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1993 A 1 I A I I JTessage from the President 7 he 1993 annual I would like to express my appre- report of the ciation to all of the Sixth District’s direc- Federal Reserve tors for their valuable counsel throughout Bank of Atlanta the year. In particular, I want to acknowl- features some of our accomplishments edge those directors whose service ended for the year along with the consolidated in 1993-Simpson Russell, who served on financial statements of the Atlanta, the head office board; Merle L. Graser Birmingham, Jacksonville, Miami, and Hugh H. Jones, Jr., of the Jack- M Nashville, and New Orleans offices. The sonville board; and James R. TuerfT, who d names of all directors and officers who was chairman of the Nashville board. served the Sixth District during the past year are listed as well. In addition to the review of the Q) Q) My special thanks go to outgoing Chairman of the Atlanta Board of Direc- year’s developments, this report includes tors Edwin A. Huston, who a discussion of measures of economic served for two years in performance, particularly as they relate that position and two years to the ultimate goal of economic policy- as deputy chairman. I also well-being. Output measures like gross wish to recognize E.B. domestic product and employment pro- Robinson, Jr., who ended vide valuable information but do not tell his three-year tenure as a the whole story. The essay reviews some member of the Federal of the recent attempts to bring measures Advisory Council and who of economic well-being more explicitly previously served six years into the policy debate and explores the as a head office director. I problem confronting policymakers who must attempt to shape policies that fos- ter well-being in the absence of definitive measurements. http://fraser.stlouisfed.org/ C Federal Reserve Bank of St. Louis Robert P. Forrestal President and Chief Executive Officer 1 Y n Pursuit of Economic Well-Being: The Ultimate Policy Goal In Search of a Measure By Robert P. Forrestal .le year 1993 was a good one for many areas of the world, judging by several widely used measures of economic performance. In the United States gross domestic product (GDP) expanded by nearly 3 percent. The inflation rate, as measured by the consumer price index, declined from 3.1 percent in 1992 to 2.7 percent in 1993. Likewise, certain foreign economies, particularly those in Latin America, which only a few years ago had languished, enjoyed another year of healthy GDP growth while inflation remained much lower than had been the case in most of the 1980s. The Sixth Federal Reserve District, which encompasses Alabama, Georgia, Florida, and parts of Louisiana, Mississippi, and Tennessee, also . ,,I had a good year, judging by employment statistics. Job growth outpaced that in the nation by a margin of 1 percentage point, with Georgia and Florida-the states in terms of population-doing particularly well. two largest Despite this apparent good news on many fronts, there are other ways of looking at things-other standards of performance that can lead to different conclusions. Last August, for example, the U S . government announced revised GDP figures for the period from 1990 t o 1992. The new numbers showed that the economy grew more in 1990 and 1992 than previously reported and that the recession was not as deep in 1991. On the same day the government unveiled these figures, the results of a nationwide survey showed that consumer confidence stood at a low and depressed level. Even now that U S . economic growth seems quite strong, various troubling Y to CD w questions persist. Is this GDP growth enabling people to enjoy longer and healthier lives? Do individuals and families have time t o enjoy the increased material goods they can purchase? In the Southeast, the good news about fast-growing states like Georgia is diminished by concerns about the persistence of poverty and the low levels of many quality-of-life indicators-statistics showing high infant mortality rates, poor achieve- ment test results coupled with a higher-than-national-average percentage of high school dropouts, and the extensive degree to which state residents are dependent on government transfer payments as a source of income. In certain developing economies, such questions revolve around the environment. Is fast-paced growth resulting in significant pollution? Is industrialization being accompanied by such rapid urbanization that public health is actually deteriorating? The statistics, particularly GDP and employment, that seem to embody good news right now are essentially output measures-that is, measures of what economies produce. Questions that raise other concerns about the meaning of such data center on the concept of well-being, or what economists term welfare. Because many policy objectives are specified in terms of output measures, economic policymakers such a s legislators, cen- tral bankers, and state governors often seem preoccupied with production data. The Federal Reserve, for example, informs Congress twice a year oj its forecasts for GDP, inflation, and employment a s a means of ensuring I that monetary policy is accountable to voters’ elected representatives. State budgets are typically predicated on forecasts of overall economic activity for the coming year. 1 Despite this seeming bias toward output measures, in fact the ultimate concern of policymakers is with well-being; economic policy’s fundamental purpose is to improve social welfare. Well-being is a n intrinsically subjective concept, however, and does not readily lend itself to measurement and aggregation. We remain dependent on the fact that the concepts of income and, by extension, output, are logically connected to wellbeing and that these types of data can provide insights beyond their literal significance. Income is related to welfare in the sense that the more income individuals (or societies) have, the greater their ability to purchase whatever makes them happy. In turn, output is related to income because the value of whatever is produced is equivalent to its purchase price, reflecting the income available to purchase it. This understanding of how well-being, income, and output are related is helpful. It is also important that the measures of output we have available are good ones that have been developed over a n extended period. For gauging overall economic output, we have progressed from depending on narrow indicators of banking and industrial activity to having today’s comprehensive national income and products accounts. It is still not easy to measure income, but its conceptual linkage to output is well specified in a n accounting sense. As helpful a s it is, this relationship between output, income, and well-being does not hold a t every point in time, and even output measures are not perfect. Policymakers must nonetheless rely on the existing measures, incorporating their value while recognizing their limitations and pursuing improvements and alternative ways to approach the concept of well-being. This essay explores the problem of shaping policies that foster well-being in the absence of definitive measurements and reviews some recent attempts to bring measures of economic well-being more explicitly into the policy debate. Output, Income, and Well-being Economics as a discipline has traditionally recognized the importance of wellbeing and the