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Federal Reserve Bank of Chicago

1983 Annual Report
Focus on the region

Federal Reserve Bank of
Head Office
230 S. LaSalle Street
Chicago, Illinois 60690


Detroit Branch
160 West Fort Street
Detroit, Michigan 48226
Des Moines Office
616 Tenth Street
Des Moines, Iowa 50309
Indianapolis Office
41 E. Washington Street
Indianapolis, Indiana 46204
Milwaukee Office
304 E. State Street
Milwaukee, Wisconsin 53202

For additional copies of this report,
contact the Public Information
Center, Federal Reserve Bank of
Chicago (312/322-5112).

Federal Reserve Bank of Chicago

1983 Annual Report
Focus on the region



A message from the president
Foundations in the regions:
the Federal Reserve System
Directors: linking the Bank
to the region
Focus on the region:
regulatory activities
Directors and officers


A message from the president
Our charter identifies this
institution as the Federal
Reserve Bank of Chicago, but
"The Federal Reserve Bank
of the Seventh District"
would more correctly identify our commitment. The
nature and scope of our
commitment to the District,
a region spanning the heart
of the Midwest, serves as the
theme of our Annual Report
this year and is, I think,
clearly demonstrated by the
efforts and accomplishments
of our directors, officers, and
staff during 1983Many of the Bank's goals for
1983 were very specific in
their focus on service to the
District. In the area of economic policy and research,
we concentrated our economic expertise and analytical strengths on efforts
aimed at improving the longrun economic performance
of the District. Through our
increasing involvement in
the study of economic issues
of special concern within the
District we have also learned
more about how regional
conditions relate to the
broader national and international economic environment. These efforts have

enriched our contribution to
the national monetary policymaking process.
Indeed, the monetary policy
course we continued to support during 1983 relates
directly to our special focus
on the Midwest and its conditions. A noninflationary
environment was not only a
prerequisite to renewed
economic expansion nationally but particularly important to the industries and
workers of our region.
As 1983 closed, there were
signs that the Midwest was
positioned to share more
fully in the uptrend that had
taken place at the national
level. But only if expectations for continued price
stability are firmly planted,
can the promise of renewed
economic vitality become a
sustainable reality. Therefore, we are keenly aware
that the progress to date on
inflation, achieved at such
great cost, provides no justification for relaxing our
commitment to a firm
course for monetary policy.
If anything, the need for
steady but restrained monetary growth is intensified in
view of the threats posed by
continued high federal deficits and the economic and
political instability that
clouds the international

Our efforts were also
focused squarely on the
region in our supervisory
and regulatory responsibilities during 1983. Our
emphasis has been on
strengthening and refining
monitoring mechanisms so
that the attention of Bank
staff can be readily directed
to any problem or potential
problem situations and institutions within the District.
We have also continued to
seek opportunities to reduce
the reporting and other regulatory burdens that fall particularly heavily upon the
smaller institutions that predominate in the Seventh District. At the same time, the
Bank's financial structure
and regulatory research
efforts have been
on the myriad changes taking
place in the financial services
markets. Through such studies we are developing an analytical foundation for
recommending legislative
and regulatory changes that
can benefit not only the
region's financial institutions,
but as importantly, the ultimate consumers of financial
In the third main area of our
activity—providing financial
services to District depository institutions—we now

have the opportunity and
indeed a legislated mandate,
to focus on and directly
serve the needs of customers
within a competitive environment. The objectives we
set for ourselves in this very
exciting and challenging area
were quite high, and I think
we can feel justifiably proud
of our success in reaching
them during 1983.
Of course, any organization's
success in fulfilling its commitment is attributable to
the individuals that make up
that organization. In our
case, each director, officer,
and member of the staff contributed to the Bank's
achievements this past year.
But one exceptional individual deserves special
recognition—John Sagan,
who at year-end 1983 completed the maximum of two
full three-year terms as a
director of this Federal
Reserve Bank, having served
the last four years as chairman of the board.
This Bank's commitment to
serving our District is testimony to John Sagan's leadership. He provided this
Bank with singular purpose
and constant focus during a


period of dramatic change
that affected each facet of
the Bank's activities. During
this period, the District
economy, the financial
industry and marketplace,
and the very basis on which
the Bank provides services
were all radically transformed. But through this
period of change, which
included the appointment of
a new president of our Bank,
John Sagan's ability to focus
on and articulate the needs
and concerns of the District
enabled the Bank to steer an
unerring course.
It seems most fitting that
during 1983, the final year of
John Sagan's leadership, he
and the other members of
his board initiated a major
project to renovate and
expand the Bank's headquarters building. By this action,
as through all his efforts over
the years, he has assured that
even following his tenure the
Bank will be able to continue fulfilling the commitment he has defined so
clearly—serving the needs
and meeting the concerns of
its region.

Silas Keehn

John Sagan (left) provided outstanding leadership and guidance to
Federal Reserve Bank of Chicago management, including President
Silas Keehn ( right), during eight years of dedicatedserviceas a
director. At year-end 1983, he completed the maximum of two threeyear terms as a director on the District board, havingservedthe last
four years as its chairman. He joined the Bank's board after serving
as a director of the Bank's Detroit Branch for two years.


