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1991 a e 0 0 e m a m * e a A N N U A LRE' N T E N T ge from the CRA and the 1990 Moving beyond Sixth District Highlight ............................. 2 .......................... ................................. 3 9 Directors 14 Officers 16 Financial Statements 18 MESSAGE FROM THE PRESIDENT February 14,1992 The 1991 annual report of the Federal Reserve Bank of Atlanta features some of our accomplishments for the year along with the consolidated financial statements of the Atlanta, Birmingham, Jacksonville, Miami, Nashville, and New Orleans branches. The names of all directors and officers who served the Sixth District during the past year are listed as well. In addition to the review of the year’s developments, this report includes a discussion of the ongoing debate about the Community Reinvestment Act (CRA), which intensified with the release of the 1990 Home Mortgage Disclosure Act (HMDA) data in October 1991. On the surface, the summary HMDA figures suggest that lenders discriminate against minorities in approving home purchase loans. Many bankers counter that the HMDA data do not tell the whole story, failing to state systematically why loan applications were rejected. The essay addresses ways in which Congress, community groups, and banks can move beyond the tensions that have persisted for so long and achieve a working relationship in implementing this important public policy. I would like to express my appreciation to all of the Sixth District’s directors for their valuable counsel throughout the year. In particular, I want to acknowledge those directors whose service ended in 1991, including branch directors Roy D. Terry and Shirley A. Zeitlin, who both served for six years. My special thanks go to outgoing Chairman of the Atlanta Board of Directors Larry L. Prince, who served for two years in that position and three years as deputy chairman. I also wish to recognize Virgil H. Moore, Jr., who ended his six-year tenure as a head office director. n Robert P. Forrestal President and Chief Executive Officer CRA AND THE 1990 HMDA DATA: MOVING BEYOND THE /MPASSE By Robert P. Forrestal It has been fourteen years since Congress enacted the Community Reinvestment Act (CRA), mandating banks to help meet the credit needs of all segments of the communities they serve. By doing so, Congress in a sense passed judgment on the banking industry, although CRA was just one title within more general legislation aiming to revitalize deteriorated urban and rural communities. Lawmakers were responding to complaints that banks were discriminating against residents of low- and moderate-income areas. Despite more than a decade of experience with CRA, bankers, regulators, and community groups continue to disagree on how the law should be interpreted. Lawmakers and regulators have sought to clarify norms and procedures and to facilitate the communication process among all parties, but in spite of these efforts CRA has become a more, rather than less, heated issue. Because mergers and acquisitions are occurring more frequently during this period of banking industry consolidation, CRA-based protests lodged by community activists have taken on new significance. Such protests seek the strongest action against banks deemed to fall short of CRA obligations-the denial by regulators of a proposed merger or acquisition. These protests have heightened media interest in CRA and, in turn, intensified the public debate. Many banks have responded earnestly and creatively to the spirit of CRA; others have continued to criticize the legislation, especially for the perceived uncertainties in the regulatory standards and for the implicit pressures banks feel toward credit allocation. The law’s intentional vagueness, meant to encourage local solutions to local problems, has proved to be a mixed blessing because it has helped to perpetuate the debate about what the law does and does not require of financial institutions. HMDA DATAREKINDLE CONTROVERSY Release of the 1990 Home Mortgage Disclosure Act (HMDA) data in October 1991 served to refuel the ongoing debate. Although banks’ CRA examination summaries are publicly available, a bank’s mortgagelending record, as documented for HMDA, has become in the minds of many a proxy for a bank’s CRA record. A vast expansion in the scope of HMDA data, as mandated by the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), heightened the public’s expectations for revelations about lending practices of financial institutions. On the face of it, the summary HMDA figures appear shocking and clearly, for some, raise the issue of whether banks and other lenders discriminate against minorities in approving loans. According to the data for the nation as a whole, blacks, for example, were turned down for mortgages two-and-a-half times more often than whites. This imbalance holds true even for blacks with higher incomes, who were turned down twice as often as whites in the same income bracket. Additionally, the numbers indicate that banks are receiving relatively few applications from blacks: only 4.3 percent of the applicants were black-far fewer than their 12 percent share of the U.S. population. It is understandable that many representatives of community groups, the media, and Congress see the data as proof positive that banks discriminate in a major area of lending-home mortgages. Many bankers counter that the HMDA data do not “speak for themselves.” The data indeed do not tell the whole story. In particular, they fail to state systematically why loan applications were rejected. The data do not even lend themselves to deriving meaningful inferences along these lines because important information is omitted-for example, there are no Sgures for applicants’ overall indebtedness as a percentage of income or for applicants’ assets that could be used as downpayments. It should also be kept in mind that the approved mortgage loans covered in the 1990 HMDA data do not represent the entire residential mortgage market. Despite recent expansions in scope to encompass nondepository lenders that extend home loans, including independent mortgage companies, a number of institutions are not covered. Depository institutions with less than $10 million in assets and those operating outside metropolitan statistical areas (MSAs) are not represented, for example. Whatever the implications of HMDA figures, at best the data are not all-encompassing. Nonetheless, whether lending discrimination occurs or not, there is the perception of a problem. The questions raised are serious ones that deserve attention. Individual bankers are certainly justified in turning down mortgage applications when applicants’ overall debt is too high, credit history is bad, or other factors indicate poor creditworthiness. CRA in no way mandates banks to give short shrift to safety and soundness principles, recognizing that no long-range social good can come of asking banks to compromise prudent lending standards. However, from a public policy point of