difficulty of measuring i t - e i t h e r in individuals or society as a whole. At the individual level, economists know that preferences vary. Some people will be happiest spending $100 of income on tickets to a football game; others, on a classical music concert. At the regional level, Atlanta may enjoy much more rapid growth than the rest of Georgia, but that very fact may render life in a small South Georgia town preferable to those who value the pleasures of rural scenery, long-time neighbors, a short commute to and from work, and stability in general. Of course, differences in personal preferences can be dealt with a t the conceptual level by assuming that two individuals will choose what makes them happiest given equal increases in income. This assumption justifies policy measures that are likely to enhance income and, in turn, output. Over the long term there is a close correlation between output measures like GDP and others like employment and personal income. Indeed, in a n accounting sense, national income equals a nation’s total output of goods and services consumed domestically (that is, not by foreigners through exports). In turn, of course, as job growth creates the opportunity for higher incomes, people, on average, are in a better economic position to obtain the things that enhance their sense of well-being. What they obtain need not be solely material but can range from purely physiological needs like a better diet, roomier and safer living quarters, and nicer clothes to “higher” needs like a sense of community and opportunities for entertainment and intellectual stimulation that give a sense of self-esteem and self-actualization. However, as noted earlier, these relationships between output, income, and well-being do not always hold, especially in the short run. For instance, following natural disasters, such as a hurricane or a n earthquake, GDP usually expands because of the rebuilding needed. However, this GDP growth hardly captures the devastation wrought on the lives of those affected by the hurricane or earthquake. Statistics on wealth and the capital stock can gauge the extent of loss that has occurred in dollar terms. Even so, the psychic costs are immeasurable. It is ironic that efforts to restore individuals’ sense of well-being to what it was earlier-through counseling and therapy, for instance-are recorded as increases in output measures. Consider also that in the Unit- Economics a s a discipline has traditionally recognized the imporfunce of wellbeing and the difficulty of measuring ; w i t h e r in individuals or society a s a ed States over the past twenty years, output has increased thanks in part to the fact that more people, particularly women, have been entering the labor force. In turn, two-wage-earner families have higher incomes and have been creating increased demand for services out of the home. These data tell only part of the story, however. One cannot infer from the increase in gross domestic output whether, for example, the second wage-earner began work outside the home out of choice or the necessity to support a family. Women who have entered the work force may have larger homes and more possessions but much less time to enjoy them. On the other hand, they may experience more freedom of action and a greater sense of self-fulfillment by participating in the workplace. Because of the myriad complexities and variables, it would simply be inaccurate to use GDP-or measures-as income and employment the basis for concluding t h a t social well-being has been either harmed or enhanced as a result of this change in the participation of females in the labor force. Moreover, this issue illustrates the fact that GDP has certain shortcomings as a n output measure. For example, GDP does not assign any value to the work done (primarily) by women in the home-child-rearing, cleaning, cooking, and so forth. Only when these activities take place outside the home and are accompanied by formal transactions-fees for services-do they become part of GDP, yet these activities obviously have economic value. Such criticisms of GDP need to be kept in perspective, however. As a n output measure, GDP has the purpose of measuring overall economic activity, and it does so far more effectively than its predecessors. For example, before a precise formulation of GDP and other national income and product accounts was developed in the 1920s and 1930s, a widely used overall gauge of business activity was bank debits. This measure logged all bank withdrawals and because of, for example, double-counting, it was clearly a much less refined view of what was going on in a n economy. Other measures focused on key sectors like freight car loadings and pig iron production, but these were much narrower in scope than today’s standard output measures. Just how far we have come in effectively measuring overall economic activity can be seen if we compare GDP statistics in the United States and Europe with those in the former communist countries. These countries are simply not geared to observing market transactions; instead, statistical agencies are accustomed to tallying output of large state-run enterprises, which are shrinking in the wake of the move away from central planning to market reforms. The numerous exchanges between consumers and street d vendors, small shopkeepers, and new businesses are often overlooked in official statistics because there is no appropriate record-keeping and collecting infrastructure in place. Thus, output measures in these economies will have serious downward biases until their components can be broadened and their implementation techniques improved. New Welfare Measures J u s t as the economics profession and policy-related organizations like the U.S. Commerce Department have improved output measures over the years, there have been efforts to relate the concepts of GDP and welfare in more refined ways. In the 1970s, James Tobin and William Nordhaus, for example, developed a measure of eco- nomic welfare that estimated a value for and then netted out of total output those expenditures-for example, pollution abatement spending and police protection- prompted by efforts to offset the adverse consequences of other activity. Firms that create pollution historically have not had to absorb the costs of dealing with its effects. Instead, these are passed on to other individuals and society as a whole. Some of these costs were never included in a n explicit valuation; others were counted as part of GDP in such forms as increased medical expenditures or direct expenditures on abatement. The Tobin and Nordhaus measure, by taking such costs into account, was a step toward better gauging social welfare in relation to GDP. Efforts to produce measures of well-being continue. Within, the past few years, several international organizations-the United Nations, the World Bank, and the International Monetary Fund ( I M F b h a v e developed and begun to use alternative bconomrsts and policymakers ulle approaches to evaluating economic actively reeking better ways to mew development. In addition, the Inter- sure well-being and f~ understand its mlaiionship to income and oueut. I. - American Development Bank this year included in its annual report on economic and social propress in Latin * - America a special report on the availability of education, health care, and nutrition to men and women throughout society because such