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F E D E R A L R E S E R V E 1 9 9 5 Our Vision unmatched C H I C A G O R E P O R T and stable financial economy Provide products andserviceof value to those we serve. standard for excellence System. of Further the public interest by fostering a sound system. A N N U A L B A N K in the Federal Work together, communicate Set the Reserve openly, be creative and fair. Live by our core values of integrity, respect, responsibility and excellence. The Federal Reserve with the Board Reserve System, supported Bank of Chicago of Governors is one of 12 regional in Washington, since its establishment by a stable financial monetary policy, services to depository Detroit, regional Reserve Bank of Chicago Indiana, Michigan Bank of Chicago and regulates central that, together bank. The role of the in 1913, has been to foster participates Indianapolis serves the Seventh Through and Milwaukee, Federal Reserve plus all of in the formulation banks and bank holding and the U.S. government. offices in Des Moines, and Wisconsin, D.C., serve as the nation's States a strong Federal economy, system. supervises institutions Banks across the United by an act of Congress passed To this end, the Federal Reserve national Reserve District, and implementation companies, and provides its head office in Chicago, and a new facility which includes of financial branch in in Peoria, the Federal major portions of Illinois, Iowa. C O N T E N T S Message to our Customers Committed to our Customers 1 4 1995 Highlights 16 Operations Volumes 17 Financial Statements 18 Directors and Advisory Councils 20 Officers 22 Executive Changes 24 P R E S I D E N T ' s FROM LEFT: HEALEY, " T H E CUSTOMER M E S S A G E FIRST DEPUTY VICE PRESIDENT CHAIRMAN to WILLIAM RICHARD CLINE, AND CONRAD, our CHAIRMAN PRESIDENT MICHAEL C U S T O M E R S ROBERT MOSKOW is K I N G " This maxim and similar refrains reflect the commitment to customers that has become the rallying cry for businesses ranging from Mom-and-Pop stores to huge retail conglomerates. Customer focus has to be paramount for a firm that exists to turn a profit. For such a firm the customer is truly the u l t i m a t e j u d g e , not t o m e n t i o n the jury, a n d , in s o m e cases, the executioner. But is f o c u s i n g on the customer relevant for a public entity such as the Federal Reserve Bank of Chicago? This was a question we considered carefully during 1995, and the answer we arrived at was a resounding "Yes." 1 OUR VISION Further the public interest by fostering a sound economy and stable financial system Provide products and services of unmatched value to those we serve Admittedly, one does not necessarily associate central banking with customer service. Nevertheless, the Federal Reserve Bank of Chicago does serve customers. We have customers in the traditional sense because we provide financial services for a fee to depository institutions. We also provide a variety of services to the U.S. Treasury in our role as fiscal agent. Customers who use our economic research "services" include groups interested in our regional economic analysis and a number of internal customers such as the Board of Governors in Washington, D.C., and our board of directors. Even depository institutions that we supervise and regulate are "customers" in a sense. Broadly speaking, the public at large is our most important customer as we are a creation of Congress and ultimately answerable to the American people. Evaluating our approach to customers was a key aspect of a Bank-wide strategic planning initiative during 1995 in which we took a "Fresh Look" at our organization. Perhaps the most important element of this "Fresh Look" planning effort was the development of a vision statement. In some ways, developing the vision was straightforward. For example, our vision reaffirms our mission to further the public interest by fostering a sound economy and stable financial system. That's the starting point for everything we do— the reason we come to work in the morning. H o w best to fulfill that mission is more difficult to determine. In our vision we have stated our commitment to achieving excellence. In most industries, a company will naturally compare itself to its competitors to gauge its progress. That strategy has an obvious drawback for a central bank. We're one of a kind, at least within our national borders. But given the Federal Reserve's structure of 12 regional Banks, we do have a basis of comparison. A healthy sense of competition exists within the System in which the Reserve Banks work together closely and share ideas but also try to outperform one another. The Reserve Banks are somewhat like runners in a relay team working together to win the event but also striving to post the best possible time for their leg of the race. Given this background, we have committed ourselves to setting the standard for excellence in the Federal Reserve System. What is the surest, most direct way to set the standard of excellence? In my view, it is focusing on customers. Our vision reflects this focus by committing us to providing products and services of unmatched value to those we serve. The key phrase is to those we serve. In other words, our customers determine if we are truly providing unmatched value. 2 Set the standard for excellence in the Federal Reserve System Work together, communicate openly, be creative and fair Live by our core values of integrity, respect, responsibility and excellence Clearly, the Federal Reserve cannot be driven by the customer in the same way as a for-profit firm. Our bottom line is serving the public good. Nevertheless, our customers, though diverse and sometimes amorphous, are the best and truest source of feedback for evaluating our efforts. At the end of the day, they determine if we are achieving excellence. The customer is king, even for a public institution such as the Federal Reserve Bank of Chicago. The past year has been challenging and exciting. I am very proud of what we have already accomplished and look to the future with optimism. Our achievements during the past year would not have been possible without the contributions of our entire staff of over 2300 people. The Chicago Fed also benefited