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1986
Annual Report
Federal Reserve Bank of Chicago
Building for the Future

The Federal Reserve Bank of Chicago is one of 12
regional Federal Reserve Banks that, together with the
Board of Governors in Washington, D.C., function as the
nation's central bank. The primary responsibility of the
Federal Reserve System is to foster a flow of money and
credit through the economy that will promote
economic
growth and a stable dollar. Each regional Reserve Bank
also acts as a bank for the U.S. government, issues the
nation's currency and coin, regulates and examines
private commercial banks and bank holding companies,
and provides banking services to depository
institutions
within the District it serves. The Federal Reserve Bank of
Chicago serves the Seventh Federal Reserve District which
includes Iowa, the lower peninsula of Michigan, and
major portions of Illinois, Indiana, and Wisconsin.

1966
ANNUAL
REPORT
FEDERAL RESERVE
BANK OF CHICAGO

CONTENTS
2

President's Message

4 Building for the Future
16 Directors
19 Advisory Councils
20 Officers
22. Statement of Condition
23 Statement of Income
24 Highlights of
Operations

2

Message From The President

As 1986 closed, our nation's
economy entered the fifth
straight year of solid
expansion. This has been a
relatively good economic
cycle—far better, in fact,
than some people assume.
In terms of both its length
and strength, the expansion
we have enjoyed has few
equals in peacetime.
All major measures of
economic performance have
achieved record levels—
Gross National Product,
industrial output, income,
employment. Our economy
has created more than nine
million new jobs since the
last cyclical peak and about
12 million jobs since the
recession's bottom in the
fourth quarter of 1982. That
this has been accomplished
while inflation is at its
lowest level in two decades
is a most remarkable
achievement. Although we
have to admit to some good
fortune with respect to oil
and food prices, we have so
far avoided the pressures on
prices and interest rates that
usually assert themselves at
this point in a cycle.
With every reason to believe
that this expansion will
continue through the year
ahead, we can feel both
gratified and optimistic as
1987 begins. But lest we
become euphoric, there are
aspects of our current
situation that cause
significant concern.
First, our economic results
have been and will continue
to be very uneven—a fact
that we in the Midwest
understand all too well. The
process of adjusting to new
realities in an increasingly
global economy continues
for agriculture and heavy
industry—as well as for the

financial institutions that
serve these sectors of our
economy.
Second, there are significant
economic imbalances that
threaten continued
expansion in the near term
and our general economic
well-being in the longer
term. The common thread
running through these
various imbalances is the
build-up of debt across all
sectors of our economy—
from the burgeoning debt
loads of both consumer and
corporate America, to the
mounting debts of this and
many other nations of the
world.
The escalating level of debt
and deficits is hardly a new
issue. Indeed, it has been
with us throughout the
current cycle and before.
Happily, in a few areas it
actually shows some
promise of improvement. At
long last there may be some
reduction in our fiscal
deficit. So too could we
finally see some progress in
our trade deficit facilitated
by the turnaround that has
taken place in foreign
exchange markets. But for
now we have only
promising signs, not
tangible results. Until
promises become reality,
the risk to our continued
prosperity will loom large.
The question is not whether
we can continue to live
beyond our means and
consume more than we
produce but, rather, how
much longer this process
can go on.
The risk of such
circumstances is to place
pressures on policymakers
to further stimulate the

economy. Continued
expansion is vital to our
ability to handle our debt,
and the more vigorous the
expansion, the less
significant the level of that
debt. Such a strategy is
made even more tempting
by our natural desire to
assist the disadvantaged
sectors and regions of our
economy.
These temptations lead to a
third area of concern—the
resurgence of inflation.
Here, in all likelihood, the
good news is largely behind
us. In fact, if we look
beyond the aggregate
numbers into areas such as
the service sector—the very
part of our economy that is
growing in importance but
where productivity
increases may be the
hardest to achieve—we see
rates of price increase that,
while perhaps moderating,
far exceed the rate for the
economy as a whole. At the
same time, our increasingly
more service-oriented
economy may not be able to
achieve the rates of longterm growth we once
enjoyed. So efforts to
provide additional
economic stimulus—though
the product of the very best
of intentions—could well
produce instead the very
worst of results.
The Federal Reserve,
charged with a
responsibility to ensure the
health of our nation's
financial system and
economy, faces significant
challenges within this ever
more complicated
environment. Coping with
those challenges requires
the Federal Reserve Bank of
Chicago to be increasingly
more responsive, forward
thinking, and imaginative in
carrying out its
responsibilities.

This is what we mean by
"Building for the Future" —
the theme of our Bank's
annual report for this year.
This theme is an outgrowth
of the construction project,
initiated in earnest this past
year, that will ensure that
our headquarters building
can accommodate our
operations far into the
21st Century. But more
broadly speaking, this theme
is meant to capture the
essence of so many efforts
on the part of the Bank
during 1986, aimed
ultimately at enhancing the
future development of the
economy and financial
system. The Bank's
commitment to the future,
while supported by the
walls that surround the
Bank, is carried out through
the efforts initiated inside.
The pages that follow focus
on just a selection of the
Bank's more noteworthy
efforts and accomplishments
in 1986, and, most
importantly, highlight a very
small sample of the many
individuals involved in them.
Hopefully, this brief
treatment provides a
glimpse of the initiative,
commitment, and quality
that typify the people we are
fortunate to have at every
level of our organization.
I want to extend my thanks
to each and every one of
those individuals—to all of
our directors who give so
unselfishly of their time and
talents to this Bank, and to
our officers and staff who
continuously demonstrate
how much can be
accomplished by hard work,
dedication, and the desire to
excel.

3

Robert J. Day, Chairman of the Board of Directors of the
Federal Reserve Bank of Chicago, Deputy
Chairman
Marcus Alexis, President Silas Keehn, and First Vice
President Daniel M. Doyle review plans for the future.

