Full text of Roundup : April 1983
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DALLAS Federal Reserve Bank of Dallas April 1983 Board Approves Float Reduction Programs The Federal Reserve Board of Gover nors has approved a program designed to reduce and price Federal Reserve in terterritory check float and holdover check float. Federal Reserve float is the value of checks for which the Fed has given credit to financial institu tions depositing checks for collection, but for which the Fed has not yet received payment. interierritory float Interterritory float occurs primarily as a result of interdistrict transporta tion delays. The interterritory check float portion of the program will be im plemented on July 1, 1983. On that date, all Reserve Banks will offer fixed and fractional availability crediting op tions with various methods of payment for float. Current fixed availability, whereby credit is given to institutions according to a predetermined sched ule, will be continued. Fractional availability, whereby partial credit is given to institutions based on the Fed’s actual past delivery experience, will be introduced as a new crediting option. All interterritory check deposits will be processed in order of receipt and will be subject to the same credit ing procedures regardless of whether they are processed at the sending or receiving Federal Reserve office. Holdover float Holdover float occurs when a Reserve Bank receives a check ship ment by its deposit deadline, but is unable to process it for collection on a timely basis. Generally this float oc curs as a result of sharp daily fluctua tions and check processing equipment malfunctions. The pricing of holdover float will be phased in from February 24 through October 1,1983. During this phase-in period, the cost associated with holdover float will be gradually in corporated in the cost of check ser vices until, on October 1, the cost of all holdover float will be added to the cost of check services. For several years, the Federal Reserve System has been taking ac tion to reduce float. Steps previously taken to reduce float have included later deadlines for presentment of checks and improved availability and efficiency in the Federal Reserve’s In terdistrict Transportation Network. The chart accompanying this article shows that, in 1979, daily average Federal Reserve float was $6.7 billion. By the end of 1982, that figure had been reduced to $2.3 billion. Implementation of float pricing is expected to make fur ther substantial reductions in daily float averages. INSIDE • Book-entry Prices • Account Changes • EFT Outlook No Change in Transfer, Net Settlement Fees The Federal Reserve Board has an nounced that there will be no increase in the fee schedules currently charged for wire transfer of funds and net set tlement services. The current fee schedules for these services, printed in a table accompany ing this article, were put into effect April 29, 1982. Because revenues from these services are currently sufficient for covering the costs of providing the services, the Board decided not to change the fee schedules for the year 1983. Changes to these schedules will be re-evaluated again in 1984 and any changes, if necessary, will be im plemented at that time. The Monetary Control Act of 1980 re quired that fee schedules be developed for services offered by the Federal Reserve Banks. The fee schedules for these two services first became effec tive January 29, 1981. 1983 FEE SCHEDULE Net Settlement Wire Transfer of Funds O n-Lin e T ran sfe r: O rig in a to r $0.65 R eceiver $0.65 $1.30 O ff-L in e Surcharges: O rig in a to r $3.50 Per S e ttle m e n t $5.00 R eceiver $2.25 Telep hone A d vice $2.25 Prices Announced Two Publications Available Copies of two publications are currently available from the Dallas Fed. The 1982 Annual Report for the Federal Reserve Bank of Dallas provides financial and operating data for the year as well as background information on Federal Reserve endeavors in the areas of operations, supervision, and monetary policy. A summary of the Federal Reserve Board’s February 16, 1983, report to Congress titled “ Monetary Policy Objectives for 1983” is also available. This report, required by the Full Employment and Balanced Growth Act of 1978, is made twice yearly and discusses the state of the economy and the course of monetary policy for the coming months. Copies of these publica tions are available, upon request, from the Public Affairs Department at the Dallas Fed. S e ttle m e n t E n tries SI A new fee schedule for book-entry Treasury securities will become effec tive for all Federal Reserve Banks April 28, 1983. The fee schedule has been revised to recover the costs of pro viding the services and to add a mon thly fee for each issue held in an ac count. Prior experience has shown that the costs of maintaining a book-entry account are directly related to the number of issues held in that account. For example, accounts with a large number of issues are more costly to maintain than accounts with only a few issues. Addition of a per-issue fee will more accurately reflect the costs of maintaining a multiple issue account. The transaction fee for on-line origination has been increased from $2 to $3 per transfer at all Federal Reserve Banks except New York. Fees for off line originations and receipts at all Feds are now priced at $10 per transfer. The account maintenance fee has been established at $15 per ac count per month, with a 50<c charge per month for each issue in an account. Deposit Accounts to Change in April, May Several modifications to existing time deposit instruments offered by commercial banks and savings and loan associations will take effect dur ing April and May as part of an overall interest rate deregulation plan an nounced last year by the Depository In stitutions Deregulation Committee (DIDC). The committee decided in its March 1 meeting that the plan should be implemented as originally an nounced March 22, 1982. According to the plan, on April 1, 1983, the term to maturity for the 31/2-year or longer ceilingless