th e re q u ire d
reinvestm ent rate a bank should attain
in order to m eet its profit objectives
(not break-even), assum ing operating
expenses are zero.
W hen the above form ula is used, “A
X R” can be substituted for interest
incom e w h ere “R is th e re q u ire d
reinvestm ent rate on total assets. W e
then can substitute “ .92A tim es .0539’
for in terest expense and “ .26 tim es
.08A” for the req u ired retu rn on capi
tal. T h e N O W -a c c o u n t fo rm u la
appears at the top of this page.
The pricing formula still isn’t com
plete because the evaluation criteria
further state that interest will not be
paid on uncollected funds. In addition,
it m ust be recognized that a bank can’t
invest reserves, float or that portion of
capital allocated to non-earning assets
(land, fixtures, buildings, etc.). The
following then can be assumed:
• Float on NOW accounts = 5% or
(.05) (.92A)
• Reserve requirem ents* on NOW s
are 3% or (.03) (.92A)
• 60% of the bank’s capital is allo
cated to n o n -earn in g assets or (.6)
(.08A)
The formula can be com pleted by
Exhibit 3
Pricing the N O W Account — Revenue vs. Cost
(A)
Min.
Bal.
$
125
250
550
875
1,200
1,500
1,800
2,437
3,075
3,347
$
(B)
(C)
Av.
Bal.
Acct. Fixed
Cost ($70)
Converted
to %
250
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
28
14
7
4.7
3.5
2.8
2.3
2.0
1.7
1.5
+
(D)
Required
Reinvest.
Rate for
Return on Cap.
(E)
Total Required
Reinvest.
Rate as
as % of Bal.
(F)
Less
Assumed
Reinvest.
Rate
+
8
8
8
8
8
8
8
8
8
8
36
22
15
12.7
11.5
10.8
10.3
10.0
9.7
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
9.5
+
+
+
+
+
+
+
+
+
(G)
Remaining
% Needed
for Profit
Goals
=
=
=
=
=
=
=
=
=
=
26.5
12.5
5.5
3.2
2.0
1.3
.8
.5
.2
0
(H)
(1)
Monthly
% Loss or
Charge
Gain
Converted to (H) Divided
$ per Year
by 12
$66.25
62.50
55.00
48.00
40.00
32.50
24.00
15.00
7.00
0
$5.52
5.21
4.58
4.00
3.33
2.70
2.00
1.25
.58
0
At a $4,500 average collected balance, the bank's profit objectives are met; from this point
forward, excess profit per account can be calculated. Stratification of accounts also can be used
in calculating profitability of the NOW-account portfolio mix if proper data can be obtained.
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MID-CONTINENT BANKER for November, 1980
T h e M osler
A dvantage:
Service people
x wherever you are
It’s a fact that you’ll find Mosler service people in
places you won’t find anyone else. You’ll also find that
Mosler people understand th at getting to you “as soon
as we can” just isn’t soon enough.
T h at’s why last year alone, Mosler service people
drove more than 20,000,000 miles in their customequipped vans to keep all kinds of security and
transaction products in operation. Twenty-four hours
a day. Seven days a week. Even in Alaska.
A nother fact. Mosler service people spend up to
20% of their careers staying up-to-date with current
p i technology. So they come to you trained to do the
job right. Usually the first time. A nd always at
prices you can live with.
Security products
wherever they’re needed.
W hether custom-guarding the original
Declaration of Independence in W ashington, DC,
safeguarding the gold in Ft. Knox or protecting
valuables in a safe deposit box in Topeka, Mosler stands
for excellence
everywhere. All
because the quality of
Mosler products
stems from the
quality of its people-an
advantage our customers can’t get
from any other security company.
Put T he Mosler Advantage to work for you. Start with
a copy of our “Scope of Mosler” and “Service” brochures by writing
Mosler, Dept. S-80, 1561 Grand Blvd., Ham ilton, Ohio.
Quality People. Quality Products.
Mosler
An A m erican-Standard Company
Ham ilton. Ohio 450 1 2
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
77
Total Assets [A
-
Non-Earning Capital
[(.6) (.08A)
Collected Funds
(.95) (.92A)
+
Float
+ (.05) (.92A)
Interest Rate
(.0539)
=
+
+
Reserves
(.03) (.92A)]
(R)
-
B/T Return on Capital
(.26) (.08A)
R = .077
inputting the additional inform ation.
I t’s notew orthy that th e level of funds
available to in v est from th e N O W account p roduct have b een red u ced
a p p re c ia b ly . T h e le v e l o f e a rn in g
assets on th e N O W -account pro d u ct
available to invest is only 88% of the
a s s e t to ta l. A c ro ss-c h e c k on th is
approach w ould be to take th e bank’s
statem ent of condition and calculate its
overall level of earning assets as a p e r
centage of total assets. T he com pleted
form ula appears above.
This form ula fu rth er assum es that
earning assets are w ithout risk or th e
NOW Training Tapes
Available From ABA
A series of three video-tape pro
grams for in-house training about
NOW accounts is available from the
ABA. They are titled “Profitable
Banking in a NOW-Account E n
vironment,” “Planning Considera
tions for NOW A ccounts’ and
“ Check Safekeeping and NOW
Accounts.”
The first tape covers such basics as
the h isto rical/leg islativ e back
ground, market share, pricing and
selectivity, value marketing, pitfalls
and how to avoid them and how to
make NOWs a profitable venture.
The second tape takes an in-depth
case-study approach to planning and
marketing. It covers bank objec
tives, market research, assumptions,
strategies, account expectations, les
sons learned from the New England
experience and recommendations
for bank implementation. Printed
materials also are available.
The third program is an introduc
tion to check safekeeping, or trunca
tion, and covers costs savings and a
cost analysis, m arketing, legal
issues, benefits, technological and
operational issues and specific con
siderations for implementation with
NOWs.
The tapes were produced for a
series of NOW-account workshops
held by the ABA during the summer.
They are designed for use in plan
ning, implementing, modifying and
managing NOW accounts, and for
training bank personnel.
For a brochure and order form,
write: State Association Division,
ABA, 1120 Connecticut Avenue,
N. W.,'Washington, DC 20036.
78
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
loan portfolio has no losses. T herefore,
it can be assum ed that a loan loss would
equ ate to lA of 1% on all earning assets
or
R - .077
Loan Loss** = ,0025
Total R = .0795 or 8.0%
W e have finally arrived at the re
qu ired rein vestm ent rate in o rder that
a bank can m eet its profit goals on a
N O W account, assum ing no operating
expenses. The next step is to factor the
operational cost of the N O W account
back into the analysis.
The evaluation criteria provide an
o p e ra tio n a l cost of $70 p e r N O W
account. This fixed cost can be con
v e rte d into an in terest rate on any
given balance. This in terest rate, com
b in e d w ith th e calculated re in v e st
m en t rate, can provide th e total in
terest rate necessary to be earned on a
particular balance to enable the bank
to m eet its goals.
E xhibit 3 illustrates this point by
show ing th e com bined effect of the
rein v estm ent rate and the operational
cost con v erted into an in terest rate
(Colum n E). As shown in C olum n E,
th e cost of low-balance N O W accounts
becom es quite clear.
R e g a rd le s s o f a b a n k ’s p ric in g
strategy, it can’t exist w ith all lowbalance N O W accounts w ithout assess
ing m onthly fees. Exhibit 3 also d em
o n s tra te s th e in te rre la tio n s h ip b e
tw een in te rest cost and in terest in
com e. M any banks still a tte m p t to
price th eir services w ithout this in te r
relationship of earning assets, spread
and leverage.
The next step in the analysis is to
su b tra c t th e assu m ed re in v e stm e n t
ra te (9.5%) listed in th e evaluation
c r ite r ia fro m th e to ta l r e q u ir e d
rein v estm ent rate (E — F) in o rd er to
d eterm in e th e shortfall or gain in term s
of in terest rate on a particular NOW account balance (G). W hen this in
te re st rate is converted into a dollar
loss or gain, th e fee m echanism for
balances is quantified. F o r exam ple, a
$500 a v e ra g e b a la n c e te c h n ic a lly
w ould req u ire a $5.21 m onthly fee in
o rd er for a bank to m aintain its profit
objective. By th e same token, a m ini
m um balance of approxim ately $3,000
requires little in th e way of fees to
m eet the bank’s objective.
This pricing analysis quantifies any
p a r tic u la r N O W -a c c o u n t b a la n c e
a c c o rd in g to a p a r tic u la r b a n k ’s
criteria. This analysis should be used in
co n ju n ctio n w ith acco u n t stratifica
tion, analysis of com petition and the
bank’s philosophy or strategy tow ard
N O W accounts. In pricing the N O W
account, the consensus of m arketing
opinion centers around sim plicity in
pricing. Charging various fees can con
fuse the custom er and reduce strategy
effectiveness.
T herefore, a pricing m ethod using a
$1,000 m inim um balance w ith a $7 fee
for those accounts that drop below the
m inim um balance may be a reasonable
pricing structure. A $1,000 m inim um
pricing structure may attract a high
percentage of accounts w hose balances
average $5,000.
The th ru st of this analysis is to p ro
vide the banker w ith a m ethod to qu an
tify p ro posed pricing strategies and
fu rth er enable bank m anagem ent to
analyze the N O W -account portfolio on
a periodic basis. If, over tim e, NOW account balances don’t average a prof
itable mix or if o th er evaluation criteria
are ch an g ed , a d ju stm e n ts m ust be
m ade. • •
* The reserve requirement will depend on
whether the institution is a state bank with
an eight-year phase-in or a national bank
with a phase-down situation. The first
$25,000,000 o f transaction accounts can be
allocated to NOW accounts at 3% reserve.
Each bank should perform its own calcula
tion in order to use the correct reserve
requirement fo r its NOW accounts.
* * Each bank should divide its loan loss by
total earning assets in order to calculate its
own percentage.
• Bank Marketing Association. A
videotape featuring highlights of the
BMA’s 1980 N O W account sem inar is
available. The sem inar is one of a series
of m eetings that the BMA has been
conducting to help bank m arketing
professionals get ready for nationw ide
negotiable o rder of w ithdraw al (NOW)
accounts authorized by Congress to be
im p le m e n te d D e c e m b e r 31, 1980.
T he tape has b een edited down to less
than two hours and is available in both
half-inch and th ree-q uarter-inch for
mats. W rite: Bank M arketing Associa
tio n O r d e r D e p a r tm e n t, 309 W .
W ashington St., Chicago, IL 60606.
MID-CONTINENT BANKER for November, 19 8 0
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Farm Credit Act
(C ontinued fr o m page 22)
doing a n u m b er of things th at BCs can
do. Yet none of th ese constraints is
im posed on th e Farm C red it S ystem ,”
he said. ‘ I t’s our contention that, if this
is a m ove into banking, le t’s all play
essentially by th e sam e kind of game
p lan .”
Mr. M inger said th e Farm C red it
System wants to b roaden its pow er to
get into corporate financing — a con
cept that was not foreseen by those
w riting th e original act in 1933. H e
added th at policing this type of financ
ing would be difficult. The Farm C re d
it System is seeking o p p ortunities to
take farm operations th at a re n ’t large
and go off th e farm to finance m ajor
com m ercial operations, w ith th e P ro
duction C red it and F ed eral Land Bank
associations participating in th e financ
ing, he said.
