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DALLAS
Federal Reserve Bank of Dallas

November 1985

Coupons Collected at Feds
Suppose a local independent
school district needs additional
operating funds. In order to raise
capital, they decide to hold a bond
election. After the type of bond is
decided and coupons are issued,
what happens to them?
In many cases, upon maturity, they
are collected by Federal Reserve
Banks’ Securities Departments. This
service provided by the Federal
Reserve is known as noncash coupon
collection. As a result of the
Monetary Control Act, coupon collec­
tion became a priced service and in­
cludes handling both deposits and
withdrawals, clipping and presenting
coupons to the paying agents,
crediting the owning institution’s ac­
count, and providing statements each
time activity occurs in the account.
Prior to the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA)
which went into effect in January
1983, municipalities could sell bonds
in bearer (tangible) form as a means
to raise capital for various projects
when deemed necessary.
Since the sale of these bonds to
the public allows the municipality to
raise the capital needed to fund its
projects, the bonds are sold at par
(face) value usually in increments of
$5,000. Tax-exempt interest on these
bonds also makes them a popular
security bought among investors.
In the pre-TEFRA era, interest was
represented by coupons attached to
the bearer instrument. Those coupons
were payable semi-annually and
represented a dollar value to their

Operators enter coupon data into the terminal daily to balance and record cash letters. The
Dallas Fed receives approximately 8000 coupons per month.

presenter. The dollar value of each
coupon depended on the interest rate
paid on that particular securities
“ issue” and its par value.
Since ownership of bearer
securities and coupons cannot be
determined other than by physical
possession, custody arrangements
are essential. The Federal Reserve
Banks offer an efficient and secure
safekeeping service for financial in­
stitutions and record ownership, as
well as pledging instructions. The
Feds then clip the attached coupons
when due and automatically forward
them to paying agents for collection.
A number of depository financial in­
stitutions (DFIs) deposit their clipped
and packaged items with the Fed

each day. The Fed will then provide
the customer with a predetermined
credit availability date and handle the
presentment of those clipped items to
various paying agents. Through this
method of collection, paying agents
receive fewer cash letters from
holders of a particular issue since
clipped items going to a paying agent
(Continued on page 2)

INSIDE__________
■ HOLIDAY SCHEDULE
■ FCA REPORTS

Coupon
Collection,
continued
under one coupon collection letter are
combined. This process reduces both
transportation and float costs.
Coupons detached from the bonds
are credited to depositors one day
after their maturity. This accounting
function is computer-driven by an
automated safekeeping system and
serves to eliminate the potential for
carrying float. Since paying agents
for a particular issue of securities are
designated financial institutions, the
Federal Reserve is in an ideal posi­
tion not only to credit the depositing
financial institution’s account, but
also to debit the paying agent’s ac­
count, thereby aiding the payments
mechanism which takes place.
Municipal bonds themselves and
certain other types of debt obliga­
tions are handled through the non­
cash collection service policy also.
These obligations, which include
sight drafts, are handled as “ true”
collection transactions, with credit
not extended to the depositor until
payment is received from the payor
institution.
Coupon collection fees are as
follows:

Within 24 hours of receipt, coupons are sorted, processed and mailed out to respective
paying agents.

Current FCA Statistics
Average net portfolio yield*
f o r BANKS w i t h d e p o s i t s

Local coupons from
out-of-district DFIs ............. 3.50
Inter-district coupons
Fine s o rt............................... 3.25
Mixed sort ........................... 4.50
Questions concerning collection
should be addressed to Lola Lewis,
(214) 651-6379 or Nancy Barton, (214)
698-4248.