investments promote development in the long run while enhancing welfare in the present. The United Nations has created a “Human Development Index” that measures quality of life by focusing on life expectancy, educational standards, and individual pur- chasing power in various countries. The results sometimes create a different impression of a n economy’s performance than output data alone. According to the most recent index (published in May 1993), for example, a developing Central American country like Costa Rica ranks much higher in its human development score than in its total output per capita. Specifically, Costa Rica ranked 76th by total output per capita but 42d by human development. This ranking reflects the fact that the average Costa Rican lives longer, receives more education, and drinks cleaner water than residents of many other nations. In recent years, the World Bank has also moved away from relying solely on growth in GDP per capita as a way to measure whether people are becoming better off. In fulfilling its charter to help developing nations achieve the level of industrialized nations, the World Bank has relied in the past on growth in aggregate output as its standard. It has now moved toward incorporating measurements of poverty, based on c consumption and income, and social indicators that reflect access to basic health care i and education, such as infant mortality and adult literacy, into its overall view of 4 5 4 growth. The IMF has also changed the way that it compares living standards among nations. One of the problems with international comparisons of economic performance arises from the fact that there is no single unit of value among different countries. A developing country may afford a higher living standard than would be indicated by simply “translating” a basket of goods in one economy into the prices of another. Vacuum cleaners and dishwashers might be quite expensive in a developing economy, but housekeeping services, extremely cheap. In the past, the IMF compared national incomes on the basis of the exchange value of currencies. Acknowledging the differences in the prices of specific goods and services, the IMF now compares national incomes according to purchasing power, bringing the focus more on comparisons of actual living standards from country to country. At the level of individual research, the new president of the American Economic Association, Amartya Sen, has developed a n approach t h a t uses, for example, r mortality data to evaluate economic development in various nations. Sen concludes that measures of economic well-being such as the way nations handle famine, health care, sexual and racial inequality, and poverty are better gauges of economic development than output, income, or wealth and that more attention should be paid to the former type of indicators. Assessing the New Measures It is clear that economists and policymakers are actively seeking better ways to measure well-being and to understand its relationship to income and output. Many Y challenges remain, however. There are certainly technical questions that could be raised in regard to each of the institutional measures (questions beyond the scope of this discussion). At a more general level, a major concern is that there is no single or composite measure of welfare comparable to GDP for output. Indexes like those mentioned above and others have a basic weighting problem. That problem becomes apparent in looking at another new index of well-being, the Index of Social Health, created by researchers at Fordham University. This measure attempts to reflect social well-being by considering such factors as drug abuse and the lack of affordable housing. According to this gauge, social well-being in the United States fell from around 70 in 1970 to about 36 in 1991. The problem facing policymakers in deciding how to react to such a report is that, while these are serious social problems that detract from the increasing prosperity the United States as a whole has enjoyed, just how serious they are deemed to be varies from individual to individual. As with other attempts to assess well-being, subjectivity becomes an issue. To achieve a single final number for the index, its creators must impose some standardization. The same problem applies to the U.N. index or other numerical indi- cators like years of schooling or morbidity and mortality rates. Such measures may have some wide social consensus in developing economies but not necessari- ly in those that are advanced. Thinking just of the United States, it is clear that a high school education was once considered the basic necessity for effective participation in the work force, and the country could take pride in educating the majority of its citizens through this age level. Today, however, a high school diploma per se may be inadequate for obtaining the kind of job that would enable a person to own a home. Yet we do not know just how much or what kind of education is essential, and Americans would have a problem as a society agreeing on what constitutes a basic education. Likewise, we cannot all agree on standards for health care or cleanliness in the environment. What may be a luxury in a developing country may be deemed a necessity in a n industrialized economy as the options available to larger numbers of people become much broader. This observation also shows that standards of well-being, even at the individual level, are not fixed but continually change. Conclusion Where does this discussion leave economists and policymakers? Clearly, it is encouraging that economists have advanced their work on measures of output, income, and others that define policy objectives. It is in the interest of policymakers to support the continuation of such attempts. At the Federal Reserve Bank of Atlanta, efforts have been made to refine our understanding of inflation, the savings rate, and consumer confidence. Welfare measures deserve resources too and are rightfully receiving increased attention. While such work goes on, policymakers must carry out their responsibilities on the basis of measures a t hand. In this ongoing process, the work to date can help provide insights to those who make-and those who seek to understand and influence- policy decisions on the various ways of gauging a n economy’s performance. This essay i based on ideas first presented in a speech delivered at the symposium on “Society s and the University in the 21st Century” in Buenos Aires, Argentina, on October 19, 1993. s i x t h District Highlights Y io 8 he Sixth District continues to be challenged by the tremendous changes that are reshaping the financial services industry. Bank merger and acquisition activity both inside and outside the District, the introduction of new technologies, and the advent of new payment system regulations particularly affected the provision of financial services in 1993. Despite these challenges, the District achieved 99.6percent cost recovery for all priced services, falling only slightly short of its annual target of 100.5percent. Check Collection. To enhance existing services and to provide new products, the District embarked upon a twoyear program to set up new checkprocessing hardware and software in all offices. New check-processing mainframe computers were installed in the Atlanta, Birmingham, and Jacksonville branches. . .....