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fed [u c a t i o n ] Federal Reserve Bank of St. Louis Annual Report 2005 How the Federal Reserve Bank of St. Louis’ economic education programs are shaping today’s minds and tomorrow’s economy chairman’s[m e s s a g e ] The Federal Reserve’s mission of conducting monetary policy and maintaining a stable ﬁnancial system depends upon the participation and support of an educated public. [a message from the]chairman Investing in Economic Education I am optimistic about the economic future of our nation. The prospects are excellent for continuing improvements in technology, increases in productivity, and innovations in banking and ﬁnancial services—all of which bode well for our future standard of living. As we move forward, however, each and every American will face the challenge of making sound ﬁnancial decisions in this extraordinarily complex economy. Sound ﬁnancial decisions are critical not only to the prosperity and ﬁnancial security of individuals, but also to the growth and efﬁciency of our overall economy. Meeting the challenge of operating in today’s economy is much easier if we have a working knowledge of how our economy functions and how it affects us. That is why economic education is such a critical component of the Federal Reserve’s mission, as detailed in this 2005 annual report of the Federal Reserve Bank of St. Louis. Economics affects every aspect of our lives. Each of us must understand how economics affects the decisions our government makes in order to participate fully in our democratic system as informed citizens and as informed voters. We must understand how economics affects the business world—especially if we choose careers in business and most especially if we take that bold step forward on our own as entrepreneurs. Ultimately, the most important reason to educate ourselves about economics and personal ﬁnance is to ensure that we make the right decisions to achieve ﬁnancial security for ourselves and our loved ones. The Federal Reserve’s mission of conducting monetary policy and maintaining a stable ﬁnancial system depends upon the participation and support of an educated public. Accomplishing this mission involves trade-offs and tough decisions. As the Fed pursues the monetary policy objectives that have been set out for us by Congress—to pursue price stability, maximum employment and moderate long-term interest rates—it is essential that the public understand our objectives and our actions. Educating the public about the reasoning behind our decisions helps build conﬁdence in our economic system—another critical factor in keeping our economy running smoothly. No matter what your age or educational background— whether you are a student, an entrepreneur, a homemaker or a professor—the Fed has resources to help you learn more about economics and to help you participate in the important national conversations we must have about these issues. In the end, I believe you will ﬁnd that economic education is one of the best investments you can make for your own future and for the future of your family, your community and our nation. ■ Ben Bernanke Chairman Board of Governors of the Federal Reserve System 5 president’s[m e s s a g e ] Today’s minds will shape tomorrow’s economy. Thus, education is one of the Federal Reserve’s important missions. [a message from the]president Economic Education: Our Commitment W hen I left my previous career in higher education to become president of the Federal Reserve Bank of St. Louis, I moved into a job that carries with it an enormous responsibility. But in many ways, I took on just as much responsibility during my 25-plus years as an educator. Teaching is about equipping people to make a difference in the world. The students learning now to read and write are the future authors and journalists. Those who are studying math and science today may be headed toward an engineering or biochemical career in adulthood. Today’s students, no matter what they study, will be tomorrow’s leaders in business and government, often with inﬂuence and responsibility that is worldwide in scope. And what about teaching our students economics? Are we simply teaching a classroom of young people to debate the principles of supply and demand, or to analyze the beneﬁts of price stability? In reality, there is a far greater purpose that lies at the heart of the St. Louis Fed’s commit- ment to economic education, the subject of our 2005 annual report. Economics, in its purest form, is about making decisions. Economics is the study of how people make sound choices. By studying how markets work, our young people also learn how to make efﬁcient choices in managing their own scarce resources, such as time and money. As this generation heads toward adulthood, the decisions people will have to make are becoming increasingly complex and difﬁcult. As participants in a global economy, they will need the 9 10 best tools we can provide to them to truly make informed choices. Given the Federal Reserve’s own expertise, the Fed can be particularly helpful in fostering economic education to help people make good choices among a seemingly inﬁnite array of ﬁnancial services options, particularly in the face of the rapid growth of electronic payments. The Fed can also help to address the troublesome trends of low personal savings and increased accumulation of credit-card debt. Economic education beneﬁts the Fed, as well as the general public, by building support for the monetary policy actions we take. But the Fed’s inﬂuence can only go so far. The true power of the free-market economy lies in the ability of our nation’s citizens to make their own economic choices. That means teachers have enormous inﬂuence—and, therefore, responsibility—to provide young people with the knowledge they need to make informed, intelligent decisions now and in the future. Throughout this annual report, you will read about the Fed’s economic education programs, ranging from money and banking courses for teachers to our nationwide Fed Challenge competition that allows teenagers to step into the shoes of a monetary policymaker. Most important, you will hear from the folks who are on the front lines of this effort: the economic education experts who have devoted themselves to promoting this critical ﬁeld of study; the teachers who have taken responsibility for shaping the economic minds of the future; and the students themselves who will be making these lifechanging—and, in some cases, world-changing—decisions. My hope is that reading their stories will not only entertain and inform you, but also persuade you of the critical importance of promoting economic education. In particular, if you’re a parent or teacher reading this report, I hope you will be inspired to ask the tough but necessary questions of your educational institution: At what age are students learning about economics? How much economics is being taught? Are students really getting the economic background they need now to make the types of informed ﬁnancial decisions they will face later in life? Today’s minds will shape tomorrow’s economy. Thus, education is one of the Federal Reserve’s important missions. We invite you to partner with us in continuing that mission in the years ahead. No less than our nation’s economic future is at stake. ■ William Poole President and CEO Federal Reserve Bank of St. Louis fed [u c a t i o n ] How the Federal Reserve Bank of St. Louis’ economic education programs are shaping today’s minds and tomorrow’s economy S o, you’re a typical, wellinformed citizen, right? Ask yourself the following questions: >> What does it mean to say that gross domestic product has increased? >> What is a federal budget deﬁcit? >> What type of investment has the greatest risk of losing value due to inﬂation? The answers, respectively, are: >> The amount of ﬁnal goods and services produced has increased. >> The federal gov- ernment’s outlays for a year are greater than its revenue for that year. >> Keeping your savings hidden as cash. And if you got one or more answers wrong, don’t feel bad. You have something in common with a majority of American adults, at least according to the National Council on Economic Education (NCEE), which asked these questions as part of a quiz included in its 2005 Standards in Economics Survey, given to 3,512 adults and 2,242 students. Based on the results of the 20-question quiz, adults got an average grade of 70 (a C) for their knowledge of economics, while the average score of students was 53—a failing grade. In its executive summary of the survey, the NCEE remarked, “A majority of high school students do not understand basic concepts in economics.” Charles Wu, a senior at Marquette High School in west St. Louis County, Mo., isn’t one of them. 13 raise interest rates by one-quarter of a point, Wu and his classmates needed to decide what impact that action could have on the recommen- Taking the Fed dation they would make if Challenge they were in the shoes of On an unseasonably a monetary policymaker. warm afternoon in late They would be wearing January, while his class- puters, scrolling through those shoes in less than mates headed outdoors web pages of economic six weeks while they into the sunshine, Wu data, while Wu and oth- competed with other huddled in a classroom ers used markers to add high school teams in the with ﬁve other students 14 the students sat at com- notes to an outline that annual Fed Challenge under the watchful eye already took up several event. of economics teacher pages of a giant ﬂip pad. Eva Johnston. News- It was a big day: In the paper clippings were ﬁnal meeting conducted Fed and other Reserve everywhere. Some of by outgoing Fed Chair- banks around the coun- man Alan Greenspan, try, allows high school Fed Challenge, sponsored by the St. Louis the Federal Open Market Committee (FOMC) had just voted to again CHARLES WU (CENTER) AND HIS MARQUETTE TEAMMATES ATTEND A FED CHALLENGE WORKSHOP SPONSORED BY THE FEDERAL RESERVE BANK OF ST. LOUIS. � �� Four for four is nice, but Wu is looking even ����� further into his future as he ponders his career aspirations. “I’m planning to major in econom- ��� ��� ����� ���� ��� ��� ���� � ���� ���� ���� �� ��� ��� � ����� �� ����������� � �� ����� �� ��� ��� ��� ��� �� ���� �� �� ��� �� ������� ����� � � � ��� ���� ������� ������ �� ��� � �� � ��� ��� �� ���� ������ ����� ����� � ����� � �� ��� ����� ��� ��� �� � ���� ����� ������� ������ ������ ������ �� ��� ���� � � � � ��� ��� ������ ����� � �� ��� � ������ ���� �� ����� � � ��� ��� �� ������ ���� � � ���� ����� � ���� �� ��� ���� � ��� � � �� ����� ������ ���� � � ������� ������ � ���� ����� � ������ ���� ���� � ��� � ���� ���� �� ��� � ��� ��� �� ���� �� �� �� ��� � �� �� �� � �� �� � ��� ��� ���� ������ ��� �� � ���� �� ���� � ������ ������� ���� � � � � � �� ����� ����� ������ � ��� ��� ����� ������ ������ ��� �� �� �� �� ��� ��� ����� ��� ��� ���� � �� ���� ��� �� ����� ����� � �� ����� ����� �� ��� ��� ���� �� ���� ����� ����� ������ ������ � �� � ���� � ���� �� ��� �� ����� ����� ������ ����� � �� ���� ���� ���� ������� ������ ���� � ������ �� � �� � ��� ��� �� �� ����� ��� �� � ���� ������ � ������� ������ ������ ������ ������ � � � �� �� ������ ����� ������� �� ��� �� ����� ���� � � ��� � ��� ������ ������ ����� ������ � ���� � � � ���� ������ � ���� ����� �� ��� ������� � �� ���� � �� �� ������ ������ ��� ����� ���� ����� ��� ������ ����������������������������� ������ � ��� �� ���� ��� ���� �� �� � ��� ��� ��� ���� ��� ��� ��� ���� ����� ����� ���� ����� ����� ���� ��� �������� ������� �������� �������� ������� ������� �� � ���� �� �� ������ ����� ������ ��� ���� ��� �� � � ���� ������� ������ ������� ������� ������� �� ���� � ����� ����� ����� ���� �� ��� ��� �� ��� ��� ������ ������ ���� ����� ��� ������ ���� ���� �� ���� ��� ��� ��� ������ ������ ���� � � ���� � ��� ��� �� ���� ����� ��� �� ���� �� ��� � ���� �� � � � � � � � �� ���� �� ���� � ����� �� ��� �� �� ��� ������ � ��� �� ����� ���� � ��� ��� ��� ��� � ����� ����� ��� � � � � � � ���� ���� � ���� � �� �� � � ��� ��� ������ ������ ���� �� ������ ���� � � � � ��� ������ �� ���� ������� ������ ��� � � ��� �� ��� � ����� ����� � � ���� � � � ��� ������� ���� ��� � ��� ��� � ���� � � ���� ����� ������ �� � ��� ������� �� � ���� �� ����� ����� ��� � � �� � �� ��� ������ ������� ������ ���� � � � ��� ����� � ���� ���� � ��� � ���� ������ ����� � ������� � � � � ��� ��� ��� ������ ����� ��� ������ ������ ����� � � � � ���� ������� ���� �� ���� � � ���� ��� ��� ���� � � �� �� � ���� ���� � � � �� ����� ����� � �� �� �� � �� ���� �� ���� ����� � ��� ��� �� ��� �� ��� ��� ����������� � �� �� students to take part in ics,” he says. That’s a a mock FOMC meeting. far cry from how he felt They make a 15-minute when he ﬁrst joined the presentation to a panel team as a freshman on of judges and then spend the recommendation of an additional 15 minutes his math teacher, whose being questioned on classroom is next door to their ﬁndings and recom- Johnston’s. “I really didn’t mendations on monetary know anything about student like policy. economics,” Wu says. Charles Wu, “At the time, it was just however, there St. Louis district competi- something to do. There are many teen- tion heads to the national did come a point where I agers who won’t ﬁnals in Washington, D.C., asked myself, ‘What am I learn enough about where Wu doesn’t need getting into?’ Eventually, economics to gain a tour guide. He and his I built up my conﬁdence.” that conﬁdence—or The team that wins the �� ��� ������ �� ��� �� ���� ��� � For every 15 classmates made the even to acquire the ﬁnals in each of his four knowledge they need to years on the team, become a savvy adult in continuing Marquette’s today’s complex ﬁnancial nine-year winning streak world. That fear—and the in the Eighth District desire to make students competition. like Wu the rule, rather than the exception—helps continued on Page 18 EVA JOHNSTON T Eva Johnston, Wiseman got involved and each year have a chance to experience the found his economic knowledge transformed. real-life world of monetary policymaking. “I think Fed Challenge was the ﬁrst step he students who participate in the Federal Reserve’s Fed Challenge event Spurred on by Marquette economics teacher For Eli Wiseman, this toward the career that experience became the I ended up pursuing,” springboard to a Federal he says. Since then, Wiseman Reserve job. Wiseman, who partici- has found that his Fed pated on Marquette High School’s Fed Challenge 16 Challenge experience has truly prepared him for team during his senior real-world economics. year, is now a research “The thing I noticed after associate at the Federal doing Fed Challenge Reserve Bank of Kansas City. He assists the Kansas City Fed’s director of Eli Wiseman >> Research Associate, Federal Reserve Bank of Kansas City was that I could actually understand some of these banking and ﬁnancial research and its econo- programs that are on mists by gathering data, the news or in the Wall providing background Street Journal,” he says. information and helping to research mone- “I think it’s good to be informed both tary policy prior to the Federal Open Market as a consumer and as someone in the busi- Committee meetings. ness world—to know what the Fed is doing Before joining Fed Challenge, “I had no interest in economics,” Wiseman says. “I didn’t even know what it was.” on a regular basis and to understand why they’re doing it.” find it [here] The St. Louis Fed offers a variety of economic education programs and resources. S ome of the major economic education programs, conferences and publications offered by the Federal Reserve Bank of St. Louis include: Annual Teachers Conference: Held at all four District ofﬁces, this conference focuses each year on a different topic that is of interest to teachers and students—and applies economic concepts to these topics. Previous conferences have dealt with the economics of the Great Depression, the economics of sports, and the issues surrounding the U.S. government’s ﬁnancial deﬁcit and Social Security. The conference features presentations from District education specialists and St. Louis Fed Research economists as well as materials on how to share that topic in the classroom. Professors Conference: This District-wide conference for college and university faculty (pictured above), held every February in St. Louis, has drawn increased interest in recent years. The main focus of each conference is the economic outlook, with faculty learning more about how to ﬁnd and use the St. Louis Fed’s economic data sources. An additional topic is covered each year, as well: The 2006 conference focused on economic relations between the United States and China. Making Sense of Money and Banking: Elementary and secondary school teachers throughout the Eighth District are invited to attend this annual seven-day course in St. Louis to learn more about money and banking concepts, such as the difference between a stock and a bond, how the payments system works, how a bank creates money and what happens at an FOMC meeting. In addition to the lessons themselves, each day features a “How Do We Teach This?” segment, helping teachers apply the material in their classrooms. Inside the Vault: The St. Louis Fed publishes this economic education newsletter twice a year, with the content geared toward secondary school teachers and students. Each issue features an article adapted from one of the Fed’s economic publications, such as The Regional Economist or Review. Also included are a question-and-answer segment on an economic topic and an “Economic Snapshot” explaining a current economic statistic in plain and simple terms, accompanied by a graphic. Economic Education Essay Contest: Begun in 2004, the Eighth District’s Essay Contest is open to students in grades 9-12 in each of the four District regions—St. Louis, Little Rock, Louisville and Memphis. The ﬁrst-place student in each region wins a $500 savings bond. Topics vary each year. Last year’s contest, titled “The Economics of Looking Good,” asked students to weigh the trade-offs involved in spending money on new fashions and on enhancements to their appearance. The 2006 contest topic, “Finding Economics in Literature,” asks students to discuss the economic principles and concepts they ﬁnd in a novel of their choice. 17 continued from Page 15 drive the passion of Dawn Grifﬁtts, a former teacher who has managed the St. Louis Fed’s economic education programs for more than included providing eco- 10 years. nomic education curricuFed co-workers join with lum and lesson plans and edge and the means economic education instructing teachers in how to teach others about experts, teachers and to use those materials. economics, and we cer- students to share their tainly have a comparative thoughts on Fed Chal- the primary target audi- advantage in teaching lenge and the many other ence for the Fed’s about the role of the Fed St. Louis Fed courses and economic education in the economy,” says programs that promote programs. “Having been Grifﬁtts. “If we don’t get economic education— a teacher, I know that out and talk about eco- and why shaping today’s teachers teach what they nomics and the Federal young minds is so critical know, and they don’t Reserve, who will?” to the Fed’s economic teach what they don’t mission of tomorrow. know,” Grifﬁtts says. “If “The Fed has the knowl- 18 In this annual report, Grifﬁtts and her St. Louis The Fed Enters the Classroom The Eighth District has been a supporter of economic education for decades, hosting teacher meetings and providing expert speakers. That role became more proactive in the mid-1990s with the hiring of Grifﬁtts, who began shaping a new direction for the program. The new direction Today, teachers remain they don’t understand economics, and they continued on Page 20 L ast spring, when St. Louis Fed econo- mittee (FOMC) meeting and make their own mist Mike Pakko traveled to Washing- monetary policy recommendations. ton, D.C., for the weekend, he spent most Pakko joined the Fed in 1993. He helped of the time hunkered in a hotel room dis- initiate the Eighth District’s Fed Challenge cussing economic data. program after he heard He probably won’t get about the New York Fed’s much sightseeing done involvement in the program. when he returns to the Fed Challenge isn’t the nation’s capital this only educational endeavor spring, either. on Pakko’s resume; he But Pakko considers teaches macroeconom- that a small sacriﬁce ics to college students at compared with the hours St. Louis University. The of research and study- high school students he ing put in by his annual traveling companions— the winning team from Mike Pakko >> Research Economist, Federal Reserve Bank of St. Louis the Eighth District Fed their older counterparts, “These kids are deﬁ- representing the Since 1998, Pakko has served as a coach for compare favorably with he says. Challenge competition, St. Louis Fed in D.C. at the national ﬁnals. coaches for Fed Challenge nitely the cream of the crop,” Pakko says. “And Fed Challenge is a great experience for them. They’re getting the Eighth District high school teachers and practical insight into the world of econom- students who participate in Fed Challenge, a ics by learning about the Federal Reserve. national competition in which students take This isn’t learning from textbooks; this is part in a mock Federal Open Market Com- real life.” 19 The need for greater public understanding of continued from Page 18 don’t understand issues, and they don’t understand topics like the deﬁcit and its impact on the economy, they’re not going to talk about those subjects in the classroom.” And what happens in the classroom can have a ripple effect in society at large, as students grow up to be adult decisionmakers, says St. Louis economics in general and the Fed’s monetary policy mission in particular is also apparent to economic education experts about what the Fed is in the Eighth District, and what the Fed does,” such as Mary Suiter, the Suiter says. “Many director of the University believe the Fed is print- of Missouri-St. Louis Cen- ing money and giving it to ter for Entrepreneurship banks. What they hear and Economic Education. and read through the “Both kids and adults have misconceptions media is sometimes inaccurate, too.” Suiter often works in Fed Public Affairs Ofﬁcer tandem with another Joe Elstner. economic education “We have a democracy specialist, Mary Anne in which citizens make 20 Pettit, associate director decisions, including eco- of the Ofﬁce of Economic nomic decisions, based Education and Business on the information they Research at Southern have,” Elstner says. “But Illinois University in even people with plenty Edwardsville. They serve of education in the ﬁeld as advisers for Grifﬁtts’ of economics often don’t really know the intricacies of monetary policymaking. At the Fed, that’s an important function that we know the public needs to understand better.” STUDENTS FROM BEAUMONT HIGH SCHOOL IN ST. LOUIS ATTEND A FED CHALLENGE WORKSHOP SPONSORED BY THE FEDERAL RESERVE BANK. voices[heard] programs, helping her to shape curriculum and present material at events such as the economic education conference held throughout the District each fall and the “Making Sense of Money and Banking” course that takes place in St. Louis every summer. “Society is not going to support and protect the Fed’s role and its independence if they don’t understand it,” Pettit says. “That won’t happen if they look at the Fed as a mysterious ivory tower. Our system works best if everyone understands how the Fed works and knows that they have a stake in the outcome.” continued on Page 23 The Fed’s teacher advisory boards provide valuable input on economic education programs. Economics isn’t a state requirement where Sam Rego teaches, at Butler Traditional High School in Louisville. But the subject is an integral component of Rego’s accounting classes—and by being a member of a St. Louis Fed teacher advisory board, Rego is helping to make economics the foundation of education in the Bluegrass State. “It’s a tough battle balancing between what the teachers are required to teach and what they want to teach,” says Rego, “but it’s easier to do that working with the Fed through its advisory boards.” Teacher advisory boards are a critical component of the Fed’s economic education efforts, serving as the antennae for collecting input and opinions from teachers throughout the Eighth District. Each advisory board is composed of approximately a dozen educators. (Some have businesspersons, as well.) The board’s main function is to tell Federal Reserve education specialists what educators need, what works and what doesn’t, and how educators and the Fed can better help each other. Most board members are middle and high school teachers like Rego, because the bulk of the Fed’s materials and assistance is geared toward those students. But some boards include a few primary and higher education teachers, such as Betty Evans, a second-grade teacher at Monticello Elementary School in Monticello, Ark. “I think these advisory boards are one of the best things that could happen to spread the word to other educators that economics needs to be in the schools at all levels,” says Evans. “It’s especially critical now. With all the national emphasis on reading and math, we can’t neglect the social studies, especially economics.” David Ballard, the St. Louis Fed’s economic education specialist in the Louisville Branch, agrees, adding, “We’d never want the advice of these talented teachers to go to waste—they do this unpaid on their own time, after all—so, we make sure that we’re doing everything we possibly can to help them advance economic education.” 21 22 BILLY BRITT (TOP RIGHT) , ECONOMIC EDUCATION COORDINATOR AT THE ST. LOUIS FED’S LITTLE ROCK BRANCH, POSES WITH STUDENTS FROM LITTLE ROCK CATHOLIC HIGH SCHOOL FOR BOYS, WHICH WON THE BRANCH’S FED CHALLENGE AREA COMPETITION. continued from Page 21 “A Tremendous Resource for Teachers” Coordinating a variety of publications and conferences throughout the year can be a tall order, particularly as the St. Louis Fed continues raw knowledge we have to add more economic available at the Fed from education programs our economists,” Grifﬁtts each year. Fortunately, from state councils and says. “And our teacher Grifﬁtts and her fellow centers on economic advisory board members economic education education, such as Suiter are wonderful in help- coordinators at the Dis- and Pettit. They also ing us to get ideas and to trict branches have help. take advantage of the stay current with what’s For starters, they rely expertise of the Fed’s going on in the economic heavily on the advice, own Research econo- education ﬁeld.” assistance and materials mists. In addition, they contributed by experts get a big boost from the grams and materials are District’s teacher advi- “a godsend” for teachers sory boards—groups of such as Peggy Pride of teachers throughout the St. Louis University High District’s seven-state ter- School. She teaches ritory who meet with Fed advanced placement staff regularly to share economics and relies input on economic edu- heavily on the Fed’s cation programs. “In all of our ofﬁces, we have contacts who can deliver hands-on activities that complement the MARY ANNE PETTIT The Fed’s courses, pro- continued on Page 26 23 T om Zehnder doesn’t go to many teacher the PowerPoint and bringing it to a college education workshops. They remind classroom that evening—hot off the presses, him of a bad trip to the dentist. “Just about all of them are about as fun so to speak. “One of the great things is that you’re get- as getting a root canal,” ting the latest information says Zehnder, a long-time about international trade economics and history or monetary policy from teacher at Trinity High an expert,” Zehnder says. School in Louisville and “The textbooks just can’t a part-time college pro- do that.” fessor. “They’re painful. But the Fed workshops 24 Zehnder has attended the conference for several are different. I get so years. He likes that the much out of them that I information he gets is can use in the classroom.” The St. Louis Fed’s annual teachers conference takes place in late summer or early fall. Tom Zehnder >> Economics and history teacher and part-time college professor at Trinity High School, University of Louisville and Bellarmine University, Louisville Teachers listen to Fed economists talk about the latest economic meaty enough not just for middle and high school students, but also for his college students at the University of Louisville and Bellarmine University. Some lessons in economics, Zehnder con- news. The economists encourage