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DALLAS
Reagan Signs Landmark Banking Law
On October 15, President Reagan
signed into law an act some financial
industry personnel have termed the
most important institutional legisla­
tion in the last 50 years.
Known as the Garn-St. Germain
Depository Institutions Act of 1982, the
legislation gives banks and savings
and loans the opportunity to offer a
money market deposit account that is
“ directly equivalent to and competitive
with money market mutual funds.” The
account, which will be set up by the
DIDC by December 15, has no interest
rate ceiling and no minimum balance
specified in the legislation. Congress
has suggested, however, that the
minimum balance be no more than
$5,000. Since the account will be in­
sured up to $100,000, industry person­
nel feel this will help them compete ef­

fectively with money market mutual
funds which are not insured.
The account is not a “ transaction ac­
count” and will not be subject to trans­
action account reserve requirements,
even though no minimum maturity is
required, and even though up to three
preauthorized or automatic transfers
and three third-party transfers are
allowed per month.
Other major provisions of the new
legislation allow federally-chartered
savings and loans to offer commercial
lending in amounts up to 10 percent of
their assets after 1983, expand nonresidential real estate lending up to 40
percent of their assets, and authorize
investments in consumer loans up to
30 percent of their assets.
The act also states that interest rate
differentials between banks and sav­

MAJOR BANKING LEGISLATION SINCE 1900
FEDERAL RESERVE ACT (1913)

Established the Federal Reserve System

McFADDEN ACT (1927)

Prohibited branching across state lines

BANKING ACT OF 1933
(GLASS-STEAGALL ACT)

Prohibited paying interest on demand
deposits and established the FDIC

BANK HOLDING COMPANY ACT
(1956)

Regulated formation and expansion of
new bank holding companies

BANK MERGER ACT (1966)

Established merger guidelines

AMENDMENTS TO BANK HOLDING
COMPANY ACT (1970)

Regulated one-bank holding companies

MONETARY CONTROL ACT (1980)

Established uniform reserves and
initiated deregulation

ings and loans must be eliminated by
January 1, 1984.
A major section of the Garn Act ad­
dresses emergency acquisition provi­
sions to aid troubled financial institu­
tions. The FDIC is empowered by the
law to arrange loans to, purchase
securities of, assume the liabilities of,
and make contributions to any insured
bank experiencing severe financial
troubles. Provisions regarding mergers
of troubled financial institutions
across state lines are also outlined.
Another aspect of the act allows
financial institutions to issue net
worth certificates backed by either the
FDIC or FSLIC if the net worth of the in­
stitution falls below three percent of
assets. To qualify for this aid, an in­
stitution must have 20 percent of its
loan portfolio in residential mortgages.
The act also permits financial in­
stitutions to offer NOW accounts and
share draft accounts to state and local
governments, prohibits insurance ac­
tivities at bank holding companies that
were not already engaged in that ser­
vice by May 1, 1982, and makes
numerous changes to the Federal
Credit Union Act.

INSIDE
• RESPONSE Network
• Reserve Changes
• Holiday Schedule

Now Available
Returns
A new publication entitled Now
Available is being sent out to those
currently on the Roundup mailing list.
The publication was formerly a sec­
tion of Voice, which was published by
the Dallas Fed through December
1981. Now Available offers a conve­
nient way to order selected important
circulars, speeches, pamphlets, and
reports. The quarterly publication is
designed so that an individual can
check off any publication desired and
mail the entire page back to the
Dallas Fed for handling.

RESPONSE Participation Increases
Participation in the Dallas Fed’s
RESPONSE communications network
has increased steadily since its in­
troduction in the spring of this year.
Financial institutions have been
especially interested in the personal
computer, one of the three options
which provide a direct link between in­
stitutions and the Federal Reserve
Communications System (FRCS-80) for
such services as sending and receiving
funds transfers, receiving reserve
statement information, and transfer­
ring securities.
As of October 12, 1982, financial in­

Rate Declines
When the basic discount rate at the
Federal Reserve Bank of Dallas was
lowered October 12, it was the fifth
half-point reduction experienced this
year. The 9.5 percent rate is the lowest
the figure has been in over three years
and reflects the declining trend in
short-term interest rates. Prior to the
October reduction, the discount rate
(the interest rate the Fed charges
financial institutions for borrowing
funds) was lowered once in July and
three times in August.

stitutions on-line with the Dallas Fed
through personal computers totaled 71
and letters of commitment had been
received from 68 others. By the end of
1982, a total of 115 financial institu­
tions are expected to be on-line, with
300 more to be added in 1983.
Training sessions are conducted
weekly to instruct users on the per­
sonal computer’s operation. As par­
ticipation in the program accelerates,
the number of sessions will be in­
creased to meet the demand.
Use of the personal computer in con­
junction with the RESPONSE network

has helped the Dallas Fed serve the
needs of smaller institutions, including
many w h ich re c e n tly became
associated with the Fed as a result of
the Monetary Control Act of 1980.
F uture a p p lic a tio n s fo r the
RESPONSE network include currency
and coin ordering, notification of large
return items, and advices of Treasury
tax and loan, ACH, net settlement, and
noncash collection activity. These ser­
vices will help the Dallas Fed continue
to provide reliable and secure services
to financial institutions in the Eleventh
Federal Reserve District.

