Full text of Annual Report of the Federal Reserve Bank of Chicago : 1991 Annual Report

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1

a n n u a l

9

report

federal

reserve

bank

of

chicago

9

1

The Federal
Banks

across the United

Washington,
Reserve

Reserve

Bank

States

that, together

D.C., serve as the nation's

System,

To this end, the Federal
the formulation
and regulates

institutions

head office in Chicago,
Indianapolis
Seventh
Indiana,

supported
Reserve

branch

and Milwaukee,

Federal

Reserve

Michigan,

the Federal

and Wisconsin

which

Bank

monetary

Reserve
includes

in

Federal

passed

in

1913,

system.

of Chicago participates
policy,

Bank

Iowa.

financial

Through

offices in Des
of Chicago

major portions

in

supervises

and provides

and regional

plus all of

of Governors

by a stable financial

companies,

in Detroit,

Reserve

The role of the

and the U. S. government.

District,

1

bank.

of national

and bank holding

to depository

with the Board

by an act of Congress

and implementation
banks

is one of 12 regional

central

since its establishment

has been to foster a strong economy,

services

of Chicago

of

its
Moines,

serves

the

Illinois,

CONTENTS

2

PRESIDENT'S

MESSAGE

4

STILL REGIONAL AFTER ALL THESE

13

THE

22

FINANCIAL

24

DIRECTORS A N D ADVISORY

26

OFFICERS

28

EXECUTIVE

9

BANK IN

1991-

A REGIONAL

YEARS?
PERSPECTIVE

STATEMENTS
COUNCILS

APPOINTMENTS

1

president's

message

The economy
the news was bad.
off following

was often in the news last year, and too often

The recovery that held such great promise

Desert Storm

tured the headlines,
end the economy

faltered.

and consumer

was still uncertain

Layoffs

and plant

confidence

slumped

that monetary

policy has attempted

relates back to our experience
in terms of economic
was not

growth

closings

taking
cap-

again.

At

year-

at best.

Why has the recovery been so elusive,
stimulus

of

especially

to provide?

of the 1980s — a very positive
but an experience

given
The

the
answer

experience

that we knew all

along

sustainable.

Debt fueled m u c h of t h e growth

r e s t r u c t u r i n g their debt a n d sub-

we enjoyed d u r i n g t h e decade,

s t i t u t i n g equity. C o n s u m e r s like-

creating imbalances t h a t sooner or

wise h a v e t a k e n steps to improve

later h a d to overtake t h e expansion.

their balance sheets. This welcome

Happily the time of reckoning turned

" r e t u r n to basics" provides a solid

out to be l a t e r — we were almost

foundation for renewed economic

able to close the '80s still on a positive

growth a t a m o d e r a t e b u t more

note — but, unhappily, t h a t time

s u s t a i n a b l e level, consistent with

did arrive a n d t h e a d j u s t m e n t

t h e long-term potential of our

process to correct t h e imbalances

economy a n d reasonable price

h a s inhibited economic activity.

stability.

While this result was expected,

Like t h e economy, t h e news

we p e r h a p s failed to anticipate t h e

for t h e b a n k i n g i n d u s t r y w a s

m a g n i t u d e of t h e r e s t r a i n i n g effect.

mixed d u r i n g 1991. Most disap-

The so-called credit crunch provides

pointing w a s t h a t legislation re-

a good illustration. Although eco-

moving obsolete product a n d geo-

nomic circumstances a n d loan

graphic r e s t r a i n t s did not pass.

portfolios dictated t h a t b a n k s be ex-

E r a s i n g t h e s e artificial b a r r i e r s

tremely p r u d e n t , t h i s very appropri-

m a k e s sense on both economic

ate credit tightening h a d a sharply

a n d equity grounds, would serve

negative effect on t h e economy.

to e n h a n c e b a n k profitability a n d

The good news is t h a t t h e
necessary a d j u s t m e n t process is
well u n d e r w a y . Corporations a r e

capital, a n d is long overdue. B u t
even without t h e benefit of these
changes, t h e i n d u s t r y w a s able to
end t h e y e a r showing signs of
stability following a long period
of decline.

2

For t h e Federal Reserve B a n k

Charles S. McNeer, our director

of Chicago as a n organization, t h e

for t h e p a s t six years, Deputy Chair-

news in 1991 w a s good, particularly

m a n in 1990, and C h a i r m a n of t h e

in t e r m s of meeting t h e challenges

Board in 1991, we extend our special

posed by a difficult year. A n u m b e r

t h a n k s . Despite his n u m e r o u s

of t h e Bank's achievements are

other commitments, he gave his

highlighted in later sections of this

time unstintingly to t h e Bank, and

report. The report also t a k e s a look

we benefitted greatly from his wise

at t h e unique s t r u c t u r e of t h e Fed-

counsel a n d insightful leadership

eral Reserve System a n d d r a w s

during a period of significant chal-

some linkages between t h a t struc-

lenge a n d change. His i m p o r t a n t

t u r e and its accomplishments.

contribution to t h e B a n k a n d t h e

Structure, however, provides only a n

Federal Reserve System is greatly

environment in which it is possible

appreciated.

for people to achieve. W h a t t h e
B a n k accomplished in 1991 was t h e
direct result of t h e constant h a r d
work, dedication and commitment to
public service t h a t are t h e h a l l m a r k
of our o u t s t a n d i n g staff.
The Federal Reserve B a n k of
Chicago is also f o r t u n a t e to receive

SILAS KEEHN, P R E S I D E N T

t h e guidance and leadership of our
directors. I w a n t to express our
particular g r a t i t u d e to t h e m e m b e r s
of our boards who completed their
t e r m s in 1991, including Max Naylor
and J o h n Gabbert on our Chicago
Board, a n d Detroit Branch Directors
Robert Mylod and Phyllis Peters,
who served as Branch C h a i r m a n t h e
past two years as well. Finally, to

3

s t i l l

r e g i o n a l

a f t e r

a l l

these

years?

"The privilege of creating and issuing money...," A b r a h a m Lincoln once
wrote, "is t h e Government's greatest creative opportunity." 1 P e r h a p s t a k i n g its
cue from Lincoln, Congress chose a creative approach in 1913 w h e n it delegated its
power to create money to a new central b a n k — t h e Federal Reserve. Instead of
closely following t h e model of other central b a n k s in Europe, t h e United S t a t e s went
its own way a n d built t h e Federal Reserve System on a regional foundation. It is a n
approach t h a t h a s stood t h e test of time.
In recent years, however, this regional s t r u c t u r e h a s come u n d e r increased scrutiny. There have been several pieces of legislation discussed or introduced in t h e p a s t decade t h a t would alter t h e Federal Reserve's regional design.
The most d r a m a t i c change, a common f e a t u r e in t h e proposed bills, would centralize
policymaking with t h e Board of Governors in Washington, D.C., and remove t h e
presidents of t h e Federal Reserve B a n k s as voting m e m b e r s of t h e Federal Open
M a r k e t Committee. Internally, t h e Fed h a s responded to t r e n d s such as i n t e r s t a t e
b a n k i n g by increasingly standardizing its operations, often t h r o u g h centralization.
The most notable example of this t r e n d is t h e recent decision to consolidate t h e
System's m a i n f r a m e computers from twelve to t h r e e sites.
Given these developments, it seems appropriate to ask w h e t h e r t h e Fed's
regional structure, developed almost 80 years ago, is still relevant a n d useful.
IT F E E L S LIKE A T R U N K

No doubt, t h e Federal Reserve is a u n i q u e specimen, even for such a n
u n u s u a l species as a central bank. The Fed is an oxymoron—a decentralized central
bank, a regional s t r u c t u r e overseen by a central coordinating body. The Fed's other
seemingly contradictory f e a t u r e s are interrelated with its regional structure: it is
governmental but h a s a variety of elements intended to insulate it from day-to-day
political pressures, a n d it is a public institution with a public purpose b u t h a s some
private f e a t u r e s such as a board of directors at each Fed Bank. This s t r u c t u r e can be
confusing. Like t h e e l e p h a n t examined by t h e blind men, t h e Fed can be different
things to different people.
B u t should anyone outside t h e Federal Reserve care if t h e Fed h a s a
regional structure? Or is it j u s t a n esoteric organizational dispute?

democratic

The issue is significant for two reasons. First, t h e Federal Reserve is
an institution t h a t plays a critical role in t h e economy. Second, t h e Fed's s t r u c t u r e
h a s a significant effect on t h e operation of t h e System. Like t h e U.S. government
as a whole, t h e Fed's policies a r e guided a n d shaped within t h e context of its structure. Thus, t h e issue goes beyond t h e m e r e mechanics of organization and is worthy
of concern.
ONLY IN A M E R I C A

"Constitutionally," C o n g r e s s m a n Wright P a t m a n once wrote, "the Federal
Reserve is a pretty queer duck."2 Certainly, compared with other central b a n k s , t h e
Fed's regional s t r u c t u r e is uncommon. It is, however, not u n u s u a l w h e n compared
with t h e U.S. Constitution; r a t h e r , t h e Fed's s t r u c t u r e is based on t h e Constitution's
model of a pluralistic federal system of government.

