tems (OAIS) was approved, indicative of the growing importance of computer operations at the Bureau. The OAIS included the Division of ADP Management, and the Data Processing Branch from the Division of Administrative Services, Office of Administration. The purpose of OAIS was to give the Bureau better capability in improving the automation of office activities, administering data, planning for long-range applications of ADP and enhancing the electronic communications that existed between the Bureau and the Federal Reserve Banks. The new office also carried with it a new position of Assistant Commissioner. 8 The first major project undertaken by the OAIS was planning the acquisition of a new computer for the Bureau's own operations, as future systems could not be maintained on the Bureau's Univac 1110 computer. Additional upgrading of the Univac was deemed impractical because its operating system was obsolete and could not use more up-to-date hardware and software components. An important aspect of future computer information needs was the desire to have on-line access to both the computer system at the Bureau and the one that linked together the Federal Reserve System. Under the old system, the transaction and accounting data pertaining to the public debt, which was almost all of such information, was handled by telephone, on paper, on punched cards or submitted by magnetic tape. The data often had to be reworked to be entered in the Bureau's system. 9 Project NEW The new system, named Project NEW (Nineteen-Ninety Electronic Workplace), also entailed a great deal of automation in the Bureau's offices. With its on-line capability giving users direct access to information, the new system would speed up inquiries as workers would no longer have to wait for the result of inquiries done with batches of computer punch cards. The correction of errors directly would also be possible, and there would be a drastic reduction in the amount of paper work that employees would have to handle. 10 8 Bureau of the Public Debt, Establishment of New Bureau Office, (Washington, D.C.: October 15, 1984), Memo located in BPD files. 9 Bureau of the Public Debt, Project NEW: Requirements Analysis, (Washington, D.C.: No date), ii, located in BPD files. 10 Division of ADP Management, Project NEW, (Washington, D.C.: August 10, 1984), Study located in BPD files. On July 17, 1986, the new computer, an IBM mainframe, was installed. During the testing of the new system and the phase-in of its operations, the Bureau would actually operate two systems. As part of the plan implementing the system, Bureau personnel were given training on similar systems at the Federal Reserve Banks of Chicago, Richmond, and Cleveland. Thus, they were well prepared to handle the transition to the new system, as well as to meet the challenge of hooking up the new system to the one maintained by the Federal Reserve Banks. 11 The 1980s were a very busy time for ADP at the Bureau. In addition to improvements in internal operations, the Bureau also sought to find better ways to serve the large number of investors who had been drawn into the government securities market. In culmination of a trend that had been going on for over a decade, wherein definitive securities were being eliminated and replaced by book-entry accounts, it was decided to apply computer technology to the automation of all accounts held by the Bureau for the investing public. TREASURY DIRECT When increased sales of Treasury securities began in the late 1960s, a movement to convert those securities to book-entry form was started. The movement was fueled by an increase in the recordkeeping ("backroom") problems in the financial industry, including thefts of substantial amounts of bearer securities, which prompted the Association of Primary Dealers in U.S. Government Securities to urge expansion of the book-entry system, which was being operated for depository institutions by the Federal Reserve Banks. By 1973 book-entry procedures had been extended to include all customers of member banks of the Federal Reserve System. In 1976 plans were in place for the elimination of all definitive securities and their replacement by book-entry form; the plan also called for a small book-entry system to be created at the Treasury to serve investors who would hold their securities to maturity. 12 It should be noted that a book-entry system does not require computer technology to function; a book-entry system with manual entry could have been implemented at any time in the Treasury's 11 12 John Englund, "New Computer Installed", PD News, October 1986, 8. history, but it is doubtful that purchasers of Treasury securities would have gained any services from such a conversion. The merging of a book-entry system with computer technology would enable investors to gain better service, because the automated system would permit the use of the network of electronic fund transfer (EFT). Electronic Fund Transfer EFT in commercial form is as old as the telephone and telegraph. In the public sector of banking, the Federal Reserve set up the first Morse code wire transfer network for transfer of funds among reserve accounts of its member banks in 1918. As long as the technology remained telegraphic, however, the costs of EFT remained high. By the 1960s, improvement in computers and in telecommunications made the costs of EFT low enough to permit its use by nearly all consumers. 