greatly from the services of our directors in Chicago and Detroit, an outstanding group of individuals who unselfishly provided their time and expertise. I want to express my gratitude to three directors who completed their terms at the end of 1995: Richard Cline, J. Michael Moore, and Norman Rodgers. I particularly want to thank Richard Cline, who served as deputy chairman for two years and as chairman for three years. During their six years of service on the Chicago and Detroit boards, all three provided insightful perspectives and leadership that helped guide our activities. A commitment to our customers was the common thread tying together our activities during 1995. The following article briefly reports on just a few of our efforts, which reflect our commitment to providing excellent service to customers for many years to come. Michael H. Moskow, President March 28,1996 3 C O IN M M I T PURSUING T ITS PUBLIC, PEOPLE A S H L E Y A N D URBANDALE, E D MISSION SUCH J A R E D IOWA AS TO THE CHICAGO (FROM G R A N T , H O M E — T H E OUR FED LEFT SHOWN TO HERE KITCHEN. 4 C ULTIMATELY RIGHT), IN THE U S SERVES J A S O N , NERVE T O THE M GENERAL B O N N I E , CENTER E BARRY, OF THEIR R S We are committed to responding to the needs of our customers. That is the surest way to achieve excellence and fulfill our mission of fostering a healthy, growing economy and a stable financial system. Who are the Federal Reserve Bank of Chicago's customers? Given our broad mission, ultimately everyone in the Seventh Federal Reserve District, including people such as the Grant family of Urbandale, Iowa. On the following pages we will introduce you to more of our customers and review some of the Chicago Fed's accomplishments in 1995 driven by customer needs. 5 C O M M I T T E D to our CUSTOMERS D E P O S I T O R Y I N S T I T U T I O N S Working with depository institutions The Chicago Fed in 1995 opened a new check-processing facility at the Peoria Airport, improving customer service to area financial institutions. Since the facility is located in central Illinois, nearby customers have more time each day to process checks internally. Customers also benefit from lower prices for check-processing services. P R O C E S S I N G CHECKS B U I L D I N G MORE EFFICIENTLY RELATIONSHIPS WITH C U S T O M E R S In an effort to provide better Chicago Reserve Bank works service, the Bank created three customer advisory groups made up of Seventh in a number of ways with depository District bankers. The advisory groups provided feedback on financial services, The institutions in the Seventh District. The Chicago Fed's responsibilities include supervising bank holding companies offeringS suggestions RonI C E types of products and services to offer. to imthe A group of Bank staff studied ways C U T O M E R SE V prove customer service during 1995. Based on the group's recommendations, the Chicago Fed will develop a new area dedicated to handling the wide range of customer service inquiries received by the Bank. The unit will initially focus on inquires and requests for new services from depository institutions. IMPROVING and state member banks and offering financial services such as check processing and electronic payments to all District C O N D U C T I N G EXAMINATIONS OFF-SITE The Chicago Fed was a leader among the Reserve Banks in 1995 in developing programs to increase the off-site portions of exams. Examiners are now spending more of their time at Fed offices and less time on bank premises. The result has been to enhance the efficiency of exams and reduce the disruption to commercial bank operations. institutions. R E S P O N D I N G TOCHANGE The Chicago Fed played an active role in a Federal Reserve System initiative called Reserve Bank Examination Process for the 21st Century, which is designed to adapt the Fed's supervisory approach to the changing nature of banking and financial services. Input for this process was gathered through surveys and interviews with officials from depository institutions. S P O N S O R I N G C O N F E R E N C E S O N BANKING The Chicago Fed continued to sponsor conferences on the changing dynamics of the banking industry. The 31st annual Conference on Bank Structure and Competition examined innovations in the banking industry. The Chicago Fed also co-sponsored a conference on bringing harmony to international financial regulatory systems. 6 KAY A ROLANDO BANK CAN, IS THE EMPLOYEE FOR INCLUDING KAY'S BANK'S WHEN INTERACTION NEW CASHIER 3 7 SHE WITH OF YEARS, VISITS THE CHECK-PROCESSING BANK KAY OF FARMINGTON LISTENS THE TO KERSH CHICAGO FED FACILITY 7 HER CAFE IN INCLUDES AT T H E IN CENTRAL CUSTOMERS DOWNTOWN TAKING NEARBY ILLINOIS. WHENEVER ADVANTAGE PEORIA SHE FARMINGTON. AIRPORT. OF THE C O M M I T T E d to our CUSTOMERS P O L I C Y M A K E R S Contributing to public policy R E S E A R C H I N G THE M I D W E S T ' S P R O S P E C T S During 1995 the Chicago Fed initiated a comprehensive, year-long study of the Midwest economy The goal of the study is to better understand the Midwest's economic prospects by studying its turnaround since the early 1980s. The project will involve workshops and research studies carried out by Federal Reserve analysts and other researchers from throughout the region. Workshops will consider issues such as labor force training and education, global linkages, and changes in manufacturing industries. The project -will culminate with the publication of the study, which will provide policymakers with the information they need to help ensure the region's continued success. T h e Federal Reserve System is known for research used in the formulation of national monetary policy. In helping develop a national picture, the Chicago Fed examines a broad range of economic issues that affect the Midwest. This research benefits national PROVIDING RESOURCES FOR REGULATORY POLICYMAKERS Regulatory policymakers benefited in 1995 from research on the latest developments in financial risk management products and on how best to oversee the use of derivatives. As part of this effort, Chicago Fed researchers studied the "Pre-Commitment Approach" to setting bank capital standards for market risk. In this approach, banks commit to containing their cumulative losses