4

Building for the Future

The construction of a
building must address a
variety of needs. The
building must be strong and
secure. It must also be
constructed to last. And
finally, it must serve the
people and the activities for
which it has been built.
Just so, the Federal Reserve
Bank strives to maintain a
financial system and
economy that are strong and
durable and which do,
indeed, perform smoothly
for those they serve.
For the Federal Reserve
Bank of Chicago, 1986 was
truly a "building" year. The
Bank began construction
that will accomplish a sorely
needed renovation and
expansion of its 65-year old
headquarters building. The
Bank also took a number of
significant steps to
strengthen the foundations
of our economy and
financial system. In all areas
of the Bank's activity—in
economic research,
supervision and regulation,
financial services, and
internal support activities—
the Bank was "building for
the future."
The need to modernize the
Bank's headquarters had
become more and more
apparent. Yesterday's
building was increasingly
inadequate to house both
today's technology—the
automated equipment and
computers that run the
Bank's operations—and
current staff mix—the
greater proportion of
technicians and
professionals who guide
these operations. At the
same time, support systems,
such as heating and
ventilation, were being
stretched beyond their
limits.

After considering
alternatives such as
constructing a new facility,
the decision was reached to
renovate and expand the
present headquarters to
create a facility that will
serve the Bank's needs well
into the future. Thus, the
Bank will remain in the
heart of Chicago's financial
district and can contribute
to the preservation of the
character of that area.
While the benefits of
remaining in the same
structure were clear, the
logistics of renovating an
occupied building are highly
complex. All areas of the
Bank face complete
renovation, and new
construction has to be tied
into the older structure.
When completed in 1989,
the renovation and
expansion will provide the
Bank with nearly a million
square feet of space,
compared with a current
total of 650,000. The
expansion largely results
from a 14-story addition
constructed during 1986 at
the building's northwest
corner.
The exterior of the new
addition, as well as a 1957
addition to the building, is
being faced with Indiana
limestone to blend with the
original 1920s facade, in
keeping with the character
of the financial district.
LaSalle Street will again
become the main entrance,
as designated in the original
building, and, inside, an
enlarged lobby will
welcome and serve visitors.
Overall, the renovation
emphasizes the original

design of the building while
providing efficient access to
the public, an attractive and
stimulating environment for
the Bank's staff, and
adequate security to protect
valuables handled by the
Bank.
The building project will
create a new facility able to
meet the challenges and
demands of the 21st
Century. It serves as a visible
symbol of the Bank's
commitment to build for
the future. But other
projects, begun or
completed by the Bank
during 1986, are also tied to
this commitment.
As the Chicago Reserve
Bank strives to construct a
sound building, it has also
worked to construct a
sound and secure banking
system.
As the Bank has designed a
building that will meet the
needs of those who use it,
the Bank has also strived to
provide the highest quality
of financial services
possible.
And as the Bank builds to
withstand the test of time,
so has it set its sights on
fostering a better economic
and financial environment
for this—as well as the
next—generation.

Richard P. Anstee
Senior Vice President
Support
Services

Charles W. Furbee
Senior Vice President
Operations
and
Check Services

Karl A. Scheld
Senior Vice President
and
Director of Research
Economic Research
and
Information
Services

Richard P. Bush
General
Auditor
Office of the General
Auditor

William C. Conrad
Senior Vice President
Automation
and
Electronic
Services

William H. Gram
Vice President,
General
Counsel, and
Secretary
Office of the General
Counsel

James R. Morrison
Senior Vice President
Supervision
and
Regulation and Loans

Roby L. Sloan
Senior Vice President
and
Manager
Detroit
Branch

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

Led by President Silas Keehn and First Vice President
Daniel M. Doyle, the Bank's Management Committee sets
the Federal Reserve Bank's strategic
direction.

Building for the Future

E x a m staff b o l s t e r e d t o
meet challenges of
changing environment

One of a Reserve Bank's
most important functions is
to monitor and examine
banks and bank holding
companies under its
jurisdiction, with an
ultimate objective of
assuring that the nation's
banking system is safe and
sound. At the end of 1985,
enhanced surveillance
requirements were adopted
by the Federal Reserve
Board to meet the
challenges posed by an
increasingly complex
financial industry. In
response, the Chicago Bank
implemented new programs
and procedures that
included expanded training
for entry-level staff and the
hiring of additional
experienced staff.
Each year the Bank hires
approximately 20 entry-level
examiners for a variety of
positions. To train this
group to meet today's
challenges, the Bank has
developed an integrated 12month program of formal
instruction and in-the-field
experience. Classroom
sessions, covering bank and
bank holding company
analysis, include activities
such as mock sessions with
financial institution
management, lectures, guest
speakers, and team-building
activities. Each instructional
period is followed by onthe-job application of the
skills and knowledge
developed. Chicago's
training expertise is being
utilized by a System
committee developing
training programs for staff
throughout the Federal
Reserve System.

In the past, the hiring of
new examiners was largely
at entry-level positions. But
in 1986, with more frequent
examinations, the Bank had
to hire more than twice the
usual number of examiners,
who would quickly be
dealing with increasingly
complex financial issues. In
response, the Bank
recruited individuals with
prior experience in
examination, banking, or
related fields, hiring 27 by
year-end 1986.
ACH p r o m o t e d t h r o u g h
service I n n o v a t i o n s

Almost 70 years ago the
Federal Reserve took an
innovative approach toward
moving money from one
place to another—it
transferred funds via
telegraph. Since that first
wire transfer in 1918, the
System has worked to
promote electronic
payments through a variety
of service innovations.
One of the latest examples
is Database Plus,
introduced by the Chicago
Reserve Bank in 1986 to
expedite the return of
Automated Clearinghouse
(ACH) items. Because the
information needed for
returning an ACH item is
contained on a database,
subscribers need only
identify the transaction to
be returned. This is a
significant improvement
from the previous paperbased method which was far
more costly and time
consuming.

Treasury Direct provides
n e w investor services

The Federal Reserve System,
as the government's bank,
issues, services, and
redeems all Treasury bills,
notes, and bonds. The
smooth introduction of
Treasury Direct by Chicago,
the other Reserve Banks,
and the Treasury in August
1986 marked another
milestone in the automation
of these activities. Treasury
Direct will save taxpayers an
estimated $46 million over
the next seven years by
eliminating physical
securities.

