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Annual Report Federal Reserve Bank of Philadelphia Contents ý' President'sMessage ExecutiveChanges 4 .............................. 6 ............................... Directors ............... 8 ........................ Officers ........................................ 1981: A Year of Change, Challenge and Opportunity Statement of Condition Earnings and Expenses Annual Operations 8 ..... 10 ............................ 12 ............................ 13 ............................... 14 Annual Report Federal Reserve Bank of Philadelphia President's Messalt When I became president early in 1981 1inherited a strong organ zation. The Bank had a first-rate group of people from top manage We ment through the ranks and its facilities were modern and efficient. were in good shape to face changes, challenges and opportunities aa we got a full measure of all three as the year unfolded. Among the changes were new leadership both in the Bank andon the national level. While the changes I made in the Bank were morel style than in substance, the new Administration in Washington brough sweeping changes in economic and social policies. The role of thr Bank in the District changed rather dramatically as it stepped out intG the marketplace and engaged in cost and quality competition as provider of services to financial institutions. This new status as a competitor, the result of the Monetary Contrc Act, created the Bank's most important challenges of 1981 We hadto . price many of our services ranging from wire transfer to check collet tion and this required making difficult policy decisions and sol""n complex operating problems. And, of course, once one become competitor the challenge is to be a successful one. , The MCA made the Bank's services available to many new tYPesc institutions such as credit unions and savings and loan associations and we felt challenged to reach out and communicate with moretharý 1 1,500 potential new customers. 61 Nineteen-eighty-one was a year of record-high interest rates One this createda numberof differenttypes of challengesforthis Bank. 4 was to sharpen our research input to the formation of monetary policy] another was to discuss and explain policy at public forums aroundthl( District; and still another was to accommodate the large number( savers who lined up to buy high-yielding securities at our tellers windows. The level of rates had a particular impact on thrift institution and we instituted new discount window procedures to help therm In 1981 1saw the opportunity for the Bank to make its opemök lý more cost efficient and to make itself a better place in which to ý` saw the opportunity o to increase our knowledge of the regional econ00j and to expand our influence in the Federal Reserve System. Final saw the opportunity, in both our traditional central bank role and ino th new role as a service provider, to make the financial mechanism of Third District work better and the regional economy function more Smoothly. Now as a new year begins I must say that I am proud and pleased about the way the Bank met the changes, challenges and opportunities of 1981. My congratulations and thanks to all who helped. ný President 5 Executive Clrlc, Ir ges i The Federal ReserveBoard of Governors in December announcedthe appointment of Dr. Jean A. Crockett as chairman of the board of this Bank I She is the first woman to hold this post and also is chairman of the financ department and professorof financeat the Wharton School of the Universi of Pennsylvania. At the same time, Robert M. Landis, Esquire, partner in the Philadelph law firm of Dechert, Price& Rhoads,was appointed deputy chairman.Bot appointments are for 1982. d The Board of Governors also named George E. Bartol, III, chairman an toal chief executive officer of Hunt Manufacturing Company in Philadelphia, b` three-year term as a Class C director of this Bank. He fills the seat vacated John W. Eckman, chairman and chief executive officer of Rorer Group Inc., Fort Washington, Pennsylvania, whose term as a director expired at yeat 10 end. Mr. Eckman also served as chairman of this Bank from 1977 1981. Douglas E. Johnson and Richard P. Hauserwere elected to this Bank board in December.Mr. Johnson, chairman and presidentof Oceancounty National Bank, Point Pleasant,New Jersey,was elected a ClassA directorb0 medium-sized member banks. Mr. Hauser, chairman and chief eXecutN officer of John Wanamakerin Philadelphia,was electedto a secondtermas Class B director by small member banks. Od The directors of this Bank reappointed John H. Walther, chairmana chief executiveofficer of New Jersey National Bank, Trenton, New Jersey, represent the Third District on the FederalAdvisory Council in I fficlý The board of directors approved a number of changes in the Bank'so ofed staff during 1981. Konstanty G. Adack and John D. Johnson were promotd' to the newly created position of executive vice president. Mr. Adack is charge of accounting, computer services, and general administrativeý services. Mr. Johnson heads cash, check, and fiscal operations. h, Six new senior vice presidents also were named: Thomas K. pescF) supervision and regulation; Guy W. Edwards, computer services; JamesP Gaylord, human resources; Hiliary H. Holloway, legal division; Alexander Kudelich, check operations: and Donald J. Mullineaux, economic researc department. and Ronald G. Foley was promoted to vice president in fiscal operations Lawrence C. Santana, Jr., was named vice president of administrative services. Robert A. Dobie became assistant vice president, I residersr the supervision and regulation department. 