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Table of Contents From the Boardroom Exploring the Twelfth District 12th District Reorganization Organization Chart Spotlight on the Pacific Northwest Highlights of [991 Directors 2 4 18 20 23 26 32 The Federal Reserve Bank of San Francisco is one of twelve regional Reserve Banks which, together with the Board of Governors in Washington, D.C., comprise the nation's central bank. As the nation's central bank, the Federal Reserve is responsible for making and carrying out our nation 's monetary policy. It also is a bank regulatory agency, a provider of wholesale priced banking services , and the fiscal agent for the United States Treasury. The Federal Reserve Bank of San Francisco serves the Twelfth Federal Reserve District, which includes the nine western states - Alaska, Arizona, California, Hawaii, Idaho, Nevada, Oregon, Utah and Washington - Guam, American Samoa, and the Northern Mariana Islands. To serve this expansive region , the San Francisco Reserve Bank has five offices: the headquarters in San Francisco , and offices in Los Angeles, Portland, Salt Lake City, and Seattle. Each office provides financial services to the public and banking institutions in its locale. From the Boardroom From left, Robert F. Erburu, Chairman (1991), James A. Vohs, Chairman (1992), and Robert T. Parry, President. This past year saw significant challenges for the Twelfth District economy and western banking. Along with the rest of the nation, our attention turned to the prospects for recovery from the national recession. Spanning nine western states, our District is the largest geographically within the Federal Reserve System, and possesses an unusually diverse economy. In this Report, we explore the patterns of diversity that have shaped the western regional economies from their early settlement in the 1800s to the present. We also look at how this diversity was reflected in the economic perfor mance of the region during the past year. As part of our regional profile, this Report spotlights the Pacific Northwest through observations by Angelo S. Carella, former senior vice president-in-charge of our Portland Branch, who retired in September 1991 after 35 years of service, and Gerald R. Kelly, senior vice president-in-charge of our Seattle Branch, who will retire during 1992 after 39 years of service. Kelly and Carella comment on some of the transitions taking place in the Pacific Northwest, from the changing role of the branch offices to the impact of the consolidation trend on banking. In the dynamic economic and regulatory environment in which we operate, it is imperative that we strive to anticipate and meet the needs of our Twelfth District constituencies. This Report reviews the Bank's performance during the past year in achieving its fundamental objectives. 2 The wholesale banking arena is shaped by rapidly changing technological innovation. To meet the challenges presented by this dynamic environment, we are guided by our well-established commitment to enhance the quality and efficiency of the payments system to benefit all market segments of the financial community and its public. The supervision and regulation of bank holding companies and state-chartered member banks is another vital area of responsibility for the Bank. The recent passage of banking reform legislation calling for a stricter regulatory environment, along with the trend toward bank consolidation, make this a very active arena. Our goals in this area continue to be to maintain a safe and sound banking system, and to monitor compliance with community development and reinvestment legislation. This Report also highlights key elements of change within our District organizational structure which took effect on January 1, 1992. The reorganization is part of our ongoing commitment to meet the divergent needs of the District. In meeting the challenges of 1991, management was helped by the invaluable guidance of the Bank's Boards of Directors at our headquarters office and each of our four branches. Their inde pendent assessments of economic and financial conditions throughout the nine western states provided instrumental support in the formulation of monetary policy, and their expert counsel guided us in major management decisions. We especially appreciate the contributions of Robert F. Erburu (Chairman of the Board and CEO, The Times Mirror Company, Los Angeles, CA) who stepped down as Chairman of the San Fran cisco Head Office Board at the end of last year after four years of service in this role. His great gifts of leadership and astute expertise provided instrumental guidance to the Bank's manage ment, to its five boards of directors, and to the Board of Governors. We are grateful that Mr. Erburu will continue to lend his invaluable skills to the Bank as Deputy Chairman of the Board in 1992. We also extend our heartfelt thanks to those individuals who completed their terms of service during 1991: on the San Francisco Head Office Board, Deputy Chairman, Carolyn S. Chambers (President and CEO, Chambers Communications Corp., Eugene, OR); on the Los Angeles Branch Board, David R. Lovejoy (Former Vice Chairman, Security Pacific Corporation, Los Angeles, CA) and Harry W. Todd (Managing Partner, Carlisle Enterprises, L.P., La Jolla, CA); on the Salt Lake City Branch Board, Chairman, D.N. Rose (President and CEO, Mountain Fuel Supply Company, Salt Lake City, DT) and Gerald R. Christensen (President and Chairman, First Federal Savings Bank, Salt Lake City, DT); on the Seattle Branch Board, Bruce R. Kennedy (Former Chairman, Alaska AirGroup, Seattle, WA); and, on the Federal Advisory Council, Paul Hazen (President and COO, Wells Fargo Bank, N.A. and Wells Fargo & Co., San Francisco, CA). I1_U~~T7 James A. Vohs Chairman Robert T. Parry President 3 Exploring the Twelfth District - Northern California, Hawaii A wealth of natural resources provided the common source of early development for both Northern California and Hawaii. The gold rush of 1849 sparked Northern California's economic development and turned San Francisco into a major port and financial center. While the lure of gold drew thousands of prospectors to the Sierras, the fertile Central Valley provided a home for many farming and ranching immigrants. The region's growing wealth provided the ready capital necessary for its rapid expansion. The harvesting of Hawaii's vast sugarcane fields and the development of the plantation system by European settlers during the early 1800s signaled the beginning of the Islands' agricultural development. Hawaii's population boomed with the influx of Asian immigrants imported to work the sugar plantations. Trade flourished as merchant shippers took advantage of Hawaii's strategic position in the center of the Pacific to build strong market ties with the United States, particularly California 's booming gold rush economy. Northern California Technological leadership has characterized Northern California's rapid growth since the turn of the century. This was evident in the engineering genius which created the intricate network of canals, darns, reservoirs, and aqueducts to bring the water supplies of the Sierra Nevada and the Colorado River to California's arid valleys and urban centers. The invention of the refrigerated railroad car and agricultural specialization entwined to propel the Central Valle y into its position as a world- class producer of fru its, vegetables, and nuts. Since the Franciscan monks' first attempts to ferment Sonoma Valley grapes into wine, the inland valleys of Sonoma, 4 Clumbus o O iscouers Rmerica 1492 Uasco de Gama Sails Rround , [apeo oodHope Colum s fG bus fourth ~ oyaqe 196 4 1500 Napa, and Mendocino counties have become world renowned for their premier wines. Northern California's Silicon Valley launched the modern computer industry and remains a leading center of the world's high tech industries, serving as headquarters for such innovators as Apple and Hewlett Packard. San Francisco remains an important financial center, serving as the headquarters for most of the major western banks, and the Pacific Coast Stock Exchange, in addition to being a major center for venture capital. B alboa Reaches Pacific Spanish S eltle West Indies 104 5 108 5 11 52 Horses [ Uittoria rIes Inro d d S ' b 'ld' ['Ircumaulqa Ies t uce h o n' Rmerica Ip UI mq ihe Globe West [oasl 11 56 During 1991, Northern California felt the impact of the national recession, though less severely than Southern California. While Northern California accounts for 25 percent of California's total employment, only about 10 percent of the jobs lost in the state since July 1990 have been in the northern part of the state. The manufacturing industries of Silicon Valley, a source of major economic growth in recent years, were the hardest hit sector of the region. Unemployment in Santa Clara County rose from 4.5 percent to 5.6 percent between September 1990 and 1991, reflecting a 5.5 percent job loss in the elec tronic components industry. Cutbacks in the high-tech area also have influenced other sectors of Silicon Valley, with service r employment rising only slightly and finance em ployment experiencing a 1.5 percent decline. During the past year, growth in the San Francisco Bay Area also suffered from consolidations in the finance industry, where employment fell somewhat below the past year's level. California state budget shortfalls also have led to cutbacks in public sector employment. During 1991, unemployment rates in Central [512 Northern California's outlook is mixed . The region's economy has weakened along with the rest of the nation during the recession. Defense cutbacks, declines in high-tech employment, and the Central Valley's agricultural problems have compounded the region's weak performance. Although economic conditions in Northern California should improve as the national picture brightens, future growth rates are likely to be less than the high levels experienced during the past decade. High costs and an increasingly inadequate infrastructure are likely to weaken growth prospects in the San Francisco Bay Area, while the Sacramento Cabrillo Spani sh oiscouers Cross SnDie o a g Rrizona Baja California D iscouered 8 152 Valley towns remained among the highest in the District as lower crop production added to the usually higher unemployment rates found in agricultural communities. Significant damage to citrus crops resulting from the severe freeze of December 1990, along with the fifth successive year of drought conditions, contributed to lower production levels during the year. Unemployment in Fresno reached 11.1 percent during September 1991 compared to 10.7 percent in September 1990. 