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C O N T E N T S
2. A Brief History of US. Central Banking

3. ChangingTimes, Unchanging Commitment
5. Message from the President

6. Changes in the Economy
10. Changes in Roles and Responsibilities

14. Changes in Borders
18. Changes in Payment Systems

22. Directors

30. Officers

33. Financial Reports


sztccess of

CENTRAL
BANKING
ape the Fed into the central bank we are today.
The following are some of the most important milestones.
I

1783-After the Revolution
Currency notes known as "Continentals" were issued in such large
quantities during the RevolutionaryWarthat the public eventually lost

At the urging of Treasury Secretary Alexander
established the First Bank of the United States. Itwas the nation's first
attempt at a central bank and was given a twenty-yea
1836-lsckSon Ham the central Bank
President Andrew Jackson. a central bank foe. ended central
by failing to renew the chahr of the Second Bank of the Uni
1836-63-The kee Banklng Era
State-chartered banks and unchartered "free" banks took how. They
issued their own notes and offered checking accounts, known as
demand deposits, but often without sufficient reserves, leading to
instability.

During the Civil War, Congress passed the National Banking Act,
providing for nationally chartered (and regulated) banks whose notes
had to be backed by US. government securities. This action brought
national currency. State banks continued to flourish
ing popularity of demand deposits.

e worst depression the United States
Cleveland appealed to banker J.F! M
$62 million gold bon
nd thus prevented a financial c
made it clear that the nation's




1914-The Fed Selects Atlanta
The Reserve Bank Organizing Committee chose Atlanta as the site for
one of twelve regional Reserve Banks that would make up the Federal
Reserve System. On November 16, 1914, the Federal Reserve Bank
of Atlanta officially opened for business.
1915-The Flrst System Branch
New Orleans was not selected to be a regional Reserve Bank city, but
following protests by local leaders and a mass demonstration by New
Orleans citizens, district lines placed southern Louisiana in Atlanta's
region. New Orleans became the first branch in the Fed system.
1929-33-The Stock Market Crash
The stock market crashed on "Black Thursday," October 24, 1929.
Between 1930 and 1933 nearly 10,000 banks failed. In March 1933,
President Franklin Delano Roosevelt declared a "bank holiday."
1933-35-Congress Acts
Congress passed the BankingAct of 1933, known as the Glass-Steagall
Act, separating commercial and investment banking.The BankingAct of
1935 established the Federal Open Market Committee (FOMC) as a
separate legal e n t i i and removed the U.S. Treasury Secretary and the
Comptroller of the Currency from the Fed's governing board.
1951-The Treasury Accord"
As the Korean Conflict broke out, the Fed reached agreement with the
Treasury to end the long-standing practice of supporting government
bond interest rates to help meet fiscal policy goals. This action

1951-70-The Martln Era
Standing up to political pressure, Fed Chairman William McChesney
Martin solidified the Fed's position as "independent within the
government." He watched price pressures closely and remarked that
the Fed's public policy duty was to "take away the punch bowl just
when the party is getting started."
1980-Reform and Modernization
The Monetary Control Act of 1980 initiated a period of financial
regulatory reforms, requiringthe Fed to price its payment services and
allowing banks to pay interest on checking accounts. The next two
decades saw further reforms, culminating in the Gramm-Leach-Bliley
Act of 1999, which essentially overturnedthe Glass-SteagallAct of 1933.
1982-The End of High Inflation
Followingseveral years of rising prices, Fed Chairman Paul Volcker led
the effort to quell the double-digit inflation of the 1970s. By keeping
a tight rein on the money supply, the Fed curbed inflation and steered
the economy back on track.
1987-The Longest Expansion
In 1987 Alan Greenspan took over as Fed chairman. During his
tenure, his commitment to maintaining a low-inflation environment
has helped the U S . economy to enjoy the longest economic expansion in its history.
2000-Movlng Fomrd
Today the Fed stands as a leader among the world's central banks.
Its commitment to price stability lays the foundation for sustainable
economic growth. Its role in the payments system enables consumers and businesses to conduct transactions seamlessly. And its
leadership as a banking regulator and the lender of last resort helps
ensure a sound financial system.




During the United States’ first 125 years, the country’s
economic growth was rapid yet unstable. It was marked
by bank runs, financial crises, recessions, and depressions. In fact, during the nineteenth century more than
30,000 forms of currency existed in the United States.
Unfortunately, many banks that issued currency did not
have the financial resources to back it, and these banks
ultimately failed. Even with the advent of a uniform
national currency after 1863,financial crises continued to
disrupt business activity and overall economic performance into the early twentieth century. The American
people began to recognize the need for a central banking
institution to address these and other problems.
After lengthy debate and hard-won compromise, the
Federal Reserve Act was signed into law by President
Woodrow Wilson in 1913. The establishment of a decentralized central bank, with twelve regional Reserve
Banks, was deemed essential to shield the country from
the shifting winds of politics that could have troubled a
single central bank located in either capital-heavy New
York or politically oriented Washington.
In 1914, in cities across the nation, twelve Reserve Banks
opened for business. The selection of Atlanta as a Reserve
Bank site had been far from inevitable as many cities had
campaigned for the honor.
daving a Reserve Bank in the Deep South was panicu
larly important to maintaining the cohesion of the nation.
No other region suffered more from the Civil War, Reconstruction, and the lack of capital. The South remained
poor while industrial centers in other regions thrived. The
case for placing a Reserve Bank in Atlanta was based
largely on its being the transportation hub for the
Southeast and a burgeoning banking center. But it probably didn’t hurt Atlanta’s bid that Treasury Secretary
William McAdoo was born and raised in Atlanta and that
President Wilson launched his career here.
History would prove the selection of Atlanta to be a wise
one as the Federal Reserve Bank of Atlanta and its sh
offices in the Southeast have demonstrated a commit.
ment to serve the region and help secure its financial
well-being.
The Fed’s original goals were to create an elastic currencj
that would better respond to economic circumstances; to
foster a safer, more stable banking system; and to maintain a reliable and efficient payment system. The Fed’s
duties included maintaining the Treasury Department’s
account, issuing currency, and transferring funds from
one depository institution to another. Congress later
broadened the Fed’s goals to include promoting low
nemployment, steady growth, and stable prices.

*

‘he Atlanta Fed’s devotion to the founding principles
necessary to fulfill its public policy mandate-principles like integrity, efficiency, effectiveness, and prudence-has been steadfast despite many changes over
ime. This commitment remains constant as we enter a
iew millennium.


4


M E S S A GF R O M
E
THE PRESIDENT

To this end, we have maintained a solid record

for efficient performance while striving to be
more innovative and responsive to the financial
system’s needs. W have provided analysis and
e
leadership to shape important public policies

that help underpin an ever-changing economyregionally, nationally, and even internationally.
And we have deepened our commitment to
being a vibrant part of the communities we
serve while forging strong cooperation with
other Reserve Banks to more effectively serve a
nationwide banking system.
This year’s annual report has a retrospective

focus that reflects our history but also looks
The promise of our future is linked to the

ahead to the new millennium. The report

success of our past. In the eighty-sixyears since

reviews the origins of our institution and the

the Federal Reserve Bank of Atlanta was

progress made over the past century-how

established, the southeastern economy has

experienced change and responded to it with

experienced remarkable change-in

popula-

vision. W hope this publication promotes your
e

tion, industry, banking, and more. W at the
e

understanding of the Atlanta Fed and assures

Atlanta Fed have embraced and championed

you of our unwavering commitment to remain a

change. Yet the core principles we have long

guardian of the Southeast’s and the nation’s

valued-integrity,

economic well-being.

efficiency, effectiveness, and

we

prudence-remain unchanged.
During the past year we have worked to further
our progress toward a more efficient, effective
payment system; to implement better ways of

JACK
GUY”

supervising today’s rapidly changing banking
institutions; and to contribute deeper insights
into formulating monetary policy appropriate to
our complex, dynamic economy.




