Full text of Roundup : July/August 1986, Volume 5, Number 7

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DALLAS
Federal Reserve Bank of Dallas

July/August 1986

Volume 5, Number 7

Disaster recovery plan . . .

System establishes Contingency Plan
The Federal Reserve System has
established a Contingency Process­
ing Center (CPC) in Culpeper, Virginia,
to provide back up processing for the
Transfer of Funds, Securities, ACH
(Automated ClearingHouse), and Ac­
counting Systems. These are the
most critical applications handled
systemwide and any lapse in process­
ing of these applications would im­
pact the nation’s economy. Any of the
twelve Reserve Banks could use the
CPC facility should the need arise.
Frank Kuban, manager in Data Ser­
vices and task force coordinator of
the Contingency Plan at the Dallas
Fed, says careful steps are taken to
“Copy crucial information (that direct­
ly affects the nation) to magnetic
tapes and take that information off
site each night.”
The CPC is capable of handling the
processing load of any District’s
failed computer center. Each Fed
creates backup tapes and deposits
them offsite at regular intervals in
order to avoid the loss of a large
volume of data, should a disaster
take place. For the same reason,
copies of software, documentation,
and contact lists are stored offsite
also.
Should a Reserve Bank’s data
center be determined inoperable for
an extended period, data processing
personnel would travel immediately to

the CPC facility and reestablish com­
puter operations from the CPC. If only
the data center were disabled, Opera­
tions personnel would remain
at the Head Office and work from
terminals connected to the CPC
computer.
However, if the entire building were
disabled, Reserve Bank personnel
would relocate to the District’s
relocation facility, which is usually a
branch office, where working ter­
minals are connected to the CPC. In
the Eleventh District, the Houston
Branch has been set up to serve as
the Operations relocation facility. The
depository institutions which are nor­
mally linked to the Head Office are
relinked to the CPC facility through
dial-up connections.
Many types of disaster, such as
fire, tornado, terrorist activity, etc.
could cause the loss of computer
facilities. The major idea behind the
origination of the CPC is to insure
continuity of operations and avert any
serious business loss caused by the
unavailability of the business’ com­
puter facilities.

be used to communicate emergency
plans, in a fashion similar to public
emergency announcements.
Reserve Banks will also be storing
a “disaster letter” at one of their
branch offices. The letter will be sent
from the branch to depository finan­
cial institutions, should the Head
Office experience a contingency
situation.
Both wire transfer of funds and the
securities applications are run on the
computer at the CPC. Reserve Bank
personnel in the home District would
manage the operation from working
terminals connected to the CPC in
Culpeper. On-line depository financial
institutions would be contacted and
given any information needed to
resume operations through the CPC.
Reserve Bank personnel may request
DFIs to retransmit any data sent be­
tween the time of the last checkpoint
and the time the computer outage oc­
curred. By connecting with the CPC,
depository financial institutions could
send and receive transfer of funds
(Cont. on pg. 3)

How does the CPC involve DFIs?

INSIDE________

If a disaster occurred, the disabled
Reserve Bank staff would notify their
District’s depository financial institu­
tions (DFIs) and the media. In a major
disaster, television and radio would

■ TEXAS ECONOMY
■ HOME LOANS
■ REG J CHANGES

A look at Texas economy . . .

Inman cites vital investments
Higher taxes will be needed now to
help lay the foundation for a healthy
state economy in the 1990s, said
Admiral Bobby R. Inman at a recent
luncheon for San Antonio businesspeople. The luncheon followed a joint
meeting of the boards of directors of
the Federal Reserve Bank of Dallas
and the San Antonio Branch. Inman—
chairman of the board, president and
chief executive officer of Microelec­
tronics and Computer Technology
Corporation (MCC) in Austin—is the
deputy chairman of the Dallas board.
“We are going to have to make the
investments now to produce the
human resources and infrastructure
that will be necessary to carry the
technology push in the 1990s,” stated
Inman. He cited worrisome attitude
changes among political leaders that
Texas may not be willing to overcome
problems in making investments for