H e also com m ented on a proposal to
reduce farm -voting m em bership from
80% to 60% in th e cooperative farmsupply operation. ‘‘Since th e re is a re
q u ire m e n t th a t, to b e e lig ib le for
financing from a BC, a co-op m ust do at
least 51% of its business w ith farm
m em bers, th e change w ould resu lt in a
farm supply co-op doing 70% of its
b u s in e s s w ith n o n -fa rm m e m b e rs
w hile the co-op is controlled by th e
voting m em bership m ade up of far
mers. O ur feeling is that th e re ’s no
reasonable need for low ering th e eligi
bility requirem ents.
“The one thing th at com es through
loud and clear is that bankers operate
u n d er certain kinds of restraints, ” Mr.
M inger said. “This bill really isn’t a
farm -related bill; it’s the kind of bill
th a t’s related to w hat bankers do in the
com m ercial sector. I t’s our b elief th at if
we re going to p erm it th e e n tre e of
another bank — actually a nationw ide
m a trix o f b a n k s — b a n k in g ru le s
should apply equally.”
Mr. Jackson term ed th e bill an “u n
w arranted intrusion and a serious b u r
den on the private sector of th e A m er
ican business com m unity.”
H e said that state bank regulators
are stym ied by a batch of bank-like
entities that are b eyond th e ir authority
to regulate. The national chartering of
th e Farm C redit System looks a lot like
one of these entities, he said. H e com
pared them to m oney-m arket m utual
funds and said th e FCA will have an
aw esom e ab ility to g a th e r dep o sits
w ith no fear of regulation. H e term ed
the bill the “m ost insidious, innocuous
Digitized for80
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piece of legislation since the highly
espoused differential betw een thrifts
and b an k s.”
H e called attention to the fact that,
for all practical purposes, the Farm
C red it System is untaxed. H alf of the
system is exem pt outright from state
and federal incom e taxes, he said, and
th e oth er half has some im position to
pay state and federal incom e taxes.
H ow ever, its p rescrib ed accounting
procedures are such that its effective
tax rate is less than half that of com m er
cial banks.
“If you want to com pete in the future
w ith both hands tied b ehind you, then
I suggest you ignore the Farm C redit
Act of 1980,” Mr. Jackson said. “If
you’re concerned about an organiza
tion that has federal backing, that e n
joys un h eard of benefits as a child of
C ongress, th at’s seen as having th e full
cred it of the governm ent w ithout gov
ern m e n t constraints — if you w ant that
kind of com petition on Main S treet
USA, financing agricultural business,
su p p lies, m ark etin g , ex p orting and
le v e ra g e d leasing and eq u ity ow n
ership — I suggest that, in a great
sense of urgency, you contact C on
g ress.”
Mr. Jackson added that two portions
of the bill m eet w ith the ABA’s approv
al. They are the parts that w ould p ro
v id e c o n v e n ie n c e p a rtic ip a tio n s of
banks w ith PCAs w hereby banks and
not custom ers buy stock in the Farm
C red it System and the provision for
participation of banks w ith the F ederal
L a n d B ank S y stem in an easy participation form. “T hese are good
and p ro p er im provem ents,” he said.
“But th e unw arranted intrusion of
this system, enjoying exem ption from
alm ost e v ery th in g w e have to deal
w ith, not the least of which are regula
tion and taxation, enjoying being id en
tified as a quasi-arm of the governm ent
— th at intrusion into the private sector
is not appropriate at this tim e. • •
ABA Convention
(C ontinued fr o m page 22)
th e increased risk this w ould entail.
This w ould give sm aller institutions a
g re a te r c o m p etitiv e o p p o rtu n ity to
seek new m arkets as they saw fit. The
resulting benefits of m ore aggressive,
com petitive sm aller banking organiza
tions m ight m ore than com pensate for
th e increased risks.” This suggestion
was g reeted w ith applause.
Mr. H eim ann then tu rn ed to a sub
ject he has discussed on previous occa
sions — geographical re stra in ts on
banking, saying that his office believes
such restraints on bank expansion are
anti-com petitive and im pede the effec
tiveness and efficiency of the banking
system.
H e also called for concentrating in
itially on phasing out Douglas A m end
m ent restrictions on interstate bank
holding-com pany expansion, includ
ing establishm ent of new banks and
acquisitions of existing ones.
L etter to the President. Branching
an d th e D ouglas A m e n d m e n t also
w e re s u b je c ts o f a le t t e r w ritte n
S eptem ber 30 to P resident Jim m y C ar
te r by S e n a to r W illiam P ro x m ire
(D .,W is.), chairm an, Senate Banking
C om m ittee. Copies of the le tte r w ere
d istributed at a press conference with
the senator during the ABA conven
tion.
Senator Proxm ire referred to a re
q u irem ent of the International Bank
ing Act of 1978 that a study of branch
banking be subm itted to C ongress by
S eptem ber 17, 1979. A lthough more
than a year has passed w ithout such a
study, he continued, rum ors in the
financial press say that a draft rep o rt
now is on the P resid en t’s desk and soon
m ay b e tr a n s m itte d to C o n g re ss.
These rum ors indicate that the report
will recom m end that geographic re
straints on banking be relaxed and that
the first priority be a m odification of
the Douglas A m endm ent to the Bank
H olding Com pany Act. This am end
m ent restricts interstate-bank acquisi
tions by bank HCs.
In the letter, Senator Proxm ire said
it would be extrem ely unlikely that
C ongress w ould show m uch e n th u
siasm for any substantial w eakening ol
th e M cF adden Act, which req u ires
national banks to operate u n d er state
branching laws. H e bases this opinion
on the fact that m any congressional
m em bers and bankers share the same
views that th ere are m any benefits in
p reserv in g in d e p e n d e n t and locally
controlled banks.
The senator said that, perhaps b e
cause of these perceived difficulties,
d ra fte rs o f th e p ro p o s e d r e p o r t
apparently have focused m uch of their
attention on liberalizing the Douglas
A m e n d m e n t to th e B ank H o ld in g
Com pany Act. H e indicated concern
about this, saying that u n restricted de
novo branching at least has th e advan
tage of injecting new com petition into
m arkets that may, in some instances,
be overly p ro te c te d . O n th e o th er
hand, he continued, acquisition of ex
isting banks across state lines provides
no new banking facilities to m eet com
m unity needs. Thus, m any of the procom petitive m erits claim ed for branch-
MID-CONTINENT BANKER for November, 1980
PU SH IS C O M IN G
TO S H O V E .
W IC H IT A (IV ) — H e re
they come.
Foreign banks, with seem
ingly unlim ited resources and
su p p o rte d by th e ir respective
gov ernm ents, are taking u p
residence in A m erica’s m oney
centers.
A n d t h e y ’re m a k i n g it
to u g h on the way we do busi
ness. Because they d o n ’t have
to play by o u r rules.
So as o u r m o n e y c e n te r
banks look fo r business else-
w here, you can bet they’ll be
l o o k i n g at Kansas.
A nd with today’s c o m p u ter
an d telecom m unication tech
nology, they have a convinc
ing story to tell.
T h e message is clear.
We all n eed to be b e tte r
bankers th an ever before an d
m ake o u r cu sto m er services
the m ost com petitive they can
be.
You have the m eans to get
this very im p o rtan t jo b done
th ro u g h th e c o rre s p o n d e n t
b a n k i n g services o f T h e
F o u rth .
Call Jo e Stout, Tom Potter,
Gage O verall, Max K nopp o r
Phil Miller.
T h e y ’ll h elp you p u t th e
systems, the experience and
tne ex p ertise o f th e largest
b ank in Kansas to w ork for
you, so you w on’t be shoved
aside.
TheFourth IT
The Fourth National Bank and Trust Company
Wichita, Kansas 67201/(316) 261-4654
Member FDIC
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
81
ing do not necessarily extend to H C
acquisitions.
Also, said the letter, it should be
em phasized th at the Douglas A m end
m ent already allows in terstate acquisi
tions w h en ev er specifically p e rm itte d
u n d er laws of th e state w here a bank to
be acquired is located. Thus, if a case
can be m ade for in terstate acquisitions,
fed eral law alread y p ro v id es states
with authority to act. P resum ably, said
Senator Proxm ire, th e proposed m od
ifications to th e Douglas A m endm ent
would reverse this long-standing poli
cy by p reem p tin g th e rights of states to
d eterm in e th e ir own policies. H e said
h e u n d e rs ta n d s th e C o n fe re n c e of
S tate B ank S u p e rv iso rs a d a m a n tly
op p o ses th is in c u rsio n in to s ta te s ’
rights.
“Because of th ese factors,” th e le tte r
concluded, “I urge that you approach
th e draft-b ran ch in g re p o rt w ith ex
trem e caution and review carefully its
rep o rted focus on in terstate acquisi
tions. T here may be a case for in te r
state deploym ent of electronic teller
m achines or o th er de novo facilities
w ithin a single m arket area such as an
SMSA, and th e next C ongress m ight
be p rep ared to m ove in this regard.
H ow ever, if th e branching issue is e n
c u m b e re d w ith m o re fa r-re a c h in g
approaches such as th e re p o rte d m od
ifications to th e Douglas A m endm ent,
I am fearful th a t th e en su in g con
troversy m ight p rejudice any legisla
tive endeavors in this area. ”
From C hairm an V olcker. R egula
tory reform also was called for by F ed
Chairm an Paul Volcker, who adm itted
he is uncom fortable w hen he realizes
th a t r e g u la tio n s , o fte n r u n n in g
thousands of pages, freq u en tly are in
com preh en sib le to th e bankers who
m ust follow them . Too often, he said,
these regulations concern insignificant
issues and often are duplicative, com
ing from th e F ed , C om ptroller and
F D IC .
C h a irm a n V o lck er said th a t th e
spewing out of com plex regulations,
applicable to all institutions, big and
small, may be a larger th re a t to the
e co n o m ic v ia b ility o f th e sm a lle st
banks than any branching statute b e
cause only the larger institutions can
possibly have both th e expertise and
specialization to know th e regulations.
It doesn’t make sense eith er, he w ent
on, to b u rd en banks to th e point that
th e ir c o m p e tito rs can g ro w m o re
rapidly.
H ow ever, he added, this does not
m ean th a t sm all b an k s in g e n e ra l
should be wholly exem pt, b u t th ere
are opportunities to simplify regula
tion and enforcem ent procedures. As
Digitized for
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Loan Documentation Text
Banks’ commercial loan officers
should approach documentation as a
logical process that is an integral part
of the loan transaction, states “An
Introduction to Commercial Loan
Documentation,” a new publication
from the ABA’s commercial lending
division.
The text contends that although
the complexity, volume and variety
of commercial lending law and prac
tices make it “impractical, if not im
possible” for lending personnel to
know all the rules, regulations and
laws, a loan officer properly trained
in the loan documentation process
can develop techniques for effective
ly handling secured and unsecured
commercial loans.
The publication is designed to in
troduce new lenders to the process of
loan documentation and to provide
banks that don’t have a loan docu
mentation manual with guidance in
developing one.
The publication is available at
$7.50 a copy for ABA members and
$9.50 a copy for nonmembers. Re
quests for the publication, #168600,
should be sent to Order Processing,
ABA, 1120 Connecticut Avenue,
N.W., Washington, DC 20036.
an exam ple: less freq u en t reporting
and reserve calculations for the sm all
e st financial in stitu tio n s u n d e r th e
M onetary Control Act.
