Full text of Roundup : June 1984

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Federal Reserve Bank of Dallas

June 1984

Ruling Spurs ‘Nonbank’ Applications
On March 23 of this year, the
members of the Board of Governors of
the Federal Reserve System approved
the application of U.S. Trust Corp. of
New York to convert its Florida sub
sidiary from a nondepository trust
company to an institution that accepts
demand deposits and makes con
sumer loans. Because the institution
will not make commercial loans, it is
not considered a “ bank” for the pur
poses of the Bank Holding Company
Act and thus is not subject to in
terstate banking limitations estab
lished by the Douglas Amendment to
that Act.
This action has spurred financial in
stitutions to apply for approval to
begin offering similar services nation
wide in an effort to skirt the prohibi
tions on interstate banking. As of April
26, 28 financial institutions had ap
plied to establish 165 institutions na
tionwide. These figures include Texas
banks which had applied for 17 non
bank organizations to be set up around

the country. Also as of that date, 11
banking organizations had applied for
permission to open nonbanks in Texas,
two had applied to open nonbanks in
New Mexico and none had applied for
nonbanks to be located in Louisiana.
The Bank Holding Company Act
defines a bank as an institution that
both accepts demand deposits and
makes commercial loans. By elimi
nating one of these services, com
panies have found a loophole in the
system.
Although inroads have been made,
interstate banking is not yet a reality in
the United States. In recent years, a
number of large bank holding com
panies have staked claims on out-ofstate banks in anticipation of changes
in the law regarding interstate banking.
There are several ways an organization
may buy into another bank. The
organization may buy 4.9 percent or
less of the outstanding common stock
of the other bank. Regulatory approval
is not required on this type of transac

tion. Several Texas banks have this
type of arrangement with banks in
other states. Another method that may
be used is to make a maximum invest
ment of 24.9 percent in another bank's
equity capital. This investment in
cludes nonvoting stock that is conver
tible into common stock. Currently this
type of stock cannot be converted into
common stock until federal and/or
state laws are changed. Another type
of agreement is the “ merger of
equals.” In this way, organizations
agree to make investments in each
other with the understanding that
when the laws are changed they might
reconsider their relationship. In addi
tion, under the current regulatory
framework, there are three ways for
banking organizations to cross state
lines: through previously established
grandfather clauses, takeovers of fail
ing institutions and gaining permis
sion from individual states.
National banks have been prohibited
from acquiring banks across state
lines since the passage of the McFadden Act in 1927. Bank holding com
panies also have been limited in this
way since the Douglas Amendment to
the Bank Holding Company Act of
1956.

INSIDE________
B ACH PRICES
B ATM GROWTH

0 ENERGY SEMINAR

ACH Fee Schedule Announced
A revised fee sched ule fo r
automated clearinghouse services is
currently in effect. The new ACH pric
ing structure has more components
than the old structure, but is more
straightforward and parallels closely
approaches to pricing that already are
widely used by the private sector (see
table).
Moreover, the new fee structure
more closely reflects the cost of an
electronic payment service and en
courages greater volumes of ACH
payments on both the origination and
receipt sides. This is a positive induce
ment that should be consistent with
the goals of all participants in the ACH
payments mechanism.
Since passage of the Monetary Con
trol Act of 1980, the Board of Gover
nors of the Federal Reserve System
adopted a policy of incentive pricing
for the ACH service to encourage
development of the ACH mechanism.
In April 1982, the Board announced its
intention to phase out incentive pricing
for commercial ACH services gradual

CURRENT ACH FEE SCHEDULE
Debits originated
Debits received
Credits originated
Credits received

INTRA-ACH
1.5$
0.5
0.5
1.5

INTER-ACH
Unsorted Deposit
Presorted Deposit
2.5$
3.0$
1.0
1.0
1.0
0.5
3.0
3.0

FIXED ACH FEES
Deposit fees: Tape handling
File processing
Receiver handling fees:1 Nonelectronic
Electronic2
Telephone advice fees: Telephone advices including ten
pieces of information
Each additional piece of information
Nighttime deposit surcharges: Debits originated
Credits received

$3.00
$1.00
$1.75
$0.75

per
per
per
per

tape
file
delivery
transmission

$2.50
$0.05

60
.