in their trading portfolio below a certain level and set aside capital sufficient to cover the maximum loss level. A fine would result if losses exceeded this pre-committed level. policymakers as well as those at the state and local level. C O N T R I B U T I N G TO I N F O R M E D P O L I C Y The Chicago Fed continued to conduct research to help policymakers formulate national monetary policy. For example, an article in the Bank's Economic Perspectives explored the relationship between wage increases and inflation. The article suggests that only manufacturing and retail trade wages can be used to predict inflation. In other major industries the pattern is reversed—inflation is a predictor of wage growth. The Bank's monetary policy efforts include supporting internal policymakers such as President Michael Moskow and the board of directors. By supporting the president's participation on the Federal Open Market Committee and the board's deliberations on the Chicago Fed discount rate, the Bank contributes to the formulation of effective monetary policy S U P P O R T I N G THE F O M C STUDYING DISPLACED WORKERS AND RETRAINING Economists at the Chicago Fed studied numerous issues related to displaced workers and retraining programs. One study explored the impact of plant closings and corporate down-sizing, finding that earnings were generally lower for workers even after they found new jobs. Another study examined retraining programs offered at local community colleges. The study offers evidence that such programs can be effective in preparing some workers for different types of work with better pay. 8 G R A H A M TOFT BROADENS INDIANA'S INDIANA ECONOMIC DEVELOPMENT GRAHAM EVALUATE INDIANA'S INFORMATION ON ISSUES ECONOMIC COUNCIL, ECONOMIC AFFECTING THE INC. HORIZONS CHICAGO PERFORMANCE MIDWEST. 9 AS PRESIDENT FED AND RESEARCH OBTAIN OF THE HELPS UP-TO-DATE C O M M I T T E D TO OUR C U S T O M E R S B U S I N E S S O W N E R S Meeting the needs of business The Chicago Fed in 1995 continued to foster economic and community development by encouraging partnerships among business owners, lenders, local government officials, and community groups. Initiatives included a major conference on economic development as well as a series of workshops and roundtable discussions focusing on issues such as lender involvement in empowerment zones. The Chicago Fed also carried out several initiatives in 1995 to help ensure fair access to credit. For example, the Bank published Access to Credit: Women, Lenders, and Small Business Loans, which is intended to help improve communication between lenders and women owners of small businesses. F O S T E R I N G B y fostering a healthy, growing economy with price stability, the Chicago Fed helps ensure a sound economic environment that enables business owners to operate efficiently. Among the Bank's activities are researching economic issues affecting the business environment in the Midwest, fostering an efficient and reliable payments system, and helping to ensure fair access to credit. ECONOMIC D E V E L O P M E N T The Chicago Fed joined forces with utility companies, financial institutions, and a u t o m a t e d clearinghouse associations to encourage consumers to pay their bills electronically. In addition, the Bank directed efforts to explain the benefits of electronic payments to bankers, corporations, municipalities, and non-profit agencies. Through such efforts to promote the use of electronic alternatives to paper checks, the Bank fosters a more efficient payments system. P R O M O T I N G AN EFFICIENT P A Y M E N T S SYSTEM UNVEILING NEW CURRENCY DESIGN The Chicago Fed worked with other Fed Banks and U.S. Treasury officials to unveil redesigned $100 bills in 1995. The Bank conducted a series of w o r k s h o p s for depository institutions throughout the Seventh District explaining the security features of the new currency. The new design was initiated to reduce the threat of counterfeiting and maintain confidence in our nation's currency. RESEARCHING ECONOMIC ISSUES Throughout 1995, the Chicago Fed researched issues that affect Midwest businesses, identifying trends in sectors such as services, manufacturing, and agriculture. As part of this effort, the Bank produced research on regional issues such as education reform, corporate tax practices, emerging trade opportunities, environmental regulation, and trade policy. 10 IRMA ELDER TROY FORD OWNS HISPANIC-OWNED BUSINESSES FOUR AUTO AND JAGUAR-SAAB BUSINESS IN IN T H E C O U N T R Y . DEALERSHIPS OF TROY. HER AMERICA BUSINESS AND IN SUBURBAN CORPORATION ONE OWNERS OF THE SUCH AS DETROIT, IS T H E TOP IRMA FED INITIATIVES THAT PROMOTE A STABLE ECONOMY A N D A S O U N D 11 5 0 INCLUDING SIXTH LARGEST FEMALE-OWNED RELY ON CHICAGO FINANCIAL SYSTEM. C O M M I T T E D to our C U S T O M E R S Working C O N S U M E R S for consumers Chicago Fed research contributed to effective national monetary policy that fostered sustainable economic growth with price stability. In 1995, inflation as measured by the Consumer Price Index (CPI) was three percent or below for the fourth consecutive year. MAINTAINING Consumers benefit from many Chicago Fed activities. These include helping to ensure fair treatment in credit transactions, sponsoring programs that assist consumers in making informed financial STABILITY P R O V I D I N G ELECTRONIC INFORMATION The Chicago Fed installed its own home page on the Internet's World Wide Web. Consumers can electronically access economic and financial data, up-to-the-minute information on business conditions, news of interest rate changes, and Chicago Fed publications at http://www.frbchi.org. E N S U R I N G HIGH-QUALITY C U R R E N C Y The Bank continued to convert to stateof-the-art ISS 3000 currency-processing machines in 1995. The new equipment improves speed and accuracy and helps provide more efficient and cost-effective currency processing. It's part of the Chicago Fed's ongoing efforts to provide consumers with high-quality currency free from counterfeits. decisions, and offering a wide variety of services in a cost-effective manner. PRICE I N F O R M I N G C O N S U M E R S In 1995 the Chicago Fed continued to help consumers make informed decisions. Efforts