4

The Constitution was shaped by t h e exigencies of t h e time. W h e n t h e
C o n s t i t u t i o n a l Convention assembled in 1787, t h e goal was to provide for a strong
central leadership but preserve personal liberties and t h e diverse interests of t h e
13 states. W h a t emerged was a system of government f e a t u r i n g an elaborate set
of checks a n d balances: Political power was divided between t h e state a n d federal
government; power g r a n t e d to t h e federal government was divided among t h r e e
branches; and, finally, power granted to t h e federal legislature was divided between
the Senate and t h e House of Representatives.
The division of power in t h e federal legislature was a particularly sticky
point. The smaller states, fearing domination by t h e larger states, t h r e a t e n e d to
w a l l out of t h e Convention if representation in t h e legislature was based on population
Eventually, t h e G r e a t Compromise was adopted: Representation in t h e
House would be based on population, b u t each state would have equal representation
in t h e

Senate.
This

pragmatic compromise between national a n d local powers, America's

contribution to political science, was called federalism.
TOO F A S C I N A T I N G TO R E S I S T

At t h e core of federalism is a suspicion of u n d u e concentration of power,
a n instinctive m i s t r u s t of decisions by t h e few r a t h e r t h a n t h e many. "Power for
good," J o h n Quincy Adams wrote, "is power for evil, even in t h e h a n d s of Omnipotence." 3 Not surprisingly, given this background, t h e U.S. public h a s traditionally
had mixed feelings regarding a central bank.
The First B a n k of t h e United States was a casualty of this suspicion.
Created in 1791 with a capital stock of $10 million, t h e b a n k was t h e largest corporation in t h e U.S. T h e federal government subscribed to approximately 20 percent of
t h e stock; t h e rest was held by private individuals. The b a n k proved useful to American commerce by providing a central regulating m e c h a n i s m for b a n k i n g a n d credit,
b u t t h e r e were m a n y who felt uncomfortable about its economic power. In 1811, a
bill to authorize t h e b a n k beyond its original 20-year charter failed by a single vote.
J u s t a few years later, after a variety of financial troubles, Congress
narrowly passed a bill to charter the Second B a n k of t h e United States. This b a n k
was similar to t h e first, with private subscribers holding 80 percent of t h e capital a n d
t h e U.S. President appointing one-fifth of t h e directors.
Once again, however, m a n y viewed t h e bank's undeniable economic power
as a t h r e a t . In 1832, President Andrew Jackson vetoed a bill to r e c h a r t e r t h e bank,
criticizing "such a concentration of power in t h e h a n d s of a few m e n irresponsible to
t h e people." At t h e s a m e time, m a n y were leery of giving t h e government unchecked
power to issue notes. The danger, according to t h e House Ways a n d M e a n s Committee in 1830, was t h a t "...the temptation to supply t h e Federal T r e a s u r y by t h e easy
process of b a n k issues, r a t h e r t h a n resort to t h e u n p o p u l a r process of internal taxation, would be too fascinating to resist." 4
It was some 75 years later, a f t e r a series of money panics in t h e late 19th
a n d early 20th centuries, t h a t t h e U.S. began to consider a third central bank. Once

decentralization
5

again, it was a controversial issue. Progressives, fearing domination by E a s t Coast
private bankers, called for a regional system with as m a n y as 50 banks. Conservatives lobbied for a centralized bank, preferably located in New York, t h a t would be
isolated from t h e political process. Underlying t h e opposition was widespread apprehension about t h e very concept of a central bank. Such fears placed t h e majority
p a r t y Democrats in t h e incongruous position of endorsing passage of t h e Federal
Reserve Act even though their p a r t y platform opposed t h e concept of a central bank.
The central b a n k i n g system t h a t resulted from this political tug-of-war
was a creation of compromise. "The advocates of a p u r e central b a n k h a d to reconcile themselves... to t h e political r e q u i r e m e n t s of t h e case," wrote P a u l M. W a r b u r g ,
a m e m b e r of t h e Federal Reserve Board from 1914 to 1918 and one of t h e leading
figures in t h e e s t a b l i s h m e n t of t h e Fed. The new central bank, according to Warburg, "had to be shielded from t h e danger of becoming subservient either to business
or to politics, and, conversely, s a f e g u a r d i n g h a d to be provided against business or
politics becoming subservient to t h e new b a n k i n g system." 5
A 20-YEAR S H A K E D O W N C R U I S E

The Federal Reserve as envisioned by Congress was very much a
decentralized central b a n k . But as t h e U.S. found d u r i n g its early years u n d e r t h e
Articles of Confederation, too much decentralization is not always practical. D u r i n g
its first twenty years, t h e Fed struggled to find a workable balance between centralization
and regionalization. As it t u r n e d out, t h e evolution of t h e Federal Open
MarketCommittee(FOMC) was t h e key to t h e solution. B u t it w a s not an easy
process.

The FOMC, as one observer wrote, "...developed, not from some sudden

inspirational a t t a c k on t h e problems of bringing national unity to a regional central
b a n k i n g system, b u t by trial a n d error d u r i n g a shakedown cruise of about t w e n t y
years duration." 6
The FOMC evolved in response to t h e Fed's realization t h a t open m a r k e t
operations—the p u r c h a s e and sale of securities—was its most potent m o n e t a r y
policy tool. Initially, t h e Fed Banks' securities t r a n s a c t i o n s were aimed a t generating income. It soon became clear, however, t h a t these t r a n s a c t i o n s h a d larger
r a t i f i c a t i o n s , affecting not only t h e finances of each Reserve B a n k , but credit conditions in each District and even t h r o u g h o u t t h e nation. The early practitioners of
monetary policy "discovered t h a t t h e country's pool of assets is all one pool a n d
money flows like w a t e r t h r o u g h o u t t h e country," one of t h e Fed officials involved
in these efforts wrote. "When government securities were bought in Dallas, t h e
money...flowed t h r o u g h t h e whole b a n k i n g system a n d r e a p p e a r e d in New York
or Chicago or Kansas City, a n d vice versa." 7
The Reserve B a n k s began to coordinate t h e i r operations informally. In
1922, the h e a d s of t h e Chicago Fed, New York Fed, a n d t h r e e other Reserve B a n k s
established a coordinating committee for t h e System. The following year, t h e Federal Reserve Board a s s u m e d formal control over t h e committee. The committee was
an i m p o r t a n t step in establishing a more coordinated structure, b u t each Reserve
B a n k could still conduct its own open m a r k e t operations, a situation t h a t sometimes
led to confusion a n d indecision.

6

Following t h e B a n k i n g Panic of 1933, Congress sought to s t r e n g t h e n t h e
Fed's power. The first s t a b at resolving t h e s t r u c t u r a l issue, contained in t h e Banking Act of 1933, proved impractical, incorporating a great deal of participation at t h e
cost of efficiency. U n d e r t h e legislation, open m a r k e t operations were initiated by a
committee of t h e 12 Fed B a n k presidents a n d submitted for approval to t h e Federal
Reserve Board. If t h e Board approved, t h e boards of directors of each Reserve B a n k
h a d t h e power to decide w h e t h e r its District should participate.
A d j u s t m e n t s were necessary. In 1935, newly appointed Federal Reserve
Governor M a r r i n e r Eccles testified to Congress t h a t t h e m e c h a n i s m was cumbersome
a t best: "We have... a set-up by which t h e body t h a t initiates t h e policies is not in a
position to ratify them; a n d t h e body which ratifies t h e m is not in a position to initiate t h e m or insist on t h e m being carried out...; and still a third group h a s t h e power
to nullify policies...." A solution was vital, Eccles emphasized, because t h e use of
open m a r k e t operations was t h e "most i m p o r t a n t single i n s t r u m e n t of control over
t h e volume and cost of credit in this country." 8
In response, the House approved a bill t h a t centralized responsibility for
open m a r k e t operations a t t h e Board of Governors, with t h e 12 Reserve B a n k presidents serving in an advisory capacity. The Senate, however, wished to m a i n t a i n
more participation from t h e Fed Banks. The eventual solution was a compromise:
t h e body overseeing open m a r k e t operations would consist of a seven-member Federal Reserve Board and five Reserve B a n k representatives serving on a rotating
basis. (In 1942, the New York Fed, which h a s responsibility for carrying out securities
transactions, was given a p e r m a n e n t seat on t h e Committee.) The s t r u c t u r e devised
by Congress provided a pragmatic solution in keeping with t h e country's pluralistic,
federal traditions. The Fed h a d its own "Great Compromise" t h a t enabled it to
balance centralization and regionalization effectively.
The FOMC became t h e Fed's most i m p o r t a n t policymaking body, not only
guiding

open m a r k e t operations but also serving as a forum for determining t h e

overall course of m o n e t a r y policy. "The Federal Open M a r k e t Committee," former
New York Fed President Allan Sproul wrote, "has become t h e h e a r t of t h e Federal
Reserve System; cut it out and you have a skeleton." 9
S U R E I T ' S S A F E , B U T IS IT E F F I C I E N T ?

Some involved in t h e creation of t h e Federal Reserve viewed its s t r u c t u r e
as

a trade-off: It might sacrifice efficiency b u t h a d t h e essential virtue of dispersing
power. Paul W a r b u r g , a n advocate of a strong central bank, wrote, "From t h e bare
point of view of efficiency and economy, one central b a n k with a purely business
m a n a g e m e n t would undoubtedly have yielded t h e best results, b u t from t h e point of
view of w h a t was required in t h e larger interests of t h e country... m a x i m u m efficiency
h a d to be subordinated to m a x i m u m safety." 1 0
But was t h a t really t h e case? There are clearly potential disadvantages
in a regional system t h a t f e a t u r e s a pluralistic process: inconsistency, delay, overtendency
to compromise, resistance to change, redundancy, and higher costs.

7

But a decentralized system, if properly structured, also h a s a n u m b e r of
potential advantages: accountability, insulation from narrow, singular interests, local
knowledge, multiple sources of innovation, enhanced ability to h a n d l e complex problems, and increased flexibility to a d a p t to change.
It is an ongoing debate. The perceived desirability of decentralization
t e n d s to ebb a n d flow as often as fashion t r e n d s — t h e corporate world's version of t h e
mini- versus t h e maxi-skirt. Recently m a n y b a n k i n g organizations, a f t e r decades of
competing in a business suffering from overcapacity, have been focusing on t h e advantages and cost savings of consolidation. In some other industries, t h e t r e n d is opposite. One well-publicized example is IBM, which recently announced plans to establish several self-contained divisions, each with its own C E O and responsibility for its
own bottom line.
Overall, decentralization currently seems to be t h e more popular direction.
"Pushing responsibility down t h e r a n k s of t h e organization is a fad beloved of business
schools," The Economist

recently noted. Nevertheless, according to The Economist,

the

only thing clear regarding such efforts is t h a t "simple formulas can be maddeningly
simplistic." 1 1
IF TWO H E A D S A R E B E T T E R T H A N

ONE...

