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Central Banker - Winter 2002

Central Banker - Winter 2002

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Published by: Federal Reserve Bank of St. Louis on Aug 13, 2010
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Bank Examinations Furtherthe Goal of Market Trust
Servingthe Unbankedthrough Tax Assistance
U.S. Treasury BreaksNew Ground withElectronic Payments
Regional Roundup
ED Reviews are in— Two Thumbs Up!
Deposit InsuranceReform: Is It DéjàVu All Over Again?
uring the last half of 2002, severalinnovative services became available onFedLine
for the Web:
DTF Archive:
In November, the Fed imple-mented the Documents-To-Follow (DTF) Archive.The DTF Archive is an electronic adjustmentsdatabase containing images of documents suchas checks. Now, adjustment cases and all sup-porting documentation are stored in one loca-tion. In addition to facilitating adjustment research and resolution process online, the DTFArchive also gives web customers online accessto 12 months of historical adjustment activity.
Information Services:
Introduced earlier this fall, FedACH Informa-tion Services enables institutions to track,research and account for their FedACH activ-ity via the web. This service encompassesthe information-gathering functions availableon DOS-based FedLine but with greaterfunctionality and flexibility. Navigation isimproved, data are easier to find and infor-mation is accessible to more customers.
This fall,FedImage Services, a product suite that provides institutions with a total imagemanagement solution, became availablein Louisville and Little Rock. In 2003, Fed-Image services will be rolled out in St. Louisand Memphis.For more information on these services orFedLine for the Web, contact your account executive or visit www.frbservices.org.
“FedLine” is a registered trademark of the Federal Reserve banks.“FedACH” and “FedImage” are service marks of the Federal Reserve banks.
System Introduces Several New FedLine Services
he board of directors of the Eighth FederalReserve District has named Julie L. Stackhouse assenior vice president of the Bank Supervision & Reg-ulation (BS&R) Division. Stackhouse has almost twodecades of experience with the Federal Reserve. Shearrived in St. Louis on Oct. 1. She replaces JoanCronin, who retired in July.In 1980, Stackhouse graduated summa cum laudefrom Drake University with a bachelor of sciencedegree. She joined the Kansas City Fed as an exam-iner and quickly rose up the ranks. By 1989, she waspromoted to vice president in BS&R.Stackhouse left the Kansas City Fed in 1995 andmoved to Minnesota, where she spent five years rais-ing her two children. During this period, she helda variety of volunteer positions, including:• chairing the local Economic DevelopmentCommission,• serving as a board member of the Arts andHumanities Council, and• leading her children’s scout troops.In 2000, Stackhouse rejoined the Fed serving as avice president in Minneapolis. Her responsibilitiesincluded managing the discount window, paymentssystem risk, statistical reporting and the communityaffairs sections of BS&R. Other responsibilitiesincluded serving as the Ninth District’s representativeon the Fed’s subcommittee on credit, reserves andrisk management.Stackhouse plans to continue her volunteer workin St. Louis. Her interests include working with theemerging immigrant populations and promotingfinancial literacy. In the Feditorial (see page 2), readwhat Stackhouse has to say about corporate responsi-bility and the role the Fed plays in maintaining a sta-ble banking system and the public’s trust.
The St. Louis Fed WelcomesJulie L. Stackhouse
News and Views for Eighth District Bankers
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By Julie L. Stackhouse, Senior Vice President, Banking Supervision and Regulation
Corporate Governance and Bank ExaminationsFurther the Goal of Market Trust 
he Earned Income Tax Credit(EITC) is a refundable federaltax credit that helps low-incomeworkers increase their financial sta-bility. Its goal is to reduce taxes for workers, supplement wages, makework more attractive than welfareand encourage the unbanked toopen savings accounts.The credit can be as high as$4,008. To qualify, taxpayers musthave an income of less than:• $10,710–no children,• $28,281–one qualifying child, or • $32,121–more than one quali-fying child.The General Accounting Officeestimates 25 percent of the taxcredit dollars owed to workingfamilies go unclaimed every year.In the Eighth District, the InternalRevenue Service estimates that anadditional 10 to 20 percent of eligi-ble taxpayers do not file for EITCrefunds because they either do notknow about the credit or how tofile for the refund. To reverse thistrend, the IRS is actively assistingorganizations that wish to establishVolunteer Income Tax Assistance(VITA) sites.VITA sites, which are staffed pri-marily by volunteers, assist low-income workers by helping themprepare and file their tax returnsfor free. This ensures that eligibleworkers receive their EITCs alongwith other federal and state taxcredits. VITA also can be used toconnect low-income families toasset-building opportunities and tohelp them avoid predatory lenders.In Louisville, the Louisville AssetBuilding Coalition created eightneighborhood-based VITA sitesduring the 2002 tax-filing season.Similar initiatives have started inMemphis, St. Louis and Arkadel-phia, Ark. More informationabout this program can be foundin the Autumn issue of Bridges,www.stlouisfed.org/publications/br/2002/c/pages/4-article.html.
Serving the Unbanked through Tax Assistance
orporate responsibility” and “corporategovernance” are relatively new terms that havebecome quite popular following the sudden collapse of Enron. Stockholders, the general public and govern-ment officials were outraged by Enron’s collapse andthe wave of corporate accounting scandals that quicklyfollowed. The ensuing national debate resulted in theenactment of the Sarbanes-Oxley (Corporate Respon-sibility Reform) Act on July 30, 2002.As we have seen, weak corporate governance canresult from many factors, including a lack of accountingtransparency and substantial overreliance by boards of directors on the decisions of management. Historically,investors have depended on the diligence of outsideauditors to independently verify the financial positionof the firm and temper such risks. As the collapse of Enron illustrates, however, conflicts of interest