Janice Price, assistant
product manager in
Electronic Services,
helped
introduce the Bank's new
"Database Plus" service.

For investors, Treasury
Direct eliminates the
possibility of lost or stolen
certificates. In addition,
record-keeping is simplified
through a single master
account statement and the
automatic deposit of
interest, refund, and
principal payments directly
to the investor's personal
account. Other benefits
include a broader range of
registration options and the
ease with which any
investor can obtain account
information or make
transactions at 36 Federal
Reserve sites across the
nation.

Marshall Holmberg, as
manager of
Government
Securities and
Investments,
helped launch the
successful
"Treasury
Direct" program at the
Chicago Reserve Bank.

To familiarize the public
and financial institutions
with the new procedures,
features, and benefits of
Treasury Direct, seminars
for both institutional and
individual customers were
held at the Chicago Reserve
Bank. In addition, Bank staff
made appearances on local
television news and talk
shows to explain the
program to the public.

Bill Barouski,
administrative
examiner
in the Supervision
and
Regulation
Analytical
Support Division,
helped
develop and supervise
new
training programs
for
entry-level
examiners.

7

8

Building for the Future

STAT project u p d a t e s
data c o l l e c t i o n

Financial data collected
from thousands of District
organizations provide an
information base for the
Bank's supervisory,
regulatory, monetary policy,
and lending activities. In
turn, these data are a
component of national
statistics closely followed by
the financial and business
community, the media, and
the general public to gauge
trends in the nation's
financial activity.
Rapid change in financial
markets and activities has
brought with it a need to
continuously modify the
data collected. To efficiently
handle these changing
reporting requirements, the
Federal Reserve Banks and
the Board jointly designed
and developed STAT, a
comprehensive and highly
flexible data management
software system.
The STAT software is used
to collect, edit, report, and
transmit both individual
institution and aggregate
data. The software allows
quick and inexpensive
modifications, without the
need for specialized
computer programmers.
The Chicago Reserve Bank
played a special role in the
development of STAT by
serving as the test site for
installation of the new
software. During 1986, the
Bank successfully completed
testing, opening the way for
the use of STAT by the other
Reserve Banks.
Improved check
services e n h a n c e
payments system

Improvements in check
processing at a Federal
Reserve Bank not only mean
better service for customers,

they also create a rippling
effect through the payments
mechanism that encourages
a more efficient overall
system. This is especially
true for the Chicago Reserve
Bank since its Head Office is
the largest processor of
checks in the System, with
an annual volume of nearly
a billion items.
The revised deadlines and
availability schedules
provided to the Bank's
check processing customers
during 1986 are a case in
point. The revised deadlines
mean that customers can
submit check processing
work to the Chicago
Reserve Bank later than was
previously possible. At the
same time, improved
availability schedules for
certain check categories
provide customers with
better use of their funds.
The end result is a savings in
time and money for the
customer and a more
efficient payments system.
A desire for more efficient
operations contributed to a
steady increase in the
number of institutions using
payor information services
in 1986. These Reserve
Bank services provide
customer account
information that can be
used to improve operating
efficiencies and as a cash
management tool.
New electronic services
aid c u s t o m e r s

As part of its unique
position in the financial
services field, the Federal
Reserve has a two-fold
goal—to compete
successfully in the
marketplace while fostering
a more efficient payments
system. Ideally, these two

goals can be achieved
simultaneously through
service innovations and
operational improvements.
The Chicago Reserve Bank's
Voice Response Network
was offered in 1986 to help
respond more effectively to
institutions that regularly
telephone for account
balance information. The
service features an
"electronic operator" that
simultaneously answers and
provides data to several
callers. As a result,
information can be provided
to a number of callers more
efficiently.

Dave Van Gorder, technical
coordinator
in the
Statistics Division of
Economic
Research,
oversaw the testing of
"STAT," the new Federal
Reserve data
management
system.

Similarly, the Bank's new
Dual Verification service
enables customers to
increase the security of their
wire transfer operations.
Through the service,
customers can set up
verification procedures that
reflect their own particular
security needs. No transfer
is completed by the Reserve
Bank until this custom-fitted
verification is performed.
C o n t i n g e n c y sites assure
c o m p u t e r reliability

The Federal Reserve seeks
to assure not only an
efficient payments system,
but most importantly, a
reliable one. To this end, an
ongoing goal of the Chicago
Reserve Bank is the
continuous reliability and
safety of its computer
operations, even in the
event of an emergency.
An important step taken
during 1986 was the
successful test of a
contingency site in
Culpeper, Virginia for
relocating the Bank's
computer operations. In a
similar effort, the Bank
established a contingency
site for the Network Control

Maureen O'Neil, assistant
product manager in
Electronic Services,
worked
on the development
and
testing of the Bank's new
"Dual
Verification"
service.

Center, the unit based at the
Chicago Office that manages
the Federal Reserve System's
nationwide communication
system. If necessary, the
Center's operations could
be shifted to the Detroit site
with no disruption to
communications between
Federal Reserve offices and
depository institutions or to

Marsha Coleman, assistant
manager of check
processing on the "p. m."
shift at the Chicago
Office,
helped provide
improved
deadlines and
availability
for the Bank's
customers.

Larry Nemec, manager in
the Bank's
Computer
Operations
Department,
coordinated
the testing of
the Culpeper
contingency
site.

the nation's payments
system generally.
Also during 1986, the
Chicago Head Office
prepared to move its
electronic funds transfer
operations and computer
support for them from its
headquarters to a temporary
location in the South Loop.
The move, to be completed

in 1987, provides greater
capacity for handling this
constantly growing area of
activity while assuring the
reliability of these
operations during the Bank's
extensive renovation
project.