view, pointing the finger at the possibility that disparities in indebtedness follow racial lines only begs the question of credit discrimination. Such arguments detract attention from the broader issues that are the real problem. It would be helpful, of course, if the HMDA data were to include more complete information-specifically, for loan officers routinely to include the reasons for turning down applicants. Doing so would shed further light on this important consideration and would also better educate consumers on the tenets of creditworthiness. However, further research into the HMDA data cannot be the main solution, nor can lending ratios defined by the Home Mortgage Disclosure Act be the standard by which an institution’s responsiveness to credit needs be judged. Ultimately, the answers to the social problems on which CRA has focused attention rest with changes in attitudes and actions. Congress, community groups, and banks must work together to achieve an operating consensus on both CRA’s broader, albeit perhaps implicit, goals and its day-to-day implementation. ACCORDING T O T H E 1990 HMDA DATA, MINORITIES W H O APPLY FOR HOME P U R C H A S E L O A N S ARE R E J E C T E D AT A H I G H E R RATE THAN W H I T E S . T H E DATA ARE INCOMPLETE. HOWEVER, FOR E X A M - PLE, THEY DO NOT ENCOMPASS T H E E N TIRE MARKET FOR HOME MORTGAGES, NOR DO THEY INCLUDE FIGURES FOR APPLICANTS’ OVERALL INDEBTEDNESS AS A PERCENTAGE OF INCOME. Home-Purchase Loan Application Denials In the United States, by Race c Bla& L 0% P U B L I C PROBLEMS I N PRIVATE HANDS Congress bears some of the responsibility for the ongoing tension surrounding CRA. As they have tended to do for other social problems, lawmakers have “privatized” the issue of housing affordability for the working poor. There is certainly merit in an approach that produces affordable housing without significant government subsidies. However, it is unrealistic to expect a single industry-banking-to shoulder the burden successfully. This transfer of responsibility for social problems to private industry can be traced in large measure to fiscal policy constraints that have arisen from the huge federal budget deficits of the last decade. With H I G DH EBT LEVELS C A N PUT HOME O W N E R S H I P OUT OF REACH FINANCIALLY FOR LOW-INCOME FAMILIES, BUT DIFFERENCES I N DENIAL RATES BETWEEN RACES has become accepted practice to ask private industry to solve public problems. Financial institutions are in a unique position, however, being called on to shoulder the majority of the burden in correcting housing problems. The “social compact” under which banks operate4n return for unique subsidies such as deposit insurance and their federal and state charters, banks are highly regulated-places them under obligations not required of other private enterprises. Because of this special role in the U.S. economy, banks have been handed social problems with which society has grappled unsuccessfully to date. H O L D EVEN AT H I G H E R I N C O M E LEVELS. CLEARLY, THE DATA RAISE COMPLEX QUES- TIONS. S U C H DIFFICULT AND LONG-STANDING ISSUES DO NOT LEND THEMSELVES TO SIMPLE SOLUTIONS. Home-Purchase Loan Application Denials In the United States, by Income and Race (based on median 1980 M S A income) -30% Low Inco (Less than 80%) Moderate Inovlllr; (80.120%) Y (120+%) the government already so heavily in debt and voters unwilling to increase taxes, new programs designed to solve social ills are not an option, and some existing ones, such as federal housing subsidies, have been disbanded. Yet, the problems persist and, in many instances, have grown. In response, lawmakers have turned to the private sector, requiring businesses to provide some health-care benefits, for example. It DISCRIMINATION’S LEGACY An unfortunate reality is that the long history of discrimination in the United States has resulted in ongoing economic hardships for minorities. Many of these problems have their roots in de facto job discrimination in the past that means minorities today often have the least seniority and are the most vulnerable when businesses must lay off employees during times of economic downturn or longer-term industry changes. Because it is usually the newest or least-skilled workers who receive the pink slips, minority employees tend to be disproportionately affected. A series of laws begun in the 1960s have not been enough to counter discrimination along with the ills it has set in motion, and Congress is still passing civil rights legislation to t r y to protect minorities’ rights. The chief legacy of such tenacious discrimination is poverty: a significantly larger percentage of blacks and Hispanics than whites have low incomes. In 1990 some 32 percent of blacks and 28 percent of Hispanics were below the poverty level, as opposed to 11percent of whites. Not surprisingly, people with low incomes often have fewer assets and live in neighborhoods with fewer amenities such as good schools, factors that figure into the issues surrounding home-purchase loans. Additionally, any given level of debt will have a greater proportionate impact on lower-income households . It is, of course, true that consumer debt rose to relatively high levels in the 1980s. Consumer installment credit grew from 14112 percent of disposable personal income at the end of 1980 to 17314 percent in the fourth quarter of 1990, and the latter figure does not indicate the post-1986 run-up in home equity loans for purchases like autos. When combined with lower incomes and assets, high debt levels can put home ownership out of reach financially. A study for a group of Atlanta banks that formed the Atlanta Mortgage Consortium corroborates this argument. The supervision and regulation staff of the Federal Reserve Bank of Atlanta, which did the study for the consortium, found that a large proportion of the consortium’s mortgage applicants, most of whom were minorities, had adequate income but their levels of outstaninstallment debt were too great to allow approval for a mortgage loan under current market standards. Even for those minorities who do own their homes, it is harder to trade up in housing because houses tend to appreciate less and more slowly in many minority neighborhoods. Often these neighborhoods are stunted by poor schools, a lack of amenities such as shopping convenience, less adequate police protection, and other characteristics that would enhance property values. Because the equity in a home is usually a person’s or family’s largest asset, minorities are left with fewer assets. (For instance, the median net worth of a black household is estimated to be less than 10 percent that of a white household.) Even so, very poor living conditions may drive some minorities to submit marginal mortgage loan applications and risk having an application rejected. Trying to establish home ownership as an investment toward improving a neighborhood or to move into a new neighborhood may be worth the risk simply because the alternative-staying in a neighborhood that does not have good schools, for