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1989 Annual Report - Federal Reserve Bank of C h i c a g o Forces Shaping the 8 0 s and 9 0 s The Federal Reserve Bank of Chicago, as part of the nation's central banking system, serves the Seventh District which major portions includes of Illinois, Indiana , Michigan, and Wisconsin plus all of Iowa. Its role is to foster a healthy financial system and economy by participating in the formulation conduct of the nation's policy, supervising and monetary banks and bank holding companies, and providing banking services to depository tutions and the U.S. insti- government. 1 98 9 Annual Report - Federal President's Message 5 Forces Shaping the 80s and 90s Financial Statements Directors and Officers Bank of C h i c a g o 2 1989 Highlights. 7 Reserve 18 20 President's Message The decade of the 1980s was a remarkable period for our economy. It was a time of significant contradictions — there were very important economic achievements, but also the build-up of major imbalances throughout our economy, as well as episodes of turbulence and trauma. We benefitted from the longest peacetime expansion in our history, but leveraged every sector of the economy in the process. We produced record numbers of new employment opportunities, but encountered one financial crisis after another. Our manufacturing output increased to record levels while productivity grew, yet our burgeoning domestic consumption was satisfied with rising imports, and a record trade deficit resulted. In the process, our external position shifted from being the world's largest external creditor to being the world's largest external debtor — servicing this debt will be one of the new decade's major challenges. What accounts for these apparent contradictions in our economic experience, and more importantly what lessons does this experience provide us for the 1990s? While our economy is surely too complex for one simple answer, logic would suggest that contradictory economic results derive inevitably from contradictory economic policies. Throughout the decade, our nation's fiscal and monetary policies operated along disparate paths. As the decade opened, monetary policy was poised first to bring, and then to keep, inflation under control. But also from the early 1980s, in the face of a recession, our nation chose to pursue a highly expansionary fiscal policy. Both policies were widely 2 supported and, incredibly, both highly successful. Inflation was brought down, the recession ended, and a sustained expansion ensued. A key to that success was the increasing globalization of financial markets, which provided a conduit for funding our deficit and high rate of consumption. But as a result, we concluded the 1980s in a very distorted position. We now consume more than we produce, and rely on foreign savings for the difference. Through this process we accumulated a tremendous external debt, but since we continued to spend heavily on public and private consumption rather than investment, we have not provided ourselves with sufficient cash-generating means for debt service. The deregulation and liberalization of the world's financial system also played a key role in the 1980s. Perhaps most particularly in the United States, freeing our financial system from past restraints added immeasurably to our positive economic experience. While we may understand that an unfettered market process produces the best results, we need to be reminded of this from time to time. Clearly, we enter the 1990s facing critical issues. First of all, we will have to make more progress on the federal budget deficit. Our experience of the 1980s tells us that budget deficits do matter—they have profound effects on our trade and balance of payment positions, as well as on our rate of savings and investment. We will need to recognize that continued reliance on foreign capital to finance our deficits has risks, and we will have to continue to make progress on our trade deficit. To do this it will be important to improve our competitiveness. We must also improve our low rate of personal savings and achieve a better balance between consumption and investment. Finally, one lesson from the 1980s stands out clearly from the rest, namely the need to make continued progress in the control of inflationary pressures. Obviously, this is an issue of particular concern to the Federal Reserve. In the face of all the changes of the past decade, the need 3 to reduce inflation remains the one constant. Based on our own experience and that of other economies around the world, price stability remains for the Federal Reserve the single most important contribution we can make to future economic success. The 1990s promise to be every bit as interesting and just as challenging as the 1980s. But our record as a nation in meeting challenges has been outstanding, and the Federal Reserve's commitment to dealing with the issues ahead is firm. So I am confident that we can achieve as much success in the next ten years as we have in the past decade. For the Federal Reserve Bank of Chicago, too, the period ahead promises to be, like the recent past, a time of enormous challenge and change. Our success in meeting those challenges over the past few years is owed entirely to the enormous talents and commitment of many individuals associated with our Bank, but one deserves particular recognition. I would like to take this opportunity to pay tribute to Mr. Robert J. Day who has served our Bank so exceptionally as a member of our Board of Directors for the past six years, and as Chairman for the last four years. He guided our Bank with distinction and vision during a time of significant challenge and change. The Bank's accomplishments during this period are testimony to his leadership, plus his unstinting commitment of time, energy, and expertise. The period of Bob Day's stewardship has been one of major transformation — in the environment in which the Bank operates, in many of the Bank's activities, and fittingly, even in the Bank's headquarters From left: seated, Deputy Chairman Marcus Alexis, Chairman Robert J. Day; standing. building. By successfully guiding it through this eventful period, Bob Day has prepared the Bank to meet the many challenges that surely lie ahead. President Silas Keehn. First Vice President Daniel M. Doyle. SILAS KEEHN, President Highlights - Overall, the Bank met a very ambitious reducing annual expenses in real terms. management plan while - We completed our multi-year $89 million building project on time, within budget, with no service disruptions, providing us an efficient modern facility and winning for the project's architects an American Institute of Architects award. - Chairman Greenspan our 75th Anniversary of the helped rededicate our building with our employees, as we their families, marked and members community. - We fully recovered the costs of our priced services for the sixth straight year by stressing cost containment and productivity, allowing us to again reduce prices for many of our products. - Economic Research highly regarded investment, rates, supported imperfect capital risks of expanded regional current studies on a variety input-output markets, powers, public policy decisions of issues including the term spread deposit insurance with public of sector interest reform, and modeling. - We joined forces with the University of Illinois to establish the Regional Economic Applications Laboratory (REAL), a center for research on the changing nature of the District economy. - Our expanded proved contacts particularly with local futures helpful as we assessed market participants October's stock market turbulence. - The Bank's 25th annual Conference on Bank Structure and Competition, Banking System Risk — Charting a New Course, and two special conferences, Visions of the Midwest Economy, and Financial Globalization: Private and Public Strategies, stimulated public debate on important policy issues. - We expanded our community outreach with the opening of a computerized interactive lobby display explaining the Bank's role. - We provided thrift staff to other agencies and districts as needed to resolve problems. - Supervision