151 6 [~ O 1~4 1~8 1552 1556 1560 [56j 5 area faces persistent state budget problems. The region should continue to benefit from its relatively strong population growth. The availability of relatively low-priced land and the Islands' economy. The Islands' growing defense industry also pulled labor away from the consortium's influence. housing costs in the inland areas will most likely promote faster growth to these areas. Today, Hawaii's primary dependence upon sugar and pineapple has diminished with the rapid growth of the tourist industry. Hawaii's strategic location between Asia and the Ll.S. mainland has made it a prominent destination for Asian and U.S. mainland visitors. Additionally, Japan's rapid income gains during the 1980s have spilled over to Hawaii's economy in the 1990s bringing sharp increases in Japanese investment and tourism to the Islands. Hawaii By the opening of the 20th century, the face of Hawaii had changed forever. The Islands' native culture was largely overshadowed by early Western settlement influences. Penal labor contracts were declared illegal, although the plantations continued to recruit cheap labor from around the During 1991, Hawaii's economy felt the impact of world. Jim Dole introduced commercialized pineapple production to the Islands' economy, and a the Gulf War as Japanese tourist activity fell with the war's onset. Despite this setback, overall mammoth campaign was launched to sell the luxury fruit to the world. Economically and politically, the Islands were employment increased 1.4 percent during the year, led by a 3.2 percent rise in service sector jobs. Moreover, recent reports indicate that conditions have returned to normal with the renewal of Japanese tourist traffic. The region's economic strength is reflected in Hawaii's home prices, which remain the highest in the nation. The median home price in Honolulu stands at $345,000. dominated by a consortium of five corporations that exerted a powerful influence over every aspect of Hawaiian commerce from banking to retail merchandising. Statehood in 1959 shifted economic power away from the rule of the five corporations as outside capital investment began to infiltrate Manila Galleon Route [slablished 6 1564 ~udson's ~ay Company Chartered ]56 8 DraKe's landinq 1572 1576 1580 [speJo [Hplores [nqland Defeats ~rilOlla ~rmada 1584 [58 8 Jesuits UndertaKe Missions Monterey ~ay D iscouered [59 2 1596 [600 Hawaii's outlook is fundamentally positive, but the state faces unique challenges. Agriculture will playa less important role in Hawaii's future economy as the tourist industry continues to expand. With Hawaii's unemployment rate sta ying well under 3 percent ever since the second quarter of 1990, inadequate supplies of labor, coupled with high land costs, are likely to constrain Hawaii's future pace of growth. -Southern California, Arizona The rush for gold which drew thousands of prospectors to Northern California in 1849 provided the impetus for Southern California's development. The race to build a transcontinental railroad and market connections to the rapidly growing northern part of the state set off the first of Southern California's many population booms. Arizona remained thinly settled until the discovery of the state's rich copper deposits in the late 1800s lured mining interests anxious to cash in on the mineral wealth. Southern California The opening of the 20th century launched Southern California toward the industrial age. The development of a complex water transportation system, engineered to divert wa ter from Northern California and the Colorado River to the arid valleys and growing metropolis, assured the region's growth. Southern California grew rapidly with the discovery of oil in Los Angeles, Long Beach, and Kern county. Agricultural specialization, which tailored crops to suit climate and market demand, propelled the Imperial Valley toward its position today as a leading producer of citrus and vegetable crops. Additionally, sunny weather and rising wealth combined to attract the motion picture industry and make Southern California the moviemaking and television center of the world. Ucaino iz fHplores C rado olo California Coast Bluer Delta Jamestown Dlscouered founded 1600 1608 Today, sprawling Southern California is an empire unto itself with its vast cultural, ethnic, and economic diversity. Southern California also remains a center of activity for the entertainment, aerospace, electronics, and research-intensive industries. The region has become an impressive melting pot with its wide composition of ethnic groups hailing from virtually every corner of the world. Southern California continues to have much faster population growth than the rest of the nation. During the 1980s, Southern California's population grew 19 percent, double the national average. Within the last decade, Southern California employment has grown even faster - by 32 percent. Los Angeles alone has added 700,000 new jobs during the past ten years. ro 'f ' first Heq n l ' ClI ornJa ~laues In ri qnms a Declared ~merica land at ~n Island Plymouth 1612 1616 1620 ~rizona Missions fstabli shed During 1991, th e national recession hit Southern California harder than any other area in the Twelfth District. This reflects, in part, the unwinding of some of the forces that propelled Southern California's rapid growth during the previous years. As of September, Southern California (Anaheim, Los Angeles-Long Beach, Oxnard-Ventura, Riverside-Santa Barbara, San Diego) recorded 77,000 jobs lost since the onset of the recession in July 1990. Defense-related manufacturing has been particularly hard hit. Cutbacks in defense sp ending have led to significant reductions in aerospace employment, with 15,000 jobs lost during the past year. Recessionrelated cutbacks in the -e. electronic components industry accounted for another 2,000 job losses. c Construction and real estate activity also have dropped significantly, particularly in the nonresidential sector. In part, this reflects the overbuilding tha t occurred during the previous years' boom period in anticipation of further employment growth. The office vacancy rate in downtown Los Angeles is approaching a relatively high 25 percent. t"" ~ . While Southern California will likely recover when the rest of the nation does, constraints 8 Haruard Russian [allege Hunters sia founded irauerse A 16J6 164 0 due to environmental regulation, congested transportation networks, and water restrictions make growth at the boom rates of the previous decade unlikely. Continued population growth and the growing importance of trade with Mexico and the Pacific Rim nations, however, bode well for the region's continued economic vitality. Arizona World War II and the invention of air conditioning helped transform Arizona into an industrial economy. The harnessing and diverting of the rivers of central Arizona to arid valley lands and cities , II which had occurred in the early part of the century, set the stage for the region's rapid growth. The state's desert landscape and temperate winters drew aerospace, defense, and manufacturing industries to support the war efforts. Over the past decade, Arizona's economy has continued to grow and diversify. This diverse economic make-up includ es not only mining, particularly copper, agriculture and manufacturing, but also a rapidly growing tourist industry. The state's sunny skies and temperate winters continue to attract new immigrants, including many retirees. S Oelnmer Sai ls B elween B S ering traignl 14 68 16 60 16 68 Nonresidential construction remains weak, with the value of awards down 18 percent from the level of a year earlier. During th e 1980s, Arizona's population rose by 30 percent. Even while suffering a real estate slump during the latter part of this period, Ar izona still managed to add almost 500,000 jobs, primarily in the service sectors. Arizona manufacturing activity slowed during 1991, w ith employment falling 3.3 percent in September fro m the level of a year earlier. Defense contractors, inclu din g Hughes Aircraft, reduced employment, and IBM closed a major plant in Tucs on. During 1991, Arizona pe rformed better than the nation during the national recession. Arizona's employment grew 1.5 percent through September 1991, fueled largely by the continued expansion of services, which were up 4 percent from the year earlier. Over the longer term, Arizona's po pulation is expected to grow at rates above the national average. The continued Construction activity weakened further in 1991, with the number of construction jobs falling 4.8 percent in September 1991 from the level of a year earlier. Declines in construction activity reflect overbuilt markets that have existed for the past several years. development of retirement commu nities is expected, and the region hopes to benefit from expanded trad e with Mexico. The state also has been actively cou rting Southern California businesses, hoping th at Arizo na ' s relatively low land costs will attract firms to the state. -Oregon, Washingto n, Alaska The promise of free land and tales of fortune intertwined to spark the early development of Oregon, Washington, and Alaska. Lured by the promise of free acreage, thousands of settlers migrated westward between 1840 and 1860 along the Oregon Trail to fa rm Oregon's productive Willa mette Va lley and to harvest the abundant