Foundations in the regions: the Federal Reserve System
The legislative process
within the American system
of government is one of continuous negotiation and
compromise. Legislation can
emerge from the process if it
weaves together enough
individual elements either to
gain the support of diverse
interest groups or, at a minimum, to reduce their
The events that led to the
passage of the Federal
Reserve Act in 1913 truly
exemplified this creative
process. The distinctive
structure that evolved for the
American central bank
represented an imaginative
combination of public and
private, national and
regional, banking and
governmental influences.
Imbued with these diverse
elements, the legislation
eventually garnered the
necessary support of those
who were fearful of the socalled banking interests as
well as those who were
regarded as representing
If any one structural element
of the proposed central
banking system was critical

to its establishment, it was
its unique regional plan of
organization. The idea
represented a dramatic
departure from a proposal
for a centralized National
Reserve Association that had
failed to gain congressional
support in the early 1900s.
Perhaps even more importantly, a regional system contrasted sharply with the two
nineteenth century U.S. central banks that were rejected,
in effect, by the American
public when their twentyyear charters were permitted
to expire.
The concept of a system of
regional reserve banks was
presented to Woodrow
Wilson shortly before his
presidential inauguration in
1913 by Congressman Carter
Glass. The proposed regional
plan won Wilson's support
once Glass agreed to add a
publicly appointed board as
a "capstone" to the system. A
network of regional banks
governed by public officials
were the basic features that
after almost a year of debate,

negotiation, and refinement
were adopted in the Federal
Reserve Act. Interestingly
one of those refinements was
an added regional element —
a requirement that each
appointed board member be
selected from a different
Federal Reserve District.
Overall, a regionally structured central bank appealed
to the American public in a
way that other schemes
could not. A fear of concentrations of power seems to
be a basic feature of the
American mentality. So, as in
the structuring of the American system of government, in
order for the concept of a
central bank to gain public
acceptance, a distinctive
organizational plan had to be
devised that would be
regarded as diffusing that
power and thereby appeasing those fears.
But the regional structure of
the Federal Reserve System
has important benefits that
go well beyond its original
public appeal. Seventy years
have passed and during this
period American government

and society have generally tended toward greater
centralization. Nonetheless,
the Fed System's regional
structure remains to this day
an extremely effective delivery system—both for providing services by the Federal
Reserve and for harnessing
the inputs and resources the
Federal Reserve needs to
carry on its work.

The Seventh Federal
Reserve District
The Federal Reserve Act
provided for the Reserve
Bank Organization Committee to determine the locations of the Reserve Banks
(as well as their number, at
least eight but no more than
twelve) and to define the
boundaries of the districts
the banks were to serve. As
with the passage of the legislation itself, a great deal of
negotiation and compromise
took place before the Committee completed its task,
but remarkably few changes
have since been made in the
original geographic structure
that was devised.
Chicago, long a leading
financial center, was an
obvious choice for the location of a Reserve Bank.


Drawing district boundaries
was a more difficult task, but
the boundaries originally
designated for the Seventh
Federal Reserve District
remain unchanged—with the
exception of 25 counties in
central Wisconsin added in
The area of the Seventh Federal Reserve District was
then and remains today a
leading region in terms of its
place in American industry,
agriculture, commerce, and
finance. Spanning all of Iowa,
northern Illinois and Indiana,
southern Wisconsin, and the
Lower Peninsula of Michigan
which is served by the Bank's
Detroit Branch, the Seventh
Federal Reserve District is in
many ways a microcosm of
the nation. With 13 percent
of the nation's population, it
ranks second among the 12
districts, but it ranks first in
the value of both its agricultural and manufacturing
The District contains most of
the "Corn Belt" with some of
the richest and most productive soil in the world. The
five states produce about half
of the nation's output of
corn and soybeans, half of its
pork, one-third of its oats,
and over one-fourth of its

Based on employment, about
17 percent of the nation's
manufacturing activity is located in the District, and the
area accounts for a particularly high proportion in such
industries as iron and steel,
electrical and nonelectrical
machinery, motor vehicles,
and pharmaceuticals.
The District has extensive
transportation facilities—air,
railways, and highways—and

has outlets to the sea
through the Great Lakes and
St. Lawrence Seaway, in one
direction, and the Mississippi
River in another.
Seventh District products
represent an important
component of the nation's
foreign trade. International
financial activity in the District is growing steadily, and
the world's most important
center for commodities and
financial futures trading is
located within the District.

Given its importance in the
commercial and industrial
activity of the country, the
District mirrors many of the
nation's strengths. By the
same token, of course, it has
in recent times provided
vivid reflection of some of
the nation's economic


Directors: linking the Bank to the region
Clearly, the primary role of
each Federal Reserve Bank is
to serve its region—its District. This, in essence, is the
Bank's mandate.
Playing the key role in seeing
that this mandate is fulfilled
is the Reserve Bank's board
of directors, which serves as
a vital link to the Reserve
District. The many ways in
which the Federal Reserve
Bank of Chicago's
directors—both at the Head
Office and the Detroit
Branch —relate to the region
serve to illustrate the point
The directors bring to our
Bank a diversity and wealth
of experience that reflects
and represents the various
interests, industries, and
locales of the District.
Through them, the Bank is
provided with insight, expertise, talent, advice, and
managerial know-how that
could not and would not
otherwise be available to it.
It is the role of the directors
to assess and articulate needs

that cut across the various
sectors of the District—to
reflect the needs of financial
institutions, producers,
workers, businesses, and
consumers alike. The directors then provide important
input for Bank management
in the development of policies and services that address
these regional needs.
Through the governance
process our board assures
that the needs and requirements of the District are
adequately and fairly served.
At their monthly meetings,
the directors report on their
industries and local areas,
reviewing current conditions, developments, and
prospects. This first-hand
grass-roots economic intelligence serves as valuable
input for System monetary
policymakers generally and,
in particular, for the Bank
president who serves as the
Bank's representative on the
System's chief monetary policy body, the Federal Open
Market Committee.
The Chicago Reserve Bank
directors have another and a
more direct role in System


policy actions. At least once
each 14 days, they set—
subject to review by the
Board of Governors in
Washington, D.C.—the
Bank's discount rate, i.e., the
basic interest rate at which
the Bank makes credit available to eligible District depository institutions.
In addition to their participation in the economic policy
area, the directors have specific responsibilities for
monitoring the management
of Bank operations. Thus, the
Bank benefits significantly
from the directors' diversified managerial experiences
as well as from their knowledge of economic and financial conditions.
The directors' responsibilities include the appointment
of all the officers of the
Bank. (The appointments of
the President and First Vice
President are subject to the
approval of the Board of
Governors.) The directors
also review the Bank's internal audit program, budget,
spending, major operational
plans and decisions, and
importantly, its overall
The diversity of experience
that our directors bring to
the Federal Reserve Bank is

in large part an outgrowth of
the selection process established by the Federal Reserve
Act. The members of the
board are divided into three
classes—A, B, and C—with
three directors in each class.
In Class A are the "banker"
directors, elected by the
member commercial banks
of the District as their
For this election, member
banks are divided into size
groups, so that large,
medium, and small banks
each select one Class A
director. Thus, the Federal
Reserve Act assures that even
the banking directors provide a variety of perspectives.
Class A directors on the Chicago Reserve Bank board
also represent diverse local
areas within the region. The
elected representative of the
Seventh District's smallest
member banks comes from a
bank with assets of $47 million in Charles City, Iowa
(population 8,778).
Medium-sized member
banks are represented by a
banker from a $168 million
institution in north-central
Indiana, while the representative of the largest banks in
the District comes from a $7
billion Chicago bank.