5




I




Changes i n
T H E

E C O N O M Y

In 1913 the area that would make up the Sixth Federal Reserve District was poor,
with depleted lands and limited capital. The region’s primary economic challenge
was overcoming its dependence on a single volatile commodity-King Cotton.
In addition, many of the region’s state-chartered banks were small, inconsistently
regulated, and hard-pressed to support their local economies in times of stress. Loan
rates were high and bank failures co
perity had bypassed the Southeast.
Over the next several decades the Southeast became increasingly industrialized.
Textile and apparel manufacturers were drawn by the region’s raw materials and
low-cost labor, and abundant timber made the region a prime supplier for the
home-building industry nationwide. Beginning in the 1970s massive in-migration
spurred income growth, construction, and a booming service sector. Today the
Southeast is one of the nation’s most rapidly growing areas. The region’s economyhas
diversified to become much less dependent on agriculture and more oriented to
high-tech, higher-wage industries like automobile manufacturing as well as services,
from tourism to health care.
A Shift in Focus

As the southeastern economy has grown and transformed over the decades, the
Atlanta Fed too has changed, sometimes helping to shape and sometimes responding
to the evolving economy. For example, when the region’s economy was rural and
agrarian, the Atlanta Fed met banks’ needs mainly by processing cash and providing
them with discount window loans to meet temporary liquidity shortages.

C H A N G E S

I N

Alabama


8


Alabama, once renowned for steel
production, is recognized today
for space technology.

Events in the 1930s, especially the Great Depression, fundamentally reshaped the Fed.
Providing liquidity locally in times of stress through discount window lending as a
means of stabilizing the economy took a back seat to buying and selling government
securities. These open market operations were directed by the Federal Open Market
Committee, made up of the members of the Federal Reserve Board of Governors and
Reserve Bank presidents.

This development stimulated the Atlanta Fed’s need for more information on the
regional and national economy and a greater understanding of economics. The Atlanta
Bank rose to the occasion by establishing a strong economic research department that
not only conducted analysis but also reached out across the region through speeches
and reports to encourage further economic diversification.
A Commltment to Efficiency

Through its commitment to efficient operations, both internally and through its services
to financial institutions, the Atlanta Fed has contributed in its own way to a stronger
banking system in the region. In the 1970s, for example, the Atlanta Fed promoted the
development of an alternative, electronic retail payment method-the automated
clearinghouse (ACH). Through support of high-volume electronic payments like direct
deposit of payroll, the ACH has made the entire nation’spayment system more efficient
and reliable. That commitment continues today through the work of the Retail
Payments Office, based at the Atlanta Fed but working on behalf of the entire Federal
Reserve System to make the national retail payment system as efficient, accessible,
reliable, and secure as technology will permit.




I N

C H A N G E S

Florida

The world has enjoyed Florida citrus
products for decades, but Florida also
has become a tourist playground.

I




I

-

..

t

.

\

_

.

Lending to local member banks in
times of stress was once the Fed's chief rn,eun,.q
---- - _
o stabilizing economic activity, But econometric
f
modeling is now an important tool for informing
moneta7.ypolicg decisions that help
stabilize the economy
II

.

3




Changes

in
R O L E S

A N D

R E S P O N S I B I L I T I E S

The Federal Reserve Bank of Atlanta was established during a time of debilitating
business conditions. Large banks in the Northeast were the major source of credit
and capital to the Southeast’s many small, often unsound banks. Before long, the
Atlanta Fed became a stable and trusted source of funds for the region, and over time
the Atlanta Bank’s examiners established a solid standard of prudence for the region’s
banking system.
Rediscounting loans and Handling Government Securities

In its early years the Atlanta Fed provided considerable currency to local banks, but
its links to nationwide check-clearing services, authorized by the legislation that
established the Fed, were used sparinglyat first. In its first year of operation the Atlanta
Fed processed fewer than 500 checks a day. It also took some time for the Bank to
assume its envisioned role as a lead supervisor of state-chartered banks. Capital-poor
banks in the Southeast were slow to subject themselves to the Fed’s supervision or its
requirement that checks cleared through the Fed be accepted at face (par) value and
not redeemed below par. Only three state-chartered banks had joined the Atlanta Fed
after two years of operations.
Whatever contribution Atlanta Fed staff made to the safety and soundness of southeastern banks in these early days came through monitoring the creditworthiness of
banks in conjunction with discount window lending-the main activity of the Atlanta
Fed’s thirteen original employees. In this role the Atlanta Fed made secured loans
to member financial institutions. With this infusion of liquidity, these banks could
make additional loans to their customers. Such loans helped growers avoid having
to sell their crops at times when prices were low and served to keep locally strained
credit conditions from cascading into wider economic problems.

C H A N G E S

I N

Another significant activity of the Atlanta Fed in its early years-and again during
World War 11-was handling government securities transactions spurred by the war
efforts. World World War I caused unprecedented economic change across America,
including the expansion of government debt. The volume of government securities
work ebbed over time, in large measure as a result of technological innovation.
By the 1960s much of the paperwork had been computerized on the Fed’s book-entry
system. Today most of the securities services performed on behalf of the U.S.
government have been centralized to a few Fed offices nationwide.

Georgia


12


Georgia boasts a long tradition as a
transportation center and is now the
site of the world’s busiest airport.

Bank Supervision

Other responsibilities grew in importance after a slow start. The Bank created a bank
examination department in the 1920sto supervise the growing number of state member banks. Examiners monitored banks through such activities as verifying balance
sheets and generally placing sole reliance on on-site visits. Today most monitoring
occurs remotely as a supplement to on-sitework. Bank supervision now focuses on the
risk-management processes financial institutions have in place, critiquing in-house
models and testing portfolios with tools such as credit-risk and default models.
Check Processing

By the 1930s, check processing had become one of the Atlanta Fed’s primary activities.
Today the Sixth Federal Reserve District processes the highest check volumes in the
Federal Reserve System even though the Atlanta Fed has long been a leader within the
Fed system in supporting the transition to electronic payment methods. This transition
is already reflected in the slowing growth in the volume of checks processed at the
Atlanta Bank and in the Bank’s increasing use of electronic check presentment.
Econometric Modeling

Over the years the Atlanta Fed’s primary focus in regard to monetary policy and
economic stabilization has changed significantly as well. W have shifted from cone
ducting credit analyses of local bank loans and balance sheets to gathering statistics;
drawing insightful information on business, banking, consumers, and labor from our
directors; and conducting advanced econometric modeling.
In recent years, such modeling has become more refined. Whereas once hundreds of
factors were weighed against each other simultaneously to simulate the economy as a
whole, the Atlanta Fed’s latest econometric model focuses on a fewvariables and their
interrelationships. This model, the result of over a decade of research and development,
continues to gain the respect and recognition of policymakers and economists.




C H A N G E S

I N

Louisiana

Long regarded a a place for entertainment
s
Louisiana is now a center of technologically
advanced oil and natural gas drilling




---

e -




Changes i n
B O R D E R S

A decentralized central bank sounds like a paradox. The Atlanta Fed, as one of twelve
regional Reserve Banks, initially coped with a need to serve both regional and
national interests by keeping a regional focus dedicated to locally accommodating
the needs of its constituents. Founded as a decidedly southern institution and
shaped early on by southern business and banking leaders, the Atlanta Fed was
keenly aware of the difficulties facing its region and stood ready to help stabilize and
bolster a predominately agrarian economy.
From the outset the Atlanta Fed sought to carry out its mission throughout its
geographic district. After creating the Federal Reserve System’sfirst branch in New
Orleans in 1915, the Atlanta Bank added branches in Birmingham, Jacksonville, and
Nashville within a few years to meet the needs of banks in these commercial
centers. In 1923 the Atlanta Fed extended its service outside its borders to the
dollar-based economy of Cuba, opening a currency office in Havana, which remained
in operation until 1938. In the 1970s the Bank extended its check-processing and
cash services to the booming south Florida economy with an office in Miami that
later became a full-scale branch, the last to be added to the Federal Reserve System,
in 1975.
Today the Federal Reserve Bank of Atlanta continues to transcend old borders-not
jurisdictionally but rather by contributing to program and policy debates that affect
the region, the nation, and the world.
A Global Perspective

One example of the Atlanta Fed’s expanded “borders” is the Bank’s Latin America
Research Group, whose periodic reports and conferences advance understanding
about a region of the world with increasingly close trade ties to the Southeast and the
United States. The Bank’s supervision staff follow the banking industry in Latin
America, meeting regularly with the region’s bank supervisors and central bank
officials to stay informed about market conditions. In addition, as Latin American
countries rely more on the U.S. dollar for business transactions, our Miami branch has
begun to process currency shipped to and from a number of these countries.

