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BDDuBlllapalit ~l!d~PBlc Heiena Batt,k Igf I:I I I 6~~W~~@~[ffi Horace A. Shepard, Willis J. Winn, Albert G. Clay To the Banks in the Fourth Federal Reserve District: Change and the need to respond to change are primary elements in almost all aspects of our lives: political, economic and social. The Federal Reserve System and the commercial banks were challenged in many areas during the year 1972, particularly monetary policy, banking structure and regulation, and bank operations. This Annual Report focuses on the evolutionary developments underway in the payments mechanism-a concern of both the Federal Reserve and the banks. The ever increasing volume of checks, rising costs of operations, and the developing computer-based communications technology are all factors generating the movement toward an electronic payments system During 1972, the Federal Reserve Bank of Cleveland began operation of its first Regional Check Processing Center in Columbus as part of this evolutionary process. In addition, other actions were taken regarding the development and implementation of other RCPCs in Cleveland, Pittsburgh, and Cincinnati; the former two were operating in early 1973, and Cincinnati will be in operation in early April. This Report is a tribute to the many individuals whose efforts made RCPCs a reality. In particular, we are grateful for the assistance and cooperation of the member banks in the Fourth District. These acknowledgements would be incomplete without a special mention of Albert G. Clay, who concluded five years of service as Chairman of the Board of Directors at the Main Office on December 31, 1972, and a total of nine years as a member of the Board. Albert's distinguished record of public service exemplifies the dedication of the Federal Reserve Bank ~di~~ej;;~taf[' CHAIRMAN OF THE BOARD «. rr ~. ~::T P.a~11i11 Il:h 10lala1 aad The institutional means by which payments are made today are the result of a continuing evolutionary process that has been going on for centuries. From the early days of banking system and the Federal Reserve to that problem are discussed with emphasis on the role of regional check processing centers in the Fourth District. barter, to the use of commodities as a medium of exchange, to the adoption of bank notes and deposits, the process has TWENTY-FIVE BILLION AND RISING been driven by the search for more economically efficiertt Today in the United States, the check is a major element means of facilitating exchange. The advance of technology in the payments mechanism. In 1972, the number of checks has also played an important written was in the neighborhood role. The discovery of new of 25,000,000,000. Each methods and the acquisition of skills resulted in formerly of these pieces of paper passed through an average of two efficient arrangements to three banks and was handled many times. The magnitude being superseded by economically more appropriate ones. As literacy became almost universal of the task facing the commercial banks of this country in in some countries, carrying out their demand deposit activity can be given the attractiveness of the checking of the some perspective by noting that, if the checks written in telegraph, the wire transfer became feasible. However, the evolutionary changes in the payments one year were placed end-to-end, they would extend to the moon and back five times. And the flow of checks is not mechanism in recent years. diminishing. Check volume, stimulated by economic growth costs, improved and the advent of "free" checking, is growing at a rate of account was enhanced. appear to have accelerated Rising check volume, communications computer, With the development increasing equipment labor and the technology of the with its promised economies, are in large part responsible. In addition, the Federal Reserve System has been active in restructuring especially inter-bank the payments settlements. The mechanism, Fourth Federal Reserve District has not been immune to these changes. Indeed, the District has been a center for much recent experimentation Report examines mechanism in the payments mechanism. This Annual some aspects of the U. S. payments in the throes of change. The nature of the current problem and the response of the U. S. commercial 2 six to seven percent each year. If this pace is maintained, volume will rise to 42 billion items by 1980 (see Chart). One might think that all these pieces of paper are no cause for concern. However, even with modern technology, check processing is a labor-intensive, costly operation. As check volume increases, total