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Federal Reserve Bank of Dallas

August 1985

A u to m a te d C le a rin g h o u s e
Then and Now
It all started when the Air Force
payroll was processed through the
Federal Reserve System in the fall of
1975. In January 1976, the Eleventh
District payroll checks and some com­
mercial accounts were added to the
processing procedure. Direct deposits
were promoted in early 1976, and
Social Security check processing
filtered in around October 1976.
That was the beginning of a notthen-known, speedy, highly technical
Automated C learinghouse (ACH)
system. The system ran bi-monthly
then, and runs twice a day, five days a
week now.
ACH is an electronic transfer system
which allows debits and credits to be
made between financial institutions
w ith o u t the paperwork u su a lly
associated with clearing checks.
An ACH transaction ordinarily is ini­
tiated by a private company or
employer on a magnetic tape created
by the company or the company’s bank
at the request of the company. The
originating financial institution (OFI)
consolidates the transactions re­
quested by its customers on tape and

B.B. Sessions, Electronic Payments Analyst

forwards or transmits the tape to the
ACH processor. The ACH processor
stores the data in its files and sends
new output (tapes or printout) to each
receiving financial institution (RFI),
which allows it to post the incoming
debits and credits to its customers’ in­
dividual accounts. Settlement is made
on the books at the Fed to the respec­
tive accounts of the OFI and RFI. Most
financial institutions are set up to
receive ACH transactions; fewer in­
stitutions originate such data. Any

Larry Ripley, Assistant Vice President,
Payments Mechanism Department

financial institution may originate ACH
items, but also must agree to receive
Electronic funds transfer systems
(EFTs) were designed “ to move large
volumes of small dollar amounts,”
stated Larry Ripley, Assistant Vice
P resident of the D allas Fed’ s
Payments Mechanism Department.
“ The Eleventh District processes half a
million transactions on the day cycle
which usually translates into value of
$150 million dollars per day. On govern­
ment payment dates, the Bank may
move as many as one-and-a-half

million transactions per day.”
During the night cycle, 50,000 trans­
actions account for a value of between
$750 million to one-and-a-quarter
billion dollars, according to Ripley. The
night cycle’s value is significantly
greater because the bulk of financial
institutions’ large dollar commercial
transactions are processed then.
ACH was started for basically two
reasons, according to B. B. Sessions,
Electronic Payments Analyst. “ First,”
he sa id , “ to e lim in a te paper
checks—possibly the first step in a
checkless society. And, secondly,
because funds can be moved faster
electronically than by check.”
In addition to saving paper-handling
time, financial institutions have found
ACH convenient because it helps
reduce lobby traffic and assists them
in managing their funds.
Since ACH transactions can be
posted quickly and predictably, finan­
cial institutions are better able to con­
trol the investment of their funds. This,
coupled with the increased conve­
nience to customers themselves, has
caused direct deposits to increase at a
rate of 30 percent to 40 percent per
(continued on page 2)



RESPONSE Network System Upgraded
Some Surcharges Reduced
The Dallas Fed’s RESPONSE net­
work is being enhanced to allow more
options for financial institutions
already connected to the network or for
those that would like to be.
Beginning immediately, those who
are already connected to the network
have the option to upgrade the com­
puter equipment they have at their
facility. Any institution currently leas­
ing the IBM Personal Computer Model
5150 may upgrade its equipment with
an internally mounted fixed disk and
additional memory to bring it to a total
of 512K. The fee for these features is
$32.55 per month in addition to regular
monthly lease fees. With this upgrade,
the computer equipment becomes
comparable to an IBM Personal Com­
puter Model XT with the exception of
color monitor capability. This up­
graded equipment also is available to
institutions wishing to access the net­
work for the first time.
Effective July 1, 1985, the monthly
surcharges for some options have
been reduced. The monthly charges of
256K memory and 512K memory are
$5.55 and $20.50, which were lowered
from $6.11 and $26.59, respectively.
The Dallas Fed also has announced
some changes to the required memory