One a r g u m e n t for a pluralistic process for d e t e r m i n i n g m o n e t a r y policy
is t h e sheer complexity of t h e task. Despite a longstanding search, t h e r e is no single,
effective indicator of appropriate m o n e t a r y policy. As Alan G r e e n s p a n once noted,
despite all t h e new a n d sometimes exotic information a n d analysis now available,
m o n e t a r y policy is a continual struggle because t h e "structure of t h e economy is more
like a moving t a r g e t t h a n a sitting duck...." 12
Given its m o n e t a r y policy duties as well as its various other responsibilities, t h e Federal Reserve's job is too complicated and far-reaching for a single person
or narrowly based group to handle effectively. In cases w h e r e so m u c h technical information a n d varied expertise is required, some have argued t h a t a pluralistic process f e a t u r i n g a multiplicity of energies, interests, a n d intelligences is necessary. 1 3
"The m a i n a d v a n t a g e o f t h e pluralistic processes t h a t decisions a r e more
carefully considered," one former Fed president wrote. "Each individual brings to b e a r
on the common problem his own set of information, his own particular insights a n d
interests... indeed t h e r e is serious question w h e t h e r a n y other process will work." 14
The potential problem, of course, is t h a t careful consideration will lead
to indecisiveness and inefficiency. Yet t h e Fed h a s also shown t h e ability to act decisively. A good illustration was provided by t h e Federal Reserve's quick response to
t h e stock m a r k e t crash of 1987, which defused a potential crisis.
The Fed's regional s t r u c t u r e encourages a pluralistic process t h r o u g h
w h a t might be loosely t e r m e d participation. In m o n e t a r y policy, this m e a n s t h a t

the

regional Banks, t h r o u g h t h e participation of t h e presidents on t h e FOMC, have a
direct say in t h e decision-making process. In supervision a n d regulation and operations, System decisions are also based on i n p u t from both t h e Board a n d t h e Reserve
Banks. This sometimes leads to a h e a l t h y tension. But it also helps to e n s u r e t h a t

8

decisions reflect the Reserve Banks' regional knowledge a n d concerns. The decisionm a k i n g process does not proceed from t h e inside looking out; r a t h e r , ideas and opinions flow to t h e Fed a n d a r e distilled into an overall policy.
This participatory process facilitates t h e dispersal of power t h a t was so
i m p o r t a n t to t h e creators of t h e Federal Reserve. By providing a conduit for a cons t a n t flow of information and ideas from "beyond t h e beltway," t h e regional s t r u c t u r e
helps to insulate t h e Fed from day-to-day political pressures, protecting its s t a t u r e as
"independent within government" a n d e n s u r i n g t h a t its decisions are based on longt e r m , n o n p a r t i s a n considerations.
Regional representation is appropriate only to a degree, however. In
m o n e t a r y policy, decisions m u s t be based on national considerations; t h e presidents
cannot s h a p e policy to benefit a local area. Nevertheless, t h e U.S. is still a country of
divergent regions, each with its own cycles and i n f r a s t r u c t u r e s , its own s t r e n g t h s a n d
weaknesses. National averages can be misleading, concealing wide regional variations. Even given t h e much publicized phenomenon of globalization, t h e regions have
retained their distinct identities, with, for example, t h e Midwest t r a d i n g heavily with
C a n a d a , while the Mid-Atlantic emphasizes t r a d e with Europe.
The presidents' regional base allows t h e m to go beyond statistics and
obtain grass-roots information from a variety of sources. The board of directors of
each Bank, structured by law to include representatives from a variety of locales and
economic sectors, a r e a n important source of information. In addition, t h e presidents
cultivate a network of regional contacts t h a t provide anecdotal, b u t up-to-the-minute,
information on emerging economic trends. At t h e s a m e time, t h e Banks' research
staffs have extensive contacts l h a t help provide a feel for emerging developments in
t h e economy.
This effort is critical because of t h e lag in t h e availability of economic
statistics. Also, regional data, d r a w n from a smaller sample, tend to be somewhat
less available a n d reliable. Touching base with a broad spectrum of active particip a n t s in t h e economy reveals the story behind t h e n u m b e r s a n d shows which forces—
such as seasonal or special factors—may be affecting statistics.
N O , Y O U T R Y IT

Innovation is a n o t h e r a d v a n t a g e of a decentralized structure. It is commonly accepted t h a t competition in an economy breeds innovation. The s a m e holds
t r u e for an organization. "In a n organization with m a n y points of initiative and
decision, a n innovation s t a n d s a better chance of survival; it m a y be rejected by nine
out of ten decision-makers and accepted by t h e tenth," according to one theory. "If it
t h e n proves its worth, t h e nine may adopt it later." 1 5
In t h e Fed System, the r e q u i r e m e n t s of t h e region often serve as a catalyst
for innovation. In t h e Seventh District, for example, t h e proximity of b a n k s with high
check-clearing volumes in Chicago and Detroit h a s encouraged t h e development of
new products such as t h e electronic cash letter, which expedites t h e costly physical
movement of checks. Following a successful trial in t h e Seventh District in 1991, the
electronic cash letter is being tested in other Districts and m a y eventually be offered
on a System-wide basis. Similarly, t h e Bank's Detroit Branch, working closely with

a customer, pioneered t h e use of a n electronic connection for t h e over-the-counter
sales of savings bonds a t financial institutions. Once t h e successful pilot program
w a s completed in Detroit in 1989, t h e idea spread t h r o u g h t h e System.
Proximity to t h e region h a s also encouraged specialization as each Fed
W a n k a d a p t s to regional conditions. The Chicago Fed h a s become especially knowledgeable about t h e process of industrial restructuring, following years of retrenching
in t h e Midwest. Due in p a r t to t h e large n u m b e r of institutions in t h e Seventh
District, t h e Chicago Reserve B a n k h a s also traditionally h a d a special interest in
financial issues. In recent years, studies by t h e Bank's economic research a n d
supervision a n d regulation groups have focused on a financial innovation t h a t h a s
its roots in the Midwest: t h e f u t u r e s m a r k e t s . This knowledge proved especially
useful during t h e stock m a r k e t crash of 1987 and t h e "mini-crash" of 1989. O t h e r
Fed B a n k s have also developed expertise in specific fields: t h e S a n Francisco Fed,
for example, h a s focused on t h e Pacific Rim; t h e New York Fed h a s specialized in
international activities.
The diversity of t h e regional B a n k s encourages different lines of thought.
In economic research, t h e St. Louis Fed h a s traditionally been a strong advocate of
m o n e t a r i s t ideas. Research on t h e theory of rational expectations first began to
emerge within t h e System a t t h e Minneapolis Reserve Bank. And t h e Chicago Fed,
specifically t h r o u g h its conferences on b a n k s t r u c t u r e a n d competition in t h e early
1980s, was one of t h e first Reserve B a n k s to focus on t h e possible distorting effect of
deposit insurance on institution risk.
In operations, proximity leads to t h e key a d v a n t a g e of knowing t h e
customer. Acting on customer suggestions, for example, h a s aided t h e Chicago Fed
in becoming a leader in payor information services. The timely check information
provided by t h e s e services enables institutions to better m a n a g e their own f u n d s
position and provide improved service to t h e i r customers. In p a s t years, t h e B a n k
h a s encouraged use of t h e A u t o m a t e d Clearinghouse (ACH) by working closely with
District institutions interested in carving a m a r k e t niche by providing A C H services.
An in-depth knowledge of t h e region also h a s obvious benefits for
carrying out supervisory responsibilities. Through t h e years, t h e Chicago Fed h a s
become expert on agricultural banks, a background t h a t w a s essential d u r i n g t h e
troubles in t h e f a r m sector in t h e mid-1980s. At t h e s a m e time, t h e B a n k is experienced in examining t h e District's money center a n d superregional b a n k s . The
region's diverse financial s t r u c t u r e h a s led t h e Chicago Fed to studysuchvaried
issues as t h e implications of securitization, t r e n d s in t h e credit card industry, a n d
Midwest real e s t a t e conditions a n d t h e effect of Resolution Trust Corporation (RTC)
asset dispositions.
THE BUCK STOPS HERE

Accountability is a n o t h e r i m p o r t a n t benefit of a regional Organization.
In a more centralized structure, t h e responsibility for local or regional challenges
can become diffused. Within t h e Federal Reserve t h e r e are well-defined responsibilities, based on t h e System's District borders. The blurring of geographic a n d product barriers in t h e b a n k i n g i n d u s t r y h a s complicated t h e process but t h e essential

10

principle r e m a i n s t h e same. In carrying out its supervisory duties, t h e Chicago
Fed h a s encouraged accountability by giving ongoing responsibility for an institution
to a n e x a m i n e r or t e a m of examiners. T h u s examiners, like t h e B a n k as a whole,
can d r a w on a cumulative body of knowledge and experience in carrying out their
responsibilities.
In operations, t h e Bank is accountable for responding to challenges posed
by District characteristics. In the case of Fedline, t h e System's c o m p u t e r software
package for electronic services, the B a n k faced a significant challenge because of the
large n u m b e r of District institutions, m a n y of which needed to beconvertedtothe
new product. The responsibility for t h e u n u s u a l l y large n u m b e r of conversions clearly
rested with t h e Chicago Fed; t h e Bank responded, converting 738 institutions in
1990, doubling t h e previous System record.
The a d v a n t a g e s of accountability are also reflected in t h e Reserve Banks'
budgets. Each Fed B a n k is responsible for meeting a n a n n u a l budget, which is
approved by t h e Bank's board of directors as well as t h e Federal Reserve Board. All
of t h e Reserve B a n k presidents are responsible for meeting their bottom lines. This
accountability h a s produced results: over t h e past five years, for example, t h e Chicago
Fed's operating expenses have increased only slightly in real t e r m s (an average of
one-half of a percentage point annually), even while the B a n k significantly expanded
its examination staff and took on new responsibilities such as t h e r e q u i r e m e n t s of t h e
Expedited F u n d s Availability Act.
FED'S BALANCING ACT

Given t h e a d v a n t a g e s t h a t can be gained from a regional structure, why
t h e move toward operations consolidation within t h e System?
In this case, a simple formula does not apply. There are clear a d v a n t a g e s
to decentralization, b u t t h e r e are also benefits to a degree of consolidation and resource sharing. Recognizing this, t h e Fed h a s initiated a n u m b e r of consolidation
efforts. Most notable is t h e planned reduction in t h e n u m b e r of m a i n f r a m e computers
supporting electronic services, a n effort one Fed official described as "one of t h e most
d r a m a t i c changes t h e System h a s ever a t t e m p t e d to make." 1 6 The m a i n f r a m e consolidation is generally seen as inevitable, given technological advances a n d changing
m a r k e t conditions. Some, however, have supported t h e move apprehensively, fearing
t h a t it could impede t h e Fed's ability to respond to local needs and concerns.
T h u s far, each District h a s h a d a m a i n f r a m e to support its electronic
services. U n d e r t h e consolidation plan, which t h e Fed will begin to p h a s e in d u r i n g
1992, all 12 districts will eventually be supported by a total of t h r e e m a i n f r a m e sites
in Dallas, Richmond, and E a s t Rutherford, New Jersey.
The Fed expects a n u m b e r of advantages. One clear benefit is t h e projected cost savings gained by reducing t h e n u m b e r of m a i n f r a m e s a n d related support.
The consolidation will also cause t h e Fed to standardize operations a n d offer a more
uniform level of service, a n i m p o r t a n t factor as institutions merge and cross geographic borders. And reliability will be improved because t h e t h r e e sites will act as
a backup for each other.