Reserve Requirements Undergoing Change
The Monetary Control Act, a land­
mark piece of banking legislation
signed into law on March 31, 1980, set
into motion widespread reserve re­
quirement changes for the nation’s
financial institutions as well as the
Federal Reserve.
Reserves are the percentage of
customer deposits which a financial in­
stitution must set aside in an account
under the Federal Reserve’s control.
Even before the Federal Reserve
System was established, the idea of
banks holding reserves was initiated
by legislators as a means of protecting
bank liq u id ity. Today, however,
reserves are used primarily to allow the
Federal Reserve to control the money
supply in pursuit of its basic economic
policy goals.
Reserves provide a known and con­
trollable base through which the
re se rve -sup p lyin g and re serve­
absorbing actions of the Fed can af­
fect the supply of money and credit. By
increasing or decreasing the amount
of funds available to institutions to
meet their reserve requirements, and
by setting reserve requirement percent­
ages, the Fed can influence the
amount of funds available for expan­
sion of the money supply through
loans, investments and deposits.
But until implementation of the

Monetary Control Act, nonmember in­
stitutions could hold state reserves
and reserves imposed by other in­
dustry regulators in various locations
outside of the Fed’s control. Therefore,
the Fed did not have a large enough
base of institutions with which to con­
duct monetary policy and effectively
influence the monetary aggregates.
The Monetary Control Act alleviated
the Fed’s monetary control problem by
requiring all types of depository in­
stitutions to report deposits and hold
reserves with the Fed. These institu­
tions include commercial banks, sav­
ings banks, savings and loan associa­
tions, credit unions, and industrial
banks which have certain types of
deposits.
The act requires reserves on three
basic categories of deposits: transac­
tion accounts, which are checking ac­
counts, NOW accounts, and other ac­
counts subject to drafts or transfers;
certain types of time deposits, which
are accounts with a stated time to
maturity; and eurocurrency liabilities,
which are deposits arising from foreign
transactions.
In general, the new reserve require­
ment structure is less complicated
than the old structure, and the new
reserve ratios are lower than those
previously in effect because there are

R E S E R V E R E Q U IR E M E N T S
BEFORE AN D AFTER TH E M O NETARY CO NTRO L ACT

Type of deposit, and
deposit interval in
m illions of dollars

Member Bank
requirements before
implementation of the
Monetary Control Act
(percent of deposits)

N et dem and

0-2 ..............................................
2-10 .............................................
10-100 .......................................................
100-400 ........................................
Over 400 ......................................

N e t t r a n s a c t io n a c c o u n t s

7
9 1/2
11 3/4
12 3/4
16 Vi

T im e a n d s a v in g s

S a v i n g s ........................................

Type of deposit, and
deposit interval

Depository institution
requirements after
implementation of the
Monetary Control Act
(percent of deposits)

$0-$26 m ill io n ................
Over $26 m ill io n .............

3
12

N o n p e r s o n a l t im e d e p o s i t s

B y original maturity
L e s s than 3 V i y e a r s ....................
3 1/2 ye ars or m o r e .......................

3
0

3
E u r o c u r r e n c y lia b ilit ie s

Tim e
0-5, by maturity
30-179 d a y s ............................
180 d a y s to 4 y e a r s ..................
4 years or m o r e .......................
Over 5, by maturity
30-179 d a y s ............................
180 d a y s to 4 y e a r s ..................
4 years or m o r e .......................

All types ...................................
3
2%
1
6
2Vi

1

3

now more institutions holding reserves
with the Fed. Both the old and new
reserve requirement percentages are
summarized in the table accompany­
ing this article.
The largest institutions, those with
$15 million or more total deposits,
report and maintain reserves with the
Fed weekly. Medium-sized institutions,
those member banks with less than
$15 million total deposits and those
nonmember institutions with $2 million
to less than $15 million total deposits,
report and maintain reserves quarterly.
The smallest nonmember institutions,
those with less than $2 million total
deposits, currently do not have to
report or maintain reserves with the
Fed. Reserve requirements can be
satisfied either by vault cash or by
deposits held at the Fed.
The new reserve requirement struc­
ture created by the Monetary Control
Act is being phased in over a number of
years to lessen the impact on those in­
stitutions which had not held reserves
with the Fed. Nonmember institutions
will complete a gradual phase-in of the
amount of reserves they hold in 1987.
The already-existing member banks
will complete the phase-in process by
1984. New institutions phase in their
reserves over a two-year period from
the date they open for business.

New Procedure
The Federal Reserve Board
announced October 5 final approval
of a change from lagged to contem­
poraneous reserve accounting for
depository in s titu tio n s holding
reserves with the Fed. This new
method will involve posting reserves
two days after a two-week reserve
com putation period Instead of
posting the reserves two weeks after
a one-week computation period. The
new accounting method will become
effective February 2, 1984 only for
those institutions reporting deposits
on a weekly basis and only for tran­
saction account liabilities.

Holidays
Announced
The Federal Reserve Bank of Dallas
has announced its 1983 holiday
schedule. The table accompanying this
article lists the dates the head office
and the branches in the Eleventh District
will be closed.
To comply with the Texas statutes
relating to bank holidays, should July 4,
November 11, or December 25 fall on a
Saturday, the offices of the Federal
Reserve in Dallas, San Antonio,
Houston, and El Paso will be closed the
preceding Friday. Should January 1, July
4, November 11, or December 25 fall on a
Sunday, the Federal Reserve offices will
be closed the following Monday.
Since January 1, 1983 falls on a Satur­
day, no holiday will be observed on Fri­
day, December 31, 1982 in accordance
with Texas statutes.

1983
HOLIDAY SCHEDULE
F e b r u a r y 21

P r e s id e n ts ’ D a y

M a y 30

M e m o r ia l D a y

J u ly 4

In d e p e n d e n c e D a y

S e p te m b e r 5

Labor Day

O c to b e r 10

C o lu m b u s D a y

N o v e m b e r 11

V e te r a n s D a y

N o v e m b e r 24

T h a n k s g iv in g D a y

D e c e m b e r 26

C h r is tm a s D a y

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