1984

1 0 .4 1 4 %

1 0 .8 2 8 %

fo r

BANKS w i t h

d e p o s it s u p t o $ 2 0 0 m illio n

1 0 .6 2 2 %

1 1 .1 3 1 %

fo r

BANKS w i t h

d e p o s it s o v e r $ 2 0 0 m illio n

1 0 .1 1 7 %

1 1 .3 1 1 %

fo r

SAVINGS

&

LOANS

-

L a r g e th r ifts

1 0 .2 9 4 %

1 0 .2 9 3 %

-

M id - s iz e t h r if t s

1 0 .1 5 4 %

1 0 .3 6 2 %

-

S m a ll th r if ts

1 0 .7 3 4 %

1 1 .1 5 7 %

fo r

CREDIT UNIONS

w it h d e p o s it s

u p to $ 6 0 m illio n * *
fo r

Local coupons from
in-district DFIs ....................$3.00

u n d e r $ 5 0 m illio n

1983

CREDIT UNIONS

1 0 .7 1 0 %
w it h d e p o s it s

o v e r $ 6 0 m illio n * *

—

1 0 .9 2 5 %

Average cost of money***
BANKS
-

L a rg e

7 .4 6 2 %

8 .6 1 1 %

-

M id -s iz e

7 .6 8 6 %

8 .1 6 3 %

-

S m a ll

7 .6 1 4 %

8 .2 4 0 %

9 .8 5 1 %

SAVINGS & LOANS
-

L a rg e

7 .4 6 2 %

-

M id - s iz e

7 .6 8 6 %

9 .4 1 7 %

-

S m a ll

7 .6 1 4 %

1 0 .6 9 9 %

CREDIT UNIONS
-

L a rg e

9 .3 2 9 %

9 .4 2 6 %

-

S m a ll

9 .8 6 4 %

9 .3 7 2 %

* F ig u r e s a r e p e r c e n ta g e s o f p o r tfo lio .
* * C la s s if ic a tio n s fo r c r e d it u n io n s c h a n g e d . L a s t y e a r, a v e r a g e n e t p o r tfo lio y ie ld s
o n c r e d it u n io n s w e r e fo r t h o s e u p to $ 5 0 m illio n a n d u p to $ 2 0 0 m illio n , a n d o v e r
$ 2 0 0 m illio n .
***

F ig u r e s a r e p e r c e n ta g e s o f a v a ila b le fu n d s .

Holidays Scheduled for 1986
To be open, or not to be open? This
question faces many financial institu­
tions when it comes to Martin Luther
King’s birthday.
Designated by the United States
Congress as a new federal holiday in
1985, many employees were antici­
pating being off work on King’s birth­
day (the third Monday in January).
This may be true for some; however,
the Dallas Fed observes only those
banking holidays designated as such
by the Texas Legislature. And Martin
Luther King’s birthday is not on its
list of holidays for 1986.
Banks wishing to observe King’s
birthday as an optional holiday may
do so in accordance with statutory
procedure. The bank’s board of direc­
tors must pass a resolution desig­
nating the additional day or days it
will close. The resolution must be
posted in a conspicuous place within
the bank at least 15 calendar days
prior to the designated day or days,
and another copy must be filed with
the Commissioner, Department of
Banking, 2601 North Lamar, Austin,
Texas 78705.
Texas banks wishing to close this
year on Tuesday, December 24, or

Tuesday, December 31, must use this
same procedure described above.
The holiday schedule for banks in
New Mexico is identical to the one
printed here for Texas; however, to
add additional holidays, bank officials
would have to amend banking laws in
that state.
In Louisiana, the Banking Institute
sets the schedule for the holidays
and those observed in 1986 will in­
clude January 1 (New Year’s Day),
July 4 (Independence Day), September
1 (Labor Day), November 27 (Thanks­
giving Day), and December 25
(Christmas Day). In order to get addi­
tional bank holidays approved, a
mayor or elected official must pro­
claim a specific day a holiday. Then,
the board of directors at any specific
financial institution must adopt a
resolution observing the holiday. The
resolution must be certified, copied,
and sent to the Banking Institute.
Also, an announcement specifying
the bank’s closing must be published
in the local newspaper prior to the
holiday.
Savings and loan associations and
credit unions in all three states have
no statute specifically listing holidays

they must observe.
If a financial institution in this
District notifies the checks depart­
ment at the Dallas office or a branch
office of its holiday schedule, it will
not be charged for the Fed’s cash let­
ter presented on the day it is closed
and the Dallas Fed is open. The
charge will be made on the next day
both are open. The notice can be on
Fed form TR-385 or a copy of the
board’s resolution will suffice.

Holiday Schedule for 1986
The Federal Reserve Bank of Dallas
and its branches in El Paso, Houston
and San Antonio will observe the
following holidays in 1986 by being
closed on the dates listed below.
January 1, New Year’s Day
February 17, President's Day
May 26, Memorial Day
July 4, Independence Day
September 1, Labor Day
October 13, Columbus Day
November 11, Veterans Day
November 27, Thanksgiving Day
December 25, Christmas Day

“ Energy” was the topic
of the Dallas Fed’s
most recent conference
which was sponsored
by the Research Depart­
ment at the Fairmont
Hotel in Dallas on
October 3 and 4.

I

FCA Reports Released
Functional Cost Analysis (FCA)
reports for 1984 have recently been
released by the Federal Reserve Bank
of Dallas. The FCA program provides
financial institutions with a detailed
cost accounting service. FCA is a free
service and is available to all types of
financial institutions. Financial in­
stitutions that participate in the pro­

gram receive an individual 30- to
40-page report that examines 14 func­
tional areas of financial institutions
for costs, profitability and efficiency.
In addition to individualized reports,
Texas and nationwide composite
reports are also produced. These
reports allow participants to compare
their performance with other financial
$50 MM
or less

Cost of demand deposit account/month
Commercial Banks
Savings & Loans
Credit Unions
Cost to make an installment loan
Commercial Banks
Savings & Loans
Credit Unions

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$10-60 MM

$9.86
$11.33

institutions of similar deposit size
and functional activity levels.
Financial institutions wishing to
participate in the 1985 FCA program
should contact the Corporate Banking
Department at (214) 651-6370 or (214)
698-4285.

$50-200 MM

$60 MM
or more

$15.11
$7.56
$6.07

$71.30
$273.25

$18.96
$10.76
$7.30

$106.52
$110.51
$31.86

$200 MM
or more

$114.02
$119.26
$40.12

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