M r. V o lcker also b e lie v e s basic
objectives of “social” regulations could
be achieved w ith m uch less cost if the
basic legislation did not dem and p re
cisely the same disclosures and tre a t
m ent for all transactions.
FD IC Project. M ore than 30% of the
9,300 insured state n onm em ber banks
supervised by the F D IC will be cov
ered by th e end of 1980 by alternate
instead of dual federal and state ex
am inations, F D IC C hairm an Irvine H.
Sprague told ABA conventioneers.
The goal of this broad new initiative
in F D IC and state cooperation, he
said, is to im prove supervision, lessen
th e regulatory bu rd en on banks and
im prove service to the public.
Mr. Sprague also detailed coopera
tive efforts involving establishm ent of
regional typing centers to speed typing
of exam ination reports, legal drafting
assistance w here state law m ust be
changed to p erm it cooperative p ro
grams, state access to the F D IC s com
p u terized data base, com m on enforce
m en t actions and developm ent of com
m on bank application and exam ination
forms.
T he F D IC chairm an em phasized
th at participation in these program s is
voluntary, that each state determ ines
the extent of its own involvem ent.
A highlight of the final day was an
appearance by G eorge Bush, R epubli
can candidate for U. S. Vice President.
Vice P resident W alter F. M ondale also
was scheduled to speak — on O ctober
13 — b u t was unable to make it. • •
W ashington W ire
(C ontinued fr o m page 16)
out the override provision, banks in
many states simply would be unable to
w rite ARMs at all.
By proposing a set of standards for
banks to follow, th e C om ptroller is
hoping to encourage banks to en ter the
m ortgage m arket w ith a new and flexi
ble in stru m en t that should help make
m oney available to the hom e-buying
public. Banks retain the prim ary re
sponsibility to develop and prom ote
th e ARM. The C om ptroller has p ro
posed a way to open up a new field
of investm ent for banks, b u t he has
stopped short of dictating specifically
how banks are to take advantage of it.
As part of the new era of deregulation,
bankers would be on th eir own in using
th e opportunity this proposed regula
tion presents.
I t’s clear that the ARM will be one of
th e m ost im portant new types of res
idential m ortgage instrum ents in the
near future. The decline in the availa
bility of m ortgage m oney lendable by
banks at fixed rates has caused many
observers to conclude that the fixedrate m ortgage is a thing of the past.
The F ederal H om e Loan Bank Board
already has issued its regulations gov
erning the w riting of a new instrum ent
similar to the ARM, w hich the board
has called “re n e g o tia b le -ra te m o rt
gages.”
The ABA has established a task force
on adjustable rate m ortgages which is
form ulating the association’s response
to the C om ptroller’s proposal and is
working w ith the banking com m unity
to encourage the developm ent of these
new instrum ents. • •
• Pitney Bowes. A new six-page
booklet w ritten specifically to help the
banking com m unity speed its p ap er
work processing at lower cost is avail
able. T itled “Banking and the Copying
C hallenge,” the booklet dem onstrates
six com m on tec h n iq u e s th a t banks
could be using every day in handling
th eir growing volum e of paperw ork.
F o r a fre e co p y , w rite : P itn e y
Bowes, 121 Crosbv St., Stam ford,CT
06296.
MID-CONTINENT BANKER for November, 1980
MISSISIPPI
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for
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Business Climate.
DEPOSIT GUARANTY
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In a 1979 stud y by A lex an d er G ran t & C o m p a n y for the C o n fe re n ce of State
M anufacturers A sso cia tio n s on the relative attractiveness of the b u sin ess
clim ates for the 48 co ntig uo us states of the United States, M ississippi ranked
No. 1.
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b u sin ess is the state’s largest bank with the financial re so u rce s (total a sse ts as
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Federal Reserve Bank of St. Louis
83
U. S. Not in Typical Recession,
Darryl Francis Tells Bankers
By Jim Fabian
Associate Editor
G R O U P of bankers from Illinois
an d M issouri w ere som ew hat
surprised to learn last m onth that
U. S. is not in a recession and hasn’t
b een in one since 1973. F u rth erm o re,
they learned that no real recession is
expected until 1982.
Irresp o n sib le talk? N ot w hen the
speaker is D arryl R. Francis, form er
p resid en t of the St. Louis F ed and cu r
rently chairm an/president, M erchants
National, F ort Sm ith, Ark. Mr. F ran
cis was a featured speaker at th e annual
bank sem inar held in St. Louis by Peat,
Marwick, M itchell & C o .’s St. Louis
office.
M r. F ran cis ex p lain ed his s ta te
m ent: “By not m oving the federal gov
ern m e n t tow ard balance, by not slow
ing up th e rate of m onetary expansion,
we d id n ’t this tim e condition this econ
omy for the classical type of recession.
It ju st w asn’t built in .”
E arlier in his talk, Mr. Francis ex
plained that things w ere different p re
c ed in g th e c u rre n t econom ic slow
down, and this difference fooled many
people into predicting a recession.
F o r th e first tim e, he said, we have
seen a m ajor cycle in the peaking-out
process w ithout th e federal govern
m ent m aking any attem p t to balance
out its accounts. Also, federal spending
has continued at increasing rates with
no attem p t to cover all the increases
through taxation. This policy has re
sulted in massive deficits.
H e added that th e F ed traditionally
turns down the spigot to slow the flow
of reserves w hen “inflation raises its
ugly head to th e point w here it b e
com es disturbing. ” This was not done
in th e past year, even though the F ed
announced a year ago that it was tu rn
in g its a tte n tio n to th e c o n tro l of
m onetary aggregates, particularly the
m oney supply. “The F ed has not been
firm or tight in term s of its m onetary
policy,” Mr. Francis said.
T he result, he added, is that “w hat
w e re se ein g isn ’t recessio n ; w e re
seeing a kind of a w edge drop th a t’s
com ing right back and we re going to
see th e econom y w ork back to about
w here it was before th e fall.
Since the econom ic decline w asn’t
severe enough to curb inflation, he
said, th e econom y will continue its
seesaw m otion and th e re ’s no quick
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the
Featured speaker Darryl Francis (I.) former
pres., St. Louis Fed, chats with Ed Lee, part
ner, Peat, Marwick, Mitchell & Co., at semi
nar for Illinois and Missouri bankers spon
sored last month by CPA firm in St. Louis.
Mr. Francis now is ch./pres., Merchants
Nat'l, Fort Smith, Ark.
tu rnaround possible.
Bankers attending the sem inar w ere
polled on th eir plans to offer N O W
accounts. Responses included th e fol
lowing:
• 96% of the banks re p resen ted at
th e conferen ce plan to offer N O W
accounts.
• 90% said th e ir banks will offer
N O W s to retain c u rre n t custom ers;
only 6% said th eir in ten t was to attract
new custom ers from com petitors.
• W hen considering N O W -account
pricing, 77% said they priced th eir
accounts according to the internal costs
of the bank, w hile 14% said they priced
th eir accounts to m eet the price struc
tu re of th eir com petitors.
• 53% plan to price NOW s accord
ing to a m inim um balance, w hile 22%
said th e ir p ricin g was according to
average co llected balance and 20%
according to average ledger balance.
• 52% a n tic ip a te o ffe rin g fre e
N O W -account service at a m inim um
balance level from $1,000 to $1,500;
30% at a m inim um balance level over
$1,500; and 11% at a level of from $500
to $1,000.
• The m ajority expect to levy a ser
vice charge of e ith e r $5 or $10 p er
m onth on accounts th at don’t m aintain
th e m inim um balance.
• A surprising 40% said th eir banks
w ould truncate N O W -account checks.
• M ore than half said they expect to
adjust th eir bank’s total service-charge
structure w ith the advent of NOW s.
• 65% said they expect th eir bank’s
profits will decrease as an im pact of
N O W accounts. • •
MID-CONTINENT BANKER for November, 1980
Anti-Redlining Regs Have Adverse Impact
E D E R A L regulations designed to T hese acts are in te rp re te d and adm in c e d u ra l an d in fo rm a tio n -g a th e rin g
p rev e n t redlining have su bstan istered by th e F ed eral H om e Loan costs, as well as reduced operating effi
tially increased hom e m ortgage costs,
Bank Board, the F D IC , the C om ptrol c ien cy for th e le n d e r. U ltim ately ,
these costs are borne by the consum er.
placed an u n d u e financial b u rd e n on ler and the Fed.
Professors G uttentag and W achter
A lth o u g h th e stu d y sp ec ific a lly
lending institutions and, paradoxical
recom m end that a m ore appropriate
ly, actually have h arm ed th e disadvan d id n ’t seek to obtain cost estim ates,
public policy response to the redlining
taged borrow ers they w ere supposed th e authors have used available data to
problem is to low er len d er cost by
to protect.
establish possible costs of $250-$350
coo rd in atio n of in v e stm e n t and in
T he result also has b een a reduction m illio n a n n u a lly . T h is r e p r e s e n ts
in the overall supply of m ortgage credit m onitoring costs by the federal agency form ation gathering or by the paym ent
in in n er-city n eig h b o rh o o d s. M o re (which the study says are eventually by governm ent of prem ium s to lenders
over, th e regulations may have con passed along) and record keeping, p ro for making loans in specified areas,
trib u ted to th e fu rth e r d eterioration of
these areas.
T hese are th e m ajor findings of a
A NEW LOW COST ATM BRANCH
research study en titled “R edlining and
THAT YOU CAN AFFORD NOW!
Public Policy,” by professors Jack G utte n ta g a n d S u san W a c h te r o f th e
(A t 1 /4 the c o s t o f a sm a ll m a n n e d bran ch, it w ill
W harton School, U niversity of P e n n
handle 8 0 % o f your c u s to m e r's n e ed s.)
sylvania, and pu b lish ed by th e Salo
mon B rothers C en ter for the Study of
F inancial In s titu tio n s at N ew York
U niversity’s G raduate School of Busi
ness A dm inistration.
Original research for th e study was
sponsored by th e F ed eral H om e Loan
Bank Board.
T he research study system atically
exam ines th e necessary steps in defin
ing and d etectin g m ortgage redlining
and provides realistic policy proposals
to help dereg u late th e financial m ar
ketplace w hile providing positive in
centives for len d ers to invest in local
co m m u n itie s, says A rn o ld S am etz,
director of th e Salomon B rothers C e n
ter.
Professors G u tten tag and W achter
contend th at redlining is a problem
W IT H S C A R C E G A S O L IN E P R IC ED O U T R A G E O U S L Y
m ainly because th e private risk and
H IG H - A L E R T B A N K E R S A R E E X T E N D IN G
cost of lending in th ese areas has b e
TH EIR S E R V IC E S C LO SER TO TH E C U S T O M E R !
com e excessive and regulation has only
aggravated those costs.
BANK C U S T O M E R S EN JO Y A T M BANKING BECAU SE:
Among th e costs im posed on le n d
1. It's nearby and convenient. Handy neighborhood location.
ers, according to th e study, is th e b u r
2. No traffic jams. Bank Anytime — Day — Night — Holidays.
den of m aking loans they m ight o th e r
wise reject, of incurring additional in
AND OF MORE IMPORTANCE FOR THE BANK:
form ation costs to assess questionable
1. Minimum land needed, thus more choice and available sites.
loans and of dem on stratin g th at they
2. Amazingly lower initial cost and low per item cost.
are m eeting com m unity needs.