and Regulation holding company, processed 602 applications, - Check Services meet increased Expedited staff conducted and related implemented examinations the heaviest bank work load in the Fed new return item processing volume and time requirements Funds Availability 1,058 bank, and inspections, associated and System. software to with the Act. 5 Operations - We instituted cooperation the Intermingled Return with the Ninth District processing of returned - Our Des Moines performance Office achieved - The Detroit Branch implemented System's electronic the number in the Fed savings matured currency shipping provides processing access Payments - Our Automated commercial sales improving the of the collection by adding a second of shift in high- and using new high-security District to a broad institutions array Clearinghouse of electronic project Checks, NOWs, and share drafts processed processed II which services. pilot test site for hardware and over 100 time, indicative payments to Fedline of the with consumers EPP software. Fine sort and packaged checks handled U.S. government checks processed Automated Clearinghouse (ACH) items processed million increasing and DOLLAR AMOUNT 1989 1988 CHECH \ M > ELECTRONIC PAYMENTS currency of electronic to serve as the System Processor) items for the first popularity pilot program, by Bank s t a f f . - We made preparations (Electronic EZ Clear, began converting on-line an innovative for over-the-counter were improved bags developed - The Bank productivity bonds. - Cash operations speed one institutions. implemented savings in the System. connection bonds at financial - Fiscal Agency and simplify checks. ranking first Item pilot in Wisconsin to speed Statistics Transfers of funds trillion 1.1 trillion 242.4 billion 198.7 billion 52.1 billion 1.1 55.8 billion VOLUME 1989 1988 1.9 billion 2.0 billion 502.2 million 406.4 million 57.1 million 59.3 234.8 million 2 1 1 . 1 1.1 trillion 1.0 trillion 29.0 trillion 25.7 trillion 11.1 24.0 billion 21.8 billion 2.0 4.9 billion 4.4 billion million 10.4 million million million businesses. CASH OPERATIONS - The Bank measures instituted to ensure additional data the reliability security and integrity and disaster recovery of critical electronic functions. Unfit currency destroyed - We built a state-of-the-art monitors both the Seventh networks Network District Control Center where and the Fed System our staff to play 515.3 million 589.0 million 1.9 billion 550.6 million 5 1 3 . 8 4.1 billion million 4.3 billion SECURITIES SERVICES FOR DEPOSITORY INSTITUTIONS a leadership the development meet the requirements Coin received and counted billion communication round-the-clock. - We continued including Currency received and counted role in many System of FRCS-90, of the coming an electronic decade. initiatives network that will Safekeeping balance December 31: Definitive securities Book entry securities billion 14.1 billion 244.0 billion 215.6 billion 11.8 377.8 thous. - 425.2 thous. - Purchase and sale 3.2 billion 3.6 billion 22.7 thous. 22.2 thous. Collection of securities and other noncash items 1.1 billion 1.2 billion 231.2 thous. 251.1 thous. 3.3 billion 4.6 billion 1.2 billion 1.2 billion" Definitive government securities 0.7 billion 1.2 billion Book entry government securities 4.0 trillion 2.7 trillion Government coupons paid 103.2 million 140.8 million 100.2 thous. 137.0 thous. Federal tax deposits processed 116.5 billion 107.4 billion 874.9 thous. 863.5 thous. 1.5 billion 1.4 billion 301.7 LOANS TO DEPOSITORY INSTITUTIONS Total loans made during year 1,990 2,195 SERVICES TO U.S. TREASURY AND GOVERNMENT AGENCIES Issues, redemptions and exchanges: U.S. savings bonds Food stamps redeemed *Restated 6 3.1 million 2 7 . 1 thous. 1.7 million 4.2 million° 100.5 thous. 1.2 million 312.4 to exclude EE bond sales by issuing million million agents. Forces Shaping the 80sand 90s "Is Capitalism Working?" So asked a Time magazine cover story in 1980. The answer was a qualified yes. Capitalism was working, but not very well. "Price spurts once associated with profligate banana republics are now common...," Time declared, "and threaten the foundations of democratic society." Record high interest rates, sagging productivity, and a depressed stock market added to the U.S. economic woes at the beginning of the decade. The gloomy economic outlook was not limited to news magazines. A bipartisan Congressional committee reported in 1979 that unless productivity improved, the nation "will face a dramatically declining standard of living in the 1980s" with prices up to "almost incredible levels such as $5.80 for a gallon of gasoline and $2.06 for a loaf of bread." Capitalism, of course, made a comeback in the 1980s. Following a severe recession in late 1981 and 1982, inflation declined dramatically and the U.S. embarked on a peacetime record seven years of expansion. The economy created nearly 20 million jobs and manufacturing productivity rebounded. It was a decade of economic contradictions, however. The 1980s also featured massive trade and budget deficits, soaring private and public debt, and a series of financial strains including widespread thrift failures and the largest decline in the stock market in more than 50 years. The decade's one constant was the assurance of continued change, a trend that helped produce the unpredictable and contradictory economy of those ten years. The following pages highlight five "forces of change" that helped to mold the economy in the 1980s: Technology, Globalization, Financial System Restructuring, Deregulation, and Industrial Restructuring. All of these forces were intertwined and interrelated; each was both a cause and an effect; each helped to shape the others and accelerated the overall pace of change. We review these forces from the Federal Reserve Bank of Chicago's perspective and include some thoughts from the Bank's senior executives on the implications of these changes for the 1990s — a decade that promises to be, like the 1980s, a challenging and eventful ten years. 7 Technology—in in the 1980s. Advances all of its many forms—was in electronics the VCR, that changed Americans' pervasive led to an influx of products, buying habits. Personal such as computers proliferated—there are about 45 million in the U.S. today—and ments in microchips sparked developed, a wave of miniaturization. the cost of processing information according to one estimate the computational increased a thousandfold in the past two As dropped power improve- technology precipitously— a dollar can buy has Technology decades. The Bank also stepped up its For U.S. manufacturers, technology data security efforts. By 1988, all of the became a tool for Bank's wire transfers were encrypted— fighting foreign competition. Robotics, automated processes, and At the beginning of the de- computer-aided design and manufacturing (CADI CAM) gave traditional cade, the Bank took a leading role in developing an improved communication industries the means to boost their sagging competitiveness. The financial network for the Federal Reserve System. The Federal Reserve Communication services industry concentrated on computer and information processing System of the 1980s (FRCS-80) was implemented in 1983 under the direction of technology. The use of Automated Teller Machines (ATMs), for example, a project team based in Chicago and is still operated by the Bank. FRCS-80 exploded. Today, some 75,000 ATMs are woven into a variety of regional utilizes a series of inter-connected processors, rather than a central switch, a and national networks. But even as technology enabled banks to offer more flexible, reliable, and efficient approach that enabled the Fed to handle more services more efficiently, it also smoothed the path for new competi- the huge increase in electronic volumes in the 1980s. tors to enter the financial services industry. One of the major reasons for this increase in electronic volumes was the development of new and relatively inexpensive computer equipment. The new equipment, combined with price incentives, encouraged institutions with relatively low volumes of wire transfers to switch from the inefficient process of telephone transfers to an electronic computer connection with the Fed. The number of institutions completing "on-line" computer transfers through the Chicago Fed rose from a handful in 1980 to more than 900 by 1989. The use of the Automated Clearinghouse (ACH), also aided by new processing and communication technology, soared in the 1980s. ACH volume in the Seventh District increased from 28 million payments in 1980 to 235 million in 1989. As funds transfer volumes increased, the Bank offered information services that helped institutions manage their funds positions. 