processing costs go up and, for some banks, per item cost also rises. It is predictable then that these rising costs and competition the banks of this country will motivate to seek out more economical ways of effecting payments. Such a search is already well under way. electronic check processing equipment. GROWTH OF CHECK VOLUME IN UNITED STATES This development was given an enormous boost by the adoption of a common machine language for check handling, Magnetic Ink Char- Billions of Checks acter Recognition 50 (MICR), under the aegis of the Bank Management Commission of the American Bankers Association. The standardized electronic coding permits a bank's 40 processing equipment to handle encoded checks. While expanded regional clearing arrangements reduce 30 and the associated electronic processing equipment decrease the number of times checks have to be handled, and MICR the cost of each handling, the final answer to processing all those little pieces of paper may be to do away with all (or 20 at least some) checks. This view has been taken by a number of studies on the future of the payments mecha10 nism. Of the various means by which the number of checks may be reduced, authorized o 1945 '50 '55 '60 '65 '70 '75 Sources: Banking; Arthur D. Little Inc.; and Federal Reserve Bank of Cleveland '80 From Chart 1, it is clear that rising check volume is not a Each year's increase in volume has been accompanied by rising total processing costs and in some cases strained processing facilities. An early industry study of the check collection system, the Wurts Report! of 1954, the established2 concept of regional check clearing facilities. Since most items received by a bank are drawn on other banks located within 50 miles, multiple handlings and circuitous routings of checks can be reduced if all banks within a trade area agree to a central exchange of checks, such as that used by members of city clearinghouses. This concept figures very strongly in present attempts to improve check collection procedures. Another transfer, the pre- use of the bank The Point-of-Sale Transfer. Under this arrangement computer terminals are located in stores with a high volume EARLY RESPONSES TO THE PROBLEM reendorsed point-of-sale and the expanded credit card have received the most attention. of transactions. new phenomenon. the payment, response by the banking system to the rising costs of manual check processing has been the adoption of 2Walter E. Spahr, The Clearing and Collection of Checks (New York: Bankers Publishing Co.), pp. 119-130. are linked to a bank's computer. Through the use of some type of identification device, the point-of-sale terminal may be used to check a potential transfer customer's credit and to effect an immediate of funds from the buyer's to the seller's bank account. All this is done without the necessity of writing a check. A pilot project preliminary form of the point-of-sale system under field in the Fourth District to test a conditions was conducted from October 1971 through June 1972. Dubbed POST, for "Point-of-Sale Terminal" system, the project was conducted by The City National Bank & Trust Company of Columbus, Ohio, in conjunction International Americard, with Business Machines, Inc. and National BankInc. in Arlington. Thirty merchants the Columbus participated suburb of Upper in the test, and 60 terminals were placed in two shopping centers. Twenty thousand 1Officially , Report of the Joint Committee on the Check Collection System to the American Bankers Association, the Association of Reserve City Bankers and the Conference of Presidents of the Federal Reserve Banks. These terminals magnetically striped cards were issued to cus- tomers for use in their retail shopping. Under this system, customers charged purchases with the card at the point of sale. Sales were electronically authorized and entered directly into the credit card accounting system of the bank. At the end of each day, the merchant's 3 total sales were automatically credited to his account with the bank. At the end of each month, the customer was their credit card balance within 25 days. Indeed, at least one major Ohio bank has proposed a test of such a credit billed by the bank, and he paid for his purchases with one card-demand deposit link. The significance of this is that check. The Columbus for transferring demand balances. Such a demand deposit- the credit card thereby replaces the check as an instrument POST system reduced the number of checks but did not eliminate however, established of-sale transfer. Preauthorized them. This pilot project, the technical feasibility of point- towards the