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Federal Reserve Bank of Dallas September 1982

FCA Indicates Rise in 1981 Check Costs
The cost to process a check increased
18.1 percent between 1980 and 1981 for
those banks which participated in the
Dallas Fed’s functional cost analysis
program. The recently-published 1981
District Bank Averages indicate that
the average cost to process a transit
item rose to 7.724 cents in 1981 from
6.538 cents in 1980.
The FCA reports, which provide a
break-down of average costs, income
and expense data by size of institution,
show that banks with deposits in the
$50 to $100 million range were the
hardest hit by check processing cost
increases in 1981. For this group of
banks, the average cost to process a

Cost To Process A Check

transit item increased 32 percent, from
6.190 cents to 8.169 cents, and the
average monthly cost to maintain a de­
mand deposit account increased 33.2
oercent, from $3.10 to $4.13.
Earnings per demand deposit ac­
count were generally down in 1981 due
to increased costs. The average month­
ly net loss on each account for all par­
ticipating banks was $7.61, up 58.2 per­
cent from $4.81. However, after credit
for income on funds deposited in the
bank’s portfolio was applied to de­
mand deposit account earnings, net
earnings generally increased. The
monthly net earnings per account after
portfolio credit increased 22 percent

for all size categories, from $16.44 to
$20.05 in 1981. This was primarily the
result of higher interest rates in 1981.
The average net portfolio yield for par­
ticipating banks increased from 10.539
percent in 1980 to 13.245 percent in
Once again, banks in the $50 to $100
million range were the hardest hit in
demand deposit account losses. The
average net loss per account per
month was $8.36, up 165.4 percent
from $3.15. Net earnings after portfolio
credit, however, increased 21.9 percent
for these banks, from $17.89 to $21.80
per account per month.
In addition to various demand
deposit account information, the FCA
reports provide income and expense
data for 12 other functions within a
financial institution. For example, the
reports indicate the average cost to
make an instalment loan, the average
cost to process a savings account
deposit, and ratios which measure per­
sonnel efficiency, among thousands of
other cost figures.
FCA is based on balance sheet and
income statement information which
the participating institutions submit to
the Dallas Fed.

• Training Sessions
• Pricing Statement
• Directors Meetings

Food Coupons
New to S&Ls
Insured savings and loan
associations are now permitted
to redeem food coupons for
a u th o riz e d
re ta ile rs
Recently, an amendment was
passed to the Food and Nutrition
Service regulations making it
possible for insured savings and
loans to offer this service.
Any insured savings and loan
can apply to the Department of
Agriculture for authorization and
may establish an account for
deposits at the Federal Reserve
Bank of Dallas.
Further inform ation about
Federal Reserve food coupon ser­
vices may be obtained from the
Cash Department.

Summary Available
A summary of the Federal
Reserve Board’s July 20, 1982,
re p ort to C ongress title d
“ Monetary Policy Objectives for
1982” is currently available upon
request to the Department of
Communications, Financial and
Community Affairs. The report is
the final one this year by Chair­
man Volcker on the state of the
economy and the course of
monetary policy for 1982.

Class Aids RESPONSE Users
In order to provide instructions for
operating the IBM personal computer,
the Dallas Fed is holding training ses­
sions for its RESPONSE program par­
In May, the Federal Reserve Bank of
Dallas announced a new service in the
RESPONSE communications network
program. This service allows smaller
financial institutions to connect direct­
ly with the Fed’s district and nation­
wide communications network through
the use of the IBM computer.
During each one-day class, trainees
learn how to perform wire transfers
and receive reserve statement informa­
tion. They also are exposed to some of
the many fin a n c ia l
capabilities associated with personal

computers. The sessions conclude
with a tour of the Dallas Fed’s com­
puter center so users of the personal
computer can get a better idea of what
happens when a transaction takes
The growing use of micro computers
in banking has enabled smaller finan­
cial institutions to improve their
operating and m arketing e ffe c ­

For further information about the
RESPONSE program itself please con­
tact Mr. Dick Ingram at (214) 651-6212,
and for information regarding the train­
ing sessions please contact Mr. Vance
Smith at (214) 698-4322.

Discount Rate Falls to Two-year Low
On August 27, the basic discount
rate at the Federal Reserve Bank of
Dallas was reduced to its lowest level
in two years. The discount rate—the in­
terest rate the Fed charges financial
institutions for borrowing funds—was
lowered to 10 percent from 10.5 per­
cent. This reduction was the fourth
time the rate had been lowered since
July 20. The 10.5 percent rate was ef­

fective August 13.
A reduction in the discount rate can
come about as a reinforcement to
other monetary policy tools, such as
open market operations. It can also be
reduced because money market condi­
tions warrant such a change.
Recent declines in short-term in­
terest rates, especially the federal
funds rate, helped spur the latest

reductions. The Fed funds rate—the
rate institutions charge each other on
loans of excess reserves—had fallen
to 10.38 percent on August 13 from
nearly 15 percent in late June.
This decline, combined with a reduc­
tion in credit demand and slower
growth of the money supply, con­
tributed to the four half-point reduc­
tions since July.