timber resources of Washington's Puget Sound region. Alaska's isolated wilderness remained largely unsettled, except for fur traders, until 1896 when tales of vast gold strikes in the Klondike drew thousands of stampeders seeking their fortunes. California's gold rush economy, with its expansive demand for timber and food supplies, provided a ready market for the commercial agriculture and timber products of both Oregon and Washington. Portland emerged as a major shipping center, building strong links with the neighboring Golden State. Seattle also grew rapidly during this period, serving as the chief outfitting station and jumping-off point for prospectors bound for Alaska. Peter . Ihe Greal franclscans Leads Russia Rnd Jesuits In Rmona Jamestown lax Uprising 1680 1688 . California San~auler fstablished Rmona Rs Mainland MISS ion 1)00 g 1)08 Ore on diverse crops, including flowers and nursery products, grass seed, noncitrus fruits, and a variety of field crops. Eastern Oregon is the home of the state's wheat production and cattle industry. By the opening of the 20th century, Oregon was poised for rapid growth. Timber and developing forest-related industries dominated the state's growing economy. Railroad transportation ties, which had been consolidated during the late 1880s, linked the state to markets in the eastern states and to San Francisco in the West. The tapping of the Columbia River for irrigation paved the way for the large-scale production of Oregon's diverse agricultural crops. During 1991, Oregon felt the impact of the .national recession, although later than the rest of the country and with less force. After averaging 3 percent growth from 1988 to 1990, Oregon's employment rose only 1.4 percent between September of 1990 and 1991. In recent years, Oregon's economic dependence upon agriculture and timber has diminished. Although forestry and agriculture are still integral components of the state's economy, tourist-related businesses and high-tech industries have seen faster growth recently. Environmental pressures have sharply curtailed logging activity, speeding the process of diversification away from the dominance of the timber industry. Low production costs have combined with the region's pristine beauty and high quality of life to stimulate rapid population growth and attract new businesses. Problems in Oregon's wood products industries contributed to the state's overall weaker numbers. During the past four years, Oregon's employment in lumber and wood products has fallen steadily, with 4,500 jobs lost since 1987. Restrictions on the logging of public lands due to environmental concerns, such as the spotted owl debate, have reduced the availability of federal timber. Small mills, which historically have depended on public lands as a primary source of raw materials, have faced rising log prices. At the same time, the slump in national construction activity has curtailed the demand for wood products. Today Oregon remains a leading supplier of wood products and a major beneficiary of growing international trade, especially the exporting of lumber products to Japan and the rest of the Pacific Basin. The Willamette Valley boasts a highly productive source of A combination of poor weather conditions and weakening demand for some products also led to a disappointing year for the state's agricultural industry in 1991. Drought conditions affected some parts of the region, while the December 1990 freeze damaged Rs ans u si . Begin [hina . fur Trade UllusBermg Cros sesStraight British Monopolize Su la eTrade 1)12 16 )1 1)20 1)24 1)28 Rus ans si Trade With Rus sians Japa n L in and R ska la I)ll 1))6 1)40 1)44 fruit trees. Wheat and onion crops were off sharply from the levels of a year earlier. Potato production remained strong, but prices were down significantly from the record level of a year earlier. The more recent growth sectors of the region were also affected by the recession. Electronics employment, which had shown rapid growth since 1987, slowed to a 1.3 percent annualized growth rate in the first three quarters of 1991. Non-lumber manufacturing employment in September 1991 dropped 1.4 percent from that of the previous year. During 1991, services continued to provide the bulk of Oregon's new jobs. In September, service employment rose 3.2 percent from the previous year. The finance, insurance! and real estate ind ustries also registered strong employment gains of nearly 4.6 percent over the period. Construction activity growth slowed in 1991 for both residential and commercial building. Although construction employment rose by 2.7 percent between September 1990 and 1991! this growth is well below the double digit increases seen in 1990. Russians ,~enjamin franKlin C RlasKan Spanish O ollect iscouers Tributes PreSidio flectricity Rrizona 1744 1752 1,6 7 Overall, Oregon's economy outperformed the rest of the nation during the past year and is likely to continue to do so. The region's long-term trend away from its economic dependence on agricultural and forest products industries continues to provide Oregon with a more diverse economic base. Washington Since the turn of the century, Was hington has emerged as a major industria l power. In 1916, Washington's fu ture economy was unmistakably altered when William Boeing chose to take advantage of the region's abundant timber supplies to begin his fledgling aircr aft manufacturing business. The state's economy has evolved from one based largely on agriculture! logging, and fishing to on e driven by aerospace, manufacturing! and shipping. Access to the Columbia River's inexpensive source of hydroelectric power has made Washington a leading producer of aluminum. Eastern Washington's economy remains largely agricultural, producing such staples as wheat! potatoes! and barley. Recent industrial expansion in the Spokane area! Manila G n alleo Ru fnds o te 1760 , CooK Jesuit . Ju P an erez Sijht los 1 fHpulsio San franCISC fHplores Oeclaration ofH s Rnneles n O ~ ' dW h'mij Ion Independence auan founded B 0 Hew Spain ay Iscouere as ~ ~ ~ ~ 1 1 fueled by low land and labor costs, has enhanced Spokane's role as a center of economic activity in eastern Washington. in manufacturing employment between September 1990 and 1991. The Puget Sound region has experienced some of the greatest growth in the state fueled by Boeing's dominance as a world leader in commercial aircraft production and the establishment of major computer-related industries. Today, shipping remains as integral to Washington's economy as it was to the earliest pioneers who sent their first shipment of timber pilings to San Francisco from Elliot Bay. Seattle and Tacoma have emerged as two of the most important seaports in the world with both cities doubling their trade volume since 1980. During 1991, Washington's economy slowed in response to the national recession and a leveling off of the past decade's rapid growth in the aerospace industry. After growing at an average rate of 4.7 percent between 1985 and 1990, Washington employment rose less than one percent between September 1990 and 1991. Although Boeing's success in the last ten years led to a 44 percent increase in Washington's aerospace employment, during 1991, aerospace employment flattened out as Boeing reached its target production levels for commercial aircraft, and as defense cutbacks hurt Boeing's defense production. No growth at Boeing, coupled with weaknesses in the aluminum and forest product markets, led to a 2.2 percent decline 12 1 )82 1 )86 1)90 The Wa shington outlook remains bright, although growth is expected to rem ain well below the high level seen two years ago. Boeing has planned a multibillion dollar expansion over th e next several years, which may spill over into the lower-cost Spokane area. Although costs have risen in th e Seattle region and congestion has increased dramatically, th e state remains an attractive destination for new businesses and migrants. Alaska Alaska's sprawling wilderness was just starting to be tamed during the first few decades of the 20th century. The state remained largely a frontier economy until World War II. The construction of military . Russian Sitka A storia. . . S painGiues USSi R an louisiana Sugar louisiana leWIS hades ~Iitn Spokane ~regon RUSSians merICan fo france [ane In Purcnase A S nd anfrancisco House S ettled Setlle A [ompany Hawaii [lark fstablisn ed fo R rt oss Puget Su o nd. [olum Ri u bia er Oiscouered heaty Russians [onstitutional nu lio or P Settle In [o en n aris Alaska Slower growth in the state also has cooled the housing market fro m its previous frenetic activity. Between 1989 and 1990, the median home price in Seattle soared 23 percent with sales activity skyrocketing. Boeing's rapid growth combined with an influx of immigrants from other parts of th e country acted to bid up Seattle housing prices. N ew supplies could not keep up with the rapid population growth. In contrast, during 1991, the median home price dropped by 3 percent, sales activity slowed, and construction employment declined by 4.4 percent. 