example-has become unbearable. If so, overreaching their circumstances may partially account for minorities’ higher loan rejection rate. In any case, it seems clear that the greater incidence of loan rejections is only a symptom of the underlying socioeconomic problems such communities face. THE ROLE OF POLICYMAKERS Clearly, the problems facing both minorities and banks called on to serve them are complex and frustrating. It will be impossible for banks alone to pro- vide the nswer, although they certainly c n help. Achieving an effective and lasting antidote to the social ills, such as housing affordability and discrimination, that affect a large portion of the U.S. population will require a strategic and comprehensive approach involving many facets of society. Such a solution to MORTGAGE APPLICATION I N THE SOUTHEAST ARE NATIONALLY. HMDA DENIAL RATES SIMILAR TO RATES DATA AT THE MSA LEVEL HAVE NOT BEEN THOROUGHLY EXPLORED, BUT FURTHER STUDY AT ANY LEVEL IS NOT THE MOST PRESSING NEED. CONGRESS CO , MMUNITY RATHER, GROUPS, AND BANKS MUST MOVE BEYOND THE CURRENT DEBATE OVER DATA AND WORK TOGETHER TO F I N D MORE EFFECTIVE WAYS OF ADDRESSING THE UNDERLYING ISSUES. Home-Purchase Loan Application Denials In Selected Southeastern MSAs, by Race 20% 0% Nashvillc -0% New Orleans the deep-seated problem of inadequate housing for the poor-and it bears repeating that a disproportionate share of minorities are poor-will require a readjustment of the nation’s fiscal status, not so much to fund housing but more importantly to improve the nation’s educational system and make other investments in human capital that attack the roots of poverty. However, given the fiscal discipline that must be pursued for the foreseeable future, it is necessary to seek interim improvement from other quarters. THE ROLE OF COMMUNITY GROUPS Community groups can have a vital role in achieving success through the Community Reinvestment Act. The law’s intentional vagueness about specifically how credit needs are to be met is designed to foster local solutions, as noted above. In addition, the federal government’s fiscal constraints have reinforced the need for cpmunity-based solutions to community problems. State and local governments have been forced to become more accountable for achievements of their housing programs, and housing priorities are being refocused to a needs-based strategy. New programs introduced through the National Affordable Housing Act of 1990 require or encourage community needs assessments and call for matching funds from local communities and private enterprise. These programs also continue a recent bent toward special set-asides for , community-based development organizations. In addition, other recent federal programs, including housing and tax legislation such as low-income housing tax credit, special funds in the new HOME program, and terms for disposing of properties held by the Resolution Trust Corporation, have preferential policies for such organizations. Community groups can also help surmount the continuing controversy surrounding CRA by making further progress toward ending what was, until recently, an overemphasis on single-family homes as the solution to the question of housing affordability. In some parts of the country these groups are attempting to develop and request many different types of housing and forms of ownership, such as co-ops and mutual housing. It is certainly time to recognize that the suburban standard of a free-standing house and a yard is probably unrealistic for many poor families and to move beyond insisting on acquisition of singlefamily homes as a goal. In other industrialized nations, particularly in Europe, a percentage of the population comparable to that in the United States owns their own home. However, some form of multifamily housing, such as row houses or condominiums, tends to be more common than it is among U. S .homeowners, who favor detached dwellings. Community advocates throughout the nation might better serve minorities’ needs by devoting more of their energies to forms of credit besides home mortgage loans-smallbusiness lending, for example. Unfortunately, the HMDA data, with their focus on mortgages, divert attention away from progress toward recognizing the need for a broader, more achievable alternative such as communal housing and narrow the focus again to single-family housing. Some community groups have begun to search for different answers, and they are to be commended for having pioneered new programs over the years, such as credit counseling and “due diligence” investigations that help establish for bankers the soundness of a potential loan. When nonprofit community organizations perform these functions, they save lending institutions time and resources, and, on balance, increase the likelihood that more credit will be directed toward lower-income and minority neighborhoods. THE ROLE O F BANKS Banks, however, cannot simply sit back and wait for changes on the part of Congress and community groups. Both lack the resources to make quick and dramatic changes. Meanwhile, banks can do more than they are doing now, working in the context of CRA to find solutions to the problems highlighted by the HMDA data. Indeed, banks probably have to take the leadership role. In an effort to meet the requirements of the Community Reinvestment Act, some banks and mortgagelending consortiums, like that in Atlanta, have tried lowering their credit standards. Only the very largest and best capitalized banks can afford to consider taking this risk. Even if an institution can afford it, this type of “stand-alone” initiative is not the ideal approach. Any programs promulgated under these circumstances cannot begin to achieve the scale needed to address fuUy this nation’s housing needs. Significantly lowering loan standards and proffering loans to applicants who would otherwise have no chance to qualify is not a realistic solution, either for banks or for those in need, as demonstrated by the Atlanta Mortgage Consortium’s ‘experience.The consortium found that in its first round of loans, for which lending standards were liberalized, it had a past-due ratio of 9.6 percent at the end of December 1989, eighteen months into the program. During the first year and a half of a new loan program, past dues are usually nonexistent. At the end of October 1991, forty months into the program, the past due ratio was approximately 12.3 percent-more than twice the typical rate of past dues. Clearly, no one benefits when loan obligations cannot be met. If lower credit standards are not the answer, what can banks do? First, as implied by the other titles in the Housing and Community Development Act of 1977, CRA is meant to encourage partnerships or joint ventures incorporating government programs and other public subsidies to meet the needs of those outside the economic mainstream. Banks’ involvement in tandem financing, for example, using lowinterest-rate public loans or subsidies, is likely to be a much more effective solution than lowering credit