C H A N G E S

I N

Mississippi


16


Cotton has been replaced by casznos
as one of Mwswszppz’spramary sources
of income

The Gramm-Leach-Bliley Act

Boundaries have also changed over the last decade along business lines. Financial
deregulation has had a profound effect on the Fed’s supervisoryactivities. One of the
most recent, landmark steps toward deregulation, the Gramm-Leach-BlileyAct of
1999, formally ended the boundaries between insurance, underwriting, and banking
in the financial services industry. The Federal Reserve now has umbrella supervisory
authority over financial services holding companies that can engage not only in banking but also in insurance and brokerage services. These changes have required the
Atlanta Fed to alter its supervisory staff‘s skill sets and organizational structure and
to attract, train, motivate, and retain a workforce with the knowledge and experience
to supervise today’s more complex banking institutions.
The Emergence of Specialist Banks

Borders among bank regulators have also had to change. As a result of the growth,
both in size and complexity, of the Southeast’s banking organizations and the
movement to interstate banking, partnerships with state and federal supervisors
have had to be strengthened. Moreover, consistency among all Fed districts has
become more significant. Banks today--especially interstate banks-want a streamlined supervisory structure with fewer points of contact rather than a host of
federal and state agencies. Accordingly,the Fed of the new millennium must employ
more collaborative business practices in this decentralized, deregulated financial
environment. The year 2000 saw many Federal Reserve Banks evolving toward
cooperative centers of expertise while still finding ways to carry out their
responsibilities regionally. The Atlanta Fed has deepened its expertise in regard to
wealth management by commercial banks on behalf of their customers, with
particular focus on Latin America. This shift is important as the financial industry’s
horizons expand and the scope of services offered becomes as critical as the
geographic region served.




C H A N G E S

I N

Tennessee

~

The sound of saws and lumberjacks
has given w a y to the
sound of country music.




I
I

t




Changes i n
P A Y M E N T

S Y S T E M S

The ways consumers and businesses pay for transactions have undergone many
changes since the Fed’s inception. In 1929, for example,the U.S.Treasury Department
introduced smaller-sized, more durable currency. The new bills were also more
difficult to counterfeit. Again, in the 1990s the Treasury enhanced currency with a
number of counterfeit-deterring features. In both cases the Fed played an important
role in expediting the changeover. And because of a strong economy and the ready
availability of cash from automated teller machines, currency continues to grow in
usage even while new methods of payments are rapidly coming on line.
Checks continued to grow for decades despite predictions of a decline in usage after
the advent of computers in the 1960s. The Atlanta Fed’s check volume leveled off in
2000, but it is unlikely that consumers will soon abandon this convenient, low-cost
payment method.
New Payment Methods

Many people think of credit cards as “plastic money,” but a credit card really represents loans that the consumer pays back with a check. Debit cards, in contrast, allow
consumers to make payments electronically from their checking accounts without
writing a check. Smart cards use computer technology imbedded in the card to store
money for small-value transactions or information such as personal security data.
These methods still account for a small share of retail payments, but together these
alternatives represent the largest share of new growth.
While the market will ultimately determine which of these payment methods proves
most popular, the Atlanta Fed will continue to seek w y to process as efficiently as
as
possible its share of the huge volume of paper checks-about 68 billion nationallythat are written each year. One way of improving efficiency is by “electronification”
of the check, which involves capturing a digital image of the check and delivering
this information by electronic transmission to the bank on which it is drawn. The
digital information can also be archived and made available to customers as needed.
By eliminating the need to deliver paper checks, the whole process cuts costs, time,
and labor. The Fed now provides imaging services for depository institutions and the
US. Treasury.




2
0

leading the System’s Retail Payments

The Atlanta Fed is also playing a leadership role nationally in other efficiencyenhancing changes through its Retail Payments Office. Based in Atlanta but working
on behalf of the entire Federal Reserve System, this office is coordinating strategic
efforts like the electronification of the check, a survey of check usage, and standardization of the infrastructure by which checks are processed and imaged. The
office also coordinates cooperative efforts with other organizations, and even other
countries, to promote the electronic method of making small-dollar, high-volume
payments-the ACH.

MEETI NG TOMo R ROW’ s C HA LLENG ES
The Federal Reserve Bank of Atlanta and the Federal Reserve System have overcome
numerous challenges and navigated many changes during the past century. In the
beginning, the Atlanta Fed had to prove that it could provide valuable services to the
Southeast. The Bank adapted quickly to the region’s unique conditions and soon
became a vital part of its economy. As times have changed, so have the Fed’s services
through the determination and dedication of its staff, new legislative requirements,
and the use of advanced systems and technology.
As the pace of technological change accelerates, challenges will undoubtedly arise that
have yet to be imagined. In such an environment, it is obviously difficult to foresee how
the Bank’s roles and responsibilities will change by the end of this decade, much less
the end of the century. What is certain is that the Federal Reserve Bank of Atlanta is
committed to meeting new challenges with the same vigor, creativity, efficiency, and
standard of excellence that have made it a strong part of the nation’s dynamic central
banking system.




21




Federal Reserve Banks each have a board of nine directors.
Directors provide economic information, have broad oversight responsibility for their Bank’s operations, and, with
Board of Governors approval, appoint the Bank’s president
and first vice president.

Six directors-three class A, representing the banking
industry, and three class B-are elected by banks that are
members of the Federal Reserve System. Three class C
directors (including the chairman and deputy chairman)
are appointed by the Board of Governors. Class B and C
directors represent agriculture, commerce, industry, labor,
and consumers in the district; they cannot be officers,
directors, or employees of a bank; class C directors cannot
be bank stockholders.
Fed branch office boards have five or seven directors; the
majority are appointed by head-office directors and the rest
by the Board of Governors.










A

-

-_

-*-

F










Small Business,
Agriculture, and Labor
A D V I S O R Y

% mACUFF
w
Deputy Director
AFL-CIO Midwest Region
Chicago, Illinois

B m BERRY
Managing Partner
Huntland Farms
Chickamauga, Georgia

R O W EDWARDS

C O U N C I L

MELVINN
HRI
O
District Vice President
international Bmtherhood
of Electrical Workers
Birmingham, Alabama

RITA MITCHELL
Vice President
SunTrust Securities Inc.
Nashville,Tennessee

President and
Chief Executive Officer
Evans Pmpetties Inc.
Vem Beach, Florida

RICHARD RAY
President
Georgia AFL-CIO
Atlanta, Georgia

CATHY Elus
President
Atlanta Classic Cars
Decatur, Georgia

WILLIAM ROCHEUE

DONNA
GIBBS

JAMES SANFORD

President
First Coast Systems
Jacksonville, Florida
KARIN GRANT-HOPKINS
President
Multi Image Resource Gmup
New Orleans, Louisiana

S w HARDY
m
President/Principal Consultant
Hardy Ink
Daphne, Alabama




Owner
Royal Oaks Farms
Nunnelly, Tennessee
Chairman of the Board
Home Place Farms
Pramille, Alabama

THOMFSON
President and
Chief Executive Officer
Cement Industries Inc.
Fort Myers, Florida

ROYWARD
President and
Managing Partner
Horne CPA Group
Jackson, Mississippi

29




Other
C O R P O R A T E

O F F I C E R S

SENIORVICE PRESIDENTS
DONALD NELSON
E.

FRANK CRAVEN
J
.
JR.

EDMUND LLINGHAM
WI

Financial Services Central

General Counsel
Legal Department

ZANE KELLEY
R.

Human Resources/
Service Departments

W
A
M
L
II

JOHN KERR
R.
District Building Projects

VICE PRESIDENTS
LOIS C. BERTHAUME

T ROBERDS
.

Supervision and Regulation Division

Supervision and Regulation Division

Research Division

1
.
SUZANNA Cosrmo

B. FRANK NG (RETIRED)
KI
Associate Director of Research
Research Division

Check Relay

Supervision and Regulation Division

THOMASCUNNINGHAM
J
.

BOBBIEH. MCAK
CRCN
I

Associate Director of Research
Research Division

Public Affairs Officer
Public Affairs Department

GERALD DWVER
P.

ADRIENNE WELLS
M.
System Retail Payments Office

RONALD ZIMMERMAN
N.
Supervision and Regulation Division

ROBERT MCKENZIE (RESIGNED)
1.

Research Division

Check Standardization

CYNTHIAC. GI
O
N
D
W

Supervision and Regulation Division

RICHARD JONES
A.
Deputy General Counsel
Legal Department

ASSISTANT I C E
V

LARRY J SCHUK
.

