Full text of Roundup : November 1983

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DALLAS
Federal Reserve Bank of Dallas

November 1983

Boykin Speaks on Economic Outlook
“The past has demonstrated rather
clearly that we have not been able to
achieve a sustained, ongoing recovery
without suffering accelerating rates of
inflation,” stated Robert H. Boykin,
president of the Federal Reserve Bank
of Dallas, in a luncheon address to the
Corpus Christi business community
and news media on October 20. The
luncheon followed a meeting held by
the board of directors of the San An­
tonio branch of the Dallas Fed.
Boykin traced acceleration of the
rate of inflation from the mid-1960s
when economic growth began to slow,
unemployment increased and interest
rates rose to levels not experienced in
a post-war period. The detrimental,
long-term effects of these conditions
caused the Federal Reserve to institute
a more restrictive policy beginning in
late 1979, he said.
“The payoff is that the rate of infla­
tion has been cut to one-fourth its
former rate of increase,” Boykin con­
tinued. “ Now economic recovery is
underway.”
The consensus forecast, Boykin
said, is that the substantial increase in
economic activity will drop off in the
last quarter of 1983 and will continue
to fall in 1984 to the four to five percent
range—a modest and sustainable rate
of growth. Under this forecast, the rate
of inflation should stay fairly low, he
said, as will both long-term and short­
term interest rates.
“This is the economic outlook that I
hold and hope will materialize,” he
asserted.

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Boykin acknowledged another
school of thought which represents a
sharp division of opinion in the
forecasting community—that the rate
of growth in economic activity will con­
tinue at the present rapid and unsus­
tainable rate, rekindling a rise in infla­
tion and interest rates.
“The controversy, for the most part,
surrounds monetary policy and
whether or not to take the recent, rapid
rates of growth in money at face
value,” he explained. “ It is our conclu­
sion within the Federal Reserve
System that this rapid growth does not
represent the inflationary threat that
the raw numbers suggest.”
To achieve economic recovery with­
out inflation, Boykin stressed the need
for a balanced monetary and fiscal
policy, the reduction of large budget

deficits and the resolution of problems
in the international financial arena.
“ I feel we have laid a solid founda­
tion for non-inflationary growth,” he
concluded . “ T h is is a ra th e r
remarkable achievement, in my view,
given the fact that we started with a
highly inflated, poorly performing
economy just a short time ago.”
In honor of his visit to Corpus
Christi, Boykin was presented a key to
the city by Mayor Pro Tern Betty Turner.

INSIDE
• Securities Prices
• Reserve Requirements
• IRA, Keogh Accounts

New Securities Fee Schedules in Effect
in which they are deposited for
collection.
Definitive securities safekeeping
consists of vault storage, primarily of
municipal and corporate securities.
Noncash c o lle c tio n provides a
payments mechanism designed to col­
lect items—such as maturing bonds,
debentures or coupons—that cannot
be processed through normal check
collection channels.

fees based on the number of receipts
or issues held in an account also is
part of the revisions.
The changes to the noncash collec­
tion service include adding an out-of­
district component to the coupon col­
lection fee and converting the bond
collection charge from a per-item to a
per-transaction fee. The out-of-district
fee is a surcharge for coupons payable
outside of the Federal Reserve district

New fee schedules became effective
October 27 for definitive securities
safekeeping and noncash collection
services.
The revisions to the definitive
securities safekeeping service include
e lim in a tin g fees fo r acco unt
sw itches —tra n sfe rrin g d e fin itive
securities from one account to
another—and for bond redemption. A
differentiation in account maintenance

New Securities and Noncash Collection Prices
DEFINITIVE SAFEKEEPING
M a in te n a n c e
(per re c e ip t, per a c c o u n t)

D e p o s its
(per tra n s a c tio n )

W ith d ra w a ls
(per tra n s a c tio n )

1 -4 0 0

$10.00

$10.00

$2.75

400 +
$2.50

P u rc h a s e s and S a le s
(per tra n s a c tio n )
$26.50

NONCASH COLLECTION
B o nd C o lle c tio n
(per tra n s a c tio n )
$15.00

L o c a l C o upon
(per e n ve lo p e )
$2.10

In te r d is tr ic t C o up on
(p e r e n ve lo p e)
$2.55

P o s ta g e and In s u ra n c e
(p er $1,000 c o u p o n v a lu e )
$1.00

Advisory Committee Discusses Automation
The future of electronic payments
and on-line computer communications
were central topics of discussion when
the Advisory Committee of Financial
Institutions met at the Federal Reserve
Bank of Dallas October 13.
The advisory committee meeting
began with an overview of the Eleventh
District economy by Federal Reserve
Bank of Dallas President Robert H.
Boykin. Afterward, Dallas Fed opera­
tions personnel informed members of
the committee of current develop­
ments in the areas of check proces­
sing, wire transfer, automated clear­
inghouse, securities, noncash collec­
tion and cash processing.
Assistant Vice President Robert L.
Whitman discussed current Federal
Reserve Board proposals to enhance
the ACH service and provide additional
benefits for financial institutions.
These proposals include the possibil­
ity of modifying the ACH service so it
might serve as a mechanism to facil­
itate the interbank clearing and settle­
ment of electronic payments. Another
proposal concerns the initiation of

same-day funds availability for ACH
transactions which especially would
benefit institutions in exchanging
debit card transactions.
Vice President Jack A. Clymer pro­
vided committee members an update
on the Dallas Fed’s RESPONSE com­
munications network which led to a

general discussion on the future ap­
plications of personal computers in
banking operations.
The 17-member Advisory Committee
of Financial Institutions is composed
of representatives from commercial
banks, savings and loan associations,
and credit unions.

