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Federal Reserve Bank of Dallas



December 1985

Reducing payments system risk
Implementation of the Federal
Reserve Payments System Risk Policy
prompted the Federal Reserve Bank
of Dallas to host several daylight
overdraft seminars recently. The
seminars were held in Dallas, El
Paso, Houston, and San Antonio to
make financial institutions more
aware of what can be done to reduce
daylight overdrafts.
Daylight overdrafts result when a
financial institution moves more
funds out of a reserve or clearing ac­
count at the Fed than there are in the
account, or when its outgoing trans­
fers (sends) on a private funds trans­
fer network such as CHESS or CHIPS
exceed its incoming transfers
(receives). Typically, daylight over­
drafts are covered by incoming trans­
fers by the end of the business day,
but many depository institutions
nevertheless overdraw their accounts
during the day for large amounts.
Daylight overdrafts create a
substantial risk for the financial
system. If an institution is unable to
settle a daylight overdraft on a private

network at the end of the day, other
institutions may find their own posi­
tions at risk. The Federal Reserve’s
concern has been the domino effect
on a large number of institutions
which could result from a failure by
one institution to settle a daylight
overdraft (net debit) position on a
private network and the resulting im­
plications for the stability of the
financial system.
The situation is somewhat different
with daylight overdrafts on Fedwire. If
an institution cannot make a Fedwire
daylight overdraft good at the close
of business, the Federal Reserve
Bank absorbs the loss; however, com­
pleted Fedwire transfers will not be
reversed as to receiving institutions,
thus preventing a domino effect.
The Board of Governors of the
Federal Reserve System, after exten­
sive study, agreed on a voluntary pro­
gram to reduce daylight overdrafts.
Depository institutions will voluntarily
limit daylight overdrafts across all
payments systems (Fedwire and any
private networks) by establishing a

maximum daylight overdraft (called a
sender net debit cap) based on a selfassessment of creditworthiness,
operational controls, and credit
Jim Stull, vice president of the
Federal Reserve Bank of Dallas and
moderator of one of the Dallas
seminars, said, “ The voluntary ap­
proach was strongly urged by the in­
dustry, but if it does not meaningfully
address the risks, the Board of Gover­
nors has made it clear they will
reconsider other options, such as a
regulation to impose explicit daylight
overdraft limits.”
Preliminary results of the selfassessment process (including
preliminary sender net debit caps) are
due to the Federal Reserve Banks by
December 31, 1985. Final caps (with
board of directors’ approval) are due
by February 28, 1986.
While Stull served as moderator, a
panel answered questions during the
seminar. The panel included (from left
of picture) Earl Anderson, assistant
vice president from Supervision and
Regulation; Larry Ripley, assistant
vice president over the Electronic
Payments Division of Payments
Mechanism; Robert Hankins, assis­
tant vice president from Supervision
and Regulation; and Robert Feil,
manager of the Reserve Maintenance
and Federal Accounts Divisions of
Financial Planning and Control.

Panel discussion at a recent daylight overdraft seminar.


Chinese bankers visit Fed
Five officials from the People’s
Bank of China visited the Dallas/Fort
Worth area November 14-17 under
the sponsorship of the Federal
Reserve Bank of Dallas. The People’s
Bank of China serves as the central
bank of the People’s Republic of
China and its billion-plus population.
Their visit to this country, arranged by
Federal Reserve Board Chairman Paul
A. Volcker, was aimed at familiariza­
tion with central banking operations
techniques used by their United
States counterparts.
The group, which included Li Xiang
Rui, president of the People’s Bank
Shanghai branch, Zhou Zhengging,
president of the Beijing branch, Wang
Wei, president of the Hubei branch;
and Fan Di and Liu Zhaobin, research
officers, met with senior officials of
the Federal Reserve Bank of Dallas
and RepublicBank Dallas.
Robert D. Rogers, president and
chief executive officer of Texas In­
dustries, Inc., Dallas, and chairman of
the Federal Reserve Bank of Dallas’
Board of Directors, presided over a
luncheon for the Chinese central
bankers, while Drew Hogwood, assis­
tant vice president of the Public Af­
fairs Department, coordinated
sightseeing activities around Dallas
and Fort Worth for the visitors.
Recapping the visit, Hogwood
stated, “ Li expressed regret that the
length of their visit did not permit
them to see the many other faces of
the Dallas Fed’s territory in Texas,
Louisiana, and New Mexico. The
group members confessed that they
were most pleasantly surprised by the
genuine friendliness and hospitality
of Americans.”
Prior to their arrival in Dallas, the
five Chinese officials visited the
Board of Governors headquarters and
the Federal Reserve Banks of New
York and Minneapolis. Before return­
ing to China on November 21, they
visited the Federal Reserve Bank of
San Francisco.

Chinese bankers discuss banking policies with George Cochran, senior vice president,
while visiting the Dallas Fed.

Although the other Federal
Reserve Districts will be closed to
observe Martin Luther King’s birth­
day, th e F e d e r a l R e s e rv e B a n k o f
D a lla s a n d its B ra n c h o ffic e s in E l
P a s o , H o u s to n , a n d S a n A n to n io
w ill b e o p e n on Monday, January

20, 1986.
The Eleventh Federal Reserve
District follows the holiday sched­
ule set by the Texas Legislature
which does not list that day as a
holiday for 1986.
Should your institution wish to
close that day, submit the resolu­
tion from your board of directors,
signed by the president of the in­
stitution to the Commissioner,
Department of Banking, 2601 North
Lamar, Austin, TX 78705, and also,
post signs 15 days prior to the holi­
day to alert customers.

