Full text of Roundup : April 1984

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DALLAS
Federal Reserve Bank of Dallas

April 1984

New Check Program Targets High Dollar Items
On April 23, the Federal Reserve
Bank of Dallas will implement a new
premium check collection service. This
new service represents the second
phase of a major plan by the Federal
Reserve System to improve the effi­
ciency of the nation’s payments
system and to speed up the collection
of checks.
The program, known as the high
dollar group sort, will allow immediate
credit for certain non-city items, and
return items will be processed more
quickly due to faster presentment. In
addition, this premium service also will
provide significant improvements in
deposit deadlines and is especially

designed for the collection of high
dollar items. The program also has the
potential to yield greater net benefits
to collecting institutions as a result of
increased earnings associated with im­
proved availability and lower net col­
lection costs.
Initially, all presentment points with
daily average presentments—of at
least $10 million—generated from out­
side the local Reserve office territory
will be included in the program. Other
endpoints may be added at a later
date.
Along with this new program, several
new payor bank services have been
standardized to provide the support

necessary for the successful im­
plementation of the high dollar group
sort program. The Dallas Fed will make
available timely account total informa­
tion to allow payor institutions to con­
tinue efficient cash management ser­
vices for their corporate customers. In
addition, a magnetic tape of all checks
received in a high-speed cash letter
can be provided to payor institutions.
Other options include telephone
notification of account totals, ad­
justments and reject totals.
Improving the efficiency of the
payments system is a continuing goal
of the Federal Reserve System. The
high dollar group sort program is the
second phase of a project specifically
designed to improve efficiency. The
first phase was implemented in 1983
when the Federal Reserve imple­
mented a uniform noon presentment
time—and corresponding later deposit
times and improved availabilities—for
city checks. As a result of this first
phase, checks with a total daily
average value of approximately $2
billion are being collected one day
earlier than before. An estimated $1
billion will be added to this figure with
the implementation of the high dollar
group sort program.

INSIDE_______________

The high dollar group sort program will speed up check processing at the Fed.

■

FOOD COUPONS__________

■

RESERVE REQUIREMENTS

■ ADJUSTABLE MORTGAGES

Council Appointee
The Federal Reserve Bank of
Dallas has selected Nat S.
Rogers, chairman of the board of
First City Bancorporation of
Texas, Inc., and chairman of the
Executive Committee of First
City National Bank of Houston,
as the Eleventh District represen­
tative on the Federal Advisory
Council for 1984. This council is
composed of individuals from the
12 Federal Reserve districts who
meet with the Board of Governors
in Washington to discuss issues
relevant to economic, credit and
banking conditions.
Active in the banking com­
munity, Rogers has served as a
director for the Houston branch
of the Dallas Fed and as presi­
dent of the American Bankers
Association.

Redemption Process
Easier for Food Coupons
The second phase of a project
designed to improve the food coupon
redemption process will take effect
April 1 for the Dallas, Houston and San
Antonio offices and May 1 for the El
Paso office of the Federal Reserve
Bank of Dallas.
The second phase is part of a joint
project to improve the food coupon
redemption process begun in January
1983 between the Food and Nutrition
Service and the Federal Reserve
System. Phase one, which went into ef­
fect at that time, required depositing
institutions to forward all redemption
certificates to the Federal Reserve of­
fice serving that institution along with

the food coupon deposit, but did not re­
quire redemption certifica tes to
balance the total deposit. This pro­
cedure will remain in effect under the
second phase as well.
Phase two will require institutions to
use a new deposit document which is
preprinted with the depositing institu­
tion’s name, address and nine-digit
routing code. This document, which
will be supplied by the Reserve Bank, is
designed to be read by an optical scan­
ner to insure accuracy and reduce pro­
cessing time.
For further information on the pro­
gram, please contact the Cash Depart­
ment at local Reserve bank offices.

Reserves: An Important Supply of Funds
Most financial institutions are re­
Other institutions, including savings
quired to maintain a percentage of
and loan associations and credit
customer deposits in an account under
unions, still are in the process of
the Federal Reserve’s control. These
phasing-in their reserve requirements.
deposits, known as reserves, previous­
Some elements of reserve re­
ly were required only of banks who
quirements change periodically. The 3
were members of the
Federal Reserve System.
With the passage of the
Reserve requirements of financial institutions
Monetary Control Act of
Type of deposit and deposit interval
1980, most financial in­
Net transaction accounts
stitutions were required
$0 to $28.9 million
to begin holding reserves
Over $28.9 million
with the Federal Re­
Nonpersonal time deposits (by original maturity)
Less than 1Vi years
serve.
In s titu tio n s
1Vi years or more
gradually have been
Eurocurrency liabilities
phasing-in their reserve
All types
requirem ents— if they
previously had not been
required to hold reserves—or phasingpercent requirement for net transac­
down the percentage of reserves held if
tion accounts, such as demand
they already were required to do so.
deposits and share draft accounts, in­
Banks who were already members of
creases at the beginning of each calen­
the Federal Reserve System completed
dar year. Initially, $25 million was set
their phase-down in September 1983.
as the level of transaction accounts

against which an institution must
maintain a 3 percent reserve require­
ment. Since 1980, that figure has in­
creased and was $28.9 million as of
December 29, 1983 (see box). Another
requirement that can change yearly is
the level of liabilities
that are exempt from
reserve requirements. In
1982, the first $2 million
Percent
of reservable liabilities
had a zero percent re­
3
serve requirement. As of
12
January 12, 1984, that
3
level increased to $2.2
0
million.
By increasing or de­
3
creasing the amount of
funds available to insti­
tutions to meet their reserve require­
ments, and by setting reserve require­
ment percentages, the Fed can influ­
ence the amount of funds available for
expansion of the money supplythrough
loans, investments and deposits.