3. Will gain New Accounts and Keep present ones at a fraction of
This has red u ced the profitability of
Regular Branching Cost.
in n er-city office locations and even
4. Cawthon Facilities are R ELO CATA B LE!
forced som e len d ers to evade regula
Phone or write today for Caw thon's attractive brochure and other helpful
tions by m oving out of th e troublesom e
information. IT'S AN IDEA W H O SE TIME H A S CO M E!
locations.
The federal regulations are incorpo
C A W T H O N BUILDING S Y S T E M S , INC.
rated in the H om e M ortgage D isclo
505 Interstate 35E.
su re Act (1975), th e E q u a l C re d it
De Soto (Dallas) Texas 751 1 5
O p p o rtu n ity Act (1974-76), th e F air
Phone (214) 2 2 3 -4 9 0 0
H ousing Act (1968-74) and the C om
m u n ity R e in v e s tm e n t A ct (1977).
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BANKER for November, 1980
DigitizedMID-CONTINENT
for FRASER
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Federal Reserve Bank of St. Louis
85
w hile leaving th e m resp o n sib le for
losses.
Such proposals include th e revam p
ing of th e F H A program to reform
lending standards and term s and elim
inate th e financial incentive to fore
close FH A loans as soon as possible.
The incentive to foreclose, th e au
thors say, w ould be elim inated if max
im um in terest rates w ere set so that
discounts averaged only two or th re e
points on a national basis instead of five
or m ore points, as in th e past.
The study provides a definition of
redlining behavior by m ortgage le n d
ers th at is consistent w ith the concerns
of com m unity groups and C ongress
over inequities to individuals and the
decline of inner-city neighborhoods. It
considers w h eth er redlining behavior
is detectable using various data sources
and statistical techniques and sum m a
rizes the cu rren t academ ic literatu re
on redlining issues. • •
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George J. Benston and Dan Horsky,
“Redlining and the Dem and for Mort
gages in the Central City and Sub
u rb s, Journal o f Bank Research
(Sum m er, 1979), pp. 72-87. (Single
copies available at $5 each from the
Bank Adm inistration Institute, 303
South N o r th w e st H ig h w a y , Park
Ridge, IL 60068.)
M e ssrs. B e n s to n a n d H o rsk y
a tte m p t to sh ed som e light on th e
m uch-debated, highly em otional and
politically sensitive question of “re d
lin in g ” by c o m m e rc ia l b an k s an d
S&Ls. T heir m eans is an open-ended
questionnaire of central-city and su b
urban hom e ow ners in the Rochester,
N. Y., m etropolitan area.
This p ap er reports results of in te r
views w ith 1,198 hom e ow ners and re
cen t hom e buyers. The interview s elic
ited inform ation about actual and p e r
ceived dem and for m ortgage loans by
these two groups of in terested parties
and extent to w hich this dem and is
u n m et by traditional suppliers of m o rt
gage credit.
T he interview s w ere aim ed at ex
am ining four basic sets of questions: 1.
Is u n m et dem and g reater in the (redlined) central city than in the suburbs?
2. Do hom e buyers in th e central city
experience significantly m ore difficul
ty in obtaining m ortgages than su b
u rb a n h o m e b u y e rs ? 3. D o h om e
buyers in the central city obtain FH A
m ortgages because they have no other
a lte r n a tiv e ? 4. A re h o m e -im
p r o v e m e n t loans m o re difficu lt to
obtain in the central city than in the
suburbs? A series of questions was d e
signed to provide inform ation about
each of these four broad categories.
Results provided by M essrs. Benston
and H orsky are too num erous to rep o rt
in detail here. H ow ever, some high
lights deserve m ention.
In the survey of recen t hom e sellers,
th e authors find that 5.5% of the cen
tral-city hom e ow ners had tried unsuc
cessfully to sell th eir hom es in the past
five years versus 3.3% of th e suburban
hom e ow ners. O f these, a g reater p e r
centage of th e prospective buyers of
central-city hom es experienced “m o rt
g a g e - r e la te d ” p ro b le m s th a n d id
HOW ARD
P e r s o n n e l In c
360 N. Michigan Ave.. Chicago 60601 (312)332-2341
NYC •
Redlining Is Found
To Be 'Red Herring'
In Rochester, N. Y.
NJ • Chicago • Atlanta • S.F • Dallas
NATION S HEADQUARTERS FOR
BANKING PERSONNEL
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
This article is reprinted with permission
fro m Monitor, published bimonthly by
Credit Research Center, Krannert Gradu
ate School o f Management, Purdue Uni
versity, West Lafayette, lnd.
p ro s p e c tiv e b u y e rs o f s u b u rb a n
hom es, 27.6% com pared to 21.4%.
H ow ever, in no case was location of the
property cited as the root cause of the
difficulty in obtaining the loan. The
authors conclude that this evidence is
not consistent w ith the hypothesis that
dem and for m ortgages was unm et b e
cause lenders “red lin e d ” the centralcity area.
In the survey of actual hom e buyers,
th e authors find that 91.9% of centralcity hom e buyers financed th eir p u r
chases w ith m o rtg ag e loans, w hile
98.5% of suburban hom e buyers fi
nanced w ith m ortgage loans. O f those
hom e buyers from both groups that did
use m ortgage loans, th e proportion
obtaining loans from financial in stitu
tions is the same for both groups, 78%.
F u rth e r analysis of hom e buyers who
attem p ted b u t failed to obtain loans
indicated that . . . “possible redlining
activities affected only 0.2% of the cen
tral-city houses offered for sale.”
Finally, the authors rep o rt the high
e r incidence of FH A loans in the cen
tral city is m ore likely to be the result
of the lower dow n-paym ent re q u ire
m ents of these loans than of redlining
by banks and S&Ls.
Based on th eir surveys of hom e ow n
ers and recent hom e buyers, Mr. B en
ston and Mr. H orsky conclude that
redlining is not practiced by lending
institutions in R ochester, N. Y. They
fu rther note that exam ination of sup
ply-side phenom ena in the absence of a
consideration of dem and variables may
lead to an incorrect conclusion that
redlining exists. T hey strongly suggest
that future studies of this politically
sensitive issue consider both dem and
and supply effects.
S&L Student Essay Contest
Hits Voting Importance
A com petition aim ed at encouraging
young people to think about the voting
process at an early age, so as to b e tte r
prepare them for the tim e they can
vote, was held recently by St. Paul
F ederal S&L, Chicago. The essay con
test was titled “The Im portance of Vot
ing” and was open to students in grades
seven through 12.
Judging was based on original com
position and know ledge of the political
system. Junior high school essays w ere
250 words or less w ith the w inner re
ceiving a $75 savings account. High
school e n trie s w ere lim ited to 500
words or less and the w inner received a
$100 savings account.
S&L officials expressed th e hope
that contestants would rem ind their
parents that voting is th eir right and
duty as American citizens.
MID-CONTINENT BANKER for November, 1980
Uncertainty.
T h e s e a re u n certain
tim e s. W e h ave been
in a se rio u s re c e s s io n ,
but w e ’re not s u re
how deep it h a s been
o r how f a s t w e a re
climbing out. M oney
r a t e s re a c h e d
u nh eard of h eig h ts,
but w e d o n’t know
how m uch th e y will
drop o r if th ey will drop
b ack to no rm al. S o m e of our
larg e, b a sic in d u strie s a r e in
tro uble. O u r eco n o m ic stability is
d ep en d en t on a s te a d y flow of
p etro leu m im p o rts w hich m ay o r
m ay not prove dependable.
All of th is u n ce rta in ty m a k e s
b u sin e ss lending v e ry difficult.
H o w e v e r, S L T can
elim inate so m e of th e
u n ce rta in ty th a t le n d e rs
fa c e by g u aran teein g
your c u s t o m e r s ’ inventory
a s pledged co llateral.
Fo r o v e r 5 0 y e a r s , w e
have w o rk e d with
s and c o m m e rcia l
le n d e rs to collateralize
loan s and m ak e lending
s a f e r and m o re profitable.
Give us a call; w e can elim inate
u n ce rta in ty fro m your
loan portfolio.
SLT WAREHOUSE COMPANY
P.O. Box 242. St. Louis. Mo. 63166 • 314/241-9750 • Offices in Major Cities
N A T IO N W ID E C O L L A T E R A L C O N T R O L S E R V IC E S
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
87
New Visual Auto Teller Machines
Save Space, Building Costs for Bank
N 1972, N orthw est Bank, H ouston,
had assets of $25 m illion and eight
lanes of drive-up banking. In 1980, the
bank had grow n to $100 m illion in
assets — b u t still had eight lanes of
drive-up hanking.
That m eant th at any Friday night
and on paydays, lines of traffic backed
up behind th e m achines. A solution
definitely was need ed .
It cam e in th e form of a new product
c a lle d VAT 7 from D ie b o ld . VAT
stands for “visual auto teller, and VAT
7 seem ed custom -m ade for th e bank’s
operatio n s, according to Raybon A.
Ross, senior vice president.
“W e had an eight-lane, line-of-sight Slim VAT 7 visual auto teller from Diebold
drive-up operation using D iebold VAT features roll-out presentation door, over
units since 1972,” he said. “W e had a load detector, narrow island, automatic
dispatch and molded high-impact skin.
good ex p erien ce w ith D ieb o ld as a
company; so we considered the firm
opted to use th e land for future expan
again w hen we n eed ed to enlarge our
sion.
system. At about th e tim e we w ere
“In effect, VAT 7 is giving us th ree
ready to order, D iebold in tro d u ced
m ore lanes of drive-up for the same
th e VAT 7 and it seem ed th e specifica
land co st,” Mr. Ross noted. “And the
tions for th at pro d u ct cam e right off our
cost for the canopy will be reduced,
‘wish list.’
to o .”
The wish list Mr. Ross referred to
A nother im portant consideration for
reflects th e b ank’s land-use situation.
th e bank was custom er ease of o p era
The site selected for th e new 12-lane
tion. Mr. Ross noted the VAT 7’s car
drive-up facility was 1,350 feet away
rier presentation was like that of the
from th e m ain office and th e land
bank’s existing VATs w ith w hich his
w ould have to be leased. Because the
custom ers w ere familiar.
VAT 7 is a narrow er stream lined v e r
“The presentation makes the VAT 7
sion of th e visual auto teller, N o rth
easy to use from every vehicle and we
w est Bank would have b een able to
te n d to p u t our cu sto m er’s com fort
lease less land. Instead, the bank has
I
Designed for the busy executive
A M ER IC A N
Bank Directory
6364 W arren D rive
N or cross, Ga. 30093
(404) 448-1011
V
An e x ecu tiv e’s tim e is valu ab le.
Too valu ab le to w a ste sea rch
in g for a sin gle cop y o f a large,
ex p en siv e referen ce book. The
A m erican B ank D irectory is
th e n a tio n ’s o n ly com p lete
b an k directory sm all en o u g h to
fit com fortably on th e corn er o f
a desk. It provid es ea sy access
Digitized for 88
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Federal Reserve Bank of St. Louis
to in form ation on a n y b an k or
m ulti-bank h old in g com p an y in
th e U n ited States. A nd it’s low
in price so an office can k eep
sev era l co p ies on hand. Order
you r cop y o f th e A m erican
B an k D irectory today. It’s the
desk-sized directory d esig n ed
for th e b u sy ex ecu tiv e.