8 or encoded—to prevent an unauthorized third party from understanding or altering the message. The Bank automated the process of issuing government securities with the introduction of Treasury Direct. The Chicago Fed, along with the other 11 Fed Banks, implemented the system in 1986. Under Treasury Direct, nearly all government securities were converted to book-entry form, which resulted in simplified recordkeeping for customers and eliminated the possibility of lost or stolen securities. Another advantage was cost savings—it was estimated that Treasury Direct would save taxpayers $46 million in its first seven years of operation. The Bank also improved its automated check-sorting equipment throughout the decade and in 1988 automated the labor-intensive process of handling return checks, a move that facilitated bankers' compliance with the Expedited Funds Availability Act. At the end of the decade, the Federal Reserve was exploring a number of ways to use technology to improve services including check truncation, digital image processing, and an allelectronic ACH. W i l l i a m C. C o n r a d ( l e f t ) , A u t o m a t i o n and Electronic Services Carl E. V a n d e r Wilt, F i n a n c i a l a n d Management Services Bill Conrad: "From my perspective, there's been a dramatic change in our technology and automation efforts. Our services today are more time critical—virtually 100 percent availability and reliability is required. Take checks—the emphasis now is not just delivering them to institutions. Moving the MICR data faster than the paper and providing the information in a time-critical manner is a necessity. As the characteristics of our services change, we need to make sure that our production and delivery systems can accommodate the new demands. The Federal Reserve System is preparing to make some significant changes in our communications networks to assure their continued reliability. We're looking at the network that connects the Fed Banks as well as the networks that connect customers to Fed offices. As the operator of the System's communication network, the Chicago Fed has been actively involved in this effort. The Fed is also investigating the use of fault-tolerant minicomputer technology. Our interest is in finding out if this technology would improve reliability, availability, and our ability to remotely back-up our services. With the changes in banking structure and the increasing need for our customers to do business with more than one Fed District, we're also taking steps to provide more uniformity and standard access to our core Federal Reserve services. It's technically possible to provide automation support for payments services from fewer than 12 locations. Such an arrangement could actually improve access, uniformity, and flexibility in responding to change and be more efficient. This is something we're seriously looking at—for payments processing and probably even additional applications." Carl Vander Wilt: "Our accounting operations interface with all institutions that have accounts with us—about 1,700 in the District. We provide them with a daily statement either electronically or in paper form. We also have a service that provides information on nighttime activity such as check or ACH that affects the management of their account on the current day. Technology and geographic deregulation have created a definite need for us to be more standardized. For example, take a bank holding company headquartered outside our District that buys a bank in our District. The marketplace drives them to do things efficiently—often this means doing them electronically or in a combined or standard way within the holding company. So standardization becomes important for the Federal Reserve. An institution doesn't want to develop more than one system in order to interface with additional Fed offices. We're working very actively now to see what the standards should be; to see what framework is most desirable. There are a lot of issues to be sorted through in the '90s. Standardizing might satisfy certain customer requirements but it might also result in systems with less flexibility to meet local needs. On the other hand, it's arguable that a standard system could result in even greater flexibility. Will there be more standardization? Absolutely yes...the trick will be to do it in a way that best serves our constituents' needs." 9 Globalization, the decade. a burgeoning An instantly-connected, trend in 1980, was a reality intertwined, interdependent 1980s. Trade issues became increasingly important market developed. of billions of dollars transactions Every day, hundreds flashed across national A painful international position. debtor nation just five years later. world emerged and a quicksilver 24-hour in currency in the global and securities borders. reflection The world's by the end of of globalization largest creditor The payments was our nation's deteriorating in 1980, the U.S. was the largest deficit grew in the next three years, Globalization hitting a record $532.5 billion in 1988. U.S. manufacturers increased foreign in the deficit, competition reflected were battered by the and their share of the domestic Globalization highlighted the markets need for the Federal Reserve and other central banks and regulators around the world to in certain products became more difficult communicate and coordinate their actions. It was no longer enough to keep your own one. dropped to differentiate With multinational corporations precipitously. between But as competition a U.S. product producing or company more goods overseas house in order. As the concept of a global village became more of a reality, the actions, commonplace, the traditional distinctions became less clear-cut. and reactions, of your world neighbors could be all-important. In monetary policy, the actions of foreign countries became an important factor. International efforts, such as the attempts to affect the value of the dollar and to contain the LDC debt crisis, became for imposing the restriction. The change in much more common. policy, effective at the beginning of 1990, One of the most significant should help small investors and small compa- examples of the increased trend toward co- nies doing business overseas. operation was the adoption of international As globalization increased, so risk-based capital guidelines. The project did volatility and risk. As hundreds of bil- began as a cooperative effort among the U.S. federal agencies and then expanded to in- lions of dollars in electronic payments crossed national borders every day, the Fed- clude eleven other major industrial nations. eral Reserve increasingly studied the risk as- The guidelines, which will be phased in over sociated with large-dollar wire transfer net- the next three years, are designed to make works. Systemic risk—a chain reaction of capital requirements more sensitive to risk. In addition, the guidelines should help failures triggered by a participant's inability to settle its debt on a network—became "level" the international playing field by en- more of a concern. In 1986, the Fed imple- couraging international banks to hold strong mented a policy to reduce risk on large-dollar capital positions and by reducing competitive networks by placing a cap, or a limit, on the inequities that are due to varying supervisory amount of funds overdrafts that an institution regulations. could accumulate during the day. The ChiAnother effect of globalization was a decision by the Federal Reserve Board cago Fed played a key role in implementing the policy by coordinating the development to end its policy of