10

Building for the Future

Bank installs state-of-theart e l e c t r o n i c n e t w o r k s

A variety of Federal Reserve
electronic networks—
linking Federal Reserve
offices and thousands of
depository institutions—
move an ever expanding
volume of funds, securities,
and information
instantaneously. As the pace
of change in computer
technology accelerated in
1986, so did the Chicago
Reserve Bank's commitment
to take advantage of the
latest technology in the
electronic connections it
provides. As part of this
effort, the Bank upgraded
the Federal Reserve's
nationwide communications
system (FRCS-80), which is
managed at the Chicago
Office. By adding new
software the Bank improved
the network's control and
monitoring functions.
The Bank also tested and
certified software packages
that could be used by
financial institutions to
complete electronic
transfers through the
Federal Reserve. The past
year also saw the
development of a unique
Seventh District
communications network
that is the first of its kind in
the System. The network,
scheduled to be completed
in late 1987, will consist of
a management center in
Chicago and six data
switching centers
throughout the Seventh
District. The network will
enable institutions with high
volumes of electronic funds
transfers to maintain a
direct connection to their
local Federal Reserve office.

Other 1986 network
improvements included a
successful pilot program to
test the use of dial-up
personal computers for
electronic transfers. The use
of dial-up computers—
which will replace terminals
currently in operation at
many District institutionsis an efficient, automated
alternative for institutions
with a relatively low volume
of electronic transfers. Also
in 1986, the Bank
implemented bulk data
connections to provide
more efficient service for
customer institutions with
large volumes of electronic
transfers. The new highspeed computer linkage
enables institutions to
transmit a large number of
messages simultaneously,
rather than one by one.
New Des Moines exam
o f f i c e aids m o n i t o r i n g

Volatile economic
conditions and a more
complex financial industry
have intensified the need for
extensive and timely
communications between
the Federal Reserve and the
banks and bank holding
companies it monitors. To
this end, the Bank opened a
field office in Iowa in early
1986. Ten examiners plus
their supervisor are now
based at the new Des
Moines facility, and two staff
members will be added in
1987.
Working exclusively with
Iowa institutions provides
the Des Moines staff with a
better understanding of
conditions in a state
particularly hard hit by
changing financial and
economic circumstances. It
also helps the examination

team to identify trends and
significant developments
before crises occur.
Because of its many benefits,
the Des Moines office,
opened as a pilot, will serve
as a model for other off-site
offices as the Bank
regionalizes its supervisory
activities wherever practical.
Check operation
improvements yield
lower prices

The five offices of the
Chicago Reserve Bank
provided the largest overall
decrease in check service
prices within the Federal
Reserve System during
1986. These price
reductions were made
possible by more efficient
operating procedures that
also resulted in improved
services. A case in point was
the implementation of
"reject repair" processing at
Chicago and the Detroit
Branch. This effort focused
on "repairing" millions of
checks that otherwise could
not be "read" and processed
by the Bank's high-speed
sorters. Such checks
previously required manual
processing, an inefficient
and time-consuming
procedure.
The overall efficiency of the
check processing operation
was also improved by
establishing a special unit to
handle inquiries regarding
possible adjustments to
check deposits. As a result,
the Bank is able to handle
the adjustment process
more efficiently and provide
better customer service.

Kristi Zimmermann, a
staff analyst in
Automation
Services,
trained customers on the
use of dial-up
personal
computers for their
electronic funds
transfer
operations.

Laura Berg, a check
operations analyst at the
Detroit Branch,
helped
coordinate efforts to
"repair" rejected
checks.

11

D e a n Rowland, regional
representative
in the Field
Operations Division of
Supervision
and
Regulation,
helped
establish the Des Moines
examination facility
and
serves as the new field
office's
supervising
examiner.

12

Building for the Future

Bank s t u d i e s support
regional e c o n o m i c
development efforts

In recent years, the Chicago
Reserve Bank has worked
with governmental, civic,
and private groups across
the region on a variety of
economic development
studies and reports.
Through such cooperative
efforts, the Bank can share
its information and
expertise and also gain a
broader understanding of
the region's economy.
At the end of 1986, the
Iowa Business Council and
the Federal Reserve Bank
completed a study,
"The Iowa Economy—
Dimensions of Change."
The comprehensive report
places Iowa's economic
trends into perspective with
neighboring states and may
be used as a base for Iowa's
strategic economic
development plan.
At the invitation of the
Detroit Economic Growth
Corporation, the Bank
embarked on a study to
assess Detroit's position and
future role as a financial
center. Also in 1986, the
Bank joined in an effort
organized by the Financial
Planning Committee (FPC)
for the City of Chicago. The
FPC enlisted a team of
experts to project the city's
fiscal position through 1992
and identify opportunities
for strengthening the city's
financial future. As part of
the team, Bank staff
prepared a study,
"Environment and Change
in Major American Cities."

Cooperative efforts with the
Great Lakes Commission
also continued into 1986, as
a joint project with the
Commission's Economic
Advisory Task Force was
begun to examine trends
and issues that will confront
the Great Lakes States in the
near future.
Strategic p l a n n i n g
provides blueprint for
human resource
management

What an organization can
accomplish depends on
having the right people in
the right place at the right
time. During 1986 the
Bank's Human Resource
Services Department,
working with line
management, used a fiveyear strategic planning
process to identify current
and long-term human
resource needs in the face
of social, technological, and
industry changes.
The process consisted of
two phases, with
communication the key
element in each. First, a
focus group session for each
functional area of the Bank
was held with that area's
management team to
develop information on
staffing levels and mix,
employee turnover,
affirmative action goals, staff
development, and
compensation. The
information was then used
by management as they
developed their own
strategic plans.
In the second phase, the
Human Resource Services
staff used the focus group
information to devise its
own five-year plan, guiding

the programs, activities, and
services it will provide the
rest of the Bank. As a result
of the process, special
emphasis is being placed on
refining staff forecasting
techniques and the
implementation of a new
management development
program, to dovetail with
succession planning for key
management and official
positions.
N e w p o l i c y strives
to contain payments
s y s t e m risk

As the speed and dollar
volume on wire transfer
networks have increased, so
have concerns that the
failure of a payments system
participant could have
broad repercussions
throughout the economy. In
response, the Federal
Reserve in 1986
implemented a policy
designed to reduce risk on
large-dollar wire transfer
networks. The policy's
approach is to place a cap
or limit on the amount of
net debits—that is, the
amount of outgoing
payments in excess of
incoming credits—that an
institution can accumulate
on wire transfer networks,
based on the institution's
own evaluation of its credit
worthiness, operational
controls, and credit policies
and procedures.
The Chicago Reserve Bank
played a key role in
implementing this policy
nationwide by coordinating
the development of
educational programs and
materials on behalf of the
entire System. Bank efforts
to implement the new
policy in the Seventh
District included working
with depository institutions'

Eleanor Erdevig,
economist in the Research
Department,
was part of
the team that
prepared
"The Iowa
EconomyDimensions of Change."