6 ,.,,,nin9' Among the new assignments in the official staff, Frederick M. _ Md'; ', pd assistant vice president, assumed responsibility for commercial Consumer compliance examinations and community affairs in the ClePartment of supervision and regulation, and Judith H. Helmuth became °Perationsplanning and control officer. New appointments to the Bank's official staff during the year were: Edward J" Coia, data securities operations officer; Barry K. Cummings, Communications officer; Donald F. Doros, applications development officer; Robert H. Klein, electronic payments officer; Louis Sanfelice, bank services °fficer; and Charles J. Sullivan, Jr., payments support officer. David P. Eastburn retired as president of the Bank in January, and Samuel J" Culbert, bank services officer, retired in June. Arthur L. Morath and Robert S. Kishel resigned to accept positions elsewhere. Or.Jean A. Crockett, the first woman director in the history of the Federal Reserve Bank of Philadelphia, became its first woman chairman effective January1,1982. Her appointment was made by the Boardof Governorsof theFederal ReserveSystem. A ClassC director since 1977, Dr. Crockett Served deputy as chairmanof the Bankin 1981. For nearly 30 years, Dr. Crockett has been a member of the faculty of the Wharton School of the o h/ersity Pennsylvania, of where she currently is professOr of finance and chairman of the finance departA career economist, orCrockett her "defgraduate,received master's d doctoral degrees in economics from the Unity holds of Chicago and a master's degree in mathematics from the ýiVefsity of Colorado. She has articles written numerous tlealing and publications With consumption, aving and investment. Jean A. Crockett 7 Directors CHAIRMAN Jean A. Crockett, Chairman, Professorof Finance Wharton School, Universityof Pennsylvania Philadelphia, Pennsylvania DEPUTY CHAIRMAN Robert M. Landis, Partner Dechert, Price & Rhoads Philadelphia, Pennsylvania George E. Bartol, III, Chairman and Chief Executive Officer Hunt Manufacturing Company Officers Edward G. Boehne President Richard L. Smoot First Vice President Konstanty G. Adack ExecutiveVice President John D. Johnson ExecutiveVice President Philadelphia,Pennsylvania EberhardFaber, IV, Chairman and Chief Executive Officer EberhardFaber Inc. Wilkes-Barre, Pennsylvania Richard P. Hauser, Chairmanand Chief ExecutiveOfficer John Wanamaker Philadelphia, Pennsylvania Roger S. Hillas, Chairman and President The Provident National Bank Philadelphia, Pennsylvania Harry A. Jensen, President and Chief Executive Officer Armstrong World Industries, Inc. Lancaster, Pennsylvania Douglas E. Johnson, Chairmanand President Ocean County National Bank Point Pleasant, New Jersey Donald J. Seebold, President Thomas K. Desch Senior Vice President Guy H. Edwards Senior Vice President James F. Gaylord Senior Vice President Hiliary H. Holloway Senior Vice President and General Counsel AlexanderA. Kudelich Senior Vice President Donald J. Mullineaux Senior Vice Presidentand Chief Economist The First National Bank of Danville Danville, Pennsylvania 8 MEMBER OF THE FEDERAL ADVISORY COUNCIL John H. Walther, Chairman New Jersey National Bank Trenton, New Jersey Peter M. DiPlacido Vice President Ronald G. Foley Vice President DonaldJ. McAneny Vice President and GeneralAuditor Lawrence C. Murdoch, Jr. Vice President and Secretary LawrenceC. Santana, Jr. VicePresident William H. Stone, Jr. \ice President and LendingOfficer Ronald D. Watson VicePresident JackP. Besse Assistant James Vice President M. Cleary Data Processingand Technical Services Officer Edward J. Coia Securities Operations Officer 0" Russell ASs'stantConnor Vice President pätä CorCummings munications Officer James B. Duffy J Janice M. Moulton Assistant Vice President Research Officer and Economist Stanley J. Forst Joseph J. Ponczka ExaminingOfficer Automation Planning Officer John M. L. Gruenstein ResearchOfficer and Economist I Aris Protopapadakis ResearchOfficer and Economist Edward G. Rutizer Examining Officer Judith H. Helmuth Operations Planning and Control Officer and Assistant Secretary Louis N. Sanfelice BankServicesOfficer Jerry Katz Compensationand BenefitsOfficer John B. Shaffer Assistant General Auditor Alan L. Kiel Staffing and DevelopmentOfficer Paul E. Kim, Jr. Assistant Vice President Robert H. Klein Electronic PaymentsOfficer Charles J. Sullivan, Jr. Payments Support Officer I i P. Viswanathan Assistant Vice President ElizabethS. Webb Assistant Counsel Richard W. Lang ResearchOfficer and Economist Edwin C. Lodge Statistical Officer A. Dobie eben sistant Vice President I Ocnald F. Doros 'ý00lications Development Officer Frederick M. Manning Assistant Vice President, Community Affairs Officer and Assistant Secretary January 1.1982 9 1 1-1 1981:A Year n Change, Cha11 January April ... This Bank implemented new pricing procedures for its wire transfer and net settlement services. Fees for check collection and automated clearing house services went into effect on schedule in August, and in October for securities and noncash collection services. First vice president Richard L. Smoot attended the year's first meeting of the System's fivemember Pricing Policy Committee. As a member of this Committee and as chairman of the Conference of First Vice President's Committee on Management Systems and Support Services he and key members of his staff were instrumental in developing new procedures to implement the MCA directives. February.. 