included distributing publications on consumers' credit rights and offering programs focusing on informing investors that many mutual funds offered by banks are not covered by federal deposit insurance. In addition, the Bank conducted a series of seminars for consumer groups on recent revisions to the Community Reinvestment Act (CRA). INVESTIGATING L E N D I N G DISCRIMINATION A study by the Federal Reserve Bank of Chicago during 1995 investigated the role of race in mortgage lending decisions. Using data drawn from loan applications from the Boston area, the study found that race had played a role in denial rates for applicants of marginal creditworthiness. In cases where the credit history of applicants was good, the denial rates between races were not appreciably different. MOVING T O ELECTRONICS In financial services, the Chicago Fed continued to encourage the use of more efficient electronic alternatives to paper check transactions. Reflecting this effort, the volume of electronic check products increased by 64 percent during 1995. Initiatives to encourage the use of Automated Clearinghouse (ACH) services included playing a key role in testing much of the software in preparation for a System-wide centralization of automated payment services. 12 KENNETH MALL. AND THE PAULINE VERNONS KENNETH RECENTLY SERVICE. CONSUMERS MAINTAIN PRICE VERNON ARE NOW RETIRED SUCH STABILITY OF MILWAUKEE EMBARKING FROM ON AT T H E A NEW WISCONSIN AS THE VERNONS AND THE PURCHASING 13 GRAND PHASE ELECTRIC RELY ON THE POWER OF AVENUE IN AFTER 4 0 CHICAGO THEIR SHOPPING THEIR LIVES AS YEARS OF FED MONEY. TO HELP C O M M I T T E D to our C U S T O M E R S B A N K S T A F F Serving internal customers T A K I N G A F R E S H L O O K A T O U R A C T I V I T I E S To help guide staff in carrying out their responsibilities, the Chicago Fed took a "Fresh Look" at its activities. Over 200 staff members took part in the planning process, which included the development of multiyear strategies for the Bank's four main operating areas. The Chicago Fed also embarked on several initiatives to realign the Bank's culture with its vision, including a number of short-term changes implemented in 1995. At the same time, a work group was formed to examine longer-term changes in areas such as rewards and recognition, communication, and management style. PROVIDING The Chicago Fed's emphasis on serving customers is not restricted to people outside the Bank. It also includes internal customers— Bank staff. An important responsibility for all staff members is providing services and support to one another. STAFF MEMBERS WITH ELECTRONIC INFORMATION During 1995, the Bank developed a new on-line communication service that provides staff with easy access to Bank news, forms, and reports. Called FROLIC (Federal Reserve On-Line Information Center), the electronic service offers information via computer on a wide range of different topics and is updated daily. E M P H A S I Z I N G TRAINING A N D P E R S O N A L D E V E L O P M E N T Staff members were encouraged to participate in Bank-sponsored training that ranged from basic reading and math skills to computer training to executive assessment and career planning. Course offerings in 1995 were expanded to emphasize customer service, team-building, and other skills critical to achieving the Bank's strategic direction. Approximately 830 staff members attended one or more of the 90 training sessions throughout the year. The Bank also encouraged staff to continue their education, providing tuition assistance to more than 100 individuals. By working together, Bank staff is better able to provide high-quality service to external customers. To increase efficiency in providing services, automation and check staff worked together to take advantage of new "remote processing" technology. The technology enables the Bank's regional check-processing offices to use mainframe computers in Chicago to drive their check-sorting equipment. The remote processing technology enables the Bank to stay close to the customer at regional offices but still take advantage of efficiencies offered by automation consolidation. The Indianapolis Office implemented the technology in early 1995—the first Federal Reserve office to do so. In addition, the Detroit, Milwaukee, and Peoria offices adopted remote processing during 1995. Conversion of all District offices will be completed in 1996. PROVIDING N E W TECHNOLOGY 14 FOR REGIONAL OFFICES THE BANK'S STAFFERS F O C U S ON WHO EMPLOYEES. HELPED DAVID APPLICATIONS; PROCESS; GRAPHIC INTERNAL CUSTOMERS DEVELOP MOORE D E N N I S MARY BALOUN FROLIC, (CENTER) D A N I E L S CONVERTS IS R E F L E C T E D A NEW ON-LINE MANAGES THE COORDINATES THE FORMAT. 15 IN T H E E F F O R T S O F INFORMATION DEVELOPMENT THE INFORMATION THREE SERVICE OF FOR COMPUTER INFORMATION-GATHERING INTO A READER-FRIENDLY THE BANK IN 1995 ADDITIONAL 1 9 9 5 HIGHLIGHTS • President Michael Moskow and First Vice President William Conrad discussed the Bank's vision statement during a series of meetings attended by roughly 1,000 staff members. • The Bank continued to encourage more efficient electronic alternatives, focusing on expanding Fedline customer connections, increasing electronic check processing, and encouraging the use of Automated Clearinghouse (ACH). • Economic research had 44 papers published or accepted for publication in leading U.S. and international scholarly journals. • Check services lowered many of its fees in keeping with a new pricing structure intended to meet the demands of the market. • The Bank initiated a visiting scholars program to enhance links with the academic and policymaking communities. • The Detroit Branch handled the highest volume of electronic cash letters in the Federal Reserve System. • Research staff evaluated alternative means of controlling payments system risk, proposing in conjunction with supervision and regulation the optimal clearinghouse structure for risk management purposes. • The Bank successfully introduced the System's new centralized software application for wire transfers. • A video-conferencing facility was opened, linking the Chicago Fed with the other Reserve Banks and the Federal Reserve Board. • The Bank assumed responsibility as the