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Federal Reserve Bank of Dallas

May 1984

Martin Supports Trends in Economic Gains
Preston Martin, vice chairman and
governor of the Board of Governors of
the Federal Reserve, recently spoke to
members of the Houston business
community and media following a joint
meeting of the boards of directors of
the Federal Reserve Bank of Dallas
and the Houston Branch. His address
dealt with the interdependent factors
that shape a high performance
economy— innovation, productivity
and economic policy.
Martin voiced both optimism and
praise for the recent economic perfor­
mance. He stated, “Think of the added

investment and productivity.
The following is an excerpt from
Martin’s question and answer session
with the media:
Q What do you see for productivity?
A I think we are going to see it pick
up in the second half of this year and
continue through the 80s.
Q What difference will that make?
A Well, what you get when you have
rising productivity—and reasonably
low inflation—is rising real wages.
Q What is the Fed’s contribution to
this? Are you contracting or expanding
the money supply?

“ The fear of inflation keeps interest
rates up. Until that fear goes away,
you are going to have rates that are
absurdly high.”
paychecks that are being turned out
just in the first three months of this
year— 1.2 m illion positions—with
around 4 million new jobs last year.”
“There are those who will tell you
that this is overheating,” Martin con­
tinued, “and, of course, there are risks
in it, no question. But wouldn’t a period
of sustained economic growth—one
without bringing inflation back—be
just what we need in those areas in
which we have under invested for so
Martin accessed the Fed’s respon­
sibility in providing the right amount of
growth in credit to stimulate continued


Of course, it ’s expanding. It ex­
panded last year around 12 percent the
firs t six months, around 71/2 percent
the second.

What is your prediction for
A What we (the Board) have reported
to Congress is about 41/> percent, give
or take a half. 1985 looks like it might
be a little lower than that.
Q Are the markets influencing in­
terest rates?
A The market is setting interest rates
in its buying and selling processes.
The fear of inflation keeps interest
rates up. Until that fear goes away, you

Martin: Rising productivity and wages

are going to have rates that are absurd­
ly high.
Q Are concerns about the deficit
A Deficit is a shorthand word used to
describe huge government spending
which takes people, buildings and
resources out of the productive side of
the economy. You have to be con­
cerned about too much government







Banking Seminar Hosted by Dallas Fed
Approximately 80 professors from
Texas, New Mexico and Louisiana at­
tended a Central Banking Seminar
recently hosted by the Federal Reserve
Bank of Dallas. The three-day seminar
was designed to allow interaction, in
an informal setting, between pro­
fessors of money and banking at col­

leges and universities within the
Eleventh Federal Reserve District and
those actually involved in the formula­
tion and implementation of monetary
The speakers included a member of
the Board of Governors of the Federal
Reserve System, the staff director for

Advertising Addressed by Board
The Board of Governors of the
Federal Reserve System has
issued a policy statement ad­
dressing misleading advertising
practices. Any advertising which
indicates a high rate of interest
for one period in large print while
printing the lower rate effective
for the remainder of the term in
much smaller type, can be
misleading to consumers and
should not be allowed according
to the Board. The statement also
addresses advertising which
refers to Individual Retirement
Accounts as being tax-free or taxexempt.
The policy statement provides
that advertisements for time
deposits that pay more than one
fixed interest rate should state
both rates in type of equal size in
order not to be regarded as
misleading, and include a con­

Rate Increase
Effective April 9, the basic discount
rate at the Federal Reserve Bank of
Dallas was raised to 9 percent from 8.5
percent. This change is the first
change in the rate since December
1982, and the first increase since May
1981. Recent increases in short-term
interest rates, especially the federal
funds rate (the interest banks charge
on loans to one another), had widened
the spread between short-term market
rates and the discount rate necessi­
tating a change.

spicuous statem ent of the
average effective annual yield.
This action was taken in
response to recent adver­
tisements where an initial high
rate of interest appears in large
print while a lower rate to be paid
for the predominant part of the
account appears in much smaller
type. The Board expressed con­
cern that such advertisements
are potentially misleading and
confusing to depositors.
A proposal to include these
statem ents into Regulation
Q—the Board’s regulation con­
cerning interest on deposits—is
under consideration. Both of
these actions were taken to
assure that financial institutions
provide meaningful and accurate
information and to assist con­
sumers in comparing interests


monetary policy at the Board, the direc­
tor of the division of international
finance at the Board, the vice president
of open market operations at the
Federal Reserve Bank of New York,
and individuals from outside the
Federal Reserve System.
The agenda included topics on the
formulation and implementation of
monetary policy as well as the impact
that deregulation, fiscal policy and in­
ternational influences have on U.S.
monetary policy. In addition, several
representatives from outside the
System had the opportunity to critique
the Federal R eserve and its
The seminar traced the steps in­
volved in making monetary policy deci­
sions, the issues and challenges faced
by those who make the decisions, and
the conduct of monetary policy after
the Federal Open Market Commit­
tee—the arm of the Federal Reserve
responsible for setting monetary
policy—has made its decisions.
Speakers addressed these topics from
a practical viewpoint, describing how
the staff at the Board of Governors and
the New York Fed interact in carrying
out the directives of the FOMC.
The seminar was designed for
District professors teaching money
and banking to learn the role that the
Federal Reserve System has in for­
mulating and carrying out monetary