technologically more complex (and expensive) point-of-sale terminal system. Payments. For some time, a number of banks have offered to au toma tically pay regular recurring bills, such as those of utilities and insurance companies, for their customers. credit card system would seem to be a logical intermediate step Now the rising costs of checks provide commercial banks with an incentive to greatly expand the OTHER APPROACHES TO RISING CHECK VOLUME Other notable efforts by the banking system to deal with scope of these less costly transfers. Moreover, preauthorized the problem of the rising tide of checks by reducing their payments are now often included in a complete financial number include the Special Committee on Paperless Entries management package of services that includes an automatic (SCOPE), in California, and the Committee on Paperless line of credi t. Entries (COPE), in metropolitan Bank Credit Cards. Since 1967, bank credit cards have become a significant part of the payments mechanism. For Atlanta, Georgia. One basic objective of both is to substitute electronic impulses for checks as a means of transferring money balances. example, in December 1967 there were only 390 insured commercial banks in the U. S. providing credit card services. Four years later, the number had risen to 1,535. SCOPE The California SCOPE project started operating on Similarly, consumer credit outstanding under various bank October 16, 1972. The nation's first Special Committee on credit card plans amounted Paperless Entries established two automated clearinghouses, to $0.8 billion in December one in San Francisco and the other in Los Angeles. They 1967 and almost $4.5 billion in June 1972. At present, most bank credit card arrangements are a are the heart of a network permitting electronic exchanges hybrid of monthly billing and instalment credit. That is, of preauthorized bank credit cards may be used to make purchases during a banks. Communications debits and credits among all California billing period with a single check issued for the cumulative bank exchanges are being subjected to rigorous testing in total within a 25-day grace period. Alternatively, standards and formats for inter- option of the cardholder, payments may be deferred over a these new operations. The California SCOPE project is based on transactions longer period by conversion of the unpaid balance into an that are similar to the check, such as automatic deposit of instalment loan. There is some evidence.f however, that the banks have payrolls and payment incentives to link credit card transactions rization. The transactions at the immediately to of utility services. Both types of payment under the SCOPE arrangement require preauthoare recorded on magnetic tape, the customer's demand deposit. If, for example, a demand rather than on paper documents, and the impulses on the deposit were debited as soon as the credit card sales ticket tapes are then sorted in a way similar to checks. Thus, was received, the bank would spare itself what is in effect SCOPE eliminates the high-cost, labor-intensive check for a an interest-free loan now being made to those who payoff significant number of transactions. COPE Development 3"The Profitability of Bank Credit Card Operations: An FCA Summary of U. S. and Ohio Banks in 1971," Economic Commentary, Federal Reserve Bank of Cleveland, December 4, 1972. 4 of the Atlanta Committee on Paperless Entries (COPE) was an outgrowth of the Atlanta Payments Project, a technical research study begun in 1969. The five major Atlanta commercial banks represented on COPE, in conjunction with the Federal Reserve Bank of Atlanta, complement concentrated on the feasibility of implementing the funds published statements of policy: transfer system developed in the study. COPE now has an automated clearinghouse planned and is directing marketing efforts at gaining public acceptance for two of the research study's recommendations. One is Bill-Check, a paper authorization to a merchant to pay bills electronically. of such payment authorizations by a customer A magnetic tape is prepared by the retailer, turned over to a bank, and processed through the auto- private initiative. This has been made clear in Increasing the speed and efficiency with which the rapidly mounting volume of checks is handled is becoming a matter of urgency .... The Federal Reserve Board therefore' states as a matter of policy that it places high priority upon efforts by the Federal Reserve System to improve the nation's means of making payments, initially along the following lines: mated clearinghouse at the Federal Reserve. The other is direct deposit of payroll, similar to that developed by the California SCOPE project, approval of business-industrial employers requiring and their em- ployees. A final proposal of COPE is a point-of-sale system that would give the customer three electronically operated 1. Extending present clearing arrangements, in cities with Federal Reserve offices, into larger zones of immediate payment.. .. 