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Federal Reserve Bank of Dallas

May 1983

Martin Predicts Multi-year Recovery
The current gradual economic
recovery will most likely continue for
several years according to Preston
Martin, vice chairman of the Board of
Governors of the Federal Reserve
System. Martin spoke at a luncheon
April 14 before members of the San
Antonio business community on the
occasion of a joint board of directors
meeting of the Federal Reserve Bank
of Dallas head office and the San
Antonio branch.
“ I think there is a good chance this
time of a multi-year recovery,” Martin
said. “Quick recoveries tend to have a
short life.” Martin went on to say that a

major responsibility of the Federal
Reserve is making certain that growth
in the money supply supports the
ongoing recovery. “This must be well
toward the top of the list of Fed
priorities,” he said. Because the
recovery is weak and highly fragile,
Martin said, the Fed cannot afford to
allow money to expand so slowly that
the recovery tops off too soon.
Martin also warned that very large
federal deficits create fears of re­
newed inflation. “We are at least as
concerned about the deficits as you
(business leaders), maybe more,” Mar­
tin said. “The deficits get in the way of

our conducting monetary policy.” The
deficits do have quite a substantial ef­
fect on inflation according to Martin.
When asked about the various pro­
posals passing through Congress con­
cerning the Federal Reserve’s in­
dependence, Martin said he hoped the
issue of fighting inflation would not be
forgotten. “There has been criticism of
the Federal Reserve for 69 years, and it
has accelerated in the past 69 days,”
he stated. “ It is our hope that, whatever
resolution emerges, the Fed’s respon­
sibility to counter inflation will be in­
cluded. The responsibility of providing
economic growth alone will not com­
plete the job.”
In his talk before the business com­
munity of San Antonio and surround­
ing areas, Martin emphasized the im­
portance of regional input to Federal
Reserve and monetary policy deci­
sions. This input is achieved in part
through the liaison provided by
members of the boards of directors of
Federal Reserve Banks and their bran­
ches. “The Fed is fortunate to have
regional input to its decision-making
process because the nation has a com­
munity banking system,” Martin said.

• Home Loan Bank
• Settlement Centers
• Foreign Banks

Federal Home Loan Bank
To Relocate in Dallas
On April 6, members of the Federal
Home Loan Bank Board voted to move
the Federal Home Loan Bank of Little
Rock to Dallas. The board’s decision
was based, in part, on Dallas’ central
location in the Ninth District of the
Federal Home Loan Bank System and
the efficient transportation networks
in the area. The Ninth District consists
of the states of Arkansas, Louisiana,
Mississippi, New Mexico, and Texas.
The Federal Home Loan Bank
(FHLB) System was created in 1932 to
provide a central credit system for non­
bank mortgage lending institutions.
The system is governed by a threemember board appointed for four-year
terms by the president and confirmed
by the Senate. This board, located in
Washington, D.C., along with 12
regional federal home loan banks and
member institutions, form the FHLB
System. Just as nationally-chartered
commercial banks are required to be
members of the Federal Reserve
System, nationally-chartered savings
and loan associations are required to
join the FHLB System. Qualified statechartered savings and loans, mutual

savings banks, and life insurance com­
panies may join if they wish. Members
of the system own stock in their
regional home loan banks and are en­
titled to borrow funds, elect some
members of the banks’ boards of direc­
tors, and receive dividends.
Federal Home Loan Banks provide
members with a facility for depositing
excess funds and for the safekeeping
and purchase and sale of U.S. Govern­
ment securities. They also advance
funds to members to meet liquidity re­
quirements when there is an unan­
ticipated withdrawal of savings or
when seasonal fluctuations occur in
the demand for home mortgages.
At the end of 1982, there were 3,556
members of the FHLB System: 3,423
savings and loan associations, 131
mutual savings banks, and two in­
surance companies. In the Ninth
District there are 513 member savings
and loans.
The system also supervises and ad­
ministers the Federal Savings and
Loan Insurance Corporation (FSLIC)
and the Federal Home Loan Mortgage
Corporation (Freddy Mac).