standards. Structuring this type of arrangement requires that unique relationships be developed and new technical expertise be acquired, some beyond the present scope of a financial institution. Determining the boundaries of this gray area constitutes the current dilemma. In addition to sorting out matters directly related to the nature of loans, it is imperative that banks get to know low- and moderate-income and minority communities better if they are to serve them adequately. Many banks have reached out to accomplish this task by forming community development corporations, delegating community development responsibilities to a line of staff, establishing community development lending as a line of business with their brightest underwriters, or forming community development banks. In whatever way works best for an organization, depending on its particular expertise and business plan, developing an internal knowledge of its surrounding communities is a critical point if a financial institution is to become an active participant in the growth of those communities. Banks must also remember that CRA encompasses more than housing. Credit needs in any community are diverse, and the most pressing need could be for water and sewage treatment, small or minority business credit, or education financing. After all, CRA requires banks to help meet the general credit needs of their communities, not just housing credit. Such synergistic credit offerings could catalyze economic development at a variety of levels. The days when banks were simple financial intermediaries are over. Banks can no longer play the role of order-takers, simply accepting or turning down loan applications. Like department stores, telephone companies, and airlines, banks are being squeezed financially to find more new business, and, more generally, to redefine their role in the economy. At the same time, banks are operating under a “social compact” that prompts them politically and morally to “do the right thing.’’ It will become increasingly necessary for banks to learn how to market their services to the fullest, finding profit opportunities with lowerincome credit seekers. CONCLUSION It is time for all parties involved in CRA to achieve a working relationship in its implementation. The HMDA data for 1990 may not tell the whole story, but neither can they be dismissed. Realistically, Congress is unlikely to provide financial support for housing for many years because the federal budget deficit has been excessive for so long. The fiscal constraint that is necessary also augurs poorly for more general programs for overcoming the poverty that underlies many of the disparities in lending. In the interim, community groups need to continue widening their scope of issues and solutions and generally building their capacity to foster local development. Banks too, however, need to become more resourceful and creative in their compliance with CRA. Banks have much to lose by not doing a better job with CRA-most importantly their social credibility, which is already shakier than it was in decades past-and much to win if they succeed in reaching a segment of society too long neglected. SIXTH DISTRICT HIGHLIGHTS FINANCIAL SERVICES Volumes and Prices. The Sixth Federal Reserve District experienced a year of mixed growth in the volume of priced financial services. Automated clearinghouse (ACH), funds transfer, and bookentry volumes continued growth patterns consistent with prior years. Check-processing volume increased slightly from 1990 levels. Defintive safekeeping and noncash collection volumes decreased, reflecting the continuing contraction of these paper-based services industrywide. The District’s six offices-in Atlanta, Birmingham, Jacksonville, Miami, Nashville, and New Orleans-together processed approximately 2.9 billion checks in 1991, far exceeding volumes processed by any other Reserve District. Basic transaction volume for funds transfers grew about 4.9 percent over 1990, ACH volume rose approximately 11percent, and, in securities services, online bookentry transfer volume decreased approximately 14 percent. Noncash collection volume fell approximately 21 percent, and definitive securities safekeeping volume dropped 28 percent. The Sixth District fully recovered the $88.5 million cost of providing these services (including the private sector adjustment factor) in 1991 while offering the various products at prices that continue to be among the Federal Reserve System’s lowest. Noncash Collection and Definitive Safekeeping Consolidation. The Atlanta Fed’s Jacksonville Branch is one of four sites that will serve as the Federal Reserve System Regional Noncash Collection processors after consolidation. In January the Jacksonville Branch began processing noncash items-such as coupons and bonds-for paying agents in the San Francisco District. (These items had been processed by the Minneapolis Fed for several years.) In October Jacksonville began processing items for paying agents in New Mexico, part of the Kansas City District. To reduce processing costs and raise operational efficiencies during the phaseout of definitive safekeep- ing services, the Atlanta District consolidated this serand Birmingham-during vice in two office-Atlanta 1991. Check Collection. In January the District began offering electronic delivery of payor bank services information-for example, MICR key account data-through the Fedline customer terminal system. In August the District offices successfully implemented the Federal Reserve System’s new payor bank services pricing structure, which had been approved in 1989 for implementation by all Reserve Banks by January 1992. The change to the new structure provides for consistent pricing among Districts as well as offices and also encourages the use of electronic delivery methods. Over the year a total of eighty-six District institutions converted to electronic delivery of payor bank service information. The District also began offering electronic delivery of regional check advice statements through Fedline in July. Fiscal Services. The Federal Reserve Bank of Atlanta implemented two new systems in the savings bond area during 1991. Under the Savings Bond Regional Delivery System issuing agents are no longer allowed to inscribe bonds; the new system requires that all over-the-counter bond applications be processed through a central location-in this District, the Birmingham branch. The District also implemented the WHH redesign for savings bonds intended to improve operational efficiencies in handling savings bonds. Cash Services. The District successfully completed the development of new computer software to automate various cash functions in 1991 and installed the system in New Orleans and Atlanta. In addition, the District coordinated a comprehensive study of currency quality for the System. SUPERVISION AND REGULATION Bank Supervision. Weak economic conditions added impetus to the banking industry’s consolidation in 1991, affecting both large and small institutions in the District and presenting