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Federal Reserve Bank of St. Louis. "Central Banker, Summer 2004," Central Banker : News and Views for Eighth District Bankers (July 2004). https://fraser.stlouisfed.org/title/6284/item/603083, accessed on May 30, 2025.

Title: Central Banker, Summer 2004

Date: July 2004
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image-container-3 Fed Ceases Print Subscriptions for Data Publications Beginning in January 2005, Mone- tary Trends, National Economic Trends and International Economic Trends will be available only in electronic form via our web site. Printed copies of these publications will continue to be mailed to all current print subscribers through the last issue of 2004. All subscribers may take advantage of the Research Division’s e-mail notification sys- tem, which is a timely and flexible method for receiving updates to these publications. For more information about how to subscribe to this system, visit www.research.stlouisfed.org. If you have additional questions about print subscriptions for these data publications, contact the Research Division at stlsFRED@stls. frb.org. St. Louis Fed Releases Its 2003 Annual Report The Eighth District’s decision to consolidate cash and check business has dramatically changed the roles the branch offices will play and the value they will add to their com- munities. The Bank’s 2003 annual report, Branching Out, examines how these decisions triggered the District to recommit itself to our branch communities by increasing intellectual resources and endeavors. This year’s annual report recently was mailed to District financial institutions. To order additional copies, contact Debbie Dawe at (314) 444-8809 or toll-free at 1-800-333-0809, ext. 44-8809. The report also is available on our web site, www.stlouisfed.org/ publications/ar/default.html. Eighth District Leads Conversion to Actual Availability The St. Louis Fed recently led the conversion to Actual Availability— new accounting practices for cross- district check deposits. Actual Availability gives banks that deposit checks with a non-local Fed office immediate credit for their deposits. The goal of this new service is to decrease reconcilement issues and help financial institutions reduce incorrect entries. Additionally, Actual Availability aligns the Fed’s accounting practices with those of the private sector. To view the Actual Availability Depositor Reference Guide, visit the national financial services web site: www.frbservices.org/Retail/ pdf/ActualAvailabilityGuide.pdf. RegionalRoundup www.stlouisfed.org 4 U.S. Postal Service Asks Banks to Help Fight Money Order Fraud The U.S. Postal Service is seeing an increase in counterfeit U.S. Postal Money Orders (PMOs). Redemption of counterfeit notes creates significant losses for financial institu- tions nationwide; so, the Postal Service has redesigned the PMOs and begun a campaign to help cashiers identify counterfeit items. Some of the PMO’s new security features include: • use of colored inks; • a crisp, textured paper stock; • a silver “USPS” security thread embed- ded in the paper; • a watermark of Benjamin Franklin, which appears on the left side of the PMO when it is held up to the light; • the U.S. Postal Service shield, which appears on the right side of the PMO; and • red ink bleeds, which appear on the back side of the paper. Additionally, denominations are placed in two locations on the PMO and cannot be greater than $1,000. Also, discoloration appears around the denomination amounts if they have been erased. The Postal Service is asking cashiers to: • thoroughly inspect PMOs at the time of presentment; • read the warning instructions, which are listed on the reverse side of the PMO; • look for the PMO security features; and • intercept all PMOs they suspect are fraudulent. More information about the new security features can be obtained by calling 1-800- ASK-USPS or by visiting www.usps.com/ missingmoneyorders/security.htm. If your bank intercepts a counterfeit item, contact your local post office and ask for the local postal inspection service office, or call Postal Inspector Travist C. Wiggins at (314) 436-6895.
image-container-4 Budget Deficits and Interest Rates: What Is the Link? www.stlouisfed.org 5 T he Office of Management and Budget in February released the president’s projections for the federal budget, which included an estimated federal budget deficit of $521 billion for fiscal 2004. The return of substantial budget deficits in the United States has reignited the debate on how budget deficits influence the economy. Deficits can be a source of infla- tion if they are accommodated by monetary policy—that is, if the Federal Reserve responds to higher deficits by increasing the growth of money. The Federal Reserve has two ways of respond- ing to higher deficits: 1) The central bank directly pur- chases the securities issued by the government to finance the deficits. 2) The private sector purchases these same securities; then, the central bank attempts to limit any potential interest rate increases. Under either scenario, deficits lead to greater money base growth, which can create infla- tionary pressure. Warnings about the consequences of U.S. budget deficits, while not new, have shifted over time. Dur- ing the 1970s, emphasis was on the inflationary consequences of deficits. For example, in 1975, Ronald Reagan stated that infla- tion “has one cause and one cause alone: government spending more than government takes in.” By An earlier version of this article appears in the March issue of Monetary Trends, which can be found at www.research.stlouisfed.org/publications/mt/20040301/mtpub.pdf. By Edward Nelson, economist and research officer, and Jason Buol, research associate. contrast, the concern voiced since the 1980s rests on the argument that deficits put upward pressure on interest rates. This shift is apparent in the market’s current expectation that the Federal Reserve will not accommodate deficits with money creation. Since 1982, U.S. inflation