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Federal Reserve Bank of Dallas


June 1983

Corrigan Explains Payments System Risk
The Federal Reserve should con­
tinue to play an active role, along with
other members of the nation’s finan­
cial system, in efforts to prevent
elements of risk in the payments
mechanism according to E. Gerald Cor­
rigan, president of the Federal Reserve
Bank of Minneapolis. Corrigan was one
of several participants in a recent
Payments System Symposium for
senior bank executives sponsored by
the North Texas Regional Clearing
House Association.
Corrigan identified three areas
which often lead to payments risk.
These include mechanical or opera­
tional problems, fraud or mismanage­
ment problems, and credit problems.
He said payments risk will probably in­
crease substantially in the future due
to new technology, economic and
financial interdependence in the
worldwide financial system, ag­
gressive funds management techni­
ques, and widespread electronic bank­
ing. Therefore, the task of managing
risk will become more difficult.
The Federal Reserve has a great
amount of interest in reducing
payments risk because of its respon­
sibility for monetary policy, Corrigan
stated. This is because the tools the
Fed uses to conduct monetary
policy—such as reserves—are part of
the payments system. In addition, the
Fed has a significant operational
presence in the payments system,
especially in the area of wire transfers
of funds. The Federal Reserve,
therefore, assumes a certain amount

E. Gerald Corrigan

of payments risk and, as a matter of
good business, attempts to prevent
this risk wherever possible.
Corrigan suggested adapting com­
puter systems for greater monitoring
of the payments system and increas­
ing efforts for internal auditing as two
operational steps which can be taken
to help prevent this type of risk. He em­
phasized, however, that the most basic
aspect of risk management is self­
regulation by individual banks because
these types of decisions are a natural
extension of credit decisions that are a

part of a bank’s business.
While self-regulation may be the
essential cornerstone of the risk
management process, Corrigan sug­
gested that there exist certain con­
straints to its effectiveness. These in­
clude irresponsibility by some par­
ticipants in the system and a conflict
of interests resulting in natural com­
petition. This is why the Federal
Reserve’s role in risk management is
In addition to Corrigan, symposium
participants heard John D. Johnson,
executive vice president of the Federal
Reserve Bank of Philadelphia and
chairman of the Federal Reserve
System Subcommittee on Electronic
Payments. Johnson outlined new
developments in the Federal Reserve’s
wire transfer and automated clear­
inghouse service areas.
Other symposium participants in­
cluded Elvis L. Mason of InterFirst Cor­
poration, John F. Lee of the New York
Clearing House Association, Frederick
Heldring of Philadelphia National Cor­
poration and Bank, J. D. Carreker of J.
D. Carreker Associates, and Barry F.
Sullivan of First Chicago Corporation.

• Reserve Requirements
• ATM Networks
• Volcker Testimony

Board Reduces Reserve Reporting
The Federal Reserve Board has ap­
proved a March proposal to amend
Regulation D (Reserve Requirements
of Depository Institutions) in order to
reduce the deposit reporting burden for
small depository institutions. This ac­
tion is in compliance with the Garn-St
Germain Depository Institutions Act of
1982 passed last October. Effective
April 28, 1983, commercial banks and
thrift institutions with $2.1 million or
less in total reservable liabilities are
now excused from reporting re­
quirements (see chart).
In implementing the Act, the Board
will preserve its responsibility for col­
lecting data necessary for the monitor­
ing and control of monetary and credit
aggregates. This will affect small in­
stitutions’ reporting requirements only
if data are not available from other

Reporting Requirements of Depository Institutions1

Reservable Liabilities
$2.1 Million or Less

More than $2.1 Million

No reporting required
unless data are not avail­
able from other sources


$2 million to less
than $15 million



$15 million or more



Total Deposits

Less than $2 million

1 Not applicable to Edge Act and agreement corporations or U.S. branches and agencies of foreign banks.

Cash Transportation Fee Adjusted
For institutions in the Eleventh
Federal Reserve District, the subsidiz­
ed portion of the Dallas Fed’s cash

transportation fee will be adjusted
toward full cost recovery this year. On
June 30, 1983, the present $100 sub-

New Rate Set for Savings Bonds
The second market-based rate for
Series EE U.S. savings bonds has
been set at 8.64 percent for May 1
through October 31, 1983, replacing
the rate of 11.09 percent in effect
since November 1,1982. The marketbased rate, which is changed every
six months, is 85 percent of the rate
on Treasury five-year securities dur­
ing the previous six-month period.
The market-based rate system
replaced a fixed rate of interest ac­
crual system in use for the past 40
years. The new program, announced
by President Reagan in October
1982, was designed to give pur­
chasers of new savings bonds a
competitive return regardless of
market conditions and without
penalizing holders of older bonds.
All Series EE bonds purchased on

and after November 1, 1982, and
held at least five years—as well as
some older bonds and savings
notes—will yield, at maturity, either
an average of all market-based rates
for the five-year period or a
guaranteed minimum rate of 7.5 per­
cent. All other features and benefits
of the savings bond program remain
the same.
To date, public reception of mar­
ket-based rates has been very posi­
tive according to Bay Buchanan,
director of the Treasury’s Savings
Bond Division. Buchanan considers
this an important step in federal ef­
forts to encourage savings and
economic growth and has stated
that the bond program is returning
to a solid, competitive position
among savings instruments.

sidy cap will increase to $175, and on
September 29, it will increase to $400.
Subsidy caps apply to charges for
stops and liability for over-the-road
transfers of cash. The Fed will absorb
costs in excess of these caps for the
remainder of the year, and the program
will be eliminated December 29, 1983.
The Federal Reserve Bank of Dallas
also has adopted a uniform accounting
procedure for cash order and deposit
entries. Effective July 1, 1983, the new
procedure is designed to equalize
credit a v a ila b ility for all cash
shipments for all institutions.
Under the new procedure, a Reserve
Bank will make debit entries to an in­
stitution’s reserve or clearing account
on the day a cash shipment is received
by the institution. Those depository in­
stitutions which are exempt from
reserve requirements, or whose vault
cash exceeds reserve requirements,
will receive credit for a cash deposit on
the day the shipment is sent to the
Reserve office.
Under the existing policy, an institu­
tion’s account is debited or credited
when a shipment leaves, or is received
by, the Fed.



