Full text of Roundup : October 1984

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DALLAS
Federal Reserve Bank of Dallas

\

October 1984

“ As-Of” Adjustment Policies Revised
Effective October 11, 1984, all
Federal Reserve Banks will implement
uniform policies in issuing and apply­
ing adjustments to reserve and clear­
ing accounts held for depository
institutions. Such adjustments are
commonly referred to as “ as-of”
adjustments and are made to correct
the cumulative effect of errors made
either by Reserve Banks or by
depository institutions. In addition to
achieving more uniformity among
Reserve Banks, implementation of
these policies is intended to minimize
the effects of these adjustments on the
weekly monetary aggregates. The
following describes policies that will
be followed by all Reserve Banks.
General Provisions

When Reserve Banks make “as-of”
adjustments for depository institu­
tions, the effect is to either increase or
decrease the cumulative amount of
balances held with the Federal Re­
serve to meet reserve or clearing
balance requirements. Generally, ad­
justments to correct for transactionrelated errors will be made only
when the original transaction is
$10,000 or more. This minimum is ap­
plied because the cost of making an
adjustment for less than this would ex­
ceed the value of the adjustment. “Asofs” used for service pricing, such as
float recovery, will not be subject to
this minimum. In cases where off­
setting “as-of” adjustments are to be
made to the accounts of two depos­
itory institutions, the adjustment or­

dinarily will be applied simultaneously.
This is intended to avoid the impact
that mismatched adjustments would
have on total reserve availability.

reserve maintanance periods so that
the institution will have advance notice
of the effect on its reserve position.
Holiday Variances

Transaction Errors

In addition to correcting the underly­
ing error by making a debit or credit ac­
counting entry, the Reserve Bank also
will issue an “as-of” adjustment to cor­
rect the cumulative effect of the error.
Such adjustments will be limited to
cover a maximum period of 45 calendar
days from the date of the error to the
date the depository institution notifies
the Reserve Bank.
In cases where both depository insti­
tutions agree to accept offsetting ad­
justments in the same reserve mainte­
nance period, “as-of” adjustments
may be made to correct errors of
record—for example, when an institu­
tion transfers funds to the wrong in­
stitution. “As-of” adjustments gener­
ally will not be made to correct errors
of omission—for example, when an
institution fails to transfer funds to
another in stitu tio n . “ A s-of” ad­
justments will not be issued to reverse
the effects of earlier “as-of” ad­
justments or to move excess reserves
from one reserve period to another.

In processing interdistrict cash let­
ters, Federal Reserve System policy
provides that an “as-of” adjustment
will be made to cover cash letter
credits when the Reserve Bank serving
the receiving depository institution is
closed on a holiday that is not ob­
served by the processing Reserve
Bank. The “as-of” adjustment ordinar­
ily will be applied to the institution’s
account in the current reserve
maintenance period. However, when
the holiday occurs on Monday, Tues­
day or Wednesday of the second week
of the maintenance period, the “as-of”
adjustment will be applied on the
following Thursday—the first day of
the next period. This policy is intended
to avoid the impact such adjustments
would otherwise have on the Federal
Reserve’s ability to manage overall re­
serve availability near the end of a re­
serve maintenance period.

Data Reporting Errors

If it is necessary to revise a deposit
report and correction of the error
changes the reserve balance require­
ments, the Reserve Bank will issue
“ as-of” adjustm ents. These ad­
justments will be applied only to future

INSIDE___________
■

OFFICE AUTOMATION

■

ELECTRONIC FEE

■ ACCOUNT DRAFT

Office Automation
The Federal Reserve System of the future

‘When we get into an
environment of interstate
banking . . . district boundaries
are going to be pretty much
irrelevant.’

As the technologies of data process­
ing and communications converge, the
Automation Program Office, head­
quartered at the Dallas Fed, is charged
with monitoring the development of
computer applications and com­
munications networks for the Federal
Reserve System. The APO was created
by the System’s Committee on
Automation and Communication Ser­
vices, which is chaired by Dallas Fed
First Vice President W illiam H.
Wallace. Eight major new standard ap­
plications are expected to be im­
plemented in all 12 Federal Reserve
Banks by late 1987. The program will
have taken nearly 10 years, Wallace
noted, and will have cost the System
close to $300 million.
Three of the eight applications have
already been installed: a bulk data util­
ity system, which transmits large data
files between Reserve Banks, an ad­
ministrative message system, which
delivers mail electronically, and a
customer information system, which is
a repository for data on financial
institutions.
The other standard applications are:
a new electronic funds transfer
system; a securities transfer and
record handling system; a new
automated clearinghouse system,
which will include electronic deposit
and delivery of payment data; a new
statistical reporting system for finan­
cial industry statistics and a new in­
tegrated accounting system.
“ It’s still a controversial program,”
Wallace said. “Some of the smaller
Reserve Banks feel that they have been
asked to spend a lot more money on
computers than they otherwise would
have.
“ I feel they’re wrong because when
we get into an environment of inter­
state banking, we’re going to have to
have an accounting system that can in­
stantly update anybody’s reserve ac­
count from any location. I think district