Houston Begins
7 p.m. Option
In conjunction with the new check
services fee schedule that went into
effect February 24, the Dallas and
San Antonio offices of the Federal
Reserve Bank of Dallas implemented
a new 7:00 p.m. mixed cash letter pro­
gram. On April 14, the Houston office
also began offering the 7:00 p.m.
deposit option.
Both mixed cash letters and “ other
Fed” cash letters will be accepted at
the 7:00 p.m. deposit time. A mixed
cash letter is one which contains a
variety of unsorted checks and which
has at least 50 percent of the items
drawn on institutions in the Eleventh
Federal Reserve District. An “ other
Fed” cash letter has more than 50
percent of the items drawn on institu­
tions in other Federal Reserve
Effective April 18, the cutoff times
for local and “ other Fed” nonmachineable cash letters were ex­
tended to the city item cutoff times:
9:00 a.m. in Dallas and Houston, 9:15
a.m. in El Paso, and 9:30 a.m. in San

Federal Home Loan Bank District Offices

New York
Des Moines
Little Rock (Dallas)
San Francisco

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On May 15, the Federal Reserve
Bank of Dallas will begin operating its
fifth offsite settlement center for
check processing. The new center will
begin operations at a local bank in
Abilene which will receive and sort
checks for the Fed.
An offsite center is designed to
operate somewhat like a “ mini”
regional check processing center in a
remote or “country” area of the
Eleventh Federal Reserve District.
These offsite centers process checks
drawn on financial institutions located
in the same geographic area as the
center. The area served by the center is
determined by check courier routes out
of a particular metropolitan area.
These cities, known as transportation
hub cities, are the primary determinant
in selecting the site for an offsite set­
tlement center.
All settlement centers process area

checks and submit the necessary ac­
counting information to the Dallas Fed
office. Settlement is also handled at
the Dallas office. The offsite cash let­
ters (checks) are processed at a local
participating bank and are presented
to payor banks along with other cash
letters processed at the Dallas office.
Unlike other checks, those processed
at a settlement center are not sent
through the Dallas office for process­
ing, but are handled directly at the par­
ticipating bank.
Processing in each settlement
center is done by the participating
bank’s employees at night to facilitate
overnight turnaround of the checks.
This increase in the efficiency of check
collection has been a major goal of the
Federal Reserve System. By process­
ing these checks locally, financial in­
stitutions can receive both faster col­
lection and savings from loss of
“float” time. These centers make it
more convenient for financial institu­
tions to process checks and offer the
advantages of earlier availability of

credit and faster presentment of items
for payment. In some instances, return
time for unpaid items has been re­
duced by 50 percent.
Offsite settlement centers are uni­
que to the Dallas Federal Reserve of­
fice and were begun originally in the
early 1970s. Generally, there are three
major classifications of checks pro­
cessed by the Dallas Fed office—city,
regional check processing center
(RCPC), and country items. City items
are those checks drawn on institutions
located in the immediate Dallas, El
Paso, Houston, and San Antonio areas.
Regional check processing center
items are checks drawn on institutions
located w ith in approxim ately a
100-mile radius of Dallas and areas
outside the cities of Houston and San
Antonio. Country items are drawn on
financial institutions in west Texas,
northern Louisiana, southeastern
Oklahoma and southern New Mexico.
The five offsite centers were designed
to increase the efficiency of handling
checks in “country” areas. The first
such centers were open in Shreveport
and Monroe, Louisiana, and continue
operations today. There are other
centers located in Amarillo and Lub­


Banking Offices Engage in Foreign Operations
The general economy of the
Eleventh Federal Reserve District, and
the presence of energy-related in­
dustries in particular, have attracted
foreign banking operations to the area.
There are currently 56 foreign banking
offices in the District and 39 offices
organized to engage solely in interna­
tional business which are affiliates of
domestic commercial banks.
Representative offices
Houston currently ranks fifth in the
United States for cities with the largest
number of foreign banking offices.
Those located in Houston are primarily
representative offices of foreign
banks. Representative offices are
established by foreign banks as a
liaison between the parent bank and
its corporate customers. These offices
do not conduct general banking


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business such as receiving deposits,
paying checks, or making loans, but
they do solicit business on behalf of
the parent bank. There are 51 represen­
tative offices in Houston and five such
offices in Dallas.
Other foreign offices
Other types of organizations located
in the Eleventh District to engage in in­
ternational business are international
banking facilities (IBFs), Edge Act cor­
porations (edges), and agreement cor­
porations. An international banking
facility is a department within a
domestic commercial bank that may
accept deposits and extend credit to
foreign residents or other IBFs. No new
charter is required to establish an IBF,
but a bank must notify the Federal
Reserve if it intends to start such a
function. The IBF must limit its opera­

tions only to foreign business transac­
tions. Edges were approved as part of
the Federal Reserve Act and are
chartered by the Board of Governors of
the Federal Reserve System. An edge
can accept deposits and can also
make loans to facilitate international
trade. Agreement corporations are
state-chartered companies that enter
into an agreement with the Board of
Governors to limit their operations to
international banking. Both edges and
agreement corporations are under the
supervisory authority of the Federal
Reserve System.
As of March 31, 1983, there were
eight edges in the District established
by foreign banks and six edges
established by local Texas banks. In
addition, there were 24 edges that are
branches of domestic banks from out­
side the District.



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