Mention "the Fed," and most folks would think vaguely of credit-tightening and money supplies by an otherwise anonymous entity embodied by chairman Paul A. Volcker.
Even the six other members of the Federal Reserve System's Board of Governors are largely unknown.
The dozen Federal Reserve district banks -- such as the one here -- rarely make the news. They operate largely in a public vacuum, although scattered from Boston to San Francisco.
Richmond and the other banks perform a wide variety of services for the nation's commercial banks and, under the terms of this year's banking reform legislation, will do the same for most other financial institutions, such as savings and loan associations and credit unions.
These services range from check processing ($620 billion worth handled in the first nine months of 1980) and the electronic transfer of funds among banks to providing currency and safekeeping of banks' securities.
In addition, the Fed banks have a large enough role in making monetary policy for the nation that Rep. Henry S. Reuss (D-Wis.), chairman of the House Banking Committee, wants to take it away from them.
Reuss, who for years has complained the district banks are under the thumb of the bankers they are supposed to oversee, says the banks perform no function that could not be handled better directly by the Board of Governors in Washington, and he has introduced legislation to abolish the Fed banks.
In fact, Robert Black, president of the Richmond Fed, regards his duties on the Federal Open Market Committee -- the group that officially establishes monetary policy for the Federal Reserve -- as "my most important job." (Reuss, as part of his attack on the district banks, also would abolish the FOMC.)
Their role in making monetary policy also is the single function in which the district banks are entirely free of control by the Board of Governors. While increasing amounts of authority to approve a number of routine applications -- such as whether a bank can open a new drive-in window -- are being delegated by the board to the district banks, the board so far has not given them the power to deny any request. If the district bank wants to deny an application, it must be bucked to Washington. The same is true if an application involves a very large bank, no matter whether the district Fed bank would okay it. Even the district banks' budget must be approved in Washington.
Things didn't used to be this way. Until the early 1930s, the district banks, if anything, had more power than the board in Washington. The heads of the 12 banks were known as "governor," and only the chairman of the board in Washington had the same title. The other board members were known just that way.
The board, however, won a struggle for power with the district banks that culminated with the Banking Act of 1935. In that law, the name of the Federal Reserve Board was changed to the Board of Governors of the Federal Reserve System, so the title "governor," which was symbolic of power in the system, went to all the board members. The heads of the district banks were rendered mere "presidents."
Today the seven governors are always on the FOMC, as is the president of the New York Fed, whose bank actually carries out the buying and selling of government securities to achieve the monetary policy goals set by the committee. The other four FOMC seats rotate annually among the district bank presidents on a regional basis.
Richmond's Black, for instance, was a member of the FOMC last year. He rotated off the committee in March, but like the other six bank presidents off the FOMC at the moment, he is expected to attend each meeting, express his views and make recommendations on policy. In other words, he does everything but vote.
There is also the matter of the "Red Book."
Each of the district Federal Reserve banks has its own board of directors whose members are chosen generally as representatives of the banks served by the Fed, of borrowers who deal with those banks and of the public. The district banks also have branches -- the Richmond bank has branches in Baltimore and Charlotte -- that have their own directors as well.
Before each of the FOMC meetings, all of these directors, and perhaps other people, are asked about economic conditions in their areas and in the industries with which they are familiar. These comments are passed on to the Fed staff in Washington and compiled into the "Red Book," which is circulated to all members of the FOMC before its meeting.
These comments are "straws in the wind" about changes in the economy often weeks in advance of when government statistics otherwise would first signal a shift, Black said recently. He was being interviewed in his office on the top floor of the Richmond bank's new building, located on the site of a former railroad yard close to the edge of the James River.
Black, an economist, spends much of his time focusing on the national and international economic trends he must understand as part of his FOMC responsibilities. But this year, as a result of the Banking Reform Act, he and the Richmond Fed, like other district banks, are for the first time becoming involved in the affairs of other financial institutions.
All across the district -- which covers Maryland, the District of Columbia, Virginia, North Carolina, South Carolina and all of West Virginia (except six counties in the vicinity of Wheeling, which are in the Cleveland district) -- officials from the Richmond bank have been explaining the act's requirements.
Until now, only commercial banks that were members of the Federal Reserve System were required to set aside a portion of their deposits in noninterest-bearing accounts at Fed district banks. These deposits, known as reserves, help assure a bank's solvency. By affecting their level, the Federal Reserve can influence interest rates, the ability of banks to lend money to the public and ultimately growth of the money supply.
Under the reform act, all financial institutions except the very smallest will have to establish reserve accounts with the Fed during the next several years. In return, the institutions will have access to all the Fed's services, including the right to borrow indirectly from it.
