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Federal Reserve Bank of Dallas

April 1985

V o lc k e r C a lls fo r T ra n s -A tla n tic U nit

Paul A. Volcker

Federal Reserve Board chairman
Paul A. Volcker, in Dallas for the
Am erican-G erm an b ie n n ia l con­
ference, called on the United States
and West Germany to strengthen their
re la tio n sh ip for the benefit of
economic recovery worldwide.
Volcker told American and West Ger­
man business and political leaders at­
tending the conference that the transAtlantic bond forged after World War II
has been overshadowed by other pre­
occupations—both internal and exter­

nal, political and economic—that con­
cern new generations in both coun­
tries. Volcker cautioned that the
“ strong imperative to work together
may not be so instinctive” as new
leaders, without “ the fresh and per­
sonal memory of war and destruction,”
devote more energy to other priorities.
The U.S.-West German relationship
is a natural one, according to Volcker,
because of a common basic market
orientation and mutual goals of
economic and price stability.
“ For the first time since the 1960’s,”
he said, “ there has been clear progress
toward the holy grail of stability—the
internal stability that, we have told
each other constantly, is the prere­
quisite for more stable exchange rates
and for sustained and balanced
Volcker credited employment and
productivity gains and higher business
investment on the American side with
providing impetus for expansion in
Europe, though unemployment there
remains at a postwar high. Volcker
voiced concern that recent perfor­
mance has led to a striking change in
attitudes and psychology—“ Euro­
pessimism on the one hand, and
renewed confidence and optimism in
the United States on the other.”
“ Any central banker is inclined to
like a strong currency,” he said, “ par­
ticularly one that reflects internal
strength. I am no exception in that
respect. There have indeed been solid
reasons for the recovery of the dollar
from the morass of the 1970’s.
“ But I am also more than a little
skeptical of the notion that Germany,
and Europe as a whole, is somehow

trapped in structural rigidities that
doom it to slow growth and leave little
or no room for policy maneuver—or
that the United States can safely relax
in the glow of a strong cyclical
Volcker reiterated his opinion that
the firs t step toward achieving
worldwide economic stability must be
to reduce the U.S. budget deficit. Other
responses to closing the savingsinvestment gap, such as substituting
money creation for real savings or tak­
ing protectionist measures to reduce
the trade deficit, deal with symptoms,
not causes, Volcker said, and would
only aggravate the problem.
While protectionist pressures are
currently being resisted by the ad­
ministration and by Congress, Volcker
said he suspects that “ political
resistance can be well sustained only
to the extent our trading partners...
resist protectionist pressures within
their own countries, and those in ex­
ceptionally strong trading positions—
such as Japan—find the will and the
means to move toward liberalization.”
The Fed chairman urged German
leaders to consider stimulating their
own economy rather than relying heav­
ily on the U.S., citing tax cuts and relax­
ation of money and credit policies as
possible actions.


Treasury Starts New Securities Program
A new program has been introduced by the Treasury Department
whereby the principal and interest payments of Treasury securities
can be separately owned and traded.
In the Separate Trading of Regis­
tered Interest and Principal of
Securities (STRIPS) program, selected
Treasury securities maintained in
book-entry form at a Reserve Bank can
be stripped into separate principal and
interest components, or zero-coupon
instruments, as direct obligations of
the U.S. government.
An individual CUSIP number will be
assigned to each component to help
identify the different interest and prin­
cipal payments. For example, a 10-year
Treasury note in STRIPS form could be
held in its entirety under its own CUSIP
number or with 21 different CUSIP
numbers identifying each of the 20
semi-annual interest components and
the principal component.
The Treasury will not issue the
stripped securities, rather financial in­
stitutions will continue to bid on the
entire security during auctions.
However, it will now be possible for a
depository institution with a bookentry account at a Federal Reserve
Bank to obtain the security in STRIPS
form either on or after the original
issue date. In order for a book-entry
security to be eligible for STRIPS, it
must produce a semiannual interest
payment of $1,000 or a multiple of
$1,000. Once the security has been
stripped, each interest and principal
component can be maintained and
transferred in multiples of $1,000.
In general, the Treasury plans to
make the STRIPS program available for
new securities with 10 or more years of
original maturity. The new program
was initially available for the 10-year
and 30-year securities issued on Feb.
15, 1985. The Treasury also plans to
make STRIPS available for the 10-year
and 30-year notes that were issued on
Nov. 15, 1984. In addition, the 20-year
bond maturing on Nov. 15, 2004, will
become eligible for STRIPS soon after
the first interest payment on May 15,

1985. STRIPS may eventually be made
available for other securities that have
already been issued.
The popularity of stripped Treasury
securities in recent years has been a
major development in the government
securities market. Since mid-1982, ap­
proximately $45 billion (principal value)
of Treasury securities has been
stripped either by the
issuance of

receipts based on them or by the
physical separation of coupons from
bearer securities. This creation of zerocoupon securities has benefited the
Treasury by broadening the appeal of
Treasury securities. The Treasury
developed the STRIPS program, a more
efficient method for trading in the zerocoupon market, to further build on this
progress and thus lower the cost of
financing the public debt.

