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Federal Reserve Bank of Dallas

September 1984

Revised Capital Adequacy Guidelines Proposed
The Federal Reserve Board has re­
quested comment by Sept. 24,1984, on
proposed revisions to its capital ade­
quacy guidelines for state member
banks and bank holding companies.
The new guidelines would increase the
minimum required primary and total
capital for all but smaller state
member banks and bank holding com­
panies, paralleling capital adequacy
requirements currently being con­
sidered by the other federal bank
The Board proposed that all state
member banks and all bank holding
companies should have minimum
primary capital equal to 5.5 percent of
total assets and total capital equal to 6
percent of total adjusted assets. For
both regional and multinational state
member banks and for bank holding
companies, the new policy would in­
crease minimum capital requirements
by one-half of one percent in minimum
primary and total capital requirements.

The new guide­
lines parallel
being considered
by other bank
For community banks and bank
holding companies with assets under

$1 billion, the proposed policy
decreases minimum primary capital re­
quirements by one-half of one percent.
The minimum total capital requirement
for these institutions would not be
In addition, the Board proposed con­
tinued use—at a higher level—of its
supervisory “zone” standards of ap­
propriate total capitalization. The
capital zones apply to all state member
banks and bank holding companies,
regardless of size. Zone One states
that institutions with capital equal to
at least 7 percent of total assets would
be considered adequately capitalized.
Under Zone Two, institutions operating
with total capital equal to 6 to 7 per­
cent of their total assets would be con­
sidered marginally capitalized, subject
to consideration of other financial fac­
tors. Zone Three states that banking
organizations with total capital that
is less than 6 percent of total assets
may be considered undercapitalized, in
the absence of clear extenuating
Generally, the nature and intensity
of supervisory action will be deter­
mined by a bank’s compliance with the
minimum primary capital ratio, as well
as by the zone in which its total capital
ratio falls. For institutions operating in
Zone One, the Board will presume that
capital is adequate if the primary
capital ratio is acceptable to the Board
and is above the 5.5 percent minimum.
For banks operating in Zone Two,
the Board will pay particular attention
to other financial factors, such as

...the nature and
intensity of super­
visory action will
be determined
by a bank’s
asset quality, liquidity and interest rate
risk as they relate to the adequacy of
Banks operating in Zone Three may
be considered undercapitalized, ab­
sent clear extenuating circumstances.
These institutions would be required to
submit a comprehensive capital plan
that includes a program for achieving
compliance with the minimum ratios.
They would also be subject to super­
visory or administrative enforcement
actions or the issuance of a capital
directive, and they would generally be
subject to denial applications by the
Board unless a capital plan that is ac­
ceptable to the Board has been



■ COST SURVEY____________


Know Your Money: Genuine or Counterfeit?
Counterfeit currency cost the American public $7.8
million in fiscal 1983, despite the fact that $63.4 million
worth of bogus money was seized before it could be put into
circulation. The Cash Department of the Dallas Fed
detected 685 counterfeit bills in 1983 with a face value of
over $23,000.
Counterfeiting has been a growing industry since 1958,
when authorities seized $568,000 before it could be cir­
culated, and the loss to the public amounted to less than
$100,000. In 1969, over $12 million was confiscated and
the public loss surpassed $3 million.
Aided by new technology, counterfeiting is likely to in­
crease even more rapidly in the future. About 98 percent
of the money counterfeited is turned out by photo offset
printing. Improved methods of photography, highly
sophisticated printing equipment and advanced color
copying machines are yielding authentic-looking bogus
United States currency is printed with engraved in­
taglio steel plates; no photography enters into the pro­
cess. Each feature of the design—portrait, lettering,
scroll work and geometric lacy patterns—is done by
individual artists whose unique styles are difficult to
duplicate without a camera.
Most counterfeit bills are detected because of a
flaw in the portrait. On genuine currency, the portrait
stands out sharply from its background, which is a fine
screen of regular unbroken lines. The subject’s eyes ap­
pear lifelike. In contrast, the portrait on a counterfeit bill
may be dull, smudgy, unnatural or scratchy.
The serial number offers other clues to counterfeit bills.
The figures on a genuine note are firmly and evenly printed
and well spaced. The prefix letter must always agree with
the Fed District letter that appears in the seal, whose saw­
tooth rim must be sharp and even.
Money paper is specially made to provide protection
against counterfeiters. Its quality is far higher than paper
that is generally available, and the types of paper and ink
used in producing the notes are kept secret. Small red and
blue threads run through genuine money paper. The threads
may be imitated by fine red and blue lines made by a pen.
Another type of counterfeit bill is the raised note. Unlike
original counterfeits, raised notes are simply real bills with
the dollar amounts changed to a higher number. Raised
notes feel like genuine currency—because they are—but
the portraits do not match the denomination. Often the
backs of these counterfeits have not been altered. One can
best avoid accepting a raised note by learning which por­
trait appears on each genuine denomination.