3.0c

1. Receiver handling fees will be assessed once a day per endpoint, when ACH transactions are delivered.
2. Electronic endpoints are defined as endpoints that receive ACH transactions via data transmission or receivers
that pick up ACH transactions at the Federal Reserve Bank.

ly. The Board indicated at that time
that fees set in 1985 would reflect the
full costs of providing these services.
In accordance with the policy, the
Board has adopted this fee schedule
which is designed to recover 60 per
cent of the costs of providing commer
cial ACH services.
The movement from 40 percent to 60

percent cost recovery implies a 50 per
cent increase in costs and prices.
Through operational improvements
and economies of scale associated
with increased ACH volumes, this fee
schedule will provide a systemwide
weighted average price increase closer
to 25 percent, rather than the 50 per
cent that was expected.

Committee Discusses Future Roles of ACH
The future role of automated clear
inghouses was a topic considered by
the Advisory Committee of Financial
Institutions when it met at the Federal
Reserve Bank of Dallas May 10. The
17-member committee—composed of
representatives from commercial
banks, savings and loan associations
and credit unions—was created to pro
vide a constructive dialogue between
the D a lla s Fed and fin a n c ia l
institutions.
Committee members began their
afternoon by attending a luncheon with
the Federal Reserve Bank of Dallas’
Board of Directors. Afterward, formal
presentations on the economy,
le g is la tiv e d e ve lo p m e n ts and
automated clearinghouses were heard

during a meeting with Reserve Bank
management and members of the
Board of Directors. The members were
also provided updates on the Bank’s
return item pilot program and plans for
continued enhancement of the Dallas
Fed’s RESPONSE communications
network.
Assistant Vice President Richard D.
Ingram reviewed the development of
automated clearinghouses over the
past 10 years and recent efforts by the
Fed to offer further innovations in the
field. He stated that full implementa
tion of the Fed’s newest software—
ACH 84—should within a year improve
the options for data delivery. He also
noted that, in one form or another,
electronic payments were the wave of

the future.
The Advisory Committee of Finan
cial Institutions was created in 1981
and has met on a semiannual basis
since that time. Members of the com
mittee provide input to the president of
the Dallas Fed and the board members
in an effort to keep in touch with finan
cial events around the district. Accord
ing to Dallas Fed President Robert H.
Boykin, “We want to work within the in
dustry in as constructive a manner as
we can. We want to work within our
regulations—not to use regulations as
an excuse not to find a better way.” He
also stated that “we all have roles to
play in the financial structure—not
n e c e s s a rily
the
sam e,
but
complementary.”

ATMs: Regrouping and Expanding
What do you do when you need cash
late at night or on weekends? Chances
are you find the nearest automated
teller machine, insert a card, punch in
a personal I.D. number and walk away
with some cash. The widespread use of
ATM machines is rapidly expandihg
the field of electronic banking and
rapidly narrowing the barriers involved
in interstate banking.
ATM machines were originally con
ceived as a means of reducing teller
labor costs and offering extended ser
vice hours to customers. Recently, the
machines have helped financial in
stitutions serve customers nationwide
even though they are prohibited from
branching nationwide. Barriers to in
terstate banking are slowly eroding
(see front page article), and the use of
ATMs nationwide has helped spur the
movement. The consolidation of net
works on a regional and national basis
also has helped to reduce the barriers.
The year 1983 could be considered one
in which local, regional and national
networks attempted to consolidate
and regroup in light of changes to the

ATM Shipments
Cumulative

Net
Installed

935

1,935

1974

965

2,900

1975

1,156

4,056

1976

1,249

5,305

1977

2,444

7,749

1978

2,001

9,750

1979

4,680

14,430*

13,800*

Year

Annual

1973

1980

5,428

19,858*

18,500*

1981

8,456

28,314*

25,790*

1982

11,035

39,349*

35,721*

1983

13,983

53,332*

48,118*

‘ Cumulative shipments and net installed base
began differing in 1979 due to warehousing,
replacement and scrapped machines.
Source: Linda Fenner Zimmer.