Charles M. Bliss
Harris Trust and
Savings Bank
Chicago, Illinois

Patrick E. McNarny
The First National Bank of
Logansport, Indiana

O. J. Tomson
The Citizens National Bank
of Charles City
Charles City, Iowa


Mary Garst

The Garst Company
Coon Rapids, Iowa

Dennis W. Hunt

Hunt Truck Lines, Inc.
Rockwell City, Iowa

Leon T. Kendall

Mortgage Guaranty
Insurance Corporation
Milwaukee, Wisconsin

The remaining six Reserve
Bank directors are required
by law to be representative
of a wide variety of nonbanking
interests including "agriculture, commerce, industry,
services, labor, and consumers." The three Class B
directors are elected by
member banks. Again, each
of the three size groups of
banks elects one director.
The Class C directors, on the
other hand, are appointed by
the Board of Governors,
which also selects the
chairman and deputy chairman of the Reserve Bank
board from among the Class
C directors. No Class B or C
director can be an officer,
director, or employee of a
bank, nor can a class C director be a stockholder in a
banking organization.
The nonbanking directors of
the 1983 Chicago Reserve
Bank board represent various
areas of the District—from
eastern Michigan to western
Iowa. They come from the
largest cities, small towns,
and rural areas. They are
affiliated with major corporations and with small businesses. Most importantly,
they represent a crosssection of the District's most
important sectors: agriculture, transportation, housing
and mortgage finance, automobile manufacturing, labor,
and communications.


Given their diverse affiliations, our directors play
another important role.
Through their associations,
contacts, and outreach
efforts, the directors contribute to a broader public
understanding of the responsibilities and actions of the
Federal Reserve System and
Bank. To this end, and to
gain further insight into current developments around
the District, the directors of
the Chicago Reserve Bank
hold their meetings from
time to time outside Chicago. During 1983, the
directors met in Detroit and
also in Milwaukee, where
they sponsored a variety of
events in order to seek the
views of area business, financial, labor, and community
An additional responsibility
of the directors is to elect a
District representative to the
System-wide Federal Advisory Council. They also
appoint the majority of
Reserve Bank Branch Office
directors, with the
remainder appointed by the
Board of Governors.
Established under the original Federal Reserve Act, the
twelve-member Federal Advisory Council was designed
to serve as a liaison between
the banking communities of
the various Reserve Districts,
the twelve regional Reserve
Banks, and the Washingtonbased Federal Reserve Board.
The Council meets in

Edward F. Brabec
Chicago Journeymen
Plumbers-Local 130
Chicago, Illinois

Stanton R. Cook
Tribune Company
Chicago, Illinois

John Sagan
Ford Motor Company
Dearborn, Michigan


James H. Duncan

First of America
Bank Corporation
Kalamazoo, Michigan

Charles T. Fisher III

National Bank of Detroit
Detroit, Michigan

Lawrence A. Johns

Isabella Bank and Trust
Mount Pleasant, Michigan

Washington at least four
times each year to confer
with the Board of Governors
on financial matters, general
business conditions, monetary policy issues, and other
questions of concern to the
Federal Reserve System. Following these meetings, the
Seventh District representative presents a full report of
the Washington discussions
to the Chicago Reserve Bank
board members. This process provides an additional
source of regional guidance
for System and Reserve Bank
The seven-member board
of directors of the Chicago
Reserve Bank's Detroit
Branch, like the board at the
District level, provides an
invaluable link to the region
served by that institution.
The composition of the
Branch board parallels the
District board in that it
assures a diversity of inputs,
from various locales and sectors. In fact, it permits
information about and guidance from sectors not otherwise represented to be
provided to our Reserve
Bank. Four members of the
Detroit Branch board are
nonbankers and include an
educator and a foundation
executive, w h o provide
broad public representation,
and an executive from the

retail industry, a business
sector of major importance.
They are joined by a thrift
institution official w h o provides especially important
input given legislative
changes that have broadened
the Federal Reserve's relationship with that industry.
As with the District board,
banking directors at the
Branch level represent a variety' of perspectives. The
three banking representatives on the 1983 Branch
board come from eastern,
western, and central Michigan; through them major
metropolitan institutions,
state-wide holding companies, and community banks
all have representation on
the Detroit board.
Given their diversity in
expertise and interests, the
Branch directors oversee the
operations of the Detroit
Branch, assuring that it
serves the needs of its Michigan territory. Most importantly, they participate
actively in the activities and
deliberations of the District
board, and thus help the
Bank to fulfill its commitment to the region as a


Robert E. Brewer
K mart Corporation
Troy, Michigan

Karl D. Gregory
Oakland University
Rochester, Michigan

Russell G. Mawby
W.K. Kellogg
Battle Creek,

Thomas R. Ricketts
Standard Federal
Savings and Loan
Association of Troy
Troy, Michigan