lots of dis- fesses, can “bog down so much, it’d drive a cussion, and they bring plenty of handouts. saint mad.” The Fed conference is not like One year, after a guest economist comple- that, he says. The economists offer real-life mented his talk with a PowerPoint presen- examples, not a bunch of theory. “It’s prac- tation, Zehnder remembers photo-copying tical,” Zehnder says. “It’s really good stuff.” Beyond the Classroom The St. Louis Fed’s economic education specialists are connecting with teachers and organizations across the Eighth District. St. Louis Fed Manager Dawn Grifﬁtts has been sounding the charge for economic education for the past 10 years. In 2004, when the branch ofﬁces began changing their focus from ﬁnancial services to public programs, Grifﬁtts’ efforts got a boost, with each branch hiring an economic education specialist: David Ballard in Louisville, Jeannette Bennett in Memphis and Billy Britt in Little Rock. Grifﬁtts still covers the St. Louis zone and oversees the District’s economic education efforts, working with branches on creating programs and contributing to the Federal Reserve System’s initiatives. “Teachers don’t just stumble upon the Federal Reserve and our programs; we have to ﬁnd them,” Grifﬁtts says. “Our three specialists are quite dedicated to that goal. Their past histories as educators give them a lot of credibility, which is a terriﬁc asset when they meet with teachers.” To fulﬁll their mission, the three specialists: • support District programs such as the annual teachers conference and the economic education essay contest; • contribute to Inside the Vault, the District’s economic education newsletter; • host teacher economic education workshops; • attend regional and national education conferences; and • build contacts with teachers, organizations and state councils throughout their areas of responsibility. Success is measured in how well they reach teachers. Since the expansion of the branch economic education programs in 2004, an increasing number of teachers have been using the District’s resources, participating in workshops and signing up for the economic education mailing list, Grifﬁtts says. “It shows that the Fed is fulﬁlling a need—and teachers are looking for what we’re providing,” she says. To promote economic education—and to increase understanding of the Federal Reserve itself—the three specialists build contacts with teachers and educational organizations throughout their zones. Spreading the word involves more than holding workshops or passing out materials. It involves building contacts and relationships. Ballard likes to get as creative as possible when talking to teachers, using such innovations as the Econ Café. Conceived as “the Starbucks of economic education,” the Econ Café is a place where teachers can share resources and have meetings with Ballard. The cafes are located off-site from the Louisville Branch. They are operated by the Kentucky Council on Economic Education and funded by local businesses. In the Memphis zone, Bennett plans to hold a third Mississippi statewide workshop in conjunction with the Atlanta Fed. “We work with other Reserve banks because, even though our boundaries cut through the middle of states, we’re still dealing with the same situations as Chicago or Atlanta; so, it makes sense to pool resources with those banks,” Bennett says. The specialists also partner with as many state and teacher organizations as possible. For example, this year Britt will be presenting state banking history at an Arkansas history workshop in conjunction with the Arkansas Council on Economic Education. “Most everyone who attends these workshops or uses the materials is thrilled,” Britt says. “One teacher even wished a workshop had been a full week.” Billy Britt, Little Rock 25 David Ballard, Louisville Jeannette Bennett, Memphis continued from Page 23 publications, data, web sites and other materials. “The Fed is a tremendous resource for teachers,” she says. “If you are teaching any type or amount of economics in the classroom, there is just no way you won’t fusing line graphs. As a beneﬁt by relying on their ﬁeld of study, economics materials.” could use some PR help, Suiter admits. Teachers like Pride are “In general, econom- most grateful for not only the information that the ics gets a bad name,” Fed presents at its events 26 also economics in general—a subject that, like she says. “People think and conferences, but also the Fed itself, is often of it as just supply and for the materials that help plagued by misunder- demand charts. They ask transform the subject standing and misconcep- us, ‘How can you teach matter into a classroom tions. With that bond this to kids, and why do lesson for kids. “We give in common, the Fed has they need to know it?’ them lessons that they joined forces with edu- My answer is that we’re can literally take right cators in a continuing teaching kids how to back to school and plug campaign to persuade make good decisions. into their teaching, usu- the public—and politi- We’re teaching them that ally with few changes,” cians—of the critical role scarcity exists and that says Grifﬁtts. of economics in school you can’t have every- These events and resources educate teachers about not only the Fed and its mission, but curriculums, even at the elementary level. Never Too Young to Learn Say the word “economics” to a group of adults, and you’re likely to inspire dreaded ﬂashbacks of overhead projector slides and con- continued on Page 29 27 S orry kids, but… provide lessons that you can’t have every- There is only so much ice cream in the world, and only so many factories that make it. How to teach such lessons in scarcity to thing you want. As the students get older, the teachers talk about ﬁnancial literacy, decision-making, entrepreneurship, and sup- students is part of what ply and demand.” teachers learn through High school students the Arkansas Council on Economic Education, Economics Challenge which hosts one-week and test their knowledge workshops and other of open markets, mon- programs to help teachers 28 can compete in the etary policy and similar in grades K-12 explain subjects. In the popular the economy to their Stock Market game, students. students in grades 4-12 About 350 teachers in rural, urban and suburban school districts attend the workshops Donna Wright >> Associate Director, Arkansas Council on Economic Education, Little Rock must make smart investment decisions as they manage hypothetical $100,000 portfolios. “Students always want every year at one of six university-based Cen- to know how they can ters for Economic Education, says Donna apply what they’re hearing in the class- Wright, associate director of the Arkansas room,” Wright says. “In economics, they are Council. learning ﬁnancial literacy, how to keep a “These are teachers who understand the check record, the importance of investing and value of teaching their students real-life how to be a wise decision-maker today and skills,” Wright says. “In kindergarten, you tomorrow.” “Do a Zoo” invites children to bring in stuffed animals, classify them (as a ﬁsh, reptile or mammal) and choose continued from Page 26 which animals to include choose between scarce thing you want. You have in a zoo display that will resources,” says Suiter. to prioritize and make be attended by their “They also learn about choices. classmates. capital resources when “Economics provides “In making choices, they set up the display.” a framework for mak- they’re using economic ing decisions. If more decision-making and school level—and even kids and adults had that learning about oppor- when they’re a few years framework, they would tunity cost and how to older—kids have a ten- At the elementary also make better political dency to believe that decisions and be more they can have everything, informed voters.” Pettit says. Most of the St. Louis “I don’t think young Fed’s programs are open people understand that to teachers at all levels, including elementary, middle and high school. Suiter and her co-workers at the UM-St. Louis center have developed programs for kids at every grade level, including a program for ﬁrstand second-graders called “Do a Zoo.” ST. LOUIS FED ECONOMIC EDUCATION MANAGER DAWN GRIFFITTS (FOREGROUND) LEADS A TEACHER ADVISORY BOARD MEETING. continued on Page 31 29 T he chess club is great. Varsity foot- Eighth District competition. So, the students ball gets the glory. But being on the better do their homework—and they do. Fed Challenge team, well, that’s something extra-special. “We had one girl on our team, and this was amazing, but Dr. Poole asked her a “If you look at the question from a speech time, dedication and the he had given earlier that intellect that’s required, week, and this girl recited it beats any activity on the speech almost verba- campus,” says Camille tim,” Collins says. Collins, an economics Many of Collins’ teacher at Germantown 30 students major in eco- High School in suburban nomics in college. They Memphis and an advisor certainly understand how to the school’s Fed Challenge team. The students study, they Camille Collins >> Economics teacher, Germantown High School, Memphis important economics is in everyday life. “Learning economics is do research and, then, one way to learn how to at the annual Fed Chal- be a productive citizen,” lenge competition in the says Collins, who was spring, they must answer honored as Tennessee’s complex questions about the economy. A Fed economist asks the questions at Economic Educator of the Year in 2001 by the University of Memphis’ Department of the regional Challenge. St. Louis Bank Economics. “As for me, it helps me keep up President Bill Poole quizzes students at the with everything going on in the world.” continued from Page 29 you have to trade off and make choices,” she says. “Studies show that kids have already made a lot of decisions by the time they get to sixth grade, such as what they’re spending money on and what they’re going to do. ing in recent years. The If you’re going to make an U.S. government’s No impression on kids and Child Left Behind Act their choices, you need of 2001 holds schools to get to them early. Simple programs such monetary policy to sec- accountable for student ond-graders, but you can test scores in reading as “Do a Zoo” can get that teach opportunity cost. and mathematics. Presi- lesson across in a fun and Taking economic con- dent George W. Bush’s painless manner, Pet- cepts and making them recently announced tit says. “Sometimes we simple is helpful for all of American Competitive- make things more com- us. You’re opening minds ness Initiative urges plex than they are,” she and turning lights on.” schools to focus more on says. “You can’t teach Working Economics into the Classroom Even if teachers don’t question the value of economics for young students, squeezing it into the curriculum presents more of a challenge. The old adage of “reading, ‘riting and ‘rithmetic” has taken on a new mean- math and science. As a result, teachers are forced to focus on those areas at the expense of continued on Page 33 31 TEENAGERS LEARN ABOUT MANAGING PERSONAL FINANCES AT A ST. LOUIS FED “YOUR PAYCHECK” WORKSHOP IN QUINCY, ILL. 32 ness education, math and even some language arts teachers,” Grifﬁtts says. For example, the St. Louis The annual Teach Chil- Fed’s 2003 fall teach- dren to Save Day event, ers conference focused in which volunteers from on the economics of the the Fed and community Great Depression. banks talk to elementary “We had lots of history school children about other subjects—such as teachers attend, many of the importance of per- economics, Suiter says. whom had never heard sonal savings, uses les- “So, if we want econom- the economic perspec- sons based on children’s ics to be taught, our best tive on the Great Depres- books. This approach hope is to ﬁnd a relevant sion before,” Grifﬁtts merges economics with way to integrate it into says. “They had mostly reading. the rest of the school heard only the histori- curriculum.” cal perspective. We actually spice up other gave them another way subjects for kids—rather and conferences, teach- to think about it and to than the other way ers of economics-only teach it.” around, Suiter says. “Kids continued from Page 31 At St. Louis Fed classes In fact, economics can usually ﬁnd themselves in are intrigued by money. the minority, Grifﬁtts says. If you can hook them by “We have social studies, history, government, busi- talking about money, you can infuse a lot more economics into the 33 encouraging signs for the future, though. Illinois and Kentucky already require students to take a personal ﬁnance course prior to graduation. Mismaterial to improve their knowledge.” Integration of economics into other subjects is likely to remain the rule in American classrooms, with only about one-third of states requiring high school students to take economics. As a result, there is less incentive for sissippi and Arkansas both require a course to be offered. Missouri will now require high school students to earn a halfcredit in personal ﬁnance, development experts, starting in fall 2006. as well. Whether adults Saving Our Future: Economics and Personal Finance These new require- districts to make room 34 ments are part of a grow- for pure economics ing trend among not just classes on the sched- educators but community ule. There are some or children are the audience, educators are concerned about the lack of personal ﬁnance knowledge and skills, as evidenced by Americans’ low rate of saving and high rate of credit-card debt and bankruptcy. The Federal Reserve has taken a leading role in the personal ﬁnance education campaign, sponsoring programs for both adults and students and taking part in events such as Teach Children continued on Page 37 ST. LOUIS FED RESEARCH DIRECTOR BOB RASCHE TALKS ABOUT THE FED’S ECONOMIC DATA SOURCES AT THE 2006 PROFESSORS CONFERENCE. T of economics and for any subject, whether class at St. Louis University High School it’s history, social studies or government, already have a strong background in social Pride says. “You can tie all kinds of eco- he 105 high school seniors in Peggy Pride’s advanced placement economics The Fed’s materials work for any level studies and history. nomic concepts to articles They’re ready to work that appear in the Fed’s hard and aim high in publications.” And her students won’t setting goals for their future—and to immerse have to become econo- themselves in the study of mists to put those concepts economics. into practice, she says. Pride has attended the “My major goal is to St. Louis Fed’s seminars produce better citizens and workshops and used the Fed’s materials for more than a decade. Peggy Pride >> Advanced place- ment economics teacher, St. Louis University High School, St. Louis who are well-informed and have good thinking skills,” Pride says. She is a member of the “Economics does that teacher advisory board because it’s about deci- for the Fed’s St. Louis sion-making. ofﬁce, helping to give “You become a better feedback and make recommendations about voter and a better citizen in terms of what economic education programs. decisions you’re making in the community, In October 2005, the Global Association of Teachers of Economics gave Pride its ﬁrstever John Morton Teacher of the Year award. and you understand how your life is affected by your own personal decisions.” 