time deposit will be reduced to 21/z years or longer. Other characteristics of this time deposit category will remain the same. Also on April 1, the term to maturity for the 21/z-year to less than 31/2-year “Small Saver” certificate will be reduced to 11/z years to less than 2 Vi years. The interest rate ceiling for these certificates will be indexed to the 1Vz-year yield on Treasury securities announced by the Treasury every two weeks instead of the 21/2-year yield which was used previously. Other characteristics of the accounts will re main unchanged, including the 25 basis point differential between the rate banks and savings and loans may pay. The DIDC’s plan calls for elimination of the ceiling rate differential for the 91-day certificate of deposit beginning May 1. At that time, the ceiling rate for all institutions will be indexed to the 91-day Treasury bill rate announced every week. The 91-day certificates were first authorized by the DIDC May 1,1982, with the stipulation that the in terest rate differential remain in effect for a one-year period only. The major features of accounts with variable interest rate ceilings and of accounts not subject to interest rate ceilings are summarized in the table accompanying this article. In addition to these account instruments, other types of time deposit accounts, sav ings accounts, and regular NOW ac counts are subject to fixed interest rate ceilings. The payment of interest on demand deposits is not allowed. All interest rate ceilings for member banks are outlined by the Fed’s Regulation Q and in similar regulations of other agencies for other types of institutions. MAJOR CHARACTERISTICS OF DEPOSIT INSTRUMENTS Deposit Accounts Subject to Variable Ceiling Rates 1’/ 2 -year to less than 2 V r -year Small Saver 91-day Certificate 6-month Money Market Certificate Certificate Index rate 91-d ay T -b ill ra te 182-day T -b ill ra te o r 4 -w e ek a verag e, w h ic h e v e r is g re a te r 1 V z-year y ie ld on T re a s u ry s e c u r itie s Commercial bank ceiling In d e x ra te (a fte r M a y 1. 1983) In d e x ra te p lu s .25 o r 7 .7 5 % , w h ic h e v e r is g re a te r In d e x ra te m in u s .25 o r 9 .2 5 % , w h ic h e v e r is g re a te r Thrift ceiling In d e x ra te Index rate: Ceiling: 7 .2 5 % o r b e lo w 7 .7 5 % A b o v e 7 .2 5 % , b u t b e lo w 8 .5 % In d e x ra te p lu s .5 8 .5 % o r ab ove, b u t b e lo w 8 .7 5 % 9 .0 0 % 8 .7 5 % o r ab o ve In d e x ra te p lu s .25 In d e x ra te o r 9 .5 0 % , w h ic h e v e r is g re a te r How often changed E ve ry w e e k Every w e e k Minimum denomination $2,500 $2,500 N o ne Early withdrawal penalty L o s s o f e a rn e d in te re s t L o s s o f th re e m o n th 's in te re s t L o s s o f s ix m o n th 's in te re s t Compounding allowed No No Yes Negotiability allowed Yes No No Transactions allowed No No No Every tw o w e e k s Deposit Accounts Not Subject to Interest Rate Ceilings “ Super NOW” Account Money Market Deposit Account 7-31 day Deposit Account 2 ’A-year or longer Time Deposit Minimum denomination $2,500 $2,500 $2,500 N o ne, b u t a $500 d e n o m in a tio n re q u ire d Early withdrawal penalty N/A N /A Yes L o s s o f s ix m o n th 's in te re s t Compounding allowed N/A N /A Yes Yes Negotiability allowed N /A N /A No Yes Transactions allowed U n lim ite d 6 p re a u th o riz e d per m o n th , no m o re th a n 3 by c h e c k o r d ra ft No No Wallace Speech Addresses EFT Growth The incentive to develop new and more e ffe ctive electronic funds transfer (EFT) systems will vary direct ly with the level of interest rates according to William H. Wallace, first vice president of the Dallas Fed. Speaking before executive seminars at Golembe Associates, Inc. in Houston, Wallace stated that, as the time value of money increases, the desire to col lect and invest it faster becomes a very powerful motive. “Therefore, some of the explosive growth we have seen in interbank transfers will moderate to a certain degree as a result of a less in flationary environment and lower in terest rates,” Wallace said. Wallace went on to say, however, that less expensive EFT technology, changing attitudes on the part of the consumer, and more expensive alter natives to EFT will tend to make such systems more attractive and will con tribute to a significant growth in EFT over the next several years. The areas of interbank transactions, including the Federal Reserve’s Fedwire system, and automated clear inghouse networks are two aspects of EFT which have witnessed extensive development and growth. Wallace also cited corporate cash management, where EFT has enabled corporations to expedite the collection, concentration, and investment of funds as well as control disbursement to manage float, as a significant EFT development. Check truncation will emerge within the next three to five years and will have the potential of improving the payments system primarily through elimination of the costly task of transporting paper, Wallace said. Wallace also addressed a few “flags of caution” which he feels must be discussed in conjunction with EFT. These include inherent risks in elec tronic payments that are not present in I traditional techniques such as instan taneous and irrevocable transactions, potential disruption of systems due to power outages or computer break downs, and fraudulent use of EFT system s. Adequate m o n itorin g mechanisms and advance preparation are necessary to prevent these types of problems, Wallace said. The Federal Reserve System is par ticularly interested in another issue, that of the impact EFT might have on monetary policy. “ From the standpoint of central banking, these develop ments will certainly make the defini tion of the money supply more difficult, and the volatility of whatever we define as money will make it considerably more difficult to control,” Wallace said. “We believe on balance, however, that the advantages that EFT offers from the standpoint of efficiency justify our meeting these issues headon and resolving them.” 1 m* is d (Z) 5 ^ Z. cn ^ o ro m 05 * o ■n o > > (Z) p D H > I