ATM Networks

Statistics Indicate Rapid Growth

They have appeared in airport terminals, on city
streets, and, more recently, in supermarkets.
Through them a person can transfer money from one
bank account to another, make deposits or
withdrawals, or check on a balance in a particular
account. They are known as automated teller
machines (ATMs) and their growth over the last few
years is helping the banking industry accelerate the
use of electronic banking.
Originally conceived as a means of reducing teller
labor costs and offering extended service hours to
customers, ATMs have also evolved as a marketing
tool for financial institutions. Establishing an ATM
network, or being linked to one, allows financial in­
stitutions to offer a customer service that provides
24-hour access to cash and account information.
In Texas, ATM networks such as MPACT and
PULSE have expanded their operations across the
state. MPACT is owned by Affiliated Computer
Systems Inc., a subsidiary of Mercantile of Texas
Corporation of Dallas. In March 1983, 1.5 million
MPACT cardholders had access to 709 MPACT
machines which handled about 2.7 million transac­
tions at over 300 Texas banks. Recently, both
RepublicBank Dallas’ TELLER 24 and First Texas
Savings Association’s MONEY MAKER cardholders
were also allowed access to MPACT machines.
Houston-based PULSE, owned by Financial Inter­
change Inc., has 578 ATMs serving 4.2 million card­
holders and approximately 490 financial institutions.
InterFirst Service Corporation, a subsidiary of Dallas-

based InterFirst Corporation, has 92 ATMs in Texas
which handled about 670,000 transactions during the
month of April.
Throughout the United States, as well as Texas,
the use of ATMs has increased dramatically. At the
end of 1982 there were 35,721 machines operating in
the United States. Compared with the 13,800
machines operating in 1979, the figures show a 159
percent increase in four years. The chart accompany­
ing this article outlines the rapid growth experienced
since 1979.
Yearend 1982 data indicated an average 3.1 billion
financial transactions (excluding balance inquiries)
annually at ATMs in the United States. Of those, 76
percent were withdrawal transactions and 19 percent
were deposit transactions. Withdrawals at ATMs
amounted to $86.7 billion, while deposits totaled
$154.7 billion. There were approximately 7,200 trans­
actions per machine per month with an average
deposit of $267 and an average withdrawal of $37.
The widespread use of ATMs is a major step
toward implementation of other electronic banking
innovations such as point-of-sale (PCS) terminals,
telephone bill paying, and home banking. Each of
these is designed to provide convenience to con­
sumers and an efficient network of payment for
business and financial institutions. Although ATMs
are the most widely accepted of the new electronic
banking innovations, there is a growing interest in
the others because of their potential efficiencies in
the payments mechanism.

Volcker Recommends Banking Reform
Federal Reserve Board Chairman
Paul A. Volcker urged Congress to re­
examine permissible activities for
banking and nonbanking organizations
in light of current market conditions,
technological changes, consumer
needs, and the regulatory and
economic environment. In recent
testimony before the Committee on
Banking, Housing, and Urban Affairs,
Volcker also stated that there is a need
for Congress to study actions allowing
state-chartered financial institutions
to engage in a wider range of activities
than banks and thrifts chartered by
federal authorities.
Volcker urged Congress to deal with
some of the most obvious “distortions
and loopholes” in the present
regulatory structure and welcomed the
Comptroller of Currency’s moratorium
on chartering new “ nonbank” banks.
“The new vocabulary springing up on
‘nonbank banks’, ‘thrift banks’, and

money market fund ‘checks’ reflects
the blurring of traditional institutional
lines and function,” he said. “Some of
it is healthy, some is not.”
Saying that much of the change in
the financial system is a “constructive
response” to market pressures,
technological changes, and oppor­
tunities made possible by deregula­
tion, Volcker stressed the need to
maintain a stable financial system
while allowing equitable competition.
In addition to the need for stability in
the system, Volcker’s statement
touched on such areas as interstate
branching, nonfinancial organizations
offering traditional banking services
such as “checking” accounts, and
banks offering nontraditional services
such as brokerage and data process­
ing services.
Volcker further addressed the idea
that proposed new financial activities
of holding companies be limited to

separate subsidiaries. While it is possi­
ble for a bank and its subsidiaries to be
separated to a degree, he stated that
he doubted whether the arrangement
would effectively insulate a bank from
trouble experienced by a nonbank sub­
Volcker disagreed with suggestions
that the Federal Reserve should limit
itself to monetary policy functions and
divorce itself from its regulatory and
supervisory duties. He stated that the
Fed needs a complete understanding
of individual financial institutions and
the system as a whole in order to effec­
tively administer monetary policy. “The
core responsibilities of a central bank
for economic and financial stability en­
tail concern over the strength and
stability of the banking system. Those
concerns are appropriately and
necessarily reflected in an on-going
presence in the regulation and supervi­
sion of the banking system,” he said.