Twenties are the denomination most often counterfeited,
although fake fifties and one hundreds are becoming in­
creasingly common. According to the United States Secret
Service, counterfeiters profit from inflation, which causes
larger denominations to arouse less suspicion.
If you do get a bogus bill, write your name and the date on
the back of the bill so it can be identified later. Second, write
down all the details about how you got the bill, who gave it
to you, and where and when you got it. Finally, contact the
nearest U.S. Secret Service office.
Portraits: A. $5, B. $2, C. $10, D. $50, E. $100, F. $20, G. $10,000

Cost Study Aids Performance Appraisal
How much is it costing your finan­
cial institution to offer a checking ac­
count? Banks, thrifts and credit unions
can find out the answer to this ques­
tion by participating in the Functional
Cost Analysis (FCA) Survey done each
year by the Federal Reserve Bank of
Dallas. The FCA service to financial in­
stitutions is offered on a nationwide
basis only through the Federal Reserve
System. The survey examines 13 func­
tional areas of a financial institution
for costs, profitability and efficiency.
Financial institutions that participate
receive 30- to 40-page individual
reports showing their cost figures. In
addition, the institution receives a na­
tionwide composite report allowing
them to compare their performance
and costs with institutions around the
country. These reports help institu­
tions measure efficiency, structure
assets and liabilities, price services
and make operational improvements.
The 1983 FCA reports recently have
been issued and highlights of the
reports include the following. Banks
with deposits up to $50 million saw an
average net portfolio yield of 10.414

percent in 1983. Banks with up to $200
million and those with over $200
million in deposits experienced a
10.622 percent and 10.117 percent
average net portfolio yield respective­
ly. The average cost of money for
smaller banks was 7.614 percent of
available funds, 7.686 percent for mid­
size banks and 7.462 percent for large
banks. Demand deposit accounts
cost smaller banks an average of $9.50
per month in average operating ex­
penses, mid-size banks $12.78 per
month and large banks $22.66 per
month. The average annual main­
tenance cost for operating a regular
savings account was $60.61 for a
smaller bank, $73.32 for a mid-size
bank and $74.26 for a large bank.
Savings and loan associations ex­
perienced an average net portfolio
yield of 10.734 percent for small thrifts,
10.154 percent for mid-size thrifts and
10.294 percent for large thrifts. The
average cost of money for small thrifts
was 7.614 percent of available funds,
7.686 percent for mid-size thrifts and
7.462 percent for large thrifts. Average
operating expenses for a demand

deposit account were $7.29 per month
for small thrifts, $7.17 per month for
mid-size thrifts and $11.72 per month
for large thrifts. Maintaining a regular
savings account cost small thrifts an
average of $39.83 in operating costs, a
mid-size thrift $26.92 and a large thrift
Average net portfolio yields for
credit unions were 10.981 percent for
credit unions with deposits up to $50
million and 10.682 percent for credit
unions with deposits up to $200
million. The average cost of money for
the smaller credit unions was 9.864
percent of available funds and 9.329
percent for larger credit unions. To
operate a demand deposit account
cost smaller credit unions an average
of $8.65 per month and larger credit
unions $5.47 per month. Maintenance
on a regular savings account cost an
average of $23.50 for smaller credit
unions and $20.18 for larger credit
Institutions wishing to participate in
the 1984 FCA survey should contact
the Corporate Banking Department at
the Dallas Fed.

New Options Upgrade
The Federal Reserve Bank of Dallas
has announced the im m ediate
availability of the IBM personal com­
puter model XT for use in connection
with its RESPONSE communication
network. This model has the advantage
of 512K memory as a standard feature.
Whether an institution connects to the
Dallas Fed via a model XT, a standard
IBM personal computer, a dedicated
computer line or a direct computer-tocomputer link, the institution will con­
tinue to have the same level of services
offered on the RESPONSE network.
Services currently offered over the net­
work include currency and coin order­
ing, transferring funds by wire and

receiving interest rates on Treasury
In addition to these services, the
Bank has announced two new
RESPONSE services to be implement­
ed in October. Treasury tax and loan
advices as well as advices of credit
availability for mixed cash letters will
be offered over the network.
These new services are part of a contin u in g e ffo rt to upgrade the
RESPONSE network and provide highquality services tailored to meet
various financial institutions’ needs.
By utilizing computer links, faster and
more accurate delivery of services can
be assured.


Historic Fed Buildings Can Be Toured
If you’ve been considering how to in­
troduce new bank employees to the
roles the Federal Reserve plays or how
to educate high school seniors about
economics in the United States,
perhaps you should consider taking a
tour of the Dallas Fed. Tours are given
each Tuesday, Wednesday and Friday
at 9:00 a.m. and 1:00 p.m. by appoint­
ment. The maximum number allowed
per group is 30 people. The tour goes
into the cash and check processing
areas of the Bank and includes a
multimedia slide presentation which
describes the role the Federal Reserve
plays in providing services to financial
in stitu tio ns, supervising banking
organizations and deciding monetary
policy directions. Each tour takes ap­
proximately 45 minutes and we request
that those in your group be at least a
senior in high school.

In addition to tours offered at the
Dallas Fed, each of the three bran­
ches—in El Paso, Houston and San
Antonio—give tours on an appoint­
ment basis. Please contact the nearest
branch office for more information.
If you cannot come for a tour, the
Dallas Fed also loans films at no
charge to schools and financial institu­
tions in the Eleventh District. The Bank
carries films on the history of the
Federal Reserve, economics, banking,
counterfeit detection, the life of a
check and many others. In some cases,
a teacher’s manual accompanies the
film. The Bank also carries videotapes
on the same topics.
To arrange to take a tour or view a
film, please contact the Public Affairs
Department at the Dallas Fed.
The Dallas Fed



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