- Birmingham and Jacksonville also began to use new software for check processing, payor bank service delivery, and check settlement and reconcilement. The District piloted a system that allows financial institutions to use Fedline terminals for sending electronic adjustments to the Federal Reserve in lieu of paper. In addition, two District offices tested an optical disk storage system that enhances the research and retrieval of adjustment information. As a result of the District’s efforts to promote electronic delivery of payor bank services, the number of customers for such services increased by 51 percent over 1992 levels. Approximately 17 percent of deposited volume was processed t o provide MICR (magnetic ink character recognition) line information to paying banks. In late 1993 Sixth District offices introduced the new MICR presentment services price structure mandated for implementation by all Reserve Banks in January 1994. In response to new collection options available in the marketplace and in anticipation of the Sam-e Day Settlement (SDS) amendment to Regulation CC, to be implemented in January 1994,Sixth District offices developed and announced several new products that provide customers with more attractive pricing, later deadlines, and fewer sorting requirements. SDS will prompt financial institutions to evaluate the cost effectiveness of presenting items for collection through the Federal Reserve versus presenting them directly to the paying institution. Introducing several of the new services during the fourth quarter of 1993, ahead of the 1994 requirements, signaled the District’s commitment to addressing financial institutions’ needs. Most District offices also began offering ancillary services such as Canadian check collection, amount encoding, and return-item reclearing in 1993.Despite some volume losses associated with mergers and acquisitions and some financial institutions’ increasing use of direct presentment in anticipation of SDS, the District’s overall processed volume for 1993 was the same as in 1992. Electronic Payments. By midyear the District achieved its goal of an all-electronic ACH, with 3,600 ACH participants receiving items electronically. The District implemented ACH processing schedules that allow more frequent deposits and deliveries throughout the day. In addition, the District consolidated all commercial ACH functions into the Atlanta office (for a projected annual cost while achieving savings of $750,000) healthy commercial year-over-year volume growth of 23.4 percent-the highest in the Federal Reserve System. Both on-line and off-line funds transfer services, which had a volume growth of approximately 2.4 percent, were consolidated into the Atlanta office. All District branches implemented a significantly enhanced on-line net settlement service. Securities Services. By the end of the year, the entire Federal Reserve System completed its formal withdrawal from priced definitive safekeeping services. The Sixth District will continue to maintain definitive safekeeping collateral accounts. The Jacksonville office, one of two consolidation sites for noncash processing in the System, had taken over noncash processing for all other Sixth District offices by August and for the remaining Districts, Dallas and St. Louis, by September. Fiscal Services. For the Treasury Tax and Loan function, the District successfully implemented a “voice response” system that allows financial institutions to submit an advice of credit for federal tax deposits via telephone. Cash Services. All District offices began using a cash inventory model developed through cooperation between the District’s cash subcommittee and the research department. The model, customized for each branch, predicts cash requirements and helps determine the District’s annual new-note order from the U.S. Treasury. In addition, the cash operations staff helped the five offices of the San Francisco District and the Philadelphia Reserve Bank install a minicomputerbased cash automation system developed by the Atlanta Bank. s upervision and Regulation. The Sixth District constituency of state member banks remained stable at 118 institutions with $45.3 billion in assets. Top-tier bank holding companies under supervision totaled 656 with $253.2 billion in consolidated assets. The Reserve Bank‘s responsibility for international organizations included 108 institutions with t t l assets of $25.5 billion. oa Passage of the Foreign Bank Supervision Enhancement Act (FBSEA) significantly broadened the Federal Reserve’s direct responsibilities for supervising international banking. The act requires Federal Reserve approval for all applications by international banks to establish offices in the United States. One criterion the Federal Reserve must verify is that the home country supervisor provides comprehensive supervision on a consolidated basis. “his requirement has proved difficult to monitor, particularly in developing countries, thereby resulting in material delays in international U application processing. FBSEA also requires annual examinations of U.S. offices of international banks. The Atlanta Fed entered into a formal agreement with the State of Florida for alternate examinations of that state’s chartered international agencies; the Bank has had a similar, informal agreement with the State of Georgia for several years. These arrangements significantly reduce examination duplication for financially sound institutions. Examination and monitoring procedures were updated to correspond with continued implementation of the Federal Deposit Insurance Corporation Improvement Act as well as to keep pace with changes in the banking industry such as the increased use of derivative financial instruments. Staff implemented new procedures, in response to changes in Regulation Y, for expanding the Bank‘s use of delegated authority in processing bank and bank holding company applications. Significant progress was made in training the recently expanded examination staff in the commercial bank, holding company, and consumer and community affairs areas. The department installed a new midrange computer to better meet its increasing automation needs. Consumer and Community Affairs. A presidential mandate to reform the Community Reinvestment Act and the implementation of the Truth in Savings Act through Regulation DD brought new challenges to the consumer and community affairs staff. Examiners explored sophisticated new techniques for detecting unequal treatment during fair lending reviews of loan portfolios. Numerous educational programs and advisory services were offered to help bankers better implement consumer protection regulations. The staff continued to assist financial institutions in establishing community development corporations and consortia that promote safe and profitable lending activities in low- and moderate-income neighborhoods. The staff also conducted seminars on the Truth in Savings Act and highlighted credit access issues and innovative lending solutions through newsletters and workshops. Discount and Credit. During 1993, Regulation A, Extensions of Credit by Federal Reserve Banks, was amended to implement Section 142 of the Federal Deposit Insurance Corporation Improvement Act, which places certain limitations on the availability of Federal Reserve credit for institutions in weak financial condition. These provisions became effective December 19, 1993. The discount function prepared for the completion of