a number of challenges for bank supervisors. The number of troubled institutions rose, largely as the result of continued deterioration in real estate. The Bank’s supervision and regulation department sought to facilitate the orderly resolution of problem institutions in various ways. Requests for assistance on special projects and examinations outside the Sixth District rose to all-time highs, and the department devoted more than the equivalent of three staff years to fulfilling such requests and to supporting various federal criminal investigations. The bank holding company applications section processed an increased number of applications related to emergency acquisitions by Sixth District institutions of failed thrifts and banks. Additionally, applications continued to become more complex because of deterioration in financial factors and a greater number of protests by individuals and community groups. Legislative interest in banking supervision and regulation was intense throughout the year: Congress considered a series of bills to restructure the banking industry and increased its scrutiny of examination procedures in light of several large bank failures and concerns over the availability of credit. The department responded to several congressional requests for information and provided testimony before the House Banking Committee concerning foreign bank agencies operating in the Sixth District. The department devoted considerable resources to assist in the development and local implementation of the Board of Governors’ expanded training program for new examiners. Consumer and Community Affairs. The consumer affairs staff assisted in the processing of greatly expanded 1990 Home Mortgage Disclosure Act (HMDA) data from Sixth District state member banks and mortgage companies. Release of the data and a continued interest in the publication of Community Reinvestment Act ratings focused increased attention on bank lending patterns, and the department devoted a substantial amount of examination time to a thorough exploration of lending issues. In addition to giving presentations and workshops on the Community Reinvestment Act, the department began publishing a quarterly newsletter highlighting issues raised and initiatives developed in response to 1 the legislation. The completion in 1991 of a multiyear automation project enables more efficient preparation of tailored responses to constituent requests for information. Discount and Credit. Lending by the Federal Reserve has been subject to greater scrutiny by Congress and the press during this period of consolidation and readjustment of the banking industry. Congressional concerns that extended lending could delay the closure of insolvent banks has led to the enactment of legislative measures limiting the amount and duration of advances. The Federal Reserve System’s role in the speedy resolution of Southeast Bank, N.A., was something of a test case for the Federal Reserve’s lending role in prompt resolution of troubled institutions. In its investigation of the Federal Reserve’s lending practices, Congress requested lending records dating back to 1985 on all failed institutions. Through a series of five reductions-on February 4, April 30, September 13, November 6, and December 20-the discount rate was lowered from 6.5 percent to 3.5 percent during the course of the year. RESEARCH Research. Economic uncertainty caused by the Persian Gulf War as well as continuing changes in the financial services industry in the United States and abroad amplified the need for the Bank’s research department to conduct research in support of President Forrestal’s participation in monetary policy decisions. Staff presented to policymakers, scholars, and the general public insights on the impact of the oil price shock that followed Iraq’s invasion of Kuwait, on the economic and financial implications of the impending unification of the European Community in 1992, and on the effects of the globalization of equity markets. The professional stature of the Atlanta Fed’s research department continued to grow as staff contributed to the U.S. Treasury Department’s proposals for restructuring the financial services industry, had articles published in prestigious academic journals and reprinted in financial industry guidebooks, and made numerous presentations to academic and Federal Reserve System conferences. The Atlanta Fed-Emory University Workshop series, which brings economists from around the nation to report on work in progress, continued into its fifth year. The department further extended its work in financial market institutions and instruments. Staff contributed to the understanding of policy-related issues by exploring the economic value and consumer benefits of bank mergers and acquisitions. Secondary and derivative markets formed another focus of interest, resulting in publication of several introductory articles on products such as forwards, futures, swaps, and options and their uses in financial engineering. In the area of regional economics, a major initiative was begun to make analysis and forecasting more rigorous and to link results more closely with the work of the macropolicy team. The macropolicy group, too, moved to fortify its analytical and forecasting efforts, and economists evaluated the policy implications of specific Federal Reserve System activities. Work centered on domestic monetary issues, including a study of the efficiency of monetary policy operating procedures, the use of consumer confidence surveys in policy analysis, and the improvement of the Fed’s discount window as a tool of monetary control-an inquiry undertaken by a visiting scholar. The department’s international economists produced studies on subjects including the information contained in the forward rate in foreign exchange markets, bank regulation across countries, the process of financial liberalization in developing countries, and the effectiveness of policy coordination strategies. Public Affairs. Conferences and seminars for bankers, business economists, educators, staff, and the public were an important focus of educational activities in 1991. With support from the financial services division, supervision and regulation department, and the EFT product management office, the department organized a banking conference featuring prominent industry figures. The public affairs department also worked closely with research staff in cosponsoring a National Association of Business Economists roundtable on southeastern financial and economic conditions. In addition, the department hosted a colloquium in New Orleans on current issues in economics and finance for college professors in Alabama, Louisiana, and Mississippi. Staff worked with supervision and regulation to present a seminar for Atlanta-area senior citizens on banking issues. Department managers also offered three series of informational seminars for support staff on the activities of the System, the Bank, and the research division as well as on resources for responding to public