Dallas Fed officials assist in study


Robert D. Rogers, chairman of the
Dallas Fed’s board of directors and
Lyne H. Carter, vice president of the
Operations Analysis Department, the
Facilities Services, Management and
Records Department, and Protection
Department, played key roles in the
recent study of the Dallas County
Criminal Justice System.
Rogers, who is president and chief
executive officer of Texas Industries,
Inc., also serves as chairman of a
nine-member advisory board that
oversees Dallas United and was in­
strumental in its formation.
Dallas United, a volunteer civic
group, is a program in which private

businesses lend executives on a full­
time, cost-free basis to a local public
authority. It was created one year ago
and is jointly sponsored by the Dallas
Chamber of Commerce and the Dallas
Citizens Council. Its goal is to help a
particular public agency operate its
departments and programs more
Invited by Dallas County to do its
first study on the criminal justice
system in March, a Dallas United task
force began phase one which involved
a step-by-step documentation of the
most critical operations in the
criminal justice system.
The second phase of the study,
which Carter worked on, began in
July. This team developed the find­
ings done by the first group and
reported ways officials could stream­
line the operations of the criminal
justice system in reducing costs to
the county for jail inmate housing,
speeding trails for those incarcerated
and reducing the need for expansion
of jail space.
Dallas United made 22 recommen­
dations designed to reduce unneces­
sary jail spending and improve the ef­
ficiency of the criminal justice
system. The leaders of the criminal


justice system completely endorsed
these recommendations and pledged
to put them in place at the earliest
possible time. Estimated net savings
totaled over $5 million per year. Also,
the recommendations would defer
capital costs of from eight to 19
million dollars.
In addition to his work on the task
force, Carter serves as secretary to
the Federal Reserve System’s Con­
ference of Presidents (chaired this
year by Dallas Fed President Robert
H. Boykin) and secretary to the Fed’s
Conference of First Vice Presidents
(chaired by the Dallas Fed First Vice
President William H. Wallace).

NEWS BRIEFS----Fedwire Schedule Changes
The Board approved two modifica­
tions to the Fedwire operating
schedule which will become effective
January 1, 1986.
The deadline for interdistrict third
party wire transfers has been
changed from 4:30 P.M. to 5:00 P.M.
Eastern time. Also, Fedwire will begin
opening no later than 9:00 A.M.
Eastern time.

Regulation B Revised
The Board approved final revision
to Regulation B—Equal Credit Oppor­
tunity—which will assist creditor
compliance and increase protection
for credit applicants. Though the final

revisions became effective December
16, creditors may continue current
procedures until October 1, 1986.

Regulations G, T, and U Amended
Amendments have been made by
the Board of Governors of the Federal
Reserve System to Regulations G,
T, and U—Securities Credit
To obtain a copy of the amend­
ments or Circular 85-114 announcing
the changes, contact Tony West in
the Public Affairs Department at (214)
651-6289. For further interpretation of
these changes, contact the Legal
Department at (214) 651-6171.

Regulation AA Updated
The Board of Governors of the
Federal Reserve System has issued a
revised pamphlet to Regulation AA,
effective January 1, 1986.
Previously, the Regulation con­
sisted of one subpart on consumer
complaints. The second subpart
added guidelines for the credit prac­
tices rule which covers topics such
as unfair credit-contract provisions,
and unfair or deceptive practices in­
volving co-signers.
For revised copies of Regulation
AA, contact the Public Affairs Depart­
ment at (214) 651-6289. For interpreta­
tion of any or part of the revision,
contact the Legal Department at (214)

To improve supervisory process...

Board increases examinations
Recent bank failures across the
United States prompted the Federal
Reserve Board to issue guidelines to
strengthen Reserve Bank supervision
of state member banks and bank
holding companies. The policies will
increase frequency of Federal
Reserve examinations, which are con­
ducted by examiners from Federal
Reserve Banks’ Supervision & Regula­
tion Departments.
The early identification and correc­
tion of weaknesses is the predomi­
nant goal behind issuance of these
In addition, the Federal Reserve
Board issued a policy statement on
the payment of cash dividends by
state member banks and bank
holding companies that are
experiencing financial difficulties.
As a part of the program to
strengthen banking operations, the
policy statement addresses the prac­

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tices of supervisory concern by in­
stitutions that are experiencing earn­
ings weaknesses, other serious prob­
lems or that have inadequate capital.
Specific areas of concern are pay­
ment of dividends 1) not covered by
earnings, 2) from borrowed funds, and
3) from unusual or nonrecurring
The Board recommended any orga­
nization experiencing these financial
pressures should not maintain a level
of cash dividends that exceeds its net
income, that is inconsistent with its
capital position or that can only be
funded in ways that may weaken its
financial health.
In its attempt to upgrade the super­
visory process, the Board’s guidelines
will include tightened prudential stan­
dards, improved cooperation between
Federal and state banking depart­
ments and strengthened examination
staffs created through improved ex­

aminer training programs.
Implementation of these policy
guidelines is expected by January 1,

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