11

Interestingly, given t h a t consolidation could be viewed as chipping away
at t h e Fed's regional structure, t h e idea was initiated by t h e Reserve Banks. The
project began with discussions between t h e Chicago a n d Minneapolis B a n k s on t h e
possibility of joint electronic processing. The discussions later expanded to include
t h e K a n s a s City a n d St. Louis Reserve Banks. As technology advanced, t h e project
evolved from t h e s e multi-District beginnings to a System-wide effort in which t h e
Fed B a n k s have played t h e key role.
Although t h e consolidation will result in a degree of centralization, each
of t h e Reserve B a n k s a n d t h e Federal Reserve Board will continue to s h a r e responsibility for decision making. The goal is to gain t h e a d v a n t a g e s of combined resources while retaining t h e benefits of regional participation. As p a r t of this effort, each
Fed B a n k will continue to be responsible for communicating with customers, developing service strategies, a n d acting as a point of contact for institutions a n d as a
source of information for t h e System.
The consolidation is p e r h a p s not so m u c h a move back from regionalization as a step sideways. Conditions now support a degree of centralization. Once
wholesale d a t a processing is centralized, however, t h e focus m a y shift to t h e flexible
distribution of information tailored to t h e needs of t h e marketplace. Technology,
which h a s driven t h e t r e n d toward computer centralization, m a y eventually lead to
a more decentralized m e a n s of product distribution. As it h a s in t h e past, t h e Fed
will need to be flexible enough to balance t h e benefits of local r e p r e s e n t a t i o n with
t h e a d v a n t a g e s of centralization.
STILL REGIONAL AFTER ALL THESE YEARS

To some, t h e Federal Reserve's t u r b u l e n t beginnings a n d ongoing evolution have produced a central b a n k t h a t is, as Wright P a t m a n p u t it, "a p r e t t y queer
duck." Constitutionally speaking, however, t h e Fed is not so m u c h a queer duck as
it is a bird of a f e a t h e r . Like t h e Constitution, t h e Fed is a reflection of t h e multicult u r a l , diverse country t h a t created it, a by-product of America's traditional preference for checks a n d balances.
T h e regional s t r u c t u r e t h a t resulted from t h e interplay of these forces,
although lacking in t h e obvious logic of a n organization chart, h a s a n overriding
redeeming quality: It works. In t h e end, simple formulas t e n d to be simplistic. The
Fed's structure, intended primarily to s a f e g u a r d a g a i n s t a concentration of power,
h a s enhanced t h e System's effectiveness as well. The checks a n d balances t h a t
Congress embedded in t h e s t r u c t u r e h a v e aided t h e Fed in continually a d a p t i n g to
new circumstances, from t h e early days of m o n e t a r y policy to t h e c u r r e n t consolidation efforts.
Legislative reevaluations always serve a useful purpose. B u t t h e Federal
Reserve's history a n d its ability to a d a p t should be k e p t in mind. The p r e s s u r e s t h a t
produced it, t h e changes t h a t m a d e it evolve, have resulted in a central b a n k t h a t is
very much in keeping with t h e federal, pluralistic traditions of t h e U n i t e d States.

12

THE

BANK

IN

1991—A

REGIONAL

PERSPECTIVE

The Federal
for almost

Reserve's

80 years—1991

Chicago Reserve

Bank's

selected achievements
Fed's unique

volume

the Bank

had another

on the Bank's

among

declined

depository

slightly.

migration

that illustrate

management

the Bank's

Fed's operations

electronics.

Volumes

while definitive

securities

volumes

economic

budget
pro-

conditions

check

processing

also reflected

in Automated

continued

its

The table below

institutions,

services, for example,

its efforts

to

Clearinghouse

to increase

dramatically,

declined.

volumes

DOLLAR

AMOUNT

1991
CHECK & ELECTRONIC

plan.

Reflecting

securities

1990

N U M B E R OF

1991

ITEMS

1990

PAYMENTS

Checks, N O W s , &
share drafts processed

1.0 trillion

Fine sort & packaged
checks h a n d l e d

1.1 trillion

1.9 billion

2.0 billion

3 2 1 . 3 billion

238.5 billion

598.9 million

563.7 million

51.8 billion

52.6 billion

54.4 million

6 0 . 1 million

U.S. g o v e r n m e n t
checks p r o c e s s e d
Automated Clearinghouse
(ACH) i t e m s p r o c e s s e d
T r a n s f e r s of f u n d s
CASH

listing

a benefit of the

year, again achieving

operations.

The Chicago

toward

successful

and book-entry

operations

well

pages focus on the

from a regional perspective,

activities

a very ambitious

statistics

and consolidation
encourage

and highlighting

has served the System

The following

1991 accomplishments

and meeting

vides annual

structure

structure.

Overall,
objectives

regional

was no exception.

1.8 trillion

1.2 trillion

396.4 million

341.2 million

32.3 trillion

32.9 trillion

12.4 million

12.3 million

25.5 billion

24.6 billion

6.0 billion

5.2 billion

OPERATIONS

C u r r e n c y received & c o u n t e d
Unfit currency destroyed

7 2 2 . 1 million

Coin r e c e i v e d & c o u n t e d

SECURITIES SERVICES FOR DEPOSITORY

Safekeeping
balance December
Definitive securities

578.8 million

1.9 billion
542.4 million

1.9 billion
569.7 million

5.6 billion

4.7 billion

310.4 t h o u s .

INSTITUTIONS

31:

Book-entry securities

6.8 billion

8.9 billion

232.2 t h o u s .

313.8 billion

P u r c h a s e & sale

2.9 billion

289.3 billion
3.4 billion

14.9 t h o u s .

21.9 t h o u s .

Collection of s e c u r i t i e s &
other noncash items

1.0 billion

1.0 billion

171.5 t h o u s .

227.8 t h o u s .

2.2 billion

4.6 billion

LOANS TO D E P O S I T O R Y

SERVICES TO U.S. T R E A S U R Y A N D G O V E R N M E N T

redemptions

&

967

1,412

AGENCIES

exchanges:

U.S. s a v i n g s b o n d s

1.5 billion

1.1 billion

Definitive government securities

0.4 billion

0.5 billion

Book-entry government
securities

4.5 trillion

4.2 trillion

Government coupons paid

150.0 million

124.9 million

Federal tax deposits processed

120.8 billion

114.8 billion

2.1 billion

1.9 billion

Food s t a m p s r e d e e m e d

—

INSTITUTIONS

Total l o a n s m a d e d u r i n g y e a r

Issues,

—

4.2 million
11.5 t h o u s .
1.4 million

2.4 million
19.9 t h o u s .
1.7 million

65.9 t h o u s .

87.6 t h o u s .

785.5 t h o u s .

805.1 thous.

4 1 6 . 1 million

3 6 9 . 1 million

13

e c o n o m i c

r e s e a r c h

&

m o n e t a r y

policy:

pursuing

s u s t a i n a b l e

Through
the Chicago

its economic

Reserve

Bank

etary policy decisions
tionary

and policy-related

seeks to participate

effectively

activities,

in national

a strong, growing,

mon-

and

noninfla-

is the

participa-

economy.

tion of its president
monetary

foremost

policy group,
discount

To guide

the Federal
rate, subject

this information

Through

publications,
broader

public

is another

review of System

of economic

Governors.

research

staff

collects

and financial

and financial

important

of

Reserve
determin-

by longer-term
component

and other outreach,

chief

The

policy role by

economic

of the economy

discussion

Committee.

the Bank's

is complemented

conferences

of the System's

to review by the Board

and analyzes

analysis

workings

Sharing

to stimulate

Open Market

these responsibilities,

This current

on the fundamental

and actions

also plays an important

a broad array of information
opments.

role in the policy process

in the deliberations

board of directors

ing the Bank's

informed

research

that will promote

The Bank's

Bank's

g r o w t h

develresearch

system.
of this

the Bank

issues, and as a result,

activity.
seeks
an

policy.