inquiries. Publications staff redesigned the department’s three newsletters-Economics Update, Financial Update, and Regional Update-as well as the Economic Review. The use of recycled paper in all new and reprinted publications was implemented. Department staff, in collaboration with economics teachers in all six District states, produced and distributed a curriculum supplement to accompany the 1991 outlook issue of Regional Update. Statistical Reports. The Atlanta Fed’s statistical reports department introduced electronic filing of several weekly depository institution reports via the Fedline electronic communications system, making it possible for reporting banks to calculate their reserve requirements from actual and estimated data over Fedline and enhancing the department’s ability to receive other reports via diskette. The department supported the Bank’s expanded responsibilities for processing Home Mortgage Disclosure Act reports with data-entry and project-planning assistance. Staff also refined data for Sixth District institutions included in the data base for a newly established National Information Center, containing information on the structure, characteristics, and regulatory relationships of U.S. financial institutions. Staff conducted extensive contingency planning and testing of capacity to recover and perform statistics and reserve accounting mainframe processing from the System’s Culpeper, Virginia, contingency processing center from a local remote site. Such abilities help ensure that data flows to the Board of Governors would not be adversely affected by an emergency in the Atlanta facility. Secretary’s Office. The Bank’s Distinguished Speakers Series had an international orientation in 1991, as Jaime Serra-Puche, Mexico’s Secretary of Trade and Industry, Council of Economic Advisors member John Taylor, and economists Judith Kipper and C. Fred Bergsten all addressed issues in the global economy. Banking consultant Lowell Bryan and economists Henry Kaufman and Francis Schott discussed domestic financial industry and economic concerns. Federal Reserve Governor Edward Kelley spoke to a joint meeting of the Sixth Federal Reserve District’s head office and branch directors. The Advisory Council on Small Business, Agriculture, and Labor held two meetings in which members exchanged views with President Forrestal and Atlanta Fed staff on business and credit conditions in the region. President Forrestal also met twice with the Financial Institutions Advisory Committee, which represents commercial banks, thrifts, and credit unions, to discuss Community Reinvestment Act compliance, the prospects for federal banking legislation, future plans for the electronic funds transfer system, and other topics. CORPORATE S E R V I C E S Payments System Reliability. As another step toward providing continuous availability of its mainframe computer, which makes electronic payments services available to financial institutions and their customers via the Federal Reserve’s telecommunications network, the Atlanta Fed divided its computer system into multiple images to isolate the environment for electronic payments processing. The Bank also initiated maintenance of duplicate copies of critical payments information to serve in case of hardware failure. The Federal Reserve System announced a plan to consolidate all general purpose mainframe computers into centers to be located in Richmond, Dallas, and East Rutherford, New Jersey. Consolidation will not only raise efficiency in the long run by eliminating redundant operations and resources but also improve the reliability of the Federal Reserve payments services. It will also allow the System to provide a more uniform level of customer service. Initial plans call for the transition to take place over a two- to four-year period. Payments System Risk Initiatives. The Federal Reserve Bank of Atlanta implemented the Federal Reserve’s payments system risk policy changes in January 1991. During the year, three phases of software releases were implemented along with a new version of the Funds software, which contains the required , changes for monitoring institutions posting securities collateral for bookentry daylight overdrafts. Additionally, the Risk Reduction Manual and District Procedures were revised to incorporate the 1991 policy changes, and seminars were conducted for large District institutions to provide an overview of proposed posting and policy changes. Software Development Projects. The Atlanta Fed continued the development of a new computer software system for the Federal Reserve’s expense accounting system, known as PACS (Planning and Control System). During 1991 the user group, composed of representatives from all twelve districts, completed the establishment of requirements for the new system. Atlanta’s automation staff completed the system’s general design, which the users approved during December 1991, and made plans to conduct software programming during 1992. The PACS software will be the System’s first major application to use a platform consisting of both mainframe and PC software. In support of the Federal Reserve System’s automation objectives, the Atlanta Fed is in the process of modifying the System customer-billing (accounts receivable) software so that it will process all districts’ billing operations at a single site using one software application. Programming of a Cash Automation System (CAS) was completed in 1991. The software operates on IBM AS1400 midrange computers and automates numerous functions in the District’s cash services that include currency, coin, and food coupon processing, distribution, and redemption. The New Orleans and Atlanta Branches implemented the automated system in 1991, with remaining Branch implementations planned for the first half of 1992. The District continued its leadership in a Systemwide project to enhance financial payments data security using Message Authentication Code (MAC), a form of digital signature that ensures the integrity of a message by indicating whether or not it has been modified. Facilities Planning. With the assistance of a facilities consultant a long-term facilities study for the Atlanta office was conducted focusing on options for the next twenty-five years. A final strategic decision was deferred to allow clarification of three System-level issues-automation consolidation, the future role of the supervision and regulation division, and the check collection same-day settlement policy-that will potentially have a significant impact on future facilities needs. In the interim the facilities strategy includes leasing sufficient space to accommodate operations during the next ten years. An additional floor has been leased at 55 Park Place, site of the supervision and regulation division, to accommodate additional examination staff, to provide staging space for the ongoing Bank renovations program, and to house the auditing and statistical reports departments, which are being temporarily relocated. In addition, a number of leaselpurchase options are under