View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

1993 Annual Report - Federal Reserve Bank of Chicago

The Federal Reserve Bank of
Chicago is one of 12 regional Reserve Banks
across the United States that, together with
the Board of Governors in W a s h i n g t o n ,
D.C., serve as the nation's central b a n k .
The role of the Federal Reserve System,
since its establishment by an act of C o n gress passed in 1913, has been to foster
a strong e c o n o m y , s u p p o r t e d by a stable
financial system.
To this e n d , the Federal Reserve
Bank of Chicago participates in the formulation a n d i m p l e m e n t a t i o n of national
m o n e t a r y policy, supervises a n d regulates
banks and bank

holding

companies,

a n d provides financial services to depository institutions a n d the U.S. government.
Through

its h e a d

o f f i c e in

Chicago,

b r a n c h in Detroit, a n d regional offices in
Des Moines, Indianapolis, a n d

Milwau-

kee, the Federal Reserve Bank of Chicago
serves the Seventh Federal Reserve District, w h i c h includes m a j o r p o r t i o n s of Illinois, Indiana, Michigan, a n d W i s c o n s i n
plus all of Iowa.

1993 Annual Report

Federal Reserve Bank of Chicago

Message from Management

2

From Rust to Robust: The Midwest Responds

4

The Bank in 1993

10

Financial Statements

18

Directors and Advisory Councils

20

Officers

22

Executive Changes

24

Message from Management

From left:
Deputy Chairman
Robert Healey,
First Vice President
William Conrad,
President Silas Keehn,
and Chairman
Richard Cline.

Congress constructed the System in a very meticulous

way, combini

of regional influences with a precise balance of public and private elements

While it may not have always

This rather exciting story of

Other current structural issues

felt that w a y 1993 was actually a very good

the Midwest's p r o d u c t i v i t y / p e r f o r m a n c e

relate to the Federal Reserve's organization,

year. The economic news was largely pos-

paradigm is the focus of the essay that fol-

particularly with respect to questions of

itive. Real o u t p u t growth accelerated. The

lows in this Annual Report.

accountability and the role of the regional

rate of inflation c o n t i n u e d t o moderate.

underlying element of this story, one not

Reserve Banks a n d their presidents, w h o

N e w j o b s were created and the u n e m p l o y -

focused on directly, has to do with the type

are not public officials in the strictest sense,

ment rate declined.

of people we find in the Midwest—people

in the policy process. Congress construct-

These positive trends were fu-

who roll u p their sleeves and set their hands

ed the System in a very meticulous way,

eled in large part by a favorable financial

and their imaginations to any challenge that

combining a careful weaving of regional in-

climate, conditions fostered in turn by real

confronts them. Clearly, this industrious,

fluences with a precise balance of public

progress on the federal deficit a n d a very

innovative quality has been key to the re-

a n d private elements. This structure was

accommodative m o n e t a r y policy. Within

gion's resurgence. This same quality is also

not meant to and indeed does not limit the

An important

the low interest rate environment, balance

the u n s p o k e n message of the next section

System's accountability. To the contrary, it

sheets improved significantly across all sec-

of this report, w h i c h spotlights the Bank's

enables the System to be accountable to

tors of the e c o n o m y — f o r consumers, busi-

1 9 9 3 accomplishments and a h a n d f u l of

a n d to take account of a broad range of

nesses, and governments alike. Conditions

the m a n y employees w h o m a d e a few of

public interests while insulating it from

in the b a n k i n g industry likewise were in-

those achievements possible.

narrow partisan influences. It is a struc-

creasingly positive, reflected by solid earn-

The Federal Reserve Bank of

ings performance, improving asset quality,

Chicago a n d the entire Federal Reserve

a n d strengthening capital positions.

ture that has served the nation well for
eighty years.