PARTICIPATION:
FOMC ACTIVITIES

Providing avenues for broad
involvement in decisions, placing
more faith in the ideas of t h e many,
r a t h e r t h a n t h e few, governing by
consensus not edict... these are all
f u n d a m e n t a l tenets of our democratic
system. Given the regional, decentralized structure of the Federal
Reserve System, these principles
are a t work in monetary policy
as well.
Chicago Reserve Bank President
Silas Keehn a t t e n d s each meeting of
the Federal Reserve System's Federal Open Market Committee (FOMC)
fully prepared to t a k e a vital, active
role in its deliberations and decisions.
Regardless of w h e t h e r it is his t u r n

to vote on t h e policy directive, he
and t h e 10 Reserve Bank presidents
who rotate as voting FOMC members — along with t h e m e m b e r s of
t h e Board of Governors and the
New York Fed president — participate fully in the policy discussion
and development.[(The Chicago
a n d Cleveland Fed representatives
rotate annually as voting members,
with Chicago exercising t h e vote
during 1991.) All 19 participants
have an equal opportunity, a n d
indeed responsibility, for stating
their views on t h e economic outlook
and t h e appropriate course for
monetary policy. As p a r t of their
role, t h e District presidents bring to
t h e discussions the unique, firsth a n d , up-to-the-minute perspective
they glean from their own regional
vantage point.
President Keehn bases his
views on the latest information he
can obtain through his personal

14

1991

ACHIEVEMENTS

O Climaxed by a 100 basis
point reduction to 3.5 percent,
a 28-year low, the Bank's board
of directors reduced the discount rate 5 times in 1991,
complementing other System
policy meant to foster sustainable growth.
O Macro-economic
research
focused on a number of thorny
policy issues including the development of better policy indicators, the effects of structural
change on the business cycle,
and the measurement of
potential GNP.
O Cooperative efforts to develop
regional economic policies took
on an international
dimension
when the Bank cosponsored a
conference, "Looking North
and South at the Great Lakes
Region," featuring the Premier
of Ontario and the Governor
of Michigan.

contacts and on-the-scene interaction with a wide-ranging group of
individuals and businesses throughout t h e District, t h e expertise of the
Bank's boards of directors and
advisory councils, and the information and analyses prepared by his
economic research staff. Through
this broad participatory process,
he and his counterparts at the other
Reserve Banks bring a special insight and feel for emerging developm e n t s "beyond the beltway" of
the nation's capital — information
t h a t cannot be captured by available
statistical d a t a — providing the
best possible foundation for sound
policy decisions.

O The Bank's 27th annual
Conference on Bank
Structure
and Competition,
"Rebuilding
Banking," complemented its
research on financial
system
risk and regulatory reform.
O While meeting over 100,000
deadlines for statistical reports
from District depository
institutions, Bank staff completed
preparations that will enable
reporting banks to submit data
electronically.
O The Bank held Economic
Forums to explore policy issues
with today's business leaders,
and sought to reach the leaders
of tomorrow by expanding its
economic education
programs
for teachers.

15

SUPERVISION

AND

REGULATION:

FOSTERING

Through
the Bank

strives

a manner

its supervisory,

to assure

discount

that District

financial

responds

TRUST

and lending

activities,

institutions

to public

examines

to ensure

that they are safe and sound

with pertinent

window,

offset financial
broader

community

tions' proposals

operate

needs, and

in

inspires

is also responsible

and the community

that the transaction
served.

laws and regulations
fairly

system

for reviewing

The Bank's 1991 research on
asset-backed commercial paper
programs represents only t h e latest
example of its leadership in studying financial issues a n d m a r k e t
developments. Spurred in large
p a r t by t h e Seventh District's
unique b a n k i n g structure, with its
large n u m b e r of institutions and
enormous diversity in the n a t u r e
of their operations, t h e Chicago

to

organiza-

in nonbanking
impact

also implements

to assure

the

instability.

banking

or engage

and meet the credit needs of their

Their research and expertise on this
topic, gained in p a r t through extensive on-site reviews of District b a n k
securitization activities, served as
a resource for t h e entire Fed System. The Bank's analysis provided
the basis for Federal Reserve Congressional testimony on securitization a n d yielded information useful
to b a n k e r s and examiners alike,
aiding their efforts to assure t h a t
t h e risks associated with these
evolving financial activities are
understood and controlled.

its

institutions

will have a positive

meant

opera-

in order to insulate

from potential

The Bank

holding

Also, through

credit to depository

to merge, make acquisitions

petition

and bank
and that their

laws and regulations.

and financial

to assure

consumers

banks

they may be experiencing

tivities,

of consumer

and monitors

the Bank provides

strains

The Bank

16

regulatory

The Bank
tions comply

A notable example h a s been
t h e Bank's recent analysis of assetbacked commercial paper programs.
Asset securitization, an activity
through which b a n k s t r a n s f o r m
their illiquid assets — loans — into
m a r k e t a b l e securities, h a s been one
of the most dynamic areas of financial innovation during t h e p a s t
decade. As institutions in t h e Seve n t h District embarked on securitization programs, and as new types
of programs emerged such as assetbacked commercial paper, examiners in the Bank's financial m a r k e t s
unit became increasingly involved.

PUBLIC

confidence.

companies

P u r s u i n g special needs often serves
common needs...The regional, decentralized structure of t h e Federal
Reserve System m a k e s it possible
for the Federal Reserve Bank of
Chicago to respond to special developments and concerns t h a t arise in
its District. Frequently, the benefits
of such activities tailored to local
needs transcend District boundaries.

AND

that fosters competition,

public

SPECIALIZATION:
F O C U S ON SECURITIZATION

STABILITY

ac-

on coma

variety

that institutions

treat

communities.

Reserve Bank h a s developed a
recognized expertise in this area
over t h e p a s t t h r e e decades, a
specialty p e r h a p s best symbolized
by the Bank's nationally renowned
Conference on Bank Structure and
Competition. Like t h e Conference,
the Bank's traditional focus on
developments pertinent to its
District h a s provided a springboard
for better u n d e r s t a n d i n g of financial issues of global concern.

1991

ACHIEVEMENTS

O Bank staff conducted 948 examinations, inspections, and special
reviews, and processed 818 applications, among the top workloads
in the System, while assisting
other regulators and Fed districts.
o The Bank expanded its involvement in the Shared
National
Credit Program, a cooperative
project among regulators to better
evaluate institutions' large shared
loans or
commitments.
O Changes to the Fed's Payments
System Risk policy,
including
more liberal caps for relatively
small overdrafters, were implemented in the District.
o The Bank analyzed and updated
District financial data, helping
to develop an integrated
national
database, the National
Information Center.
o The Bank enhanced its understanding of financial markets and
their link to the banking system
through special studies on topics
such as foreign exchange options,
securitization, and interest
rate risk.
O Community Affairs staff edited
and analyzed the enormous
volume of data submitted in
conjunction with new reporting
requirements mandated by
changes to the Home Mortgage
Disclosure Act.

17

f i n a n c i a l

services:

e n h a n c i n g

t h e

payments

system

By providing
smooth,
ments

efficient

financial

operation

mechanism

in

transfer

book-entry
ketplace
nological

including

through

tems, and various

for these services,

all transactions

the Bank

redeems

the government's
these activities

nation's

largest

banking

INNOVATION:
ELECTRONIC CASH

strives

pay-

services
electronic

Clearinghouse

sys-

purchase

and

sale,

in the

mar-

as a provider

to promote

system,

of

and collection,

efficiency

the pipeline

and

through

techwhich

flow.
bank, the Reserve

of currency

Bank

help to assure
are

services

and handles

such as the processing

customer

issues and

and coin; markets,

debt securities;

actions for the U. S. Treasury,
Overall,

By serving

in the payments

As the government's
supply

the

and the

sells a variety

services such as collection,

in the economy

tains the public's

Bank

and Automated

and safekeeping.

development

seeks to promote

broadly,

check clearing

the Fedwire

securities

transfer,

system

bank," the Reserve

institutions,

of funds

the Bank

particular.

As a "banker's
to depository

services,

of the financial

mainand

other banking
of federal

that the financial

tax

transactions

transdeposits.
of the

orderly.

LETTER

A need...an idea...a reality...a step
into the future. When the authority
to think, to decide, and to act is spread
across an organization — as it is
within t h e Federal Reserve System —
ideas can emerge and get tried. Sometimes they not only work b u t produce
benefits t h a t go f a r beyond w h a t was
first imagined.

The Electronic Cash Letter
(ECL), a n innovative new product
developed a n d currently offered by
t h e Chicago Reserve Bank, provides
a perfect example. The process
s t a r t e d when the officer who oversees
the automation group t h a t supports
check processing thought of a method
for reducing t h e n u m b e r of checks
which cannot be read by t h e Bank's
high-speed sorters. Such items,
called rejects, are a major impedim e n t to t h e efficiency of t h e entire
check operation. At about t h e same
time, a customer bank, looking for
new ways to deal with the acute
cost pressures facing t h e industry,
expressed a n interest in reducing its
check processing fees. The new idea
was worth trying.
Through ECL, a depositing institution t r a n s m i t s a n electronic file of
t h e paper checks it will be delivering

l8

1991

ACHIEVEMENTS

O Due to continued
productivity
efforts, the Bank recovered its
priced services costs for the eighth
straight year despite declining
revenues.
O The Regional Delivery System, a
more efficient means for issuing
savings bonds, was
implemented
in Indiana, Iowa, and Wisconsin.
O Currency with enhanced anticounterfeiting features was introduced in the District.
O The Bank made progress on its
all-electronic Automated
Clearinghouse (ACH) goal, reducing
the number of nonelectronic ACH
connections from 1,324 to 614.
O Focusing on electronic check
products, the Bank refined the
Electronic Cash Letter, enhanced
payor bank services, and tested
PC imaging for large-dollar
return item
notifications.

somewhat later. Having the electronic information enables the Reserve
Bank to a u t o m a t e some operations
t h a t h a d been m a n u a l , and, once
it receives and s t a r t s sorting t h e
actual items, to m a t c h t h e m against
t h e file, thereby reducing costly rejects, adjustments, float a n d processing time. These benefits t r a n s l a t e
into lower fees and later deadlines for
depositing institutions, which can in
t u r n provide consumers with better
payments services. Ultimately, ECL
could be an exciting and important
first step toward truncation or reducing the costly physical movement of
checks nationwide.

O The Bank expanded its Fedline
services, offering electronic check
information and TT&L advices
and establishing a Help Desk for
customer support.
O The Indianapolis Office relocated
to new quarters, a move that allows
for more efficient operations.

19

SUPPORT

ACTIVITIES:

PROVIDING

THE

FOUNDATION

FOR

Providing
resources

enables

PROGRESS

for the organization's

the Bank

Recruiting

the best possible

reach their full potential,
are critical

success.

their assignments

While often behind

20

employees,

and rewarding

to any organization's

need to perform

human,

to carry out its public

physical

training

them for their
Giving

successfully

Services,

Financial

Building,

Protection

and other support

plishments

possible

and provide

functions

effectively.

them so they

that staff the tools

is a vital

Management,

financial

can

accomplishments
they

corollary.

the scenes, staff in the Bank's

sources, Automation

and

service mission

Human

Auditing,

make the Bank's

a firm basis for its future

success.