withinauditing firms can disable safeguards and, in turn,weaken business practices and threaten investor trust.Currently, more than 20 corporations are under investigation for corporate-accounting scandals. Yet,the number of publicly traded commercial banksfacing such scandals has been small. Why? No oneknows for sure, but one difference is clear: Commer-cial banks are subject to an extra layer of independentoversight because of the bank examination process.Through the risk-focused examination process, bankexaminers complement the function of independentauditors. Bank examiners:• test the oversight of boards of directors and senior management;• assess the adequacy of policies, proceduresand limits;• confirm the existence of adequate risk, measure-ment, monitoring and management information sys-tems; and• verify the existence of comprehensive and effectiveinternal controls.Bank examiners also operate under a strict code of ethics and do not engage in consulting activities withthe banks they supervise. As a result, there are noconflicts of interest, and a bank examiner truly canoffer an independent assessment of a bank’s risks.Regulators are responsible for furthering the stabil-ity of the banking system. Effective corporate gov-ernance and oversight by bank supervisory agenciessupport this objective by encouraging safe and soundbanking practices. This, in turn, helps to build andmaintain the public’s trust.
The important conflicts of interest are not really between management and auditors, but inside the auditing firms themselves.
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he U.S. Treasury isworking aggressivelyto convert its checks toelectronic payments, suchas ACH. Not only doesthe Treasury save morethan 50 cents on eachpayment converted fromcheck to ACH, therecipient and the payer also benefit from theimproved speed, conve-nience and safety of anelectronic payment.Currently, the TreasurysFinancial ManagementService (FMS)—the division that issues and collects fed-eral government payments—has several initiatives under way that will influence how some financial institutionsreceive and submit federal government payments:
 Electronic Tax Payments
 –Several years ago, theTreasury introduced the Electronic Federal Tax PaymentSystem (EFTPS), a free, convenient service that allowsbusinesses and individuals to pay all of their federal taxesvia PC-software or a voice-response system. Last year,the Treasury also introduced EFTPS-OnLine, whichallows businesses and individuals to enroll, schedule andmake payments, print payment receipts, view paymenthistory and cancel payments through the Internet.Currently, the Treasury requires businesses with anannual federal tax liability of $200,000 or more touse EFTPS; however, businesses of all sizes and manyindividuals often choose EFTPS because of its superior convenience over paper-based alternatives. Manyinstitutions are actively offering EFTPS to their busi-ness customers as a way to decrease the amount of paper-based federal tax coupons they process. Thismove has been very successful. During the Treasurys2001 fiscal year, businesses and individuals made morethan 61 million tax payments worth $1.5 trillionthrough EFTPS.
 –Individuals and companies use Pay.gov as ane-commerce Internet portal to government agencies,with a primary focus on payment transactions to thegovernment. From June 2001 through August 2002,more than $1.7 trillion was collected on 53,000 transac-tions through Pay.gov.Pay.gov offers several payment alternatives, such as:• ACH debits or credits,• credit cards and• Fedwire
Paper Check Conversion
 –Designed to facilitatea more efficient and reliable collection method, thepaper check conversion process converts paper checkspresented at government locations to ACH debits.More specifically, check conversion technology entails:• scanning a paper check;• capturing the financialinstitution and accountinformation; then• converting that pay-ment to an electronictransaction.During the Treasury’sfiscal year that endedSept. 30, 105,000 checkstotaling $51.8 millionwere collected throughthe paper checkconversion.
Direct Deposit
 –Fromthe beginning, the Treasury has been a leading advo-cate of direct deposit, and the Treasury continues topromote this service to individuals receiving federalpayments. During its 2001 fiscal year, the Treasurydisbursed 71 percent of its 947 million paymentselectronically, up from 50 percent during the 1995fiscal year.Federal benefit payments account for 81 percentof all federal payments, with Social Security Adminis-tration (SSA) and Supplemental Security Income(SSI) payments accounting for the majority of thesebenefit payments. While 78.5 percent of SSA and49.7 percent of SSI payments are made electronically,the largest volume of payments still made throughpaper check consists of federal benefit payments andtax refunds.
 –Through its research, the Treasury found that asignificant portion of federal benefit recipients do nothave a bank account even though they receive their benefits via check. To encourage these recipients toopen bank accounts and receive electronic payments,the Treasury developed its low-cost Electronic Trans-fer Account (ETA). Anyone who receives a federalbenefit, wage, salary or retirement payment now canopen an ETA.ETAs are offered through a network of financialinstitutions nationwide, referred to as ETA providers.Some basic features—such as the $3 maximummonthly charge—are standard, regardless of the ETAprovider chosen. To compensate for this price ceil-ing, the Treasury reimburses ETA providers $12.60for each ETA they open.These initiatives demonstrate the Treasury’s commit-ment to reaching its goal of 100 percent electronic col-lections and disbursements. To learn more about ways your institution can actively participate in these elec-tronic services, please visit these web sites:• FMS, www.fms.treas.gov/• EFTPS, www.eftps.gov/• ETA, www.eta-find.gov/
U.S. Treasury Breaks New Ground with Electronic Payments

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