System are fortunate to be able to attract a

But in the final analysis, struc-

The picture for this Reserve

staff of exceptional quality a n d commit-

ture only has m a d e possible what people

Banks midwestern district was even bright-

ment. The System is also fortunate to have

have accomplished. Again, we wish to sa-

er t h a n that for the n a t i o n as a whole.

a structure a n d foundation that, while ad-

lute the outstanding work of the entire staff

O u t p u t gains within the region's all-impor-

mittedly complicated, actually serve to fa-

of the Federal Reserve Bank of Chicago's

tant m a n u f a c t u r i n g sector exceeded the

cilitate the w o r k of that staff in carrying

five offices for m a k i n g 1993 an exception-

U.S. growth rate. After nearly a decade of

out the System's broad mission.

al year.

painful a d j u s t m e n t , the regions focus on

While it is fair to reexamine

productivity seemed to be paying off. With

a n d debate the fine points of the System's

the competitiveness of the Midwest's m a n -

structure, it is important to remember a few

ufacturing base restored, the District ap-

of its basic attributes. O n e current struc-

pears to be poised for even better perfor-

tural question has to d o with the interrela-

mance in the future.

tions a m o n g the System's primary activities of m o n e t a r y policy b a n k supervision,
a n d p a y m e n t s services.

In our view a n d

experience, these functions are integrally
intertwined. Each s u p p o r t s the other a n d

O u r deep gratitude also to the

m e m b e r s of o u r b o a r d s of directors for
their wise counsel, strong leadership, a n d
c o n t i n u i n g support. We want to express
particular appreciation to Beverly Beltaire
and Daniel Smith w h o completed their service o n our Detroit Branch Board.

all these individuals, we are confident that
the years ahead will be as productive a n d
satisfying as was 1993.

all are fundamental to the Federal Reserve's
broad mission as the nation's central bank.
The current bank regulatory framework n o
d o u b t can a n d should be improved. But

careful weaving

eliminating the Federal Reserve's h a n d s - o n
involvement in the b a n k i n g system is neither necessary nor desirable for that purpose.

Most i m p o r t a n t l y it could jeopar-

dize the Federal Reserve's ability to carry
out its f u n d a m e n t a l responsibility for assuring the ongoing integrity of the financial system, surely a risk we ought to avoid.

Given

the talents, creativity, a n d c o m m i t m e n t of

Richard Cline, Chairman
Silas Keehn, President

From Rust to Robust: The Midwest Responds

By the late 1970s the Midwest found itself with
a new, and unwanted, sobriquet—the nation's Rust Belt The name was not
entirely undeserved. Particularly in manufacturing—the core of the regional
economy—the Midwest found itself at a competitive disadvantage. Due to its
older and inefficient facilities as well as a number of other factors, the Midwest was unable to compete effectively with other regions, both in the U.S. and
abroad. The region faced a major challenge: to improve its productivity or
to continue to decline economically.
After a painful period of adjustment, the Midwest responded in dramatic fashion. The region invested heavily in new technology and significantly improved its labor productivity, shedding its image as
the nation's Rust Belt and emerging as a center of lean and agile manufacturing. Today, the Midwest is a much more aggressive competitor in the global
marketplace. This article examines the Midwest's transformation in the 1980s,
focusing on the manufacturing sector and its evolution from rust to robust.

4

The Midwest's Challenge
A vibrant m a n u f a c t u r i n g base traditionally has been
crucial to the Midwest (defined here as the five states of the Seve n t h Federal Reserve District: Illinois, Indiana, Iowa, Michigan,
a n d Wisconsin).

Although the service sector accounts for the

bulk of the regional economy, m a n u f a c t u r i n g still has a healthy
25 percent share of e m p l o y m e n t in the Midwest as compared to
a 17 percent share nationwide. The Midwest's auto-steel-machine
tool complex plays a particularly important role in the regional
economy, with the Midwest's auto firms, for example, accounting
for nearly half of U.S. car production.
Although still vital to the region, the m a n u f a c t u r i n g
sector is perceived by m a n y as being trapped in a slow and steady
decline. This perception of the "deindustrialization" of the U.S. is
s o m e w h a t misleading. True, the m a n u f a c t u r i n g sector's share of
e m p l o y m e n t in the U.S. has decreased steadily for m a n y decades,
most noticeably since the early 1970s. Nevertheless, real m a n u facturing o u t p u t — t h o u g h highly cyclical—has stayed relatively
constant as a percentage of total o u t p u t since World War II.
The "image problem" for m a n u f a c t u r i n g is
Industrial Production and Employment

due in part to its most significant achievement: it can
do more with less. The manufacturing sector has become m u c h more efficient.