35 Life Lessons As more adults struggle to manage their money, personal ﬁnancial education for kids is a hot topic. 36 Balancing a checkbook, opening a savings account and understanding a credit-card agreement are skills that are critical to adult success—but can be learned at a young age. These days, teachers are becoming more involved in introducing children to the world of personal ﬁnance. “We can’t assume that all children are taught practical economic skills; so, the responsibility often falls to public education to ensure kids learn those lessons,” says St. Louis Fed Economic Education Manager Dawn Grifﬁtts. These days, unfortunately, the words of teachers might be a better guide than the example of adults. With debt at record-high levels and saving continuing to decline, personal ﬁnancial education has become a hot issue not just in classrooms but also in communities. The Federal Reserve System took a high-proﬁle role starting in 2002 when it rolled out “There’s a Lot to Learn about Money,” a national initiative to promote ﬁnancial literacy and encourage more programs in schools and neighborhoods. Since then, the St. Louis Fed has stepped up its involvement in personal ﬁnancial education in its own district, including efforts such as the following: • The Fed joined the Teach Children to Save initiative, in which volunteers from banks visit area classrooms and talk with ﬁrst-, second- and third-graders about budgeting, the importance of saving, recognizing needs and wants, and how interest makes money grow. The St. Louis Fed participated for the ﬁrst time in 2005, with 46 employees visiting schools to talk to more than 2,300 kids, and will continue its involvement in 2006. • St. Louis Fed employees helped to create and introduce the Your Paycheck program, a community initiative in which college student volunteers teach a two-hour course about managing personal ﬁnances to working teenagers who, in many cases, are earning their ﬁrst regular paycheck. Fed employees created and produced the Your Paycheck curriculum and class materials and also trained college student volunteers from Quincy University in Quincy, Ill., and Culver-Stockton College in Canton, Mo. • The St. Louis Fed’s Community Affairs employees have launched adult personal ﬁnancial education programs in cities throughout the District, covering topics ranging from getting out of debt to buying a home. With ﬁnancial services products and technology becoming more complex, the need for these programs will only increase in the future, says St. Louis Fed Community Affairs Ofﬁcer Glenda Wilson. “Our ultimate goal in supporting these programs,” Wilson says, “is to ensure that kids and adults have the real-life skills they need to be knowledgeable consumers, responsible citizens and effective participants in the global economy.” ����������������� ������ �������������������� �� continued from Page 34 to Save Day. “Personal ﬁnance is an application of economics,” Grifﬁtts says. “You have to make choices, and every future of others, but their choice you make incurs own economic outlook, a cost. Clearly, that is says Pettit. Your next job, the foundation for making your career, fulﬁlling good personal ﬁnancial your lifelong dreams— decisions.” all can revolve around Teaching children about the economic decisions saving money is taking you make. on added urgency now “The negative saving rate given the mistakes adults is a wake-up call: We have that they will be more have made, Suiter says, to help kids realize the aware of the choices noting that the U.S. sav- importance of saving.” they’re making and that ing rate is now negative Ultimately, the key to “What we’re hoping is life is a trade-off,” Pettit (with consumers spending successful economic says. “I’m not saying you $100.05 in 2005 for every education is to help have to have money to be $100 they made) for the students realize how it happy, but with any path ﬁrst time since the Great can improve not just the you choose, it’s important Depression. to understand that you “You can’t change the are making a choice and world in one day with there is a cost. Economic one lesson, but we want education, done prop- to draw attention to the erly, makes that point.” ■ need to save,” she says. For more information: • on the St. Louis Fed’s economic education programs: Go to our economic education web site at www.stlouisfed.org/education. Visit the “Teacher Resources” page to sign up for our economic education mailing list. • on the Federal Reserve System’s online economic education resources: Visit our economic education portal, www.federalreserveeducation.org. The site contains links to Fed publications, web sites and resources that can help educate the public about the Federal Reserve, economics and ﬁnancial education. • on the Fed’s personal ﬁnancial education resources: Visit our personal ﬁnancial education site at www.federalreserveeducation.org/pfed/. 37 boards [o f d i r e c t o r s ] thank you [retiring board members] We bid farewell and express our gratitude to those members of the Eighth District boards of directors who retired in 2005. Our appreciation and best wishes go out to the following: Little Rock David R. Estes Scott T. Ford Louisville Marjorie Z. Soyugenc Memphis James A. England St. Louis Lunsford W. Bridges Gayle P.W. Jackson 41 [little rock] Board of Directors Stephen M. Erixon CEO Baxter Regional Medical Center Mountain Home, Ark. 42 Sonja Yates Hubbard Chairman CEO E-Z Mart Stores Inc. Texarkana, Texas Phillip N. Baldwin President and CEO Southern Bancorp Arkadelphia, Ark. Federal Reserve Bank of St. Louis | Little Rock Branch Stephens Building | 111 Center St., Suite 1000 | Little Rock, AR 72201 43 Raymond E. Skelton Little Rock Robert A. Young III Chairman Arkansas Best Corp. Fort Smith, Ark. Sharon Priest Executive Director The Downtown Partnership Little Rock [louisville] Board of Directors John L. Huber President and CEO Louisville Water Co. Louisville 44 Gordon B. Guess Cornelius A. Martin Chairman President and CEO Martin Management Group Bowling Green, Ky. Chairman, President and CEO The Peoples Bank Marion, Ky. Federal Reserve Bank of St. Louis | Louisville Branch National City Tower | 101 S. Fifth St., Suite 1920 | Louisville, KY 40202 John Schroeder President Wabash Plastics Inc. Evansville, Ind. 45 L. Clark Taylor Jr. CEO Ephraim McDowell Health Danville, Ky. Norman E. Pfau Jr. President and CEO Geo. Pfau’s Sons Co. Inc. Jeffersonville, Ind. Steven E. Trager Chairman and CEO Republic Bank & Trust Co. Louisville [memphis] Board of Directors Levon Mathews President Regions Bank Memphis 46 Meredith B. Allen Vice President, Marketing Staple Cotton Cooperative Association Greenwood, Miss. Russell Gwatney Chairman President Gwatney Cos. Memphis Federal Reserve Bank of St. Louis | Memphis Branch 200 N. Main St. | Memphis, TN 38103 47 David P. Rumbarger Jr. President and CEO Community Development Foundation Tupelo, Miss. Hunter Simmons President and CEO First South Bank Jackson, Tenn. Thomas G. Miller President Southern Hardware Co. Inc. West Helena, Ark. [st. louis] Board of Directors Paul T. Combs President Baker Implement Co. Kennett, Mo. 48 Jay Fitzsimmons Irl F. Engelhardt Deputy Chairman Walter L. Metcalfe Jr. Chairman Peabody Energy St. Louis Chairman Partner Bryan Cave LLP St. Louis Cynthia J. Brinkley President AT&T Missouri St. Louis Senior Vice President of Finance and Treasurer Wal-Mart Stores Inc. Bentonville, Ark. Federal Reserve Bank of St. Louis One Federal Reserve Bank Plaza | Broadway and Locust Street | St. Louis, MO 63102 J. Thomas May 49 Chairman, President and CEO Simmons First National Corp. Pine Bluff, Ark. David R. Pirsein President and CEO First National Bank in Pinckneyville Pinckneyville, Ill. A. Rogers Yarnell II President Yarnell Ice Cream Co. Inc. Searcy, Ark. Lewis F. Mallory Jr. Chairman and CEO NBC Capital Corp. Starkville, Miss. [st. louis] Management Committee Karl Ashman Senior Vice President Judie Courtney Senior Vice President 50 Dave Sapenaro First Vice President and COO William Poole President and CEO Robert Rasche Senior Vice President 51 Mary Karr Senior Vice President Julie Stackhouse Senior Vice President [a message from]management ﬁrst in the Federal Reserve System to implement the entire Check 21 product suite. >> Successfully assumed volume from the Atlanta Treasury Check site as part of a consolidation that is projected to save the Treasury $600,000. F 52 or the Federal Reserve Bank of St. Louis, 2005 was a year marked by maintaining a standard of excellence in our day-to-day operations while also moving forward on some of the most important initiatives that are deﬁning our present and our future. The Treasury Relations and Support Ofﬁce oversaw the successful completion of 24 of the Federal Reserve System’s 25 Treasury-related key objectives for the year. One of the major success stories was the TRSO’s launch of the national Go Direct campaign, focused on converting Social Security recipients to direct deposit. The District’s Branching Out initiative maintained and improved upon its 2004 success, with an increase in programs and attendance as the District continued its focus on community affairs, economic education, regional research and monetary policy in our branch cities. The St. Louis check operation performed well, and signiﬁcant progress was made in stabilizing the Memphis check operation after the U.S. Treasury Support ofﬁce absorbed the Little Rock check volume in late 2004. The new Little Rock cash depot performed extremely well during its ﬁrst full year of operation. Our Memphis ofﬁce provided key contingency support to the New Orleans ofﬁce as a “buddy branch” in the aftermath of Hurricane Katrina, providing paying and receiving services to the Sixth District via extended hours and weekend operations. Our employees continued to focus on four Bank-wide initiatives begun in 1999-2000 to improve our performance and build our capability to do more in the future: risk management, customer service, staff development and employee communications. In addition, the Bank launched an organizational initiative in 2005 to improve innovation, with training and tools provided to employees to encourage a more innovative climate. What follows are highlights of the District’s 2005 accomplishments: Financial Services >> Exceeded its revenue target by $3.6 million, or 10.7 percent. >> Check 21 activity grew signiﬁcantly throughout the year, and the District was the >> Implemented 11 applica- tion releases on the Treasury Web Application Infrastructure (TWAI) and an additional ﬁve releases on other platforms outside the TWAI. >> The Treasury more than doubled the amount of funds invested through the Term Investment Option program over the previous ﬁscal year, earning an additional $19.2 million over what would have been earned had the funds been invested in the Treasury Tax and Loan program. Public Affairs and Community Affairs >> Community Affairs conducted 34 sponsored meetings, which included the ﬁnale of a community development speaker series in Little Rock, a Hispanic immigrant event in Louisville, a summit on accessing community development capital in St. Louis and a major conference in Memphis on entrepreneurship. >> In economic education, St. Louis and the other three branch ofﬁces conducted or participated signiﬁcantly in 62 conferences, workshops, training courses, presentations and other outreach events. >> Conducted ﬁve economic forums, allowing President Bill Poole to interact with business and banking audiences throughout the District. >> Helped create the Your Paycheck program to support ﬁnancial literacy efforts. The program, delivered through a two-hour class taught by college students, covers ﬁnancial information of interest to working teens. Research/Monetary Policy Performance >> The number of articles published by Research staff (or accepted for publication) was 58, up from 41 during 2004. In addition, staff economists ﬁnished 75 new working papers, up from 34 in 2004, with more than 30 additional articles revised from previous years. >> Introduced the Archival FRED System (ALFRED), which helped contribute to a 40 percent increase in trafﬁc on the division’s web pages compared with the previous year. ALFRED provides historical data of series already available in FRED (Federal Reserve Economic Data). signiﬁcant leadership to a strategic effort to better align Supervision examiner training with changing business needs. Administrative Services >> Completed construc- >> The Business and Economic Research Group (BERG) held its ﬁrst meeting in the spring. The papers from the meeting were published in a new web-only research journal titled Regional Economic Development. >> Held a conference on education ﬁnance, in conjunction with the Weidenbaum Center of Washington University. Banking Supervision, Credit and Center for Online Learning >> Successfully met all examination and inspection mandates and provided highly effective supervision of District state member banks and bank holding companies. >> Consumer Affairs conducted all 36 mandated supervisory events in accordance with System requirements. All supervisory reports were processed and communicated to constituents in a timely manner—33 percent faster than System guidelines. >> The Center for Online Learning provided eLearning consultation and