ReLegal,
accom-

FACILITATION:
NETWORK CONTROL

1991

CENTER

O The Bank achieved 99.92 percent
network availability for funds
transfers, and exceeded the System's availability target for electronic services for the fourth
consecutive year.

Traffic jams... an unavoidable
feature of our everyday experience?
...not if we're willing to build alternate roadways for reaching t h e
same destination.
The Federal Reserve System's
electronic communications network
— developed, managed and monitored by a group based at the Chicago Reserve Bank — operates on
precisely t h a t principle. The advantages of the network's organization
in m a n y ways mirror those of the
Federal Reserve System's structure.
During the 1970s, t h e Federal
Reserve's communications network
operated through a central switch.
All electronic messages were directed from the originating office to a
single relay point from which they
were redirected to the receiving
office. This configuration, typical
for such networks at the time,
minimized t h e n u m b e r of roadways
or electronic links required, and it
worked well. But potential hazards
loomed. While traffic was projected
to escalate exponentially in line
with financial transactions generally, the network's capacity to handle
the burgeoning volumes was limited. And of greater concern t h a n
traffic increases were breakdowns.
An accident on any single roadway
would m a k e a destination unreachable. More frightening, a breakdown a t the central switch would
spell disaster for the entire communications network.

ACHIEVEMENTS

O The Bank played an important
role in the ongoing
development
of the new System-wide
data
communications
network,
FEDNET.
O Human Resources staff implemented a new employee appraisal system and enhanced
employee
communications.
O A LAN-based office automation
system was implemented
linking
the Bank's five District offices.

The network developed by a
Chicago Fed project t e a m and in
operation since the early 1980s h a s
effectively overcome these hazards.
Messages can be routed along
whatever p a t h works best based on
current traffic flows, bottlenecks
are avoided, and the reliability or
uptime of the system h a s been
almost perfect. In a parallel fashion, when decisionmaking and
action are decentralized in an
organization such as the Federal
Reserve, logjams can be avoided
and responses facilitated. And the
operation of t h e System's communications network at t h e Chicago
Reserve Bank, coupled with other
System-wide operations housed at
other regional Banks, illustrates
another important principle, namely, t h a t the benefits of sharing
resources, frequently associated
with centralization, can be effectively harnessed within a decentralized system as well.

O The Bank took a leadership role
in the System in developing data
security policy for mainframes
as well as PC- and LAN-based
systems.
O Staff in Financial and Management Services, Auditing, and
Operations teamed up to provide
District-wide training in financial controls and accounting.

21

statement

of

condition

Year-to-year
reflect general

economic

By purchasing
institutions,

in Reserve

developments

securities

Reserve

notes) in response

increases

lower required

assets supported

to public

demand.

assets and liabilities

and System

in accord with the national

in the Bank's

Bank

in the open market

the Federal

tary expansion
increase

changes

monetary

and making

policy

economy's

a net payout
Reserve

growth
actually

depository

a base for moneneeds.

of currency

deposits

actions.

loans to

reserves, providing

largely

In 1991, the

(Federal
declined

Reserve
given

reserves.

12/31/91

12/31/90

ASSETS
Gold certificate account

$

Interdistrict settlement account
Special d r a w i n g rights
certificate account
Coin
Loans

and

1,370,000,000

$

1,377,000,000

236,606,858

2,973,755,256

1,336,000,000

1,336,000,000

52,728,683

33,166,775

securities:

Loans

13,355,000

19,770,000

759,533,872

773,434,152

U.S. government securities

33,485,862,167

28,672,192,779

Total

34,258,751,039

29,465,396,931

I t e m s i n p r o c e s s of collection

798,721,907

758,704,242

Bank

111,506,497

110,085,723

Other assets

4,018,997,160

4,842,005,502

Total assets

$ 42,183,312,144

$ 40,896,114,429

$ 37,207,220,663

$ 36,047,198,859

3,101,621,157

3,510,536,719

Federal agency securities

loans

and

securities

premises

LIABILITIES
Federal Reserve notes
Deposits:
Depository institutions
U.S. Treasury—general account
F o r e i g n , official a c c o u n t s
Other

0

0

18,570,000

18,750,000

211,361,989

30,606,693

3,331,553,146

3,559,893,412

Deferred credit items

702,095,487

343,156,861

O t h e r liabilities

300,713,748

345,803,497

$ 41,541,583,044

$ 40,296,052,629

$

$

Total

deposits

Total

liabilities

CAPITAL ACCOUNTS
Capital paid in
Surplus
Total

capital

Total liabilities and capital

22

320,864,550
320,864,550

$

641,729,100

$ 42,183,312,144

300,030,900
300,030,900

$

600,061,800

$ 40,896,114,429

statement

of

income

A Reserve
rather than the pursuit

Bank's

of the System

Open Market

vast majority

of this income

pared

to 1990, current

rates while operating
responsibilities

Account

portfolio

is turned

income

increased

transactions

of securities,

slightly

of monetary

is interest

moderately

and, appropriately,

reflecting

for currency

the

each year. Cominterest

the Bank's

bond issuance.

Profits

stabilization

for most of the decline

policy

on its share

as a result of lower market

and savings

conducted

lower, accounting

income

over to the U. S. Treasury

declined

expenses

is largely a by-product

Most of the Bank's

in bank supervision

foreign exchange
significantly

income

of profit.

increased
on

purposes

in the Bank's

net

1991

System
were

income.

1990

CURRENT INCOME
$

Interest on loans

945,379

$

2,087,399

Interest on government
securities

2,383,565,534

2,405,484,721

Interest on investments
of f o r e i g n c u r r e n c i e s

309,683,301

326,135,464

95,097,878

95,255,549

2,198,281

2,716,550

Service fees
All o t h e r
Total current

income

$

2,791,490,373

$

2,831,679,683

$

170,414,496

$

160,718,493

CURRENT EXPENSES
Operating expenses
Other current expenses

29,503,710

22,943,254

Total current expenses

199,918,206

183,661,747

15,949,065

13,168,250

Less r e i m b u r s e m e n t for
c e r t a i n fiscal agency
and other expenses
expenses

$

183,969,141

$

170,493,497

C u r r e n t n e t income

$

2,607,521,232

$

2,661,186,186

$

16,210,524

$

7,678,024

Current

net

ADDITIONS TO (OR DEDUCTIONS FROM)
CURRENT NET INCOME
N e t p r o f i t ( o r loss) o n
s a l e s of s e c u r i t i e s
N e t p r o f i t ( o r loss) o n
foreign exchange transactions

46,416,592

267,423,888

A s s e s s m e n t f o r B o a r d of
Governors expenditures

(13,527,400)

(12,908,700)

C o s t of F e d e r a l R e s e r v e c u r r e n c y

(35,192,869)

(25,741,345)

(9,554,577)

(10,177,070)

All o t h e r — n e t
Net additions

(or

deductions)

Net income available
for distribution

$

4,352,270

$

226,274,797

$

2,611,873,502

$

2,887,460,983

$

18,583,288

$

17,329,763

DISTRIBUTION OF NET INCOME

Dividends paid
P a y m e n t s to U.S. T r e a s u r y
(as interest on F e d e r a l Reserve notes)

2,572,456,564

Total income distributed

2,850,606,670

20,833,650

Transferred to surplus
$

2,611,873,502

19,524,550
$

2,887,460,983

23

d i r e c t o r s

a n d

advisory

c o u n c i l s

Reserve
management
ments.

Bank

directors

of operations,

In addition,

approving

directors

provide

dent on the state of the economy
determine,

subject

diverse

and activities
Advisory

meets quarterly

The Chicago

Reserve

vide an important

within

the

Council,

with the Board

Bank's

advisory

communication

responsibility

and expenditures
system.

Bank

the Bank's

Reserve

and experience

for the

and official

to the Reserve

Reserve

of Governors,

the Chicago

bring a broad range of expertise
interests

governance

advice and counsel

and financial

responsibilities,

The Federal
District,

budgets

to review by the Board

carry out their diverse
directors

have a general

Bank

appoint-

Bank

presi-

directors

discount

also

rate.

and Detroit

and are selected

To

Branch

to

represent

District.
consisting
of Governors

councils

link between

of one representative
to discuss

on small
the Bank

business

from

economic

and agriculture

and these economic

each

conditions.
prosectors.

1991 board of directors,
Federal Reserve Bank
of Chicago, from left to right:
seated, C. Sullivan, C. McNeer,
R. Cline, P. Schierl;
standing, B. Backlund,
M. Naylor, R. Healey,
J. Gabbert, D. Fox.

1991 board of directors,
Detroit Branch, from left to right:
seated, J. Moore, P. Peters,
B. Beltaire;
standing, W. Odom, C. Allen,
R. Mylod, N. Rodgers.

24

BOARD

OF

FEDERAL
OF

DIRECTORS

RESERVE

BANK

BOARD

OF

DETROIT

DIRECTORS

CHICAGO
CHAIRMAN

CHAIRMAN

Charles S. McNeer
Retired Chairman
of
the Board
Wisconsin Energy
Corporation
Milwaukee,
Wisconsin
DEPUTY

CHAIRMAN

Richard G. Cline
Chairman, President,
and
Chief Executive
Officer
NICOR
Inc.
Naperville,
Illinois
B.F.
Backlund
Chairman
and
Chief Executive
Officer
Bartonville
Bank
Bartonville,
Illinois
David W. Fox
Chairman,
President,
and
Chief Executive
Officer
The Northern
Trust
Corporation
Chicago,
Illinois
John W. Gabbert
President
and
Chief Executive
Officer
First of America
BankLa Porte, N.A.
La Porte,
Indiana
Robert M. Healey
President
Chicago Federation
Labor & Industrial
Council
Chicago,
Illinois

of
Union

Phyllis E. Peters
Director,
Professional
Standards
Review
Deloitte & Touche
Detroit,
Michigan
Charles E. Allen
President
and
Chief Executive
Officer
Graistone Realty Advisors,
Detroit,
Michigan

COUNCIL

ON

BUSINESS

B. Kenneth
West
Chairman
and
Chief Executive
Officer
Harris Bankcorp,
Inc.
and Harris
Trust
and Savings
Bank
Chicago,
Illinois

Phyllis L.
Apelbaum
Chicago,
Illinois
National Association
of
Women Business
OwnersChicago
Chapter

ADVISORY

Inc.