Industrial production(rightscale)
Manufacturing employment(leftscale)

Thus, manufacturing employment has been stagnant
since 1964 even

U.S. industrial production has generally increased
even though manufacturing employment has declined since 1979.

though

the a m o u n t of o u t p u t h a s
s t e a d i l y i n c r e a s e d i n line
with the economy.

The m a n u f a c t u r i n g industry's increased efficiency in
the 1980s a n d 1990s is evident i n labor productivity figures
(labor productivity is c o m p u t e d by taking the dollar value of the
year's o u t p u t , adjusting for inflation, a n d dividing by the h o u r s
worked). Since 1979, U.S. m a n u f a c t u r i n g labor productivity has
increased an average of 2.4 percent annually. The increase in productivity is reflected in p r o d u c t i o n a n d e m p l o y m e n t trends. Industrial p r o d u c t i o n in the U.S. generally increased from 1979
t h r o u g h 1993; m a n u f a c t u r i n g e m p l o y m e n t declined d u r i n g the
same period (see graph 1).
The ability to increase m a n u f a c t u r i n g o u t p u t while
e m p l o y m e n t was declining was even more evident in the Midw e s t , i n d i c a t i n g that s u b s t a n t i a l p r o d u c t i v i t y i m p r o v e m e n t s
occurred d u r i n g the 1980s. As in the U.S., Midwest industrial
p r o d u c t i o n increased steadily in the 1980s. In fact, the region's
growth in m a n u f a c t u r i n g p r o d u c t i o n has exceeded the nation's
since 1987 (see graph 2). Despite this healthy growth, however,
e m p l o y m e n t in the Midwest m a n u f a c t u r i n g sector actually decreased over the 1980s.

5

Investing in the Region
Judging from manufacturing output growth, it appears
that the Midwest became more productive in the 1980s as c o m pared to other regions. Yet, it is a difficult trend to verify because
productivity growth is difficult to estimate at the regional level.
Has the Midwest m a n u f a c t u r i n g sector become significantly more
efficient? And, if so, how?
O n e way that firms can affect productivity is to eliminate less efficient resources, or, in other words, close facilities
a n d lay off employees (euphemistically referred to as "downsizing"). Another alternative is to invest in new or renovated equipm e n t a n d plants a n d introduce new, more efficient m e t h o d s of
utilizing resources.
H o w productivity gains are achieved is i m p o r t a n t for
a regions growth. If the Midwest increased productivity only by
shrinking its manufacturing base—closing inefficient plants—there
w o u l d be little basis for future growth. Eventually other regions—
b o t h at h o m e a n d a b r o a d — w o u l d increase their market share at
the Midwest's expense. But if a firm closes an o u t d a t e d facility
a n d then builds a n e w one
nearby, it is eliminating less
efficient resources as well as

M a n u f a c t u r i n g Output

investing in the region, therefore providing a firmer foundation for growth.
Certainly, t h e
Midwest closed m a n y inefficient or unprofitable facilities
during the 1980s. The recession of 1981-82 triggered a
painful shakeout, with m a n y

The Midwest's growth in manufacturing output, as measured by
the Chicago Reserve Bank's Midwest Manufacturing Index, has exceeded the
growth of U.S. manufacturing output since 1987.

companies going out of business or m o v i n g to the South or West. But h o w m u c h capital did
Midwest m a n u f a c t u r e r s invest in the region?
F r o m 1973 to 1985, according to a Federal Reserve
Bank of Chicago s t u d y the Midwest's capital e x p e n d i t u r e s per
w o r k e r increased at roughly the same rate as the rest of the nation, although investment t e n d e d to fluctuate. Midwest investm e n t relative t o the rest of the n a t i o n picked u p i n the late
1970s b u t slowed again with the onset of the 1981-82 recession.
For the next few years after that recession, Midwest capital investment lagged the nation. Beginning in 1985, however, Midwest investment accelerated as c o m p a r e d to other regions. From
1986 t h r o u g h 1990, the average capital expenditure per w o r k e r
in the Midwest was n i n e percent h i g h e r t h a n the rest of the
nation (see graph 3).
At first glance, it may be s u p p o s e d that the increased investment was d u e to the p r e d o m i n a n c e of industries in the
Midwest, notably auto a n d steel, that require high degrees of
capital investment.