J
high on our priority list h e re ,” Mr.
Ross said.
Cost savings in the new installation
will also be possible because of the
overhead tube installation. The high
w ater table in th e H ouston area usually
m eans extra expense in ram ping and
providing a trough for underground
tubes. And, since the bank is building
on leased land, an installation w ith a
perm an en t look b u t future movability
was im portant.
W ith th e ex pansion of th e m ain
office drive-up to nine lanes and the
addition of 12 new lanes plus expansion
plans, N o rth w est Bank will b e th e
largest m otor bank in an area w here
th e c u sto m e r really uses d riv e -u p
banking.
Reliability is especially im portant in
such a heavy-use area and Mr. Ross
liked the m icroprocessor technology of
th e VAT 7 as well as features like over
load prevention. “A com m ercial cus
tom er som etim es w ould p u t bags of
quarters in the unit, causing a pro b
lem. This can’t happen w ith VAT 7 ,”
Mr. Ross said.
“I think the VAT 7 rep resen ts not
only cost savings b u t also the latest in
technology, Mr. Ross said. “And that
appeals to us, since we are a progres
sive, growing organization.”
N orthw est Bank has ju m p ed to 25th
out of the 168 banks in the H ouston
area, according to latest figures. Plan
ning for the future, as evidenced by the
just-announced VAT 7 contract, is u n
doubtedly part of the reason for the
success of this in d e p en d en t bank. • •
Advertising Law Guide
Published by BMA
Publication of a m anual that explains
g o v ern m en t a d v ertisin g regulations
for fin an cial in s titu tio n s has b e e n
an n o u n ced by th e Bank M arketing
Association.
“ T h e F e d e r a l A d v e rtis in g Law
G uide” is said to be th e only book of its
kind in the field of bank advertising. It
presents excerpts from laws issued by
bank reg u lato ry agencies, including
th e C om ptroller of th e C urrency, the
F D IC , the F ed and the F ederal Trade
Commission.
The book was com piled by industry
attorneys for both experts and novices
at banks of all sizes as well as ad agency
executives. Because governm ent reg
ulations are constantly changing, the
publication is published in a loose-leaf
form at to accom m odate periodic u p
dates that will be m ade available by the
BMA.
MID-CONTINENT BANKER for November, 1980
"When m anual wire transfers
were w asting too much tim e,
we helped save the day.”
John Bailamme, Vice President and Group H ead, Correspondent Banking
“Having the right product at the
right time for our correspondent
customers is no accident. It’s First
Chicago’s philosophy.
“Take Heritage Bank of Woodridge,
Illinois. An aggressive growth program
had their whole staff working long
hours. Trouble was, tedious jobs like
manual wire transfers were wasting too
much o f the workday.
“First Chicago had a solution that
was made to order: FirstCash,™ our
computerized cash control system.
Now, instead of wasting time with
phone calls and callbacks, bank
personnel simply press a few keys on
their own terminal and money transfers
are made instantly. Then at the end of
the day, they get a hard copy printout
of the day’s transactions and balances.
“Cost? Little more than the phone
bills they were paying before. And
when the time is right, we can plug
in modules that will automate
activities like cash letter and target
balance reporting.
“First Chicago is on the leading edge
of banking technology. And when we
design a product or service to meet our
needs, we design it to meet your
needs, too.
“So whether you’re looking for a
new service that will cut costs and
improve profits, or a new product that
will attract depositors, odds are you’ll
find one with your name on it at
First Chicago.
“Phone your First Chicago
Relationship Officer or me, John
Ballantine, today.”
Ask Chicago’s
Bank.
FIRST CHICAGO
The First National Bank of Chicago
Chicago: John Ballantine, 321/732-4131 • Atlanta: Norman McClave III, 404/898-8050 • Baltimore: Robert E. Probasco, 301/547-8700
Boston: Robert G. Barrett, 617/247-4040 • Cleveland: Earle C. Peterson, 216/781-0900 • Dallas: James A. Edwards, 214/742-2151
Houston: Grant R. Essex, 713/658-1100 • Los Angeles: Thomas E. Flowers, 213/628-0234 • New York: Donald Glickman, 212/751-3910
San Francisco: William R. Lyman, 415/788-4311.
© 1980 The First National Bank of Chicago. Member F.D.I.C.
MID-CONTINENT
BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
89
N ew s
About Banks and Bankers
tan C lub. H e is show n receiving a
p la q u e from M ary G e o rg e Jo rd a n
W aite, the bank’s chairm an/president.
Mr. Y arbrough’s club also received a
$100 check from the bank.
A lab am a
R o b ert E . L etso n Jr. has b e e n
a p p o in te d sales e n g in e e r by L eF ebure. H e will serve various parts of
Alabama, operating out of the A tlanta
office. Mr. L etson had b een active in
th e c o m p u te r field in C o lu m b ian a
prior to his appointm ent.
David Jones to data processing offi
cers. They joined the bank in 1969,
1974, 1977, 1974 and 1977, respective
ly. In o th er action, the bank recently
honored branch advisory board m em
b e r C. G. B itzer on his 90th birthday
for his “continuous leadership on the
branch advisory b o a rd .’’
A rkansas
Bank of Malvern has prom oted M ar
garet S aunders and Peggy Allen to
a s s is ta n t c a sh ie rs. M rs. S a u n d e rs
joined the bank in 1961 and Miss Allen
has been w ith the bank since 1978.
Farm ers & M erchants, C en tre, re
cently honored the com m unity’s civic
w orker of th e year after selection had
been m ade from candidates subm itted
by various civic organizations. Each
organization was asked to subm it the
nam e of one m em b er who had m ade
outstanding contributions to th e com
m u n ity and th e club. W in n e r was
B. E. Y arbrough, m em b er of th e Civi-
Farmers Bank, Clarksville, has p ro
m oted T rum an S. Jacobs to vice presid en t/tru st officer and Nina G. Mason
to cashier. Mr. Jacobs has been w ith
th e bank 12 years and Mrs. Mason
joined the bank in 1973.
Joseph L. Lomax has b een prom oted
to vice p re sid e n t at F irst N ational,
M obile, heading a list of o th er prom o
tions th at included M ichael F. Johnson
and C harles E. Reid to assistant vice
presidents and R odger D. O verton and
First National, Siloam Springs, has
been acquired by Springtow n Bancshares, a new ly F ed-approved onebank HC.
Worthen Bank, Little Rock, has p ro
m o te d S te p h e n P lu n k e tt and Paul
G o t p e o p le o r jo b p ro b le m s?
T h e M id w e s t, S o u th w e s t and R o c k y M ountain are as are dynam ic grow th areas. T h e personnel
n e e d s fo r this reg io n ’s banks are vast.
Financial P la c e m e n ts has e a rn e d th e trust and co n fid e n c e of h un dreds of banks and bankers
througho ut the area. W e can help you find th e right person for that im portant bank position.
Put us to w o rk for you. Call or w rite to d a y for our fe e sch ed u le and guarantee.
In our twelfth year of serving the region’s bank personnel needs.
0
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Federal Reserve Bank of St. Louis
F IN A N C IA L
PLA C E M E N TS
A div isio n ot B ank N ew s
912 B altim ore Avenue, K ansas City. Missouri 64105/ 816-421-7941
Tom Chenoweth
MID-CONTINENT BANKER for November, 1980
We give you
big-city clout...
close to home
PLUNKETT
WATSON
W atson to vice presidents; D avid Peglow, R obert Thom pson, M argie Jones
and P e te r Coffield to assistant vice
presidents; D elores Yates to assistant
cashier; Nancy P riest to assistant tru st
operations officer; and M arilyn B erry
to assistant tru st officer. Mr. P lunkett
joined the bank last A ugust and was
form erly w ith F irst Am erican N ation
al, N orth L ittle Rock. Mr. W atson has
b een with W orthen for m ore than two
years and was form erly with banks in
Richm ond, Va.
Illin ois
Farmers State, D ahlgren, has been
acquired by H am ilton Bancgroup, St.
Louis, a bank H C w hose application
was recently approved by th e Fed.
When a banker needs a bank, it helps to find one that has
the leverage of a m ajor full-service bank like you'd expect
to find in C hicago or New Y o rk. S pringfield M arine B an k
can give you that kind of service . . . close to home.
We are a large b an k— in fact, the largest Illin o is bank in
deposits and capital outside of Cook County. And we’re
the m ain depository for m any of our correspondent banks.
So we can offer you the products yo u ’re looking for, such
as cash-letter services and overline credit.
Yet, we m ake it easy to bank at M arine. O ur Central
Illin o is location allow s easy access to all our se rvices and
all our people. You can call any of our top m anagem ent
people directly for co nsultatio n, if you w ish.
You can get what you need at M arine. Cash-letter se rvices,
overline credit and m any other correspondent bank se r
vices. W ith all the convenience you need, too. Call
Jo h n Staudt at (217) 753-6024 for more details.
DuBank Holding, Inc., C arbondale,
has becom e a bank H C through ac
quisition of D uQ uoin State, following
approval of its application by the Fed.
Ernest A. “D rew ” Karandjeff Jr., ex
ecutive vice presid en t, G ranite City
SPRINGFIELD
M a r in e B a n k
1 E as t O ld S ta te C a p ito l P la za
S p rin g fie ld , Illin o is 62701
(217) 7 5 3 -6 0 0 0 M e m b e r F D IC
IB A R e c e iv e s 4 -H A w ard
For the third consecutive year, the Illinois
Bankers Association (IBA) has received a
green clover award from the Illinois 4-H
Foundation for the association's assistance
with direct mail, publicity and contribu
tions from member banks. Shown at pre
sentation are (from I.) Thomas Dammrich,
IBA vice president of education; Keleen
Richardson, Southeast Chicago 4-H; Jack
Lemmerman, IBA president and president,
National Bank, Monmouth; Scott Ander
son, Palos Heights 4-H; W illiam Hocter, IBA
executive vice president; and Norman
Peterson, IBA vice president of adm inistra
tion.
BANKER for N ovem ber, 1 9 8 0
DigitizedMID-CONTINENT
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Federal Reserve Bank of St. Louis
91
Trust, has been elected 1980-81 p resi
d e n t, T ri-C itie s C h a m b e r of C om
m erce. His father, E rn est A. Karandjeff, chairm an/president of the bank,
and grandfather, H enry D. KarandjefF,
honorary chairm an, are past C. of C.
presidents.
Willard Bunn III has advanced from
executive vice president, a post he had
held since 1978, to president, Springfield M arine Bank. H e succeeds J. D.
Fagan, who died of a h eart attack Au
gust 4 at the age of 54. Mr. Fagan had
been p resid en t since 1977. Mr. Bunn,
im m ediate past treasurer, Association
for M odern Banking in Illinois, joined
N ew York C ity ’s C hem ical Bank in
1969, was assigned to the corporate
banking division, w here he becam e a
vice p resid en t in 1974, and supervised
the opening and operation of C h em i
cal’s Toronto office from 1975-77. In
1977, Air. B unn was p ro m o te d to
group h ead /d o m estic dep o sito ry in
stitutions, w ith responsibility for New
York and the New E ngland states. In
o th er action, Springfield M arine has
rece iv e d approval from th e Illinois
com m issioner of banks and tru st com
panies to form a one-bank I1C, M arine
Bancorp., Inc.
for career, m anagem ent and organiza
tio n d e v e lo p m e n t an d c o n tin u in g
affirm ative-action training.