Dan Richardson, as an
analyst in Loans and
Reserves, helped
develop
educational
programs
about the new
payments
system risk policy.

management and boards of
directors in setting and
monitoring the caps.
Integrated

Accounting

System links Bank
operations

During 1986, the Chicago
Reserve Bank laid the
groundwork for the new
Integrated Accounting
System (IAS), scheduled to
be in operation at the
Chicago Bank in early 1987.
The IAS is the latest step in
the Bank's ongoing effort to

13

Brian Hausmann, manager
in Human
Resource
Services, assisted Bank
management
in applying
strategic planning tools to
human resource
needs.

Kathy Matre, of Financial
Institution
Accounts,
helped coordinate a new
accounting system with
various Bank
departments
and customer
institutions.

integrate its diverse
operations and accounting
system into a unified whole.
The system increases
efficiency by avoiding
duplication of work. For
example, a transaction such
as the deposit of checks by a
depository institution can
be recorded directly into
the accounting system by
the Check Department. This
eliminates the need to
record data twice: once by
the originating department
and later into the
accounting system. In
addition, once data is
entered it can be

simultaneously recorded for
external distribution in a
customer statement, applied
to reserve accounts, and
included in the Reserve
Bank's general ledger
accounts.
The new system is also
integrating the accounting
procedures of the 12
Reserve Banks. MS—which
was jointly developed by the
Federal Reserve as a
"resource shared
application"—will be
implemented throughout
the System to ensure that
accounting procedures for
all transactions as well as
system updates are handled
uniformly.

14

Building for the Future

Education p r o g r a m s
b u i l d e c o n o m i c literacy

A major focus of the Bank's
public information activities
is to foster economic
literacy, particularly by
reaching out to educators
and encouraging the
teaching of economics to
students from kindergarten
through high school. Thus
prepared, the students can
make informed and
educated decisions for their
economic future.
The Bank's educational
program begins with
teachers. During this past
year, workshops for nearly
250 elementary and
secondary teachers from
Illinois, Indiana, and
Wisconsin were held at the
Chicago Reserve Bank.
Workshop topics ranged
from theoretical discussions
of inflation, to functional
studies of financial
institutions, to the practical
review of economic
education materials
available to instructors.
To assist teachers in
locating and selecting
materials for teaching
economics, the Chicago
Reserve Bank prepared
Elementary Economics: A
Bibliography. The guide
catalogs economic
education materials
appropriate for kindergarten
through sixth grade
including audiovisuals,
booklets, instructional units,
microcomputer disks, and
games. All materials listed
were evaluated by an
advisory committee and
judged to present economic
concepts objectively and
understandably.

The Bank also publishes a
newsletter for teachers—
On Reserve—focusing on
economic concepts and
current issues that can serve
as a basis for classroom
discussion and activities.
Topics covered in 1986
included the public debt
and deficits, the concept of
the free market, and the
factors that underlie the
level of interest rates.
Bank f o c u s e s o n
customer contact

In an increasingly
complicated financial
services marketplace, faceto-face communication with
the customer is essential. At
the Chicago Office direct
customer communication
was accomplished through a
series of Check Operation
Seminars held in 1986.
Seminars on important
aspects of depositing checks
with the Federal Reserve
were held for larger
Chicago-area institutions
and for banks located in the
Chicago metropolitan area
and in downstate Illinois.
Both the Indianapolis and
the Milwaukee Offices also
participated in seminars to
explain Federal Reserve
operations and procedures,
while the Des Moines Office
concentrated on one-on-one
visits with customers.
The Bank's Detroit Branch
took a different approach to
customer communication
with the formation of an
innovative task force
consisting of employees of
the Branch and a large local
bank. The task force was set
up to study check adjustment procedures and to
make recommendations for
improving the process.

Information security
ensures payments
s y s t e m reliability

The electronic movement of
funds and information
through increasingly
sophisticated, efficient, and
faster computers clearly
plays a crucial role in the
economy. For this reason,
protecting the security of
electronic information is an
essential part of the System's
mandate to assure an
efficient and reliable
payments system.

Keith Feiler, public
information
specialist,
directed the Bank's
economic
education
efforts,
including
workshops for
teachers.

During 1986, the Bank's
efforts to ensure
information security
included an increased
emphasis on encryption—or
encoding—of electronic
payments transactions to
prevent an unauthorized
party from understanding
the message. At the same
time, an internal education
program was undertaken to
raise the awareness of Bank
employees to the importance
of data security,
emphasizing specific steps
employees should take to
ensure information security.
The Bank also began
planning an Information
Security Conference aimed
at financial institution
executives. The two-day
seminar—to be held in
1987—will include
presentations and panel
discussions featuring
nationally-recognized
authorities and
representatives of local data
security organizations.

Bill Capre, an analyst in
Automation
Services,
coordinated
an effort to
raise awareness about the
importance
of
information
security.

15

Diane Nelson, division
manager of check
processing and
computer
operations at the
Milwaukee
Office,
participated
in seminars
to explain the Office's
operations and services to
financial
institutions.