discouraging banks in the of educational programs and materials on U.S. from offering deposits denominated in foreign currencies. The Board's policy was behalf of the System. In 1989, the Board proposed to expand the policy by charging a intended to limit volatility in the foreign ex- fee for overdrafts on the Fed's wire transfer change markets. The Chicago Reserve Bank initiated a review of the policy noting that the globalization of financial market transactions had eliminated many of the original reasons 10 system—Fedwire. The proposal would use market forces to help contain the risk that could result from the increasingly integrated economy of the next decade. intensified, and a and joint it foreign ventures K o b y L. S l o a n , D e t r o i t B r a n c h Roby Sloan: "Distance is no longer the crucial factor that it used to be. With technology and a reduction in country barriers, it's a reduced impediment in what we do—whether it's trade, travel, or communication. Clearly we have a worldwide financial market. Even those not directly involved are kept abreast of changes in the global market and fluctuations in foreign currencies on most any morning newscast. There's a tremendous volume of funds that move very quickly across the globe based on an expected rate of return. While this presents opportunities and leads to greater efficiency, more capital is turning over more rapidly and increased velocity inherently increases risk. New instruments have been spawned for the purpose of risk spreading, but it's not always clear who bears the risk that's spread. And I'm not sure that the people who are bearing the risk are fully aware of it. That's an issue the Bank has been studying much more closely. From a more operational standpoint, globalization has also affected the use of Fedwire. Right now there's active discussion regarding a 24-hour Fedwire or at least extending hours. It's a discussion that's been ongoing for a while. Here in Chicago, the commodity markets create the need for extended hours. In New York, it's the international wire system, CHIPS. Globalization has also increased the trend toward a closer-knit financial community. In Europe, the integration of commercial banking and securities activities is already happening. Europe 1992 will drive the process forward. In order to be a full-service organization in Europe, a U.S. bank will have to provide the same service. I think that will result in a spillover here in the U.S. Certainly the increased foreign competition has affected the economy in Detroit and Michigan. Competition, especially on the global level, has forced restructuring. The pace of change complicates the process. There's a whole variety of factors that are more unstable and less predictable—from volatility in the financial markets to rapid advances in technology. In a broad sense that's what drives restructuring—the need to quickly react to change. There are few industries affected by global competition that are as visible as the auto industry. It's a complicated process—it raises questions about what's a U.S. car and what's a foreign car. A Honda may have more U.S. content than some Ford nameplates. As economic sectors become more integrated, it's crucial that the Bank understand the implications of the global economy. At the same time, this integration has made it more difficult to gauge individual sectors. So our understanding needs to be broader and more specific at the same time. One thing the Bank has done to increase its understanding of individual sectors is strengthen its contacts with various firms in the District. And certainly our directors in Chicago and Detroit will continue to play a key role." 11 The commercial community—faced typed member of the business early 1980s. distinctions Spurred between by market forces, banks, thrifts, compartmentalized financial new competitors, new products, faced a growing dise retailers, threat. paper number of investment an identity legislation industry crisis by the was blurring and new markets. banks and security stereo- The the carefully was turning into a maze of Financial competitors—foreign institutions banks, general dealers role as a financial by developments the most and credit unions. services The bank's traditional undermined bank—traditionally were suddenly intermediary such as the expansion merchan- of the a Financial System Restructuring was commercial market. Financial institutions major trend was consolidation—the number of large banks increased. institutions ventured securitization, responded number of banks declined As interest-rate into areas that provided letters of credit, expenses, reallocated resources, strength, whether lending. At the end of the decade, it was "one-stop financial much more competitive spreads One and the narrowed, fee income such as loan and interest-rate overhead to the changes. swaps. and focused shopping" Banks also cut on their areas of or specialized most banks were holding their own in a marketplace. As financial restructuring continued, the Bank's supervision and The Bank responded to the shifting environment in several ways. requirements for bank holding companies distinctions so that Fed Banks could obtain more data between financial institutions disappeared, and geographic barriers regulation of bank holding companies One key step was increasing the number more frequently. By studying these sta- crumbled, Bank representatives met and state member banks evolved in re- of examinations and concentrating more tistical reports, the Chicago Fed ob- more frequently with other federal and sponse to the changing environment. on key factors that might affect a bank's tained a better sense of when a bank state regulators and increased communi- Previously, problems at a bank were safety and soundness. A bank's interest- might be facing problems. This early cation with other Fed Districts. usually linked to poor management or to rate position, asset/liability manage- warning system helped the Chicago Fed local or regional economic problems. ment, and organization and structure spot potential difficulties before they supervisory efforts, it also began to de- With increased competition and globali- were examined more closely. The Bank became significant problems. velop a comprehensive plan to revamp zation, it became more difficult to antici- also focused its efforts. There was more As the supervisory process While the Bank increased its the regulatory system. The plan, which emphasis on larger banks or banks that became more complex, the Bank in- was introduced in 1988, is designed to were experiencing troubles. creased its staff and hired more experi- promote market discipline and expand enced examiners. As part of the same bank holding company powers without aminations, the Chicago Fed focused on effort, the Chicago Fed upgraded its extending the federal safety net to non- The difficulties that examiners might monitoring banks on an ongoing basis. training procedures. The changing envi- bank activities. While not fail-safe, the encounter were less homogeneous; the To enhance off-premise surveillance, the ronment also required increased commu- plan can serve as a starting point for process became more subtle. Federal Reserve Board revised reporting nication among regulators. As the regulatory system reform. pate and detect problems at a bank. More complex products, such as interestrate swaps, made it difficult to measure credit exposure as well as credit quality. 