policy changes in the payments system risk program and implemented internal guidelines to better control risks associated with weakened depository financial institutions. The discount rate remained unchanged at 3.0 percent in 1993. esearch. In 1993 the research department analyzed a broad range of policy-related issues. Staff members’ efforts to bring research to bear directly on policy-making included proposals, conferences, and assistance to nations developing financial and monetary policy institutions. One of the year’s studies made strides in developing a dynamic model of the relationships between monetary and fiscal policies. Related research sought to separate specific economic impacts of monetary policy from other influences, an important step for analyzing the consequences of monetary policy actions. Further innovative work considered potential monetary shocks to the economy. One analysis treated credit arising h m payments system settlement practices as money and developed an innovative proposal for controlling payments system risk. A related study proposed a new analytic approach to measuring systemic payments system risk, and another traced the role of liquidity shocks in banking panics during the national bankmg era. In the area of international economic policy issues, one study cast doubt on the long-run efficacy of widely adopted “incomplete”macroeconomic policy coordination agreements. An analysis that expanded a popular model of sovereign debt negotiations underlined possible reasons for the length and unpredictability of these talks. Additional research found that investment in education contributed significantly to long-term economic growth. St& economists conducted several studies on interest rates and inflation. One of these outlined the complexities of using the Treasury yield curve as an indicator of future inflation; another proposed a model for estimating bounds on the real rate of interest before actual inflation rates are known. Further research on the yield curve tested and generally rejected a recently developed yield curve model. The role of regulatory intervention in troubled financial institutions was central to much of the staffs analysis. In a series of studies, the staff helped develop a model that yielded an optimal intervention strategy for troubled banks in which ownership and management are separately motivated, proposed an intervention strategy under the provisions of the Federal Deposit Insurance Corporation Improvement Act, and analyzed determinants of savings and loan failure during the early 1980s. In addition, one study pointed out the flaws in a short-cut method of measuring interest rate risk and proposed a convenient, more effective alternative while another analyzed the influence of fixed costs in banks’ economies of scale. More general financial research explored the information content of asset prices and the process through which expectations are formed. Bringing together academic experts and policymakers t o discuss the policy relevance of recent research, the department organized conferences on macroeconomics, financial derivatives, and, with the public affairs department, southeastern state fiscal issues. In addition, staff economists served as advisors on financial and monetary institutions in nations in Eastern Europe and the Far East. Public Affairs. As the economy decelerated in early 1993, Congress scrutinized the Federal Reserve System’s approach to monetary policy more closely. All twelve Reserve Bank Presidents gave testimony before the Senate Committee on Banking, Housing, and Urban Affairs early in the year, discussing economic conditions in their districts and commenting on the direction of monetary policy. In addition to being involved in preparing for this testimony, public affairs staff continued their efforts to help the public, the media, and educators better understand the Fed’s role in the economy. Specifically,the department held a teacher workshop called “The Fed More than Just the Basics”for high school teachers in Georgia and Alabama. Efforts focused on international issues included publicizing the Bank president’s views on the North American Free Trade Agreement. In addition, the department, working with the National Association of Business Economists, organized a conference in Miami on innovations in financing trade and investment in the burgeoning c 4 4; a ’c Y io 8 market economies of Central and South America. The department also arranged meetings throughout the Bank for more than thirty international delegations representing mainly central banks and commercial banks in such countries as Japan and Russia. To aid in the current debate about the benefits and risks of new financial instruments and whether there is a need to regulate them, the public affairs department, together with the research department, produced a book of readings on financial derivatives. ”his reader brings together the numerous articles written in recent years by Atlanta Fed research economists about these complex and increasingly popular financial instruments. As part of the Bank’s ongoing efforts to disseminate information and research that can help strengthen the regional economy, the public affairs department organized a conference on the topic of “Financing Government in the Southeastern States.”Cosponsored by the research and public &airs departments and Georgia State University’s Policy Research Center, this fiscal capacity conference gained the attention of state lawmakers and citizen gmups--a relatively new audience for the Atlanta Fed. The department also built an extensive data base of individuals involved in various ways with economic development throughout the region in order to develop a f i t f u l interchange of information and services. Statistical Reports. The statistical reports department produced and distributed a videotape providing answers to the questions most frequently asked by respondents filing Home Mortgage Disclosure Act reports. The staff also conducted training sessions in Atlanta and Birmingham on procedures for filing the “Report of Transaction Accounts, Other Deposits, and Vault Cash,” presented a seminar in Atlanta on reports prepared by agencies of foreign banks, and initiated a series of monthly staff training workshops on the uses of statistical reports data. Department staff headed a System project to study the implications of interstate banking for data collection and analysis. Staff members were also involved in organizing and conducting the System’s training programs keyed to various reports filed by depository institutions and in laying the groundwork for a revised version of standard processing software. Reporting began on a new series collecting data on the condition of offshore branches managed by U.S.-based offices of foreign banks. utomation Initiatives. In 1993 the District’s automation resources were focused on the transfer of IBM mainframe computer processing from Atlanta to three Federal Reserve consolidated processing sites. Funds transfer and bookentry securities pldcessing were successfully moved to Richmond in April, and remaining IBM mainframe applications processing was moved there in December. Also, nationwide processing of daylight overdraft reporting and pricing was centralized at the East Rutherford, New Jersey, site in May. With h l l y redundant backup processing capabilities available at the Dallas consolidated site, the District’s electronic payment services will now be even more reliable. As part of a multiyear national project, the Sixth District completed initial planning and site preparations for the installation of a high-speed, highreliability communications network called Fednet to support automation consolidation and to allow for future growth in electronic payment services. 