N orthern Trust, C hicago, has p ro
m oted Don W. H um m el and John W.
Taylor III to senior vice presidents in
th e banking and international d ep art
m ents, respectively. New vice p resi
dents include M ary Ann Banach and
W illiam C. W alker, operating d e p a rt
m e n t; S te v e n E. C u tle r , G ary J.
K am pm ann, R oger W. K ushla and
R obert E. Ross, trust d epartm ent; and
W illiam J. Pisarra, banking d e p a rt
m ent. N am ed second vice presidents
w ere H arry T. M cM ahon and John B.
S ch n u re, banking d e p a rtm e n t, and
T heodore D. Tice, tru st departm ent.
Indiana
John R. Schnurlein has b een p ro
m oted to vice p resident and director of
m arketing at N orthern Indiana Bank,
V alparaiso. H e jo in ed th e bank in
1968.
C itizen s Bank, Je ffe rso n v ille , has
prom oted Barry Cahill to vice p resi
den t in charge of data processing and
appointed Ray Beaufait vice p resid en t
in charge of installm ent loans. Mr.
Cahill first joined the bank in 1975 and
rejoined it this year. Mr. Beaufait was
form erly a supervisor in the lending
field.
Mary Lou Mitchell has been prom oted
to assistan t vice p re sid e n t at F irst
Bank, South Bend. She jo in ed th e
bank in 1968.
K ansas
Robert Stainbrook has been prom oted
to president/C E O , O lathe State. H e
had b e e n execu tiv e vice p re sid e n t
since the bank’s opening in 1973 and
was w ith M e tc a lf S tate, O v e rla n d
Park, prior to that time.
TAYLOR
HUMMEL
Kansans Visit Washington
F ir st N a tio n a l, W in n e tk a , has
realigned its m anagem ent by electing
Byron A. W arnes executive com m ittee
chairm an/chairm an em eritus, Paul M.
M ikelson chairm an and Thom as H.
W ern er president. Mr. W ern er and
R o b ert F ield , executive vice p re si
dent, w ere elected to the bank’s board.
Mr. W ern er was form erly w ith G len
coe National and joined F irst of W in
netka last Septem ber.
BUNN
GILLAM
Constance B. Gillam, vice p resid en t,
has been nam ed head of the conven
ience banking division at H arris Bank,
Chicago. Nancy J. M iller has joined
th e bank as vice p resid en t in th e train
ing and d evelopm ent division. Miss
Gillam is responsible for th e bank’s
first-floor “H arris ban k ers’ who deliv
e r personal banking services to retail
custom ers. Miss M iller is responsible
Elmhurst National has given new posi
tions to H arry F. M ilkert, senior vice
p resident-consum er banking; Thomas
F. Franklin, vice president-m arketing
and planning; and Janice E. Kinzel,
vice p resident-installm ent loans. Each
is now a dep artm en t head. Mr. M ilkert
joined the bank in 1946 and Mr. F ran k
lin has been w ith E lm hurst National
since 1977.
Emery E. Fager, KBA president, visited with
Senator Nancy Kassebaum (R.,Kan.) mem
ber, Senate Banking Committee, during re
cent trip to Washington, D. C., as part of
delegation of bankers visiting congression
al representatives. Mr. Fager is chairman,
Commerce Bank, Topeka.
Mike
O’Leary
FEDERAL HMDS
SERVICES!
W e 'v e G o t T h e A n s w e r s !
92
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Federal Reserve Bank of St. Louis
COMMERCIAL
NATIONAL
BANK
Max
6TH & MINNESOTA AVEN UE
KA N SA S CITY, KA N SA S 66101
Member F.D .I.C.
913 371-0035
Dickerson
MID-CONTINENT BANKER for N ovem ber, 1 9 8 0
Kansas BA O fficers Report During Regional Meetings
LEFT — Kansas BA President Emery Fager (r.), chairman, Com
merce Bank, Topeka, speaking at CEO session at KBA's regional
meetings last month, reported that the KBA Mortgage Co. would
be operational by Jan. 1. Details of the new corporation operation
were not finalized, but the KBA is expected to own all stock in the
corporation and the firm would purchase mortgages from origi
nating banks. Customer retention w as the primary motivating
factor in forming the corporation. Mr. Fager said Kansas banks
can't afford to send customers to a thrift to get a mortgage
because the customer might end up doing all his banking busi
ness with the thrift, due to thrifts' expanded powers. At left is KBA
President-Elect Clifford Stone, chairman/CEO, W alnut Valley
State, El Dorado, who explained KBA's new compliance, legal and
litigation center that will provide members with reference data
on banking laws and regulations, model written policy manuals
and copies of pleadings, briefs, depositions, transcripts, decisions
and settlements relating to situations involving banks. CENTER
— Portion of group attending CEO session at Wichita regional.
RIGHT — Harold Stones, KBA senior vice president, discusses
federal and state governmental changes affecting future of
banks at customer-contact staff session in Wichita.
Jack A. Gerhard has been elected to
th e board at O verland Park State. H e is
general m anager of Kansas City retail
operations for Sears, Roebuck & Co.
M ichael J. O’Leary has been nam ed
vice p resid en t at C om m ercial N ation
al, Kansas City. H e joined th e bank in
1975 and was form erly second vice
president. H e has been in the bank’s
correspo n d en t banking division for the
past four years.
K en tu ck y
First National, Louisville, has elected
five new vice presidents: John E. D ar
nell, form erly sen io r c o rresp o n d en t
banking officer; M ichael E. Fow ler,
R obert L. Jones and C harles E. Moos-
DARNELL
Hutchinson National has elected Scott
A. W oods to a newly created post as
executive vice president. Richard A.
Snow barger has succeeded Mr. W oods
as senior vice president, com m ercial
loans. Gary L. R ohrer has b een elected
senior vice p resid en t and tru st officer
and H arland Priddle has b een nam ed
vice p re s id e n t, m ark etin g . Rob B.
E lder, auditor, has been given addi
tional duties as com pliance officer. Mr.
W oods also is president, Polaris Lease r Jr., all form erly sen io r national
b a n k in g o ffic e rs, a n d M a rc u s H .
Davis, who also rem ains auditor. At
F irst N atio n al’s affiliate, F irst K en
tucky T ru st, Louisville, Stanley A.
Rourke m oved up from senior tru st in
vestm en t officer to vice president.
W illiam W . G aunt I I I h as b e e n
elected vice p resid en t, facilities m an
a g e m e n t an d se c u rity d e p a rtm e n t/
a d m in istra tio n group, U n ited K en
tucky Bank, Louisville. H e joined the
bank in 1965 and is responsible for con
struction and m aintenance of banking
centers and facilities. In o ther action,
D. M ichael Boyd was m ade assistant
treasu rer, m ortgage division/com m ercial banking group.
MID-CONTINENT
BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
WOODS
ROHRER
SNOW BARGER
ing Corp. H e joined the bank in 1969.
Mr. Snow barger joined the bank in
1976 and Messrs. Rohrer, Priddle and
E ld er have been with the bank since
1970, 1978 and 1977, respectively.
L ib erty N a tio n a l, L o u isv ille , has
e le c te d S ta n le y S. D ick so n to its
board. H e is an officer of South C entral
Bell and vice president/K entucky.
L ou isian a
Bank of New Orleans has prom oted
th e fo llo w in g to v ice p r e s id e n ts :
M ichael R. M cG rail J r., m an ag er/
L a k e v ie w B an k in g C e n te r , an d
R aym ond M. A sprion Jr., regional
m anager/U ptow n region and m anager/
Medical Plaza Banking C enter. Larry
Dorris has been prom oted from assis
tant cashier/branch adm inistration to
assistant vice president/operations.
93
Cabool State Remodeled
M ississippi
Hancock Bank, G u lfp o rt, has p ro
m oted R obert G uy C hatham to assis
tant auditor and Charles E. H argrove
Jr. to com pliance officer. Mr. C hatham
w ent to th e bank in 1979, and Mr.
H argrove joined it in 1978.
MBA Visits Washington
Cabool State w as host to 300 persons at an
open house celebrating completion of its
remodeling program, which w as carried
out by Richard L. Bacon, Architect, Ste.
Genevieve. The entrance, lobby and offi
cers' quarters have been modernized and
now have contemporary design. There are
new tellers stations (pictured here) and a
note paym ent departm ent. During the
open house, guests viewed paintings done
by Myra Mohler and Janene Thompson,
bank employees, and Mrs. Richard String
er, wife of a director.
The Mississippi Bankers Association visited
Senator John C. Stennis, dean of Mississip
pi's congressional delegation, during its re
cent trip to Washington, D. C. Pictured, I. to
r., are: Don Calfee, MBA pres, and s.v.p./
governmental relations officer, First Missis
sippi Nat'l, Jackson; Senator Stennis and
Cecil Robbins, pres., Bank of Edwards. In
addition to visiting their congressional rep
resentatives, the 37 Mississippians in the
group were briefed by the ABA and federal
officials on the status of legislative and
regulatory issues.
M issouri
James G. Graham has been nam ed
co rre sp o n d e n t bank officer at Boat
m en ’s National, St. Louis. H e has been
in th e c o rre s p o n d e n t-b a n k in g area
during m ost of his banking career.
Robert N. M cDowell has been elected
e x ec u tiv e vice p re s id e n t, F ra n k lin
C ounty M ercantile Bank, W ashing
ton. H e form erly was vice president,
M ercantile T rust, St. Louis, w here he
was in th e central group, working w ith
correspondent banks. H e also was re
sponsible for coordinating loan partic
ipations w ith M ercantile com m unity
banks. Mr. M cDowell joined M ercan
tile T rust in 1978, going from Security
National, Kansas City, Kan., w here he
was an assistant vice president.
Boatmen’s Bancshares, St. Louis, has
re a c h e d an a g re e m e n t in p rin cip le
w ith Plaza National Bancshares, St.
Louis County, providing for acquisi
tion of that HC by B oatm en’s. Plaza
Bank of W est Port is Plaza National
Bancshares’ principal subsidiary.
M e r c a n tile T ru st, St. L o u is, has
prom oted the following: to vice presi
dent, John T. Lam ping, and to assis
tan t vice presidents, V incent S. Boyer,
R o b e rt J. A n th o n y an d W . B ruce
Phelps. Mr. Lam ping joined the bank
in 1976, M r. B oyer in 1970, M r.
A nthony in 1973 and Mr. Phelps just
recently.
94
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Federal Reserve Bank of St. Louis
McDo w e l l
Fred N. Coulson Jr., p resident/C E O ,
Old W estern Life Insurance Co., Kan
sas City, has been elected to the board
of Laurel Bank, Raytown. Mr. Coulson
headed the correspondent banking d i
vision at Kansas C ity ’s C o m m erce
Bank from 1970 until last May. Before
1970, he sp e n t 23 years w ith ISC
Financial C orp., Kansas City, w here
he was vice president/sales director of
th e firm ’s affiliated in su ran ce com
panies.
N ew M exico
Arthur Sossong, who joined A lbuquer
q u e ’s Fidelity National last June as ex
e c u tiv e v ic e p r e s id e n t, has b e e n
elected to the bank’s board. H e has
almost 30 years’ banking experience.