2. Establishing other regional clearing facilities, in which settlements are made in immediately available funds .... options in paying for purchases: check verification to assure that sufficient funds are in an account; a cash card to transfer funds from a checking account to the merchant's account; and a bank credit card with the privilege of deferred payment. A switching and processing center would connect terminals in stores throughout the city with major banks. THE ROLE OF THE FEDERAL RESERVE IN THE EVOLVING PAYMENTS MECHANISM The Federal Reserve has been an interested cerned observer and participant and con- in the multiplicity of studies, tests, and innovations that characterize banking's response to the constantly the nation's payments changing conditions affecting mechanism. This concern derives from the Federal Reserve's responsibility central bank to insure a compatability as the nation's of changes in the payments mechanism introduced by individual banks. The Federal Reserve System Steering Committee on Improving the Payments Mechanism, headed by Governor George W. Mitchell, has taken responsibility direction in this area. The Steering Committee Board of Governors have taken the position for policy and the that the Federal Reserve can no longer merely respond to evolutionary change but must act to coordinate and accelerate changes. At the same time, the System's actions seek to 3. (a) Encouraging banks and their customers to make greater use of the expanded capabilities of the Federal Reserve wire transfer system. (b) Removing restrictions on third party transfers of demand deposits, and extending the time period in which the wire transfer system can be used. (c) Expanding offices ... facilities at .Reserve Bank Plans for making these basic changes in the present money transfer system should be pursued actively, to achieve as soon as possible an accelerated flow of funds along more optimal routing patterns. These initiatives are generally intended to supplement those efficient direct check exchange programs that are now in existence. The first objective should be expansion of the geographic area of existing immediate payment zones. This should be accomplished as soon as necessary arrangements can be made. Meantime, studies looking to the establishment of new clearing centers, wherever warranted, should be undertaken promptly by each Federal Reserve Bank, and submitted to the Board for review. Expansion of facilities at Federal Reserve offices for increased access to the Reserve System's wire network should be con- 5 eluded at the earliest practicable time .... 4 In general, the [se] giudelines [for Regional Check Processing and Collection Centers] adopted by the Steering Committee would limit the Federal Reserve's check collection role to (1) facilitating the local exchange of checks when the checks are drawn on and paid to banks located in the same community, metropolitan area, or region, and (2) assuming greater responsibility for providing a more efficient system for handling inter-regional checks and doing so on as uniform a basis as feasible. The guidelines are not regarded as imposing constraints upon the continued use and development of check handling facilities of the commercial banking systern.P The Federal Reserve System will need for some time to continue to devote significant resources to the development of the Nation's payments mechanlsm.P In pursuit of an improved payments mechanism, REGIONAL CHECK PROCESSING CENTERS The basic idea of an RCPC is to extend the established clearinghouse of more inter-regional intra-RCPC zone checks, are now being established in some 40 trade centers including Columbus, Cincinnati, Cleveland and Pittsburgh in the Fourth District (see Map). "Additionally, it is anticipated which inter-regional settlements tions will be made.,,7 the in funds collectable one or regulation requires all banks to pay in immediately available funds on Regula tion D pertaining The Board simultaneously revised to reserve requirements and, in doing so, generally lowered those requirements. However, the most visible effort of the Federal Reserve has been the establishment that the Federal Reserve will install and manage a national communications designated