FEDERAL RESERVE BANK op« Federal Notes FEDERAL RESERVE BANK OF SAI^fftif^lSCO • NO. 3, 1980 Serving Alaska, Arizona, California, Hawaii, Idaho, Nevada, , Utah &

S.F. FED SETS UP DEREG COMMITTEE OUTREACH PROGRAM RULES ON NOW RATES The Federal Reserve Bank of San The Depository Institutions Dereg Francisco has developed a number ulation Committee (DIDC) ruled of programs to assist depository that banks and savings institutions institutions in complying with the will be able to pay as much as 5Va new procedures mandated under percent on check-type NOW ac the terms of the Monetary Control counts beginning in 1981, but it left Act. Under the Act, Congress at intact current interest-rate ceilings tempted to improve the effective on regular savings accounts. In ness of monetary policy by apply another key decision, the commit ing new Federal Reserve reserve tee agreed to permit the continued requirements to all depository in use of premiums or gifts that insti stitutions with transaction (check- tutions offer to people who open type) accounts and non-personal new accounts or add to existing time deposits. ones. G. H. Weyerhaeuser To implement this goal, the Act The DIDC ruled that the ceiling rate WEYERHAEUSER HEADS authorized the Federal Reserve to on "negotiable order of with BOARD collect reports from all depository drawal" accounts — NOW ac institutions. And among other key George H. Weyerhaeuser has been counts — will be raised to 51/4 per provisions, the MCA provided non- named Chairman of the Board of cent, effective December 31. The member institutions with access to Directors of the Seattle Branch of rate on "automatic transfer from Federal Reserve borrowing privi the Federal Reserve Bank of San savings" accounts — ATS ac leges and other Fed services, and Francisco. Weyerhaeuser is Presi counts — will remain at 51/4 per required the Federal Reserve to set dent, Chief Executive Officer and cent. Similarly, ceilings were left fees for these services. Director of the Weyerhaeuser Com unchanged on other types of inter pany, a forest-products company est-bearing transaction accounts, Beginning September 22, the Fed with 49,000 employees and $4.5 bil at 51/4 percent for commercial eral Reserve Bank of San Francisco lion in annual revenues. banks and 51/2 percent for thrifts. has organized a series of orienta tion sessions for top executives of The Tacoma executive was ap The committee also said that it in depository institutions located in pointed to the Seattle Board by the tends to raise passbook-account the San Francisco Reserve District Federal Reserve Board of Gover ceiling rates as soon as is "pru — the nine westernmost states (see nors, to fill out an unexpired term dently practicable." It hopes to be list of sites below). These sessions, ending December 1981. He re able to do so before September 30, held in 26 locations throughout the places Lloyd E. Cooney, Seattle 1981, when by law it is required to District, have been designed to pro broadcasting executive, who re vote on raising passbook rates. vide executives with an overview of cently resigned from the board. He On the "freebie" question, the the implementation of the MCA. also replaces Cooney as Seattle DIDC permitted the continued use board chairman, an annual posi In addition to these general orienta of premiums or gifts, but required tion, at the designation of the tion sessions, a series of seminars that the stated cost reflect the com Board of Directors of the San Fran on reporting and reserve account plete cost of the merchandise. cisco Reserve Bank. ing will be held in all Reserve Bank Such costs would include ship offices in the week of October 13. Weyerhaeuser graduated with ping, packaging and other han Later, technical seminars will be honors from Yale University in dling expenses, as well as any (Continued on page 4) (Continued on page 2) (Continued on page 4) FED ATTACKS WEYERHAEUSER PRICING COMMENT CHECK FLOAT (Continued from page 1) SOUGHT BY FED In an effort to tighten its check- 1949, with a degree in industrial The Federal Reserve announced clearing procedures and signifi administration. He has been asso that public comment on its pro cantly reduce "free float," the Fed ciated with the Weyerhaeuser posed pricing schedule for ser eral Reserve has launched a two- Company since 1947, and has been vices ends October 31, with the tiered program involving the President and CEO since 1966. He phase-in of fees due to begin in streamlining of transportation pro holds directorships in a number of January. major companies, including the cedures, electronic clearance of Mandated by the Monetary Control