12 In addition to increasing ex- F r a n k l i n D. D r e y e r ( l e f t ) , S u p e r v i s i o n and Regulation and Loans William H. G r a m . O f f i e e of t h e General Counsel Frank Dreyer: "One very apparent trend is the increasing interdependence of the various elements of the financial system. You can see this in the interactions between banks and thrifts, although it's less true for credit unions. Certainly the securities industry is more intertwined in the overall financial system. There's also increasing interdependence on a global scale, which raises some questions. Suppose a British bank branch in Tokyo dealing in Eurodollars has a liquidity crisis. The first choice would be to turn to the bank's head office in England. If necessary, it would be supported by the Bank of England. But there could be a practical problem. What if the British head office is closed when the Tokyo branch is open? How far do you go with your ideal solution when you have financial markets opening in different time zones in all parts of the world? Certainly communication is essential. There's much more interaction among the U.S. supervisors and the major industrial countries than there was just ten years ago. The information network is much stronger. One indication of this interaction, both on a national and an international basis, is the risk-based capital guidelines. They are called risk-based, although the only risk that's addressed is credit quality. Of course, there are other kinds of risks such as interest-rate risk. It's a process that's never-ending. As soon as a standard has some age, then some new product or other pressures will tend to lead to corrosion in the capital ratios. The next area of tension is likely to be adopting a common definition of asset quality. If you have risk-based guidelines, then you have to define asset quality." Bill Gram: "When I came here 24 years ago, we were dealing with a series of laws and regulations created as a result of the Crash of '29 and the Great Depression. Today, of course, there's a totally different environment. How should regulators respond to a financial industry that's restructuring? I think you need to look at three aspects: supervision, regulation, and accountability. By accountability, I mean having a system in which a key decision-maker at an institution is accountable for his or her action, or lack of action. The banking industry seems to have adequate regulation and accountability. Perhaps there should be more supervision and a reduction in regulation to facilitate competitiveness. In broad general terms, I think we're still moving toward deregulation in the banking industry because it's subject to fairly extensive oversight. In other areas of the financial industry, I think the pendulum is swinging back to more regulation. Possibly deregulation will continue in banking because some other areas have become weaker. The banking industry was allowed to pick up troubled S&Ls and maybe one day they'll be able to purchase financially troubled brokerage firms or take over some of their activities. We could see the Glass-Steagall wall crumble. With adequate firewalls and adequate supervision, it can be done. At some point, some brokerage firms may need the strength of the banking industry. But are we seeing a triumph or a failure of deregulation? Maybe a little of both." 13 Rather envisioned, than sweeping deregulation in the financial Various sources initiated in prodding all played forward a part. the unwieldy For financial the Monetary industry change in a piecemeal gress, and state legislators forces the nation in a wave of change as some Two years later, courts, regulators, Conmarket process. the centerpiece of the deregulation out interest Congress passed dribbles. was the role of The one constant deregulation services, in spurts and fashion—the Control Act of 1980, which phased NOW accounts. proceeded effort rate ceilings and the Garn-St Germain Act was introduced which Deregulation expanded powers for the embattled Deposit Account. Financial thrift industry institutions and authorized were given more freedom the Money Market to share in the Like commercial banks, the rewards—and Federal Reserve was exposed to the potential profits and perils of the marketplace with the to fall. passage of the Monetary Control Act of 1980 risks—of By year-end (MCA). The Fed was required to price most of the marketplace. At the same time, geographic 1989, only four states banned interstate As geographic limitations barriers began banking. fell, the focus of deregulation shifted to its services, which it had previously provided to member banks for free, and to offer them product barriers. Although Congress failed to repeal the Glass-Steagall barriers were chiseled away by rulings from federal decade, banks were still nervously Act, some of the to all depository institutions. As one of a number of competitors in the marketplace, banking agencies. At the end of the the Bank was to recover "in the long run" the cost of providing services. eyeing their competition and seeking permission The MCA had a tremendous engage in a variety effect on the Chicago Reserve Bank. Its of activities or expand their range of services. customer base of 900 member banks suddenly ballooned to 7,000 institutions ranging from several thousand small credit unions to a handful of major correspondent banks. A crucial first step was to shift to a stronger organization was developed. The Bank shifted from a functionally oriented structure marketing orientation. To gain a better un- to one in which there was responsibility for derstanding of its customers, the Bank es- an entire product. By 1984, the Bank was tablished a department to research its new recovering the costs of providing services. markets. The Bank also worked to change its Like commercial banks, the service strategy. Previously, the Fed Banks Fed's experience with deregulation led to provided a fairly basic, operationally pru- more explicit pricing of products. Labor- dent, array of services. Competing institutions that charged fees retained a share of intensive services, such as telephone wire transfers, were priced to reflect their real the market by being more flexible and cus- costs. As part of the same effort the Fed tomer oriented. With the advent of pricing, the Chicago Fed offered more services at a unbundled many of its services, a strategy that provided more alternatives to customers. relatively low price. Responsiveness to customer needs became more of a priority. The experience also led to a more efficient payments mechanism. Check The Bank did not experience processing schedules were shortened, new strong competition in electronic services because of the lack of close substitutes in check services were introduced, and relatively low prices were maintained. The MCA the market. In check services, however, the Bank faced a number of strong competitors. As expected, the Bank lost business in its also gave the Bank the flexibility to use price incentives to encourage institutions to use more efficient electronic services such as check services following the introduction of pricing in 1981. During the next two years, the Chicago Fed failed to turn a profit; it was forced to cut costs and to restructure. A ne 14 'on-line" wire transfers and ACH. At the end of the decade, the Bank was leaner, more efficient, and better able to meet the challenges of the 1990s. to Richard P . Anslee (left), Support Services C h a r l e s W. F u r b e e , O p e r a t i o n s a n d Check Services Chuck Furbee: "Where will we be in the next ten years? If you assume that it's important that the Fed have a presence in the marketplace—and I do—then the next issue is how best to provide services. How do you remain a viable enterprise in a mature market such as check collection? First you become more efficient, which we have—you can see it in our productivity statistics. You also improve the service and maintain or lower your prices. We've reduced our prices and enhanced our service levels several times in the past few years. But you reach a point where prices reflect efficiencies. In financial services with low—or even declining—volume trends, a logical next step could be consolidation. In savings bonds, for instance, original issues and payroll are centrally processed in Chicago; all reissues are processed in Detroit. Similarly, all of our government check operations take place in one location. There have already been some instances of consolidation across District and functional lines. We've already seen some of this in definitive securities. This trend is in its infancy, but I think we can expect it to continue. Also, interstate banking is creating multi-District constituents. For the Fed Banks this means responding to different operational and financial needs. I think we'll probably see more uniform service levels within, and across, the Districts