financial industry.
For example, last January plans
were revealed announcing the linking
of the Mpact and Pulse automated
teller systems. The agreement was
jointly announced by Mercantile Texas
Corporation of Dallas, owner of the
Mpact system, and Financial Inter
change Inc. of Houston, operator of the
Pulse system. Sometime this June the
link will be completed, giving 4.8
million cardholders access to over
2,200 ATM machines. In addition to
their link with Pulse, Mpact’s current
1.8 million cardholders also share their
system with approximately 40 million
other cardholders who can access
Mpact machines. The 391 Mpact
system member institutions in Texas,
Oklahoma and New Mexico also share
their system with an additional 847
institutions through a nationwide
arrangement where cardholders can
access certain machines affiliated
with the CIRRUS network, head
quartered in Oakbrook, Illin o is.
Members of the Pulse network have 3
million active cardholders and 773
member institutions. This system is
located throughout Texas, Oklahoma
and Louisiana.
More than ever before, ATM
machines are readily available to
people across the United States and
worldwide. Beginning in 1973, there
were only 1,935 net installed ATMs in

the United States. At the end of 1983,
there were 48,118 net installed
machines. Compared with the 1,935 in
1973, that indicates a 2,387 percent in
crease in 10 years (see chart). These
machines handled approximately 6,500
transactions per month per machine in
1983. Of those, 76 percent were
withdrawal transactions and 19 per
cent were deposit transactions. The
average deposit is estimated to be ap
proximately $300, with the average
withdrawal being around $37. Using
yearend 1983 ATM data, 3.75 billion
financial transactions (excluding
balance inquiries) are being handled by
the 48,118 in s ta lle d m achines
throughout the United States. These
machines accounted for $105.5 billion
in ATM withdrawals and $213.9 billion
in ATM deposits.
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 bank
ing. Each of these is designed to pro
vide convenience to consumers and an
efficient network of payment for
businesses and financial institutions.
Although ATMs are the most widely
accepted of the new electronic bank
ing innovations, there is a growing in
terest in the others because of their
potential efficiencies in the payments
mechanism.

Energy Economics Seminar Held
On May 3 and 4, 40 economists par
ticipated in the Federal Reserve
System C onference on Energy
Economics held at the Federal Reserve
Bank of Dallas. Authors from the
Federal Reserve who presented
research papers for discussion in
cluded Clarence Nelson, Minneapolis;
W illiam Testa, Chicago; Stephen
Brown, Dallas; Bill Helkie, Board;
Jaime Marquez, Board; Mack Ott and
John T atom , St. Lo uis; Mark
Drabenstott, Marvin Duncan and Marla
Borowski, Kansas City; David Jay
Green, Board; and David Reifscheider,
Board. Discussants included Lynn
Browne, Boston; Loren Scott, Loui
siana State University; Bob Ball and
John Bell, Comptroller’s Office State
of Texas; Mack Ott, St. Louis; Mike
Barron, Diamond Shamrock; Ron
Schmidt, Dallas; Pat Lawler, Board; Ed
McClelland, RepublicBank Corp.; Bob
Bever, Texas Oil and Gas; Arnold

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Baker, Arco; Tom Fomby, Southern
Methodist University; and John
Trapani, University of Texas at
Arlington.
A luncheon address on “The Outlook
for World Oil Markets” was delivered
by J. L. Koontz, vice president,
Economic Analysis, W. R. Grace & Co.
The conference topics covered Inter
regional Transfers of Wealth Caused
by an Energy Price Shock; Budget
Response of Energy Producing States
to Severance Tax; Value of the Dollar
and World Oil Demand; Impact of an
Oil Market Shock on the Oil Price, Inter
national Transmission of Oil Price Ef
fects and the Derivation of Optimal Oil
Prices; Cyclical Nature of Oil Prices;
Prospects for Development of Oil
Shale in the United States; Prices and
Inventories in Petroleum Markets—The
Residual Fuel Oil Market; and
Forecasting the Distribution of Peak
Electricity Demand.

Dallas Fed
Adopts a School
In 1984, the Dallas Fed joined
more than 1,000 other Dallas
businesses in pledging their sup
port for the Dallas Independent
School District’s Adopt-A-School
Program. The first event at the
Dallas Fed held in conjunction
with the program was a poster
contest entitled “Banking in the
Year 2000.” Bank employees
voted for their favorite entry sub
mitted by students from Margaret
B. H enderson E le m e n ta ry
School—the school designated
to the Dallas Fed. The winners,
along with their teachers, were
invited to a special awards lunch
eon at the bank with President
Robert Boykin on May 1.

Full text of Roundup : June 1984

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