development services to numerous business lines and also contributed tion of the plaza and the new screening vestibule at the St. Louis ofﬁce, as well as the design for the building addition in the second phase of the St. Louis remodeling project. >> Constructed a new Protection command center. >> Completed the renovation of the third ﬂoor of the Memphis branch. Organizational Initiatives >> Completed the rollout of the Enterprise Risk Management (ERM) initiative to nonﬁnancial reporting areas, with eight business areas assessing their risks using risk categories deﬁned by the System’s ERM work group. >> Continued efforts through the Customer Service Program Ofﬁce to sustain a serviceoriented culture throughout the District, with all divisions exceeding customer service targets. >> Continued the focus on leadership development by implementing a mentoring program and offering more leadership training. ■ 53 financial [statements] For the years ended December 31, 2005 and 2004 56 The ﬁrm engaged by the Board of Governors for the audits of the individual and combined ﬁnancial statements of the Reserve Banks for 2005 was PricewaterhouseCoopers LLP (PwC). Fees for these services totaled $4.6 million. To ensure auditor independence, the Board of Governors requires that PwC be independent in all matters relating to the audit. Speciﬁcally, PwC may not perform services for the Reserve Banks or others that would place it in a position of auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other way impairing its audit independence. In 2005, the Bank did not engage PwC for any material advisory services. TO THE BOARD OF DIRECTORS: March 2, 2006 The management of the Federal Reserve Bank of St. Louis (“the Bank”) is responsible for the preparation and fair presentation of the Statement of Financial Condition, Statement of Income and Statement of Changes in Capital as of December 31, 2005 (the “Financial Statements”). The Financial Statements have been prepared in conformity with the accounting principles, policies and practices established by the Board of Governors of the Federal Reserve System and as set forth in the Financial Accounting Manual for the Federal Reserve Banks (“Manual”), and as such, include amounts, some of which are based on judgments and estimates of management. To our knowledge, the Financial Statements are, in all material respects, fairly presented in conformity with the accounting principles, policies and practices documented in the Manual and include all disclosures necessary for such fair presentation. Also, we are not aware of any material fraud and any other fraud that, although not material, involves management or other employees who have a signiﬁcant role in the Bank’s internal control. The management of the Bank is responsible for maintaining an effective process of internal controls over ﬁnancial reporting, including the safeguarding of assets, as they relate to the Financial Statements. Such internal controls are designed to provide reasonable assurance to management and to the Board of Directors regarding the preparation of reliable Financial Statements. This process of internal controls contains self-monitoring mechanisms, including, but not limited to, divisions of responsibility and a code of conduct. Once identiﬁed, any material deﬁciencies in the process of internal controls are reported to management, and appropriate corrective measures are implemented. Even an effective process of internal controls, no matter how well-designed, has inherent limitations, including the possibility of human error, and therefore can provide only reasonable assurance with respect to the preparation of reliable ﬁnancial statements. The management of the Bank assessed its process of internal controls over ﬁnancial reporting, including the safeguarding of assets reﬂected in the Financial Statements, based upon the criteria established in the “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we believe that the Bank maintained an effective process of internal controls over ﬁnancial reporting, including the safeguarding of assets, as they relate to the Financial Statements. Federal Reserve Bank of St. Louis WILLIAM POOLE, President and Chief Executive Ofﬁcer DAVID A. SAPENARO, First Vice President and Chief Operating Ofﬁcer MARILYN K. CORONA, Vice President, Chief Financial Ofﬁcer 57 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE BANK OF ST. LOUIS: We have examined management’s assertion, included in the accompanying Management Assertion, that the Federal Reserve Bank of St. Louis (“FRB St. Louis”) maintained effective internal control over ﬁnancial reporting and the safeguarding of assets as of December 31, 2005, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. FRB St. Louis’ management is responsible for maintaining effective internal control over ﬁnancial reporting and safeguarding of assets. Our responsibility is to express an opinion on management’s assertion based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certiﬁed Public Accountants and, accordingly, included obtaining an understanding of internal control over ﬁnancial reporting, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of internal control over ﬁnancial reporting to future periods are subject to the risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management’s assertion that FRB St. Louis maintained effective internal control over ﬁnancial reporting and over the safeguarding of assets as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. 58 This report is intended solely for the information and use of management and the Board of Directors and Audit Committee of FRB St. Louis, and any organization with legally deﬁned oversight responsibilities, and is not intended to be and should not be used by anyone other than these speciﬁed parties. March 8, 2006 St. Louis, Missouri REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE BANK OF ST. LOUIS: We have audited the accompanying statements of condition of the Federal Reserve Bank of St. Louis (the “Bank”) as of December 31, 2005 and 2004, and the related statements of income and changes in capital for the years then ended, which have been prepared in conformity with the accounting principles, policies and practices established by the Board of Governors of the Federal Reserve System. These ﬁnancial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these ﬁnancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁnancial statements. An audit also includes assessing the accounting principles used and signiﬁcant estimates made by management, as well as evaluating the overall ﬁnancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 3, these ﬁnancial statements were prepared in conformity with the accounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System. These principles, policies and practices, which were designed to meet the specialized accounting and reporting needs of the Federal Reserve System, are set forth in the Financial Accounting Manual for Federal Reserve Banks and constitute a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the ﬁnancial statements referred to above present fairly, in all material respects, the ﬁnancial position of the Bank as of December 31, 2005 and 2004, and results of its operations for the years then ended, on the basis of accounting described in Note 3. 59 March 8, 2006 St. Louis, Missouri FEDERAL RESERVE BANK OF ST. LOUIS STATEMENTS OF CONDITION (in millions) As of December 31, 2005 2004 ASSETS Gold certiﬁcates $ 327 $ 325 Special drawing rights certiﬁcates 71 Coin 43 36 216 348 Loans to depository institutions - 2 U.S. government securities, net Items in process of collection 71 23,279 21,317 Investments denominated in foreign currencies 379 551 Accrued interest receivable 181 149 2,010 1,401 Bank premises and equipment, net 87 85 Other assets 54 Interdistrict settlement account TOTAL ASSETS 41 $ 26,647 $ 24,326 $ 24,602 $ 22,187 LIABILITIES AND CAPITAL Liabilities: Federal Reserve notes outstanding, net Securities sold under agreements to repurchase 947 904 482 479 Deposits: Depository institutions Other deposits 3 Deferred credit items 60 3 151 197 Interest on Federal Reserve notes due U.S. Treasury 106 21 57 54 Accrued beneﬁt costs Other liabilities 11 9 26,359 23,854 Capital paid-in 144 236 Surplus 144 236 288 472 TOTAL LIABILITIES Capital: TOTAL CAPITAL TOTAL LIABILITIES AND CAPITAL The accompanying notes are an integral part of these ﬁnancial statements. $ 26,647 $ 24,326 FEDERAL RESERVE BANK OF ST. LOUIS STATEMENTS OF INCOME (in millions) As of December 31, 2005 2004 Interest income: Interest on U.S. government securities $ 861 $ 657 Interest on investments denominated in foreign currencies 6 Interest on loans to depository institutions 1 - 868 664 TOTAL INTEREST INCOME 7 Interest expense: Interest expense on securities sold under agreements to repurchase 25 9 843 655 - NET INTEREST INCOME 40 Other operating income: Income from services Compensation received for check services provided 22 91 (57) Foreign currency (losses) gains, net - 112 Reimbursable services to government agencies 31 Other income 3 2 80 164 Salaries and other beneﬁts 89 82 Occupancy expense 10 9 Equipment expense 7 9 22 23 103 86 TOTAL OTHER OPERATING INCOME Operating expenses: Assessments by the Board of Governors Other expenses TOTAL OPERATING EXPENSES 231 Net income prior to distribution 209 $ 692 $ 610 $ 16 $ 13 Distribution of net income: Dividends paid to member banks Transferred (from)/to surplus (92) TOTAL DISTRIBUTION $ 8 768 Payments to U.S. Treasury as interest on Federal Reserve notes 589 692 $ 610 The accompanying notes are an integral part of these ﬁnancial statements. FEDERAL RESERVE BANK OF ST. LOUIS STATEMENTS OF CHANGES IN CAPITAL for the years ended December 31, 2005, and December 31, 2004 (in millions) CAPITAL PAID-IN SURPLUS TOTAL CAPITAL Balance at January 1, 2004 (4.6 million shares) $ 228 $ Transferred to surplus 228 $ 8 456 8 Net change in capital stock issued (0.1 million shares) 8 8 Balance at December 31, 2004 (4.7 million shares) $ 236 $ Transferred from surplus 236 $ (92) 472 (92) Net change in capital stock redeemed (1.8 million shares) (92) (92) Balance at December 31, 2005 (2.9 million shares) The accompanying notes are an integral part of these ﬁnancial statements. $ 144 $ 144 $ 288 61 FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS NOTE 1 STRUCTURE 62 The Federal Reserve Bank of St. Louis (“Bank”) is part of the Federal Reserve System (“System”) and one of the twelve Reserve Banks (“Reserve Banks”) created by Congress under the Federal Reserve Act of 1913 (“Federal Reserve Act”), which established the central bank of the United States. The Reserve Banks are chartered by the federal government and possess a unique set of governmental, corporate and central bank characteristics. The Bank and its branches in Little Rock, Louisville and Memphis serve the Eighth Federal Reserve District, which includes Arkansas, and portions of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. In accordance with the Federal Reserve Act, supervision and control of the Bank are exercised by a Board of Directors. The Federal Reserve Act speciﬁes the composition of the Board of Directors for each of the Reserve Banks. Each board is composed of nine members serving three-year terms: three directors, including those designated as Chairman and Deputy Chairman, are appointed by the Board of Governors, and six directors are elected by member banks. Banks that are members of the System include all national banks and any state-chartered banks that apply and are approved for membership in the System. Member banks are divided into three classes according to size. Member banks in each class elect one director representing member banks and one representing the public. In any election of directors, each member bank receives one vote, regardless of the number of shares of Reserve Bank stock it holds. The System also consists, in part, of the Board of Governors of the Federal Reserve System (“Board of Governors”) and the Federal Open Market Committee (“FOMC”). The Board of Governors, an independent federal agency, is charged by the Federal Reserve Act with a number of speciﬁc duties, including general supervision over the Reserve Banks. The FOMC is composed of members of the Board of Governors, the president of the Federal Reserve Bank of New York (“FRBNY”) and, on a rotating basis, four other Reserve Bank presidents. NOTE 2 OPERATIONS AND SERVICES The System performs a variety of services and operations. Functions include formulating and conducting monetary policy; participating actively in the payments system, including large-dollar transfers of funds, automated clearinghouse (“ACH”) operations and check processing; distributing coin and currency; performing ﬁscal agency functions for the U.S. Treasury and certain federal agencies; serving as the federal government’s bank; providing short-term loans to depository institutions; serving the consumer and the community by providing educational materials and information regarding consumer laws; supervising bank holding companies, state member banks and U.S. ofﬁces of foreign banking organizations; and administering other regulations of the Board of Governors. The System also provides certain services to foreign central banks, governments and international ofﬁcial institutions. The FOMC, in the conduct of monetary policy, establishes policy regarding domestic open market operations, oversees these operations, and annually issues authorizations and directives to the FRBNY for its execution of transactions. FRBNY is authorized to conduct operations in domestic markets, including direct purchase and sale of U.S. government securities, the purchase of securities under agreements to resell, the sale of securities under agreements to repurchase, and the lending of U.S. government securities. FRBNY executes these open market transactions and holds the resulting securities, with the exception of securities purchased under agreements to resell, in the portfolio known as the System Open Market Account (“SOMA”). In addition to authorizing and directing operations in the domestic securities market, the FOMC authorizes and directs FRBNY to execute operations in foreign markets for major currencies in order to counter disorderly conditions in exchange markets or to meet other needs speciﬁed