larger checks, and revising of time Boeing Company, the Standard Oil Act of 1980, prices would be based schedules by which depositing Company of California, and the on all direct and indirect, long-run banks receive credit for funds they Insurance Company. costs incurred for the various ser deposit. Weyerhaeuser is a trustee of the vices, plus a 12 percent "markup" Currently, average daily float is Rand Corporation, the Charles that takes into account the financ running at about $5 billion. The Fed Wright Academy, the Taft School, ing and tax costs that a private firm hopes the new procedures will re and the Weyerhaeuser Company would encounter if it offered simi duce float to a daily average of Foundation. He is a member of the lar services. The same prices would about $2 billion. Based on an aver Advisory Board of the University of apply to all depository institutions. age federal-funds rate of 11.2 per Washington's School of Business Federal Reserve services to be Administration, and of the Board of cent last year, Fed economists esti covered under the proposed pric Visitors of the University of Puget mate the Fed could have earned ing schedule include check-clear $650 million from float and, in Sound Law School. ing, currency and coin, wire trans directly, saved taxpayers that The Tacoma executive is also fers, automated clearinghouse ser amount by following its usual noted for his memberships in a vices (ACH), settlement services policy of turning over most of its numberof major national and inter affecting accounts held by the Fed revenues to the U.S. Treasury. national organizations. These in eral Reserve, securities safekeep Float occurs in the Fed's check- clude the Council on Foreign Rela ing, noncash collection and Fed clearing operations when the sys tions, the Emergency Committee eral Reserve float. for American Trade, the Japan- tem credits one bank's account for The Fed plans to publish final California Association, the Busi a check drawn on another bank be pricing regulations in January. fore it debits the other bank's ac ness Council, and the Business Pricing of wire transfer and net count. In the interim, both banks Roundtable. ^ settlements, which are wire trans have use of the funds so that, in sion in banking laws, Congress fers done by privately owned effect, the Fed is extending an directed the Fed to eliminate check groups, should begin during Jan interest-free loan to one of the two float or start charging institutions uary. Pricing of checks and ACH banks. for it, because float could be re services is scheduled for April. Under the plan adopted by the garded as a government subsidy to They could range from a fraction of Board of Governors, the interdis- the private banking industry. The a cent a check to seven cents a trict transportation system for law also required the Fed to impose check, depending on distance, de moving checks is being upgraded charges on services, such as gree of computerization and other to provide for a quicker return of check-clearing, that it previously factors. The pricing of currency checks among banks using the Fed provided free. and coin would follow in July, and service. Also, the Fed is examining securities and noncash collection As a result of the congressional ways to clear checks for large in October. order, the Fed said it would try to amounts electronically, rather than eliminate nearly all free float from Charges for float (the interest on waiting for the checks to be re its check-clearing operations by items credited by the Fed to one turned physically to the regional the middle of 1982. Some float is depository institution before being Fed bank for the institution on expected to remain beyond that collected from another) won't be which the checks are drawn. date, and the Fed has proposed to instituted until mid-1982. Mean In addition, the Fed has proposed start charging institutions explicit while, the Fed has announced a to slow the schedule by which the ly for this remaining float. Interest two-step program to reduce float depositing banks receive credit for on float would be charged at the by improving its interdistrict trans funds they deposit. The new sched prevailing market rate for federal portation system for moving ule, expected to be put into effect funds — the unused reserves lent checks, and by modifying its time in September 1981, would be by depository institutions to one schedules, beginning in Septem- based on the actual time it takes to another. clear checks. (Continued on page 4) At present, the Fed clears about 44 Last spring as part of a major revi- percent of all the nation's checks.