However, a closer look indicates that the

Midwest's heavier investment was not d u e to industrial mix. Between 1986 a n d 1990, for example, investment per w o r k e r in
6

the transportation sector was 16 percent higher in the Midwest

d e v e l o p m e n t process.

than in the rest of the nation. In primary metals (the steel indus-

Chrysler developed its recently introduced LH-cars in 39 m o n t h s

U s i n g lean m a n u f a c t u r i n g t e c h n i q u e s ,

try), investment was 22 percent higher. In short, the region dis-

with a technical staff of 740.

played a high degree of c o m m i t m e n t to investment.

m o n t h s a n d a technical staff of 2 , 0 0 0 to develop the K-cars in the

In contrast, Chrysler required 5 4

late 1970s.

It appears that this trend has c o n t i n u e d i n the past
three years, although o u t p u t slowed in 1990-91 due to the reces-

The Productivity Takeoff

sion. Even with weakened d e m a n d for products, however, there
still has been a strong desire on the part of p r o d u c e r s to improve

W h a t was the result of these efforts to improve p r o d u c -

efficiency. J u d g i n g from anecdotal evidence, Midwest p r o d u c e r s

tivity? To help to measure the results of increased investment in

have c o n t i n u e d to build on their earlier efforts, with, for example,

the region, the Federal Reserve Bank of Chicago has developed es-

steel a n d auto firms c o n t i n u i n g to invest in the region. In addi-

timates on h o w m u c h Midwest m a n u f a c t u r i n g o u t p u t has increased

tion, it appears that m a n y smaller a n d medium-sized firms have

as c o m p a r e d to the growth that w o u l d have occurred using pre1986 technology

b e g u n to increase their capital expenditures in recent years.

To develop these estimates, the Bank projected

o u t p u t for the Midwest using a model estimated on data from 1973
t h r o u g h 1985. This enabled the Bank to project o u t p u t for 1986

Implementing Lean Manufacturing

t h r o u g h 1990 on the basis of p r e - 1 9 8 6 "old" technology and com-

Efforts t o improve productivity i n the region have

pare it to the actual o u t p u t p r o d u c e d between 1986 a n d 1990 us-

also included the implementation of so-called lean manufactur-

ing "new" technology.

ing techniques.
The advantages of lean m a n u f a c t u r i n g i n an era of

According to these estimates, the efficiency gains in-

accelerating global competition have been widely publicized. Lean

dicated by the gap between "old" a n d "new" technology were 8 percent more in Midwest m a n u -

manufacturing emphasizes
quality a n d speedy response

f a c t u r i n g sectors t h a n they

to m a r k e t c o n d i t i o n s u s i n g

were for corresponding sec-

advanced

tors in the rest of the nation

e q u i p m e n t and a flexible

between 1986 a n d 1990. In

organization of the p r o d u c -

o t h e r w o r d s , the Midwest's

tion process.

investment paid an important

technologically

d i v i d e n d — m o r e significant

To a c h i e v e t h i s
goal, lean

increases in efficiency as com-

manufacturing

pared to rest of the nation.

stresses teamwork and participatory management. T h e

Productivity

p u r p o s e of this m a n a g e m e n t

gains—both in the U.S. a n d
in the M i d w e s t — a p p e a r t o

style is to encourage employees to focus on flexibility a n d quality

have occurred largely in durable goods manufacturing.

control, a change from the m a n u f a c t u r i n g approach originated by

Durable

Henry Ford, which emphasizes specialization and narrowly defined

goods have traditionally played an important role in the Midwest

j o b responsibilities. Low inventories and continuous improvement

economy, with the transportation, metalworking, a n d machinery

of operations are also central to the lean m a n u f a c t u r i n g philoso-

sectors a c c o u n t i n g for approximately 65 percent of the region's

phy, with most of the changes the result of suggestions from the

manufacturing output.

factory floor.