Board of Governors Modifies
Reserve Requirements on Deposits
The Federal Reserve Board has
modified Regulation D—Reserve
Requirements of Depository Institu­
tions. Effective October 6, nonper­
sonal time deposits with original
maturities of one and one-half years
or more have no required reserves.
Nonpersonal time deposits with
original maturities of less than one
and one-half years will continue to
have a three percent reserve

requirement.
Previously, nonpersonal time
deposits with original maturities of
two and one-half years or more had
no reserve requirement. The Board
of Governors amended Regulation D
in connection with action by the
Depository Institutions Deregula­
tion Committee freeing most time
deposits from interest rate ceilings
effective October 1.

IRA and
Keogh
Accounts

Growth of IRAs and Keogh Accounts
BILLION DOLLARS

Significant Growth in Deposits Since 1982
Deposits in individual retirement ac­
counts and Keogh plans have grown
significantly since the beginning of
1982. At that time a 1981 law became
effective which relaxed eligibility
restrictions for both types of accounts,
making them accessible to a greater
number of people. This law—the
Economic Recovery Tax Act of
1981—made changes to IRAs and
Keogh plans such as raising the limits
on funds invested by single and mar­
ried investors and permitting people
covered by other pension plans to hold
these types of accounts. The graph ac­
companying this article illustrates
growth since the act went into effect
and shows that, as of August 1983,
deposits in these accounts still are
increasing.
The appeal of these accounts comes
from the tax advantages they provide.
Funds deposited in IRAs and Keogh
plans are subject to federal income
taxes only when withdrawn. In addi­
tion, since funds deposited are sub­
tracted from yearly income, federal
taxes are reduced on current income.
Keogh plans first were allowed by a
law authored by Congressman Eugene
James Keogh in 1962. The law allows a
self-employed individual to deduct an­
nually a certain amount of earned in­
come for investment and defer the tax
on it as well as on the interest the ac­
count earns until retirement. The
Economic Recovery Tax Act increased
the actual limit on deductions from
$7,500 to the lesser of $15,000 or 15
percent of net earnings.
IRAs first were offered in 1974 to in­
dividual employees who are not
covered by a company pension plan.
Effective January 1, 1982, the law was
expanded to allow individuals, even if

■

J F M A M J
1982
§§§ 1983

already covered by an employer’s
retirement plan, to open an IRA.
Any employed person under 70 Va
years of age is eligible to open an IRA
and deduct contributions to it from
federal income taxes. If an employee is
covered by an employer’s pension
plan, the full benefits of an IRA still are
available. A self-employed individual
can have an IRA in addition to a Keogh
plan. Employees also can have a
Keogh account if they earn additional
income from self-employment, such as
fees from freelance or consulting work.
IRAs are only for individuals who
earn income. A person who has only in­
terest or dividend income cannot con­
tribute to an IRA. As of January 1,1982,
a person can contribute the lesser of
100 percent of earnings or $2,000 per
year. If married and both people are
working, each wage earner can con­
tribute a total of $2,000 to separate
IRAs. If one spouse does not work, a
total of $2,250 can be placed in an IRA.
In both cases, an IRA is set up for each
person individually. This amount does
not have to be divided evenly between
the accounts, but no more than $2,000

J A S O N D
* 1983 ESTIMATED

may go in one account.
There were three types of IRAs
originally established. These were ac­
counts at financial institutions, an­
nuities offered by insurance com­
panies and retirement bonds issued by
the Treasury. The latter category was
discontinued in April 1982. Accounts
established as IRAs must be ad­
ministered as trust deposit accounts
by financial institutions or other
o rg a n iza tio n s approved by the
Treasury.
When IRAs first were introduced,
few restrictions were placed on the
types of assets in which a financial in­
stitution could invest IRA funds.
However, money in IRAs cannot be
used to purchase life insurance or
collectibles such as art or antiques.
Although IRAs are treated as trust ac­
counts, individual investors do have in­
put into allocation of funds among
eligible assets. Recent rulings now
have expanded the types of accounts
available for use as IRAs and Keogh
accounts, giving them more flexibility
and the potential to earn higher rates
of return (see box).

New Accounts Opened to IRA Funds
S ta rtin g Decem ber 1, the
minimum required balance of $2,500
on money market deposit accounts,
super NOW accounts, and seven- to
31-day tim e deposits w ill be
eliminated for accounts designated
by customers as IRAs or Keogh ac­
counts.
The rules approved by the
Depository Institutions Deregula­
tion Committee are designed to in­

crease the flexibility of investment
instruments available to IRA and
Keogh customers. The $2,500
minimum previously had excluded
use of these accounts as IRAs,
which have a $2,000 limit per year on
funds invested. Under the new rul­
ing, depositors will be able to earn
market rates of return on their ac­
counts if invested in one of these
three deregulated accounts.

Dallas Fed Hosts FHLB Reception
The Dallas Fed recently held a
reception to honor the Federal
Home Loan Bank of Dallas, which
opened operations in Las Colinas
August 26. In attendance were
Federal Home Loan Bank officers
and directors, executives from the
savings and loan industry, and of­
ficers and directors of the Dallas
Fed.
The bank, which acts as head­
quarters for the ninth district of the
Federal Home Loan Bank System,
previously had been located in Little
Rock, Arkansas. The move was
undertaken in part because of
Dallas’ role as a technological
center and transportation hub. The
ninth district is made up of the
states of Texas, New Mexico, Arkan­
sas, Louisiana and Mississippi.

In attendance at the FHLB reception were (from left to right) Dallas Fed President Robert
H. Boykin, FHLB President Joseph E. Settle, FHLB Chairman of the Board Robert D.
Mettlen and Dallas Fed First Vice President William H. Wallace.