The S&L's particularly have been skeptical about the coming changes, Black said in an interview here. "They thought we would be another supervisory agency, and we had to convince them we would not. They will have to report their deposits and provide the required reserves, which most of them in the beginning will be able to meet with their vault cash."
The S&Ls will have to decide how to reclassify their deposits as personal and nonpersonal, since the reserve requirements vary for each.
Meanwhile, the Fed banks will have to begin to set a price for each of those services, all of which have been free to member banks in the past. In January, institutions will begin to pay for wire transfers of funds, for instance. (The headquarters for the Fed's electronic network is in a supposedly bomb-proof facility at Culpeper, Va., known as "the switch," where Fed records and a multibillion-dollar emergency supply of currency also is stored.)
In April, the Richmond Fed will begin to charge for processing checks at its regional check-processing centers in Baltimore; Richmond; Charlotte, N.C.; Columbia, S.C.; and Charleston, W.Va. In July, customers will begin to pay for transportation of currency and in October for all other services, such as the purchase, sale and safekeeping of government securities.
Setting the prices, in some cases, won't be easy, Black said. "In West Virginia," he explained, "check clearing will cost more because we have to sort the checks for every bank in the state." There, under state laws, banks cannot have branches unless they are directly connected to its main office. At the other extreme, North Carolina and Maryland permit statewide branching. With any bank allowed to have no more than two offices to which checks can be sent, check sorting in North Carolina or Maryland is a far simpler job than in West Virginia.
Black expects the pricing of services to encourage many banks and groups of banks and other institutions to begin to provide their own services rather than to continue using the Fed's. In Washington, Baltimore, Charlotte and Richmond, banks already operate their own check clearinghouses to exchange checks among themselves. And in Northern Virginia, 10 large banks, spearheaded by the First American Bank in McLean, are in the final stages of organizing their own clearinghouse.
On several occasions, D.C. bankers and city officials have tried to persuade Richmond to open another Federal Reserve branch bank in the Federal City. Each time Richmond has said no. "It just didn't make sense to us to have a branch there and in Baltimore and the bank here," Black said.
Instead, Richmond has tried to see to it that Washington banks get services just as good as those in Baltimore, or perhaps even better. For instance, because of the huge volume of federal checks cashed in D.C., the Fed persuaded the Treasury Department to allow the banks to bring them to a central drop point, the Riggs National Bank branch on Ninth Street NW, by 4 p.m. for forwarding to the Treasury. The banks get credit for checks the same day.
Other checks reaching a pickup vehicle in Washington by 12:01 a.m. are processed by the Fed's Baltimore regional check processing center that same night. Very large checks are handled even later at night.
The last disadvantage for Washington banks, according to Black, was in the handling of disbursements drawn against federal government letters of credit, say, in a grant program of some type. An extra one-day delay experienced in D.C. has been eliminated, he said.
As of the end of September, the Richmond Fed had 720 banks, with 5,572 offices, under its jurisdiction. Eighteen of the banks were in the District of Columbia, 102 in Maryland and 231 in Virginia. To provide services to these banks, and to staff "the switch" in Culpeper, the bank had 2,033 employes, nearly half of whom work in Richmond.
The Richmond bank is unique in two respects. It is the only Federal Reserve district bank that has never gone outside its own ranks in choosing a president. And it has in Maceo A. Sloan of Durham, N.C., the only black chairman of the board.
Sloan is executive vice president and chief operating officer of North Carolina Mutual Life Insurance Co., the largest black-managed financial corporation in the country.Like all the board chairmen and vice chairmen of the Fed district banks, Sloan was appointed by the Fed governors in Washington. (The governors also must approve the directors' choice as president of a bank, as they did in Black's case.)
Among the other Richmond directors are Paul E. Reichardt, chairman of Washington Gas Light Co.; Paul G. Miller, chairman of Commercial Credit Co. in Baltimore; and Steven Muller, president of Johns Hopkins University.
For all the ways the reins of Fed authority still are held in Washington, Black said the board of governors "has been making good progress" in delegating power to the district banks.
For instance, when a supervisory case is bucked to Washington because it involves a question of unsettled policy, a big bank or a request the district bank wants to deny, it carries with it a recommendation and a detailed analysis. Should the Fed staff in Washington, after reviewing the case, have a different recommendation, both analyses and conclusions would be put before the board. In major cases, a representative from Richmond probably would be asked to appear to support the bank's position, a Fed official in Washington said.
"It's a nice working relationship," Black declared. CAPTION: Picture 1, The Richmond Federal Reserve Building; Pictures 2 through 4, Doris Bibbs tends a bill sorting machine, which stacks and wraps $10 bills. The sorter also shreds unacceptable bills. Photos by Melissa Grimes for The Washington Post