Mortgages Follow Adjustable Rate Trend
Adjustable rate mortgages, whose
rates vary with changes in market in­
terest rates, are gaining in popularity.
As interest rates have become more
stable, investors have beome more
willing to base their home mortgages
on a fluctuating rate. These types of
mortgages currently account for about
50 percent of all mortgages sold in the
United States (see table). The advan­
tage to the consumer in purchasing a
home with an ARM is that rates typical­
ly are lower because the individual
shares the risk of rising interest rates
with the lender. Lenders like to make
these types of loans because sharing
the risk lowers their exposure to fluc­
tuations in interest rates.
Rates on adjustable rate mortgages
can be based on interest rate indexes,

three-month, six-month and one-year.
Treasury notes are securities with a
maturity of two to 10 years, and
Treasury bonds have maturities of 10
years or more. A Treasury constant
maturity is an index determined by the
Treasury Department through a survey
of five U.S. government securities
dealers. Only actively-traded issues
are used in the index. For example, a
survey will determine what rate would
be paid if the Treasury were to sell a
new security with a particular maturity.
A yield curve is then plotted, with the
horizontal axis showing the maturity
date and the vertical axis measuring
the yield. Constant maturity rates are
then read from that curve. The
categories for constant maturities are
one-, two-, three-, five-, seven-, 10-,
20-and
30-year
rates.
A consumer pur­
chasing a home
with an adjustable
ra te
m ortgage
should consider
how often the rate
changes to reflect
market conditions. Rates on ARMs can
increase or decrease according to
prearranged terms. For example, they
may change immediately according to
interest rate fluctuations or they may
change every three to five years. Exact­
ly when the rate on the mortgage
changes is established in response to
the type of loan a consumer is
qualified for and financial need. For
protection, consumers should shop
around for favorable terms, paying at­
tention to limits on rate increases per­
mitted per year and over the whole
term, and limits on payment increases.
The Board of Governors of the
Federal Reserve System has two
statistical releases that report the
rates on Treasury securities and
Treasury constant maturities in addi­
tion to federal funds, commercial
paper and secondary market cer­
tific a te of deposit rates. These
releases come out on a weekly and
monthly basis, and are called an H.15

Adjustments to the interest
rate s h a ll correspond
directly to the movement of
an interest-rate index
on a national or regional index that
measures the rate of inflation or on the
rate of change in disposable consumer
income. The index selected must be
readily available to, and verifiable by,
the borrower and beyond the control of
the lending association. Often to in­
sure consistency and to provide a stan­
dard so loans easily can be resold if
necessary, institutions tie rates on
ARMs to indexes reported by the
Federal Reserve System. ARMs are
commonly based on either the rate of
return on Treasury bills or on a “con­
stant maturity’’ rate. These indexes
meet the requirements of being readily
available to consumers as well as serv­
ing as measures of interest rate ac­
tivity and the cost of funds for
institutions.
There are three types of Treasury
s e c u ritie s — b ills ,
notes
and
bonds—and eight categories of
Treasury constant maturities. Treasury
bills come in three types of maturities;

and G.13 respectively. To receive these
releases, please contact the following:
Publications Services, The Board of
Governors of the Federal Reserve
System, Washington, D.C., 20551. Each
week, the Dallas Fed provides informa­
tion on the latest Treasury bill auction
through a recorded telephone message
(see box).

Telephone numbers for
interest rate
recorded message
Treasury bills
(214) 651-6177 Dallas
(214) 263-1093 Metro
(800) 442-7390 Texas
(800) 527-9208 National
Treasury notes and bonds
(214) 651-6384

Percent of homes sold
with an adjustable
rate mortgage
1983

New
homes

Previously
occupied homes

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec

35
29
30
23
30
37
27
24
42
44
46
49

36
28
29
31
28
30
26
36
46
52
56
56

Source: Federal Home Loan Bank
Board Journal, February

1984

Dallas Fed Hosts Consumer Credit Seminar
The Dallas Fed recently hosted a
seminar on consumer credit for ap­
proximately 40 local secondary school
teachers. The seminar, held in early
March, was co-sponsored with the
North Texas S tate Center for
Economic Education—a nonprofit
educational organization offering
educators professional assistance in
teaching methodology and curriculum
development. The NTCEE sponsors a
wide variety of programs geared
toward better economic understanding
for both educators and community
organizations.
Topics for the seminar included a
profile of the American consumer and
discussions on consumer laws such as
the Equal Credit Opportunity Act and
the Fair Credit Billing Act. Most of the
legislation discussed was passed in
the 1970s in an effort to protect con­
sumer’s rights from unfair credit
practices.

Consumer credit education is generating increased interest among educators.

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