as well as the consolidation of selected functions." Dick Anstee: "The MCA resulted in a lot of changes for the Bank. We needed different people and different skills. There was a greater demand for professional workers or information workers. We hit a transition point in 1987—for the first time more than half of the Bank's staff in Chicago were managerial and professional workers. Given the steadily increasing demand for skilled information workers, I think there's a real conflict in supply and demand looming. We've got a strong demographic trend working against us. With the baby boomers aging, the growth of people entering the work force will slow down. Current shortcomings in our educational system present another significant problem for the '90s. The lack of skills of some entry-level workers puts a burden on employers. How much training can we provide to teach basic skills to employees? We're already training our existing work force to keep up with the pace of technology. But we're concerned that we may have to provide basic reading and math skills to new employees before they can even join the work force. Another trend is the move toward a more horizontal organization. In order to be more competitive, we really had to—and have been able to through attrition and early retirement programs—reduce layers of management. It's resulted in a much flatter, more efficient organization. As that trend continues, the career motivation that used to exist in the form of promotions to intermediate supervisory or management positions is just not there. Our challenge is to replace that kind of career progression with more training and development opportunities that will give an employee more skills, a sense of accomplishment, and a better chance for advancement." 15 "Free enterprise," Lee Iacocca observed going to hell. " The U.S. auto industry, ing changes at the beginning inflation, aging facilities, ing to services—all Companies' responses followed the example financial services, and a general of American changing business, process. they faced. which shifted Some into in the process. Others, 1 the "lean and mean " route—strip- modernizing was less manufactur- restructuring as the problems its name to Primerica wrench- competition, shift in growth from Can Company such as Inland Steel, elected to follow For others the response Intense foreign to force a painful were as varied ping away nonrelated and many others, faced of the decade. contributed in 1980, "is facilities, and cutting Industrial Restructuring data base of economic information to support the project. This information, costs. desirable—bankruptcy. which the Chicago Fed has updated As the Midwest underwent long-term structural changes in the The restructuring process, as painful as it was, showed 1980s, the Chicago Fed intensified its efforts to study the regional economy. results by the end of the decade. many areas to foreign increased Although competitors, by more than 3 percent U.S. companies the manufacturing annually lost ground output per as compared in worker to 1.8 percent in An important part of this effort was providing support for economic development policies. As the Midwest economy staggered following the high inflation and interest rates of the early the last half of the 1970s. And in the Midwest, which lagged national 1980s, there was a wave of cooperative public/private projects combining the growth through most of the decade, manufacturing productivity outpaced efforts of state governments, universities, labor, and business. While the country by a significant margin by 1989. economic development plans in the past had often lacked coordination and a clear purpose, the efforts in the 1980s stressed a long-term approach to studying the structural changes in the economy and how to adjust to them. Such efforts could not alter structural changes, but they might soften the blows of the painful adjustment process. A key first step in devising a development plan was understanding how the regional economy was changing. With its unusual combination of objectivity, staff expertise, and access to economic data, the Chicago Fed was well suited to this task. The Bank's first collaborative effort involved working with the Commercial Club of Chicago—a long-established group of the city's business leaders. The Bank joined with the Commercial Club and representatives from government, labor, academia, and community groups in 1983 to develop a metropolitan area economic plan with an emphasis on creating and maintaining jobs. The Bank's role was to develop a 16 through the decade, has become part of a comprehensive regional data base used to analyze economic change in the Midwest. The Bank participated in several other cooperative efforts in the 1980s. In 1984, the Chicago Fed prepared a two-volume economic scan as part of a cooperative venture with the Wisconsin Strategic Development Commission, a public/private group formed to develop the state's first longterm economic plan. The Bank also worked with the Great Lakes Commission in 1985 in developing a statistical compendium for the Great Lakes region. The Chicago Fed played a similar role in a cooperative effort with the Iowa Business Council compiling an extensive volume of economic data in a report entitled, The Iowa Economy: Dimensions of Change. The study was updated and extended by the Bank in 1989. In each of these collaborative efforts, the Bank helped provide an economic underpinning and acted as a catalyst by helping to attract other participants. These efforts, combined with other projects such as the development of the Midwest Manufacturing Index, have provided the Chicago Fed with an increased understanding of the regional economy that will be useful as restructuring continues in the 1990s. K a r l A. S c h e l d , E c o n o m i c R e s e a r c h a n d Information Services Karl Scheld: "Any vibrant economy needs to change—this was especially evident in the U.S. economy of the 70s and '80s. As international barriers fell, funds and goods flows increased significantly. Not surprisingly, competition increased. This brought about a painful restructuring, but it also helped to improve manufacturing productivity. We're now producing more than ever with far fewer inputs. This restructuring will continue, but it's difficult to predict how rapidly because we've done so much already. It will be some time before we understand all of the dimensions of these economic developments. We do know that the nature of the U.S. business cycle has changed. Responses to shocks—whether from the real or the financial side—are likely to be different. Overall, the economy could be more stable. Increased competition has resulted in quicker reactions by firms to economic changes. Traditional cyclical industries will have less of an impact on economic fluctuations, and the nonmanufacturing sectors— especially consumer-led areas—are likely to be less sensitive to fluctuations in the manufacturing industries. But on the financial side, the buildup of debt across the economy could raise a risk to continued economic stability. Restructuring and globalization have increased the challenges for monetary policy. With the increasing importance of nonmanufacturing activity, the economy as a whole may be less sensitive to interest rates. If so, would the traditionally cyclical industries—generally more interest-sensitive—bear a larger burden of getting inflation to come down? Perhaps not, because there may be greater interest sensitivity across the economy because of heavy debt loads. The implications for inflation are also ambiguous. On one hand, increased competition will tend to keep the lid on some prices. But large portions of the nonmanufacturing sector are less price sensitive. The consumer, for example, may delay purchasing large durable goods, but is less likely to delay purchasing a service like medical care even when prices are rising. This may make it harder to control inflation. With an integrated international and national economy, monetary policy actions may not have the same effect. We need to identify more clearly the forces influencing price and output developments. We have to consider economic policy in the context of a world market and a world financial system. From the Bank's standpoint in the '90s, this means that our analysis will emphasize disaggregating economic activity by industry types. That way we'll be in a better position to identify and understand the implications of shocks to the economy on an industry-by-industry basis rather than trying to go in one step from the shock to the national or international ramifications. Clearly that effort will include a heavy emphasis on the international competitive and financial aspects. Also, we'll be focusing on the local futures markets to identify more closely who bears risk and what possible dangers, if any, exist from what has clearly become a worldwide financial market." 