10 . Edward G. Boehne assumed the presidency of this Bank on February 1 following the retirement of David P. Eastburn. His election in December capped a three-month search by our board of directors. Ed had been senior vice president and chief economist of the Bank. A long-range program to increase the efficiency of our cash operations began with the installation of the first automated, high-speed currency counter. By year-end four high-speed counters were in use. Each machine can count and package paper currency at an optimum rate of 1,000 notes a minute, while at the same time detecting counterfeits and destroying, on-line, notes that do not meet fitness standards. ... Special operations seminars were the begun in cities throughout banks in instruct the new' District to pricing procedures for our services" Changes in Truth-in-Lending regu' lations as well as on-going regu' latory developments were reviewed in riatail at a series of 14 workshop`' benefit of banks mamhar and nonmember Tha Rank's 36th annual series 0 f field conferences for bankers and bank directors also began in April. I May... T..... ý. +.. ýý. IJ QI I04l. LIV.ý. +ý II March... Thirteen depository institutions established on-line communications with our Fed Wire facilities during the first quarter of the year. This enabled them to originate and execute funds transfers directly via Ninety-one computer terminal. institutions had this capability by year-end an increase of 55, or more than 1 50 percent, for the year. -i. IQYY i T--Irv ýn IIII .. GI -, 1 CPrlI -e rities issues reached a peak an continued at high levels throughov` this year of record-high in e,_ rates. Our fiscal personnel handle" % more than 66,000 individual app'' cations to buy new Treasury bill ' notes, and bonds during 1981. 1 June... flur sacuritias-safakaaninn functOr adopted a new automated secure transfer system. This service alto banks that are on-line to exea&te trades, withdrawals and other tra Öf actions directly to their portfolio r Treasury and Government ager+ securities held in safekeeping W rt us. By the end of the year eij institutions were trading securitio, on-line. I ( ý ý Ige,& Opportu nity July... TheBank's computer facilitieswere upgraded significantly with the installation of a new Amdahl comPuterand by an increase in the capacityof our existing computer processing equipment. Both the 'mPlementation MCA of programs and volume growth created this need. August... Check processing volumes dropped sharplyfollowing the introduction of Pricing for our check collection services. This decline in activity was only Partiallyoffset by large increases the presentment of checks in Arforted tleOOsitingsealed packages as institutions shifted to costly collection serices. Anew borrowing rate for providing Xtended credit at the discount endow was established. The tended help credit program is designed meet special funding needs ýf ' eligible depository institutions. September.. . We announced a number of improvements in our check services to meet the changing needs of the institutions we serve. Deadlines for depositing checks in the schedule deposit program were staggered to 1: 00 a. m., 2: 00 a. m., and 3: 00 a. m. to give banks additional processing time for the first-pass sort. The 12: 01 a. m. RCPC service area was expanded to include the entire Third District, and a new interdistrict group sort service was introduced. November.. . This Bank received its operational ratings for the first half of the year. Our overall operational quality ranked in the top third of all Reserve District Banks. Increases in our aggregate unit costs were kept well below the System average which helped raise the Bank's unit cost standing three places. December... The Board of Governors named Jean A. Crockett to succeed John W. Eckman as chairman of our board of directors effective January 1. Dr. Crockett is the first woman to serve in this capacity. October... The Bank opened new lines of communication with financial institutions when it called the first meetings of its four advisory boards which represent nonmember commercial banks, mutual savings banks, savings and loan associations, and credit unions. By early December members of each board had met with officials of this Bank to exchange views and discuss issues of mutual concern. Future meetings are scheduled on a semiannual basis. A new bank examination program was adopted in New Jersey. Each half of year this Bank will examine banks the and the state member the other state banking authorities half, and the groups will be switched improve annually. The idea is to efficiency and provide cost savings to both the regulators and the banks being examined. 11 Statement of Condition ASSETS December 31,1981 December 31,19 Gold certificate account ........................ Special drawing rights certificate .................. Other cash .................................. Loans and securities: Discounts and advances ...................... Federal Agency obligations .................... United States Government securities ............. $ $ Total Loans and Securities 531,000.000 141,000,000 19.063.240 S 5,111,149,293 560,000,000 121,000,000 18,768,495 54,540,000 379,421,423 5,179,43 849 I 213.165.000 326,573,208 4,571,411,085 .................. g4 $ 5,613,394.272 Other assets: Cash items in process of collection .............. Bank premises - net ......................... Operating equipment - net .................... All other .................................. Interdistrict settlement account ................. Total Assets 399,777,506 51,583,442 8,238,242 321,476,223 ............................ 424,699,793 52,815,268 6,587,996 339,405,368 -255.365.925 -836,87 S 6,327,922,021 $6 299,79 ý1 1 LIABILITIES & CAPITAL Note liabilities: Federal Reservenotes S 5,287,526,407 ........................ Deposits: Reserve accounts of depository institutions ....... U. S. Treasury - general account ............... Foreign ................................... All other .................................. ýi 664,584,428 . . Total Deposits S ........................... 686,367,108 $ 6,207,886,980 121 `New category S 6,327,922,021 .. 599,058-85y S 6,221,948,821 52,986,600 52,986,600 Earnings credits available to depository institutions* $ 237,066"883 8 95,857,06 Capital paid in .............................. Surplus ................................... .......... ii 13,8ß4'u3 ý 9,51ý 159,161,850 88,893,456 Capital accounts: Total Liabilities and Capital Accounts 575,649,41 0 12,122,000 9,660.680 Other liabilities: Deferred availability cash items ................. All other .................................. Total Liabilities S 5,275,904"202 S 39,268 !I; 1yp 45,954' 45,954"ý ' $ 6,299.795ý28o ,Earnings & Expenses .ii Current earnings: From U.S. Government securities ............... Fromdiscounts, advances and miscellaneous sources 4 ................................. From ý ý: services to depository institutions* $ .......... Total current earnings .................... . 1981 1980 549,249,289 $ 554,382,814 32,967,007 5,626,703 36,128,609 587,842,999 590,51 1,423 41,171,010 3,968,335 36,833,895 3,361,000 45,139,345 40,194,895 542,703,654 550,316,528 458,269 3,748,629 9,319 458,269 3,757,948 2,402,000 174,136 2,428,200 4,874,159 11,627,690 142,963 9,141,236 19,220,948 11,983,234 18,762,679 8.225,286 Net expenses: °Perating expenses (after deducting reimbursable or recoverable expenses) .................... Federal Reserve currency ...................... Total net expenses ............. . Current net earnings (I 'tlditionsto current net earnings: Gain 1I i I on foreign Miscellaneous currency transactions ............ nonoperating income ............. Total additions .............. . tductionsfrom Assessment current net earnings: for expenses of the Board of Governors Earnings .. _....... . credits used by depository institutions* Loss . on sales of U.S. Government securities (net) 1 i! ýi ý loss on foreign currency transactions Miscellaneous ........... nonoperating expenses ............ Total deductions 1,yetdeductions NetearninQS --_. 11 ......................... . . ............................... before "' navmant '' , ....... to IIS ...... ... Troaa ..........., irv ....... 413,798 523,940,975 $ 542,091,242 2,798.462 $ 2,649.084 Divide ids S"Treasury aitlto Reserve notes). raesferred . ....... ............. to Surplus, additions ................. tNý$ v" category $ ................. (interest on Federal . 538,877,458 564,700 514,1 10,063 7,032,450 523,940,975 $ 542,091,242 13 I Annual Operations OPERATING STATISTICS Loans to depository institutions ................... Currency received and counted ................... Coin received and counted ...................... Checks handled: U. S. Government checks...................... Postal money orders ........................ All other .................................. Collection items handled: U. S. Government coupons paid ................ All other .................................. U. S. Savings Bonds and Savings Notes issued, exchanged, redeemed ........................ Other Government securities issued, exchanged, redeemed ................................. Transfersof funds ............................. Food stamps redeemed......................... $ 17,192 7,572 142 $ 58,544 6,317 136i 37,212 281 44,420 301 342,785 299-0p3 89 1,611 1,521 1,673 2,011 203,418 1,806,570 440 168,530 1,577,011 338 g0 1 1981 1960 Loans to depository institutions ................... Currency received and counted ................... Coin received and counted ...................... Checks handled: 2,351 * 688,500 891.800 1,850 620,600 8 U.S. Government checks ...................... Postal money orders ......................... All other .................................. Collection items handled: U.S. Government coupons paid ................ All other .................................. U.S. Savings Bonds and Savings Notes issued, exchanged, redeemed ........................ Other Government securities issued, exchanged, redeemed ................................. Transfers of funds ............................. Food stamps redeemed......................... 33,900 6,200 540,700 33"600 6,50 658,000 THOUSANDS OF ITEMS PROCESSED 14 1980 1981 MILLIONS OF DOLLARS *Unrounded data 400 400 18,500 300 1.600 134,900 400 400 24,100 300 1,300 99,000