by the FOMC in carrying out the System’s central bank responsibilities. The FRBNY is authorized by the FOMC to hold balances of and to execute spot and forward foreign exchange (“F/X”) and securities contracts for nine foreign currencies, and to invest such foreign currency holdings, ensuring adequate liquidity is maintained. In addition, FRBNY is authorized to maintain reciprocal currency arrangements (“F/X swaps”) with two central banks, and “warehouse” foreign currencies for the U.S. Treasury and Exchange Stabilization Fund (“ESF”) through the Reserve Banks. In connection with its foreign currency activities, FRBNY may enter into contracts that contain varying degrees of off-balance-sheet market risk, because they represent contractual commitments involving future settlement and counter-party credit risk. The FRBNY controls credit risk by obtaining credit approvals, establishing transaction limits and performing daily monitoring procedures. Although Reserve Banks are separate legal entities, in the interests of greater efﬁciency and effectiveness, they collaborate in the delivery of certain operations and services. The collaboration takes the form of centralized competency centers, operations sites, and product or service ofﬁces that have responsibility for the delivery of certain services on behalf of the Reserve Banks. Various operational and management models are used and are supported by service agreements between the Reserve Bank providing the service and the other eleven Reserve Banks. In some cases, costs incurred by a Reserve Bank for services provided to other Reserve Banks are not shared; in other cases, Reserve Banks are billed for services provided to them by another Reserve Bank. Major services provided on behalf of the System by the Bank, for which the costs were not redistributed to the other Reserve Banks, include operation of the Treasury Relations and Support Ofﬁce and the Treasury Relations and Systems Support Department, which provide services to the U.S. Treasury. These services include: relationship management, strategic consulting, and oversight for ﬁscal and payments related projects for the Federal Reserve System; and operational support for the Treasury’s tax collection, cash management and collateral monitoring. Beginning in 2005, the Reserve Banks adopted a new management model for providing check services to depository institutions. Under this new model, the Federal Reserve Bank of Atlanta (“FRBA”) has the overall responsibility for managing the Reserve Banks’ provision of check services and recognizes total System check revenue on its Statements of Income. FRBA compensates the other eleven Banks for the costs incurred to provide check services. This compensation is reported as “Compensation received for check services provided” in the Statements of Income. If the management model had been in place in 2004, the Bank would have reported $28 million as compensation received for check services provided, and $40 million in check revenue would have been reported by FRBA rather than the Bank. NOTE 3 SIGNIFICANT ACCOUNTING POLICIES Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been formulated by the various accounting standard-setting bodies. The Board of Governors has developed specialized accounting principles and practices that it believes are appropriate for the signiﬁcantly different nature and function of a central bank as compared with the private sector. These accounting principles and practices are documented in the Financial Accounting Manual for Federal Reserve Banks (“Financial Accounting Manual”), which is issued by the Board of Governors. All Reserve Banks are required to adopt and apply accounting policies and practices that are consistent with the Financial Accounting Manual, and the ﬁnancial statements have been prepared in accordance with the Financial Accounting Manual. FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS Differences exist between the accounting principles and practices in the Financial Accounting Manual and those generally accepted in the United States (“GAAP”), primarily due to the unique nature of the Bank’s powers and responsibilities as part of the nation’s central bank. The primary difference is the presentation of all security holdings at amortized cost, rather than using the fair value presentation requirements in accordance with GAAP. Amortized cost more appropriately reﬂects the Bank’s security holdings given its unique responsibility to conduct monetary policy. While the application of current market prices to the securities holdings may result in values substantially above or below their carrying values, these unrealized changes in value would have no direct affect on the quantity of reserves available to the banking system or on the prospects for future Bank earnings or capital. Both the domestic and foreign components of the SOMA portfolio may involve transactions that result in gains or losses when holdings are sold prior to maturity. Decisions regarding security and foreign currency transactions, including their purchase and sale, are motivated by monetary policy objectives rather than proﬁt. Accordingly, market values, earnings, and any gains or losses resulting from the sale of such securities and currencies are incidental to the open market operations and do not motivate activities or policy decisions. In addition, the Bank has elected not to present a Statement of Cash Flows because the liquidity and cash position of the Bank are not a primary concern, given the Bank’s unique powers and responsibilities. A Statement of Cash Flows, therefore, would not provide any additional meaningful information. Other information regarding the Bank’s activities is provided in, or may be derived from, the Statements of Condition, Income and Changes in Capital. There are no other signiﬁcant differences between the policies outlined in the Financial Accounting Manual and GAAP. The preparation of the ﬁnancial statements in conformity with the Financial Accounting Manual requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the ﬁnancial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Unique accounts and signiﬁcant accounting policies are explained below. A. GOLD AND SPECIAL DRAWING RIGHTS CERTIFICATES The Secretary of the U.S. Treasury is authorized to issue gold and special drawing rights (“SDR”) certiﬁcates to the Reserve Banks. Payment for the gold certiﬁcates by the Reserve Banks is made by crediting equivalent amounts in dollars into the account established for the U.S. Treasury. These gold certiﬁcates held by the Reserve Banks are required to be backed by the gold of the U.S. Treasury. The U.S. Treasury may reacquire the gold certiﬁcates at any time and the Reserve Banks must deliver them to the U.S. Treasury. At such time, the U.S. Treasury’s account is charged, and the Reserve Banks’ gold certiﬁcate accounts are lowered. The value of gold for purposes of backing the gold certiﬁcates is set by law at $42 2/9 a ﬁne troy ounce. The Board of Governors allocates the gold certiﬁcates among Reserve Banks once a year based on the average Federal Reserve notes outstanding in each Reserve Bank. Special drawing rights (“SDRs”) are issued by the International Monetary Fund (“Fund”) to its members in proportion to each member’s quota in the Fund at the time of issuance. SDRs serve as a supplement to international monetary reserves and may be transferred from one national monetary authority to another. Under the law providing for United States participation in the SDR system, the Secretary of the U.S. Treasury is authorized to issue SDR certiﬁcates, somewhat like gold certiﬁcates, to the Reserve Banks. At such time, equivalent amounts in dollars are credited to the account established for the U.S. Treasury, and the Reserve Banks’ SDR certiﬁcate accounts are increased. The Reserve Banks are required to purchase SDR certiﬁcates, at the direction of the U.S. Treasury, for the purpose of ﬁnancing SDR acquisitions or for ﬁnancing exchange stabilization operations. At the time SDR transactions occur, the Board of Governors allocates SDR certiﬁcate transactions among Reserve Banks based upon Federal Reserve notes outstanding in each District at the end of the preceding year. There were no SDR transactions in 2005 or 2004. B. LOANS TO DEPOSITORY INSTITUTIONS All depository institutions that maintain reservable transaction accounts or nonpersonal time deposits, as deﬁned in regulations issued by the Board of Governors, have borrowing privileges at the discretion of the Reserve Bank. Borrowers execute certain lending agreements and deposit sufﬁcient collateral before credit is extended. Loans are evaluated for collectibility, and currently all are considered collectible and fully collateralized. If loans were ever deemed to be uncollectible, an appropriate reserve would be established. Interest is accrued using the applicable discount rate established at least every fourteen days by the Board of Directors of the Reserve Bank, subject to review by the Board of Governors. C. U.S. GOVERNMENT SECURITIES AND INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES U.S. government securities and investments denominated in foreign currencies comprising the SOMA are recorded at cost, on a settlement-date basis, and adjusted for amortization of premiums or accretion of discounts on a straight-line basis. Interest income is accrued on a straight-line basis. Gains and losses resulting from sales of securities are determined by speciﬁc issues based on average cost. Foreign-currency-denominated assets are revalued daily at current foreign currency market exchange rates in order to report these assets in U.S. dollars. Realized and unrealized gains and losses on investments denominated in foreign currencies are reported as “Foreign currency (losses) gains, net.” Activity related to U.S. government securities, including the related premiums, discounts, and realized and unrealized gains and losses, is allocated to each Reserve Bank on a percentage basis derived from an annual settlement of interdistrict clearings that occurs in April of each year. The settlement equalizes Reserve Bank gold certiﬁcate holdings to Federal Reserve notes outstanding in each District. Activity related to investments in foreign-currency-denominated assets is allocated to each Reserve Bank based on the ratio of each Reserve Bank’s capital and surplus to aggregate capital and surplus at the preceding December 31. D. U.S. GOVERNMENT SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SECURITIES LENDING Securities sold under agreements to repurchase are accounted for as ﬁnancing transactions and the associated interest expense is recognized over the life of the transaction. These transactions are carried in the Statements of Condition at their contractual amounts and the related accrued interest is reported as a component of “Other liabilities.” U.S. government securities held in the SOMA are lent to U.S. government securities dealers and to banks participating in U.S. government securities clearing arrangements in order to facilitate the effective functioning of the domestic securities market. Securitieslending transactions are fully collateralized by other U.S. government securities and the collateral taken is in excess of the market value of the securities loaned. The FRBNY charges the dealer or bank a fee for borrowing securities and the fees are reported as a component of “Other Income” in the Statements of Income. Activity related to U.S. government securities sold under agreements to repurchase and securities lending is allocated to each Reserve Bank on a percentage basis derived from the annual settlement of interdistrict clearings. Securities purchased under agreements to resell are allocated to FRBNY and not to the other Banks. E. FOREIGN CURRENCY SWAPS AND WAREHOUSING F/X swap arrangements are contractual agreements between two parties to exchange speciﬁed currencies, at a speciﬁed price, on a 63 FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS speciﬁed date. The parties agree to exchange their currencies up to a pre-arranged maximum amount and for an agreed-upon period of time (up to twelve months), at an agreed-upon interest rate. These arrangements give the FOMC temporary access to the foreign currencies it may need to intervene to support the dollar and give the counterparty temporary access to dollars it may need to support its own currency. Drawings under the F/X swap arrangements can be initiated by either FRBNY or the counterparty (the drawer) and must be agreed to by the drawee. The F/X swaps are structured so that the party initiating the transaction bears the exchange rate risk upon maturity. FRBNY will generally invest the foreign currency received under an F/X swap in interest-bearing instruments. Warehousing is an arrangement under which the FOMC agrees to exchange, at the request of the U.S. Treasury, U.S. dollars for foreign currencies held by the U.S. Treasury or ESF over a limited period of time. The purpose of the warehousing facility is to supplement the U.S. dollar resources of the U.S. Treasury and ESF for ﬁnancing purchases of foreign currencies and related international operations. Foreign currency swaps and warehousing agreements are revalued daily at current market exchange rates. Activity related to these agreements, with the exception of the unrealized gains and losses resulting from the daily revaluation, is allocated to each Reserve Bank based on the ratio of each Reserve Bank’s capital and surplus to aggregate capital and surplus at the preceding December 31. Unrealized gains and losses resulting from the daily revaluation are allocated to FRBNY and not to the other Reserve Banks. F. BANK PREMISES, EQUIPMENT AND SOFTWARE 64 Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over estimated useful lives of assets ranging from one to ﬁfty years. Major alterations, renovations and improvements are capitalized at cost as additions to the asset accounts and are amortized over the remaining useful life of the asset. Maintenance, repairs and minor replacements are charged to operating expense in the year incurred. Capitalized assets including software, building, leasehold improvements, furniture and equipment are impaired when it is determined that the net realizable value is signiﬁcantly less than book value and is not recoverable. Costs incurred for software, either developed internally or acquired for internal use, during the application development stage are capitalized based on the cost of direct services and materials associated with designing, coding, installing or testing software. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software applications, which range from one to ﬁve years. G. INTERDISTRICT SETTLEMENT ACCOUNT At the close of business each day, each Reserve Bank assembles the payments due to or from other Reserve Banks as a result of the day’s transactions that involve depository institution accounts held by other Districts. Such transactions may include funds settlement, check clearing and ACH operations. The cumulative net amount due to or from the other Reserve Banks is reﬂected in the “Interdistrict settlement account” in the Statements of Condition. H. FEDERAL RESERVE NOTES Federal Reserve notes are the circulating currency of the United States. These notes are issued through the various Federal Reserve agents (the Chairman of the Board of Directors of each Reserve Bank) to the Reserve Banks upon deposit with such agents of certain classes of collateral security, typically U.S. government securities. These notes are identiﬁed as issued to a speciﬁc Reserve Bank. The Federal Reserve Act provides that the collateral security tendered by the Reserve Bank to the Federal Reserve agent must be equal to the sum of the notes applied for by such Reserve Bank. Assets eligible to be pledged as collateral security include all Bank assets. The collateral value is equal to the book value of the collateral tendered, with the exception of securities, whose collateral value is equal to the par value of the securities tendered. The par value of securities pledged for securities sold under agreements to repurchase is deducted. The Board of Governors may, at any time, call upon a Reserve Bank for additional security to adequately collateralize the Federal Reserve notes. To satisfy the obligation to provide sufﬁcient collateral for outstanding Federal Reserve notes, the Reserve Banks have entered into an agreement that provides for certain assets of the Reserve Banks to be jointly pledged as collateral for the Federal Reserve notes of all Reserve Banks. In the event that this collateral is insufﬁcient, the Federal Reserve Act provides that Federal Reserve notes become a ﬁrst and paramount lien on all the assets of the Reserve Banks. Finally, as obligations of the United States, Federal Reserve notes are backed by the full faith and credit of the U.S. government. The “Federal Reserve notes outstanding, net” account represents the Bank’s Federal Reserve notes outstanding, reduced by the currency issued to the Bank but not in circulation, of $3,494 million and $2,819 million at December 31, 2005 and 2004, respectively. I. ITEMS IN PROCESS OF COLLECTION AND DEFERRED CREDIT ITEMS The balance in the “Items in process of collection” line in the Statements of Condition primarily represents amounts attributable to checks that have been deposited for collection by the payee depository institution and, as of the balance sheet date, have not yet been collected from the payor depository institution. Deferred credit items are the counterpart liability to items in process of collection, and the amounts in this account arise from deferring credit for deposited items until the amounts are collected. The balances in both accounts can ﬂuctuate and vary signiﬁcantly from day to day. J. CAPITAL PAID-IN The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to 6 percent of the capital and surplus of the member bank. These shares are nonvoting with a par value of $100 and may not be transferred or hypothecated. As a member bank’s capital and surplus changes, its holdings of Reserve Bank stock must be adjusted. Currently, only one-half of the subscription is paid-in and the remainder is subject to call. By law, each Bank is required to pay each member bank an annual dividend of 6 percent on the paid-in capital stock. This cumulative dividend is paid semiannually. A member bank is liable for Reserve Bank liabilities up to twice the par value of stock subscribed by it. K. SURPLUS The Board of Governors requires Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31. This amount is intended to provide additional capital and reduce the possibility that the Reserve Banks would be required to call on member banks for additional capital. Pursuant to Section 16 of the Federal Reserve Act, Reserve Banks are required by the Board of Governors to transfer to the U.S. Treasury as interest on Federal Reserve notes excess earnings, after providing for the costs of operations, payment of dividends and reservation of an amount necessary to equate surplus with capital paid-in. In the event of losses or an increase in capital paid-in at a Reserve Bank, payments to the U.S. Treasury are suspended and earnings are retained until the surplus is equal to the capital paid-in. Weekly payments to the U.S. Treasury may vary signiﬁcantly. In the event of a decrease in capital paid-in, the excess surplus, after equating capital paid-in and surplus at December 31, is distributed to the U.S. Treasury in the following year. This amount is reported as a component of “Payments to U.S. Treasury as interest on Federal Reserve notes.” FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS L. INCOME AND COSTS RELATED TO U.S. TREASURY SERVICES The Bank is required by the Federal Reserve Act to serve as ﬁscal agent and depository of the United States. By statute, the Department of the Treasury is permitted, but not required, to pay for these services. M. ASSESSMENTS BY THE BOARD OF GOVERNORS The Board of Governors assesses the Reserve Banks to fund its operations based on each Reserve Bank’s capital and surplus balances. The Board of Governors also assesses each Reserve Bank for the expenses incurred for the U.S. Treasury to issue and retire Federal Reserve notes based on each Reserve Bank’s share of the number of notes comprising the System’s net liability for Federal Reserve notes on December 31 of the previous year. At December 31, 2005 and 2004, the total contract amount of securities sold under agreements to repurchase was $30,505 million and $30,783 million, respectively, of which $947 million and $904 million were allocated to the Bank. The total par value of the SOMA securities pledged for securities sold under agreements to repurchase at December 31, 2005 and 2004, was $30,559 million and $30,808 million, respectively, of which $948 million and $905 million were allocated to the Bank. The maturity distribution of U.S. government securities bought outright and securities sold under agreements to repurchase, that were allocated to the Bank at December 31, 2005, was as follows (in millions): U.S. Government Securities (Par Value) N. TAXES The Reserve Banks are exempt from federal, state and local taxes, except for taxes on real property. The Bank’s real property taxes were $545 thousand and $477 thousand for the years ended December 31, 2005 and 2004, respectively, and are reported as a component of “Occupancy expense.” MATURITIES OF SECURITIES HELD Within 15 days $ 1,273 In 2003, the System began the restructuring of several operations, primarily check, cash and U.S. Treasury services. The restructuring included streamlining the management and support structures, reducing staff, decreasing the number of processing locations, and increasing processing capacity in the remaining locations. These restructuring activities continued in 2004 and 2005. Footnote 10 describes the restructuring and provides information about the Bank’s costs and liabilities associated with employee separations and contract terminations. The costs associated with the write-down of certain Bank assets are discussed in footnote 6. Costs and liabilities associated with enhanced pension beneﬁts in connection with the restructuring activities for all Reserve Banks are recorded on the books of the FRBNY and those associated with enhanced post-retirement beneﬁts are discussed in footnote 9. NOTE 4 U.S. GOVERNMENT SECURITIES, SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, AND SECURITIES LENDING The FRBNY, on behalf of the Reserve Banks, holds securities bought outright in the SOMA. The Bank’s allocated share of SOMA balances was approximately 3.103 percent and 2.938 percent at December 31, 2005 and 2004, respectively. The Bank’s allocated share of U.S. government securities, net, held in the SOMA at December 31, was as follows (in millions): 947 2005 2004 5,345 - 5,781 - Over 1 year to 5 years 6,540 - Over 5 years to 10 years 1,759 - Over 10 years 2,396 TOTAL $ - 23,094 $ 947 At December 31, 2005 and 2004, U.S. government securities with par values of $3,776 million and $6,609 million, respectively, were loaned from the SOMA, of which $117 million and $194 million, respectively, were allocated to the Bank. NOTE 5 INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits with foreign central banks and the Bank for International Settlements and invests in foreign government debt instruments. Foreign government debt instruments held include both securities bought outright and securities purchased under agreements to resell. These investments are guaranteed as to principal and interest by the foreign governments. The Bank’s allocated share of investments denominated in foreign currencies was approximately 2.002 percent and 2.580 percent at December 31, 2005 and 2004, respectively. The Bank’s allocated share of investments denominated in foreign currencies, including accrued interest, valued at current foreign currency market exchange rates at December 31, was as follows (in millions): PAR VALUE: 2005 U.S. government: $ Notes 8,418 11,795 Bonds $ 7,726 10,601 2,881 2,762 23,094 21,089 Unamortized premiums 273 276 Unaccreted discounts (88) (48) 23,279 $ 21,317 TOTAL PAR VALUE TOTAL ALLOCATED TO BANK $ 16 days to 90 days 91 days to 1 year O. RESTRUCTURING CHARGES Bills Securities Sold Under Agreements to Repurchase (Contract Amount) $ The total of the U.S. government securities, net held in the SOMA was $750,202 million and $725,584 million at December 31, 2005 and 2004, respectively. 2004 European Union Euro: Foreign currency deposits $ 109 $ 157 Securities purchased under agreements to resell 39 55 Government debt instruments 71 102 Japanese Yen: Foreign currency deposits 52 TOTAL $ 40 108 Government debt instruments 197 379 $ 551 65 FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS Total System investments denominated in foreign currencies were $18,928 million and $21,368 million at December 31, 2005 and 2004, respectively. The maturity distribution of investments denominated in foreign currencies which were allocated to the Bank at December 31, 2005, was as follows (in millions): MATURITIES OF INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES Within 15 days 16 days to 90 days 91 days to 1 year Over 1 year to 5 years Over 5 years to 10 years Over 10 years TOTAL European Euro $ 68 52 42 57 $ 219 Japanese Total Yen $ 52 $ 120 14 66 20 62 74 131 $ 160 $ 379 NOTE 6 A summary of bank premises and equipment at December 31 is as follows (in millions): Useful Life Range (in Years) 2005 N/A 1-50 1-20 $ 11 67 17 N/A 1-19 7 46 $ 148 (61) 2004 $ $ 8 66 20 10 48 152 (67) BANK PREMISES AND EQUIPMENT, NET OPERATING $ 994 736 358 348 75 2,511 At December 31, 2005, there were no other material commitments and long-term obligations in excess of one year. Under the Insurance Agreement of the Federal Reserve Banks, each Reserve Bank has agreed to bear, on a per-incident basis, a pro rata share of losses in excess of one percent of the capital paid-in of the claiming Reserve Bank, up to 50 percent of the total capital paid-in of all Reserve Banks. Losses are borne in the ratio that a Reserve Bank’s capital paid-in bears to the total capital paid-in of all Reserve Banks at the beginning of the calendar year in which the loss is shared. No claims were outstanding under such agreement at December 31, 2005 or 2004. The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is difﬁcult to predict the ultimate outcome of these actions, in management’s opinion, based on discussions with counsel, the aforementioned litigation and claims will be resolved without material adverse effect on the ﬁnancial position or results of operations of the Bank. NOTE 8 $ 87 $ 85 $ 8 $ 8 DEPRECIATION EXPENSE, FOR THE YEARS ENDED At December 31, 2005, the Bank was obligated under noncancelable leases for premises and equipment with terms ranging from one to approximately ﬁve years. These leases provide for increased rental payments based upon increases in real estate taxes, operating costs or selected price indices. Rental expense under operating leases for certain operating facilities, warehouses, and data processing and ofﬁce equipment (including taxes, insurance and maintenance when included in rent), net of sublease rentals, was $2 million and $1 million for the years ended December 31, 2005 and 2004, respectively. Certain of the Bank’s leases have options to renew. Future minimum rental payments under noncancelable operating leases with terms of one year or more, at December 31, 2005, were (in thousands): $ BANK PREMISES, EQUIPMENT AND SOFTWARE Bank premises and equipment: Land Buildings Building machinery and equipment Construction in progress Furniture and equipment Subtotal Accumulated depreciation COMMITMENTS AND CONTINGENCIES 2006 2007 2008 2009 2010 Thereafter At December 31, 2005 and 2004, there were no material open or outstanding foreign exchange contracts. At December 31, 2005 and 2004, the warehousing facility was $5,000 million, with no balance outstanding. 