Also at Fidelity National, Tina Stoneking has been prom oted from perso n
nel officer/assistant cashier to assistant
vice president, w ith responsibility for
p e rs o n n e l s u p e rv is io n /p u b lic re la
tions. G erda G uide has b een nam ed
assistant vice presid en t in charge of
branch adm inistration. She form erly
was assistant cash ier/N orth C arlisle
Branch manager.
James W. Steward becam e president/
C E O , S ecurity Bank, A lam ogordo,
O ctober 15. H e has been chairm an/
C E O , Republic Bank, A lbuquerque.
At Security Bank, Mr. Steward suc
ceeds M aurice Hobson, who becom es
chairm an of the bank’s executive com
m ittee.
Oklahom a
Charles N. Van Zante has been p ro
m o te d to vice p re s id e n t/m a n a g e r,
State Line Facility, U nited M issouri
Bank, Kansas City. T erry D ierks has
b een elected vice p resid en t in charge
of le n d in g at th e facility. M r. Van
Z ante w en t to th e bank about four
years ago and Mr. Dierks, form erly an
assistant vice president, in 1977.
Robert P. DeRodes and M ichael E.
Jennings have been elected vice presidents/data processing, F irst National,
St. Louis. E lected assistant vice p resi
dents w ere M ary Ann D enny and John
M. M itchell, both in operations. Paul
F. G larner has been nam ed assistant
auditor.
GRAHAM
in 1977, and, m ost recently, was vice
p re sid e n t/c o m m e rc ia l loans, C o m
m erce Bank, Columbia.
Douglas A. Doll has been nam ed ex
e c u tiv e vice p re sid e n t/C E O , C om
m erce Bank, G randview. H e joined
C om m erce Bancshares, Kansas City,
Carl E. Grant has b een prom oted
from senior vice p resid en t to executive
vice p re sid e n t at L ib erty N ational,
Oklahoma City. H e heads the personal
banking d ep artm en t, w hich includes
the installm ent loan and credit card
divisions. Mr. G rant joined Liberty
National in 1969 after 22 years with
another O klahom a City bank.
MID-CONTINENT BANKER for N ovem ber, 1 9 8 0
People w ho m anage other people’s m oney
have to read 30 m inutes every day
A m e r ic a n B a n k e r is w h e re the
b ig m o n e y d o es its ta lk in g . A n d
it ’s liste n in g .
T h a t ’s w h y 50% o f our su b
scrib ers sp e n d 30 m in u te s to o v er
an h ou r re a d in g us e v e ry d ay.
W h y in d iv id u a l s u b s c r ib e r s
in v est $250 e a ch y e a r. W h y th e y
r o u t e t h e i r c o p i e s to
key
a sso cia te s.
87% o f our su b sc rib e rs serve
in u p p e r m a n a g e m e n t , 4 1 %
serv e on th e ir ow n b o a rd s, 38%
on o u tsid e b o a rd s. 60% g e t in
v o lv e d in m a jo r o ffic e e q u ip m e n t
p u r c h a s e s . A n d th e ir m e d ia n
h o u se h o ld in co m e is $55,700,
th e h ig h e st w e ’ve se e n a n y w h ere .
A m e r i c a n B a n k e r is r e
q u ired re a d in g . It ta lk s to p e o p le
w ho b u y not o n ly b a n k and fi
n a n c ia l s e r v ic e s , b u t e v e r y
th in g fro m a irlin e tic k e ts to
airlin es.
W e carry 2 3/4 tim e s the a d
v e rtisin g o f b a n k in g p u b lic a
tion s N o . 2, 3 and 4 co m b in e d .
D o e s you r m e d ia lin e-u p put
yo u r m e ssa g e w h e re an a u d ie n c e
lik e ou rs w o n ’t m iss it? C a ll
(212) 563-1900 for m ore d eta ils.
American Banker
Concentrate where money listens.
N E W Y O R K , C H IC A G O , S A N F R A N C IS C O , M U N IC H , N IG E R IA , T O K Y O .
Research source: Erdos and Morgan—1979 Comparable Profile Measurement
M ID-CONTINENT BANKER for N ovem ber, 1 9 8 0
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Federal Reserve Bank of St. Louis
95
First National, Oklahoma City, has
p ro m o te d L ouis F o u rn e t and Ann
Taliaferro to vice p resid en ts/tru st offi
cers. Mr. F o u rn et joined the bank as
an assistant vice p resid en t in M arch,
going from R epublic National, Dallas,
w h ere he was a tru s t officer. Miss
Taliaferro w en t to F irst N ational in
O ctober, f 979, also as an assistant vice
president. In o th er action, the bank
elected Kathy M. Jones and Bruce C.
W illiam s a ssistan t vice p re s id e n ts /
tru st officers; Patrick D. M eziere assis
tan t vice president/m ethods research
and m anagem ent system s; D arole B.
M o tt a s sista n t vice p re s id e n t/c a s h
m anagem ent m arketing and Gary L.
Call and David H. D ietz assistant auditors/outside auditing.
. . . for the
BANK DIRECTOR!
BOARD REPORTS
T en n essee
$22.00
More effective board m eetings begin
with more effective board reports. This
200-page manual will help you determ ine
the “quantity and quality” of monthly re
ports needed by your directors so they, and
m anagement, can make proper decisions.
Included are examples of reports most
needed by bank directors. Contributions
by well-known bank specialists are in
cluded.
CORPORATE ETHICS
Central National, E nid, has elected
D anny W ingate vice p re sid e n t/d a ta
processing m anager and Jan M artin
a ssista n t vice p re sid e n t/o p e ra tio n s.
Mr. W ingate form erly was a systems
analyst w ith NCR Corp. in F ay ette
ville, Ark. Mr. M artin joined the bank
in 1977 and, m ost recently, was float
c o n tro l c o o r d in a to r/tra n s p o rta tio n
coordinator.
$23.00
W hat every bank director should know
about CORPORATE ETHICS. This man
ual (over 200 pages) indicates why bankers
are re-examining policies on types of in
formation they will disclose to the public.
Bank disclosure policies will encourage
high standards of ethical conduct by bank
personnel. This manual will help directors
establish such codes for their banks. Sev
eral complete sample codes are included.
I f not satisfied, return books
within 10 days fo r full refund.
Esther H. Smith has jo in ed U nion
P eoples Bank of A nderson C ounty,
Clinton, as senior vice p resid en t and
m anager/O ak Ridge branches. Mrs.
Sm ith, a past president, N ational Asso
ciation of Bank W om en, was vice p resi
d e n t, C o m m erce U nion, L ebanon,
w hich she joined in 1978. Before that,
she was w ith C om m erce Union, N ash
ville, w here — from 1975-78 — she
was in the correspondent banking d e
partm ent.
David B. Ramsay, form erly vice presid e n t/c o rre sp o n d e n t division, A m er
ican National, Chattanooga, has joined
H am ilton Bank, Johnson City, as ex
ecutive vice presid en t/ch ief operating
officer. Also at the latter bank, J. Lloyd
L an g d o n , c h airm an /C E O , also was
elected president, succeeding C hauncey W. Lever. Mr. L ever resigned to
THE BANK BOARD LETTER
408 Olive St., St. Louis, Mo. 63102
_ copies, BOARD REPORTS
$_
_ copies, CORPORATE ETHICS $ _
TOTAL EN CLO SED $ _
Name _________________ T itle ___________
Bank ___________________________________
Street __________________________________
City, State, Zip __________________________
(Please send check with order. In Missouri, add 4.6% tax.)
96
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Federal Reserve Bank of St. Louis
SMITH
RAMSAY
organize his own management consult
ing firm. H e had b een presid en t of the
bank since O ctober, 1979. H e also re
signed as a bank director.
Mike V. K ennedy has jo in ed F irst
N atio n al of F ra n k lin C o u n ty , D echerd, as farm representative. H e had
b een w orking in farm -related areas
since his graduation from the U niversi
ty of T ennessee in 1956 w ith a B.S.
degree in agriculture. H e was chair
man of the T ennessee A gricultural Sta
bilization and C onservation C om m it
tee from 1977 until resigning last June.
H e received the “O utstanding Young
F arm er” award in Franklin C ounty for
two years.
John H ow ard H am ilton has b e e n
elected vice president/regional m ana
ger, branch division, F irst T ennessee
Bank, M em phis. H e joined the bank in
1972 and was m anager/M ain Office
Branch. In his new post, Mr. H am ilton
sh ares re sp o n sib ility for m anaging
M em phis bank b ran ch es w ith Ken
Youngblood.
Third National, Nashville, has elected
th re e new assistant vice presidents:
Lloyd Sm ith, bank system s; T rudy
Balph, retail services, and W illiam T.
Startup, consum er credit. Mr. Smith
joined the bank in 1964, Miss Balph in
1967 and Mr. Startup in 1970.
Texas
MITCHELL
WILSON
Republic National, Dallas, has nam ed
Jim P. W ilson, senior vice president,
to head the new financial institutions
division, w hich includes correspond
en t relationships. M ason E. M itchell,
executive vice p re sid e n t, has b een
nam ed senior liaison officer to coordi
nate activities betw een th e bank and
its subsidiaries in R epublic of Texas
Corp. Mr. M itchell had directed the
c o rre sp o n d e n t b anking d e p a rtm e n t
since 1972. H. E dw ard A nderson has
b e e n nam ed head of th e securities
m anagem ent division as senior vice
p resid en t and tru st officer. H e serves
MID-CONTINENT BANKER for N ovem ber, 1 9 8 0
as trust investm ent committee chair
man. He formerly was with Lincoln
First Bank, Rochester, N. Y. Linnet
F. Trow has been prom oted to senior
vice president and head of the manage
m ent division of the international de
partm ent. New vice presidents in
clude Roy R. Grenwelge, Marjorie E.
Bernbaum, John A. Bricker Jr., Mar
vin G. Schiebout and Harry K. Kaelber. Benno J. Fischer and Charles P.
Lamb were prom oted to vice presi
dents and trust officers. New assistant
vice p re sid e n ts inclu de Royce D.
James, Patricia M. Ingram, Kay Holleman, Donald W. Petton, Ted H. Bay
less and Donald M. Phillips. Stephen
Myres was prom oted to assistant vice
president and trust officer and Marilyn
G. Stanfield was named trust officer.
Virgil Barnard has been elected assis
tant vice president at Republic of Texas
Corp.
Industrial Exposition and the Amarillo
Art Alliance. A “champagne ride” was
auctioned off to benefit the U. S. Sym
phony in Washington, D. C., and the
balloon has been featured at the grand
openings of several area stores.
The green, blue and red striped de
sign of the balloon features the bank’s
logo. The balloon is flown by a profes
sional, but the co-pilot is Bill Ware,
senior vice president at the bank.
The craft is featured in bank TV com
mercials and on billboards. Employees
wear lapel pins styled in the shape of
the balloon.
RISSMAN
Bank's Hot Air Balloon
Benefits Local Charities
A hot air balloon owned and oper
ated by Amarillo National is helping to
promote local charities.
The custom-designed balloon stands
nearly seven stories tall and has been
used to help local charities attract
attention at fund-raisers and special
events. In addition, the bank has do
nated “champagne rides” to be sold at
benefit auctions.