1 )94 1)98 1802 1806 1810 14 81 Hawaii hades WlIn [nin a 1 818 airfields and installations during the war and the concomitant building of an extensive road transportation network set the stage for the later commercial development of the state. Alaska's economy was finally thrust into the modern era in 1968 with the discovery of vast quantities of oil in Prudhoe Bay and the engineering of the expansive infrastructure needed to ship oil to the rest of the country. Over 80 percent of Alaska's state government revenues come from taxes on the oil industry. With this heavy dependence upon oil, Alaska's economy has yet to recover fully from a severe recession following the 1986 oil price collapse. Only within the past two years has employment in the state risen above its 1986 level. Ironically, some of this rise is due to the cleanup of the oil spill in Prince William Sound. Alaska's present-day economy remains heavily dependent upon its natural resource base, with oil, mining, forestry, and fisheries providing important sources of employment and income. Transportation, including the oil pipeline, also remains a primary source of employment in the state. Although Alaska is the largest state in the country, encompassing 571,000 square miles and nearly 16 percent of the entire geographical area of the United States, its population density is among the lowest. Alaska contains only 0.2 percent of the total national population, and 42 percent of the state's population lives in Anchorage. This low population density reflects the rugged topography and climate of the region. Extreme cold has made development During 1991, Alaska experienced slower growth with only a slight gain in overall employment during the 12 months ending in September. However, the sharp rise in oil prices during the Gulf War did provide temporary relief to Alaska's economy, as government oil revenues rose by more than $200 million. Alaska also suffered a 2.2 percent reduction in manufacturing employment during 1991. Additionally, mining activity dropped during the year because of falling metal prices and restrictions on new drilling opportunities in the oil fields , including the Alaska National Wildlife Refuge, which remains off-limits to drilling. costs very high for most businesses. Jedediah S ith m . fremont C alifornia .. California WillametleWashington Oregon fxplores Gold H awaiian S tateof Mis sionarie s . Monroe ReachesOregon AmeTICan fur e laTIZa euadaM Ol scoue d Land California eXican re In H awaii MeXican Doctrine Uia California Company fnters Scu tlO nAutonomous Ualley Immigrants frail H Independence Intermountain of MIS Sions Sttle e d Opens War P Tluallzed 1 818 1 811 ~ ~ ~ ~ ~ ~ ~ Alaska's construction activity has remained relatively weak since the 1986 oil price collapse triggered a downturn in the state's economy that led to an overbuilt housing stock. Although recently the stock of vacant housing has fallen sufficiently to encourage some new construction, construction employment was down about 1 percent in September from the level of a year earlier. The outlook for the region is relatively brigh t. Tourism has emerged as a major growth industry. Alaska will remain an important oil producer for quite some time, although production has begun to decline. The state's other natural resources, particularly its wild and scenic topography, have only begun to be tapped. -Utah, Idaho, Nevada Religious faith and the pursuit of fortune fueled the economic development of Utah, Idaho, and Nevada. In 1846, Brigham Young led the Mormons west to Utah entering the Salt Lake Valley on July 24, 1847. Young quickly organized his followers to colonize the arid valley and to establish the self-sufficient farming communities that pioneered Utah's agricultural industry. Young's vision spread to Nevada and Idaho in 1855 when he dispatched missionaries to establish colonies in the two states. Although the Mormon settlement at Las Vegas Springs proved to be only temporary due to the harsh climate, their early attempts at farming and ranching paved the way for later settlement and the development of Nevada's livestock industry. The colonists successfully established permanent farming settlements in southern Idaho, and their agrarian efforts, especially the introduction of irrigation, opened the way for the development of Idaho agriculture. Idaho and Nevada remained largely unsettled until 1860, when gold was discovered in northern Idaho and abundant silver deposits were struck at Nevada's famous Comstock Lode. The discoveries opened both states to a rapid influx of prospectors along with other migrants anxious to take advantage of the instant markets created by the boomtowns. 14 Mormans [nter Central Rlaska California Gold Hortnern . .. Rnglo Idano. Slale of . . Pacific Purcnased . StocK HiHawaii . Discouered Idano Pacific $200 MillIOn Slate of Settlement Heuada Comstock Oregon CI ull Rai lroad Stale of$7.200.ODD lransconlmentalfxcnange Go ld Sugar 1 S Rt Juneau lead ~ Siluer Railroad lR Real [state Wasninglon realy lluer Rmona lode War Heuada RaIlroad Rmona Rmona Slampede Sales ~ 7 ~ . ~ ~ ~ ~ ~ . ~ Utah The coming of the transcontinental railroad and Utah's statehood were major turning points for Utah's economy. The introduction of the railroad encouraged an influx of non Mormon businesses and settlements, ending the Mormons' physical isolation. With cheap transportation close at hand, Utah's mining industry took off. Merchandising, along with . commercial agriculture and livestock, developed with the opening of new markets. With admission into the Union in 1896, Utah moved further toward the nation's political and economic mainstream. Since the opening of the 20th century, Utah's economy has diversified beyond its early economic base of agriculture, mining, livestock and dairy farming, to include manufacturing, tourism, and services. The state has become a center for credit card processing, telemarketing, airline reservations, and software companies. Tourism has become an increasingly important industry in the state as skiers have discovered the excellent powder conditions at resorts such as Snowbird and Park City. Utah's economy also has benefited from growth in the defense industry. ~pal i sn ~mer ican War Utah has enjoyed some of the fastest employment growth in the country over the last several years. Low land and housing costs, along with an industrious, well educated population, have stimulated Utah's growth. During 1991, Utah was largely spared the impact of the national recession, registering a 3 percent rate of growth in employment over the previous year's September level. While manufacturing employment fell, employment in the construction sector rose 8.5 percent above that of a year earlier. Additionally, employment in service industries grew by 4.7 percent. Utah's employment growth in both the construction and service industries remained well above national averages. Employment in finance, insurance and real estate also strengthened, reporting a 5.2 percent increase over the twelve months ending in September. During the second quarter of 1991, the median home price in Salt Lake City climbed 8 percent from the previous year's level and continued gains are expected. After experiencing sharp declines in home prices and relatively little sales activity during the middle of the 1980s, Utah is experiencing a 40.1:11:10 Japanese ~i~~~~ California's ~tate of ~la skan World R~alt ~lt~l~e cO~~~:1° r~~l~~~~I~n leaue Hawaii Industfll first L~. first ~ank ~mona los ~nqele s Railroad War 1 lUer reattle nl·l Productl·on for California ~ HOUle ~tudlo Statute Aqueduct Project J Compact U 1 9°2 1910 surge of population growth which has created a growing demand for new housing. Utah's future remains relatively bright. The region is gaining national prominence as a vacation destination. Additionally, the state's well-educated and disciplined labor force makes Utah attractive to businesses. Idaho The coming of railroads in the late 1800s and early part of the 20th century propelled Idaho's frontier economy toward the modern age. The railroads opened transportation and communication links within the state and with the rest of the nation. The availability of reliable freight transportation and access to wider markets enabled large scale mining, timber, and agricultural production. The harnessing and diversion of the Snake River during the early part of the 20th century was key to promoting agricultural prosperity in southern Idaho and to providing an inexpensive source of hydroelectric power to spur industrializa tion. Today, Idaho's economy has diversified beyond its agricultural and timber base. The state has enjoyed some of the fastest employment growth in the nation during the last several years. 16 During 1991, Idaho's economy performed well relative to other parts of the nation. Idaho employment grew 2 percent between September 1990 and 1991. Even so, this is a slowdown from the 4 to 5 percent rate of growth during 1990. A number of factors contributed to Idaho's slower employment growth during 1991. Responding to the national recession and declines in lumber production, Idaho's manufacturing sector did not grow during the year. Although electronics employment continued to rise during 1991, this growth was at a slower pace than in previous years. In contrast to the rest of the country, construction activity in Idaho is relatively robust. Construction employment is up more than 8 percent from a year ago with most of the strength in the residential sector. Idaho is also experiencing relatively strong employment growth in the service-producing industries. Strength in business services, tourism, and healthcare caused overall services employment to rise by 4.5 percent between September 1990 and 1991. Idaho's economy continues to have a bright future, and the pace of growth should pick up when the national economy emerges from its doldrums. Marble Canyon ~euada More U S first ~uclear . ~euada Rll-Rmerican RIr . ~uclear ~ridqe leqalizes ~oouer Golden Moule Heaters World Chain Canal Condltlonmq Test Site Rrizona. Utah Great Gamblinq ~awalan Dam Gate Than ~anks War II Reaction fxtended Rmona Depression Rlr SerlllCe ~ndqe ~ ~ ~ ~ ~ 194 6 Spulnik California first States of Water Manned Satellite Rlaska: Bonds Space HawaII fllqht Nevada Nevada's economy largely followed the boom and bust pa ttern of mineral strikes into the early part of the 20th century. In 1931, casino gambling was legalized in the state. Additionally, divorce residency requirements were lowered to six weeks. These two events stimulated the development of Reno's casino gambling and entertainment industries. The construction of Hoover Dam on the Colorado River between 1930 and 1935 provided the catalyst for Las Vegas' rapid growth. The dam not onl y supplied water to the desert, but also provided a cheap source of hydroelectric power to open the way for manufacturing in the state. Since the turn of the century, Nevada has continued to grow and diversify. Today, Las Vegas is a modern-day