Beverly
Beltaire
President
P.R. Associates,
Inc.
Detroit,
Michigan
J. Michael
Moore
Chairman and Chief
Executive
Officer
Invetech
Company
Detroit,
Michigan
Robert J. Mylod
Chairman, President,
and
Chief Executive
Officer
Michigan
National
Corporation
Farmington
Hills,
Michigan
William E. Odom
Chairman
Ford Motor Credit
Company
Dearborn,
Michigan
Norman F. Rodgers
President
and
Chief Executive
Officer
Hillsdale
County
National
Bank
Hillsdale,
Michigan

ADVISORY

REPRESENTATIVE

FEDERAL ADVISORY

BRANCH

ON

COUNCIL

COUNCIL

SMALL

Fernando
Chavarria
Rolling Meadows,
Illinois
U.S. Hispanic
Chamber
of Commerce

AGRICULTURE

Glen
Balbach
Warren,
Illinois
Wisconsin
Milk
Marketing
Board
Leland E. Behnken
Altona,
Illinois
Illinois Corn Growers
Association
Marion L. Butler
Blandinsville,
Illinois
Illinois Beef
Association
Jon D. Caspers
Swaledale,
Iowa
Iowa Pork
Producers
Association
Richard E. Leach
Saginaw,
Michigan
Michigan Farm
Bureau
Barry A. Mumby
Fulton,
Michigan
Michigan
Soybean
Association
Merlin D. Plagge
West Des Moines, Iowa
Iowa Farm
Bureau

Max J. Naylor
President
Naylor Farms, Inc.
Jefferson,
Iowa

Kenneth G.
Stremlaw
Mendota,
Illinois
National
Farmers
Organization

Paul J. Schierl
Financial
Consultant
Green Bay,
Wisconsin

Scott E.
Clinton,
Wisconsin

A. Charlene
Sullivan
Associate Professor of
Management
Purdue
University
West Lafayette,
Indiana

Jerry L.
Vandeveer
Reese,
Michigan
Michigan
Agri-Business
Association

VanderVeen
Wisconsin
Pork
Producers

Noelle A. Clark
Lansing,
Michigan
National Federation of
Independent
Business /
Michigan
Susan E. Funk
Detroit,
Michigan
National Association
of
Women Business
OwnersMichigan
Chapter
J. Paul
Jordan
Milwaukee,
Wisconsin
Milwaukee
Minority
Chamber of Commerce
Susan M. Larson
Chicago,
Illinois
National Association
of
Women Business
Owners
Eleanore A. Levy
West Des Moines, Iowa
National Association
of
Women Business Owners
Iowa
Chapter

-

D. Larry
Sherman
Birmingham,
Michigan
Michigan
Retailers
Association
Toby B. Shine
Spencer,
Iowa
Iowa Association
and
Industry

of

Business

Robert J. Stevens
Columbus,
Indiana
Member-at-Large
Jude M. Werra
Brookfield,
Wisconsin
Wisconsin
Manufacturers
& Commerce

Donald B. Villwock
Indianapolis,
Indiana
Member-at-Large
Peter J.
Wenstrand
Essex, Iowa
Iowa Corn Growers
Association

25

officers

Appointments

to and promotions

official staff are made by the Bank's
Bank's

president

(chief executive

officer) to five-year

terms, subject

The primary
eight functional
president

activities

areas, overseen

Chicago

Reserve

board of directors.

to the approval

Bank's

Reserve

Reserve

by senior vice presidents
An additional

form the Management
strategic

function,
Audit

Bank's

The board appoints

of the Board

of the Chicago

to the board of directors'

senior officers together

the Federal

officer) and first vice president

and first vice president.

ment, reports directly

within

(chief
of

Bank

Governors.

are divided

into

who report to the
the Auditing

Committee.

Committee

the

operating

The

Bank's
Depart-

Bank's

and determine

the

direction.

Federal Reserve
Bank
of Chicago
Management
Committee, from left to right:
seated, W. Gram, D. Doyle,
S. Keehn, J. John;
standing,
W. Conrad,
C. Furbee, C. Vander
Wilt,
K. Scheld, R. Anstee,
R. Sloan, F. Dreyer.

Larry R. Mote
Economic Adviser
Vice
President

Silas
Keehn
President
Daniel M. Doyle
First Vice
President

CENTRAL

BANK

Steven H.
Strongin
Economic Adviser
and
Vice
President

ACTIVITIES

ECONOMIC RESEARCH
AND INFORMATION SERVICES

Karl A. Scheld
Senior Vice President
Director of Research
ECONOMIC

and

RESEARCH

David R.
Allardice
Vice President
and
Assistant
Director
of Research
Gary L.
Benjamin
Economic Adviser
and
Vice
President

and

Herbert L. Baer, Jr.
Senior Economist
and
Assistant
Vice
President
Anne Marie L. Gonczy
Senior Economist
and
Assistant
Vice
President
Robert H.
Schnorbus
Senior Business
Economist
and Research
Officer
William A. Testa
Senior Regional
Economist
and Research
Officer
INFORMATION

Franklin D. Dreyer
Senior Vice
President
SUPERVISION
REGULATION

AND

Barbara D. Benson
Vice
President
David S. Epstein
Vice
President
Roderick L.
Housenga
Vice
President
Geoffrey C. Rosean
Vice
President
John L.
Assistant

Bergstrom
Vice
President

George M.
Gregorash
Assistant
Vice
President

SERVICES

Nancy M. Goodman
Vice
President
STATISTICS

Jean L. Valerius
Vice
President

26

SUPERVISION AND
REGULATION AND LOANS

Douglas
Assistant

J. Kasl
Vice
President

William
Assistant

H. Lossie, Jr.
Vice
President

Patrick J. Tracy
Assistant
Vice
President
Alicia
Assistant

Williams
Vice
President

A. Raymond
Examining

Bacon
Officer

William A.
Examining

Barouski
Officer

Robert A.
Examining

Bechaz
Officer

Kathleen E. Benson
Examining
Officer
Maureen A.
Information
Officer
John M.
Examining

Cummings
Processing

Montgomery
Officer

John A. Volenti
Information
Support

Officer

Barbara A. Van Den
Examining
Officer

Bossche

David E. Ritter
Assistant
Vice President

Gay
Whiting
Applications
Officer
Donald H. Wilson
Financial Markets
LOANS AND

Officer

RESERVES

Gerard J. Nick
Vice
President
William J. O'Connor
Assistant
Vice
President
SERVICES T O

Frank S. McKenna
Assistant
Vice
President

DEPOSITORY

INSTITUTIONS
OPERATIONS AND
CHECK SERVICES

Charles W. Furhee
Senior Vice
President
CASH, FISCAL AGENCY
AND SECURITIES SERVICES

Charles L. Schultz
Assistant
Vice
President
James L. Strieber
Assistant Vice
President
AUTOMATION SUPPORT
AND ELECTRONIC SERVICES

Erich R. Mueller
Operations
Officer
CHECK

SERVICES

Voytovich
Counsel

Joseph R. O'Connor
Assistant
Vice President

Karen L.
Rosenberg
Assistant Vice
President
James M. Rudny
Assistant Vice
President

Glen
Vice

Brooks
President

Theodore
Assistant
SUPPORT

E. Downing,
Jr.
Vice
President
FUNCTIONS

FINANCIAL AND
MANAGEMENT SERVICES

ACCOUNTING

Conrad
President

AUTOMATION

SERVICES

George E. Coe
Vice
President
R. Steve
Assistant

Crain
Vice
President

Brenda D. Ladipo
Assistant
Vice
President
Thomas M.
Matsumoto
Assistant
Vice
President

SERVICES

Richard P. Bush
Vice President
Jeffrey L. Miller
Assistant Vice
President
MANAGEMENT

William C.
Senior Vice

O F F I C E OF THE
SECRETARIAT

BANK

Joan M. DeRycke
Assistant
Vice
President
and Assistant
Secretary
SUPPORT

Richard P.
Senior Vice

SERVICES

Anstee
President

Angelina
Assistant

S. Chin
General

Betty P. Chow
Audit
Officer

Auditor

DES

President

OFFICES

MOINES

L. Edward
Ketchmark
Assistant
Vice
President
INDIANAPOLIS

Kenneth
Assistant

R. Berg
Vice
President

Kristi L.
Zimmermann
Assistant
Vice
President
HUMAN RESOURCE

SERVICES

Thomas G. Ciesielski
Vice
President
Sheryn E. Bormann
Assistant
Vice
President
Richard
Assistant