Focus on the region: economic analysis
In the first year of recovery
from the 1981-82 recession,
the Midwest in general, and
the Seventh District in particular, made significant
economic gains, but continued to lag the rest of the
country, especially in
employment. In testimony
before a subcommitte of the
House Committee on Banking, Finance, and Urban
Affairs in June, Federal
Reserve Bank of Chicago
President Silas Keehn presented detailed data on the
severity of current problems
and spoke of concerns about
the longer-term problems
associated with adjustments
to new economic realities in
the Midwest. In speeches
throughout the District during the year he delineated
the role of the Federal
Reserve and the individual
Reserve Banks in encouraging economic growth and
solutions to the immediate
and long-term difficulties.
In large degree, the Midwest's economic problems
were caused or, at least,
exacerbated by inflation.
Continued growth and
further reductions in unemployment in the Midwest
depend on the maintenance
of a noninflationary environment. A resurgence of
inflation would recreate the
distortions in business and
individual decision-making
that have led to ever higher
rates of unemployment in
the successive business

cycles since World War II
and would seriously limit
chances for economic
expansion and improvement
in job opportunities.
The Federal Reserve System
has a clear role to play in fostering price stability, and setting the stage for growth in
the economy and jobs,
through appropriate national
monetary policy. There is
also a role for the individual
Reserve Banks. The complex
process of economic adjustment involves social as well
as economic objectives that
may, on occasion, conflict
with each other. Moreover,
the objectives of various
regions may clash. Cooperative national and regional
efforts are required. In this
intricate environment a
Reserve Bank cannot determine the changes to be
made, but can assist, serving
as a focal point for studies of
the region and as a catalyst
for cooperative efforts.
On national policy questions,
the Chicago Fed's economists and their technical staff
continued to provide important support for the decisions and recommendations
of the Bank's management.
Such support required constant monitoring of economic data, analysis of
national and regional issues,

and the preparation of background and briefing

develop a mechanism for
ongoing public/private

As part of the Bank's intensified regional commitment, a
number of issues were studied by staff economists during the year. For example, a
staff study on the effects of
federal natural gas policy on
energy prices in the Midwest
was completed and published. Another, on the economic viability of high speed
rail transportation in the
region, neared completion.
But among the many
research programs, one
effort clearly demonstrates
the Bank's determination to
serve the region as both a
research center and a catalyst for cooperative action.

The role of the Chicago Fed
is to develop a data base of
economic information to
support the work of all those
involved in the project.
Employment figures and
trends, comparative data
from other metropolitan
areas, and other useful economic data are being collected and analyzed. The
Bank has further agreed to
maintain and update the data
for the future. This information, along with similar data
for other metropolitan and
rural areas of the District,
will become part of a larger
regional data base the Bank
intends to develop and maintain for public use.

In mid-1983, the Federal
Reserve Bank of Chicago
joined with the Commercial
Club of Chicago, a longestablished group of business
leaders, in a project to create
a Chicago metropolitan area
economic plan with an
emphasis on creating and
maintaining jobs. The plan is
envisioned as a strategic road
map, charting the course the
Chicago area should take in
the next twenty years.
Representatives of government, labor, academia,
neighborhoods, and other
groups are being asked to
participate in the project
which should help to

The preparation of the new
economic plan involves the
analysis of Chicago's
strengths and weaknesses
and the identification of
economic threats and opportunities in the area. Representatives of industry, labor,
government, and education
are working on "resource
committees" that study an
individual industrial sector
or particular issue such as
agribusiness, transportation,
emerging businesses,
research and education, and
changing job skills.
From the recommendations
of the resource committees
will come the detailed pro-


Portrait of the region: financial hub

proposals to better Chicago's
economic and employment
position. Some ideas that are
emerging include: the establishment of special entities
to provide technical assistance to small and emerging
businesses; tax, zoning, and
regulatory changes to
encourage the retention of
business; closer cooperation
between the business and
education communities to
provide appropriate technical support for new enter-

prises as well as career training for new and displaced
workers; and major promotional campaigns to improve
the Chicagoland image as
one of the world's great metropolitan centers.
During the last half of 1983,
the "Commercial Club Project" engaged a great deal of
attention from Chicago Fed
staff members. Detailed

statistical scans of the Chicago
metropolitan area and of
individual industries were
developed, prepared, and
distributed by the Bank to
committee members. In
addition, Bank staff attended
virtually all the meetings of
the 16 resource committees,
contributing their own ideas
and giving technical assistance. The final project
report is scheduled for completion in August 1984.

While the immediate goal of
the project is increased
employment in the Chicago
metropolitan area, other
long-term benefits accrue to
the Bank and the District.
The experience gained in
public/private studies, in
gathering data, and in setting
up project protocols can be
applied to other localities.
The active participation of
the Chicago Fed in such
projects is a particularly
appropriate and valuable
form of service to the region.


Focus on the region: regulatory activities
Each Reserve Bank provides
service to its District in its
regulatory and supervisory
activities. But the Chicago
Bank's strong regional focus
underlies special efforts the
Bank has undertaken within
this area of responsibility.
The financial health of each
bank holding company and
state-chartered member
bank in the District is continually monitored through
various means including onsite examinations. Through
its consumer affairs and
compliance activities the
Bank works with lenders and
borrowers to see that customers are treated fairly and
community needs are served.
The Reserve Bank's "discount window" activities
also play a role in enabling
depository institutions to
serve their communities
effectively. By extending
credit through the "discount
window", the Reserve Bank
assists institutions in offsetting short-run shifts in assets
and liabilities or more prolonged seasonal pressures.
These ongoing Reserve Bank
supervision, regulation, and
lending functions help make
it possible for the region's
citizens to "bank" with confidence and enjoy access to
credit on an equitable basis.
For the Chicago Reserve
Bank these functions are no
mean task. Among the 12
Banks, the Chicago Fed has
the largest total of state
member banks and the

second largest total of bank
holding companies to supervise, plus the largest number
of depository institutions
with access to the discount
window. Similarly, in the
Chicago Reserve Bank's data
collection responsibilities,
the number of institutions
that submit data for processing by the Chicago Fed is
generally among the largest.
Rich in number, the District's depository institutions
also run the gamut in terms
of type, size, organizational
structure, and market served.
There are banks with extensive branch networks as well
as the many unit banks; onebank holding companies as
well as multi's and chains;
District institutions serving
local, regional, national, and
international markets plus
out-of-District-based organizations that have found the
means to operate on an
interstate basis; nonfinancialbased companies seeking
entree to financial services
markets, depository institutions looking to broaden
their own business activities,
plus those, representing the
vast majority, that continue
to concentrate on providing
traditional financial services
to meet the particular needs
of their local customers.
This extensive and diverse
population of District institutions, dominated by relatively small, communitybased organizations, has
made the Chicago Reserve
Bank particularly sensitive to