boomtown having experienced some of the most rapid growth in the nation with employment gains of 71 percent reported during the last decade. The state has experienced a resurgence of mining activity, especially in precious metals such as gold. The state also has seen growth in manufacturing and service activities, and in the casino-dominated recreational tourist trade. Nevada's economy slowed markedly during 1991. After several years of employment growth in the 6 to 8 percent range, overall employment grew by only 0.3 percent during the year . During the past year, Reno's unemployment rate was a relatively low 4.9 percent, while continued strength in the govern ment and finance sectors offset weaknesses in the service industries. Las Vegas' economy continued to grow during the past year, but not at the high rates of the previous decade. This, in part, reflects the tapering off of Las Vegas' construction boom as several large casino construction projects were completed. Nevada's outlook is uncertain. The state has attempted, with some success, to diversify away from its dependence upon the gambling industry into such areas as credit card processing. Future prospects depend, in part, on Nevada's success in attracting more tourism, particularly family-oriented recreation and entertainment, as well as additional efforts to diversify its economy. The expansion of business links with Southern California, including development of a "bullet train," also may be an important determinant of Nevada's future growth . Manned Oregon S eatlle [ M 0 oon S ustainable n Bans MS t. I. att ~elen s Med World's fair W s I-J landing regon forest laws nlaska Rerosol Riols Complete Bottle Bill Pipeline Prop 13 fly ~ ~ ~ ~ ~ Personal . . Computer O ilPTICe Collapse 6 198 Zg B Million Californians 19 90 192 9 rzth District Reorganization Patrick K. Barron/ first vice president/ will oversee the 1992 organizational changes. As the Federal Reserve Bank of San Francisco's chief operating officer/ Barron is responsible for all operational and financial service activities of its five offices in San Francisco/ Los Angeles, Portland/ Salt Lake City/ and Seattle. Additionally/ he serves on the Bank's management committee/ its top policymaking body. Prior to his appointment as first vice president in September 1991/ Barron was senior vice president of Corporate Services at the Federal Reserve Bank of Atlanta. To meet our commitment to serve the evolving needs of the Twelfth District financial community, the Federal Reserve Bank of San Francisco implemented several changes to the District organizational structure effective January 1, 1992. The changes are reflected in the organizational chart contained in this Report. The reorganization involves senior operations and support personnel at our Head Office and each of our four branches. The changes are designed to enhance the effectiveness of our management resources and expertise throughout the District and to improve coordination among the branches so that we can provide the appropriate financial services in a dynamic marketplace. Key elements of the reorganization include: Realignment of reporting structures for several Bank operation positions to strengthen accountability within the District and to reflect the interdependency of these important functions. Appointment of a District Quality Control Coordinator to monitor the quality of all Twelfth District financial services. Appointment of District Product Coordinators for Cash and Check services. The reorganization opens direct lines of communication and responsibility throughout the Twelfth District. An integral component of the reorganization is the establishment of separate cost/ revenue goals for each of our priced services at the Head Office and the four branches to ensure that every office can respond effectively to market conditions within their respective zones. A districtwide enhanced management development program along with an ongoing cross-training program within the financial services areas also have been implemented to strengthen the effectiveness of the reorganization. Gordon R. G. Werkema Senior Vice President in Charge Seattle Branch Branch Operations (From left) E. Ronald Liggett, Senior Vice President, Northern Region Gerald R. Kelly, Senior Vice President and Advisor, Seattle John F. Moore, Senior Vice President in Charge, Los .Angeles Leslie R. Watters, Vice President in Charge, Portland Andrea P. Wolcott, Vice President in Charge, Salt Lake City Board 01 Directors Jr AUdiling RobertI. Gald'rel l Ge ner al Aud Itor Petel' K C . H $ioeh As$l Sl anl V ce ~t AIJ lng <M Robef1 T. Parry Bruce H. 'f't',ompson Chief E lC eoJb .... ( )!hcer Ch.arIeS Q Sowd' en Director,'As $lslaN Ge net al Aud 'IOl' Pr~en t .M ASSlstant VlC$ Presiden t $oIJthe rn Reg oon G ary G , Hoeth As $istan t VICe PreSident Northern Reg on Patr'ldl. K. Barron FlfSt VlO8 Pnt$oOen I aoo CNef Oper abng ceee- I 1 Superv ision , Regulation and Credit E U9ene A , ThomaS seoc r VICe President SlJ perv,SiOn, Reg ulatlOll arc creon Jane M . Wa:v rman Ombud""'" I W. Sl arr S«>g mlller Merle E, Boch en ese ent VICe Pr B ank Examinal ions HaroldH . Blum Ass istan t VICe PreSlCl l en D,rectOf Trust Ba nl( E llamma1 l00s Rodney e, Ae!d v ee PreSideOt Phi hpM, Ry1IIl ASSIstant VICe Pfestde nt tntema toon,l ExarT1l oon na! s BH e and Internahonal s oce rv eco Jame s M. Ba me s AMlsla nt Vtee Presid&nt Bank Ellanlln a1lOnS. S.F. RClard S. Ca mpos AsSislant Voce Presid ent SHC Inspectoons W. GordOnSmrth Don ald R Lieb VICe President C red o and Consurner Alta lrs t Assrst m VICe President a Terry S 5chwakop! A$slsl am VICePresiden t BH C lnspecbOns o.rectOf DIstrict ClE'd< l ThOmas P McGr altl Assi stant VICe Pres ld&nt Ban k Ella mlnatl()('ls, S L.C. gooert C . Joh n son A:>s al1l isl Presiden t Bank ElC nat/On s. L A. alTV vee Robert C. Deml&r ThOmas ~ E llM ll Olng Qtt.cer S H(; lnspectons, $ .F SH C l~ ExalTll '" nu Bank.and Con su n:er Reg ulation Wayn& L Rickards Kennem A B M10g Kelty K WalSh CO'n munlY Anair$ 0t11Q1)1 George T. Westerman Dir!'C\O( I 8HC and Interna bOOal Reg uiabOtl Dav id M, Vand re DistriCt Compl iance Oft lQll APQlIcaI LOnSOt1ICfl Rack FukUf'\ara Manag<ng OtflCef ~ AdministratIOn Comotner Services and Eleci romc Payment s Laure IJ':ast\l:E>n nce S or-ot VICe PrMlOen l Com puter $e rYlCeSa llC! Elec lron lC Paymems Palnclc Tong VICe PresiOent Compu1 er Oper atJOnS RegulalJOn anclCred ,1 Secretary's Of1ice Payments and SUP90rt services M.chael .L Murray SenoorV.ee P\-@SIdent Sara K. G&rriSOl'l SeI'Ior VICe P'reslclent Adm l'l sl ratlOn Payme nts and Su ppot1 Servx:e s E.IIzabettlR. Mas ten C, Kenneth Arnold G Vrce PreSldent and Secfl llary ct ee Boar d VICe Pres!de nt o. slnC1Secu rrty vce eesceot "'" Taylor PaymenlS ~ Doug las 0 , Knuc:!'s. AS5Istant VICe P'r&. Flf\MlOalServ!Ces EUabeU'l K. CI1rl ensen $ Jo "'n V.C Lit! Sylvia "," ~ rnngha.m , Thomas R ThaanlJm Barbara .L Conclfll Gail G oc are s VICe ~ ~nI VlCe~ ~taJ1l VroePresldenl VI09 Pre-siden 1 Asslslanl VICe Pres FIt\3f"OaI Ptarw'lIng and Control A<xountmg Eleclronoc:Acoe-" Elecl. onocAcoess r DilectOt Fonan()al Plaming Sys rems and (;O:llmun:cauo ns ~d and Aoc.ountll'lg Con irol Po_ Nancy E Perkin s Salt.. H. We,r.s.nget" SlJ SSflG , Portert~ Debor S. Jack. ah sen-Cl\.lk(l "'''''''' VICe PreSl(le(11 Di tec! Ol" AppIica llons Systems Corporate Pt!rsonnel Compensal oon arxl Benelits Human Resou rces S ystem s and EmpIoymttnl ,E mploye e Aalatioo s Off :cer J 5a(l L. Mo{j ha dan A ssislant VIQl;IPreside nt A EIiol E, GIUlII D<e<:to< WIlli am K G inter Ap ic8tJonsSyslems Pa ige B. $OQ(l Astl l5lan t VICe President Data S&C\J(IlY Con ting ency . Pla nn ir'!9 and Support sevcee VICe P'resldent SfatistlCS Monet ary Agg rega l&. and F1 rvv Reporu esa VlC ePresidefl1 8lJlldlng and Prope rty Ma na gem en r James J. Tange Ass lsl anl VICe Presiden t Ad mu "\lStla l lve Service s Ge ra l<l L. Moreno Eie<; rorll c Payments Ot1 ~ r t l os Angeles Branch John F. Moo r9 Seoce vce Ifl Cha1~ Darcy J Cl'larlesLHlJ'!fS1l!1ler v",,_ Elect "OtlIC Payments Product Services. AdmarjstralM! sevces . Couft~1 sevces . Elect ror-c Payments Product Ff\anC:i.aJ Ptanr'l!f'l9 anti Control, and Con$unAntsewces Ot"C flr FrnanoaI $ervoces , FINlJ'ICla I Planmng anti Contr Ol, Consu ltant Se r vces. and Hl; ma n Resou rce s 0 , Keny Wet:lb Director Sean .L Rodrig\.le z Racnel A. Rome ro A$sIstantVr(;(! Presodent Chect.; PI QC9SSlng AdfUstmen t Service s Ot1mr PaymE'f1 ts servees Mark W. FIShbeck OaYJd C, AIbO Theodore A, $chr~r """"'" Assl stant VICe PresoOent nlst ratoon and C Uffe ncy Pfoce ssi ng (CVC S) AS5Istan1 VICe PreS>d er.t Cash ClJ s1o<1y Semces Cash oceraicoe and Secunnes SeI'VlCe$ Br~ !J. DuJ( ury b Assrslant Vr(;(! Presidenl HumaI\ Resources Organization Chart January 31, 1992 I Thomas D. Thomson EJc cutr.'e VICt1 PreSldenl e ce ouer Bank Func!l()l"js 1 Economic Research Law Jack H. Beebe Sef\lOl'VtCJj Presldent af'ld Director of ResearCh LO\J ~$ E. Reilly Public Information Senior Vice Pl'esi<:&nt anCl Genera.! Counsel Robert D. Muno:d \cG"1Ih Robert C. Johnson JOOn P. Judd Adrian W. Throop e President Assls l ant VIC PreSlde nl e BanK ExamlnallOns . L.A. Vice President and ASSOCl!I18 rxrec tor ot Research ae eeerco omee r gcbert L. Fienberg VICePresident ancl Vice Presid en t oom estc MactoeoonomlC StudIes Direc tor 01 Pu bl iC Inform at;on and labOr'lS, S L C. ""I RobertC Demler r rcoies J. Backer G. Ross VarOl Examining Ot1 lCe f BHC Inspe(':Ol'1 s. S.F. Ellam,mng ()ff, ce r BHC tnspect lOf'lS LA , Exa m ,ning Off ICet' ~O!I' SHe inscecrce S.L C e. Hang-Sheng CheOQ V-eePresidenl International s tco ee Vic e P(eSo~nl and Counsel lnlernalionalSIU(lres Kel"W'\&lh M. Kinoshita Fredenck T. FUl10ng Assist ant VIC Prewen\ e Banking and RegiOn Studies al K K. V/al$n CorTwnJnr.y AI'l3;f, Otl c er Pa nts and Support Services yme ASsociate Ge l'\&fal Courts oll Bank and Treasury Services ,John w. Gleason -Ga A. Taylor d Vu Pre$ider1 t 5ef'\IOrVaPTe-s~ B.anll. and Treasury Services Stepnen A . Kaufman A ssista nl VJa1 P'rM1clen I As&S'lan l VICe ~nt FIl'\4 nc>a1 Payments Servces sevces --- John H. WOng Doug las 0 KflUdsef'l A$.slstar\rVlCe Presiden t DawnS. Blocil Ga,I G.Ou 4f1e5 s ta " I VlCe ~er"t As.s. tant Vee PreOO&ot s Cas h $ervice, E:ect' O/"IIC ACCe SS Ellsworttl E. Lund ~ ,.,It" M $l$lan t VlCe Pre$ldefll ASSlstanl V teePl' esld ent Mone1.vy Ag;j regales lfll eln alJOn and ooresrc al FInanCIal Reports CorPor ale Planning an<!Reserve Reports John /l . rrccece EliOlE. Giu'lr E. Fton ald Ligge lt --......., $enIorVICeP'reSldenr I ass IidenI Sak Lake City Branch Port land Branch seattleBranch Andrea P \~1 Leslle R. Walt8fS VICePresiden t Va Presdeflt i,nCtl a,se GoIdof\ R.G. wen<ema SeoiorVtOePresde-nt J"lChar ge in Char e g Gerald Ft. Dal. ng Dean C. Gonnerman Jimmy F Kamada AssIstant Vee Pte$Idenl As.