Within durable goods, the Midwest's productivity gains

To allow c o m p a n i e s t o be m o r e agile a n d flexible

were most evident in the transportation sector, w h i c h is d o m i n a t -

competitors, lean m a n u f a c t u r i n g systems are designed to t u r n out

ed, of course, by the auto industry. As measured by the "gap" be-

small batches of customized p r o d u c t s on relatively short notice

tween old a n d n e w technology, the transportation sector h a d effi-

a n d at low costs. As part of this process, lean m a n u f a c t u r i n g incor-

ciency gains of 7.9 percent between 1986 and 1990. In comparison,

porates a short design cycle by taking an integrated approach to

the rest of the nation h a d efficiency gains of 3.8 percent in the trans-

the various steps of manufacturing.

portation sector.

Each s t e p — m a r k e t assess-

m e n t , p r o d u c t design, engineering, c o m p o n e n t sourcing, a n d

Achieving these gains in the Midwest was often painful.

final assembly—is integrated into one decisionmaking unit.

During the 1980s, automakers closed seventeen car and truck as-

Although the evidence is anecdotal, lean m a n u f a c -

sembly plants—six in the Midwest. At the same time, however, au-

t u r i n g clearly h a s played a role i n i m p r o v i n g p r o d u c t i v i t y at

tomakers constructed seventeen new plants, including seven in the

some Midwest industries a n d firms, perhaps most notably in the

Midwest. Some of the new plants were essentially replacements of

auto industry. The recent experience of Chrysler Corporation, for

existing Big Three facilities; others were n e w plants built by foreign

e x a m p l e , illustrates the p o t e n t i a l a d v a n t a g e of a s t r e a m l i n e d

auto companies, often in conjunction with a Big Three producer.

7

The Midwest's machinery sector also m a d e significant

industries were displaced as c o m p a r e d to one in 75 w o r k e r s in

strides between 1986 a n d 1990, achieving efficiency gains of 2

service industries. Estimates are not available o n a regional basis,

percent as c o m p a r e d to 0.9 percent for the rest of nation. T h e

b u t it seems plausible that Midwest workers were more adversely

m a c h i n e r y sector, w h i c h is largely focused on the auto i n d u s t r y

affected by displacement, given the region's relatively high con-

a n d exports, faced stiff global competition in the early 1980s. The

centration of m a n u f a c t u r i n g industries.

efficiency of the sector improved d u e in part to an infusion of n e w

The U.S. is not alone in c o n f r o n t i n g this trend; other

capital, w h i c h , in some cases, was the result of a b u y - o u t by a

highly industrialized countries have h a d to wrestle with declining

foreign company.

or stagnant m a n u f a c t u r i n g e m p l o y m e n t despite healthy growth

A n o t h e r i m p o r t a n t c o n t r i b u t o r to the region's im-

in p r o d u c t i o n (see graph 5). Canada, France, a n d the United King-

proved competitiveness was the Midwest steel i n d u s t r y w h i c h

d o m are a m o n g the highly industrialized countries that have ex-

realized efficiency gains of 2.8 percent. After a m a j o r downsizing

perienced declines i n m a n u f a c t u r i n g e m p l o y m e n t since 1979.

in the early 1980s a n d an intense modernization effort, the Mid-

Other countries have achieved somewhat better, b u t far from spec-

west has state-of-the-art integrated mills capable of c o n t i n u o u s

tacular, results since 1979: Germany's m a n u f a c t u r i n g employment

casting as well as mini-mills featuring flexible a n d innovative pro-

was flat; Japan's increased an average of 1.6 percent annually. The

duction methods.

U.S., by comparison, averaged a 1.1 percent decline.