66 NOTE 7 The Bank leases space to outside tenants with lease terms of less than one year. Future minimum lease payments under agreements in existence at December 31, 2005, were immaterial. The Bank has capitalized software assets, net of amortization, of $11 million and $5 million at December 31, 2005 and 2004, respectively. Amortization expense was $3 million and $1 million for the years ended December 31, 2005 and 2004, respectively. Capitalized software assets are reported as a component of “Other assets” and related amortization is reported as a component of “Other expenses.” The facilities in Louisville and Little Rock were vacated on January 18, 2005, and February 22, 2005, respectively, as a result of the Bank’s restructuring plan, as discussed in footnote 10. The facility in Louisville, including associated furnishings, was sold for $4 million on January 31, 2005, and the facility in Little Rock is available for sale and reported as a component of “Other assets.” RETIREMENT AND THRIFT PLANS RETIREMENT PLANS The Bank currently offers three deﬁned beneﬁt retirement plans to its employees, based on length of service and level of compensation. Substantially all of the Bank’s employees participate in the Retirement Plan for Employees of the Federal Reserve System (“System Plan”). Employees at certain compensation levels participate in the Beneﬁt Equalization Retirement Plan (“BEP”) and certain Bank ofﬁcers participate in the Supplemental Employee Retirement Plan (“SERP”). The System Plan is a multi-employer plan with contributions fully funded by participating employers. Participating employers are the Federal Reserve Banks, the Board of Governors of the Federal Reserve System and the Ofﬁce of Employee Beneﬁts of the Federal Reserve System. No separate accounting is maintained of assets contributed by the participating employers. The FRBNY acts as a sponsor of the System Plan and the costs associated with the Plan are not redistributed to other participating employers. The Bank’s beneﬁt obligation and net pension costs for the BEP and the SERP at FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS December 31, 2005 and 2004, and for the years then ended, are not material. Following is a reconciliation of the beginning and ending balance of the plan assets, the unfunded postretirement beneﬁt obligation and the accrued postretirement beneﬁt costs (in millions): THRIFT PLAN Employees of the Bank may also participate in the deﬁned contribution Thrift Plan for Employees of the Federal Reserve System (“Thrift Plan”). The Bank’s Thrift Plan contributions totaled $3 million for each of the years ended December 31, 2005 and 2004, respectively, and are reported as a component of “Salaries and other beneﬁts.” The Bank matches employee contributions based on a speciﬁed formula. For the years ended December 31, 2005 and 2004, the Bank matched 80 percent on the ﬁrst 6 percent of employee contributions for employees with less than ﬁve years of service and 100 percent on the ﬁrst 6 percent of employee contributions for employees with ﬁve or more years of service. NOTE 9 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND POSTEMPLOYMENT BENEFITS POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to the Bank’s retirement plans, employees who have met certain age and length of service requirements are eligible for both medical beneﬁts and life insurance coverage during retirement. The Bank funds beneﬁts payable under the medical and life insurance plans as due and, accordingly, has no plan assets. Following is a reconciliation of beginning and ending balances of the beneﬁt obligation (in millions): 2005 Accumulated postretirement beneﬁt obligation at January 1 Service cost-beneﬁts earned during the period Interest cost of accumulated beneﬁt obligation Actuarial loss (gain) Special termination loss Contributions by plan participants Beneﬁts paid Plan amendments 2004 $ FAIR VALUE OF PLAN ASSETS AT DECEMBER 31 $ $ 2.5 0.2 (2.7) - $ 55.6 3.8 (11.2) $ 48.2 For measurement purposes, the assumed health care cost trend rates at December 31 are as follows: 2005 Health care cost trend rate assumed for next year Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate 1.6 1.1 3.4 8.4 0.4 (3.2) - 3.1 (2.2) 0.1 0.2 (2.7) (2.5) Effect on aggregate of service and interest cost components of net periodic postretirement beneﬁt costs $ 55.6 Effect on accumulated postretirement beneﬁt obligation At December 31, 2005 and 2004, the weighted-average discount rate assumptions used in developing the postretirement beneﬁt obligation were 5.50 percent and 5.75 percent, respectively. Discount rates reﬂect yields available on high quality corporate bonds that would generate the cash ﬂows necessary to pay the plan’s beneﬁts when due. 2004 $ Accrued postretirement beneﬁt costs are reported as a component of “Accrued beneﬁt costs.” $ 58.5 $ 66.2 2.8 0.4 (3.2) - Unfunded postretirement beneﬁt obligation $ 66.2 Unrecognized prior service cost 3.3 Unrecognized net actuarial loss (18.7) ACCRUED POSTRETIREMENT BENEFIT COSTS $ 50.8 $ 55.6 ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION AT DECEMBER 31 2005 Fair value of plan assets at January 1 Contributions by the employer Contributions by plan participants Beneﬁts paid 2004 9.00 % 9.00 % 5.00 % 4.75 % 2011 2011 Assumed health care cost trend rates have a signiﬁcant effect on the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects for the year ended December 31, 2005 (in millions): One Percentage One Percentage Point Increase Point Decrease $ 0.8 $ (0.7) 8.9 (7.4) The following is a summary of the components of net periodic postretirement beneﬁt costs for the years ended December 31 (in millions): 2005 Service cost-beneﬁts earned during the period Interest cost of accumulated beneﬁt obligation Amortization of prior service cost Recognized net actuarial loss Total periodic expense Curtailment gain Special termination loss $ $ 1.6 3.4 (0.5) 0.9 5.4 - 2004 $ $ 1.1 3.1 (0.7) 0.1 3.6 (6.3) 0.1 NET PERIODIC POSTRETIREMENT BENEFIT COSTS (CREDIT) $ 5.4 $ (2.6) 67 FEDERAL RESERVE BANK OF ST. LOUIS NOTES TO FINANCIAL STATEMENTS Net postretirement beneﬁt costs are actuarially determined using a January 1 measurement date. At January 1, 2005 and 2004, the weighted-average discount rate assumptions used to determine net periodic postretirement beneﬁt costs were 5.75 percent and 6.25 percent, respectively. Net periodic postretirement beneﬁt costs are reported as a component of “Salaries and other beneﬁts.” A plan amendment that modiﬁed the credited service period eligibility requirements created curtailment gains. The recognition of special termination losses is primarily the result of enhanced retirement beneﬁts provided to employees during the restructuring described in footnote 10. The curtailment gain associated with restructuring programs announced in 2003 was recognized when employees left the Bank in 2004. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 established a prescription drug beneﬁt under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care beneﬁt plans that provide beneﬁts that are at least actuarially equivalent to Medicare Part D. The beneﬁts provided by the Bank’s plan to certain participants are at least actuarially equivalent to the Medicare Part D prescription drug beneﬁt. The estimated effects of the subsidy, retroactive to January 1, 2004, are reﬂected in actuarial loss in the accumulated postretirement beneﬁt obligation and net periodic postretirement beneﬁt costs. 68 Following is a summary of expected beneﬁt payments (in millions): Expected beneﬁt payments: Without Subsidy 2006 2007 2008 2009 2010 2011-2015 TOTAL $ $ 3.2 3.4 3.5 3.8 4.0 23.2 41.1 With Subsidy $ $ 2.9 3.1 3.2 3.3 3.5 20.4 36.4 POSTEMPLOYMENT BENEFITS The Bank offers beneﬁts to former or inactive employees. Postemployment beneﬁt costs are actuarially determined using a December 31, 2005, measurement date and include the cost of medical and dental insurance, survivor income, and disability beneﬁts. The accrued postemployment beneﬁt costs recognized by the Bank at December 31, 2005 and 2004, were $5 million and $6 million, respectively. This cost is included as a component of “Accrued beneﬁt costs.” Net periodic postemployment beneﬁt costs included in 2005 and 2004 operating expenses were $1 million for each year and are recorded as a component of “Salaries and other beneﬁts.” NOTE 10 BUSINESS RESTRUCTURING CHARGES In 2003, the Bank announced plans for restructuring to streamline operations and reduce costs, including consolidation of check, check adjustment and cash operations and staff reductions in various functions of the Bank. In 2004, additional consolidation and restructuring initiatives were announced in the marketing and check operations. These actions resulted in the following business restructuring charges (in millions): Total Estimated Costs Employee separation Other TOTAL $ $ 4.1 .4 4.5 Accrued Liability 12/31/2004 $ $ 1.0 1.0 Total Charges $ $ 0.1 0.1 Total Paid $ $ (1.1) (1.1) Accrued Liability 12/31/2005 $ $ - Employee separation costs are primarily severance costs related to staff reductions of approximately 175, including 7 staff reductions related to restructuring announced in 2004. These costs are reported as a component of “Salaries and other beneﬁts.” Restructuring costs associated with the write-downs of certain Bank assets, including software, buildings, leasehold improvements, furniture and equipment are discussed in footnote 6. Costs associated with enhanced pension beneﬁts for all Reserve Banks are recorded on the books of the FRBNY as discussed in footnote 8. Costs associated with enhanced postretirement beneﬁts are disclosed in footnote 9. The Bank substantially completed its announced plans on March 31, 2005. Federal Advisory Council Member J. Kenneth Glass CHAIRMAN, PRESIDENT AND CEO FIRST HORIZON NATIONAL CORP. MEMPHIS Susan F. Gerker Paul M. Helmich Joseph C. Elstner VICE PRESIDENT ASSISTANT VICE PRESIDENT PUBLIC AFFAIRS OFFICER Roy A. Hendin Edward A. Hopkins Thomas A. Garrett VICE PRESIDENT, DEPUTY GENERAL COUNSEL AND ASSISTANT SECRETARY ASSISTANT VICE PRESIDENT RESEARCH OFFICER James L. Huang David J. Grifﬁn ASSISTANT VICE PRESIDENT OPERATIONS OFFICER Gary J. Juelich Joel H. James ASSISTANT VICE PRESIDENT BANK RELATIONS OFFICER Visweswara R. Kaza Debra E. Johnson ASSISTANT VICE PRESIDENT HUMAN RESOURCES OFFICER William D. Little Carrie E. Keen ASSISTANT VICE PRESIDENT HUMAN RESOURCES OFFICER Raymond McIntyre Christopher J. Neely ASSISTANT VICE PRESIDENT RESEARCH OFFICER John W. Mitchell Glen M. Owens ASSISTANT VICE PRESIDENT OPERATIONS OFFICER Edward M. Nelson Yi Wen ASSISTANT VICE PRESIDENT RESEARCH OFFICER Vicki L. Kosydor VICE PRESIDENT Bank Ofﬁcers ST. LOUIS OFFICE William Poole Jean M. Lovati VICE PRESIDENT Michael J. Mueller PRESIDENT AND CEO VICE PRESIDENT David A. Sapenaro Kim D. Nelson FIRST VICE PRESIDENT AND COO VICE PRESIDENT Karl W. Ashman Kathleen O’Neill Paese SENIOR VICE PRESIDENT VICE PRESIDENT Judith A. Courtney Todd J. Purdy SENIOR VICE PRESIDENT VICE PRESIDENT Mary H. Karr Steven N. Silvey SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY VICE PRESIDENT Kathy R. Reckert Randall C. Sumner Daniel L. Thornton LITTLE ROCK OFFICE Robert A. Hopkins VICE PRESIDENT SENIOR VICE PRESIDENT AND DIRECTOR OF RESEARCH ASSISTANT VICE PRESIDENT Kathy A. Schildknecht Robert H. Rasche ASSISTANT VICE PRESIDENT SENIOR BRANCH EXECUTIVE VICE PRESIDENT Michael D. Renfro Philip G. Schlueter SENIOR VICE PRESIDENT AND GENERAL AUDITOR Carl K. Anderson Julie L. Stackhouse Barkley Bailey SENIOR VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT LOUISVILLE OFFICE Harriet Siering Maria G. Hampton ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT SENIOR BRANCH EXECUTIVE Diane A. Smith Richard G. Anderson Dennis W. Blase VICE PRESIDENT ASSISTANT VICE PRESIDENT John P. Baumgartner Daniel P. Brennan VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT AND ASSISTANT GENERAL AUDITOR Timothy A. Bosch Susan K. Curry James E. Stephens VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT Timothy C. Brown Hillary B. Debenport Matthew W. Torbett VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT James B. Bullard Michael W. DeClue Howard J. Wall VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT Ronald L. Byrne Michael J. Dueker David C. Wheelock VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT Marilyn K. Corona William M. Francis Jr. Glenda J. Wilson VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT VICE PRESIDENT Cletus C. Coughlin Kathy A. Freeman Jonathan C. Basden VICE PRESIDENT ASSISTANT VICE PRESIDENT LEARNING TECHNOLOGY OFFICER William T. Gavin Elizabeth A. Hayes Diane B. Camerlo VICE PRESIDENT ASSISTANT VICE PRESIDENT ASSISTANT COUNSEL ASSISTANT VICE PRESIDENT Leisa J. Spalding MEMPHIS OFFICE Martha Perine Beard SENIOR BRANCH EXECUTIVE James A. Price ASSISTANT VICE PRESIDENT 69 FEDERAL RESERVE BANK OF ST. LOUIS SUMMARY OF OPERATIONS Summary of Key Operation Statistics for Services Provided to Depository Institutions and the U.S. Treasury (The following schedule is unaudited and has been included as supplemental information.) NUMBER OF ITEMS DOLLAR AMOUNT (MILLIONS) 2005 2004 2005 Government Checks Processed 70,335,000 73,682,000 84,293 89,608 Postal Money Orders Processed 176,490,000 186,918,000 28,395 29,045(a) Commercial Checks Processed 690,564,000 951,391,000 568,262 677,151 1,035,495,000 1,098,465,000 18,461 20,962 383 240 746 352 682,000 1,281,000 2 4 Currency Processed Loans to Depository Institutions Food Coupons Destroyed (a) $4,928 less than what was reported in the 2004 annual report due to an adjustment. 70 2004 The Federal Reserve Bank of St. Louis is one of 12 regional Reserve banks which, together with the Board of Governors, make up the nation’s central bank. The Fed carries out U.S. monetary policy, regulates certain depository institutions, provides wholesale-priced services to banks and acts as ﬁscal agent for the U.S. Treasury. The St. Louis Fed serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. Branch ofﬁces are located in Little Rock, Louisville and Memphis. FEDERAL RESERVE BANK OF ST. LOUIS One Federal Reserve Bank Plaza Broadway and Locust Street St. Louis, Missouri 63102 (314) 444-8444 Author of Essay: Laura J. Hopper LITTLE ROCK BRANCH Stephens Building 111 Center Street, Suite 1000 Little Rock, Arkansas 72201 (501) 324-8300 Designer: Kathie Lauher LOUISVILLE BRANCH National City Tower 101 South Fifth Street, Suite 1920 Louisville, Kentucky 40202 (502) 568-9200 MEMPHIS BRANCH 200 North Main Street Memphis, Tennessee 38103 (901) 523-7171 Contributing Writers: Scott Kelly and Glen Sparks Editor: Stephen Greene Production: Barb Passiglia Photography: Steve Smith Studios Mark Gilliland Photography REFERENCES www.federalreserveeducation.org www.ncee.net www.siue.edu/BUSINESS/cee www.umsl.edu/~econed/ For additional print copies, contact: Public Affairs Department Federal Reserve Bank of St. Louis Post Ofﬁce Box 442 St. Louis, Missouri 63166 (314) 444-8809 www.stlouisfed.org