T he balloon has flown te th e re d
flights over events sponsored by the
Muscular Dystrophy Association, the
American Heart Association, Multiple
Sclerosis summer camp, the Amarillo
YOUN G
VICK
VAN METER
F rost N a tio n a l, San A ntonio, has
promoted Stephen E. Larson to vice
president and Phillip D. Green and
T. Kenneth Vick Jr. to assistant vice
presidents. Mr. Vick is in the corre
spondent departm ent. Newly elected
officers include John A. Bustos, com
p u te r operations; Larry E. D unn,
Houston Data Center; Skip Fitzpat
rick, proof; Douglas W. Frederick,
Corpus Christi Data Center; L. Robin
Gorskie and Sandra H. M cIntyre,
credit; Renee B. Rissman, Joe R. Van
M eter and Richard D. Young, corre
spondent banking; and Tom L. Stringfellow, trust.
C itizens N ational, G reenville, has
elected James R. Huffines to its board.
He is vice president and director, Bank
of Dallas, and president, Dallas Bancshares.
First National, Fort W orth, has pro
moted Jerry Lee Mechell to vice president/auditor, Gary L. Moore to vice
president and Sue Caldwell, Susan
Drew, Paulette Haddock and DuBois
N icar to assistant vice presidents.
Newly elected assistant vice presi
dents include Blaine Calloway and Ed
Cuellar.
Amarillo Nat'I's gas balloon attracts atten
tion for the bank and is used to promote
local charitable events.
MID-CONTINENT BANKER for November, 1980
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Premium Suppliers
(C ontinued fro m page 13)
banning them influenced the DIDC to
change its mind about the ban propos
al.
He said his firm experienced no de
cline in orders during the period of
uncertainty. In fact, during that period
three billion-dollar financial institu
tions began premium programs using
Dalton products. He added that the
bulk of premiums were not under fire
by the DIDC; it was the unorthodox
practices and exotic premiums used by
som e New York in stitu tio n s th a t
brought on the ban proposal.
He added that it’s impossible to fault
continuity premium promotions be
cause they don’t encourage bank cus
tomers to jum p from one institution to
another to get premiums.
The outlook for premiums is “very
positive,” said John H. Guinan, presi
dent, Christmas Club a Corporation,
Easton, Pa. Although sales dwindled
somewhat during the period of uncer
tainty, Christmas Club expects to have
a “good strong year,” he said.
Septem ber was a “super” month,
Mr. Guinan said, and he expects finan
cial institutions to give premiums to up
to five million customers signing up for
new Christmas club accounts. • •
Index to Advertisers
Agri Careers, Inc...................................................
98
American B a n ke r................................................
95
American Bank Directory ...................................
88
American Bankers Association .........................
18
American National Bank & Trust Co.,
Chattanooga ....................................................
30
Animal Fair, Inc....................................................
39
Aristocrat Inns ....................................................
84
Arrow Business Services.....................................
15
Assemblies for Bank Directors .........................
72
Bank Board L e tte r..............................................
96
Bank of America ................................................
25
Boatmen's National Bank, St. Louis ...............
99
Bond B uyer..........................................................
33
Brandt, Inc............................................................. 3-4
Bryant Bureau ....................................................
64
Cawthon Building Systems, Inc..........................
85
Citicorp ............................................................ 52-53
Commerce Bank, Kansas City ...........................
23
Commercial National Bank, Kansas City, Kan.
92
Connelly Associates, J. Edward.........................
40
De Luxe Check Printers, Inc...............................
51
De Luxe Check Printers, Inc. Forms Division ..
79
Deposit Guaranty National Bank, Jackson . . . .
83
Diebold, Inc..........................................................
55
Don Ploward Personnel, Inc.................................
86
Durham Life Insurance Co................................... 47
Ecom Systems, Inc..............................................
61
Financial Placements ........................................
90
First Alabama Bank, Montgomery.....................
64
First National Bank, Chicago.............................
89
First National Bank, Kansas City .....................
11
First National Bank, M o b ile ...............................
41
First National Bank, St. Lo u is........................... 100
First National Bank of Commerce, New Orleans
49
First Total Systems, Inc.......................................
58
Fourth National Bank, Tulsa .............................
43
Fourth National Bank & Trust Co.. Wichita . . .
81
(C ontinued on page 98)
97
Index to Advertising
(Continued from page 97)
Fed Answers
Reg Questions
John W. Rosbrugh, examiner in the St. Louis
Fed’s consumer and community affairs depart
ment, answers common questions about federal
regulations affecting most banks. Information
given here reflects Mr. Rosbrugh’s opinions, not
necessarily those o f the St. Louis Fed or the
Board o f Governors.
W hat is the change in
the grace period for
paym ent of certificates of de
posit at m aturity without suf
fering an interest penalty?
questions are independent of
each other and must be treated
as separate occurrences.
Does the full early
w ithdraw al p enalty
apply
to
the w ith d raw al of
T h e re has b ee n no
funds
that
have a m aturity of
• change in the 10-day
penalty-free grace period. Reg less than three months?
ulation Q prohibits the pay
No.
A tech n ic al
ment of interest on any deposit
• am endm ent to the D e
payable on demand, and if a de
pository Institutions Deregula
posit is withdrawn during the
tion C o m m ittee’s final rule
10-day period after maturity,
adopted on May 28, 1980, that
no interest may be paid thereon
became effective June 2, 1980,
for any part of the period subse
states that when funds are with
quent to maturity. However,
drawn prior to maturity from a
when the certificate is renewed
tim e deposit with an original
within 10 days after maturity,
m atu rity of less than th re e
paym ent of interest for such
m onths, th e m inim um re
period is not believed to be pro
quired penalty is the amount of
hibited.
interest that could have been
earned at the nominal contract
This being the case,
rate if the time-deposit funds
* what is the new seven- had rem ained on deposit to
day rule?
maturity. For example, when
funds are withdrawn prior to
Effective May 6, 1980,
maturity from a time deposit
• the Depository Institu
tions Deregulation Committee with an original maturity of 45
days, the minimum required
adopted a final rule concerning
penalty is the forfeiture of an
the payment of interest on time
amount equal to the amount of
certificates of deposit. The rule
interest at the nominal contract
generally applies to all com
ra te th a t could have b ee n
mercial banks, mutual savings
earned on such funds for 45
banks and S&Ls, and states that
days.
if a depository institution in
cludes provisions in the timedeposit contract, the institution
Is there any time demay pay interest on the funds
* posit th a t m ay he
w ith d raw n d u rin g th e first
written for initial term s of less
seven days after maturity, at
than 30 days?
the deposit-contract rate or a
Yes, effective October
lower rate, if such lower rate is
• 30, 1980, a new type of
specified in the provisions. The
time deposit with a maturity of
rate may not be less than that
14 to 29 days was permitted.
established for regular pass
The rate has been established
book accounts.
with a ceiling of 5 lA%.
The provisions of the two
A
A
General Electric Credit Corp................................
Hagan & Associates, Tom ............................. 30,
Harland Co., John H............................................
Harris Trust & Savings Bank, C hicago..............
Hibernia National Bank, New O rle ans..............
IAC Group ............................................................
Indiana National Bank .......................................
Industrial Life Insurance Co................................
Insurance Enterprises, Inc..................................
Insured Credit Services, Inc....................
Liberty National Bank & Trust Co., Louisville
Liberty National Bank & Trust Co.,
Oklahoma City ................................................
MGIC-Indemnlty Corp..........................................
Memphis Bank & Trust Co..................................
Mercantile Bancorp..............................................
Missouri Encom, Inc............................................
Mosler Safe Co......................................................
National Bank of Detroit ...................................
National Boulevard Bank, C hicago...................
Planned Projects ................................................
Professional Bank Services ...............................
Republic National Bank, Dallas .......................
SLT Warehouse Co..................
Springfield Marine Bank ...................................
Struven, Inc., Carlyle G.......................................
Travelers Express................................................
Union National Bank, Little R o ck.....................
United Missouri Bank, Kansas City .................
van Wagenen Co., G. D........................................
Whitney National Bank, New Orleans ..............
Zahner & Co..........................................................
10
70
29
27
45
34
30
56
48
12
59
2
57
5
6
44
77
37
69
65
71
75
87
91
66
9
30
73
54
17
31
VICE PRESIDENT/COMMERCIAL LOANS
Aggressive Northwest Missouri Bank seeks sea
soned commercial lender to assume full respon
sibility for credits up to low seven figure range.
Should have minimum of 10 years experience.
Outstanding working conditions and fringe ben
efits. Salary open. Equal Opportunity Em
ployer. Write: Rox 95-M, c/o MID/CONTINENT RANKER, 408 Olive St., St. Louis, MO
63102.
Q
A
Digitized for 98
FRASER
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Q
A
MID-CONTINENT BANKER for November, 1980
From
“N o w ” A cco u n ts
to
R e g u la tio n
I n fo r m a tio n . . .
D o n S h a y , E x e c u t iv e V ic e P r e s id e n t , U n iv e r s it y B a n k o f C a r b o n d a le ,
w i t h R u s s S p a u l d i n g , V i c e P r e s i d e n t , B o a t m e n ’s
A B oatm en ’s C orrespondent B anker can assist y o u .
Call R uss S p au ld in g today. 314-425-3600
•
Overlines • Investments • Processing • Stockloans • Federal Funds
• Operation Assistance • Regulation Information
Digitized
forFDIC
FRASER
ember
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Correspondent Banking Division
THE BOATMEN'S
NATIONAL BANK
O F $T. LO U IS
3 14 - 4 2 5 -3 6 0 0
Homeownership
and your Bank
PR O B L E M S:
• Your c u s to m e rs n e e d h o m e lo an s.
• To k e e p y o u r c o m m u n ity stro n g , h o m e lo a n s h a v e to b e
a v a ila b le.
• Your c o m p e titio n o ffe rs h o m e lo an s, b u t y o u d o n ’t w a n t to
a d d long te rm fixed rate lo a n s to y o u r portfolio.
SO L U T IO N :
• W ork w ith First N ational B ank in St. Louis.
We offer a p ro g ra m for c o rre s p o n d e n ts w h e re b y
y o u c a n o rig in a te n e w h o m e lo a n s a n d th e n sell th o s e lo a n s
th ro u g h u s to in v e sto rs.
B E N E F IT S :
• You m e e t c u s to m e r n e e d s a n d h a v e a tool to d ra w n e w
retail b u s in e s s .
• You e a rn loan fees.
• You k e e p c u s to m e r c o n ta c t sin c e th e c u s to m e r ca n co n tin u e
to m a k e h is p a y m e n ts at y o u r b a n k for y o u r tra n sfe r to us.
• We find th e in v e sto r a n d h a n d le virtu ally all of th e loan
se rv ic in g re q u ire m e n ts , s a v in g y o u th a t e x p e n s e .
• You d o n ’t h a v e to k e e p th e s e lo a n s in y o u r o w n portfolio.
• You facilitate n e w in v e s tm e n t in y o u r to w n .
• We train y o u r p e o p le at o u r c o st to o rig in a te th e h o m e lo a n s
o n s ta n d a rd iz e d fo rm s.
• You c a n offer lo a n s u p to 30 y e a rs in len g th a n d u p to 95% of
v a lu e —a tre m e n d o u s m a rk e tin g tool for you.
FOR M O RE IN FO R M A TIO N : C o n tact y o u r c o rre s p o n d e n t
officer at First N ational B ank in St. L ouis or:
V ernon S ch m id t 314-342-6485
314-342-6382
Flarold Farroll
314-342-6245
Ju d y U llm an
First National Bank in StLouis
M e m b e r FDIC
A First Union Bank
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
@FedFRASER