1 The Cryptographic Development and Support Project, under Sixth District leadership, assisted the Federal Reserve’s Automation Consolidation Project by developing security procedures and automated processes for the transition of encryption support to the System’s consolidation sites. A system was installed at the East Rutherford consolidation center that will enhance the management of encryption keys between consolidation sites and depository institution terminal devices. Software Development Projects. Programming staff in Atlanta completed development of new software for the Federal Reserve’s expense accounting system, known as PACS (Planning and Control System). The new PACS system is the Federal Reserve’s first major dienuserver application to operate on multiple platforms (PC and mainframe). It will be implemented at one of the System’s new consolidated data-processing sites and eventually will be used by most Federal Reserve Banks. The Atlanta Fed also completed development of the new centralized billing (accounts receivable) system. The application wl be implemented at one of the System’s il consolidated sites and will process work for all twelve Reserve Banks beghungin early 1994. Atlanta has continued the development, maintenance, and support of the PCbased Fedline customer interface product, which provides financial institutions access to Federal Reserve electronic payment and information services. The District has also been instrumental in defining the next generation of Fedline, which will offer support of advanced operating platforms, new services, and enhanced operational features. Programming staff in Atlanta continued to develop and support a system that provides full automation to the District’s six cash services departments. Offices in the Philadelphia and San Francisco Districts have also begun using this system. Atlanta staff designed and developed a materialshandling interface to COM&a mechanical, automated vault operation to the core cash automation software. Payments System Risk Initiatives. Software releases for accounting, funds, securities, and Treasury Tax and Loan items were implemented to support revised procedures for measuring the amount of overdrafts in reserve and clearing accounts during the day. These changes, which were approved by the Board of Governors in September 1992 and became effective in October 1993, were implemented to mitigate the risk daylight overdrafts pose to the Federal Reserve and the payments system. A new software system for monitoring and reporting daylight overdraft activity was also tested and installed. Reserve Bank staff conducted seminars throughout the District to help financial institutions understand the new measurement procedures and to explain the pricing of daylight overdrafts that will take effect in April 1994. F c l t e Management. The aiiis accounting, control, legal, public affairs, and research departments, part of the systems department, and the check adjustments unit moved i t the 96,800square feet of space no leased in the Equitable Bddmg, freeing space in the mainbdding to permit renovation of its tightly constrained operations during 1994. Human Resources. In October all District offices implemented a new job evaluation program that revalued and assigned new salary grades and ranges to all nonofficer jobs. The project, which involved more than two years of staff work and was assisted by an outside consultant, resulted in new job 5;: w Q descriptions, an automated job evaluation system, and a new salary structure based on market pay practices. The new program enables the Bank to better respond to changing market factors and ensures that Bank jobs are assigned appropriate value as the business environment changes. In January 1993, in an effort to help contain increasing costs, the Bank implemented a new managed care medical benefit to replace the traditional fee-for-service indemnity plan. The Bank continued to sponsor seven HMOs throughout the District. A District group reviewed the Bank’s current leave policies and administrative procedures to ensure compliance with the new Family and Medical Leave Act of 1993 (FMLA), which took effect in August. Information concerning the FMLA was distributed to all staff members. Employees in all District ofices were counseled about revised policies regarding sexual harassment and related issues of employee relationships and employee responsibilities. Employee relations counselors were established at each office to supplement normal channels of communication for problem resolution. To support District employees whose jobs were affected by automation consolidation, human resources staff offered programs including career assessment and transition planning. he auditing department used one of the “big six” accounting firms to satisfy the “Audit Standards for Federal Reserve Banks” requirement for periodic 1 iuditins quality assurance reviews, marking the first time an outside firm has reviewed Sixth District auditing. The review evaluated compliance with the standards and included several special-interest topics such as cost effectiveness of internal audit administration, management, and processes; audit coverage of the Bank’s automation consolidation activities; and appropriateness of staff levels, qualifications, and training. The outside firm’s report stated that the department was in full compliance with the standards and made several suggestions for consideration related to the requested special interest topics. Auditing was heavily involved in the automation consolidation project, both in assisting with the review of environmental software at the consolidated sites and in monitoring and testing Atlanta systems throughout the transition. Department staff also monitored the controls on the production system in Atlanta prior to the move and reviewed the management of the project. Atlanta continued to serve as the site for the System Center for Auditor Development (SCAD), which aevelops Fed-specific training programs for all auditors throughout the System. The department was in charge of a Systemwide audit of check collection float activity. The General Auditor was an active member of the System’s Conference of General Auditors and the Committee on Audit Support Activities, and other District audit staff members served on several System committees and subcommittees dealing with various audit functions. number of prominent individuals discussed important domestic and international financial industry and economic concerns as part of the Bank’s 1993 Distinguished Speakers Series. Speakers included Federal Reserve Chairman Alan Greenspan; Federal Reserve Governors Edward Kelley, John LaWare, and Wayne Angell; former White House Soviet specialist Condoleezza Rice; Scott E. Pardee, Chairman of Yamaichi International America, Inc.; A.W. Clausen, retired chairman, BankAmerica Corporation; David D. Hale, senior vice president and chief economist, Kemper Financial Companies; and John G. Medlin, Jr., chairman and chief executive officer, Wachovia Corp. German