17 Statement of C o n d i t i o n 12/31/89 12/31/88 ASSETS Gold certificate account $ 1,361,000,000 $ 1,394,000,000 Interdistrict settlement account 1,786,742,663 Special drawing rights certificate account 1,100,000,000 656,000,000 35,862,164 44,379,423 Coin (1,715,509,834) Loans and securities: 9,877,000 44,415,000 775,097,120 845,754,016 26,939,976,768 28,367,341,607 27,724,950,888 29,257,510,623 Cash items in process of collection 809,277,501 773,969,167 Bank premises 109,763,162 99,839,960 0 2,316,178,167 Loans Federal agency securities U.S. government securities Total loans and securities FDIC assumed indebtedness Other assets Total assets 1,868,157,282 4,696,646,683 $ 37,624,243,061 $ 34,694,524,788 $ 32,240,869,404 $ 29,657,842,254 LIABILITIES Federal Reserve notes Deposits: 3,709,539,154 Depository institutions 3,413,112,943 0 Foreign 0 19,350,000 U . S . Treasury—general account 19,200,000 189,732,230 106,580,985 3,918,621,384 3,538,893,928 Deferred availability cash items 560,848,934 564,978,798 Other liabilities 342,890,639 Other Total deposits Total liabilities 386,797,008 $ 37,063,230,361 $ $ 280,506,350 $ 34,148,511,988 CAPITAL ACCOUNTS Capital paid in 280,506,350 Surplus Total liabilities and capital 546,012,800 561,012,700 Total capital • $ 37,624,243,061 273,006,400 273,006,400 $ 34,694,524,788 Statement of Income 1988 1989 CURRENT INCOME Interest on loans $ 148,259,735 $ 169,974,426 Interest on government securities 2,384,805,935 2,168,845,209 Interest on investments of foreign currencies 133,784,400 38,564,698 Service fees 94,098,692 89,093,953 All other 12,103,973 Total current income 2,405,836 $ 2,773,052,735 $ 2,468,884,122 $ 152,860,604 $ 147,164,235 CURRENT EXPENSES Operating expenses 27,038,513 Total current expenses Less reimbursement for certain fiscal agency and other expenses Current net expenses Current net income 24,497,231 179,899,117 Other current expenses 171,661,466 12,548,912 12,412,611 $ 167,350,205 $ 159,248,855 $ 2,605,702,530 $ 2,309,635,267 $ 1,377,332 $ 2,623,055 ADDITIONS TO (OR DEDUCTIONS FROM) CURRENT NET INCOME Net profit (or loss) on sales of securities Net profit (or loss) on foreign exchange transactions 164,355,514 (65,392,051) Board of Governors assessment (34,117,852) (33,779,083) All other—net Net additions (or deductions) (4,126,924) $ 127,488,070 $ Net income available for distribution $ 2,733,190,600 $ 2,209,118,351 $ 16,791,352 $ 16,088,003 (3,968,837) (100,516,916) DISTRIRUTION OF NET INCOME Dividends paid Payments to U.S. Treasury (as interest on Federal Reserve notes) 2,708,899,298 Total income distributed 2,181,326,998 7,499,950 Transferred to surplus $ 2,733,190,600 11,703,350 $ 2,209,118,351 19 Directors andAdvisory Councils BOARD OF DIRECTORS FEDERAL RESERVE BANK OF CRICAGO Chairman Robert J. Day Chairman and Chief Executive Officer USG Corporation Chicago, Illinois 1989 Board of Directors, Federal Reserve Bank of Chicago, from left to right: seated, J. Gabbert, R. Day, M. Alexis, B. Sullivan; standing, P. Schierl, C. McNeer, E. Powers, B. Backlund, M. Naylor. Deputy Chairman Marcus Alexis Dean, College of Business Administration University of Illinois at Chicago Chicago, Illinois B. F. Backlund Chairman and Chief Executive Officer Bartonville Bank Bartonville, Illinois John W. Gabbert President and Chief Executive Officer First of America Bank-La Porte, N.A. La Porte, Indiana Charles S. McNeer Chairman and Chief Executive Officer Wisconsin Energy Corporation Milwaukee, Wisconsin 1989 Board of Directors, Detroit Branch, from left to right: seated, B. Beltaire, R. Lindgren, P. Peters; standing, R. Story, J. Aliber, R. Mylod, F. Meijer. Max J. Naylor President Naylor Farms, Inc. Jefferson, Iowa Edward D. Powers President Fire Brick Engineers Company Milwaukee, Wisconsin Paul J. Schierl Chairman and Chief Executive Officer Fort Howard Corporation Green Bay, Wisconsin Barry F. Sullivan Chairman of the Board First Chicago Corporation The First National Bank of Chicago Chicago, Illinois BOABD OF DIBECTOBS DETBOIT BRANCH Chairman Richard T. Lindgren Former President and Chief Executive Officer Cross & Trecker Corporation Bloomfield Hills, Michigan James A. Aliber Chairman and Chief Executive Officer First Federal of Michigan Detroit, Michigan 20 Beverly Beltaire President P.R. Associates, Inc. Detroit, Michigan Frederik G. H. Meijer Chairman of the Board Meijer, Incorporated Grand Rapids, Michigan Robert J. Mylod Chairman, President, and Chief Executive Officer Michigan National Corporation Farmington Hills, Michigan Phyllis E. Peters Director, Professional Standards Review Deloitte & Touche Detroit, Michigan Ronald D. Story Chairman and President The Ionia County National Bank of Ionia Ionia, Michigan A D V I S O R Y COUNCILS Federal Advisory Council Representative B. Kenneth West Chairman and Chief Executive Officer Harris Bankcorp, Inc. and Harris Trust and Savings Bank Chicago, Illinois Mark D. Smuts Charlotte, Michigan Michigan Farm Bureau Robert S. Tramburg Madison, Wisconsin Wisconsin Grain Dealers Association Richard G. Wagner Bloomington, Illinois Member at Large Jim Willrett Malta, Illinois Illinois Beef Association Advisory Council on Small Business Gerald H. Ablan Bedford Park, Illinois Independent Business Association of Illinois John W. Anhut Farmington, Michigan Michigan State Chamber of Commerce John W. Bender Bloomington, Indiana U.S. Chamber of Commerce Andrea Paulette Harris Southfield, Michigan National Association of Women Business Owners Jeanine Hettinga Des Moines, Iowa U.S. Chamber of Commerce Advisory Council on Agriculture Varel Bailey Anita, Iowa Iowa Corn Growers Association Kent Chidley Rochelle, Illinois Illinois Corn Growers Association Nancy Kavazanjian Juneau, Wisconsin Wisconsin Soybean Association Glen Keppy Davenport, Iowa Iowa Pork Producers Association Melvin Manternach Monticello, Iowa Iowa National Farmers Organization Marshall A. Martin West Lafayette, Indiana Member at Large Grant C. Putman Williamston, Michigan Michigan Soybean Association Toni A. Lazar West Des Moines, Iowa National Association of Women Business Owners/Central Iowa Chapter and National Federation of Independent Business/Iowa Chapter Lisa Mauer Milwaukee, Wisconsin Member at Large Jose F. Nino Chicago, Illinois U.S. Hispanic Chamber of Commerce John D. Roethle Mdwaukee, Wisconsin Independent Business Association of Wisconsin Stephen S. Stack Chicago, Illinois Illinois Manufacturers' Association Robert Stamstad Poynette, Wisconsin Wisconsin Manufacturers and Commerce Jean L. Wojtowicz Indianapolis, Indiana Member at Large 21 O f f i c e r s Silas Keehn President Barbara D. Benson Assistant Vice President Daniel M. Doyle First Vice President John L. Bergstrom Assistant Vice President CENTRAL BANK ACTIVITIES Economic Research and Information Services Douglas J. Kasl Assistant Vice President Karl A. Scheld Senior Vice President and Director of Research Economic Research David R. Allardice Vice President and Assistant Director of Gary L. Benjamin Economic Adviser Vice President Research and Herbert L. Baer, Jr. Senior Economist and Assistant Vice President Anne Marie L. Gonczy Senior Economist and Assistant Vice President Steven Strongin Senior Economist and Assistant Vice President Information Gerald I. Silber Assistant Vice President Patrick J. Tracy Assistant Vice President and Larry R. Mote Economic Adviser Vice President William H. Lossie, Jr. Assistant Vice President Services Alicia Williams