JOHN . PEUCK
D
Systems/lnformation Security/
Cryptographic Development
and Support

PRESIDENTS

VC I A. ANDERSON
IK

CAROLYN HWY
C.

SUSAN1 ROBERTSON
.

System Retail Payments Office
Miami Office

Supervision and Regulation Division
Miami Office

System Retail Payments Dffice

EDWARD ANDREWS
C.

JANE^ A. HERRING

System Retail Payments Office

Service Department

Accounting Department

JOHN ATKINSON
H.

SUSAN HW

Supervision and Regulation Division

JOHN BRANIGIN
S.
Check Standardization

1
JAMES .BROWN
Human Resources Department

JOANH. BUCHANAN

Assistant General Counsel
Legal Department

MARY KEPLER
M.
Automation Operations

JACQUELYN LEE
H.
Systems Department

MELINDA RUSHING
1
.
M.
ROBERT SCHENCK
Supervision and Regulation Division

ROBERT S
T
.

~

N

Financial Services Support

w.

DV
AI
D
! I"l
hI t
Supervision and Regulation Division
T R. SMITH
M
I

Supervision and Regulation Division

ALBERT M RN 111
E. A I

Community Relations Officer
Public Affairs Department

DAVID E C R
AR

Assistant General Counsel
Legal Department

ARUNA
SRINIVASAN

Human Resources Department

ROBERTOC A G (RESIGNED)
J HN
.

D NE A. MASLANEY
A IL

Research Division

Financial Services
Technologies and Support

CHAPELLE DAVIS
D.

MARY MCCORMICK
M.

Credit and Risk Management

ELLISW TALLMAN
.
Research Division

EDWINAM. TAYLOR

Supervision and Regulation Division

Planning and Control Department

Statistical Repohs Department

J COURTNEY
.
DUFRIES

MARIEE. MCNALLY

IARRY
D. WALL

Community Affairs Officer
Supervision and Regulation Division

J STEPHEN
.
FOLEY

Facilities Management

Research Division

ALVIN 1 PILKINTON
.
JR.

JULIUSG. WEYMAN

Supervision and Regulation Division

Assistant General Auditor
Auditing Department

JAYNE
Fox

Check Relay

TED6. REDDY
111

Corporate Secretary
Corporate Relations Department

District Building Projects

JOHN . HANNAN
1
JR.

Supervision and Regulation Division

Cryptographic Development and
SupporVlnformation Security

JOHN ROBERTSON
C.




MARION RIVERS111
F?

Research Division

31

Branch
O F F I C E R S

ATLA NTA

MIAMI

JAMES M. MCKEE

J M E S T. CURRY 111
Vice President and Branch Manager

Vice President and Branch Manager

JEFFREY1 W U ~ E N
.
Vice President
Payment Services

MARIE GOODING
C.
Assistant Vice President
and Assistant Branch Manager

CHRISTOPHER -DER
N.
Assistant Vice President

ROBERT LOVE
A.

JUAN D U BUSTO
Assistant Vice President
and Assistant Branch Manage1

FREDD. Cox
Assistant Vice President

ROBERT DE ? h Y B
A.
Assistant Vice President
ROBERT MORANDO
K.
Assistant Vice President

Assistant Vice President

WILLIAM R. POWEU
Assistant Vice President

NASHVILLE
M m K. PURCEU

BIRMINGHAM

Senior Vice President
and Branch Manager

ANDRET. ANDERSON

JONES
L E
Vice President and
Assistant Branch Manager

Vice President and Branch Manager

MARMRET A. THOMAS

c.

LEAH 1 DnvENwm
.

Assistant Vice President
and Assistant Branch Manager

Assistant Vice President

TREV BROW
6.

ANNITA MOORE
T.

Assistant Vice President

Assistant Vice President

FREDRIC . FLEN
1 ULRN
I

J O B E. WARREN
Assistant Vice President

Assistant Vice President

CHARLES PRIME
W.
Assistant Vice President

NEW ORLEANS
JACKSONVILLE
ROBERT 1 SLACK
.
Vice President and Branch Manager

ROBERT Musso
J.
Senior Vice President
and Branch Manager

Amv S. GOODMAN

CHRISTOPHER OAKLEY
1
.

Vice President and
Assistant Branch Manager

Assistant Vice President
and Assistant Branch Manager

W. JEFFREYDEMNE

DARRIN FINLEY
0.
Assistant Vice President

KATHLEEN L~UGHMAN
Y
.
Assistant Vice President

SHIRLEY PYATT
0.
Assistant Vice President




32

Assistant Vice President

EDWARD HUGHES
6.
Assistant Vice President

EVEITE H. JONES
Assistant Vice President

PATRICIA VAN DE GRAM (RESIGNED)
D.
Assistant Vice President




M A N A G E M E N T ’ S


34


A S S E R T I O N

To the Board of Directors of the
Federal Reserve Bank of Atlanta
The management of the Federal Reserve Bank of Atlanta (“FRB Atlanta”)
is responsible for the preparation and fair presentation of the Statement of
Financial Condition, Statement of Income, and Statement of Changes in Capital
as of December 31,2000 (the “Financial Statements”). The Financial Statements
have been prepared in conformity with the accounting principles, policies, and
practices established by the Board of Governors of the Federal Reserve System
and as set forth in the Financial Accounting Manual for the Federal Reserve
Banks, and as such, include amounts, some of which are based on judgments
and estimates of management.
The management of the FRB Atlanta is responsible for maintaining an effective
process of internal controls over financial reportii including the safeguarding
of assets as they relate to the Financial Statements. Such internal controls are
designed to provide reasonable assurance to management and to the Board of
Directors regarding the preparation of reliable Financial Statements. This process
of internal controls contains self-monitoringmechanisms, including, but not limited
to, divisions of responsibility and a code of conduct. Once identified, any material
deficiencies in the process of internal controls are reported to management, and
appropriate corrective measures are implemented.
Even an effective process of internal controls, no matter how well designed,
has inherent limitations, including the possibility of human error, and therefore
can provide only reasonable assurance with respect to the preparation of reliable
financial statements.
The management of FRB Atlanta assessed its process of internal controls over
financial reporting including the safeguarding of assets reflected in the Financial Statements, based upon the criteria established in the “Internal ControlIntegrated Framework” issued by the Committee of Sponsoring Organizations of
the ‘beadway Commission (COSO). Based on this assessment, the management
of the FRB Atlanta believes that the FRB Atlanta maintained an effective process
of internal controls over financial reporting including the safeguarding of assets
as they relate to the Financial Statements.
Federal Reserve Bank of Atlanta

w

Jack Guynn
President and Chief Executive Officer

&trick K. Barron
First Vice President and Chief Operating Officer

Anne M. DeBeer
Senior Vice President
February 16,2001

R E P O R T




O

F

I N D E P E N D E N T

A C C O U N T A N T S

To the Board of Directors of the
Federal Reserve Bank of Atlanta
W have examined management’s assertion that the Federal Reserve Bank of
e
Atlanta (“FRB Atlanta”) maintained effective internal control over financial
reporting and the safeguarding of assets as they relate to the Financial Statements
as of December 31,2000, included in the accompanyingManagement’s Assertion.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants, and accordingly, included
obtaining an understanding of the internal control over financial reporting, testing,
and evaluating the design and operating effectiveness of the internal control, and
e
such other procedures as we considered necessary in the circumstances. W
believe that our examination provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to
error or fraud may occur and not be detected. Also, projections of any evaluation
of the internal control over financial reporting to future periods are subject to
the risk that the internal control may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, management’s assertion that the FRB Atlanta maintained effective
internal control over financial reporting and over the safeguarding of assets as they
relate to the Financial Statements as of December 31,2000, is fairly stated, in all
material respects, based upon criteria described in “Internal Control-Integrated
Framework”issued by the Committee of Sponsoring Organizations of the Treadway
Commission.