boundaries are going to be pretty much
irrelevant 20 years out.”
The eight new systems will tie into
the Fed’s existing data communication
network, whose own growth parallels
the rapid advance of communications
and data processing technology. When
the Federal Reserve System was
begun in 1913, transferring funds
meant using ground transportation to
move currency from one location to
another. In 1918, the first funds
transfer network was a telegraph
system connecting the Federal
Reserve Banks, the Board of Governors
and the Treasury Department. Later,
teletype replaced Morse code as a
means for funds transfer.
From this modest beginning, the
Federal Reserve’s communication net­
work developed into the primary na­
tionwide network for large dollar
transfers and interbank settlements.
Its uses expanded to include securities
transfers, transmission of banking
s ta tis tic s fo r m onetary policy
purposes and many other types of
transactions.
The Federal Reserve Communica­
tions Network for the Eighties, which
went into operation in June 1982, sup­
ports over 4,400 on-line terminals, link­
ing the Federal Reserve Banks, their 25
Branches, the Board of Governors, the
Treasury, numerous regional check
processing centers and 800 depository
financial institutions. FRCS-80 is a
multi-path packet-switching network
which fragments messages into small
sets of data, routes them automatic­
ally and reassembles them at their
destination points.
“The network itself decides how to
route the message,” said First Vice
President Wallace. “ If the lines are
busy from here directly to New York, it
might autom atically be sent to
Cleveland and then to Boston and then
to New York.”

The replacement for FRCS-80 is
already under study, according to
Wallace, and may be in use by 1990.
“The next system will be a satellite
communications system,” he said.
“We would rent space on a satellite
and all messages (data, voice and
video transmissions) would be beamed
to the satellite and then back down.
Each Federal Reserve Bank would
have a dish on its roof.”
“Two problems have held us back
from going to satellite,” Wallace said.
“One is the delay in time because the
information has to travel a much
greater distance. Now there are ways
of cutting out the time lag.
“The other problem has been data
security. It is easier to tap information
going to and from satellites than it is
over leased lines. In order to get

around that problem we are going to a
system of data encryption. That way, it
can be tapped but nobody will know
what they’ve got.”
Wallace stressed that, despite the
technological advances and trend
toward centralization, the Federal
Reserve System will never lose its
decentralized nature.
“ One of the big sources of strength
to the System over the long term is that
we’ve been able to maintain that close
liaison with the regions,” he said.
“ But the whole philosophy behind
this automation program is that it is a
standardized System. If all of us are
handling similar functions and doing
e x a c tly the same th in g s , the
economics of the situation dictates
that we do them in a standardized
way.”

‘The next system will be a
satellite com m unications
system. Each Federal Reserve
Bank will have a dish on its
roof.’

Electronic Fees
Basic transfer fee reduced; monthly connection fee fixed
The Board of Governors has an­
nounced a reduction in the basic fee
for the Federal Reserve’s wire transfer
of funds service and has approved the
establishment of fixed monthly fees
for institutions having electronic con­
nections with the Federal Reserve for
priced services.
Because of a net revenue surplus of
$4.4 million reported by the Reserve
Banks for the wire transfer of funds
and net settlement between January
and July 1984, the basic fee for send­
ing or receiving a funds transfer was
reduced to 60 cents per transfer from
65 cents.
The fixed monthly fees for institu­
tions electronically connected to the
Federal Reserve vary with the type of

electronic connection. These fees will
go into effect Jan. 2,1985. The monthly
fees for priced services excluding ACFI
connections are $300 for those with
dedicated leased line connections to
the Fed, $225 for those with multi-drop
leased lines and $60 for institutions
with dial-up lines.
The monthly fees for ACH connec­
tions are $240 for dedicated leased line
connections and $48 for dial-up con­
nections. These ACH connection fees
reflect the 80 percent recovery rate for
the service that is anticipated to be in
effect during January 1985. Currently a
daily fee of 75 cents is assessed for
ACH electronic deliveries. This fee will
be eliminated when the new fees go in­
to effect.

Because the type of line used is
related to the service level provided to
the depository institution, the fixed
monthly fees are based on type of elec­
tronic connection. Dedicated leased
lines, which are used by only one in­
stitution, provide uninterruptable ser­
vice and are typically the most costly
type of connection. Multi-drop or
shared leased lines are dedicated ter­
minal connections where up to seven
institutions use the same dedicated
line to the Fed. Dial-up lines, which re­
quire an institution to dial a number at
the Federal Reserve Bank to establish
a connection, are shared by a large
number of users.

Maximum Fee
Ceiling Raised
The Director of the Division of
Federal Reserve Bank Operations
has reviewed and approved,
under delegated authority, a pro­
posal from the Subcommittee on
Accounting Systems, Budgets
and Expenditures to raise the
maximum fee for drafts on
acco unts m ain ta in ed w ith
Reserve Banks (i.e. Fed funds
checks). Effective October 1,
1984, the maximum fee will in­
crease to $7 from $5.

The El Paso Branch, which serves the western part of Texas and the southern part of New
Mexico, opened for business on June 17, 1918, in temporary quarters in the First National
Bank Building in El Paso. The El Paso Branch moved to its present location at 301 East Main
Street in the latter part of 1957.

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CORRECTION: The average cost of
money for savings and loan associa­
tions was incorrectly reported in last
month’s Roundup. The average cost
of money for small thrifts is 10.937
percent of available funds, 9.738 per­
cent for mid-size thrifts and 10.504
percent for large thrifts.