Assistant Vice President A. Raymond Bacon Examining Officer Robert A. Bechaz Examining Officer Kathleen E. Benson Examining Officer George M. Gregorash Banking Analysis Officer John M. Montgomery Examining Officer N. Dean Rowland Examining Officer John A. Valenti Information Support Officer Nancy M. Goodman Vice President Barbara Van Den Bossche Examining Officer Statistics Gay Whiting Applications Officer Jean L. Valerius Vice President Loans and Reserves Supervision and Regulation and Loans Gerard J. Nick Vice President Franklin D. Dreyer Senior Vice President William J. O'Connor Loans Officer Supervision SERVICES TO DEPOSITORY INSTITUTIONS and Regulation David S. Epstein Vice President Roderick L. Housenga Vice President Geoffrey C. Rosean Vice President Nicholas P. Alban Assistant Vice President 22 Operations and Check S e r v i c e s Charles W. Furbee Senior Vice President Cash, Fiscal and Securities David R. Starin Vice President Agency Services Jerome D. Nicolas Assistant Vice President Lawrence J. Powaga Assistant Vice President Check Administrative Linda B. Grimmer Assistant Vice President Services Robert D. Lauson Vice President SUPPORT FUNCTIONS Financial and Management Services Kenneth R. Berg Assistant Vice President Services Wayne R. Baxter Vice President Carl E. Vander Wilt Senior Vice President and Chief Financial Officer William A. Bonifield Vice President Accounting Theodore E. Downing, Jr. Assistant Vice President Assistant Vice President Automation and Electronic Services William C. Conrad Senior Vice President Automation Services George E. Coe Vice President Stephen M. Pill Vice President and Data Security Officer Bonnie Bates Assistant Vice R. Steve Crain Assistant Vice President President Frank S. McKenna Assistant Vice President Charles L. Schultz Assistant Vice President Brenda D. Ladipo Automation Officer Thomas M. Matsumoto Systems Officer David E. Ritter Systems Officer Karen L. Rosenberg Automation Officer James L. Strieber Automation Officer Electronic Services Glen Brooks Vice President James M. Rudny Assistant Vice President Services Thomas G. Ciesielski Vice President Sheryn E. Bormann Assistant Vice President Richard F. Opalinski Personnel Officer Jeffrey L. Miller Operations Officer Management Diane S. Noble Resource Services Jerome F. John Vice President Allen R. Jensen Vice President Human Federal R e s e r v e System Securities P r o d u c t O f f i c e Services James A. Bluemle Vice President and Securities Product Glenn C. Hansen Vice President Margaret K. Koenigs Assistant Vice President Manager DISTRICT OFFICES Detroit B r a n c h Office of the General Auditor Roby L. Sloan Senior Vice President and Branch Manager Richard P. Bush General Auditor Angelina S. Chin Assistant General Auditor Frederick S. Dominick Vice President and Assistant Branch Manager O f f i c e of the General Counsel William H. Gram Senior Vice President, General Counsel, and Legal Yvonne H. Montgomery Assistant Vice President Secretary Services Teri J. Kurasch Vice President and Associate General Counsel Yurii Skorin Assistant Counsel Office of the Bank Joan M. De Rycke Assistant Vice President Assistant Secretary Support Services Richard P. Anstee Senior Vice President General Joseph R. O'Connor Assistant Vice President Services Robert A. Ludwig Vice President Kristi L. Zimmermann Administrative Officer Richard L. Simms, Jr. Assistant Vice President F. Alan Wells Assistant Vice President Patrick A. Garrean Operations Officer Secretariat Regional Offices and Des Moines L. Edward Ketchmark Assistant Vice President Indianapolis Donna M. Yates Assistant Vice President Milwaukee Anthony J. Tempelman Assistant Vice President Executive Appointments A D V I S O R Y COUNCILS The Federal Advisory Council, which meets quarterly with the Board of Governors in Washington, D.C. to discuss current business and financial conditions, is comprised of one member from each of the 12 Federal Reserve Districts. Each year the Chicago Reserve Bank's Board of Directors selects a representative to this group. The Board selected B. Kenneth West, Chairman and Chief Executive Officer of Harris Bankcorp, Inc. and Harris Trust and Savings Bank, Chicago, as the Seventh District's representative for 1989 and, again, for 1990. Members of the Bank's two advisory councils were selected from nominations by Seventh District small business and agricul- DIRECTORS Reserve Bank directors have a general governance responsibility for the management of Bank operations, contribute to the tural organizations in 1989. The councils provide a vital communication link between the Bank and these important economic sectors. formulation of U.S. monetary policy, and act on the Bank's discount rate. The selection process for the nine-member board OFFICERS Appointments to a Federal Reserve Bank's official staff ensures broad representation from banks of varying sizes, as well as from diverse sectors of the District economy, including consumers, industry, are made by the Bank's Board of Directors. agriculture, services, and labor. Three bankers and three nonbankers are Officers promoted in 1989 were: elected by member banks. Three additional nonbankers are appointed by the Board of Governors in Washington, D.C. Similarly, the Board of Governors selects three nonbankers to serve on the seven-member board of the Bank's Detroit Branch. Four additional directors are selected by the Chicago Reserve Bank Board. The Branch Board selects its own chairman each year. All Reserve Bank and Branch directors serve three-year terms. Director appointments and elections effective in 1989 were: - Herbert L. Baer, Senior Economist and Assistant Vice President, Economic Research. - Sheryn E. Bormann, Assistant Vice President, Human Resource Services. New officers appointed in 1989 were: - Anthony J. Tempelman, Assistant Vice President, Milwaukee Office. - Kristi L. Zimmermann, Administrative Officer, General Services. - Thomas M. Matsumoto, Systems Officer, Automation Services. - Robert J. Day, redesignated Chairman. - Richard F. Opalinski, Personnel Officer, Automation Services. - Marcus Alexis, redesignated Deputy Chairman. - David E. Ritter, Systems Officer, Automation Services. - John W. Gabbert and Max J. Naylor, reelected, and - Yurii Skorin, Assistant Counsel, Legal Services. Charles S. McNeer, reappointed, directors. - Richard T. Lindgren, named Branch Chairman for second year. - Robert J. Mylod, appointed a Branch director, replacing Donald R. Mandich who completed his term. - Phyllis E. Peters, reappointed as a Branch director. Appointments and elections in 1989 to terms beginning in 1990 were: - Marcus Alexis, designated Chairman succeeding Robert J. Day who completed six years of service as a director. - Charles S. McNeer, designated Deputy Chairman. Richard G. Cline (Chairman and Chief Executive Officer, NICOR Inc., Naperville, Illinois) appointed a director, replacing Mr. Day. - B. F. Backlund and Paul J. Schierl, reelected as directors. - Phyllis E. Peters, designated Branch Chairman. - J. Michael Moore (Chairman and Chief Executive Officer, Invetech Company, Detroit) appointed a Branch director, replacing Richard T. Lindgren who completed his term. - Norman F. Rodgers (President and Chief Executive Officer, Hillsdale County National Bank, Hillsdale, Michigan) appointed a Branch director, replacing Ronald D. Story who completed six years of service on the Branch Board. 24 Also during 1989, Vice Presidents Paul J. Bettini, Check Services, and A. Jerry Stojetz, Support Services, each retired following over 40 years of dedicated service to the Bank. Head Office 230 South LaSalle P.O. Box 834 Chicago, Illinois 60690 Street Detroit Branch 160 West Fort Street P.O. Box 1059 Detroit, Michigan 48231 Des Moines Office 616 Tenth Street P.O. Box 1903 Des Moines, Iowa 50306 Indianapolis Office 41 East Washington Street P.O. Box 20208 Indianapolis, Indiana 46206 Milwaukee Office 304 East State Street P.O. Box 361 Milwaukee, Wisconsin 53201 FEDERAL RESERVE BANK OF CHICAGO For additional copies of this report, contact the Public Information Center, Federal Reserve Bank of Chicago, at (312) 322-5111.
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