PricewaterhouseCoopers LLP
March 2,2001
Atlanta, Georgia

35

R

E

P

O

R

T

O

F
I N D E P E N D E N T

A C C O U N T A N T S

To the Board of Governors of the Federal Reserve System
and the Board of Directors of the Federal Reserve Bank of Atlanta

W have audited the accompanying statements of condition of the Federal
e
Reserve Bank of Atlanta (the “Bank”) as of December 31,2000 and 1000, and
the related statements of income and changes in capital for the years then ended.
These financial statements are the responsibility of the Bank’s management. Our
responsibility is to express an opinion on the financial statements based on
our audits.
W conducted our audits in accordance with generally accepted auditing
e
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
W believe that our audits provide a reasonable basis for our opinion.
e

As discussed in Note 3, the financial statements were prepared in conformity
with the accounting principles, policies, and practices established by the Board
of Governors of the Federal Reserve System. These principles, policies, and
practices, which were designed to meet the specialized accounting and reporting
needs of the Federal Reserve System, are set forth in the “Financial Accounting
Manual for Federal Reserve Banks” and constitute a comprehensive basis of
accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Bank as of December 31,2000
and 1000, and results of its operations for the years then ended, on the basis of
accounting described in Note 3.

PricewaterhouseCoopers LLP
March 2,2001
Atlanta, Georgia




36

S T A T E M E N T S




O F

C O N D I T I O N

(in millions)

As of December31,2000

As of December31,1999

Assets

Gold certificates

$

a02

$

724
450

166

Special drawing rights certificates

a3

Items in process of collection

603

6

29,455

1,122

Investments denominated in foreign currencies

14

34,513

Loans to depository institutions
US. government and federal agency securities, net

1,134

402

13,643

307

Bank premises and equipment, net

297

4,499

Accrued interest receivable
Interdistrict settlement account

200

40

40

$ 42,454

$ 46,580

$ 39,286

$ 43,852

1,097

a99

4
a77

4
772

Other assets
Total assets

20

514

Coin

llabllltles and capital

Liabilities
Federal Reserve notes outstanding, net
Deposits
Depository institutions
Other deposits
Deferred credit items
Interest on Federal Reserve notes due U.S.Treasury

a4

34

Accrued benefit costs

a7

a2

29

17

$ 41,464

$ 45,660

Other liabilities
Total llabllltles

Capital
Capital paid-in

$

495

$

495

Surplus

990

Total capltal

$

Total llabllltles and capltal

$ 42,454

460
460

$

920

$ 46,580

The accompanying notes are an integral part of these financial statements.

37

S T A T E M E N T S


38


O F

I N C O M E
F r the years ended
o
December31.2000
December31.1999

(in millions)
Interest Income

Interest on US. government and federal agency securities

$ 2,044

Interest on investments denominated in foreign currencies
Interest on loans to deDositorv institutions

$ 1,666

16

19
1

1

~

Total Interest Income

$ 2,064

$

1,683

Other operatlng Income (loss)

Income from services

$

162

$

Foreign currency losses, net

(35)

US. government securities losses, net

(1)
5

8

Other income
Total other operatlng Income

153
15

Reimbursable services to government agencies

$

77

$

137

$

151

$

142

Operatlng expenses

Salaries and other benefks
Occupancy expense

17

16

Equipment expense

25
45

24
48

Assessments by Board of Governors

98

Other expenses
Total operatlng expenses
Net Income pdor to dlstrlbutlon

$

336

$ 1,805

92
$

322

$ 1,498

Dlstrlbutlon of net Income

Dividends paid to member banks
Transferred to surplus
Payments to US. Treasury as interest on
Federal Reserve notes
Total dlstrlbutlon

The accompanyingnotes are an integral part of these financial statements.

$

29
304

$

26
42

1,472

1,430

$ 1,805

$ 1,498

S T A T E M E N T S




O F

C H A N G E S

(in millions)

I N

C A P I T A L

For the years ended December 31,2000, and December31,1999
Capital Paid-in

Balance at January 1, 1999
(8.4 million shares)

Surplus

Total Capital

418

5 418

$ 836

42

42

$

Net income transferred to surplus
Net change in capital stock issued
(0.8 million shares)

Balance at December 31,1999
(9.2 million shares)

42

$

460

42

$ 460

5 920

Net income transferred to surplus

304

304

Surplus transfer to the U.S.Treasury
Net change in capital stock issued
(0.7 million shares)

(269)

(269)

Balance at December 31,2000
(9.9 million shares)

35

5 495

35

$ 495

5 990

The accompanying notes are an integral pari of these financial statements.

39

N O T E S

T O

F I N A N C I A L

S T A T E M E N T S

1. ORGANIZATION

The Federal Reserve Bank of Atlanta (“Bank”) is part of the Federal Reserve System (“System”) created by Congress under the Federal
Reserve Act of 1913 (“Federal Reserve Act”) which established the central bank of the United States. The System consists of the Board
of Governors of the Federal Reserve System (“Board of Governor”) and twelve Federal Reserve Banks (“Reserve Banks”). The Reserve
Banks are chartered by the federal government and possess a unique set of governmental, corporate, and central bank characteristics.
Other major elements of the System are the Federal Open Market Committee (“FOMC”) and the Federal Advisory Council. The FOMC
is composed of members of the Board of Governors, the president of the Federal Reserve Bank of New York (“FRBNY”) and, on a
rotating basis, four other Reserve Bank presidents.

Structure
The Bank and its branches in Birmingham, Alabama, Jacksonville, Florida, Nashville, Tennessee, New Orleans, Louisiana, and Miami,
Florida, serve the Sixth Federal Reserve District, which includes Georgia, Florida, Alabama, and portions of Louisiana, Tennessee, and
Mississippi. In accordance with the Federal Reserve Act, supervision and control of the Bank is exercised by a Board of Directors. Banks
that are members of the System include all national banks and any state chartered bank that applies and is approved for membership
in the System.
Board of Directors
The Federal Reserve Act specifies the composition of the Board of Directors for each of the Reserve Banks. Each board is composed of
nine members serving three-year terms: three directors, including those designated as Chairman and Deputy Chairman, are appointed
by the Board of Governors, and six directors are elected by member banks. Of the six elected by member banks, three represent the
public and three represent member banks. Member banks are divided into three classes according to size. Member banks in each class
elect one director representing member banks and one representing the public. In any election of directors, each member bank receives
one vote, regardless of the number of shares of Reserve Bank stock it holds.

2. OPERATIONS AND

SERVICES

The System performs a variety of services and operations. Functions include: formulating and conducting monetaly policy;
participating actively in the payments mechanism, including large-dollar transfers of funds, automated clearinghouse operations and
check processing; distribution of coin and currency; fiscal agency functions for the US.’heasury and certain federal agencies; serving
as the federal government’s bank; providing short-term loans to depository institutions; serving the consumer and the community by
providing educational materials and information regarding consumer laws; supenising bank holding companies and state member
banks; and administering other regulations of the Board of Governors. The Board of Governors’ operating costs are funded through
assessments on the Reserve Banks.
The FOMC establishes policy regarding open market operations, oversees these operations, and issues authorizations and directives to
the FRBNY for its execution of transactions. Authorized transaction types include direct purchase and sale of securities, matched
sale-purchase transactions, the purchase of securities under agreements to resell, and the lending of U S . government securities. The
FRBNY is also authorized by the FOMC to hold balances of and to execute spot and forward foreign exchange and securities contracts
in nine foreign currencies, maintain reciprocal currency arrangements (“FK swaps”) with various central banks, and “warehouse”
foreign currencies for the U.S. Treasury and Exchange Stabilization Fund (“ESF”) through the Reserve Banks.

3. SIGNIFICANT
ACCOUNTING
POLICIES

Accounting principles for entities with the unique powers and responsibilities of the nation’s central bank have not been formulated by
the Financial Accounting Standards Board. The Board of Governors has developed specialized accounting principles and practices that
it believes are appropriate for the significantly different nature and function of a central bank as compared to the private sector. These
accounting principles and practices are documented in the “Financial Accounting Manual for Federal Reserve Banks” (“Financial
Accounting Manual”), which is issued by the Board of Governors. All Reserve Banks are required to adopt and apply accounting
policies and practices that are consistent with the Financial Accounting Manual.
The financial statements have been prepared in accordance with the Financial Accounting Manual. Differences exist between the
accounting principles and practices of the System and generally accepted accounting principles (“GAAP”).The primary differences are
the presentation of all security holdings at amortized cost, rather than at the fair value presentation requirements of GAAP, and the
accounting for matched sale-purchase transactions as separate sales and purchases, rather than secured borrowings with pledged
collateral, as is generally required by GAAF! In addition, the Bank has elected not to present a Statement of Cash Flows. The Statement
of Cash Flows has not been included as the liquidity and cash position of the Bank are not of primaly concern to the users of these
financial statements. Other information regarding the Bank’s activities is provided in, or may be derived from, the Statements of
Condition, Income, and Changes in Capital. Therefore, a Statement of Cash Flows would not provide any additional useful information.
There are no other significant differences between the policies outlined in the Financial Accounting Manual and GAAP.
The preparation of the financial statements in conformity with the Financial Accounting Manual requires management to make certain
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. Unique accounts and significant accounting policies are explained below.