$lsl ant Vrce Prtl$Jdent Assl stan t V e e President ..."." Rosou<"" Payments seoees Assislant V oce Pre5ldent F~. seccotes and BrttOIM Du ~ tlU ry Robert R acrwes A.ssi S ta1lt Yce ~ AdlT'lll"lstt atrveServoc:e1 A. Kemelh Add Cash. F"'anoal se wce s Ofl":¢e. Support se rvices and Pl.I ICIntormatJOn Susan L Rooertson Ass,sta,nlY-ce Pl'es.dent Paymenls Services RowtO. Long Ass istan t VICe Pre$llUlnl C US kXTySe~s Cou n~1 Ooug!as R. Shaw Reuve nG I Research Otncer Custoety S~, l(eme11l L. P!'terson V""_ Payment"""""" Gale P. Aflsell As,:iS1 ant VICe Preside nt .Ac!rw rat,ve sev ces r nl$l Gerald Fl. Kelly seece vce PresiOerI\ al'ld Advlsor seesu Branc e h Management Committee (From left) Patrick K. Barron, First Vice President and Chief Operating Officer Michael J. Murray, Senior Vice President, Administration Robert T. Parry, President and Chief Executive Officer Thomas D. Thomson, Executive Vice President, Central Bank Functions Spotlight On The Pacific Northwest April 1991 marked the retirement of Angelo S. Carella, senior vice president-in-charge of the Portland Branch, after 35 years of service with the Federal Reserve Bank of San Francisco. In 1975, Carella moved from San Francisco to the Portland Branch as vice president-in-charge, and was promoted to senior vice president in-charge in 1980. Carella was a tireless advocate and much respected mentor of branch management and staff, and his leadership and expertise had a far-reaching impact on both civic and community activities. Carella chaired a three-year preparatory effort to bring the Rotary International Convention to Portland in 1990, and he served as president of the Portland Rotary Club and the Oregon Chapter of Robert Morris Associates. During his tenure, Carella also was appointed to the advisory boards of the Institute for Managerial and Professional Women and the Oregon Council on Economic Education. Gerald R. Kelly, senior vice president in-charge of the Seattle Branch will retire in 1992 after a career spanning 39 years with the Federal Reserve Bank of San Francisco. Kelly moved from Los Angeles to the Seattle Branch in 1977. His positive contributions extend well beyond his leadership as officer-in-charge of the Seattle Branch to the business and academic communities. He lectures at a number of state universities, and serves as a charter member to the advisory boards of Seattle Pacific University's School of Business and Economics and the University of Washington's Center for the Study of Financial Management. Kelly's ongoing humanitarian contributions extend into the community where he is an active volunteer working with individuals with special needs. As previously discussed, the Pacific Northwest states, particularly Oregon and Washington, have undergone some fundamental changes within the last few decades. Oregon's economy is at a turning point, slowly moving away from its primary dependence upon agriculture and timber, while Washington has emerged as a major industrial power. Alaska's relative isolation serves as a prime example of the challenges presented by the geographical expanse that encompasses the Twelfth District. 1991 marked the retirement of Angelo S. Carella, senior vice president-in-charge of our Portland Branch and the announcement of the Seattle Branch's senior vice president-in charge, Gerald R. Kelly's, intention to retire in 1992. With 74 combined years of service, Kelly and Carella are in a unique position to provide a first-hand perspective on the transformations taking place in the Pacific Northwest, and the Federal Reserve's response to the changing dynamics of the region. The logistics of transporting coins and currency to Alaska in a timely and cost effective manner is just one of the unusual challenges presented by the Twelfth District's vast geographical diversity, says Kelly. "Only recently have we been able to establish a coin depot in Alaska to serve financial institutions," adds Kelly. "Althou gh currency could be transported by air at reasonable expense, the sheer weight of coin shipments makes air transport prohibitively expensive. Now, regular shipments are transported by barge up the Pacific Coast to Anchorage." completely stand-alone, full-service entities, including providing the discount window," states Kelly . "Now, a bank in Fairbanks can be on-line directly to San Francisco, so the Seattle Branch no longer needs to be the intermediary for these types of functions ." Kelly is quick to add that the branches still perform vital functions not only in the delivery of check, coin, and currency services, but also in the crucial role of keeping the San Francisco office in tune with "the grassroots needs of the District communities." Kelly notes that the advent of the electronic age has brought some fundamental changes to the Branch offices of the San Francisco Federal Reserve. "Prior to this technological revolution, the branch offices were almost "Ten to fifteen years ago, this same picture wouldn't have emerged in Oregon," states Carella commenting on Oregon's relatively healthy response to the national recession. Carella views this response as "evidence that Oregon isn't as dependent upon the lumber industry as it once was." He notes that recent growth in high-tech industries, tourism, and services, pushed by Oregon's population influx, are all contributing to this transformation. Carella does not want to downplay the impact of the decline in the lumber industry. He admits that the state is still very much in transition "as people aren't making the same wages as they were in the lumber industry." Carella sees environmental issues at the "forefront of Oregon's economic concerns" right now. He cites the spotted owl debate and its impact on the lumber industry as just one example. "Currently, a number of proposals are being considered related to the preservation of a variety of salmon species which could have a major spillover effect into other industries, and possibly even other states." Carella suggests that one initiative which proposes to lower water levels "would hurt not only fisheries, but also agriculture and manufacturing by affecting irrigation and Oregon's cheap source of hydroelectric power." He adds that, "States which get their surplus hydroelectric power from Oregon California for example - could be potentially affected as well." Turning to banking in the Pacific Northwest, Carella and Kelly both agree that the regional banking structure is in the midst of a major transition. "Prior to the onset of the consolidation phenomenon, the Pacific Northwest existed primarily as a self-contained regional banking structure," states Kelly. "We now have de facto interstate banking with all of the mergers and acquisitions." Carella notes tha t Oregon has not been immune from the consolidation trend either. "In Oregon, we've seen the demise of the smaller size institutions in the $500 million range. What's left are the community banks and the major conglomerates." Carella says the immediate effect seems to be on consolidations in banking personnel. He adds that "the long-term effects are still unclear" especially with "the overall weakness in lending on a national basis." Kelly and Carella both view the increasing trend toward diversification as positive for the Pacific Northwest. Says Kelly, "While much of Alaska's natural resource potential remains untapped, Washington's relatively lower tax base should continue to draw new business to the area." Carella sees Oregon's long-run challenge as "continuing to diversify away from our natural resource dependence. Balancing the effects of growth and environmental concerns will be of prime importance to Oregon's future." Highlights Of 1991 Economic Research Domestic macroeconomic research focused on several issues important to the shaping of monetary policy during 1991 and in the years ahead. Studies examined the effects of slow growth in credit and the monetary aggregates, weak consumer confidence, and the 1990-91 recession. Another study examined the reliability of recently developed recession-probability indexes for forecasting recessions. Also investigated were longer-term issues, including the relationship between wages and prices in the 1980s, and the merits of nominal income targeting as an approach for Federal Reserve monetary policy. International research focused on three areas: the role of exchange rate flexibility in macroeconomic adjustments; Japan's financial markets; and economic reform in China, with a focus on foreign trade. Banking and financial markets research included basic research on interstate banking laws, prompt regulatory intervention, contagious deposit runs in banking, commerce powers for banks, trends in banking risk, the changing role of banks as commercial lenders, and deposit insurance pricing. Regional research studied geographic changes in the electronic components industry, the influence of economic fluctuations of individual states on neighboring states, the effects of bank branching restrictions on agricultural lending, and an inter-industry productivity comparison. Three major initiatives were undertaken during the first full year of operation of the Center for Pacific Basin Monetary and Economic Studies. First, the visiting scholar program was expanded to include