the regulatory burdens that
fall most heavily on smaller
depository institutions. And
this sensitivity was clearly in
evidence through a number
of the Bank's special undertakings during 1983The Bank's approach to
implementing "Contemporaneous Reserve Requirements" (CRR) provides a
prime example. In 1982, the
Board of Governors, in an
effort to enhance the conduct of monetary policy,
decided to change reserve
requirements procedures,
effective in early 1984.
Because the new system
would alter the timing of
reserve calculations, Reserve
Banks would no longer be
able to inform institutions of
their reserve requirements.
Instead, each institution
would have to estimate its
reserve position each day,
based on a combination of
actual and projected daily
balance sheet figures.
Concerned about the costs
and difficulties this change
might impose for District
institutions, the Bank undertook a broadly based and
aggressive campaign to educate and assist them during
1983. The Bank conducted
60 seminars across the District attended by 2,000 individuals representing 1,200
institutions. The programs
and materials developed by
the Bank for these sessions
were also used extensively in
other Districts. Of particular
interest was the software

package developed by the
Bank for use on personal
computers. The program
enables an institution to easily calculate its reserve
requirements and position in
a matter of minutes. More
than 2,000 copies of the
program have been distributed nationwide.
As with CRR, the Bank's special efforts related to the
review of data reports
required from depository
institutions reflect its concerns about regulatory
burdens and costs, which
ultimately are, after all,
borne by the consumer.
Without doubt, the System's
information needs for monetary policy and supervisory
purposes are substantial, and
the information collected is
also of immense value and
interest to many outside the
System. Nevertheless, the
Chicago Reserve Bank is a
staunch advocate of balancing data needs against
respondent burden, and the
Bank's participation in 34
System report review efforts
during 1983 helped ensure
that this balance is struck.
The Bank's strong regional
focus manifests itself in
another area of special
emphasis. Banking structure
issues have traditionally been
the subject of much controversy and debate within
the states of the District. To
subject these sometimes
emotionally-charged issues
to more rigorous analysis,
the Bank has long specialized


in research related to bank
structure and competition,
and has sponsored a nationally known annual conference where bankers, academics, and regulators
gather to debate these issues.
Interest in financial structure
issues has intensified
recently, given the forces at
work that are beating down
the barriers that have traditionally circumscribed geographic and product
markets. During 1983, the
Bank placed particular
emphasis on research that
could serve as a foundation
for recommending legislative
or regulatory changes.
Among the topics analyzed
were the impact of deregulation on competition in
financial services, the extent
of nonbank entry into the
banking field, and the implications of these types of
market changes for the
future of commercial banks
and for the very meaning of
the term "bank".
In all, this research has led to
some interesting and rather
exciting conclusions pertinent to the management of
District institutions. The evidence indicates that artificial, institutional barriers
delineating product and geographic markets have been
futile and, to an extent,
counterproductive. The barriers have not impeded
innovative institutions that
have sought to get around
them, but have impeded
other institutions they were

Portrait of the region: agricultural heartland

meant to protect. At the
same time, the changes taking place in financial service
markets appear to provide
opportunities for smaller as
well as large institutions, so
long as they seek to take
advantage of them.
As with the study of regulatory issues, the Bank's District focus comes through in
special 1983 initiatives to
strengthen its bank supervision capabilities. Reserve
Bank management recognized

that the recent recession had been amplified
within the District, and, in
fact, that the Midwest's problems
transcended cyclical
trends. Such economic circumstances would continue
for some time to have significant implications for asset
quality at District banks and
their financial health in general. Against this background, steps were taken to
upgrade the Bank's monitoring systems so that potential
problem situations could be

identified, and supervisory
attention could be readily
focussed on them. At the
same time, the effectiveness
of the examination staff in
the field was enhanced by
developing an automated
facility to provide examiners
better access to data and
assist them in their analytical
work. By strengthening its
supervisory capabilities, the
Bank helps to ensure that the
District's residents enjoy the
benefits of a viable financial


Focus on the region: services
Some notion of the Chicago
Reserve Bank's importance
in the region as a processor
of financial transactions
emerges by considering that
on any day, the checks
cleared through the Bank's
five offices, if laid end to end,
would form a path stretching
from one end of the District
to the other, and the total
volume for 1983 would encircle the earth eight times.
But check volume is just one
part of the story. Check processing, representing an
impressive $1 trillion in
payments, in turn appears
relatively small compared to
the $16.5 trillion in funds
transfers handled by the
Bank—enough to purchase
all the goods and services
produced in the United
States during 1983 almost
five times over.
In addition to check collection and funds transfers,
financial services provided
by the Bank to depository
institutions and the U.S.
government include issuing
currency and coin; processing electronic payments;
providing safekeeping and
other securities services;
issuing U.S. government
securities including savings
bonds; and processing tax
deposits and food stamps.
While through these activities the Bank has limited
direct contact with individuals and businesses in the District, they are, indeed, the
ultimate beneficiaries in
their various roles as pur-

chasers and sellers of goods
and services, savers and
investors, securities issuers
and holders.
Because of these activities,
many everyday financial
transactions can be taken for
granted: paying by check,
withdrawing cash, purchasing a savings bond, wiring
funds, receiving a Social
Security payment automatically. Overall, they serve to
assure a smooth flow of
financial transactions
through the economy.
As in past years, the Bank
undertook in 1983 to
improve its service to the
District by upgrading its various operations. The year
also witnessed a major
accomplishment by the Bank
that improved the ability of
the Federal Reserve System
to serve the nation as a
whole. The Federal Reserve
System's new communications network, FRCS-80,
developed by a special project team based at the Chicago Bank, became fully
operational in 1983. More
reliable and flexible than its
predecessor system based in
Culpeper, Virginia, the new
system will be able to handle
expanding information flows
for years to come and can
accommodate linkages with
other communications
With this milestone in the
FRCS-80 project reached, the
System Communication Center was established at the