evaluation to meet needs for space to house the Atlanta Fed’s payments operations over the next ten years. Human Resources. In recent years the Sixth District, like most other employers, has seen an increase in work force diversity. In line with this diversity the Atlanta Fed and its branches have seen a significant rise in the number of minorities and women in officer and management ranks. Since 1984 the number of blacks in management has increased 89 percent (from 27 to 51); and the number of Hispanics and I other minority individuals, by 92 percent (from 12 to 23). The number of women in management positions has increased 84 percent (from 76 to 140) over the same period. As a supplement to the Bank’s ongoing supervisory1 management training efforts in all offices, two special programs were introduced in 1991 to strengthen management effectiveness. A new program in leadership was offered for those in presupervisory positions, and a series of workshops and group sessions was held with line managers to stress their role in maintaining an effective employee relations environment. The program, in which approximately 250 staff members participated, covered such topics as the Americans with Disabilities Act, Workforce 2000 issues, and progressive discipline. The Sixth District announced a new Flexible Spending Account benefit option for employees. Under this program staff may establish medical and dependent care accounts that will allow significant tax savings. In addition, the District’s change to self-insured Workers Compensation coverage resulted in significant cost savings in 1991 that promise to continue. To ensure sound compensation philosophy and pay systems, the Sixth District appointed a special senior officer task group to conduct a comprehensive review of compensation programs and to recommend improvements. 6 O A R D OF LARRY L. PRINCE CHAIRMAN Chairman and Chief Executive Officer Genuine Parts Company Atlanta, Georgia EDWIN A. HUSTON DEPUTY CHAIRMAN Senior Executive Vice President-Finance Ryder System, Inc. Miami, Florida LEO BENATAR Chairman and President Engraph, Inc. Atlanta, Georgia Chairman and President Sherman International Corp. Birmingham,Alabama VIRGIL H. MOORE, JR. Chairman First Farmers and Merchants National Bank Columbia, Tennessee ANDRE M. RUBENSTEIN Chairman and Chief Executive Officer Rubenstein Brothers, Inc. New Orleans, Louisiana JAMES B. WILLIAMS Chairman and Chief Executive Officer SunTrust Banks, Inc. Atlanta, Georgia FEDERAL ADVISORY C O U N C I L MEMEER E.B. ROBINSON, JR. Chairman and Chief Executive Officer Deposit Guaranty National Bank Jackson, Mississippi W.H. SWAIN Chairman First National Bank Oneida, Tennessee SAUNDRA H. GRAY Co-owner Gemini Springs Farm DeBary, Florida 6RANCH J. THOMAS HOLTON DIRECTORS BIRMINGHAM ROY D. TERRY CHAIRMAN President and Chief Executive Officer Terry Manufacturing Company, Inc. Roanoke, Alabama JULIAN W. BANTON Chairman, President, and Chief Executive Officer SouthTrust Bank of Alabama, N.A. Birmingham, Alabama WILLIAM F. CHILDRESS President First American Federal Savings and Loan Association Huntsville, Alabama S. EUGENE ALLRED Chairman, President, and Chief Executive Officer Frit Industries, Inc. Ozark, Alabama ROBERT M. BARRETT Chairman and President The First National Bank of Wetumpka Wetumpka, Alabama NELDA P. STEPHENSON President Nelda Stephenson Chevrolet, Inc. Florence, Alabama DONALD E. BOOMERSHINE President Better Business Bureau of Central Alabama, Inc. Birmingham, Alabama JACKSONVILLE HUGH M. BROWN CHAIRMAN President and Chief Executive Officer BAMSI, Inc. Titusville, Florida HUGH H. JONES, JR. Chairman and Chief Executive Officer Barnett Bank of Jacksonville, N.A. Jacksonville, Florida PERRY M. DAWSON President and Chief Executive Officer Suncoast Schools Federal Credit Union Tampa, Florida LANA JANE LEWIS-BRENT Vice Chairman, president, and Chief Executive Officer Sunshine-Jr. Stores, Inc. Panama City, Florida MERLE L. GRASER Chairman and Chief Executive Officer First National Bank of Venice Venice, Florida JOAN D. RUFFIER Member Florida Board of Regents Orlando, Florida SAMUEL H. VICKERS President and Chief Executive Officer Design Containers, Inc. Jacksonville, Florida MIAMI DOROTHY C. WEAVER CHAIRMAN Executive Vice President Intercap Investments, Inc. Coral Gables, Florida A. GORDON OLIVER President and Chief Executive Officer Citizens and Southern National Bank of Florida Fort Lauderdale, Florida ROBERTO G. BLANC0 Vice Chairman and Chief Financial Officer Republic National Bank of Miami Miami, Florida JOSE L. SAUMAT (resigned) President Greater Miami Trading, Inc. Miami, Florida R. KIRK LANDON Chairman and Chief Executive Officer American Bankers Insurance Group Miami, Florida STEVEN C. SHIMP President 0-A-WFlorida, Inc. Owen-Ames-KimballCompany Fort Myers, Florida PAT L. TORNILLO, JR. Executive Vice President United Teachers of Dade Miami, Florida MICHAEL T. WILSON President Vinegar Bend Farms, Inc. Belle Glade, Florida NASHVILLE SHIRLEY A. ZEITLIN CHAIRMAN President Shirley Zeitlin & Co. Realtors Nashville, Tennessee WILLZAMS E. ARANT, JR. President and Chief Executive Officer First National Bank of Knoxville Knoxville, Tennessee HAROLD A. BLACK Professor and Head Department of Finance College of Business Administration University of Tennessee Knoxville, Tennessee JAMES D. HARRIS President and Chief Executive Officer Brentwood National Bank Brentwood, Tennessee VICTORIA B. JACKSON President and Chief Executive Officer Diesel Sales and Service Co., Inc., and ProDiesel, Inc. Nashville, Tennessee EDWIN W. MOATS, JR. (resigned) Chairman and Chief Executive Officer Metropolitan Federal Savings and Loan Association Nashville, Tennessee MARGUERITE W. SALLEE President and Chief Executive Officer Corporate Child Care Management Services Nashville, Tennessee WILLIAM BAXTER LEE I11 Chairman and President Southeast Services Corporation Knoxville, Tennessee N E W ORLEANS JAMES A. HEFNER (resigned) CHAIRMAN President Jackson State University Jackson, Mississippi JO ANN SLAYDON CHAIRMAN President Slaydon Consultants and Insight Productions and Advertising Baton Rouge, Louisiana JOEL B. BULLARD, JR. President Joe Bullard Automotive Companies Mobile, Alabama VICTOR BUSSIE President Louisiana AFL-CIO Baton Rouge, Louisiana STANLEY S. SCOTT (resigned) President Crescent Distributing Company Harahan, Louisiana EARL W. LUNDY Chairman and Chief Executive Officer First National Bank of Vicksburg Vicksburg, Mississippi A. HARTIE SPENCE President Calcasieu Marine National Bank Lake Charles, Louisiana KAY L. NELSON Managing Director Nelson Capital Corporation New Orleans, Louisiana LUCIMARIAN T. ROBERTS President Mississippi Coast Coliseum Commission Pass Christian, Mississippi OFFICERS HEAD O F F I C E ROBERT P. FORRESTAL President and Chief Executive Officer JACK G U Y " ' First Vice President and Chief Operating Officer W. RONNIE CALDWELL' Executive Vice President S E N I O R VICE P R E S I D E N T S PATRICK K. BARRON Senior Vice President (transferred) RICHARD R. OLIVER Senior Vice President and