six eminent US. scholars who joined visiting scholars from Japan, Korea, and the Philippines. Second, a network to facilitate communication among researchers interested in Pacific Basin monetary and economic policy issues was expanded to 263 associates and 34 research institutes in various Pacific Basin countries. Third, two series of Center publications were launched. The Pacific Basin Research Abstracts contained abstracts of 49 research papers by Center associates and the Center Working Papers series included a total of six papers on various Pacific Basin subjects. Public Information Programs were expanded to heighten an understanding of the Federal Reserve System, its impact on the economy, its relevance to the society in which it operates, and the responsibilities of serving its community. Expanded media relations and economic education efforts were the primary activities used to reach an audience of regional and national opinion leaders. Media relations programs included personal visits by Bank senior management and staff to media locations, regional media orientation programs, numerous print interviews and appearances on television and radio news programs, and the Bank's media training workshops for key staff. Additionally, a successful effort was launched to develop an effective program involving the rapidly growing Spanish-speaking media. The purposes and functions of the Federal Reserve System were highlighted in five economic education workshops for secondary and post-secondary teachers. A new format was introduced offering graduate credit for participating educators. An advisory board of educators from throughout the District was established to provide advice and feedback on existing and future activities, and a new economic education videotape and accompanying curriculum materials were completed. Supervision, Regulation and Credit At year-end 1991, there were 65 state member commercial banks in the Twelfth District, four of which have assets exceeding $1 billion each and 17 of which have assets between $200 million and $1 billion. During the year, Reserve Bank examiners conducted a total of 64 examinations of commercial banks. At year-end, a total of 24 state member banks were subject to special supervisory attention because of unfavorable financial conditions, one less than last year. All 19 trust and transfer examinations required by System policies were completed. A trust examination consists of the evaluation of bank trust departments or trust company subsidiaries of bank holding companies. Transfer examinations evaluate an institution's compliance with the rules governing the transfer of corporate stock. As well, inspections were completed at 95 of the 247 bank holding companies for which the Bank has responsibility. At year-end 1991, there were 153 agencies and branches of foreign banks in the Twelfth District, 21 of which have assets exceeding $1 billion, and 34 Edge Act corporation offices . Staff members examined 53 agencies and branches, as well as 26 Edge offices. During the year, staff members monitored the condition of 48 agencies and branches with a less than satisfactory rating. This included the administration of ten supervisory actions, including three Cease and Desist orders. Domestic Applications filings in 1991 totaled 247, representing an increase of 20 percent over 1990 filings of 205. The volume of long-form applications, which captures the more complex filings, increased to 152 compared to 121 a year earlier, an increase of 26 percent. The Bank also received five applications to expand international activities, a decline of seven from the 1990 level. As a result of applications approved, supervisory purview was extended over nine banks and one nonbank company, bringing an additional $12 billion in assets under direct or indirect oversight responsibility of the Bank. The Bank's 1991 annual community investment conference, held in Phoenix, was attended by nearly 300 bankers, community leaders and government officials. Also in 1991, 11 Community Reinvestment Act (CRA) workshops were held attracting more than 400 lenders from throughout the District. In addition, community affairs staff completed extensive community profiles of San Diego and Seattle to provide guidance for banks in those areas to help address community credit needs. The Community Affairs Unit played an active role in the formation of the Hawaii Community Reinvestment Corporation. The Bank also worked throughout the year with groups of lenders in Washington and Nevada to form similar consortia, and the effectiveness of the program was enhanced by the publication of a quarterly Community Investment newsletter. Approximately 2,000 regulatory inquiries were handled during 1991. About 45 percent involved Regulation 2, Truth in Lending, as has been the case for several years. The remainder involved a variety of consumer concerns. Complaints against state member banks numbered about 150, or 20 more than in 1990. For the first time in several years, complaints involving allegations of unauthorized withdrawals from automatic teller machines decreased from 20 percent to about 10 percent of total complaints last year. The Consumer Affairs Unit continues to be significantly impacted by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) amendments to the Home Mortgage Disclosure Act. Beginning in March 1991, lenders were required to submit raw application/loan data rather than summaries which regulatory agencies review, edit, and process. As a result, the Unit had to translate several hund red thousand lines of raw data into electronic form for submission to the Board of Governors. previous years, due primarily to consolidation of financial institutions. Volume in the Twelfth District in 1991 was 7.2 percent ahead of volume in 1990, compared to a 1990/1989 growth rate of 12.9 percent. ACH The discount window was used by 97 depository institutions in 1991. The level of borrowings was relatively modest compared to previous years, as few institutions encountered severe liquidity A number of important initiatives were set in motion by the Automated Clearing House (ACH) during 1991. By year-end, 40 percent of commercial ACH receivers problems requiring our assistance. Twelfth District institutions increased their collateral holdings, however, due in part to a desire to establish contingent liqu idity sources during uncertain economic times. Credit staff continue to be extensively involved in a wide range of risk management issues concerning the provision of Reserve Bank services to depository institutions. were participating in the All-Electronic ACH initiative, which requires that all commercial ACH participants establish an electronic connection to the Federal Reserve by July 1993. A new participating fee was implemented, aimed at improving the efficiency and reducing costs for ACH service. Additionally, plans for the consolidation of data processing activities were announced for the System, offering the Funds Transfe r opportunity to develop new ACH services to address the evolving needs of financial institutions. For the fifth straight year, Federal Reserve System targets for service availability were exceeded. Full-day availability averaged 99.90 percent and critical hours service availability was at 99.93 percent. Growth in ACH transaction volume remained strong in the Twelfth District. Volume growth for Fedwire transactions The volume of transactions handled continued to outpace the growth experienced in most other Reserve Districts. ACH commercial transactions in the Twelfth District weakened from in 1991 grew by 14.8 percent over 1990. Electronic Access The Twelfth District continued to provide national leadership direction in its role as the Electronic Access Office for the System. It addressed strategic issues related to security, network, service requirements, and appropriate platforms for electronic access to all Federal Reserve services. It managed the electronic access environment, which includes over 10,000 Fedline terminals deployed nationwide that access payments and information services. National service offerings were expanded to support new features for funds, securities, ACH, and other financial services, as well as support for submission of monetary aggregates reports. For computer interface users, new functionality was provided, allowing access to funds and securities services across multiple Districts. Additionally, the second release of FLASH-Light was introduced. This new connection option is designed for the small ACH receiver as a simple-to-use, receive-only personal computer-based facility. It also offers a full array of Federal Reserve Bank informa tion services. At the local level, the District successfully converted all terminals to the national Fedline software, offered an automatic data delivery facility, and provided enhancements to service products, including a capability for electronic savings bonds submission. The District currently supports over 1,500 electronic connections to its services. Check Services Quality improvements in check operations and increased automation were major achievements in 1991. Improvement was seen in the expeditious handling of adjustments, as well as the quality of incoming deposits and outgoing cash letters and associated processing information. At the same time, plans to sustain service in an emergency were tested and strengthened. New automated adjustment software was implemented in all offices, and software integrating IBM and Unisys systems was introduced at some locations. Securities The methodology of processing of the applications for and issuance of Savings Bonds through San Francisco was streamlined at the Portland, Seattle, and Salt Lake City Branches. Due to the smooth conversion process and high receptivity by financial institutions, the schedule for implementation of the California offices has been accelerated. Reliability in securities transfer service continues to be high. Service availability was 99.89 percent for a full-day and 99.95 percent during