Ambassador Immo Stabreit and Peter G. Rogge, Senior Vice President and Head of Economics and Corporate Systems for Swiss Bank Corporation, spoke to audiences of Atlanta business, academic, and community leaders. University of Florida president John Lombardi spoke at a joint meeting of the Sixth District's head office and branch directors. The Advisory Council on Small Business, Agriculture, and Labor met twice with President Forrestal and Atlanta Fed staff to exchange views on business and credit conditions in the region. President Forrestal also met twice with the Financial Institutions Advisory Committee, which represents commercial banks, thrifts, and secretary's OffSce credit unions, to discuss issues of interest to financial institutions. In conjunction with his monetary policy responsibilities, President Forrestal also met periodically with leaders representing business, academic, financial, consumer, labor, and other community interests throughout the District to discuss current economic and policy-related issues. The Sixth District's Congressional Liaison program was reactivated in 1993, focusing on those who serve on the U.S. Senate and House Banking Committees. Participants included Georgia Representative John Linder, Alabama Representative Spencer Bachus, and Florida Representatives Jim Bacchus and Bill McCollum. Each toured the District branch nearest his congressional district and met with the branch's board of directors as well as business, financial, and other community leaders. EDWIN HUSTON A. CHAIRMAN Senior Executive Vice President-Finance Ryder System, Inc. Miami, Florida LEO BENATAR DEPUTY CHAIRMAN Chairman and President Engraph, Inc. Atlanta, Georgia U HUGH B R O W M. President and Chief Executive Officer BAMSI, Inc. Titusville, Florida J. THOMAS HOLTON President Sherman International Corp. Birmingham, Alabama VICTORIA JACKSON B. President and Chief Executive Officer DSSProDiesel, Inc. Nashville, Tennessee Atlanta Directors, from left to right: (standing) Simpson Russell, W.H. Swain, Edwin A. Huston (Chairman), J. Thomas Holton, James B. Williams; (seated) Victoria B. Jackson, Andre M. Rubenstein. Not pictured: Leo Benatar (Deputy Chairman) and Hugh M. Brown. ANDRE M. RUBENSTEIN Chairman and Chief Executive Officer Rubenstein Brothers, Inc. New Orleans, Louisiana SIMPSON RUSSELL Chairman and President The First National Bank of Florence Florence, Alabama W.H. SWAIN Chairman First National Bank Oneida, Tennessee JAMESWILLIAMS B. Chairman and Chief Executive Oficer SunTrust Banks, Inc. Atlanta, Georgia FEDERAL ADVISORY COUNCIL MEMBER E.B. ROBINSON, JR. Chairman and Chief Executive Officer Deposit Guaranty National Bank Jackson, Mississippi BIRMINGHAM DONALD BOOMERSHINE E. CHAIRMAN President Better Business Bureau of Central Alabama, Inc. Birmingham, Alabama S. EUGENE ALLRED Chairman, President, and Chief Executive Officer Frit Incorporated Ozark, Alabama JULIAN BANTON w. MARLIN MOORE, D. JR. Chairman Pritchett-Moore, Inc. Tuscaloosa, Alabama J. STEPHEN NELSON Chairman and Chief Executive Officer First National Bank of Brewton Brewton, Alabama COLUMBUS SANDERS President Consolidated Industries, Inc. Huntsville, Alabama Chairman, President and Chief Executive Officer SouthTrust Bank of Alabama, N.A. Birmingham, Alabama PATRICIA COMPTON B. President Patco, Inc. Georgiana, Alabama # Q rl Birmingham Directors, from left to right: (standing) S. Eugene Allred, Patncia B. Compton, Marlin D. Moore, Jr., J. Stephen Nelson; (seated) Julian W. Banton, Donald E. Boomershine (Chairman), Columbus Sanders. 1 I RANCH DIRECTORS (CONTINUED JOAND. RUFFIER CHAIRMAN HUGH JONES, R . H. J Chairman Barnett Bank of Jacksonville, N.A. Jacksonville, Florida General Partner Sunshine Cafes Orlando, Florida LANAJANELEWIS-BRENT PERRY DAWSON M. President and Chief Executive Officer Suncoast Schools Federal Credit Union Tampa, Florida SAMUEL VICKERS H. Chairman, President, and Chief Executive Officer Design Containers, Inc. Jacksonville, Florida MERLE GRASER L. Vice Chairman SunBanWGulf Coast Venice, Florida ARNOLD HEGGESTAD A. William H. Dial Professor of Banking and Finance College of Business Administration University of Florida Gainesville, Florida - IJacksonville Directors, from left to right (standing) Hugh H. Jones, Jr., Samuel H. Vickers, Lana Jane Lewis-Brent, Merle L. Graser, Arnold A. Heggestad; (seated) Perry M. Dawson, Joan D. Ruffier (Chairman). President Paul Brent Designer, Inc. Panama City, Florida 2c R. KIRK LANDON CHAIRMAN Chairman and Chief Executive Of'ficer American Bankers Insurance Group Miami, Florida ROBERTO BLANCO G. Vice Chairman and Chief Financial Officer Republic National Bank of Miami Miami, Florida E. ANTHONY NEWTON President and Chief Executive Officer Island National Bank and Trust Company Palm Beach, Florida L. TORNILLO, . JR Executive Vice President United Teachers of Dade Miami, Florida PAT DOROTHY WEAVER C. President Intercap Investments, Inc. Coral Gables, Florida MICHAEL WILSON T. President Vinegar Bend Farms, Inc. Belle Glade, Florida STEVEN SHIMP C. President 0-A-WFlorida, Inc. Fort Myers, Florida . I Miami Directors, from left to right: (standing) Michael T. Wilson, Dorothy C. Weaver, Roberto G. Blanco, Steven C. Shimp; (seated) R. Kirk Landon (Chairman). Not pictured: E. Anthony Newton and Pat L. Tornillo, Jr. c 27 CH U I R NUED, JAMES R. TUERFF CHAIRMAN President American General Corporation Nashville, Tennessee E. WILLIAMS W T , JR. President and Chief Executive Officer First National Bank of Knoxville Knoxville, Tennessee HAROLD BLACK A. James F. Smith, Jr., Professor of Financial Institutions College of Business Administration University of Tennessee Knoxville, Tennessee D. HARRIS President and Chief Executive Officer Brentwood National Bank Brentwood, Tennessee JAMES I Nashville Directors, from left to right (standing) James D. Harris, William Baxter Lee 111, Harold A. Black, Williams E. Arant, Jr.; (seated) Marguerite W Sallee, James R. Tuerff(Chairman), Paula Lovell. WILLIAM BAXTER LEE I11 Chairman and President Southeast Services Corporation Knoxville, Tennessee PAULA LOVELL President Lovell Communications, Inc. Nashville, Tennessee MARGUERITE SALLEE W. President and Chief Executive Officer Corporate Child Care Management Services Nashville, Tennessee NEW ORLEANS LUCIMARIAN ROBERTS T. CHAIRMAN President Mississippi Coast Coliseum Commission Pass Christian, Mississippi KAY L. NELSON Managing Director Nelson Capital Corporation New Orleans, Louisiana J O A SLAYDON " President Louisiana AFL-CIO Baton Rouge, Louisiana President Slaydon Consultants and Insight Productions and Advertising Baton Rouge, Louisiana ANGUS COOPER R. I1 Chairman and Chief Executive Officer Cooper/". Smith Corporation Mobile, Alabama THOMAS WALKER E. President and Chief Executive Officer Bank of Forest Forest, Mississippi VICTOR BUSSIE HOWARD GAINES C. Chairman and Chief Executive Officer First National Bank of Commerce New Orleans. Louisiana New Orleans Directors, from left to right: (standing) Kay L. Nelson, Victor Bussie, Howard C. Gaines, J o Ann Slaydon; (seated) Thomas E. Walker, Lucimarian T. Roberts (Chairman).Not pictured Angus R. Cooper 11. I I 1 1 ,ORPORAIE OFFICERS ROBERT FORRESTAL P. President and Chief Executive Officer W. RONNIE CAL,DWELL* Executive Vice President JACK GUY"* First Vice President and Chief Operating Officer S E N I O R V I C E PRESIDENTS RICHARD OLIVER* R. Senior Vice President H. TERRY