40

a. Gold Certlficates

The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the U.S. Treasury.
Payment for the gold certificates by the Reserve Banks is made by crediting equivalent amounts in dollars into the account established
for the U.S. Treasury. These gold certificates held by the Reserve Banks are required to be backed by the gold of the U.S. Treasury. The
U S . Treasury may reacquire the gold certificates at any time and the Reserve Banks must deliver them to the US. Treasury. At such
time, the U.S. Treasury’s account is charged and the Reserve Banks’ gold certificate accounts are lowered. The value of gold for purposes
of backing the gold certificates is set by law at $42 2/9 a fine troy ounce. The Board of Governors allocates the gold certificates among
Reserve Banks once a year based upon Federal Reserve notes outstanding in each District at the end of the preceding year.
b. Special Drawing Rights Certificates

Special drawing rights (“SDRs”) are issued by the International Monetary Fund (“Fund”) to its members in proportion to each member’s
quota in the Fund at the time of issuance. SDRs serve as a supplement to international monetary reserves and may be
transferred from one national monetary authority to another. Under the law providing for United States participation in the SDR
system, the Secretary of the US. Treasury is authorized to issue SDR certificates, somewhat like gold certificates, to the Reserve Banks.
At such time, equivalent amounts in dollars are credited to the account established for the US. Treasury, and the Reserve Banks’ SDR
certificate accounts are increased. The Reserve Banks are required to purchase SDRs, at the direction of the U.S. Treasury, for the
purpose of financing SDR certificate acquisitions or for financing exchange stabilization operations. The Board of Governors allocates each
SDR transaction among Reserve Banks based upon Federal Reserve notes outstanding in each District at the end of the preceding year.
c. Loans to Depository institutions

The Depository Institutions Deregulation and Monetary Control Act of 1980 provides that all depository institutions that maintain
reservable transaction accounts or nonpersonal time deposits, as defined in Regulation D issued by the Board of Governors, have
borrowing privileges at the discretion of the Reserve Banks. Borrowers execute certain lending agreements and deposit sufficient
collateral before credit is extended. Loans are evaluated for collectibility, and currently all are considered collectible and fully
collateralized. If any loans were deemed to be uncollectible, an appropriate reserve would be established. Interest is recorded on
the accrual basis and is charged at the applicable discount rate established at least every fourteen days by the Board of Directors of the
Reserve Banks, subject to review by the Board of Governors. However, Reserve Banks retain the option to impose a surcharge above
the basic rate in certain circumstances.
d. U.S. Government and Federal Agency Securities and lnvestments Denominated in Foreign Currencies

The FOMC has designated the FRBNY to execute open market transactions on its behalf and to hold the resulting securities in the
portfolio known as the System Open Market Account (“SOMA”). In addition to authorizing and directing operations in the domestic
securities market, the FOMC authorizes and directs the FRBNY to execute operations in foreign markets for major currencies in order
to counter disorderly conditions in exchange markets or other needs specified by the FOMC in carrying out the System’s central bank
responsibilities.
Purchases of securities under agreements to resell and matched sale-purchase transactions are accounted for as separate sale and
purchase transactions. Purchases under agreements to resell are transactions in which the FRBNY purchases a security and sells it back
at the rate specified at the commencement of the transaction. Matched sale-purchase transactions are transactions in which the FRBNY
sells a security and buys it back at the rate specified at the commencement of the transaction.
Effective April 26, 1999, FRBNY was given the sole authorization by the FOMC to lend US. government securities held in the SOMA
to U.S. government securities dealers and to banks participating in US. government securities clearing arrangements, in order to
facilitate the effective functioning of the domestic securities market. These securities-lending transactions are fully collateralized by
other US. government securities. FOMC policy requires FRBNY to take possession of collateral in excess of the market values of the
securities loaned. The market values of the collateral and the securities loaned are monitored by FRBNY on a daily basis, with
additional collateral obtained as necessary. The securities loaned continue to be accounted for in the SOMA. Prior to April 26, 1999, all
Reserve Banks were authorized to engage in such lending activity.
Foreign exchange contracts are contractual agreements between two parties to exchange specified currencies, at a specified price, on
a specified date. Spot foreign contracts normally settle two days after the trade date, whereas the settlement date on forward contracts
is negotiated between the contracting parties, but will extend beyond two days from the trade date. The FRBNY generally enters into
spot contracts, with any forward contracts generally limited to the second leg of a swap/warehousing transaction.
The FRBNY, on behalf of the Reserve Banks, maintains renewable, short-term F/X swap arrangements with two authorized foreign central banks. The parties agree to exchange their currencies up to a prearranged maximum amount and for an agreed upon period of time
(up to twelve months), at an agreed upon interest rate. These arrangements give the FOMC temporary access to foreign currencies that
it may need for intervention operations to support the dollar and give the partner foreign central bank temporary access to dollars it
may need to support its own currency. Drawings under the F/X swap arrangements can be initiated by either the FRBNY or the partner
foreign central bank, and must be agreed to by the drawee. The F/X swaps are structured so that the party initiating the transaction
(the drawer) bears the exchange rate risk upon maturity. The FRBNYwill generally invest the foreign currency received under an F/X
swap in interest-bearing instruments.
Warehousing is an arrangement under which the FOMC agrees to exchange, at the request of the Treasury, US. dollars for foreign
currencies held by the Treasury or ESF over a limited period of time. The purpose of the warehousing facility is to supplement the
U S . dollar resources of the Qeasury and ESF for financing purchases of foreign currencies and related international operations.




41

In connection with its foreign currency activities, the FRBNY, on behalf of the Reserve Banks, may enter into contracts which contain
varying degrees of off-balance sheet market risk, because they represent contractual commitments involving future settlement, and
counter-party credit risk. The FRBNY controls credit risk by obtaining credit approvals, establishing transaction limits, and performing
daily monitoring procedures.
While the application of current market prices to the securities currently held in the SOMA portfolio and investments denominated in
foreign currencies may result in values substantially above or below their carrying values, these unrealized changes in value would have
no direct effect on the quantity of reserves available to the banking system or on the prospects for future Reserve Bank earnings or
capital. Both the domestic and foreign components of the SOMA portfolio from time to time involve transactions that can result in gains
or losses when holdings are sold prior to maturity. However, decisions regarding the securities and foreign currencies transactions,
including their purchase and sale, are motivated by monetav policy objectives rather than profit. Accordingly, earnings and any gains
or losses resulting from the sale of such currencies and securities are incidental to the open market operations and do not motivate its
activities or policy decisions.
U.S. government and federal agency securities and investments denominated in foreign currencies comprising the SOMA are recorded
at cost, on a settlement-date basis, and adjusted for amortization of premiums or accretion of discounts on a straight-line basis. Interest
income is accrued on a straight-line basis and is reported as “Interest on U.S. government and federal agency securities” or “Interest
on investments denominated in foreign currencies,” as appropriate. Income earned on securities lending transactions is reported as a
component of “Other income.” Gains and losses resulting from sales of securities are determined by specific issues based on average
cost. Gains and losses on the sales of US.government and federal agency securities are reported as “US. government securities losses,
net.” Foreign currency denominated assets are revalued monthly at current market exchange rates in order to report these assets in
U S . dollars. Realized and unrealized gains and losses on investments denominated in foreign currencies are reported as “Foreign
currency losses, net.” Foreign currencies held through FK swaps, when initiated by the counter-party, and warehousing arrangements
are revalued monthly, with the unrealized gain or loss reported by the FRBNY as a component of “Other assets” or “Other liabilities,”
as appropriate.