repository for nationwide fair lending data and as the System liaison for research related to the data. • An early retirement program was successfully completed. • Efforts to enhance management and staff development included offering expanded career management programs. • Staffers in economic research and supervision and regulation continued to increase their expertise in financial markets, particularly derivatives and non-traditional financial products. • The Bank created a unit to conduct applied research on consumer issues such as credit access, fair lending, and community and economic development. • The Bank successfully carried out its supervisory responsibilities, despite legislative and regulatory changes and a dramatic increase in the number of Seventh District state-member banks. • The Bank conducted tours of its operations for more than 9,500 visitors. • The Bank's audit department coordinated the audit of the national network services division of FRAS (Federal Reserve Automation Services). • Chicago Fed staff processed approximately 37 percent of all Home Mortgage Disclosure Act (HMDA) data for the System. • The Chicago N e t w o r k O p e r a t i o n s C e n t e r (CNOC) played a leadership role in reviewing FEDNET backbone circuits and planning reductions that will substantially lower costs. • Supervision and regulation staff met guidelines for timeliness and quality while processing the highest volume of applications in the System. • Chicago Fed staff provided expertise to other countries, traveling overseas on temporary assignments and hosting numerous programs for foreign visitors. • The Bank completed the consolidation of Seventh District savings bond operations at the Minneapolis Reserve Bank on time and on budget. • Bank staff continued to play a leadership role through participation in many System groups, including serving as chair of more than 20 committees. • A cross-functional team guided the establishment of the new check-processing facility in Peoria, a complex effort that was completed on schedule in a relatively short period of time. 16 OPERATIONS VOLUMES The Federal Reserve Bank of Chicago's volume of operations flected efforts efficient during to encourage electronic paper-based The Clearinghouse items increased 1995. The volume to volume (ACH) by 14 percent during of electronic products also continued creasing by 64 percent. check to rise, inThe number of paper checks processed declined, flecting increased consolidations competition, of the same-day consolidation operations Bank of the base, and the effect settlement The volume of savings ed declined rebank that have reduced Bank's customer sharply bonds at the Federal Minneapolis regulation. process- as a result of the of Seventh dollar amount more alternatives payments. of Automated 1995 re- District Reserve 1 9 9 5 CHECK AND ELECTRONIC number of items 1 9 9 4 1 9 9 5 1 9 9 4 PAYMENTS Checks, NOWs, & share drafts processed 1.7 billion 1.2 trillion 1.2 trillion 101.2 billion 131.7 billion 217.2 million 306.6 million 49.5 billion 48.1 billion 50.2 million 50.2 million 2.5 trillion 2.2 trillion 626.3 million 547.8 million Transfers of funds 31.5 trillion 30.3 trillion 14.3 million 13.6 million Electronic checks processed 13.1 million 9.0 million 507.8 million 309.7 million Fine sort & packaged checks handled U.S. government checks processed Automated Clearinghouse (ACH) items processed CASH 1.8 billion OPERATIONS 32.7 billion Currency received & counted Unfit currency destroyed 7.7 billion Coin received & counted SECURITIES SERVICES 6.5 billion 836.2 million FOR DEPOSITORY 2.4 billion 30.9 billion 958.3 million 6.7 billion 714.0 million 2.2 billion 726.0 million 6.3 billion INSTITUTIONS Safekeeping balance December 31 Definitive securities 13.3 billion 452.6 billion 4.0 billion Purchase & sale 24.4 thousand 29.7 thousand 12.7 billion 406.7 billion Book-entry securities 4.9 billion — — 14.6 thousand 18.5 thousand Collection of securities & other noncash items 167.0 million 200.0 million Book-entry government securities processed 7.1 trillion 9.7 trillion 1.1 million 1.2 million 1.7 billion 855 1,211 4.0 million LOANS TO DEPOSITORY INSTITUTIONS Total loans made during year SERVICES TOU.S. 194.7 thousand 78.6 thousand 1.2 billion TREASURY AND GOVERNMENT AGENCIES Issues, redemptions & exchanges: U.S. savings bonds 167.9 million 1.5 billion 374.1 thousand Definitive government securities 357.8 million 2.3 billion 9.9 thousand Government coupons paid Federal tax deposits processed 101.1 million 98.8 million 17 152.9 billion 2.3 billion Food stamps redeemed 99.3 billion 2.3 billion 9.1 thousand 21.7 thousand 28.9 thousand 883.6 thousand 877.7 thousand 443.0 million 452.8 million 1 9 9 5 S T A T E M E N T S FINANCIAL STATEMENT OF CONDITION Year-to-year changes in Reserve Bank assets and liabilities largely reflect 1 2 / 3 1 / 9 5 general economic developments and System monetary policy actions. By Gold certificate account purchasing Interdistrict settlement account Special d r a w i n g rights certificate account securities in the open market and making loans to depository 1 2 / 3 1 / 9 4 ASSETS $ 1,220,000,000 $ 1,217,000,000 creases reserves, providing a base for 1,079,000,000 Coin (1,047,960,762) 1,036,000,000 35,087,340 institutions, the Federal Reserve in- (3,015,622,660) 22,888,996 Loans and securities: Loans 775,000 monetary expansion in accord with the national economy's growth needs. In 416,608,353 43,601,557,630 U.S. g o v e r n m e n t securities 18,145,000 303,667,515 Federal agency securities 41,758,063,888 1995 the Bank's total assets fell slight- Total loans and securities ly, accommodating a slight decrease Items in process of collection 519,317,534 Bank premises 109,889,992 112,246,500 3,519,876,662 3,595,919,395 in currency outstanding that more than offset an increase in deposits of District depository $ O t h e r assets 43,906,000,145 $ 42,192,817,241 509,387,271 $ Total assets 47,373,549,013 $ 47,638,298,641 $ 41,757,639,370 $ 42,264,580,153 institutions. Nationally, however, currency out- LIABILITIES Federal Reserve notes standing increased substantially in 1995. Deposits: Depository institutions 3,396,794,719 3,539,487,150 U.S. Treasury—general account 0 Total deposits $ 16,162,207 