W FED OUTLINES BORROWING, RESERVES PLANS

In carrying out provisions of the years or more will be zero percent. institutions, mostly credit unions, Monetary Control Act (MCA) of Eurocurrency liabilities will have with total deposits below $1 million 1980, the Federal Reserve has re reserve requirements of 3 percent. are exempt from reserves-posting vised its regulations covering re requirements and reporting until at Under the Act, transaction ac serve requirements of depository least May 1981. counts include demand deposits, institutions (Reg D) and access to NOW (negotiable order of with At the same time, Fed member the Fed'sdiscount window (Reg A). drawal) accounts, ATS (automatic banks will begin a four year phase- Depository institutions offering transfer from savings) accounts, down of reserve requirements, be transaction accounts or nonper- share-draft accounts, and ac cause their present requirements sonal time deposits — all of which counts permitting telephone or are considerably higher than the are now subject to reserve require pre-authorized transfers of pay ones stipulated in MCA. Beginning ments — became eligible to use the ments to third parties. Up to three November 13, reserve require Fed's credit-extension facilities be telephone or pre-authorized trans ments will be reduced by one- ginning September 1. Previously, fers a month are allowed before fourth during the first 10 months, discount-window services were such accounts are regarded as and one-eighth every succeeding limited to Fed member banks. transaction accounts. Thrifts na six months thereafter. tionwide may offer interest-bearing Under Reg A, Federal Reserve Roughly 18,000 institutions will be checking (NOW) accounts for the credit will be offered under two subjectto reserve requirements, in first time starting next January 1, major programs — adjustment cluding about 5,400 Fed members, and this transaction account will credit and extended credit. Adjust 9,000 nonmembers and, initially, be subject to the Fed's full reserve ment credit will be made on a very about 3,400 savings and loan asso requirement at that time. short-term (overnight) basisto help ciations and mutual savings banks. depository institutions adjust to A nonpersonal time deposit is de One major purpose of uniform re sudden changes in their need for fined as one which is transferable serve requirements is to assist the funds. Extended creditwill be avail or held by a party who is not a natu Fed in carrying out its Congres able to assist institutions in coping ral person. Time deposits do not sional mandate for effective mone with unusual credit needs due to become transferable by reason of tary control. particular problems covering being pledged for a loan, or due to Reserve requirements can be satis somewhat longer periods: transfer following death, bank fied by vault cash as well as by bal ruptcy or judicial attachment. As a The Fed said it would offer tempo ances held at a Federal Reserve transitional measure, the Fed said rary adjustment credit to nonmem- Bank. Nonmember institutions it would regard all time deposits bers only if they are unable to gain may hold their reserves directly issued to individuals prior to Octo timely access to their special- with the Fed, or indirectly by pass ber 1,1980 as personal time depos industry lenders, such as Federal ing the reserves through another its, even if they are transferable. Home Loan Banks or the Central institution. Personal time deposits are not sub Liquidity Facility of the National ject to reserve requirements. The first period for reporting de Credit Union Administration. Non- posits and determining the status members seeking extended credit New Fed constituents with depos of institutional reserves begins Oc from the Fed will be consulted in its in excess of $1 million will begin tober 30, 1980. The Federal Re regards to why funds are not avail an eight-year phase-in of reserves serve Bank of San Francisco is able from other sources. starting November 13, 1980. On mailing reporting forms, manuals In amending Reg D to conform to that date, most institutions must and other material to all depository MCA, the Fed listed reserve re set aside one-eighth of the reserve institutions in the 12th District quirements to be imposed after a requirement applicable to them. during September. -at phase-in period. The reserve re Subsequently, they will post an quirement on the first $25 million of additional one-eighth of their total an institution's transaction ac reserve