Balances of U S . government and federal agency securities bought outright, investments denominated in foreign currency, interest
income, amortization of premiums and discounts on securities bought outright, gains and losses on sales of securities, and realized and
unrealized gains and losses on investments denominated in foreign currencies, excluding those held under an FK swap arrangement,
are allocated to each Reserve Bank. Effective April 26, 1999, income from securities lending transactions undertaken by FRBNY
was also allocated to each Reserve Bank. Securities purchased under agreements to resell and unrealized gains and losses on the
revaluation of foreign currency holdings under FK swaps and warehousing arrangements are allocated to the FRBNY and not to other
Reserve Banks.
e. Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over
estimated useful lives of assets ranging from 2 to 50 years. New assets, major alterations, renovations and improvements are capitalized
at cost as additions to the asset accounts. Maintenance, repairs and minor replacements are charged to operations in the year incurred.
Internally developed software is capitalized based on the cost of direct materials and services and those indirect costs associated with
developing, implementing, or testing software.
f. lnterdistrict Settlement Account

At the close of business each day, all Reserve Banks and branches assemble the payments due to or from other Reserve Banks and
branches as a result of transactions involving accounts residing in other Districts that occurred during the day’s operations. Such
transactions may include funds settlement, check clearing and automated clearinghouse operations, and allocations of shared
expenses. The cumulative net amount due to or from other Reserve Banks is reported as the “Interdistrict settlement account.”
g. Federal Reserve Notes
Federal Reserve notes are the circulating currency of the United States. These notes are issued through the various Federal Reserve
agents to the Reserve Banks upon deposit with such Agents of certain classes of collateral security, typically U S . government
securities. These notes are identified as issued to a specific Reserve Bank. The Federal Reserve Act provides that the collateral
security tendered by the Reserve Bank to the Federal Reserve Agent must be equal to the sum of the notes applied for by such Reserve
Bank. In accordance with the Federal Reserve Act, gold certificates, special drawing rights certificates, U S . government and federal
agency securities, triparty agreements, loans to depository institutions, and investments denominated in foreign currencies are pledged
as collateral for net Federal Reserve notes outstanding. The collateral value is equal to the book value of the collateral tendered, with
the exception of securities, whose collateral value is equal to the par value of the securities tendered. The Board of Governors may, at
any time, call upon a Reserve Bank for additional security to adequately collateralize the Federal Reserve notes. The Reserve Banks
have entered into an agreement which provides for certain assets of the Reserve Banks to be jointly pledged as collateral for the Federal
Reserve notes of all Reserve Banks in order to satisfy their obligation of providing sufficient collateral for outstanding Federal Reserve
notes. In the event that this collateral is insufficient, the Federal Reserve Act provides that Federal Reserve notes become a first and
paramount lien on all the assets of the Reserve Banks. Finally, as obligations of the United States, Federal Reserve notes are backed by
the full faith and credit of the United States government.
The “Federal Reserve notes outstanding, net” account represents Federal Reserve notes reduced by currency held in the vaults of the
Bank of $21,662 million and $18,237 million at December 31,2000 and 1999, respectively.


42


h. Capital Paid-ln

The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount equal to
6 percent of the capital and surplus of the member bank. As a member bank’s capital and surplus changes, its holdings of the Reserve
Bank’s stock must be adjusted. Member banks are those state-chartered banks that apply and are approved for membership in the
System and all national banks. Currently, only one-half of the subscription is paid-in and the remainder is subject to call. These shares
are nonvoting with a par value of $100. They may not be transferred or hypothecated. By law, each member bank is entitled to receive
an annual dividend of 6 percent on the paid-in capital stock. This cumulative dividend is paid semiannually. A member bank is liable
for Reserve Bank liabilities up to twice the par value of stock subscribed by it.
i. Surplus

The Board of Governors requires Reserve Banks to maintain a surplus equal to the amount of capital paid-in as of December 31. This
amount is intended to provide additional capital and reduce the possibility that the Reserve Banks would be required to call on
member banks for additional capital. Reserve Banks are required by the Board of Governors to transfer to the U S . Treasury excess
earnings, after providing for the costs of operations, payment of dividends, and reservation of an amount necessary to equate surplus
with capital paid-in.
The Consolidated Appropriations Act of 2000 (Public Law 106-113, Section 302) directed the Reserve Banks to transfer to the U.S.
Treasury additional surplus funds of $3,752 million during the Federal Government’s 2000 fiscal year. Federal Reserve Bank of Atlanta
transferred $269 million to the U.S. Treasury during the year ended December 31,2000. Reserve Banks were not permitted to replenish
the surplus for these amounts during fiscal year 2000 which ended September 30, 2000; however, the surplus was replenished by
December 31,2000.
In the event of losses or a substantial increase in capital, payments to the US.Treasury are suspended until such losses or increases in
capital are recovered through subsequent earnings. Weekly payments to the U S . Treasury may vary significantly.
j . h o m e and Costs Related to Treasury Services

The Bank is required by the Federal Reserve Act to serve as fiscal agent and depository of the United States. By statute, the Department
of the Treasury is permitted, but not required, to pay for these services. The costs of providing fiscal agency and depository services to
the Treasury Department that have been billed but will not be paid are immaterial and included in “Other expenses.”
k. Taxes

The Reserve Banks are exempt from federal, state, and local taxes, except for taxes on real property, which are reported as a
component of “Occupancy expense.”

4. U.S.GOVERNMENT FEDERAL
AND
AGENCY
SECURlTlES

Securities bought outright are held in the SOMA at the FRBNY. An undivided interest in SOMA activity, with the exception of securities
held under agreements to resell and the related premiums, discounts and income, is allocated to each Reserve Bank on a percentage
basis derived from an annual settlement of interdistrict clearings. The settlement, performed in April of each year, equalizes Reserve
Bank gold certificate holdings to Federal Reserve notes outstanding. The Bank’s allocated share of SOMA balances was 6.656 percent
and 6.087 percent at December 31,2000 and 1999, respectively.
The Bank’s allocated share of securities held in the SOMA at December 31, that were bought outright, was as follows (in millions):

2000
Par value
Federal agency
US. government
Bills
Notes
Bonds
Total par value
Unamortized premiums
Unaccreted discounts
Total allocated to Bank




$

9

11,897
15,987
6,176
34,069
648
(204)
$ 34.513

1999

$

11

10,744
13,298
5,051
29,104
554
(203)
$ 29,455

43

I

Total SOMA securities bought outright were $518,501 million and $483,902 million at December 31,2000 and 1999, respectively.
The maturity distribution of US. government and federal agency securities bought outright, which were allocated to the Bank at
December 31, 2000, was as follows (in millions):

~

Maturities of Securities Held
Within 15 days
16 days to 90 days
91 days to 1year
Over 1 year to 5 years
Over 5 years to 10 years
Over 10 years
Total

U.S. Government
Securities

Par value
Federal Agency
Obligations
$ -

1,202
7,253
8,356
8,839
3,691
4,719
$ 34,060
$

1,202
7,253
8,356
8,848
3,691
4,719
$ 34,069

$

-

9
-

$

Total

9

At December 31, 2000 and 1999, matched sale-purchase transactions involving U.S. government securities with par values of $21,112
million and $39,182 million, respectively, were outstanding, of which $1,405 million and $2,385 million were allocated to the Bank.
Matched sale-purchase transactions are generally overnight arrangements.

5. h E S T M E N T S DENOMINATEDFOREIGN
IN
CURRENCIES

The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits with foreign central banks and the Bank for International
Settlements and invests in foreign government debt instruments. Foreign government debt instruments held include both securities
bought outright and securities held under agreements to resell. These investments are guaranteed as to principal and interest by the
foreign governments.
Each Reserve Bank is allocated a share of foreign-currency-denominated assets, the related interest income, and realized and unrealized foreign currency gains and losses, with the exception of unrealized gains and losses on F/X swaps and warehousing transactions.
This allocation is based on the ratio of each Reserve Bank’s capital and surplus to aggregate capital and surplus at the preceding
December 31. The Bank’s allocated share of investments denominated in foreign currencies was approximately 7.159 percent and 7.027
percent at December 31,2000 and 1999, respectively.
The Bank’s allocated share of investments denominated in foreign currencies, valued at current exchange rates at December 31, was
as follows (in millions):

2000
European Union Euro
Foreign currency deposits
Government debt instruments
including agreements to resell
Japanese Yen
Foreign currency deposits
Government debt instruments
including agreements to resell
Accrued interest
Total

$

332

1999

$

305

196

178

197

23

393
4
$ 1,122

625
3
$ 1,134

Total investments denominated in foreign currencies were $15,670 million and $16,140 million at December 31,2000 and 1999, respectively.