Chicago Bank, consolidating
the project effort with the
ongoing management of the
network. The consolidation
with activities formerly
based in Culpeper, of course,
also permitted significant
resource savings for the
System and, ultimately, the
public at large.
The FRCS-80 project typifies
efforts on the part of the
System to improve its internal operations. Recently,
because the System must
now make its services available to all depository institutions on a competitive basis,
the System has also been
able to muster the forces of
the marketplace to improve
the general level of financial
services available and
encourage improvements in
the payments mechanism.
To serve as an effective
competitive force, the Bank
focussed during 1983 on
providing a full line of high
quality services that serve
the needs of a broad range of
institutions in the District, by
enhancing its current services,
offering new products, and
improving service quality.
A number of service enhancements were introduced based on the results
of customer surveys conducted by the Bank following passage of the Monetary
Control Act as well as on
extensive direct customer
contact. In check collection,
additional and more convenient sorting, deposit, and

availability options are now
offered to meet differing customer needs. For small depositors with limited sorting
capabilities, a mixed deposit
program with calculated
availability has been introduced. For larger institutions, group sort options
have been developed that
offer improved availability at
relatively low prices.
In the cash services area,
accounting changes were
adopted in 1983 to improve
funds availability for customers. Also, the Bank began to
offer wrapped coin plus customized currency bundles to
meet the needs of smaller
institutions or individual
branches of larger organizations. In the area of securities services, improvements
in coupon collection availability were introduced, and
efforts are under way to
broaden the array of securities handied. In the area of
communication services, the
network of on-line data terminals continues to be
expanded, providing access
to more timely, lower-cost
funds and securities transfers
to a growing number of
In addition to enhancing
current services, new products are being developed,
with particular emphasis on
information services that will
help institutions manage
their own funds positions
and provide improved services to their customers. A
variety of "payor information

Portrait of the region: industrial giant

services" were initiated
including a demand deposit
accounting tape service enabling institutions to quickly
reconcile their cash letters
and post the information to
customer accounts. Other
services include special sorting of checks and early notification of total checks
drawn on specified customer
accounts. Another new service, soon to be offered—
"Money Position"—was
developed in 1983 to provide on-line institutions with

timely and convenient
information on their check
and ACH activity.
As it expands the service
line, the Bank remains aware
of the need to maintain a
high degree of accuracy, efficiency, reliability, and
responsiveness—or put
simply, service quality. To
this end, the Bank has
actively monitored its progress in service quality.
Follow-up customer surveys
have recently been con-

ducted to see how attitudes
about the Bank as a service
provider had changed since
passage of the Monetary
Control Act. The results
were most encouraging.
Almost 90 percent of institutions responded that the
Bank provides reliable, high
quality services, more than a
30 percent increase over the
earlier survey. Moreover,
about 70 percent now say
that the Bank provides personalized services that are
responsive to customer

needs—a 55 percent
improvement in the proportion indicating that the Bank
does well in this regard. By
improving the quality and
the scope of its services, the
Bank fosters competition and
innovation in the marketplace. Strides made by the
Bank during 1983 bode well
for the future, indicating that
the Bank will continue to
provide a significant level of
service to the District
through this avenue for many
years to come.


Executive changes
Charles M. Bliss, Chairman of
the Board and Chief Executive Officer of Harris Trust
and Savings Bank, Chicago,
was elected a Class A director by the largest member
banks in the District, effective January 1, 1983, filling
the seat formerly held by
Roger E. Anderson, Chairman of the Board and Chief
Executive Officer of Continental Illinois National Bank
and Trust Company of
Chicago, who was elected by
the board of directors to
serve as the District's representative to the Federal Advisory Council.
Charles T. Fisher III, Chairman and President, National
Bank of Detroit, was
appointed a director of the
Detroit Branch by the board
of directors of the Federal
Reserve Bank of Chicago in
place of Dean E. Richardson,
Chairman of the Board of
Manufacturers National Bank
of Detroit, whose term on
the Branch board expired at
year-end 1982.
At the end of 1983, Class A
director O. J. Tomson, President, The Citizens National
Bank of Charles City, Iowa,
and Class B director Leon T.
Kendall, Chairman of the
Board and Chief Executive
Officer, Mortgage Guaranty

Insurance Corporation, Milwaukee, were re-elected to
the Bank's board by the District's smallest and mediumsized member banks, respectively, to begin new terms on
January 1.
Also effective January 1,
1984, Stanton R. Cook, President and Chief Executive
Officer, Tribune Company,
Chicago, was appointed
chairman of the Federal
Reserve Bank of Chicago's
board of directors. He had
served as deputy chairman of
the board for the four previous years under John
Sagan, Vice PresidentTreasurer, Ford Motor Company, Dearborn, Michigan,
who completed the maximum two full terms as a
Chicago Reserve Bank director at year-end 1983. Moving
into the post of deputy
chairman was Edward F.
Brabec, Business Manager,
Chicago Journeymen
Plumbers-Local 130, and
assuming the Class C director seat formerly held by
Mr. Sagan was Robert J. Day,
President and Chief Operating Officer, United States
Gypsum Company, Chicago.
All three appointments were
made by the Board of Governors in Washington, D.C.
A new director was also
named at the Detroit Branch,
to begin a term January 1,
1984: Ronald D. Story, Presi-

dent and Chief Executive
Officer, The Ionia County
National Bank, Ionia, Michigan, was appointed by the
Federal Reserve Bank of
Chicago board of directors
to replace Lawrence A.
Johns, President, Isabella
Bank and Trust, Mount Pleassant, Michigan, who completed six years of service on
the Branch Board. Also effective at the beginning of
1984, Karl D. Gregory, Professor of Economics and
Management, Oakland University, Rochester, Michigan,
was re-appointed as a director of the Detroit Branch by
the Board of Governors, and
Russell G. Mawby, Chairman
of the Board and Chief
Executive Officer, W. K
Kellogg Foundation, Battle
Creek, Michigan, was reappointed as chairman of the
Branch board by the Detroit

Among officers promoted
during 1983 were Marlene
M. O'Sullivan, named Vice
President in charge of Computer Operations; David R.
Allardice, named Economic
Adviser and Vice President in
the Economic Research
Department; Steven M. Pill,
named Vice President and
Gerard J. Nick, Assistant Vice
President, both in FRB Customer Services; and Glen
Brooks, named Vice President at the Detroit Branch.