13 The first major component of EFT in the financial community was the creation of automated clearing houses wherein banks could handle check clearing transfers by use of data tapes. The first such system was organized starting in 1968 by the Los Angeles and San Francisco Clearing House Associations. By 1974 automated clearing houses were operated in San Francisco, Los Angeles, Minneapolis, Atlanta, and Boston, and a National Automated Clearing House Association was formed. By the mid 1980s, about 50 automated clearing houses were in operation, with the Federal Reserve serving as the central agency for the national transfer of data. 14 The Federal government had also been a long-time user of EFT, although initially on a small scale. In the 1920s, Treasury securities were made transferable by telegraph within the Federal Reserve System, but all transfers required the specific approval of the Commissioner of the Public Debt and had to be delivered by hand between the Federal Reserve Bank office and the bank that had ordered the transfer. 15 Large sales of savings bonds by some 13 "Developments in Consumer Electronic Fund Transfers", Federal Reserve Bulletin, June 1983, 395. 14 August Bequai, The Cashless Society: EFTS At the Crossroads, (New York: John Wiley & Sons, 1981), 28-30. 15 Bureau of the Public Debt, "TREASURY DIRECT", PD News, Special Edition, September 1986. government agencies were being reported on tape to the Bureau in the early 1960s. In April 1974, the Treasury and the Social Security Administration started up a direct deposit system for recipients of social security checks; the U.S. Air Force followed in November of the same year with its own direct deposit program. 16 In December 1982, 18 million of the 49 million payments of salaries and benefits made by the Federal government were made by EFT-representing a respectable 36 percent. 17 A big advantage of EFT over paper transactions is its lower cost. In 1979 the Federal Reserve estimated that it cost the banking system about $.50 per check to operate its check-clearing mechanism. EFT had the potential to bring that cost down. For example, a Treasurysponsored study conducted in 1981 showed that social security checks disbursed by mail cost about $.59 each to process, while direct deposit processing reduced that cost to $.07 per payment. As long as these savings were passed on to consumers, they should be willing to make greater use of EFT. 18 In addition, consumers would receive better servicing, and faster availability of funds in their accounts. Given this background, the development of a system of electronic transfer for Treasury Securities seemed an obvious step. In fact the development of the system was made difficult for several years by just the sort of problem it would help to resolve. The large volume of sales of Treasury securities in the early 1980s so strained the resources at the Bureau that it took until 1983 when a plan was approved for the development of the system of automated handling of transactions in Treasury securities. The system eventually was named "TREASURY DIRECT" and was implemented through the combined efforts of the Bureau of the Public Debt and the Federal Reserve Bank of Philadelphia. 19 Implementing TREASURY DIRECT The TREASURY DIRECT system was designed to replace two investor account systems at the Treasury and to integrate with a third 16 Bequai, EFTS, 1981, 15. 17 18 "Developments in Consumer EFT", Fed Reserve Bulletin, 6/83, 396. 19 Bureau of the Public Debt, "TREASURY DIRECT", PD News, Special Edition, Spring 1986. system maintained by the Federal Reserve. At this time, the Treasury was maintaining a Selective Automation System for bills and a Registered Accounts System for notes and bonds. As the new system came into operation, both of these older systems would be phased out, although all registered securities in definitive form could not be eliminated until the year 2015. 20 The overall intent behind the TREASURY DIRECT system was to service investors who bought securities directly from the Treasury and wanted their accounts maintained by the Treasury. These investors would primarily hold their securities until maturity. For investors who purchased government securities in the secondary government securities market from a dealer, especially with the idea of reselling that security before it matured, the Federal Reserve maintained a separate commercial book-entry system, so called because it served mainly institutional investors or accounts with commercial banks. Transfer of securities between the Federal Reserve's commercial system and the Treasury's two systems had previously been possible, but cumbersome. After the implementation of TREASURY DIRECT, this process, which had taken up to three days, could take place in a few minutes. 21 While the commercial book-entry system would handle a large volume of sales in terms of dollars, TREASURY DIRECT would involve most of the accounts. Maintenance of accounts in both systems was also possible. The main feature of the new system was that it would set up a central file of information that could be reached through the Treasury or from any Federal Reserve Bank or Branch. The accounts for all investors choosing to use TREASURY DIRECT would be maintained on a single computer at the Philadelphia Federal Reserve Bank, with the Bureau and all Federal Reserve Banks and Branches being connected to that computer by a nation-wide telecommunications network. 22 Design of the TREASURY DIRECT system was extremely complicated, as it involved the integration of over 500 computer software programs. The actual development required the formation of a 20-member project team selected from employees of the Philadelphia Reserve Bank under the leadership of Ed Coia, Assistant Vice 20 BPD, "What is This Thing", PD News, Fall 1984, 8. 21 Bureau of the Public Debt, "TDAB Breaks New Ground in Automated Data Processing to Save Treasury Millions", PD News, July 1985, 3. 22 BPD, "What is This Thing", PD News, 8. |