immediate payment areas had paid the Federal the day of presentment. network instead of passing paper. RCPCs, providing for overnight settlement of to the revision in Regulation J, banks located outside of The amended pro- items in the payments mechanism through a nationwide communications cities with Federal Reserve Banks and branches and other presentation. with electronic goals of the RCPC is to set up the computer and electronic in November 1972 to promote faster check collection. Prior more days after augmented to large geographical areas. One of the mechanism that in future years will permit the processing Board of Governors revised its check collection regulations Reserve for checks presented concept, cessing equipment, of a number of regional check processing centers (RCPCs). 4 network through between financial institu- RCPCs in the Fourth Federal Reserve District In compliance ments mechanism with guidelines for improving the payissued by the Board of Governors, officials of the Federal Reserve Bank of Cleveland have set four major goals to be accomplished: Goal No. I-Providing next-day presentment to member and nonmember banks throughout of checks the Fourth District. Any bank in the District should be able to collect a check drawn on any other Fourth District bank within one day, compared present. to a maximum of three days required at This goal of next-day presentment can be aided by establishing an air transportation network linking RCPCs in the Main Office and Cincinnati and Pittsburgh branches with the Columbus Regional Center, which will serve as the center of the Fourth District system. Aircraft will also be used to move shipments of checks to and from remote areas in an RCPC zone.8 Board of Governors of the Federal Reserve System, "Statement of Policy on the Payments Mechanism," June 17, 1971. 5Board of Governors of the Federal Reserve System, "Statement by the System Steering Committee on Improving the Payments Mechanism," February 2, 1972. 6"Evolution of the Payments Mechanism." Statement by the System Steering Committee on Improving the Payments Mechanism, Federal Reserve Bulletin, December 1972. 6 7"Evolution of the Payments Mechanism," Bulletin, December 1972, p. 1010. Federal Reserve 81n addition to the Fourth District aircraft network, checks are also being moved by aircraft between Federal Reserve Districts to achieve overnight collection of checks. CINCINNATI AREA e e e PITTSBURGH AREA CLEVELAND AREA COLUMBUS AREA NOTE: Arrows denote existing and proposed air transport network. 7 Goal No. 2- Eliminating reducing intermediate circuitous handlings routing and of items in the present of dishonored items. In addition, bankers in the Columbus RCPC area have shown interest in exploring just what kind collection stream, resulting in cutting the cost and burden of role the Center might play in any future improvements of check clearing for all commercial banks. in the payments mechanism. Goal No.3-Expediting the return of unpaid items, Operation of the Columbus Regional Center was started thereby reducing or eliminating losses to the public and in mid-October 1972, processing 25,000 checks a day from banks from check frauds by speeding check presentment Cleveland. and return of dishonored items to the collecting bank and operation its deposi tor. personnel. The test phase lasted for 30 days. In November, Goal No.4-Providing the basis for a future automated The main objective was to test computer of this phase equipment of the and to train the Center began accepting work from three major banks in the City of Columbus. In the second week of December, clearinghouse with electronic money settlements. the remaining 123 banks were added. Early in January of Columbus RCPC Early in 1970, a request was sent to the Board of 1973, the Center entered the last phase, that of accepting checks for presentment from banks across the nation. Governors of the Federal Reserve System to establish a Federal Reserve facility in Columbus, the State's capital and second largest city. The regional center was said to be Cleveland RCPC In April 1971, the Cleveland Reserve Bank began vital to keep pace with the rapid growth of commerce and planning the establishment industry in the Columbus area, and to meet the needs of the main office. It was determined that the Cleveland RCPC the business and banking communities. would serve 249 banks in 39 counties across the northern The facility was to serve 126 banks and their 220 branch offices third of Ohio. Because of the diverse geographical area as the served, each evening an aircraft brings checks from North- RCPC area. About 71 percent of