160,003,522 Other 0 16,040,164 Foreign, official accounts 147,593,207 3,715,530,836 D e f e r r e d credit items 492,307,818 Total liabilities CAPITAL $ 3,560,550,133 495,947,869 462,639,489 O t h e r liabilities $ 479,189,786 46,428,117,513 $ 472,715,750 $ 46,800,267,941 ACCOUNTS Capital paid in $ 472,715,750 Surplus 419,015,350 419,015,350 Total capital $ 945,431,500 $ 838,030,700 Total liabilities and capital $ 47,373,549,013 $ 47,638,298,641 18 STATEMENT OF INCOME A Reserve Bank's income is largely a by-product of monetary policy rather 1 9 9 4 1 9 9 5 than the pursuit of profit. Most of the Bank's income is interest on its share of the System Open Market Account CURRENT INCOME Interest o n loans $ 821,393 $ 993,816 2,720,699,403 Interest o n g o v e r n m e n t securities 2,199,668,608 portfolio of securities, and appropriately, Interest o n investments of foreign currencies 89,218,527 102,461,570 the vast majority of this income is turned Service fees 96,210,847 98,049,361 over to the U.S. Treasury each year. All other Current income increased compared to 1994, primarily because of an increase in interest received from government securities. Operating expenses rose slightly as costs associated with increased 913,388 CURRENT 917,915 $ 2,907,863,558 $ 2,402,091,270 $ Total current income 207,012,155 $ 203,349,407 EXPENSES O p e r a t i n g expenses Other current expenses 41,724,210 43,386,374 Total current expenses 248,736,365 246,735,781 supervisory activities and centralized Less r e i m b u r s e m e n t for certain fiscal agency a n d other expenses automation more than offset expense Current net expenses $ 231,319,759 $ 226,411,009 reductions in other areas of operations. Current net income $ 2,676,543,799 $ 2,175,680,261 $ 734,844 $ (2,773,780) ADDITIONS CURRENT TO(OR NET DEDUCTIONS 17,416,606 20,324,772 ' FROM) INCOME N e t profit (or loss) o n sales of securities N e t profit (or loss) o n foreign exchange transactions 114,291,538 277,694,924 Assessment for Board of G o v e r n o r s expenditures (18,572,800) (16,877,600) Cost of Federal Reserve currency (41,012,869) (44,471,199) All other—net (10,624,127) (4,189,236) 44,816,586 209,383,109 Net additions (or deductions) DISTRIBUTION OFNET $ 2,721,360,385 $ 2,385,063,370 $ Net income available for distribution 27,267,891 $ 24,284,767 INCOME D i v i d e n d s paid P a y m e n t s to U.S. Treasury (as interest on Federal Reserve notes) 2,640,392,094 53,700,400 Transferred to s u r p l u s Total income distributed 19 2,331,628,353 $ 2,721,360,385 29,150,250 $ 2,385,063,370 DIRECTORS AND ADVISORY COUNCILS 1995 Board of Directors, Federal Reserve Bank of Chicago, from left to right: Robert Healey, Lester McKeever, Richard Cline, Stefan Anderson, Charlene Sullivan, David Fox, Donald Schneider, Arnold Schultz, and Thomas Dorr. Reserve Bank directors have a general governance responsibility BOARD for the management of operations, approving budgets, expenditures, and official appointments. In addition, directors provide advice OF DIRECTORS RESERVE BANK CHICAGO Lester H. McKeever, Jr. Managing Partner Washington, Pittman, & McKeever Chicago, Illinois CHAIRMAN and counsel to the Reserve Bank president on the state of the economy and financial system. Reserve Bank directors also determine, subject to review by the Board of Governors, the Bank's discount rate. The Chicago Reserve Bank and Detroit Branch directors are selected to represent a variety of interests and activities within the District and bring to their diverse duties a broad range of expertise and experience. The Federal Advisory Council, consisting of one representative from each District, meets quarterly with the Board of Governors to discuss economic conditions. The Chicago Reserve Bank's advisory councils on small business and o f FEDERAL agriculture provide a vital communication link between the Bank and these important economic sectors. Robert M. Healey Member Illinois Labor Relations Board Chicago, Illinois DEPUTY CHAIRMAN Richard G. Cline Chairman and Chief Executive Officer NICOR, Inc. Naperville, Illinois Stefan S. Anderson Chairman, President, and Chief Executive Officer First Merchants Corporation Muncie, Indiana Thomas C. Dorr President and Chief Executive Officer Dorr's Pine Grove Farm Company Marcus, Iowa David W. Fox Former Chairman and Chief Executive Officer The Northern Trust Corporation Chicago, Illinois 20 Donald J. Schneider President Schneider National, Inc. Green Bay, Wisconsin Arnold C. Schultz Chairman, President, and Chief Executive Officer The Grundy National Bank Grundy Center, Iowa A. Charlene Sullivan Associate Professor of Management Krannert Graduate School of Management Purdue University West Lafayette, Indiana 1995 Board of Directors, Detroit Branch, from left to right: John Forsyth, William Odom, Norman Rodgers, Florine Mark, Charles Weeks, J. Michael Moore, and Charles Allen. BOARD OF DETROIT DIRECTORS BRANCH CHAIRMAN John D. Forsyth Executive Director University of Michigan Hospitals Ann Arbor, Michigan Charles E. Allen President and Chief Executive Officer Graimark Realty Advisors, Inc. Detroit, Michigan FEDERAL Kam Washburn Elsie, Michigan Michigan Soybean Association ADVISORY COUNCIL REPRESENTATIVE Roger L. Fitzsimonds Chairman and Chief Executive Officer Firstar Corporation Milwaukee, Wisconsin ADVISORY ON Kaye Whitehead Muncie, Indiana Member-at-Large Patricia M. Yungclas Ellsworth, Iowa Women Involved in Farm Economics (WIFE) COUNCIL AGRICULTURE Reginald J. Clause Jefferson, Iowa Iowa Cattlemen's Association ADVISORY ON Florine Mark President and Chief Executive Officer The WW Group, Inc. Farmington Hills, Michigan J. Michael Moore Chairman and Chief Executive Officer Invetech Company Detroit, Michigan William E. Odom Chairman Ford Motor Credit Company, and Group Vice President Ford Motor Company Dearborn, Michigan Norman F. Rodgers President and Chief Executive Officer Hillsdale County National Bank Hillsdale, Michigan Charles R. Weeks Chairman, President, and Chief Executive Officer Citizens Banking Corporation Flint, Michigan SMALL COUNCIL BUSINESS George Crosby Greensburg, Indiana Milk Promotion Services of Indiana, Inc. Gary E. Baker Ann Arbor, Michigan Small Business Association of Michigan David DeLong