Float Crediting Option to be Eliminated
Fractional availability, one of the
methods used by the Federal Reserve
to charge banks for interterritory check
float, will be discontinued Sept. 1,
1986. The Board of Governors voted to
e lim in a te fra c tio n a l a v a ila b ility
because of its potential for not recover­
ing the full cost of float from the in­
stitutions using this crediting option.
Reserve Banks will continue, if re­
quested, to provide fractional sched­
ules to depository institutions.
The Board also approved a continua­
tion of the current moratorium on per­
mitting additional depository institu­
tions to select the fractional availabili­
ty option.
Check float occurs when the Federal
Reserve credits the account of the
sending institution before it can debit
the account of the paying institution.
Interterritory float is primarily a result
of interdistrict transportation delays.
In 1983, the Board approved a pro­
gram to reduce and price Federal
Reserve interterritory check float.
Depository institutions that send
checks directly to the Federal Reserve
office serving the paying institution
were offered a choice of two methods
to calculate float costs for checks that
travel between two Federal Reserve

Districts during processing.
Under the first option, called fixed
availability, a depositing institution is
given 100 percent credit for its check
deposits. The amount of float is later
determined by actual collection perfor­
mance and is recovered through “ asof” adjustments, clearing balance
earnings credits or explicit charges to
the institution’s account.
Under the second option, fractional
availability, a depositing institution
receives partial credit for its check
deposits, so that a fraction of each
deposit is deferred an additional day.
The fraction is based on average col­
lection experience over the prior fourmonth period, whether the institution
uses the Federal Reserve transporta­
tion network or its own transportation
to send deposits directly to Federal
Reserve offices in other districts. Con­
sequently, the fractional availability
credit option results in an over- or
under-recovery at any given period
that, in theory, should be offset by
under- or over-recoveries at other
In practice, however, fractional
availability has the potential for not
fully recovering the cost of float
because the fractions represent

historical, rather than current, collec­
tion experience. For example, during
winter, when inclement weather often
causes transportation delays, the frac­
tions are based on the faster collection
times of previous months, and float
fees are lower than actual collection
experience would require.
In the spring, when float fees reflect
winter collection experience, a deposi­
tory institution could shift to the fixed
option or use alternate collection chan­
nels to avoid paying for float it incurred
during the winter.
Therefore, the fractional availability
option will be eliminated Sept. 1, 1986,
though Reserve Banks will continue to
provide fractional schedules, on re­
quest, to depository institutions to
help them allocate float costs back to
their own customers.
A pproxim ately 85 in s titu tio n s ,
generally large commercial banks, cur­
rently use the fractional availability op­
tion, and about 500 currently use the
fixed availability option. The remaining
4,400 in stitu tio n s using Federal
Reserve check services deposit checks
with their local Reserve Banks and do
not have the option of choosing be­
tween crediting methods.

Holding Company
Performance Report

amination Council. The BHCPR con­
tains balance sheet and income state­
ment items and financial ratios that
allow detailed financial analysis of
bank holding companies.
The report will be available approx­
imately 120 days after the December
and June reporting periods. For the
December reporting period, the full
report containing consolidated and
parent data will be available for ap­
proximately 1,020 bank holding com­
panies. A four-page parent-only report
for approximately 800 bank holding
companies that have consolidated
assets between $50 million and $100

million also will be available for that
Copies of individual bank holding
company BHCPR’s may be obtained by
the public for $25 for the full report
with quantity discounts available and
$10 for the parent-only report. BHCPR
User’s Guides may be obtained for $6
per copy.
All orders must be sent to Board of
Governors of the Federal Reserve
System, Attn: Emma J. Warmack,
Publications Section M-138, 20th & C
Streets, N.W., Washington, D.C. 20551.
For ordering assistance please call
(202) 452-2030.

The Federal Reserve Board has an­
nounced that the Bank Holding Com­
pany Performance Report is available
for sale to the public for the first time,
beginning April 29. The report will also
be sent to all bank holding companies
that file the Bank Holding Company
Financial Supplement.
The 16-page report follows the same
format as the Uniform Bank Perfor­
mance Report that is issued by the
Federal Financial Institutions Ex­

Nonbank Banks
The Federal Reserve Board an­
nounced on March 15 that it was
placing a moratorium on further pro­
cessing of bank holding company
applications to acquire nonbank
banks. According to the Board, this
action results from a recent injunc­
tion issued by a U.S. District Court
in Florida which preliminarily en­
joined the Comptroller of the Cur­
rency from issuing final charters for
nonbank banks.
Nonbank banks either make com­
mercial loans or accept demand
deposits, but not both.
Since the court’s decision means
that applications can no longer be
consummated, the Board decided to
cease considering such applica­
tions. This decision places on hold
more than two dozen applications to
establish nonbank banks in Texas.
If the court’s action is reversed or
limited in a manner allowing the
Controller to grant final charters for







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nonbank banks, the Board indicated
it would act on these applications
promptly upon their refiling. No
republication of notice would be

Recorded Messages
The Dallas Fed maintains two
recorded messages to provide its
constituents up-to-date information
on U.S. Treasury securities. One
message lists auction results of the
three-month, six-month and 52-week
Treasury bills, as well as the Dallas
Fed’s discount rate. It also reports
the most recent rates on Treasury
securities adjusted to constant
maturities of one and three years.
This message is available by dialing
651-6177 in Dallas, 263-1093 in
the Dallas area, (800) 442-7390 from
within Texas and (800) 527-9208 out­
side of Texas.
A second message announces
forthcom ing auctions of U.S.
Treasury notes and bonds, as well
as the interest rates determined at

the most recent auctions. This
recording is available at (214)

New Publications
Copies of two new publications
are available from the Dallas Fed.
The 1984 Annual Report for the
Federal Reserve Bank of Dallas pro­
vides an in-depth view of the energy
in d u s try ’s im portance to the
regional economy. There is also
background information on Federal
Reserve endeavors in the areas of
financial services, supervision and
monetary policy.
A summary of the Federal
Reserve Board’s Feb. 20, 1985,
report to Congress titled “ Monetary
Policy Objectives for 1985’’ 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