“ \Ne are going to
have to make the
investments now to
produce the human
resources . . . necessary
to carry the technology
push in the 1990s,”
stated Inman.
the future—such as tax increases
that would benefit education. Inman
went on to say that Texas’ pro­
business image is a myth if it is
based on the lack of a state cor­
porate tax and income tax, although
he prefers more consumption-based
taxes such as the sales tax.
“ Fundamentally, I’m optimistic for
the state’s capacity to compete but

the real issue is: ‘Are we going to
compete?’ You don’t compete by cut­
ting back,” he asserted. “The pro­
business image also is a myth if more
Texas cities institute electric rates
that favor residences and hurt
businesses and industries. That
sends a signal of no equitability.”
Inman listed six key technologydriven industries that Texas must be
ready to attract:
• Telecommunications: Fiber optics
use is growing to make digital
communications the new standard.
• Microelectronics: In 10 years, a
computer chip the size of a thumb­
nail will have up to 100 times the
power of a personal computer to­
day. New chips probably will be
able to compute items simulta­
neously rather than sequentially.
• Aerospace: Growth in aerospace
will improve reconnaissance and
inaugurate manufacturing in zero
or low gravity.
• Materials: It is conceivable that the
development of new, light weight
materials competing with steel will
allow manufacturing and construc­
tion in more environments includ­
ing space and ocean technologies.
• Energy: Although the United States
is losing its lead in nuclear energy
technology, it will maintain and
improve its superiority in fuel
cells and fossil fuel recovery
techniques.
• Biotechnology: Health care ad­
vances should be followed by new
applications revolutionizing
agriculture.
“Texas needs more college
students learning new technologies
and creating new applications,” said
Inman. “We also must provide
broader education experience at the
secondary levels so that people who
do not go on to college will be ready

Admiral Bobby R. Inman is the deputy
chairman of the Dallas Offices’ Board
of Directors.

for careers that involve an automated
work place.”
Accordingly, Inman criticized what
he considered a slow response to the
collapse in energy prices. He stressed
that Texas must learn that energy no
longer will be the sector providing ad­
ditional jobs and paying the state’s
bills.

NOTE:
The Board of Governors
announced a change in
the discount rate on
July 11, 1986, to 6 per­
cent from 61/2 percent.

Home loans rise slightly
The U.S. Department of Housing
and Urban Development (HUD) re­
leased in mid-May the results of its
latest survey of market conditions for
fixed rate, long-term, level payment
home loans as well as interest rates
for home construction funds.
The survey found that the national
average yield on secondary market
transactions involving HUD/FHA Sec­
tion 203(b) loans rose slightly from
those of the previous month. The na­
tional average yield was based on the
most active commitments transacted
for loans in that section.
On May 1, 1986, these com­
mitments were for loans bearing a
contract rate of 9.50 percent, as in

the previous month. The national
average secondary market yield on
9.50 percent HUD/FHA Section 203(b)
loan transactions was 9.80 percent, a
slight rise of three basis points from
April 1, 1986, average yield of 9.77
percent.
Compared with the 99 percent
response rate on April 1, 1986, the
proportion of HUD field offices in­
dicating generally adequate funds for
financing this type—Section
203(b)—of home mortgage was 95
percent on May 1, 1986.
The average rate for conventional
loans for new homes on May 1, 1986,
was 9.99 percent, down seven basis
points from 10.06 percent on April 1.