Directors Federal Reserve Bank of Chicago
The nine-member board of directors of a Federal Reserve
Bank has a general governance responsibility for the
management of the Bank's operations. The board also acts on
the Bank's discount rate and, most importantly, contributes
to the formulation of U.S. monetary policy, the Federal
Reserve's foremost area of responsibility, by advising on
regional economic conditions.
The selection process for Reserve Bank directors assures that
they represent not only member banks of all sizes but also a
broad range of nonbanking interests such as industry,
agriculture, commerce, services, labor, and consumers.
Member banks of the district, divided into size groups
according to their capital and surplus, elect a total of three
banker and three nonbanker directors. The Board of
Governors, in Washington, D.C., appoints the three remaining
directors, also nonbankers, and designates from among them
the Reserve Bank's chairman and deputy chairman.
Three new directors joined the Chicago board in 1986:
John W. Gabbert, Charles S. McNeer, and Max J. Naylor.
McNeer was appointed a director by the Board of Governors
while Gabbert was elected by medium-sized banks and
Naylor was elected by the largest banks. They replaced three
directors who all completed two full terms on the board at
year-end 1985: Stanton R. Cook, president and chief
executive officer, Tribune Company, Chicago, Illinois; Maty
Garst, manager, Cattle Division, The Garst Company, Coon
Rapids, Iowa; and Patrick E. McNarny, president and chief
executive officer, The First National Bank of Logansport,
Logansport, Indiana.
Also for 1986, Robert J. Day was designated Chicago board
chairman and Marcus Alexis was designated deputy chairman
by the Board of Governors. Day replaced Stanton Cook as
chairman while Alexis assumed Day's former post as deputy
chairman.

Chairman
Robert J. Day
Chairman and Chief
Executive
Officer
USG
Corporation
Chicago,
Illinois

Leon T. Kendall
Chairman of the Board
and Chief Executive
Officer
Mortgage
Guaranty
Insurance
Corporation
Milwaukee,
Wisconsin

New Chicago directors beginning three-year terms in 1987
are: B. F. Backlund, president and chief executive officer of
Bartonville Bank, Bartonville, Illinois, and Paul J. Schierl,
chairman and chief executive officer, Fort Howard Paper
Company, Green Bay, Wisconsin. Backlund was elected by
the smallest banks, while Schierl was elected by mediumsized banks, replacing O. J. Tomson and Leon T. Kendall who
completed two full terms as directors at year-end 1986. Also
for 1987, Robert Day and Marcus Alexis were redesignated
board chairman and deputy chairman respectively.
Edward D. Powers
President and Chief
Executive
Officer
Mueller
Company
Decatur,
Illinois

17

Deputy Chairman
Marcus Alexis
Dean, College of Business
Administration
University of Illinois at
Chicago
Chicago,
Illinois

J o h n W. Gabbert
President and Chief
Executive
Officer
First National Bank &
Trust Company
La Porte,
Indiana

Charles S. McNeer
Chairman of the Board
and Chief Executive
Officer
Wisconsin Electric Power
Company
Milwaukee,
Wisconsin

Max J. Naylor
Grain and livestock
farmer
Jefferson,
Iowa

Barry F. Sullivan
Chairman of the Board
The First National Bank
of Chicago
Chicago, Illinois

O. J. T o m s o n
President
The Citizens
National
Bank of Charles City
Charles City, Iowa

Federal Reserve Bank of Chicago and Detroit
Branch
directors, accompanied
by Governor Wayne Angell of the
Federal Reserve Board and senior Bank management,
visit
the Quad Cities to learn more about the changing
nature
of the District
economy.

18

Directors Detroit Branch

The seven-member board of directors of the Detroit Branch
has a general oversight responsibility, helping to ensure that
the operations of the Branch serve the needs of its Michigan
territory. The Branch directors also serve as an additional
source of information about regional conditions and
participate in various activities and deliberations of the
District board of directors.
Four of the seven Branch directors are appointed by the
Federal Reserve Bank board of directors. The other Branch
directors, all nonbankers, are selected by the Board of
Governors, and the Branch board names its own chairman
from among these three directors.
Selected to the Detroit Branch board effective January 1, 1986
were Donald R. Mandich and Phyllis E. Peters. Mandich, who
was appointed by the Chicago board, and Peters, selected by
the Board of Governors, replaced Charles T. Fisher, chairman
and president, National Bank of Detroit, Detroit, Michigan,
and Russell G. Mawby, chairman of the board and chief
executive officer, W. K Kellogg Foundation, Battle Creek,
Michigan. Robert E. Brewer was appointed Branch chairman
for 1986, replacing Mawby in that position.
Selected a Detroit Branch director effective January 1, 1987
was Richard T. Lindgren, president and chief executive
officer, Cross & Trecker Corporation, Bloomfield Hills,
Michigan. Also, Robert Brewer was reappointed Branch
chairman for 1987, and Ronald Story was appointed to a
second three-year term as a director.

Chairman
Robert E. Brewer
Senior Vice President
K mart
Corporation
Troy, Michigan

Richard M. Gillett
Chairman of the Board
Old Kent Financial
Corporation
Grand Rapids,
Michigan

Donald R. Mandich
Chairman and Chief
Executive
Officer
Comerica
Bank-Detroit
Detroit,
Michigan

Thomas R. Ricketts
Chairman of the Board
and
President
Standard Federal Bank
Troy, Michigan

Karl D. Gregory
Professor of Economics
and
Management
Oakland
University
Rochester,
Michigan

Phyllis E. Peters
Director, Professional
Standards
Review
Touche Ross and
Company
Detroit,
Michigan

Ronald D. Story
Chairman and
President
The Ionia County
National Bank
Ionia, Michigan

Advisory Councils
Advisory Council o n Agriculture
Glen Apple, Sandborn, Indiana, American
Agriculture Movement of Indiana
Allan Aves, Kirkland, Illinois, Land of Lincoln
Soybean Association
Susan Bright, Centerville, Indiana, Women Involved
in Farm Economics
Federal Advisory
Council Representative
Hal C. Kuehl
Chairman of the Board
First
Wisconsin
Corporation
Milwaukee,
Wisconsin

The Federal Advisory
Council consists of one
member from each of the
12 Federal Reserve Districts
and meets quarterly with
the Board of Governors in
Washington, D C. to discuss
business and financial
conditions. The Seventh
District representative is
selected annually by the
Chicago Reserve Bank's
board of directors.
Two new Advisory Councils
were formed by the Federal
Reserve Bank of Chicago in
1985 to promote
communication with the
agricultural and small
business sectors. Council
members are selected from
nominations by organizations representing small
business and agriculture in
the Seventh District.