Clinton, Wisconsin Wisconsin Fertilizer and Chemical Association James Bernstein Sioux City, Iowa Member-at-Large William D. Engelbrecht Henry, Illinois Illinois Beef Association Charles J. Garcia Carmel, Indiana Indiana Hispanic Chamber of Commerce Donald W. Gillings Bay City, Michigan Michigan Agri-Business Association Thomas Gearing Milwaukee, Wisconsin Independent Business Association of Wisconsin Tim L. Kapucian Keystone, Iowa Iowa Pork Producers Association Sue Ling Gin Chicago, Illinois Member-at-Large David W. Goodrich Indianapolis, Indiana National Federation of Independent Business/Indiana Gary Steiner Mondovi, Wisconsin Wisconsin Farm Bureau Federation Ray J. Green Jacksonville, Illinois National Automobile Dealers Association Richard Ward Crawfordsville, Indiana Indiana Pork Producers Association 21 Diana J. Hall Peoria, Illinois National Association of Women Business Owners (NAWBO) Central Illinois Chapter Linda M. Jolicoeur Farmington Hills, Michigan National Association of Women Business Owners (NAWBO) Greater Detroit Chapter Kendig K. Kneen Ottumwa, Iowa Iowa Association of Business and Industry Lucius Murray, Jr. Detroit, Michigan Booker T. Washington Business Association Gene Qualmann Oregon, Wisconsin Wisconsin Manufacturers and Commerce Eduardo Salse Northbrook, Illmois Latin American Chamber of Commerce R Eric Turner Gas City, Indiana Indiana Chamber of Commerce OFFICERS Federal Reserve Bank of Chicago Management Committee, from left to right: Charles Furbee, Richard Anstee, Carl Vander Wilt, George Coe, William Hunter, Nancy Goodman, Michael Moskow, William Conrad, David Allardice, William Gram, Franklin Dreyer, and Jerome John. Appointments to and promotions within the Federal Reserve Bank's official staff are made by the Bank's board of directors. The board Michael H. Moskow President William C. Conrad First Vice President appoints the Bank's president (chief executive officer) and first vice president (chief operating officer) to five-year terms, subject to approval by the Board of Governors. CENTRAL BANK ACTIVITIES ECONOMIC RESEARCH divided into nine functional areas, overseen by senior vice pres- William C. Hunter Senior Vice President and Director of Research idents who report to the Bank's president and first vice president. James T. Moser Senior Research Economist and Research Officer Paula R. Worthington Senior Research Economist and Research Officer REGIONAL ECONOMIC MONETARY POLICY A N D The primary activities of the Chicago Reserve Bank are FINANCIAL MARKETS RESEARCH An additional function, the Auditing Department, reports directly to the board of directors' Audit Committee. The Bank's senior officers together form the Management Committee and determine Elijah Brewer III Senior Economist and Assistant Vice President Douglas D. Evanoff Senior Economist and Assistant Vice President the Chicago Reserve Bank's strategic direction. Charles L. Evans Senior Economist and Assistant Vice President PROGRAMS Gary L. Benjamin Economic Advisor and Vice President Robert H. Schnorbus Senior Economist and Assistant Vice President William A. Testa Senior Economist and Assistant Vice President Philip R. Israilevich Senior Regional Economist and Research Officer STATISTICS Anne Marie L. Gonczy Senior Economist and Assistant Vice President Kenneth N. Kuttner Senior Economist and Assistant Vice President Daniel G. Sullivan Senior Economist and Assistant Vice President 22 Jean L. Valerius Vice President Loretta C. Ardaugh Statistical Reports Officer SUPERVISION A N D REGULATION L O A N S A N D RESERVES DETROIT BRANCH SUPPORT SERVICES AND LOANS Gerard J. Nick Vice President David R. Allardice Senior Vice President and Branch Manager Carl E. Vander Wilt Senior Vice President and Chief Financial Officer Yvonne H. Montgomery Vice President A C C O U N T I N G SERVICES Franklin D. Dreyer Senior Vice President REGULATION William J. O'Connor Assistant Vice President James A. Bluemle Vice President and Director of Regulation Robert A. Lyon Loans Officer David S. Epstein Vice President SERVICES Douglas J. Kasl Vice President CASH/FISCAL AND TO Valerie J. Van Meter Vice President DEPOSITORY Richard P. Bush Vice President M A N A G E M E N T SERVICES Brian D. Egan Assistant Vice President Margaret K. Koenigs Assistant Vice President Joseph R. O'Connor Assistant Vice President W H O L E S A L E SERVICES Glenn C. Hansen Vice President Patrick A. Garrean Assistant Vice President INSTITUTIONS Jeffrey B. Marcus Assistant Vice President SUPPORT SERVICES Sheryn E. Bormann Assistant Vice President Richard P. Anstee Senior Vice President Maureen A. Cummings Assistant Vice President William A. Bonifield Vice President F. Alan Wells Assistant Vice President William H. Lossie Jr. Assistant Vice President Jerome D. Nicolas Assistant Vice President Robert M. Marable Operations Officer James W. Nelson Assistant Vice President Lawrence J. Powaga Assistant Vice President Anne M. Phillips Assistant Vice Presideiit James M. Rudny Assistant Vice President AUTOMATION AND Ronald A. Rolighed Assistant Vice President Guadalupe Garcia Operations Officer George E. Coe Senior Vice President Philip G. Jackson Applications Officer INTERSTATE M A R K E T I N G A U T O M A T I O N SUPPORT Glen Brooks Vice President R. Steve Crain Assistant Vice President RETAIL SERVICES Brenda D. Ladipo Assistant Vice President Carl R. Quinn Examining Officer John A. Valenti Information Support Officer Kenneth R. Berg Assistant Vice President SUPPORT FUNCTIONS Charles W. Furbee Senior Vice President Frank S. McKenna Assistant Vice President C H E C K SERVICES Diane S. Noble Vice President David E. Ritter Assistant Vice President and Data Security Officer William A. Barouski Vice President Cynthia L. Rasche Operations Officer Karen L. Rosenberg Assistant Vice President Geoffrey C. Rosean Vice President Mary H. Sherburne Operations Officer A. Raymond Bacon Assistant Vice President REGIONAL OFFICES Robert A. Bechaz Assistant Vice President Kathleen E. Benson Assistant Vice President Michael R. Jarrell Assistant Vice President Gay Whiting Assistant Vice President Charles A. Jeffrey Examining Officer Jeffrey A. Jensen Examining Officer Jean T. Parulski Examining Officer Tyler K. Smith Operations Officer C O M M U N I C