SMITH* Senior Vice President SHEILA TSCHINKEL* L. Senior Vice President and Director of Research JOHN WALLACE** M. Senior Vice President and General Auditor EDMUND WILLINGHAM Senior Vice President and General Counsel * Management Committee ** Advisor to Management Committee Management Committee Members, from left to right: (standing) Frederick R. Herr, Jack Guynn, Robert P. Forrestal, W. Ronnie Caldwell, John M. Wallace; (seated) James D. Hawkins, H. Terry Smith, Sheila L. Tschinkel, Richard R. Oliver. V I C E PRESIDENTS LOISC. BERTHAUME Vice President JOHN KERR R. Vice President CHRISTOPHER BROWN G. Vice President B. FRANK KING Vice President and Associate Director of Research FRANCIS CRAVEN, JR. J. Vice President and Director of Human Resources BOBBIE MCCRACKIN H. Vice President and Public Affairs Officer ANNE M. DEBEER Vice President JAMES MCKEE M. Vice President WILLIAM ESTESI11 B. Vice President JOHN PELICK D. Vice President WILLIAM HUNTER C. Vice President MARY ROSENBAUM S. Vice President ZANE R. KELLEY Vice President RONALD ZIMMERMAN N. Vice President ASSISTANT V I C E P R E S l D E N 7 S JOHN ATKINSON H. Assistant Vice President ALVIN PILKINTON, L. JR. Assistant General Auditor JOHN BRANSCOMB R. Assistant Vice President TEDG. REDDY I11 Assistant Vice President DAVID CaRR F. Assistant Vice President MARION RIVERS P. I11 Assistant Vice President THOMAS CUNNINGHAM J. Research Officer WILLIAM ROBERDS T. Research Officer CHAPELLE DAVIS D. Assistant Vice President RONALD ROBINSON J. Assistant Vice President STEVEN FOLEY J. Assistant Vice President MELINDA RUSHING J. Assistant Vice President JAYNE FOX-BRYAN Assistant Vice President and Corporate Secretary LARRY SCHULZ J. Assistant Vice President CYNTHIA GOODWIN C. Assistant Vice President WILLIAM HERBERT R. Assistant Vice President SUSAN HOY Assistant General Counsel ROBERT SEXTON T. Assistant Vice President LARRY WALL D. Research Officer JESSIEWATSON T. Assistant Vice President ADRIENNE WELLS M. ALBERT MARTIN E. I11 Assistant General Counsel AMELIA MURPHY A. Assistant Vice President Assistant Vice President =AN KIAN WONG Assistant Vice President DONALD NELSON E. ROBERT LOVE A. Senior Vice President and Branch Manager Assistant Vice President WILLIAM SMELT H. Assistant Vice President and Assistant Branch Manager Y ROBERT MCKENZIE I. Assistant Vice President WILLIAM POWELL R. Assistant Vice President JAMES B O N L. R W Assistant Vice President FREDERICK R. HERR* Senior Vice President and Coordinating Branch Manager ROBERT DOLE G. FREDERICFULLERTON L. Assistant Vice President CHARLES PRIME W. Assistant Vice President Assistant Vice President and Assistant Branch Manager ANDRE ANDERSON T. Assistant Vice President JAMES HAWKINS* D. Senior Vice President and Coordinating Branch Manager ROBERT J. SLACK Assistant Vice President and Assistant Branch Manager DANIEL MASLANEY A. Assistant Vice President * Management Committee JEFFREY WELTZIEN L. Assistant Vice President KIMBERLY WINSTEL K. Assistant Vice President JAMES CURRY T. Vice President and Branch Manager JUAN DEL BUSTO FRED Cox D. Assistant Vice President RAULDOMINGUEZ Assistant Vice President and Assistant Branch Manager Assistant Vice President VICKI ANDERSON A. Assistant Vice President ROBERT DE ZAYAS Assistant Vice President SUZANNACOSTELLO J. Assistant Vice President NASHVILLE MELVYN PURCELL K. Vice President and Branch Manager MARGARET THOMAS A. Assistant Vice President LEEC. JONES Assistant Vice President and Assistant Branch Manager JOEL WARREN E. WILLIAM DYKES W. Assistant Vice President E. CHANNING WORKMAN, J R . Assistant Vice President Assistant Vice President NEW ORLEANS ROBERT Musso J. Vice President and Branch Manager EDWARD HUGHES B. Assistant Vice President WILLIAM THOMPSON E. I11 AMY GOODMAN S. Assistant Vice President and Assistant Branch Manager Assistant Vice President W. JEFFREY DEVINE Assistant Vice President PATRICIA Assistant Vice President D . VAN DE GRAAF L TATkrrdEhCT O F CONDl77ON DECEMBER 1 9 9 2 3 1, ASSETS Gold Certificate Account $ Special Drawing Rights Certificate Account 503,000,000 DECEMBER 1 9 9 3 3 1, $ 509,000,000 318,000,000 318,000,000 38,246,964 55,405,739 10,228,575,482 13,696,686,093 1,304,767,107 775,094,869 57,015,133 61,112,427 Other Assets 2,296,550,712 2,500,066,076 Interdistrict Settlement Account 3,833,067,333 2,185,366,572 $18,579,222,731 $20,100,731,776 $13,231,945,372 $14,959,906,004 4,100,864,625 3,632,354,668 600,199,151 736,272,042 66,933,183 132,352,262 $17,999,942,331 $19,460,884,976 $ $ Coin Loans and Securities Items in Process of Collection Bank Premises Total Assets Federal Reserve Notes Deposits* Deferred Credit Items Other Liabilities Total Liabilities CAPITAL c c o u ~ r s A Capital Paid In Surplus 289,640,200 289,640,200 Total Capital Accounts $ Total Liabilities and Capital Accounts $18,579,222,731 579,280,400 319,923,400 3 19,923,400 $ 639,846,800 $20,100,731,776 * Includes depository institution accounts, collected funds due to other Federal Reserve Banks, U.S. Treasurer-General account, other and miscellaneous deposits c 34 I EARNINGS AND EXPENSES Current Income Current Expenses Cost of Earnings Credits Current Net Income Net Additions (Deductions)* DECEMBER 1 9 9 2 3 1, 3 DECEMBER1, 1 9 9 3 $ 873,609,356 $ 861,700,654 138,361,845 155,047,176 13,536,275 8,436,000 $ 721,711,236 $ 698,217,478 (94,804,216) (18,793,851) Assessment for Expenses of Board of Governors 11,888,400 13,209,600 Federal Reserve Currency Cost 15,152,205 16,958,398 3,010,027 3,084,435 $ 596,856,388 $646,171,194 $ 16,384,793 $ 18,375,321 533,630,395 597,512,673 46,841,200 30,283,200 $ 596,856,388 $ 646,171,194 Surplus January 1 $ 242,799,000 $ 289,640,200 Surplus December 31 $289,640,200 $ 319,923,400 Cost of Unreimbursed Treasury Services Net Income before Payment to U.S. Treasury DISTRIBUTION N m EARNINGS OF Dividends Paid Payments to U.S. Treasury** Transferred to Surplus Total Income Distributed SURPLUS ACCOUNT * Includes gaindosses on sales of U.S. government securities and foreign exchange transactions ** Interest on Federal Reserve Notes i UMMARY O F oPERA77ONS 1993 1992 SERVICES TO PERCENT CHANGE FROM O N E ITEMS DEposrroRr N IS (THOUSANDS) . ___ _ _ ~ YEARAW PERCENT C A G H N E ITEMS FROM O N E (THOUSANDS) Y A A O E R G Check Clearing U.S. Government Checks Processed Commercial Checks Processed 68,069 3,016,132* -1.4 4.2 66,783 3,017,041 -1.9 0.03 Electronic Payments ACH Commercial and Government Payments Processed Wire Transfers of Funds 307,455 9,949 17.5 4.5 357,467 10,185 16.3 2.4 98 0 50 4.2 98 51 0 2.8 1,187 -36.8 808 -31.9 56 460 64 -9.0 -26.8 -32.6 47 363 34 -16.8 -21.0 -47.4 5,875 -15.5 5,794 -1.4 Cash Services Currency Orders Processed Coin Orders Processed Loans to Depository Institutions Loans Processed** Securities Services On-Line Bookentry Transfers Noncash Items Processed Definitive Safekeeping Receipts SERVICES TO U.S. TREASURY U.S. Savings Bonds Issued U.S. Savings Bonds Redeemed 79 - 68.5 59 -25.5 Other Treasury Issues Issued Redeemed 49 3 -27.9 0 38 3 -23.0 0 738 -1.2 815 10.4 695,200 -7.1 Deposits to Treasury Tax and Loan Accounts Food Coupons Destroyed * Number differs from that previously reported. ** Numbers shown are actual, not thousands. 748,576 19.2 .04 Marietta Street, N.W , " . .-.Ann.-. , I , n . h ncl - ;hA [ortk iashville, Tennessee 37203-4407 , New Orleans Branch 25 St. Charles Avem Jew Orleans, Louisiana 1013C -3u For additional c D..L1:^ Am-:.." l- nta I