Also Vice President Richard
P. Anstee was designated
Director of Automation Services; Vice President Harvey
Rosenblum was designated
Associate Director of
Research; and at Detroit,
Vice President Frederick
Dominick was designated
Assistant Branch Manager.
Four new officers were
appointed during 1983Robert D. Lauson was named
Vice President in charge of
Facilities Planning and Management; Kenneth R. Berg
was appointed Assistant Vice
President in Automation Services; Valerie J. Middlebrooks was named Operations Officer in Cash
Services; and Allen R. Jensen
was named Operations
Officer at the Des Moines
The year 1983 also saw the
retirement of five officers
who had provided the Bank a
total of 180 years of dedicated service: Vice President
and Economic Adviser
Dorothy M. Nichols, Vice
President William Rooney,
Vice President Raymond M.
Scheider, Assistant Vice President Carl C. Welke, and
Examining Officer Thomas L.
Wolfe. The contribution that
each of these individuals
made to the Bank was enormously important and very
much appreciated.



(as of December 31,

Federal Reserve Bank of



John Sagan
Vice President-Treasurer, Ford Motor Company, Dearborn, Michigan
Deputy Chairman
Stanton R. Cook
President and Chief Executive Officer, Tribune
Chicago, Illinois




Russell G. Mawby
Chairman of the Board and Chief Executive Officer, W.K. Kellogg
Foundation, Battle Creek, Michigan
Robert E. Brewer
Executive Vice President-Finance and Director, K mart
Troy, Michigan


Charles M. Bliss
Chairman of the Board and Chief Executive Officer,
Harris Trust and Savings Bank, Chicago, Illinois

James H. Duncan
Chairman and Chief Executive Officer, First of America Bank
Corporation, Kalamazoo, Michigan

Edward F. Brabec
Business Manager, Chicago Journeymen Plumbers-Local 130,
Chicago, Illinois

Charles T. Fisher III
Chairman and President, National Bank of Detroit, Detroit, Michigan

Mary Garst
Manager—Cattle Division, The Garst Company, Coon Rapids, Iowa
Dennis W. Hunt
President, Hunt Truck Lines, Inc., Rockwell City, Iowa
Leon T. Kendall
Chairman of the Board and Chief Executive Officer, Mortgage Guaranty
Insurance Corporation, Milwaukee, Wisconsin
Patrick E. McNarny
President and Chief Executive Officer, The First National Bank
of Logansport, Logansport, Indiana
O. J. Tomson
President, The Citizens National Bank of Charles City, Charles City, Iowa

Karl D. Gregory
Professor of Economics and Management,
Rochester, Michigan



Lawrence A. Johns
President, Isabella Bank and Trust, Mount Pleasant, Michigan
Thomas R. Ricketts
Chairman of the Board and President, Standard Federal Savings
and Loan Association of Troy, Troy, Michigan



Roger E. Anderson
Chairman of the Board and Chief Executive Officer, Continental
Illinois National Bank and Trust Company of Chicago,
Chicago, Illinois


Silas K e e h n ,


of December




D a n i e l M. D o y l e , First Vice

Central Bank



Services to Depository


Supervision and Regulation and Loans
James R. Morrison, Senior Vice President

Robert M. Fitzgerald, Senior Vice President

Supervision and Regulation
Franklin D. Dreyer, Vice President
Roderick L. Housenga, Chief Examiner
Nicholas P. Alban, Assistant Vice President
John L. Bergstrom, Assistant Vice President
James A. Bluemle, Assistant Vice President
Rose M. Kubush, Assistant Vice President
Patrick J. Tracy, Assistant Chief Examiner
Alicia Williams, Consumer Affairs Officer

Cash and Funds/Securities
David R. Starin, Vice President
James M. Rudny, Assistant Vice President
Valerie J. Middlebrooks, Operations Officer
Check and Automated
Louis J. Purol, Vice President
Robert W. Wellhausen, Vice President
Theodore E. Downing, Jr., Assistant Vice President
Lawrence J. Powaga, Assistant Vice President
DeWayne W. Baker, Operations Officer

Hilbert G. Swanson, Assistant Vice President

Economic Research and Information Services
Karl A. Scheld, Senior Vice President and Director of Research
Harvey Rosenblum, Vice President and Associate Director of Research
Patricia W. Wishart, Vice President and Assistant Director of Research
David R. Allardice, Economic Adviser and Vice President
Gary L. Benjamin, Economic Adviser and Vice President
George W. Cloos, Economic Adviser and Vice President
Joseph G. Kvasnicka, Economic Adviser and Vice President
Larry R. Mote, Economic Adviser and Vice President
Anne Marie L. Gonczy, Senior Economist and Assistant Vice President
Jean L. Valerius, Assistant Vice President
Nancy M. Goodman, Assistant Vice President


Fiscal Agency and Securities
Daniel P. Kinsella, Vice President
William A. Bonifield, Jr., Assistant Vice President
Warren E. Potts, Assistant Vice President
Warren J. Taubman, Assistant Vice President

FRB Customer Services
Roby L. Sloan, Senior Vice President
Customer Service
Allen G. Wolkey, Vice President
Jack S. Light, Assistant Vice President
William D. Stratton, Assistant Vice President
Financial Institution
Ruth F. Vilona, Vice President
Gerard J. Nick, Assistant Vice President
Paul J. Bettini, Vice President
Stephen M. Pill, Vice President