A T I O N S SERVICES SUPERVISION Barbara D. Benson Vice President and Director of Supervision Wayne R. Baxter Vice President H U M A N RESOURCE SERVICES Thomas G. Ciesielski Vice President Richard F. Opalinski Assistant Vice President Angela D. Robinson Assistant Vice President Jeffrey S. Anderson Personnel Officer O F F I C E OF THE GENERAL AUDITOR Jerome F. John General Auditor Robert M. Casey Assistant General Auditor E L E C T R O N I C A C C E S S SUPPORT Anthony J. Tempelman Assistant Vice President David R. Starin Vice President COMMUNITY AND Joseph B. Green Audit Officer O F F I C E OF THE GENERAL COUNSEL I N F O R M A T I O N SERVICES Des Moines Office L. Edward Ketchmark Assistant Vice President Nancy M. Goodman Senior Vice President CONSUMER AND Indianapolis Office Donna M. Yates Assistant Vice President William H. Gram Senior Vice President, General Counsel and Secretary L E G A L SERVICES C O M M U N I T Y AFFAIRS Alicia Williams Vice President Milwaukee Office Angelina S. Chin Assistant Vice President John L. Bergstrom Assistant Vice President RETAIL SERVICES G E N E R A L SERVICES Stephen M. Pill Vice President Kristi L. Zimmermann Assistant Vice President Kathleen H. Williams Assistant Vice President PUBLIC AFFAIRS James R. Holland Public Affairs Officer 23 Elizabeth A. Knospe Assistant Vice President and Assistant General Counsel Yurii Skorin Assistant Vice President and Assistant General Counsel Anna M. Voytovich Assistant Vice President and Assistant General Counsel EXECUTIVE Members of the Federal Reserve Bank of Chicago's board of directors are selected to represent a cross section of the Seventh District economy, including consumers, industry, agriculture, the service sector, labor, and commercial banks of various sizes. The nine-member board includes three bankers and three nonbankers, all elected by member banks. Three additional nonbankers are appointed by the Board of Governors, which also designates the Reserve Bank chairman and deputy chairman from among its three appointees. DIRECTORS The Board of Governors also selects three nonbankers to serve on the seven-member board of the Bank's Detroit Branch. Four additional directors are selected by the Chicago Reserve Bank board. The Branch board selects its own chairman each year. All Reserve Bank and Branch directors serve three-year terms, with a two-term maximum. Director appointments and elections at the Chicago Reserve Bank and its Detroit Branch effective in 1995 were: • Robert M. Healey designated Chairman. • Richard G. Cline designated Deputy Chairman. • Lester H. McKeever, Jr. appointed to three-year term as director, replacing Duane Burnham. • Thomas C. Dorr and Stefan S. Anderson elected to second three-year terms as directors. • John D. Forsyth designated Branch Chairman. At year-end 1995 the following appointments and elections to terms beginning in 1996 were announced: • Robert M. Healey redesignated Chairman. • Lester H. McKeever, Jr. designated Deputy Chairman. • Arthur C. Martinez, Chairman and Chief Executive Officer of Sears, Roebuck and Co., appointed to a three-year term as a director, replacing Richard Cline. • John D. Forsyth redesignated Branch Chairman. • Richard M. Bell, president of the First National Bank of Three Rivers in Three Rivers, Michigan, and Stephen R. Polk, chairman and chief executive officer of R. L. Polk & Co., Detroit, Michigan, appointed to three-year terms as Branch directors, replacing Norman F. Rodgers and J. Michael Moore. 24 CHANGES The Federal Advisory Council, which meets quarterly to discuss business and financial conditions with the Board of Governors in Washington, D.C., is comprised of one member from each of the 12 Federal Reserve Districts. Each year the Chicago Reserve Bank's board of directors selects a representative to this group. Roger L. Fitzsimonds served as the Seventh District's representative in 1995 and was re-appointed to a second one-year term for 1996. ADVISORY C O U N C I L S Members of the Bank's two advisory councils, who are selected from nominations by Seventh District small business and agricultural organizations, served the second year of their terms in 1995. The councils provide a vital communication link between the Bank and these important sectors. Two new members, Sue Ling Gin and Eduardo Salse, were appointed to the Advisory Council on Small Business for 1995. O F F I C E R S The Bank's board of directors acted on the following promotions during 1995: • David R. Allardice, to Senior Vice President and Branch Manager, Detroit Branch. • Alicia Williams, to Vice President, Community and Information Services. • Brian D. Egan, to Assistant Vice President, Detroit Branch. New officers appointed by the board in 1995 were: • William C. Hunter, to Senior Vice President and Director of Research. • Elijah Brewer III, to Senior Economist and Assistant Vice President, Economic Research. • James W. Nelson, to Assistant Vice President, Supervision and Regulation. • Joseph B. Green, to Audit Officer, Auditing. • James R. Holland, to Public Affairs Officer, Community and Information Services. • Cynthia L Rasche, to Auditing Officer, Auditing. Roby L. Sloan, Senior Vice President and Branch Manager, retired after 33 years of service to the Bank, including 11 years as manager of the Detroit Branch. Joan M. DeRycke, Assistant Vice President and Assistant Secretary, retired after 21 years of service to the Bank, including 12 years in the Office of the Bank Secretariat. HEAD OFFICE 230 South LaSalle Street P.O. Box 834 Chicago, Illinois 60690-0834 312-322-5322 DETROIT BRANCH 160 West Fort Street P.O. Box 1059 Detroit, Michigan 48231-1059 313-961-6880 616 Tenth Street P.O. Box 1903 Des Moines, Iowa 50306-1903 515-284-8800 INDIANAPOLIS OFFICE 8311 North Perimeter Road P.O. Box 2020 B Indianapolis, Indiana 46206-2020 317-244-1744 MILWAUKEE OFFICE 304 East State Street P.O. Box 361 Milwaukee, Wisconsin 53201-0361 414-276-2323 PEORIA OFFICE 6100 West Dirksen Parkway P.O. Box 4318 Peoria, Illinois 61607-0318 309-633-5000 For additional copies of this report, contact the Public Information Center, Federal Reserve Bank of Chicago, at 312-322-5111 or access the Bank's Internet home page at http://www.frbchi.org. FEDERAL RESERVE BANK OF CHICAGO