the checks western Ohio banks into Cleveland for processing. The next in the 27 counties Columbus of a regional clearing center in that were defined handled by these banks were to be paid one day following morning, a plane departs for the northwestern portion of receipt by the bank of first deposit, as opposed to as many Ohio with checks drawn on banks in that area. The other as three days before the RCPC was completed. banks are served by ground transportation A building shell in Busch Corporate Center, 965 from Cleveland. The Cleveland RCPC began operations January 15. Kingsmill Parkway, on the northern outskirts of Columbus was selected. The 20,500 square feet of floor space were divided into three areas: computer room, clerical area, and administrative area. Operating and administrative personnel moved 'in as soon as the computer and work areas were completed early in October. The Center is primarily a night operation. thirds of the 60 persons employed Fully two- at the Center work nights. It is a five-day-a-week operation, compared with the former Federal Reserve check operation of six days a week. Work that would normally be received on a Friday night and Saturday under the old system comes in on Sunday night, thus making that a peak volume night for the Center. Goals of the Columbus Regional Center are the same as for such centers generally: next-day presentment for the great majority of banks; elimination of circuitous routing and many intermediate 8 handlings; and speeding the return Sorter room at Cleveland RCPC Pittsburgh RCPC They were chosen by bankers' association groups within the Planning for the Pittsburgh RCPC began in May 1971. RCPC boundaries and clearinghouse associations in larger After study of several alternatives, the decision was made to towns. offer overnight presentment Reserve branch territory. to all banks in the existing Staffing, equipment, and planning were geared to starting the Pittsburgh RCPC on January 2, 1973. These bankers officials to meet discuss periodically operations, with Federal concepts, and services. One of the main responsibilities of these groups is to keep the Centers advised on problems being experienced by This target date was met. Future expansion of the Pittsburgh RCPC will include five counties in central Pennsylvania presently served by the Federal Reserve Bank of Philadelphia, as well as seven commercial banks, so that appropriate action can be taken to minimize the impact of procedural changes. Feedback from the Advisory Committees was extremely counties in Northern West Virginia now being served by the helpful Federal Reserve Bank of Richmond. In addition, three Ohio provided counties banking community that were instrumental in the selection bordering the Ohio River and West Virginia, previously served by Cleveland, will be transferred to the Pittsburgh RCPC. in identifying problem communications areas. The Committees channels to the commercial of sites for satellite pickup points. Through the efforts of these committees, the Federal Reserve office in each RCPC zone has been able to serve the commercial banks in its territory more efficiently. Cincinnati RCPC After consultation with area bank representatives, a decision was made to have a center at Cincinnati to cover the territory currently served by the Reserve branch office. The Cincinnati RCPC will serve 19 counties in Ohio and 56 counties in Kentucky, for a total of 270 banks. Nine Ohio counties previously serviced by the Cincinnati office were incorporated in the territory of the Columbus RCPC. Check collection for three counties Mercer and Shelby-will in Ohio-Auglaize, be transferred from the Cleveland main office territory to the Cincinnati RCPC. The Cincinnati branch moved its operations into a new building in September the implementation adequate 1972. Although this move slowed of the Cincinnati RCPC, there is now space for the facility and provision for con- siderable expansion, if required. At the same time as the move, more advanced check processing equipment installed. This equipment was greatly expands the check pro- cessing capability of this office and lends itself to further enlargement without disrupting operations. Start-up of RCPC operations is set for late spring of 1973. BEYOND RCPCs No one can clearly foresee the future, but a system that will subsitute electronic movements of funds for checks is now being put in place. The transition however will be, at best, a gradual process. It will take time for the system to evolve and to link the local and regional systems into a national network. In addition, there is some question as to whether the