requirement in September counts will be 3 percent. Reserves during each of the following seven of 12 percent must be held on years. transaction accounts above $25 Institutions with $5 million or more million. in total deposits will have to report The reserve requirement on non- reserves on a weekly basis begin personal time deposits with origi ning November 13. Smaller institu nal maturities of less than four tions, with $1 to $5 million in de years will be 3 percent, while simi posits, must report quarterly begin lar deposits with maturities of four ning January 1, 1981. Some 11,400 l78US-l7f9 (Ql-fr) ouou.d 021-176 'emjoj -||BO 'oosjoubjj ues 'ZQLL x°9 O'd 'oosp -ubjj ubs i° >|UBg aAjesay lejapaj 'uojjoas uo|jblujoju| onqnd au.) Aq s>|UBq lepjaw -woo oj pajnqujsjp s| uoiiBonqnd am >|sny uajB» pub i^sujdns uoy 'a>|jna wbmhm Aq peonpojd si S3|0N eAjasay lejapej

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PRICING COMMENT DEREG COMMITTEE OUTREACH PROGRAMS (Continued from page 2) (Continued from page 1) (Continued from page 1) ber 1981, for making funds avail advertising-type fees paid to a pro held at those offices, about four to able to institutions that have pre motional agency. six weeks prior to the time at which sented checks for clearance (see various Fed services are offered to The DIDC ruled, moreover, that story, page 2). Interest on float depository institutions under new dollar limits on premiums could be would be charged at the prevailing pricing schedules. Meanwhile, an raised to $10 for deposits of less market rate for federal funds. MCA Information Desk has been than $5,000, and to $20 for deposits set up at each Fed office to answer of $5,000 or more. Each depositor In situations where an institution questions. with only a small reserve balance would be permitted only two gifts (or none) wishes to obtain services per year. The schedule of general-orienta tion sessions follows: directly from a Federal Reserve The committee in effect prohibited Bank, the local Fed bank could finders fees for amounts under San Francisco Zone — Reno (Sep establish the need for a clearing $100,000 —specifically, by regard tember 22), Honolulu (September balance. Size of the balance would ing such fees as deposit interest 22), Sacramento (September 23), be set in advance to minimize re and thus including them under the Fresno (September 24), San Jose serve deficiencies, with adjust appropriate ceiling-rate regula (September 25), San Francisco ments on a monthly or less-fre tion. However, it listed two possible (October 1-3). quent basis. Required clearing bal exceptions to this rule. Institutions Los Angeles Zone — Bakersfield ances would receive an earnings could pay incentive bonuses to em credit equal to the weekly average (September 22), Santa Barbara ployees, provided such bonuses (September 23), Las Vegas (Sep of the 91-day Treasury bill rate. weren't related to any specific Also, institutions could use the re tember 24), Tucson (September deposits but rather to some total 25), Phoenix (September 26), Van serve account of another institu amount of deposits. Also, institu Nuys (September 29), Los Angeles tion (with prior authorization) to tions that had obtained 25 percent pay for Fed services. (September 30), Riverside (Octo or more of depositsthrough finders ber 1), Newport Beach (October 2), fees could be permitted a phase- According to Fed proposals, fees San Diego (October 3). down over a two-year period. would be imposed nationwide for Portland Zone — Portland (Octo services that are uniform across The DIDC asked for comments on ber 1), Pendleton (October 2), the Federal Reserve System, such this subject, especially with re Eugene (October 3). as wire transfer and ACH services. spect to depository institutions' However, differing schedules ability to identify the deposits ob Salt Lake City Zone — Salt Lake would be used where significant tained through finders fees and the City (September 22), Boise (Sep cost differences exist among Fed individuals to whom the fees were tember 23), Pocatello (September eral Reserve districts or offices, paid. The purpose would be to 24). such as coin-wrapping and securi minimize problems for specific in Seattle Zone — Yakima (Septem ties and noncash collection at the stitutions that have been heavily ber 25), Spokane (September 26), district level, and currency and dependent on finders fees for an Seattle (September 29), Anchorage coin shipping at the office level. n|j extended period. fttjp (September 30). If