F.
Opalinski
Vice
President

FEDERAL RESERVE SYSTEM
SECURITIES PRODUCT OFFICE

Dara L. Hunt
Operations
Officer

Jerome F. John
General
Auditor

Wells
Vice

Donna M. Yates
Assistant
Vice
President

Margaret
Assistant

OFFICE OF THE
GENERAL AUDITOR

F. Alan
Assistant

Robert D. Lauson
Vice
President

James A. Bluemle
Vice President
and
Securities Product

Jeffrey B. Marcus
Planning
Officer

L. Simms, Jr.
Vice President

ADMINISTRATIVE
AND GENERAL SERVICES

Glenn C. Hansen
Vice
President
K. Koenigs
Vice
President

Richard
Assistant

REGIONAL

SERVICES

SERVICES

David R. Starin
Vice
President

AUTOMATION AND
ELECTRONIC SERVICES

Patrick A. Garrean
Assistant
Vice
President

Anna M.
Assistant

Carl E. Vander
Wilt
Senior Vice President
and
Chief Financial
Officer

Tyler K. Smith
Operations
Officer

Frederick S. Dominick
Vice President
and
Assistant Branch
Manager

Stephen M. Pill
Vice President
and
Data Security
Officer

Allen R. Jensen
Vice
President

Diane S. Noble
Assistant
Vice
President

President
General,

BRANCH

Yvonne M.
Montgomery
Assistant
Vice
President

BANKING

Garcia
Officer

SERVICES

DETROIT

Roby L. Sloan
Senior Vice
President
and Branch
Manager

A. Knospe
Counsel

Jerome D. Nicolas
Assistant
Vice
President

Guadalupe
Operations

LEGAL

Yurii
Skorin
Assistant
Vice
and Assistant
Counsel

OFFICES

Elizabeth
Assistant

Kathleen H. Williams
Operations
Officer

J. Powaga
Vice
President

William H. Gram
Senior Vice
President,
General
Counsel,
and
Secretary

DISTRICT

Wayne R. Baxter
Vice
President

William A. Bonifield
Vice
President

Lawrence
Assistant

O F F I C E OF THE
GENERAL COUNSEL

Manager

MILWAUKEE

Anthony
Assistant

J.
Tempelman
Vice President

EXECUTIVE

APPOINTMENTS

DIRECTORS

ADVISORY

The selection process for t h e Federal Reserve B a n k
of Chicago's nine-member board of directors e n s u r e s
broad r e p r e s e n t a t i o n from m e m b e r commercial b a n k s
of varying sizes, as well as from diverse sectors of t h e
Seventh District economy including consumers, industry, agriculture, services, a n d labor. Three b a n k e r s
a n d t h r e e n o n b a n k e r s a r e elected by m e m b e r banks.
Three additional n o n b a n k e r s a r e appointed by t h e
Board of Governors in Washington, D.C. The Board of
Governors designates t h e c h a i r m a n and deputy chairm a n from a m o n g its t h r e e appointees.

E a c h y e a r t h e Chicago Reserve Bank's board of directors selects a r e p r e s e n t a t i v e to t h e Federal Advisory
Council. B. K e n n e t h West, C h a i r m a n a n d Chief Executive Officer of H a r r i s Bankcorp, Inc. a n d H a r r i s T r u s t
a n d Savings Bank, Chicago, served as t h e Seventh
District's representative in 1989 and 1990 a n d was
reappointed by t h e Chicago Fed board for 1991. For
1992, t h e directors selected E u g e n e A. Miller, Chairm a n , President, a n d Chief Executive Officer of Comerica, Inc. a n d C h a i r m a n a n d Chief Executive Officer of
Comerica B a n k , Detroit, Michigan, as t h e District's
FAC representative.

Similarly, t h e Board of Governors selects t h r e e
n o n b a n k e r s to serve on t h e seven-member board of t h e
Bank's Detroit Branch. Four additional directors are
selected by t h e Chicago Reserve B a n k board. The
B r a n c h board selects its own c h a i r m a n each year.
All Reserve B a n k a n d B r a n c h directors serve threeyear terms.
The director a p p o i n t m e n t s a n d elections a t t h e
Chicago Reserve B a n k a n d its Detroit Branch effective
in 1991 were:
O Charles S. McNeer designated
Chairman.
O Richard G. Cline designated Deputy
Chairman.
O Robert M. Healey appointed
director.
O David W. Fox and A. Charlene
Sullivan
elected directors.
O Phyllis E. Peters redesignated
Branch
Chairman.
O Beverly Beltaire reappointed Branch
director.
O Charles E. Allen and William E. Odom appointed
Branch
directors.
At year-end 1991, t h e following a p p o i n t m e n t s and
elections to t e r m s beginning in 1992 were announced:
O Richard G. Cline designated Chairman,
succeeding Charles S. McNeer who completed six years
of service as a director.
O Robert M. Healey designated Deputy
Chairman.
O Stefan S. Anderson (Chairman, President and
Chief Executive Officer, First Merchants Corporation, Muncie, Indiana) and Thomas C. Dorr
(President, Dorr's Pine Grove Farm
Company,
Marcus, Iowa) elected directors,
replacing
John W. Gabbert and Max J. Naylor who each
completed six years of service on the board.
O Duane L. Burnham (Chairman and Chief
Executive Officer, Abbott Laboratories,
Abbott
Park, Illinois) appointed a director,
replacing
Charles S. McNeer.
O J. Michael Moore designated Branch
Chairman,
succeeding Phyllis E. Peters who completed six
years of service on the board.
of
O John D. Forsyth (Executive Director, University
Michigan Hospitals, Ann Arbor, Michigan) and
Daniel R. Smith (Chairman and Chief Executive
Officer, First of America Bank
Corporation,
Kalamazoo, Michigan) appointed Branch
directors,
replacing Phyllis E. Peters and Robert J. Mylod
who completed their terms of service.

28

COUNCILS

New m e m b e r s of t h e Chicago Reserve Bank's two
advisory councils were selected from nominations by
Seventh District small business a n d agricultural organizations d u r i n g 1991.
OFFICERS

The Bank's board of directors acted on t h e following
promotions within t h e official staff d u r i n g 1991:
O Barbara D. Benson to Vice President,
Supervision
and
Regulation.
O Thomas M. Matsumoto to Assistant Vice President,
Automation
Services.
O William J. O'Connor to Assistant Vice President,
Loans and Reserves.
O Richard F. Opalinski to Assistant Vice President,
Human Resource
Services.
O David E. Ritter to Assistant Vice President,
Automation
Services.
O Yurii Skorin to Assistant Vice President and
Assistant General Counsel, Legal Services.
O Kristi L. Zimmermann
to Assistant Vice President,
Administrative
and General Services.
New officers appointed to t h e official staff in
1991 were:
O William A. Barouski to Examining
Officer,
Supervision and
Regulation.
O Anna M. Voytovich to Assistant
Counsel,
Legal Services.

NOTES

1. Lincoln quote, in W r i g h t P a t m a n
s t a t e m e n t in C o n g r e s s , H o u s e , C o m m i t t e e
on B a n k i n g a n d C u r r e n c y ,
Government
Ownership of the Twelve Federal
Reserve
Banks—Hearings
before the Committee
on
Banking and Currency, 7 5 t h Cong., 3d sess.,
M a r c h 2, 1938, p. 10.
2. P a t m a n quote, i n M a r t i n M a y e r , The
Bankers, ( N e w York: W e y b r i g h t a n d Talley,
1974), p. 393.
3. A d a m s quote, in R i c h a r d H . T i m b e r l a k e ,
J r . , The Origins of Central Banking in the
United States, ( C a m b r i d g e : H a r v a r d
U n i v e r s i t y P r e s s , 1978), p. 39.
4. C o m m i t t e e quote, i n W m . McC. M a r t i n , J r .
s t a t e m e n t i n C o n g r e s s , H o u s e , C o m m i t t e e on
B a n k i n g a n d C u r r e n c y , S u b c o m m i t t e e on
D o m e s t i c F i n a n c e , The Federal
Reserve
System After Fifty Years—Hearings
before the
Committee on Banking and Currency, 8 8 t h
Cong., 2d sess., J a n u a r y 21, 1964, p. 24.
5. P a u l M. W a r b u r g , "Political P r e s s u r e a n d
t h e F u t u r e of t h e F e d e r a l R e s e r v e S y s t e m , "
in The Federal Reserve System—Its
Purposes
and Work, ed. C.H. C r e n n a n a n d A.D. W a l t e r ,
( P h i l a d e l p h i a : T h e A m e r i c a n A c a d e m y of
Political a n d Social Science, 1922), p. 70.
6. A l l a n S p r o u l , "Reflections of a C e n t r a l
B a n k e r , " in Selected Papers of Allan
Sproul,
ed. L a w r e n c e S. R i t t e r , (The F e d e r a l R e s e r v e
B a n k of N e w York, 1980), p. 151.
7. R a n d o l p h W. B u r g r e s s , "Reflections on t h e
E a r l y D e v e l o p m e n t of O p e n M a r k e t Policy,"
Monthly Review, F e d e r a l R e s e r v e B a n k of
N e w York, N o v e m b e r 1964, p. 220.
8. C o n g r e s s , H o u s e , C o m m i t t e e on B a n k i n g
a n d C u r r e n c y , The Banking Act of 1935—
Hearings before the Committee on
Banking
and Currency, 7 4 t h Cong., 1st sess., M a r c h 4,
1935, p. 181.
9. S p r o u l , L e t t e r to W r i g h t P a t m a n ,
Papers, p. 178.

Selected

10. W a r b u r g , "Political P r e s s u r e , " p. 70.
11. " F u t u r e Perfect," The Economist,
January
4, 1992, p. 61; "Big Blue's s h a k e - u p , " The
Economist,
N o v e m b e r 30, 1991, p. 19.
12. A l a n G r e e n s p a n , "Economic F o r e c a s t i n g
in t h e P r i v a t e a n d Public Sectors," a d d r e s s to
t h e N a t i o n a l Association of B u s i n e s s
E c o n o m i s t s , S e p t e m b e r 24, 1990, B o a r d of
G o v e r n o r s of t h e F e d e r a l R e s e r v e S y s t e m ,
m i m e o , p. 5.
13. See, for e x a m p l e , C h a r l e s E. L i n d b l o m ,
The Intelligence of Democracy, ( N e w York:
T h e F r e e P r e s s , 1965), p. 157.
14. D a v i d P. E a s t b u r n , "The F e d e r a l R e s e r v e
a s a L i v i n g I n s t i t u t i o n , " in Men, Money &
Policy, ed. D a v i d P. E a s t b u r n , ( F e d e r a l
R e s e r v e B a n k of P h i l a d e l p h i a , 1970), p. 264.
15. J o h n W. G a r d n e r , Self
Renewel:
The Individual
and the Innovative
Society,
( N e w York: H a r p e r & Row, 1963), p. 68.
16. "Profile of C a r l E. Powell," The Region,
F e d e r a l R e s e r v e B a n k of M i n n e a p o l i s ,
D e c e m b e r 1991, p. 10.

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FEDERAL RESERVE BANK
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copies of this report,
contact the Public Information
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Federal Reserve Bank of Chicago,
at
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