David Diehl Sr., Dansville, Michigan, Michigan
Soybean Association
Howard Fischer, Neenah, Wisconsin, National
Farmers Organization
Wallace Furrow, El Paso, Illinois, Grain and Feed
Association of Illinois
John Laurie, Cass City, Michigan, Michigan Farm
Bureau
Malcolm McGregor, Nashua, Iowa, Iowa
Cattlemen's Association
George Morton, Lebanon, Indiana, Indiana Beef
Cattle Association
William Riggan, Washington, Iowa, Iowa Pork
Producers Association
Lester Wallace, Beloit, Wisconsin, Wisconsin Grange
Advisory Council o n Small Business
John Barnes, Logansport, Indiana, Indiana State
Chamber of Commerce
Melvin Boldt, Mt. Prospect, Illinois, Independent
Business Association of Illinois
Raul Chavez, Indianapolis, Indiana, U.S. Hispanic
Chamber of Commerce
Jean Hansen, Racine, Wisconsin, Wisconsin Women
Entrepreneurs
Saundra Herre, Racine, Wisconsin, Independent
Business Association of Wisconsin
Pearl Holforty, Southfield, Michigan, National
Association of Women Business Owners
Jon Kneen, Ottumwa, Iowa, Iowa Association of
Business and Industry
James Oughton Jr., Divight, Illinois, National
Federation of Independent Business
Gordon Stauffer, Greenville, Michigan, Michigan
State Chamber of Commerce
Connie Wimer, Des Moines, Iowa, National
Federation of Independent Business

20

Officers
Central Bank Activities
Supervision and Regulation and Loans
James R. Morrison, Senior Vice President

Silas Keehn
President

Daniel M. Doyle
First Vice President

Appointments to a Federal Reserve Bank's official staff are
made by the Bank's board of directors.
Officers promoted in 1986 included: Richard P. Anstee, to
senior vice president in charge of Support Services; Gerard J.
Nick, vice president, responsible for Financial Institution
Accounts; and Jean L. Valerius, vice president in charge of the
Statistics Division.
Also during 1986, Jerome D. Nicolas, Operations; Susan H.
Riis, General Services; and Colleen M. Walsh, Human
Resource Services, were promoted to assistant vice president.
In addition, Linda P. Maschio was named operations officer in
Electronic Services, and Patricia W. Wishart, vice president
and assistant director of research, retired after more than 40
years of service to the Bank.

Supervision and Regulation
Franklin D. Dreyer, Vice President
Roderick L. Housenga, Chief Examiner
Nicholas P. Alban, Assistant Vice President
John L. Bergstrom, Assistant Vice President
David S. Epstein, Assistant Vice President
Douglas J. Kasl, Assistant Chief Examiner
Rose M. Kubush, Assistant Vice President
William H. Lossie, Jr., Assistant Chief Examiner
Geoffrey C. Rosean, Assistant Vice President
Patrick J. Tracy, Assistant Chief Examiner
Alicia Williams, Assistant Vice President
Loans and Reserves
James A. Bluemle, Assistant Vice President
Economic Research and Information Services
Karl A. Scheld, Senior Vice President and EHrector of Research
Economic Research
David R. Allardice, Economic Adviser and Vice President
Gary L. Benjamin, Economic Adviser and Vice President
George W. Cloos, Economic Adviser and Vice President
Joseph G. Kvasnicka, Economic Adviser and Vice President
Larry R. Mote, Economic Adviser and Vice President
Anne Marie L. Gonczy, Senior Economist and Assistant
Vice President
Steven H. Strongin, Research Officer
Information Services
Nancy M. Goodman, Assistant Vice President
Statistics
Jean L. Valerius, Vice President

21

Services t o D e p o s i t o r y Institutions

Support Functions

Operations and Check Services
Charles W. Furbee, Senior Vice President

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

Cash, Fiscal Agency and Securities Services
David R. Starin, Vice President
Daniel P. Kinsella, Vice President
Jerome D. Nicolas, Assistant Vice President
Warren E. Potts, Assistant Vice President
Lawrence J. Powaga, Assistant Vice President
Check Services
Wayne R. Baxter, Vice President
Paul J. Bettini, Vice President
William A. Bonifield, Vice President
Robert W. Wellhausen, Vice President
Allen G. Wolkey, Vice President
Theodore E. Downing, Jr., Assistant Vice President
LeRoy E. Ketchmark, Assistant Vice President
DeWayne W. Baker, Operations Officer
Maria H. Coons, Operations Officer
Automation and Electronic Services
William C. Conrad, Senior Vice President
Automation Support and Computer Operations
Marlene M. O'Sullivan, Vice President
Stephen M. Pill, Vice President
Kenneth R. Berg, Assistant Vice President
Frank S. McKenna, Assistant Vice President
Charles L. Schultz, Assistant Vice President
James A. Suprinski, Assistant Vice President

Financial Institution Accounts
Gerard J. Nick, Vice President
Financial Management and Management
Glenn C. Hansen, Vice President
Jerome F. John, Assistant Vice President
Office of the General Auditor
Richard P. Bush, General Auditor
Angelina Chin, Auditing Officer
Office of the General Counsel
William H. Gram, Vice President, General Counsel,
and Secretary
Legal Services
Teri J. Kurasch, Assistant General Counsel
M. Kathleen O'Brien, Assistant Counsel
Office of the Bank Secretariat
Joan M. DeRycke, Assistant Vice President and
Assistant Secretary
Support Services
Richard P. Anstee, Senior Vice President
Administrative Services
Adolph J. Stojetz, Vice President
Facilities Improvement
Robert D. Lauson, Vice President

Electronic Services
Glen Brooks, Vice President
James M. Rudny, Assistant Vice President
Janet M. Terry, Assistant Vice President
Linda B. Maschio, Operations Officer

General Services
Robert A. Ludwig, Vice President
Susan H. Riis, Assistant Vice President

System Communications Center
George E. Coe, Vice President
Bonnie Bates, Assistant Vice President
R. Steve Crain, Assistant Vice President