The maturity distribution of investments denominated in foreign currencies which were allocated to the Bank at December 31, 2000,
was as follows (in millions):

Maturities of Investments Denominated in Foreign Currencies
Within 1year
Over 1year to 5 years
Over 5 years to 10 years
Over 10 years
Total

$ 1,053

30
31
8
$ 1,122

At December 31,2000 and 1999, there were no open foreign exchange contracts or outstanding F K swaps.
At December 31,2000 and 1999, the warehousing facility was $5,000 million, with no balance outstanding.

6. BANK
PREMISES A D EQUIPMENT
N

A summary of bank premises and equipment at December 31 is as follows (in millions):

2000
Bank premises and equipment
Land
Buildings
Building machinery and equipment
Construction in progress
Furniture and equipment
Accumulated depreciation
Bank premises and equipment, net

34
88
17
134
141
414
(107)
$ 307
$

1999

32
42
13
78
134
299
(99)
$ 200
$

Depreciation expense was $16 million for each of the years ended December 31,2000 and 1999.
The Bank is constructing a new building to replace the head office in Atlanta. At December 31,2000, the contractual obligation for this
construction totals $37 million.
Real estate located at Peachtree Walk in Midtown Atlanta was sold to TCB #11,L.L.C. and Post Apartment Homes, L.P. on June 9,2000
with a profit of approximately $1.9 million.
The Bank leases unused space to outside tenants. Those leases have terms ranging from 1 to 5 years. Rental income from such leases

w s $1 million for each of the years ended December 31, 2000 and 1999. Future minimum lease payments mder noncancelable
a
agreements in existence at December 31,2000, were (in thousands):

2001
2002
2003
2004
2005
Thereafter

$

601
491
211
149
39
-

$ 1,491

7. COMMITMENTS CONTINGENCIES
AND

At December 31,2000, the Bank was obligated under noncancelable leases for premises and equipment with terms ranging from 1 to
approximately 9 years. These leases provide for increased rentals based upon increases in real estate taxes, operating costs or selected
price indices.
Rental expense under operating leases for certain operating facilities, warehouses, and data processing and office equipment
(including taxes, insurance and maintenance when included in rent), net of sublease rentals, was $7 million for each of the years ended
December 31,2000 and 1999. Certain of the Bank’s leases have options to renew.




45

Future minimum rental payments under noncancelable operating leases and capital leases, net of sublease rentals, with terms of one
year or more, at December 31,2000, were (in millions):

Operating
2001
2002
2003
2004
2005
Thereafter

$ 3.8

0.8
0.6
0.6
0.6
1.0
$ 7.4

At December 31,2000, other commitments and long-term obligations in excess of one year were $135 million.
Under the Insurance Agreement of the Federal Reserve Banks dated as of March 2, 1999, each of the Reserve Banks has agreed to bear,
on a per incident basis, a pro rata share of losses in excess of 1 percent of the capital paid-in of the claiming Reserve Bank, up to
50 percent of the total capital paid-in of all Reserve Banks. Losses are borne in the ratio that a Reserve Bank’s capital paid-in bears to the
total capital paid-in of all Reserve Banks at the beginning of the calendar year in which the loss is shared. No claims were outstanding
under such agreement at December 31,2000 or 1999.
The Bank is involved in certain legal actions and claims arising in the ordinaly course of business. Although it is difficult to predict the
ultimate outcome of these actions, in management’s opinion, based on discussions with counsel, the aforementioned litigation and
claims will be resolved without material adverse effect on the financial position or results of operations of the Bank.

8. RETIREMENT T RF PMNS
AND H I I
Retirement Plans

The Bank currently offers two defined benefit retirement plans to its employees, based on length of service and level of compensation.
Substantially all of the Bank’s employees participate in the Retirement Plan for Employees of the Federal Reserve System (“System
Plan”) and the Benefit Equalization Retirement Plan (“BEP”). The System Plan is a multi-employer plan with contributions fully
funded by participating employers. No separate accounting is maintained of assets contributed by the participating employers. The
Bank’s projected benefit obligation and net pension costs for the BEP at December 31,2000 and 1999, and for the years then ended, are
not material.
Thrift Plan

Employees of the Bank may also participate in the defined contribution Thrift Plan for Employees of the Federal Reserve System
(“Thrift Plan”). The Bank’s Thrift Plan contributions totaled $4 million for each of the years ended December 31, 2000 and 1999, and
are reported as a component of “Salaries and other benefits.”

9. PDSTRmREMENT BENEFITS
&HER THANP N I N AND P S E P O M N BENEFITS
E SO S
OTML Y ET
Postretirement Benefits Other Than Pensions

In addition to the Bank’s retirement plans, employees who have met certain age and length of service requirements are eligible for both
medical benefits and life insurance coverage during retirement.
The Bank funds benefits payable under the medical and life insurance plans as due and, accordingly, has no plan assets. Net
postretirement benefit costs are actuarially determined using a January 1 measurement date.
Following is a reconciliation of beginning and ending balances of the benefit obligation (in millions):
~~

2000
Accumulated postretirement benefit obligation at Janualy 1
Service cost-benefits earned during the period
Interest cost of accumulated benefit obligation
Actuarial (gain)
Contributions by plan participants
Benefits paid
Plan amendments, acquisitions, foreign currency exchange rate
changes, business combinations, divestitures, curtailments,
settlements, special termination benefits
Accumulated postretirement benefit obligation at December 31

46


1999

$ 65.9

$ 71.8

1.8
4.5

(2.1)
0.4
(2.3)

2.1
4.1
(10.4)
0.3
(2.0)

(8.0)
$ 60.2

$ 65.9

Following is a reconciliation of the beginning and ending balance of the plan assets, the unfunded postretirement benefit obligation,
and the accrued postretirement benefit costs (in millions):

2000
Fair value of plan assets at January 1
Actual return on plan assets
Contributions by the employer
Contributions by plan participants
Benefits paid
Fair value of plan assets at December 31
Unfunded postretirement benefit obligation
Unrecognized initial net transition asset (obligation)
Unrecognized prior service cost
Unrecognized net actuarial gain (loss)
Accrued Postretirement benefit costs

$

-

1.9
0.4
(2.3)
$ 60.2
12.6
5.4
$ 78.2

1999
$

-

1.7
0.3
(2.0)
$ $ 65.9
-

5.0
3.3
$ 74.2

Accrued postretirement benefit costs are reported as a component of “Accrued benefit costs.”
At December 31,2000 and 1999,the weighted-averageassumption used in developing the postretirement benefit obligationwas 7.5 percent.
For measurement purposes, an 8.75 percent annual rate of increase in the cost of covered health care benefits was assumed for 2001.
Ultimately, the health care cost trend rate is expected to decrease gradually to 5.50 percent by 2008, and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point
change in assumed health care cost trend rates would have the following effects for the year ended December 31,2000 (in millions):

1 Percentage
Point Increase

1 Percentage
Point Decrease

Effect on aggregate of service and interest cost components
of net periodic postretirement benefit costs
Effect on accumulated postretirement benefit obligation

$ 2.1

$ (1.6)

15.6

(11.8)

The following is a summary of the components of net periodic postretirement benefit costs for the years ended December 31 (in millions):

2000
Service cost-benefits earned during the period
Interest cost of accumulated benefit obligation
Amortization of prior service cost
Recognized net actuarial loss
Net periodic postretirement benefit costs

1999

$ 1.8

$ 2.1

4.6

4.1

(0.4)
-

(0.4)

$ 6.0

$ 5.8

-

Net periodic postretirement benefit costs are reported as a component of “Salaries and other benefits.”
Postemployment Benefits

The Bank offers benefits to former or inactive employees. Postemployment benefit costs are actuarially determined and include the cost
of medical and dental insurances, survivor income, disability benefits, and self-insured workers’ compensation expenses. Costs were
projected using the same discount rate and health care trend rates as were used for projecting postretirement costs. The accrued
postemployment benefit costs recognized by the Bank at December 31, 2000 and 1999, were $9 million in each year. This cost is
included as a component of “Accrued benefit costs.” Net periodic postemployment benefit costs included in 2000 and 1999 operating
expenses were $2 million in each year.




47


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Design by
GOLD & Associates, Inc.
Cover photography
by Tim Olive
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5 and 27 by Kevin Rose
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