capacity for access to the network.
Over the next few months, institutions
that lease equipment from us will have
that equipment upgraded to 256K if
they do not currently have that amount
of memory capacity. The $5.55 lease
fee for the 256K memory will be
charged for this upgrade. Installation
of the new memory capacity will be
coordinated by the Dallas Fed and
each institution will be contacted in­
dividually to coordinate installation.
Institutions that own their equipment
will be required to have at least a 256K
memory capacity by Dec. 1, 1985. This
requirement is a result of service
enhancements that w ill be im ­
plemented over the next year.
These changes have resulted in a
need to revise our Bulletin 16 which
deals with the RESPONSE network and
the e q u ip m e n t c o n fig u ra tio n s
necessary to access the network. For a
new copy of Bulletin 16 or a copy of our
Circular 85-85 dated June 28, 1985,
which announced these changes,
please contact the Public Affairs
Department at (214) 651-6289. For infor­
mation regarding the RESPONSE net­
work itself, please contact Stan
McAnelly at (214) 698-4322.

Automated Clearinghouse, cont.
year over the past six or seven years,
according to Ripley. Also, these items
are processed economically. Depend­
ing on whether it’s a debit or credit, be­
ing originated or received, or being pro­
cessed during the day or night cycle,
the Fed charges institutions between 1
cent and 7.8 cents to handle an ACH
ACH associations exist to promote
the EFT concept and facilitate the ex­
change of transactions between in­
stitutions. They also write the rules
that ACH users live by. The Federal
Reserve Banks and Branches act as

data processing agents for the ACH
associations (the Federal Reserve
System is under contract with the Na­
tional Automated ClearingHouse
Association — NACHA) and settle
payments arising from ACH transac­
tions. While the Fed has, in the past,
primarily been responsible for han­
dling ACH transactions, opportunities
to design and offer profitable ACH ser­
vices are being explored by others. The
next issue of Roundup takes a look at
developments in automation and
telecommunications technology, and
their impact on the industry.

Effective Aug. 23, 1985, the
Federal Reserve Bank of Dallas
discontinued its role in arranging
for over-the-road cash transporta­
tion to and from depository finan­
cial institutions in the Eleventh
Federal Reserve District. Financial
institutions which followed the pro­
cedures outlined below should not
have had any disruption in service.
This action resulted from a
similar decision made in September
1984 and January 1985 when the
non-regulated city and suburban
zones and the over-the-road trans­
portation routes to New Mexico, ser­
viced by the El Paso office, were
discontinued. In addition, recent
state legislation allows licensed ar­
mored carrier companies greater
flexibility to meet the varied needs
of depository financial institutions
in Texas.
Transportation charges which
were incurred through Aug. 23,1985,
will be billed on Sept. 9, 1985, and
charged to the designated reserve
account on Sept. 16, 1985.
Each depository institution rely­
ing on the Federal Reserve cash
transportation system should al­
ready have sent a letter to its
respective Federal Reserve office
specifying the armored carrier
authorized to receive and deliver
Fed coin and currency shipments.
The authorization letter should have
been signed by an officer of the
depository institution whose signa­
ture is already on file at its local
Federal Reserve office.
Currency and coin delivery dates
will continue to be scheduled by the
Reserve Bank.
Should you have questions or
need assistance in contacting ar­
mored carriers, please contact Mary
Louise Rosas, (214) 651-6336, at the
Dallas office; Robert W. Schultz,
(915) 544-4730, at the El Paso office;
Luke E. Richards, (713) 659-4433, at
the Houston office; and Tony G.
Valencia, (512) 224-2141, at the San
Antonio office.

Fed Sets New Monetary Targets Aimed at Fn*™
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Volcke, warns


A written report on the
state of the economy and
the course of monetary
policy is required twice a
year of the Federal Reserve
by the Full Employment
and Balanced Growth Act
of 1978. Paul A. Volcker,
Chairman of the Board of
Governors of the Federal
Reserve System, gave his
testimony in conjunction
with this report before the
U.S. House of Represen­
tatives, July 17, and before
the U.S. Senate, July 18.
A copy of the report and
Chairman Volcker’s testi­
mony can be obtained by
Public Affairs Department
Federal Reserve Bank
of Dallas
Station K
Dallas, Texas 75222
(214) 651-6289