critical hours. Both measurements surpassed Federal Reserve System targets. An ongoing effort was continued to ensure Securities and Fiscal Services ability to recover from a major disaster. Cash Services Introduction of the security enhanced $100 bill marked the first major change in us. currency since 1929. Internally, automation and strategic planning were two areas of emphasis during 1991. The initiatives will position the Twelfth District to respond more effectively to District financial institutions, and various government agencies. New software will be acquired to minimize paper transfers and to improve accountability throughout the opera tion. Plans were made to upgrade vault capacity in the two California offices by installing high-density material handling equipment, and currency processing units were acquired at the Portland and San Francisco offices. The Bank developed options to manage currency volume growth in order to ensure the District's ability to continue to provide high-quality service in the future . Summary of Operations Volume (in thousands) 1989 1990 1991 Custody Services Cash Services Currency notes paid into circulation Food stamp coupons processed Securities Services Savings Bonds original issues Other Treasury original issues Book-Entry Securities processed 3,472,290 309,852 3,516,705 362,408 3,586,179 436,226 3,477 396 685 3,456 312 659 2,902 216 686 3,082,631 82,827 37,676 3,128,340 82,274 34,085 3,026,361 78,013 33,221 15,435 245,740 17,195 300,865 18,245 345,458 1,329 129 1,088 101 866 97 Payments Services Check Services Commercial checks collected Government checks processed Return items processed Electronic Payments Services Wire transfers processed Automated clearinghouse transactions processed Discounts and Advances Total discounts and advances* Number of financial institutions accommodated* * Whole number (not in thousands) Federal Reserve Bank of San Francisco .Board of Directors Chairman of the Board and Fed eral Reserv e Agent James A. Vohs Warren K. K. Luke President and Director Hawaii National Bancshares, Inc. and Vice Chairman of the Board and CEO Hawaii National Bank Honolulu, Hawaii Chairma n Kaiser Founda tion Heal th Plan, Inc. and Kaiser Foundation H ospitals Oa kland, California Deputy Chairman Robert F. Erburu Chairman of the Board and CEO The Times Mirror Company Los Angeles, California Fed eral Ad visory Cou nci l Member Richar d M. Rosenberg Chairman and CEO Bank of Am erica San Francisco, California Rich ard L. Mount Chairma n , President and CEO Saratoga Bancorp Saratoga, California William L. Tooley Chairman Tooley & Co., Investment Builders Los Angeles, Californ ia John N . Nordstrom Co-Chairman of the Board Nordstrom , Inc. Seattle, Washington E. Kay Stepp President and CEO Portland General Electric Portland, Oregon Judith M . Runstad Co -Managing Par tner Foster, Pepper & Shefelman Seat tle, Washington William E. B. Siart President First Interst ate Bancorp Los Angeles, California Los Angeles Branch Board of Directors Chairman of the Board Walfred J. Fassler Region al Vice President Chevron U.S.A ., Inc. Los Angeles, California Fred D . Jen sen Vice Chairman Aktiv Bank Holding Company Long Beach , California William S. Randall CEO, Sou thwes t Region First Inte rstate Bank Phoen ix, Arizona Anita E. Landecker Regional Vice President Local Initiatives Support Corporation Los Angeles, California Donald G. Phelps Chancellor Los Angeles Community College District Los Angeles, California Ignacio E. Lozan o, Jr. Editor-in-Chief La Opinion Los Angeles, California Portland Branch Board of Directors Chairman of the Board William A. Hilliard Editor The Oregonian Portland, Oregon Stuart H . Compton Chairman Pioneer Trust Bank, N.A. Salem, Oregon Ross R. Runkel Professor of Law and Director Willamette University Center for Dispute Resolution Willamette University Salem, Oregon Cecil W. Drinkward President Hoffman Construction Co. Portland, Oregon Wayne E. Phillips, Jr. Vice President Phillips Ranch , Inc. Baker, Oregon Elizabeth K. Johnson President Transwestern Helicopters, Inc. Scappoose, Oregon Stephen G. Kimball Chairman, President and CEO Baker Boyer Bancorp Walla Walla, Washington Salt Lake City Branch Board of Directors Chairman of the Board Gary G. Michael Chairman and CEO Albertson's, Inc. Boise, Idaho H. Roger Boyer Chairman of the Board The Boyer Company Salt Lake City, Utah Gerald R. Sherratt President Southern Utah University Cedar City, Utah Curtis H. Eaton Vice President; Manager, Community Banking Area and Member of Board of Directors First Security Bank of Idaho, N .A. Twin Falls, Idaho Virginia P. Kelson, M.B.S. Partner Ralston Consulting Group Salt Lake City, Utah Ronald S. Hanson Vice Chairman of the Board Zions First National Bank Salt Lake City, Utah Constance G. Hogland Executive Director Boise Neighborhood Housing Services, Inc. Boise, Idaho Seattle Branch Board of Directors Chairman of the Board George F. Russell, Jr. Chairman Frank Russell Company Tacoma, Washington Emilie A. Adams President and CEO Better Business Bureau Seattle, Washington William R. Wiley Senior Vice President, Technolo gy Management and Director, Pacific Northwest Division Battelle Memorial Institute Richland , Washington B. R. Beeksma Chairman of the Board InterWest Savin gs Bank Oak Harbor, Washington H . H . Lar ison President and CEO Columbia Paint & Coatings Spokane, Washington Gerry B. Cameron President and CEO U.S. Bank of Washington, N.A. Seattle, Washington Robert P. Gray President National Bank of Alaska Anchorage, Alas ka Advisory Council on Small Business and Agriculture- I992 Chairman Fred W. Andrew Chairman of the Board Andrew & Williamson Sales Co. Bakersfield, California Kendall E. Bert Economic Development Director City Manager's Office Tucson , Arizona Vice Chairman Donald Butier President Shasta Foods International, Inc. Gonzales, California David A. Nimkin Execu tive Director Utah Small Business Development Center Salt Lake City, Utah Bailey S. Barnard President First Capital San Francisco, California Barry Baszile President Baszile Metals Service Los Angeles, California Karla S. Chambers Vice President Stahlbush Island Farms, Inc. Corvallis, Oregon George M. DeMedeiros Consultant and Retired President Dairyman's Co-op Creamery Assn. Tulare, California Robert D. Fay Vice President and Operations Manager JoLoNa Farms Sunnyside, Washington Boyd R. Poulton Partner Price, Poulton and Co. Burley, Idaho Leslie Tang Schilling President L.T.D.D ., Inc. San Francisco, California Henry J. Voss Director California Department of Food and Agriculture Sacramento, California Comparative Statement of Account {Thousands of Dollars} December 31, 199 1 Assets 199 0 Gold certificate account. Special Drawing Rights certificate account.. Other Cash . . .. 1,207,000 1,072,000 93,723 1,329,000 1,072,000 89,178 Loans to depository institutions . 10,472 25,030 Federal Agency obligations . 632,500 706,352 United States Government securities: Bills Notes Bonds . . . 13,879,002 10,623,081 3,383,184 12,532,995 10,181,288 3,471,101 Total United States Government Securities Total loans and securities . .. 27,885,267 28,528,239 26,185,384 26,916,766 Items in process of collection Bank premises Operating equipment. . . . 1,497,645 146,546 33,394 684,544 148,493 33,075 Other assets: Denominated in foreign currencies All other .. . 3,596,905 448,618 4,405,320 526,052 Interdistrict Settlement Account. .. 3,983,406 0,482,186) Total assets .. 40,607,476 33,722,242 Federal Reserve Notes . 32,439,832 24,562,533 Deposits: Total depository institutions-reserve accounts Foreign Other deposits Total deposits .. . . . 5,712,913 19,530 191,819 5,924,262 7,740,779 20,250 6,799 7,767,828 Deferred credit items Other liabilities . . 1,321,165 250,921 448,150 312,977 Total liabilities .. 39,936,180 33,091,488 .. . 335,648 335,648 315,377 315,377 . 40,607,476 33,722,242 Liabilities Capital Accounts Capital paid in Surplus Total liabilities and capital accounts Earnings and Expenses (Thousands of Dollars) December 31 , Current Earnings 199 1 199 0 Discounts and advances United States Government securities Foreign currencies Income from services All other . . .. .. . 1,193 2,045,163 326,463 84,289 1,361 2,023 2,272,869 352,012 83,453 1,735 Total current earnings .. 2,458,469 2,712,092 Total current expenses Less: reimbursement for certain fiscal agency and other expenses Net expenses . 176,429 164,950 . . 14,050 162,379 14,031 150,919 Cost of earnings credits . 16,237 15,043 Current net earnings .. 2,279,853 2,546,130 14,132 51,912 66,052 6,999 288,818 8 295,825 Current Expenses Profit and Loss Additions to current net earnings Profit on prior period adjustments Profit on sales ofUnited States Government securities (net) Profit on foreign exchange transactions (net) All other Total additions . . . . . 8 Deductions from current net earnings Loss on foreign exchange transactions (net) All other Total deductions .. . . 122 122 364 364 Net additions (+) or deductions (-) . 65,930 295,461 Cost of Unreimbursed Treasury Service . (9,239) (11,178) Assessments by Board of Governors Board expenditures Federal Reserve currency costs . . (14,123) (23,986) (14,097) (20,650) . . 2,298,435 19,639 2,795,666 18,929 .. 2,258,525 2,763,270 . . . 20,271 315,377 335,648 13,467 301,910 315,377 Net ear~~fl~Je~~;fe~at~:~~~;~ . ~~.~ Dividends paid Payments to the United States Treasury (interest on Federal Reserve Notes) Transferred to surplus Surplus, January 1 Surplus, December 31 San Francisco Office PO. Box 7702 San Francisco, Califo rn ia 941 20 Los Angeles Branch PO. Box 2077, Terminal Annex Los Angeles, Cal iforn ia 9°°51 Portland Branch PO. Box 3436 Portland, Oregon 97208 Salt Lake City Branch PO. Box 30780 Salt Lake City, Utah 84125 Seattle Branch PO. Box 3567, Terminal Annex Seattle, Washington 981 24 lhisHep w prod by K am eand writtenby lljndi Beale. ort as uced arenH m Oesiqn and qraphicsby Hark Hendricks. Color photoqraphy by Paul Schulz Orqanizafion chart by William HosenlhaL Printed on recycled paper w soybean inks @ ~ ith