public is ready to accept all of the implications of electronic funds transfer. Moreover, the cost of establishing and operating such a system is far from a trivial matter. In consideration particular, it is necessary that careful be given to the level and distribution of benefits that will result from this expenditure of public and private funds. It is certain though that the future will be an exciting time for everyone involved in the payments mechanism-a time of challenge, response, and adaptation. The great mathematician and philosopher, Bertrand Russell, was once asked how he could continue to make drama tic discoveries in a field such as ma therna tics that ADVISORY COMMITTEES Officers of commercial banks in each RCPC zone have been appointed to Advisory Commi ttees to provide liaison between participating banks and the Regional Centers. seemed an already completely explored and fixed science. His deceptively simple answer: "I challenge the axioms." The Federal Reserve and the banking system might well ponder this approach. 9 Check delivery at Columbus Center. Check classification for machine processing. Logging of incoming checks. Items being prepared for high speed processing. 10 Processed checks leaving the sorting room. High speed reader-sorter. Hand sorting batches of checks. Computer room. Sorted checks at loading bay. 11 CDMPIlRIlYIVE "IE Eli OFC Dec. 31,1972 ASSETS Dec. 31,1971 Gold Certificate Reserves . $ 884,658,767 $ 973,576,773 Special Drawing Rights Certificates Federal Reserve Notes of Other Banks Other Cash . . . 33,000,000 76,473,234 39,446,403 33,000,000 68,968,775 26,968,862 Loans to Member Banks Federal Agency Obligations - Bought Outright U. S. Government Securities: Bills Notes Bonds . . . . . . 193,500,000 98,156,000 38,609,000 2,220,402,000 2,745,605,000 259,158,000 2,400,494,000 2,830,231,000 261 ,605,000 Total U. S. Government Securities . 5,225,165,000 5,492,330,000 Total Loans and Securities . 5,516,821,000 5,530,939,000 . . . 596,580,121 27,181,035 87,526,594 980,806,076 24,256,207 55,860,563 . $7,261,687,154 $7,694,376,256 Federal Reserve Notes . $4,751,683,430 $4,473,426,148 Deposits: Member Bank - Reserve Accounts U. S. Treasurer - General Account Foreign Other Deposits . . . . 1,552,285,985 143,680,513 26,390,000 20,487,802 1,968,530,381 163,751,169 25,200,000 34,049,712 . 1,742,844,300 2,191,531,262 . . 582,343,838 41,226,086 846,792,417 46,862,629 . $7,118,097,654 $7,558,612,456 . . 71,794,750 71,794,750 67,881,900 67,881,900 $7,261,687,154 $7,694,376,256 $ $ Cash Items in Process of Collection Bank Premises Other Assets Total Assets -0- LIABILITIES Total Deposits Deferred Availability Cash Items Other Liabilities Total Liabilities CAPITAL ACCOUNTS Capital Paid In Surplus Total Liabilities and Capital Accounts Contingent Liability on Acceptances Purchased for Foreign Correspondents 12 . 16,289,000 22,941,000 CCMPIlRliCJI CFE"RJlIJllii "JlD . . $ 290,750,352 28,094,398 $ 285,002,026 23,925,582 . 262,655,954 261,076,444 . 229,761 97,522 7,866,249 470,646 . 327,283 8,336,895 . . 4,716,952 2,917 736,336 96,102 . 4,719,869 832,438 NET DEDUCTIONS NET ADDITIONS . . 4,392,586 Net Earnings before Payments to U. S. Treasury . $ 258,263,368 $ 268,580,901 Dividends Paid ~ Payments to U. S. Treasury (Interest on F. R. Notes) Transferred to Surplus . . . $ $ 3,957,512 259,851,139 4,772,250 . $ 258,263,368 Total Current Earnings Net Expenses Current Net Earnings Additions to Current Net Earnings: Profit on Sales of U. S. Government Securities (Net) All Other Total Additions Deductions from Current Net Earnings: Loss on Foreign Exchange Transactions (Net) All Other Total Deductions Total DISPOSITION -0- -0- 7,504,457 4,205,725 250,144,793 3,912,850 $ 268,580,901 OF GROSS EARNINGS 1971 TO U. S. TREASURY DIVIDENDS OPERATING SURPLUS 88.8% 1.4 EXPENSES 8.2 1.6 13 ~EDERIlLRESERVE BIlIX DFC VELIlIlD FEDERAL RESERVE AGENT H. A. Shepard w. H. Hendricks Senior Vice President 1. M. Selby Vice Pres. & Secretary I I I I I I I I I R. Van Valkenburg Asst. Vice President Accounting Data Services Operations Research Data Systems Support Data Processing Communi- cations Check-Day Noncash Collection Mail Check-Night D. A. Trubica Asst. Vice President Columbus R C PC Fiscal Credit & Loans Securities Cash Secretary Building Emergency Preparedness Protection BOARD OF DIRECTORS H. A. Shepard, Chairman 1. W. Keener, Deputy Chairman D. L. Brumback, lr. 1. L. Cushman R. C. McPherson E. W. Baker A. B. Bowden D. E. Noble O. A. Singletary BRANCH BOARDS OF DIRECTORS BRANCH OPERATIONS W. H. MacDonald First Vice H. W. Huning Vice President A. J. Erste Asst. Vice President F. B. Kehres