has been con- trolled despite several years of high deficits. Fiscal 1983’s $208 billion deficit was approximately 6 percent of GDP; this year’s estimated deficit represents 4.5 percent of GDP. This demonstrates that monetary policy is capable of keeping inflation low even in the face of large deficits. Why might interest rates rise in response to deficit financ- ing? When you rule out monetary accommodation of the deficit, the government needs to create an incentive for the private sector to buy more government bonds. If the private sector’s purchase of government bonds does not increase one- for-one with the higher deficit, the government must borrow more money, which leaves less money for financing private projects, such as investment in residences or factory equipment. This is sometimes referred to as the “crowding-out” effect. Higher interest rates also can reduce the private sector’s demand for capital, thereby reducing the demand for com- mercial and retail borrowing. This underlies what Douglas Holtz-Eakin, the director of the Congressional Budget Office, has summarized as a “modestly negative” effect of long-term budget deficits. Two recent studies have measured the influence of budget deficits on interest rates. The first of these studies, by Thomas Laubach, finds a “statistically and economically sig- nificant” relationship between higher deficit projections and future long-term interest rates. According to Laubach’s esti- mates, when the projected deficit to GDP ratio increases by one percentage point, long-term interest rates increase by roughly 25 basis points. A more recent working paper, by Eric Engen and R. Glenn Hubbard, found that when gov- ernment debt increased by 1 percent of GDP, interest rates would increase by about two basis points. The Laubach study implies that moving to a balanced bud- get would tend to reduce interest rates by about one percent- age point; however, the Engen and Hubbard study suggests that interest rates would only fall by roughly a tenth of that amount. While recent research confirms there is a significant relationship between budget deficits and interest rates, just how much deficits affect interest rates is still being debated. Warnings about the consequences of U.S. budget deficits, while not new, have shifted over time.
image-container-5 Federal Reserve Revises Regulation Z The Federal Reserve Board has revised Regu- lation Z, which implements the Truth-in-Lending Act, and its staff commentary on the rule. The changes include a new definition of the word “amount” in disclosure requirements, referring to a numerical amount. Additionally, revisions to the staff commentary provide guidance on con- sumers’ exercise of rescission rights for certain home-secured loans. The revisions took effect April 1, and the deadline for mandatory compliance is Oct. 1. For more information, contact Henry F. Dove Jr., at (314) 444-8846 or 1-800-333-0810, ext. 44-8846. Regulators Create New Web Site for Call Reports The Federal Reserve Board, FDIC and OCC have contracted to build a Central Data Repository and web site, which is called FIND, to help modern- ize Call Reports. Under this new system, institu- tions will file their Call Report data via the Internet using software that contains the FFIEC’s edits for validating Call Report data before submission. Call Report software vendors are modifying their software to incorporate these edits. Imple- mentation of the new CDR system is expected to start with the submission of Call Report data for Sept. 30. For more information, visit www.FFIEC.gov/find. P.O. Box 442 St. Louis, Mo. 63166 Editor: Alice C. Dames (314) 444-8593 alice.c.dames@stls.frb.org Central Banker is published quarterly by the Public Affairs Department of the Federal Reserve Bank of St. Louis. Views expressed are not necessarily official opinions of the Federal Reserve System or the Federal Reserve Bank of St. Louis. FIRST-CLASS US POSTAGE PAID PERMIT NO 444 ST LOUIS, MO UPCOMING FED-SPONSORED EVENTS FOR EIGHTH DISTRICT DEPOSITORY INSTITUTIONS CalendarEvents Global Pressures on Local Autonomy: Challenges to Urban Planning for Sustainability and Development Louisville Sept. 4-8 The International Urban Planning and Environment Association’s sixth interna- tional symposium, which is co-sponsored by the Federal Reserve Bank of St. Louis and the Center for Environmental Policy and Management at the University of Louisville. For more information, visit www.stlouisfed.org/community/ conferences.html or www.cepm. louisville.edu. Brownfields 2004: Gateway to Revitalization St. Louis Sept. 20-22 An annual event co-sponsored by the Environmental Protection Agency and the International City/County Manage- ment Association. The conference will feature interactive discussions, educational presentations and opportunities to net- work with business, government and nonprofit organizations working in brownfield redevelopment. For more information, visit www.stlouisfed.org/ community/conferences.html or www.brownfields2004.org. FedFacts The following is a Federal Reserve System proposal currently out for comment: On April 21, the Board of Governors requested public comment on proposed revisions to Part II of its Policy Statement on Payments System Risk, which addresses risk management for payments and securi- ties settlement systems. The proposed revisions update the policy in light of current industry and supervisory risk management approaches and new international risk management standards for payments and securities settlement sys- tems. In addition, the proposed revisions provide further clarification regarding the policy's objectives, scope and application. Direct all comments to: Jennifer Johnson, secretary, Board of Governors of the Federal Reserve System, 20th St. and Constitution Ave., N.W., Washington, D.C. 20551. Comments are due by July 26, 2004. For more information about this pro- posal, visit www.federalreserve.gov/ boarddocs/press/bcreg/2004/ 20040421/default.htm. Out Comment for
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