System EFT Product Manager SHEILA L. TSCHINKEL' Senior Vice President and Director of Research EDMUND WILLINGHAM Senior Vice President and General Counsel JOHN M. WALLACE*' Senior Vice President and General Auditor * Management Committee H. TERRY SMITH' Senior Vice President ** Advisor to Management Committee VICE P R E S I D E N T S LOIS C. BERTHAUME Vice President WILLIAM C. HUNTER Vice President FRANCIS J. CRAVEN, JR. Vice President and Director of Human Resources ZANE R. KELLEY Vice President ANNE M. DeBEER Vice President ROBERT E. HECK Vice President (retired) JOHN R. KERR Vice President B. FRANK KING Vice President and Associate Director of Research BOBBIE H. McCRACKIN Vice President and Public Affairs Officer JOHN D. PELICK Vice President MARY S. ROSENBAUM Vice President RONALD N. ZIMMERMAN Vice President A S S I S T A N T VICE P R E S I D E N T S JOHN H. ATKINSON Examining Officer ALBERT E. MARTIN 111 Assistant General Counsel RONALD J. ROBINSON Assistant Vice President JOHN R. BRANSCOMB Assistant Vice President NANCY R. McCRUMMEN Assistant Vice President MELINDA J. RUSHING Assistant Vice President CHRISTOPHER G. BROWN Assistant Vice President RUTH W. MEDNIKOW Assistant Vice President ROBERT T. SEXTON Assistant Vice President JENNIFER H. BUDDIN Assistant Vice President AMELIA A. MURPHY Ex~aniningOfficer GENE D. SULLIVAN Research Officer (retired) DAVID F. CARR Assistant Vice President ALVIN L. PILKINTON, JR. Assistant General Auditor LARRY D. WALL Research Officer CHAPELLE D. DAVIS Examining Officer TED G. REDDY 111 Assistant Vice President JESSIE T. WATSON Assistant Vice President WILLIAM B. ESTES I11 MARION P. RIVERS 111 Examining Officer ADRIENNE M. WELLS Aa?jstant V i F'resident and Aa?jstantEFTproductManager Examining Officer JAYNE FOX-BRYAN Assistant Vice President and Corporate Secretary WILLIAM T. ROBERDS Research Officer DAVID D. WHITEHEAD Research Officer (retired) BRANCHES ATLANTA DONALD E. NELSON Senior Vice President and Branch Manager WARDLYN M. BASSLER Vice President and Assistant Branch Manager JAMES L. BROWN Assistant Vice President ROBERT I. McKENZIE Assistant Vice President ROBERT A. LOVE Assistant Vice President WILLIAM R. POWELL Assistant Vice President FREDERIC L. FULLERTON Assistant Vice President JAMES M. McKEE BIRMINGHAM FREDERICK R. HERR* Senior Vice President and Coordinating Branch Manager ROBERT G. DOLE Assistant Vice President and Assistant Branch Manager EDWARD B. HUGHES Assistant Vice President * Management Committee JACKSONVILLE JAMES D. HAWKINS* Senior Vice President and Coordinating Branch Manager ROBERT J. SLACK Assistant Vice President and Aasistant Branch Manager RICHARD L. BERRY Assistant Vice President JEFFREY L. WELTZIEN Assistant Vice President LEE C. JONES Assistant Vice President * Management Committee MIAMI JAMES T. CURRY Vice President and Branch Manager VICKI A. ANDERSON Assistant Vice President JUAN DEL BUST0 Assistant Vice President and Assistant Branch Manager FRED D. COX Assistant Vice President ROBERT de ZAYAS Assistant Vice President NASHVILLE MELVYN K. PURCELL Vice President and Branch Manager WILLIAM W. DYKES Assistant Vice President E. CHANNING WORKMAN, JR. Assistant Vice President and Assistant Branch Manager MARGARET A. THOMAS Assistant Vice President JOEL E. WARREN Assistant Vice President N E W ORLEANS ROBERT J. MUSS0 Vice President and Branch Manager AMY S. GOODMAN Assistant Vice President WILLIAM H. SMELT Assistant Vice President and Assistant Branch Manager WILLIAM E. THOMPSON I11 Assistant Vice President PATRICIA D. VAN de GRAAF Assistant Vice President S T A T E M E N T O F CONDITION Assets Gold Certificate Account December 3 1,1990 $ Special Drawing Rights Certificate Account 465,000,000 December 31,1991 $ 479,000,000 303,000,000 53,559,550 8,442,763,252 9,115,275,522 581,434,267 895,199,642 58,207,950 56,962,197 Other Assets 3,533,589,537 3,003,780,411 Interdistrict Settlement Account 2,887,248,610 1,987,388,156 $916,324,803,166 $15,886,915,563 $11,768,411,002 3,739,887,575 $11,425,796,490 225,759,680 792,359,948 99,730,709 81,241,610 $15,833,788,966 $15,401,317,563 coin Loans and Securities Items in Process of Collection Bank Premises Total Assets 303.000.000 I , 46,309,635 Liabilities Federal Reserve Notes Deposits* Deferred Credit Items Other Liabilities Total Liabilities 3,101,919,515 Capital Accounts Capital Paid In $ Surplus 245,507,100 $ 242,799,000 245,507,100 242,799,000 491,014,200 $ 485,598,000 $15,886,915,563 Total Capital Accounts $ Total Liabilities and Capital Accounts $16,324,803,166 *Includes depository institution accounts, collected Iunas aue to other Federal Reserve Banks, U.S. Treasurer-General a o count, other and miscellaneous deposits STATEMENT OF EARNINGS A N D EXPENSES Eamhgs and Expenses December 3 1 , 1 9 9 0 December 3 1 , 1 9 9 1 $1,098,795,378 $997,067,482 123,553,422 129,128,941 12,996,381 13,482,866 $ 962,245,575 $854,455,675 211,986,696 38,592,616 10,157,200 10,430,300 Federal Reserve Currency Cost 5,840,582 11,484,999 Cost of Unreimbursed Treasury Services 6,915,174 6,844,689 $1,151,319,315 $864,288,303 14,123,790 $ 14,806,390 1,110,510,675 852,190,013 26,684,850 (2,708,100) $1,151,319,315 $864,288,303 Surplus January 1 $ 218,822,250 $245,507,100 Surplus December 31 $ 245,507,100 $242,799,000 Current Income Current Expenses Cost of Earnings Credits Current Net Income Net Additions (Deductions)* Assessment for Expenses of Board of Governors Net Income before Payment to U. S . Treasury Distribution of Net Earnjngs Dividends Paid Payments to U.S. Treasury (Interest on Federal Reserve Notes) Transferred to Surplus Total Income Distributed $ Surplus Account *Includes gainsflosses on sales of U.S. government securities and foreign exchange transactions S U M M A R Y OF O P E R A T I O N S 1990 Services to Depository Institutions Items (thousands) 1991 Percent Change From One Year Ago Items (thousands) Percent Change From One Year Ago Check Clearing U.S. Government Checks Processed Commercial Checks Processed 74,069 1.2 69,034 -6.8 2,815,922 8.3 2,894,449 2.8 236,344 20.1 261,681 10.7 9,075 6.8 9,522 4.9 Electronic Payments ACH Commercial and Government Payments Processed Wire Transfers of Funds Cash Services 114 -3.4 98 49 -10.9 48 -2.0 1,606 -12.3 1,878 16.9 59 -6.3 51 -13.6 Noncash Items Processed -20.8 628 -21.1 Definitive Safekeeping Receipts -28.4 95 -27.5 6,783 -17.7 6,954 328 22.4 251 -23.5 Currency Orders Processed Coin Orders Processed -14.0 Loans to Depository Institutions Loans Processed* Securities Services On-Line Bookentry Transfers Services to U.S. Treasury U.S. Savings Bonds Issued U.S. Savings Bonds Redeemed 2.5 Other Treasury Issues 89 -15.2 68 -23.6 5 -28.6 3 -40.0 Deposits to Treasury Tax and Loan Accounts 829 -2.4 747 -9.9 Food Coupons Destroyed 460,273 Issued Redeemed *Numbers shown are actua, not tnousands. 28.4 490,224 6.5 EDERAL RESERVE BANK O F ATLANTA For additional copies contact: Public Affairs Department Federal Reserve Bank of Atlanta 104 Marietta Street, N.W. Atlanta, Georgia 30303-2713 MI521-8020 printed on recycled paper