Chief General Services Bank Supervision Regulations Community Relations 1. J. Erceg Asst. Vice President Bank Relations R. G. Coury Ass t. General Counsel M. A. Beekel Asst. Vice President Research Library Special Studies Vault Legal T. J. Callahan Asst. Vice D. J. Weitzel Asst. General Personnel Benefits Auditing Main Office & Branches FEDERAL RESERVE BANK OF CLEVELAND DIRECTORS Chairman HORACE A. SHEPARD Chairman of the Board and Chief Executive Officer TRW Inc., Cleveland, Ohio Deputy Chairman J. WARD KEENER, Chairman of the Executive Committee The B. F Goodrich Company, Akron, Ohio EDWARD W. BARKER Chairman of the Board and Chief Executive Officer First National Bank of Middletown Middletown, Ohio DAVID L. BRUMBACK, JR. President Van Wert National Bank Van Wert, Ohio RENE C. McPHERSON Chairman of the Board and Chief Executive Officer Dana Corporation Toledo, Ohio A. BRUCE BOWDEN Vice Chairman of the Board Mellon Bank, N. A. Pittsburgh, Pennsylvania JOHN L. GUSHMAN Chairman of the Board and Chief Executive Officer Anchor Hocking Corporation Lancaster, Ohio DONALD E. NOBLE President and Chief Executive Officer Rubbermaid Incorporated Wooster, Ohio OTIS A. SINGLETARY President University of Kentucky Lexington, Kentucky MEMBER, FEDERAL ADVISORY COUNCIL CLAIR E. FULTZ, President Huntington Bancshares Incorporated, Columbus, Ohio OFFICERS WILLIS J. WINN, President WALTER H. MacDONALD, First Vice President WILLIAM H. HENDRICKS Senior Vice President R. THOMAS KING Vice President FRED O. KIEL Senior Vice President ELFER B. MILLER General Auditor JOHN E.' BIRKY Vice President THOMAS E. ORMISTON, JR. Vice President GEORGE E. BOOTH, JR. Vice President and Cashier ROBERT E. SHOWALTER Vice President PAUL BREIDENBACH Vice President and General Counsel LESTER M. SELBY Vice President and Secretary JAMES H. CAMPBELL Vice President DONALD G. VINCEL Vice President R. JOSEPH GINNANE Vice President OSCAR H. BEACH, JR. Assistant Vice President WILLIAM J. HOCTER Vice President and Economist MARGRET A. BEEKEL Assistant Vice President and Economist HARRY W. HUNING Vice President THOMAS J. CALLAHAN Assistant Vice President FRED S. KELLY Vice President GEORGE E. COE Assistant Vice President 16 PATRICK V. COST Assistant Vice President ROBERT G. COURY Assistant General Counsel JOHN J. ERCEG Assistant Vice President and Economist ANNE J. ERSTE Assistant Vice President FRANK B. KEHRES Chief Examiner HAROLD J. SWART Assistant Vice President and Assistant Secretary DAVID A. TRUBICA Assistant Vice President ROBERT VAN VALKENBURG Assistant Vice President DAVID J. WEITZEL Assistant General Auditor VIRGINIA L. WHITMER Assistant Vice President CIICIIJlIITI BRill DIRECTORS Chairman GRAHAM E. MARX, President and General Manager The G. A. Gray Company, Cincinnati, Ohio PAUL W. CHRISTENSEN, JR. President The Cincinnati Gear Company Cincinnati, Ohio PHILLIP R. SHRIVER, President Miami University Oxford, Ohio ROBERT E. HALL President The First National Bank and Trust Company Troy, Ohio CLAIR F. VOUGH Vice President Office Products Division IBM Corp. Lexington, Kentucky WILLIAM S. ROWE President The Fifth Third Bank Cincinnat, Ohio E. PAUL WILLIAMS President The Second National Bank of Ashland Ashland, Kentucky OFFICERS FREDO. KIEL Senior Vice President ROBERT D. DUGGAN Vice President and Cashier DONALD G. BENJAMIN CHARLES A. CERINO JERRY S. WILSON Assistant Vice President Assistant Vice President Assistant Vice President 5BUR&H BRRICH DIRECTORS Chairman ROBERT E. KIRBY, President Westinghouse Electric Corporation, Industry and Defense Company, Pittsburgh, Pennsylvania ROBINSON F. BARKER Chairman of the Board and Chief Executive Officer PPG Industries, Inc. Pittsburgh, Pennsyvania DOUGLAS GRYMES President Koppers Company, Inc. Pittsburgh, Pennsylvania RICHARD M. CYERT President Carnegie-Mellon University Pittsburgh, Pennsylvania JERRY A. HALVERSON President The First National Bank and Trust Company of Wheeling Wheeling, West Virginia MERLE E. GILLIAND Chairman of the Board and Chief Executive Officer Pittsburgh National Bank Pittsburgh, Pennsylvania CHARLES F. WARD President Gallatin National Bank Uniontown, Pennsylvania OFFICERS JAMES H. CAMPBELL Vice President CHARLES E. HOUPT Vice President and Cashier PAUL E. ANDERSON J. ROBERT AUFDERHEIDE SAMUEL G. CAMPBELL Assistant Vice President Assistant Vice President Assistant Vice President COLUMBUS REGIONAL CHECK PROCESSING CENTER PITTSBURGH BRANCH CINCINNATI BRANCH CLEVELAND FEDERAL RESERVE BANK 19 ERRATA Board of Directors: E. W. Baker should read E. W. Barker E. B. Miller, General Auditor, reports directly to the Audit Review Committee of the Board of Directors. f