Average Interest Rates on Conventional First Mortgages*
New Home Loans
Area
Northeast
Middle Atlantic
Southeast
North Central
Southwest
West
United States

Existing Home Loans

May 1
1986

May 1
1985

May 1
1986

May 1
1985

10.83%
9.88
9.72
9.86
9.94
9.88

13.53%
12.97
12.94
12.87
12.94
12.96

10.83%
9.88
9.73
9.86
9.94
9.88

13.53%
12.99
12.96
12.88
12.91
12.96

9.99%

13.01%

9.99%

13.01%

Average Interest Rate for Home Construction Financing*
FHA Insured

Conventional

May 1
1986

May 1
1985

May 1
1986

May 1
1985

Northeast
Middle Atlantic
Southeast
North Central
Southwest
West

11.44%
10.59
10.36
10.45
10.61
10.87

14.07%
12.61
12.69
13.19
12.52
12.87

12.28%
10.59
10.36
10.78
10.68
10.87

14.19%
12.75
12.69
13.47
12.63
12.84

United States

10.70%

12.92%

10.90%

13.07%

Area

* As published by the U.S. Department of Housing and Urban Development.

Recovery, cont.
and securities transactions with only
minor variations from normal
procedure.
For the ACH applications, ACH per­
sonnel would relocate to the CPC
because of the magnetic tape orienta­
tion of the ACH system. Reserve
Bank personnel would request current
cycle input files or remakes of these
files from local DFIs. Files from the
branch offices would also be shipped
to the CPC. On-line depository finan­
cial institutions would be instructed
to transmit and receive ACH files via
the CPC. Once at the CPC, ACH files
destined for interregional exchange
would be transmitted over the Federal
Reserve Communications System
(FRCS-80) as usual.
Accounting in support of transfer
of funds, book-entry securities, and
ACH can also be managed from the
CPC. Pricing and billing activities
may not be supported during the
outage, but rather, charges would ac­
crue and DFIs would be billed after
normal operations resumed. Branch
offices would distribute end-of-day
statements for local customer
depository institutions. Other finan­
cial statements would be transported
via courier from the CPC.
In an emergency situation, Reserve
Banks will rely on their branch offices
or other Districts to process checks.
The CPC will not be involved in check
processing services, except to pro­
cess the accounting data provided by
the branch offices.
The establishment of the CPC by
the Federal Reserve System and the
preparations and testing of emer­
gency procedures by the Reserve
Districts represent major steps in the
Systems’ ongoing effort to provide as
high a level of automation services
as possible. With the CPC, it is now
possible to limit the impact of a
major disaster.

Board amends Regulation J
The Board of Governors approved a
change to Regulation J to permit
Federal Reserve Banks to handle, as
cash items, items drawn on financial
institutions in foreign countries.
Reserve Banks will contract with
domestic correspondent financial in­
stitutions to collect foreign items for
the Federal Reserve. Foreign collec­
tion will only be offered to institu­
tions using regular check collection
services of the Federal Reserve and
may not be offered by all Reserve
Banks.
In addition to this change on
foreign collection, the Board made a
few other amendments to Regulation
J. Changes are as follows:
• Starting in 1987, banks which
voluntarily close on nonstandard

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holidays will have to choose
whether they want to accept a
debit for checks that would have
been presented to them or pay for
the value of the float.
Beginning April 1, 1987, the Fed
will modify the procedures used to
recover float generated in ACH
operations due to nonstandard
holiday closings by both
originating and receiving institu­
tions.
That a uniform proposed two-year
limitation period be adopted for ac­
tions against Reserve Banks for
alleged mishandling check collec­
tions and wire transfers. However,
the change would not go into ef­
fect until Jan. 1, 1990, in order to
give state legislatures time to

enact a similar change. NOTE: This
change does not relate to reduc­
tion in statute of limitations on
mishandled items.
• That Reserve Banks are not liable
for consequential damages involv­
ing wire transfer transactions.
• That breach-of-endorsement war­
ranty suits be defended by prior
endorsers, at the request of the
Reserve Bank.
• That a permanent rule was set
regarding holiday schedules for
large-dollar return item notification
requirements. NOTE: Reserve
Banks have deleted the rule that
fixed-day holidays falling on Satur­
days be previous Fridays.