Human Resource Services
Thomas G. Ciesielski, Vice President
Gerald I. Silber, Assistant Vice President
Colleen M. Walsh, Assistant Vice President
District Offices

Detroit Branch
Roby L. Sloan, Senior Vice President and Branch Manager
Frederick S. Dominick, Vice President and Assistant
Branch Manager
Joseph R. O'Connor, Assistant Vice President
Richard L. Simms, Jr., Assistant Vice President
F. Alan Wells, Assistant Vice President
Yvonne H. Montgomery, Operations Officer

Services

Regional Offices
Des Moines
Thomas P. Killeen, Vice President
Indianapolis
Allen R. Jensen, Assistant Vice President
Milwaukee
Charles M. Lund, Assistant Vice President

22

Statement of Condition
As of December 31
1986

1985
(in thousands of dollars)
Assets
Gold certificate account
Interdistrict settlement account
Special drawing rights
certificate account
Coin

1,394,000
2,974,753

1,451,000
(262,579)

656,000
28,851

620,000
28,933

88,875
873,141
22,039,465

31,509
906,423
19,588,158

23,001,481

20,526,090

Cash items in process of collection
Bank premises

1,012,504
43,165

958,107
22,001

Other assets:
FDIC assumed indebtedness
Other

2,904,299
1,694,647

3,222,905
1,417,924

Loans and securities:
Loans
Federal agency securities
U.S. government securities
Total loans and securities

Total other assets
Total assets
Liabilities
Federal Reserve notes
Deposits:
Depository institutions
U.S. Treasury—general account
Foreign
Other
Total deposits
Deferred availability cash items
Other liabilities
Total liabilities
Capital
accounts
Capital paid in
Surplus
Total capital
Total liabilities and capital

4,598,946

4,640,829

33,709,700

27,984,381

27,063,964

23,723,605

5,008,403
0
20,250
102,368

2,545,056
0
21,000
109,010

5,131,021

2,675,066

751,662
260,309

848,575
254,773

33,206,956

27,502,019

251,372
251,372

241,181
241,181

502,744

482,362

33,709,700

27,984,381

23

STATEMENT of INCOME
Year ending December 31
1986

1985

(in thousands of dollars)
Current income
Interest on loans
Interest on government securities
Interest on investments of
foreign currencies
Service fees
All other

206,124
1,782,213

318,485
1,986,310

53,107
84,723
1,712

32,009
81,575
1,600

Total current income

2,127,879

2,419,979

Current
expenses
Operating expenses
Other current expenses

137,965
21,706

133,522
21,098

Total current expenses
Less reimbursement for certain
fiscal agency and other expenses

159,671

154,620

12,795

10,751

Current net expenses

146,876

143,869

1,981,003

2,276,110

7,422

12,145

Current net income
Additions to (or deductions
from)
current net earnings
Net profit (or loss) on sales
of securities
Net profit (or loss) on foreign
exchange transactions
Board of Governors assessment
All other—net

266,035
(36,855)
(7,542)

169,406
(35,416)
(696)

Net additions (or deductions)

229,060

145,439

Net earnings available
for distribution

2,210,063

2,421,549

14,839

14,199

2,185,033
10,191

2,393,781
13,569

2,210,063

2,421,549

Distribution of net earnings
Dividends paid
Payments to U.S. Treasury (as interest
on Federal Reserve notes)
Transferred to surplus

Highlights of Operations
Dollar amount
1986
Check and related
services
Checks, NOWs, and share
drafts processed
Fine sort and packaged
checks handled
U.S. government checks
processed
Automated clearinghouse (ACH)
items processed
Transfers of funds
Cash
operations
Currency received and counted
Unfit currency withdrawn
Coin received and processed
Securities services for
depository
institutions
Safekeeping of securities:
Definitive, balance
December 31
Book entry, balance
December 31
Purchase and sale of securities
Collection of bonds, coupons
and other noncash items
Loans to
depository
institutions
Total loans made during year
Institutions accommodated
Services to U.S. Treasury
Marketable government
securities issued, exchanged
and redeemed:
Definitive securities
Book entry securities
U.S. government coupons paid
U.S. savings bonds issued,
exchanged and redeemed
Federal tax deposits processed
Food stamps received and
processed

Volume

1985

1986

1985

1.0 trillion

1.0 trillion

129.4 billion

123.2 billion

292.5 million

286.7 million

55.2 billion

54.9 billion

63 8 million

65.9 million

573.7 billion
20.8 trillion

456.2 billion
20.6 trillion

117.4 million
9.2 million

92.3 million
8.5 million

18.4 billion
2.9 billion
478.3 million

17.0 billion
2.8 billion
457.3 million

1.8 billion
480.7 million
3.6 billion

1.6 billion
480.7 million
3.4 billion

14.0 billion

12.8 billion

0.5 million

0.5 million

169.9 billion
3-2 billion

145.2 billion
3.1 billion

13 7 thousand

22.1 thousand

1.1 billion

1.1 billion

278.3 thousand

331.4 thousand

4.5 billion

93.4 billion

1.9 billion

—

1,840
207

1.9 billion

—

2,856
271

—

—

2.7 billion
4.2 trillion
158.6 million

5.1 billion
3.4 trillion
338.3 million

233.6 thousand
1.1 million
277.0 thousand

300.4 thousand
1.0 million
366.0 thousand

3.6 billion
92.3 billion

2.8 billion
84.1 billion

30.1 million
860.6 thousand

26.9 million
837.2 thousand

1.5 billion

1.5 billion

307.4 million

331.0 million

For additional copies of this
report, contact the Public
Information Center, Federal
Reserve Bank of Chicago
(312/322-5111).

Federal Reserve Bank
Of Chicago

Head Office

230 South LaSalle Street
Chicago, Illinois 60604
Detroit Branch

160 West Fort Street
Detroit, Michigan 48226
Des Moines Office

616 Tenth Street
Des Moines, Iowa 50309
Indianapolis Office

41 East Washington Street
Indianapolis, Indiana 46204
Milwaukee Office

304 East State Street
Milwaukee, Wisconsin 53202


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102