Fed Statement Outlines Checks Changes
The Federal Reserve issued a state­
ment July 29 to provide an overview of
current Fed System pricing policy and
requested comment the following
week on the initial steps toward im­
plementing new procedures discussed
in the statement.
The Fed’s pricing policy statement
was delivered by E. Gerald Corrigan,
president of the Federal Reserve Bank
of Minneapolis and chairman of the
System Pricing Policy Committee, who
discussed the Federal Reserve’s ex­
perience during the first year of pricing
and indicated future plans for priced
services activities.

Check Services
Comment was requested by the
Federal Reserve Board August 4 on a
proposal outlining later deposit times
for certain types of checks and 12 noon
presentment for city items, initial
steps toward modifying the System’s
check processing and collection pro­
cedures and thus toward improving the
speed and efficiency of the nation’s
payments mechanism. The proposal
explained that 12 noon would be the
uniform earliest final presentment
time, and that many checks would con­
tinue to be presented according to cur­
rent arrangements. Comment is re­
quested by September 20.

In addition to these proposed
changes, Corrigan explained that a ma­
jor reconfiguration of the Fed’s Inter­
district Transportation Network, now
underway, would greatly accelerate the
check collection process. This network
is the method the Fed uses to move
checks between Federal Reserve of­
fices around the country.
The proposed check service
changes would allow 50 to 70 percent
of interdistrict items to be collected
and credited within one day, thereby
accelerating by 24 hours the collection
of items valued at between $1.6 and
$2.6 billion per day, Corrigan said. This
accelerated collection also would
allow financial institutions to receive
earlier availability for their deposits.

Pricing Techniques
Corrigan’s statement continued by
explaining revisions in the method to
be used for pricing Federal Reserve
services in the future. The revised pric­
ing technique will recognize that the
value of a particular service might be
different from its cost and will take in­
to account prevailing market practices.
The extent to which this new pricing
flexibility will be used, however, is
limited. The most important and
widespread use of the technique, Cor­
rigan said, will be reflected in prices

Target Date
September 1982
September 1982
September 1982
January 1983
Early 1983
Early 1983
Early 1983

Proposed Action
Charge payor institutions for cash letter
presentments on mid-week closings.
Wire advice for return items equal to or greater
than $50,000.
Wire advice of adjustments equal to or greater
than $50,000 (short-term measure). Automate
adjustment process (long-term measure).
Change crediting procedures for interterritory
cash letter deposits.
Eliminate or price holdover float.
Eliminate or price intraterritory transportation
Eliminate or price noncheck float.

for certain types of cash letter
deposits where the Fed has made ma­
jor improvements in availability and
has thereby vastly enhanced the value
of the service. Preliminary new check
prices were announced the week of
August 23.

Federal Reserve Float
In his statement, Corrigan announc­
ed further plans for the reduction of
Federal Reserve float. The Fed will
continue to emphasize operational im­
provements in an effort to reduce float
during the remainder of 1982, he said.
In 1983, however, new crediting pro­
cedures for interterritory cash letters
and explicit pricing of remaining float
will be considered. The Fed’s proposed
float reduction plan is summarized in
the table accompanying this article.
Corrigan also outlined near term
pricing initiatives for other Federal
Reserve services. Plans for an elec­
tronic check collection program that
had been under consideration by the
Fed will be discontinued, he said.
Throughout his statement, Corrigan
emphasized that the Federal Reserve
System’s continuing objective is to
enhance the e ffic ie n c y of the
payments mechanism in a manner con­
sistent with the Fed’s overall public
responsibilities. “ We are very much in­
clined to the view that we should seek
to maintain a viable, operational
presence in the payments business
primarily because we believe that
presence is consistent with the goal of
improving the efficiency and effec­
tiveness of the payments mechanism,”
he said.

The full text of Corrigan’s statement is
contained in Federal Reserve Bank of
Dallas Circular No. 82-89, and the pro­
posed modifications to check collec­
tion services are contained in Circular
No. 82-100. Both are available upon re­
quest to the Department of Com­
munications, Financial and Commun­
ity Affairs.


Directors Meetings Held at Dallas Fed
The Federal Reserve Bank of
Dallas regularly invites boards of
directors from Eleventh District
financial institutions to hold their
meetings at the Fed.
During each visit, the directors at­
tend a luncheon with members of
the Fed’ s management staff.
Following lunch, they meet with
members of senior management
and are given a presentation on the
current state of the economy by a
member of the Bank’s research
staff. After the visiting institution’s
board meeting is held, the board
members are taken on a tour of the
These meetings give the directors
a chance to learn more about
Federal Reserve services and also
help the Fed keep in close contact
with the needs of the financial com­

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W. W. Jones, Jr. (second from left), President of City National Bank of Sulphur Springs,
meets Senior Vice President Tony Salvaggio, Economist Jim Hoehn, and Senior Vice
President Joe Burns of the Federal Reserve.