Financial, Management and Automation Services
Carl E. Vander Wilt, Senior Vice President
Richard P. Anstee, Vice President and Director of Automation
George E. Coe, Vice President
Marlene M. O'Sullivan, Vice President
Kenneth R. Berg, Assistant Vice President
R. Steve Crain, Assistant Vice President
Carol P. Kaspar, Assistant Vice President
Frank S. McKenna, Assistant Vice President
Robert W. Roberts, Assistant Vice President
Charles L. Schultz, Assistant Vice President
Janet M. Terry, Assistant Vice President


Financial and Management
Glenn C. Hansen, Vice President
Jerome F. John, Financial Officer
LeRoy E. Ketchmark, Systems Officer

Office of the General Auditor
(reporting to the Board of Directors)
Richard P. Bush, General Auditor
Andrew M. Cook, Assistant General Auditor
George W. Steffen, Assistant General Auditor

Office of the General Counsel
William H. Gram, Vice President, General Counsel
and Secretary
Oliver I. Ireland, Vice President and
Associate General Counsel
Office of the Bank
Susan H. Riis, Administrative Officer
Support Services
Charles W. Furbee, Senior Vice President
Wayne R. Baxter, Vice President
Facilities Planning and
Robert D. Lauson, Vice President
General Services
Robert A. Ludwig, Vice President
Richard H. Ramsdell, Assistant Vice President
Human Resource Services
Adolph J. Stojetz, Vice President
Gerald I. Silber, Assistant Vice President


Detroit Branch
William C. Conrad, Senior Vice President and Manager
Frederick S. Dominick, Vice President and Assistant Branch Manager
Glen Brooks, Vice President
Joseph R. O'Connor, Assistant Vice President
Richard L. Simms, Jr., Assistant Vice President
F. Alan Wells, Assistant Vice President

Regional Check Processing Centers
Des Moines Office
Thomas P. Killeen, Assistant Vice President
Allen R. Jensen, Operations Officer
Russell O. Langan, Assistant Vice President
Milwaukee Office
Thomas G. Ciesielski, Assistant Vice President


Statement of condition (in thousands of dollars)
As of December 31
Gold certificate account
Interdistrict settlement account
Special drawing rights
certificate account
Loans and securities:
Federal agency securities
U.S. government securities
Total loans and securities
Cash items in process of collection
Bank premises
Other assets
Total assets
Federal Reserve notes
Depository institutions
U.S. Treasury—general account
Total deposits
Deferred availability cash items
Other liabilities
Total liabilities
Capital paid in
Total capital
Total liabilities and capital






























Statement of income

(in t h o u s a n d s o f d o l l a r s )

Year ending December 31
Interest on loans to
depository institutions
Interest on government securities
Interest on investments of
foreign currencies
Service fees
All other




Total current income



Operating expenses
Other current expenses



Total current expenses
Less reimbursement for certain
fiscal agency and other expenses




Current net expenses







Current net i n c o m e
Additions to (or deductions
current net earnings
Net profit (or loss) on sales
of securities
Net profit ( or loss ) on foreign
exchange transactions
Board of Governors assessment
All other—net
Net additions (or deductions)
Net earnings available
for distribution









Distribution of net earnings
Dividends paid
Payments to U.S. Treasury (as interest
on Federal Reserve notes)
Transferred to surplus



NOTE: As of January 1, 1983, Board of Governors assessment includes
the cost of Federal Reserve currency previously shown as a current expense
item. Figures for 1982 have been restated for purposes of comparison.


Highlights of operations
Dollar amount
Check and related
Checks, NOWs, and share
drafts processed
Fine sort and packaged
checks handled
U.S. government checks and postal
money orders processed
Automated clearinghouse (ACH)
items processed
Transfers of funds
Currency received and counted
Unfit currency withdrawn
Coin received and processed
Securities services for
Safekeeping of securities:
Definitive, balance December 31
Book entry, balance December 31
Purchase and sale of securities
Collection of bonds, coupons
and other noncash items
Loans to depository
Total loans made during year
Institutions accommodated
Services to U.S. Treasury
Marketable government securities
issued, exchanged, and redeemed:
Definitive securities
Book entry securities
U.S. government coupons paid
U.S. savings bonds issued,
exchanged, and redeemed
Federal tax deposits processed
Food stamps received and processed

'Basis for counting revised.





1.0 trillion

1.1 trillion

134.3 billion

144.6 billion

311.5 million

346.7 million

81.9 billion

101.0 billion

77.4 million

80.0 million

171.8 billion
16.5 trillion

99.6 billion
15.6 trillion

53.7 million
7.6 million

42.0 million
7.3 million

12.7 billion
2.4 billion
359-1 million

11.8 billion
2.5 billion
325.6 million

1.3 billion
406.4 million
2.6 billion

1.2 billion
441.1 million
2.2 billion

14.7 billion
108.6 billion
2.3 billion

13.4 billion
87.5 billion
2.5 billion

1.0 million

1.1 million



17.9 thousand

23 8 thousand

2.0 billion

2.6 billion

381.0 thousand

389.6 thousand

14.6 billion

36.2 billion



1.8 billion

1.8 billion



4.4 billion
2.2 trillion
376.7 million

3.5 billion
1.8 trillion
346.5 million

315.1 thousand
915.1 thousand
748.0 thousand

378.0 thousand
960.1 thousand*
771.0 thousand

2.5 billion
72.2 billion
1.6 billion

2.6 billion
70.2 billion
1.3 billion

27.5 million
816.6 thousand
384.1 million

33 2 million
802.8 thousand
341.3 million

George Kufrin, Click/Chicago, pp. 3,

7(middle), 8 (middle, bottom), 9,10,11.
Courtesy of Harris Trust and Savings Bank,

p. 7 (top).
Tracy Sweet, p. 7 (bottom).
Rex Arrowsmith, p. 8 (top).
Michael Beasley, Click/Chicago, p. 13.
Robert Frerck, Click/ Chicago, p. 15.
Michael Mauney, Click/Chicago, p. 17.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102