*** S
* To B t/,

“ Federal Reserve Chairman Paul Volcker on Wednesday warned of ‘strain,
imbalance and danger’ in the U.S. economy and once again urged Congress to do
something about soaring federal budget deficits.
“ Volcker’s comments came a day after the central bank revealed that it has
boosted one of its key money supply targets for the rest of 1985.”
Associated Press, July 17,
as reported in The Dallas Morning News

“ ...Expanding the money supply typically stimulates economic growth, as it
did when the current recovery began in 1983.
“ ...Economists welcomed the Fed action. Most agreed with Volcker that
there is little danger of renewed inflation and insisted that the Fed’s action was
necessary to avoid further weakness in the economy.”
Los Angeles Times, July 17,
as reported in The Dallas Times Herald

“ If the Fed had attempted to hit the old (money supply) targets by tightening
credit conditions, it would have risked throwing the economy into a recession, ac­
cording to many economists. The latest action will allow the Fed to drive interest
rates down further should the economy fail to gain momentum, some analysts
The Wall Street Journal, July 17

“ The Fed also forecasts a pickup in economic growth in the second half of
the year, but warned that the upturn will be threatened if Congress fails to pass a
deficit-reduction measure matching the cuts contained in current proposals.”
Investor’s Daily, July 17

“ Volcker is content to leave the money supply alone. His reasons:
agriculture and basic manufacturing can’t absorb much more punishment from
the high-valued dollar; ...the economy is growing on borrowed money; ...lack of
action on the federal deficit; ...a rapid dollar decline would increase interest rates
and inflation; ...rapid accumulation of debt in the credit system.”
USA TODAY, July 17

Federal Reserve’s Economic Forecasts

Growth Rate


i 11

Gross National



3% -8% in ’85;
4% -7% in ’86

6% -9% in ’85
and ’86

6% -9.5% in ’85;
6% -9% in ’86

Regulation Changes
Recent changes made to Federal
Reserve Regulations are summarized
Regulation G, T, and U (Securities
Credit Transactions) were amended to
(1) permit persons other than banks,
brokers, or dealers to extend credit to
trusts for employee stock option plans,
effective July 22, 1985, and (2) change
the initial requirement for writing of op­
tions on equity securities, effective
September 30, 1985.
Regulations H and Y (Membership of
State Bank Institutions in the Federal
Reserve System and Bank Holding Com­
panies and Change in Bank Control,
respectively) were amended to reflect
the revised capital adequacy guidelines.
For Regulation E (Electronic Fund
Transfers) a modification was made to
the Official Staff Commentary, rather
than to the Regulation itself.
To order copies of the amendments,
write the Public Affairs Department, Sta­
tion K, Dallas, Texas 75222 or call Tony
West at (214) 651-6289.

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Fed Plans Major Conference
“ Energy and the S o u th w e st
Economy,” a major conference on the
economy of this region and its relation­
ship to the energy sector, will be spon­
sored by the Federal Reserve Bank of
Dallas. It will be held on Thursday and
Friday, Oct. 3-4, at the Fairmont Hotel
in downtown Dallas.
Leading economists from through­
out the country will be on hand to make
The first day’s agenda will focus on
the contribution of the oil and gas in­
dustries to the economies of four
“ S o u th w e s te rn ’ ’ st at es —Texas,
Oklahoma, Louisiana and New Mexico.
The second day will be devoted to the
future of the region and the prospects
for diversifying the economic bases of
these states.
The Dallas Fed plans to publish the
proceedings of the conference. At­
tendees will receive a copy of the
publication free of charge.
Admiral Bobby R. Inman, chairman,

president and chief executive officer of
the Microelectronics and Computer
Technology Corporation, Austin, will
be a luncheon speaker. He will discuss
the diversification of the Texas
For out-of-towners, a block of hotel
rooms has been set aside at the Fair­
mont. The hotel is offering a special
rate of $99 for a single or double. Per­
sons booking a room should be sure to
mention the Dallas Fed conference.
At the conclusion of the first day’s
program, a wine and cheese reception
will be held at the hotel.
The conference registration fee is
$125. Checks should be made payable
to the Federal Reserve Bank of Dallas
and sent to the Public Affairs Depart­
ment, Federal Reserve Bank of Dallas,
Station K, Dallas, Texas 75222.
Please enclose your name, title,
company name, address and your
phone number. Further details can be
obtained by calling (214) 698-4403.