15 PERCENT-----------------------------


8 ---------1981



Giving Credit for Check Deposits
Are the delays necessary? Policy statement says they may not be.
Delayed availability—the practice by
some financial institutions of delaying
a customer’s ability to withdraw funds
deposited by check for several days
after the date of deposit—has been an
issue of concern for several years. In
an effort to avoid problems associated
with delayed availability of funds,
federal agencies, including the Federal
Reserve Board, have issued a state­
ment encouraging the voluntary
disclosure by financial institutions to
their customers of their policies
regarding availability of funds.
The statement calls for those finan­
cial institutions that delay availability
to review and disclose their policies,
and to refrain from imposing un­
necessary delays on all checks, par­
ticularly Social Security and other
government checks. In reviewing their
availability policies, institutions have
been asked to consider taking into ac­
count factors that indicate whether a
given situation presents a risk of loss
and to provide a means for depositors
to request that an exception be made
to the standard hold policy.
Interest in limiting or restricting the
delayed availability practice has in­
creased recently both at the state and
federal level. Two states, New York and
California, have enacted laws address­
ing the issue and several other states
are considering legislation. In addition,
there are bills pending in both houses
of Congress.
Institutions maintain that the prac­
tice of delaying a depositor’s ability to
withdraw funds beyond the time it
takes the institution to receive provi­
sional credit for the check is justified
to some extent because of the time it
takes for a check to be returned to the
institution if it is not paid by the paying
institution. They state that the only
way an institution learns that a
deposited check is being returned un­
paid is to receive the check back; thus,
there is a risk of loss.

The agencies believe that the prac­
tice of delaying availability results in
problems for depositors, especially
when the policy is inflexible or is not
disclosed to depositors in an effective
manner. The practice of imposing
delays on all deposited checks without
regard to whether a particular situation
presents a potential risk (for example,
the deposit of an unusually large per­
sonal check into a new account) does
not appear to be justified by the risk of
loss. More specifically there is normal­
ly no ju s tific a tio n for delaying
availability on a Social Security or
other government check deposited into
an established account beyond the
date when an institution receives
credit for the check. The real risk of
loss in such cases results from fraud,
w hich ty p ic a lly would not be
discovered until long after the hold has
expired and the funds withdrawn.
Factors which might be considered
by a financial institution in assessing
the risk of loss include the length of
time the account has been maintained,

past experience with the depositor, the
identity of the person who wrote the
check, the type of check, and the loca­
tion of the paying institution.
In addition, the Dallas Fed has im­
plemented a return item pilot program
designed to reduce unnecessary
delays in returning a “ bad” check and
helps expedite the collection of return
items. The program, which began in
February 1983, may be implemented
nationwide if the Dallas pilot program
is completed successfully.
The agencies—which include the
Comptroller of the Currency, the
Federal Deposit Insurance Corpora­
tion, the Federal Home Loan Bank
Board and the Federal Reserve
System—hope the problem of delaying
availability can be handled by volun­
tary action. But they have stated that
they will be monitoring the effec­
tiveness of this action and conducting
consumer surveys. The agencies will
consider further action if they find that
the effort to solve the problem by
voluntary means is inadequate.


Economic Education: Growing in Importance
On April 13, the Federal Reserve
Bank of Dallas co-hosted a meeting in
cooperation with the Joint Council on
Economic Education and the Texas
Council on Economic Education. The
meeting, attended by approximately 50
leaders in Texas business and educa­
tion, was designed to acquaint them
with advancements in economic
education and the need to expand
already existing programs proven to be
helpful in the study of economics.
Co-host Glenn Simpson, president of
ARGO Oil and Gas, stated, “Those of
us in the business community in
Dallas, and throughout the country,
see daily examples of economic
misunderstanding. That is why we at
ARCO have become involved in
economic education work.”
Educators from both the elementary
and secondary grades made presenta­
tions explaining how economic basics



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presently are being taught in schools.
Through setting up “companies,” play­
ing games and establishing special
curriculum programs, individual school
systems work to involve students at an
early age in the process of economics.
Dr. Michael MacDowell, JCEE presi­
dent, stated, “ To have effective
economic education in the schools, in­
dividual needs of school systems must
be met, curriculum for a variety of
grade levels must be developed and in­
tegrated, and teachers must be trained
in the subject.” In order to achieve its
goals, the JCEE is spending its time in
three basic areas—developing a net­
work of affiliates to deliver economic
education locally, producing materials
and programs at a national level, and
establishing a network of affiliated
school system s called DEEP —
Developmental Economic Education

DEEP is a curriculum change pro­
cess that involves a school system’s
commitment to teach the subject,
develop materials, train teachers and
evaluate procedures. Presently, 699
school systems are enrolled in the
DEEP program reaching approximately
12 million students. In Texas, there are
five school districts affiliated with
DEEP. They are the Dallas, Richardson,
Houston, Lubbock and Judson In­
dependent School Districts.
The Joint Council on Economic
Education is a nonprofit, nonpartisan
educational organization dedicated to
improve the quality and increase the
quantity of economic education in the
nation’s schools. Its programs are
delivered through a nationwide net­
work of 50 state councils and 250
university-based centers for economic