As a result, the region is n o w an effective

global competitor in the p r o d u c t i o n of high-quality steel.

In general, it does not appear that the highly i n d u s -

Led by the i m p r o v e m e n t s in auto, steel, a n d m a c h i n -

trialized countries can look forward to a long-term resurgence in

ery, the Midwest's efficiency gains were most evident from 1986

m a n u f a c t u r i n g e m p l o y m e n t growth.

t h r o u g h 1988, w h e n the nation was u n d e r g o i n g a m i n i - b o o m

According to projections by the Bureau of Labor Statistics, U.S.

(see graph 4).

The gap be-

The U.S. is n o exception.

manufacturing

tween old a n d n e w technol-

employ-

m e n t is expected to decline
Efficiency Gains

ogy o u t p u t i n the Midwest

in the U.S. through the year

percent differential (observed vs. predicted)

flattened out i n 1989 and

1986

87

88

'89

2 0 0 5 . The implications of

'90

declined in 1990, perhaps

t h i s t r e n d are e s p e c i a l l y

reflecting the more stagnant

troublesome because m a n -

economic growth at the e n d

ufacturing j o b s tend to be

of the decade. Even t h o u g h

relatively high paying.

its efficiency gains decreased
at t h e e n d of t h e d e c a d e ,
however, the Midwest's gains
still e x c e e d e d those of the

While
The Midwest's efficiency gains are indicated by the
percent differential between observed and predicted output for the region
as compared to the rest of the nation.

it is

clear that displaced w o r k ers suffer short-term earnings losses, it is m o r e diffi-

rest of the nation.

cult

to determine the

It appears that the Midwest has c o n t i n u e d to focus

long-term consequences. O n e indication is provided by a study

o n efficiency since 1990. As d e m a n d built slowly following the

by a Federal Reserve Bank of Chicago economist, w h i c h assessed

recession of 1990-91, Midwest p r o d u c e r s e x p a n d e d o u t p u t with-

such effects. According to the study, there were substantial long-

out significant growth in hiring, indicating that efforts to improve

term consequences for high seniority workers that were forced
to leave declining firms b e t w e e n 1 9 8 0 a n d 1986.

efficiency have c o n t i n u e d in recent years.

Even five

years after they lost their jobs, the workers studied h a d average
Implications for Employment

annual earnings losses that were approximately 25 percent of their
1979 earnings.

The region's improvements in manufacturing p r o d u c tivity have resulted in benefits in the long r u n for many. But w h a t

Approximately 76 percent of those studied were dis-

about the implications for those inevitably h u r t in the process?

placed from the m a n u f a c t u r i n g sector. The study f o u n d that earn-

Clearly, productivity i m p r o v e m e n t s have m e a n t that

ings losses were particularly severe for m a n u f a c t u r i n g workers

e m p l o y m e n t has not increased as rapidly as it w o u l d have in the

unable to find a n o t h e r j o b in manufacturing. These w o r k e r s h a d

past, given the same a m o u n t of o u t p u t . Some indication of the

average a n n u a l losses of 3 8 percent of their 1979 earnings five

upheaval in the m a n u f a c t u r i n g sector is provided by an estimate

years after they lost their jobs. Workers w h o were able to regain

by the Congressional Budget Office (CBO) that roughly 10 mil-

j o b s in m a n u f a c t u r i n g fared s o m e w h a t better.

lion U.S. workers in the g o o d s - p r o d u c i n g industries lost j o b s be-

after their j o b loss, workers able to find a j o b in m a n u f a c t u r i n g ,

cause of p e r m a n e n t layoffs a n d plant closings d u r i n g the 1980s.

b u t in a different industry, experienced losses of 19 percent of

In the fifth year

G o o d s - p r o d u c i n g workers were m o r e likely to be displaced than

their 1979 earnings.

service industry employees, according to the CBO. In 1990, for

same m a n u f a c t u r i n g i n d u s t r y experienced losses that were 17

example, roughly one in 2 5 workers in goods-producing

percent of their previous earnings. Overall, the study f o u n d that

8

Workers able to find e m p l o y m e n t in the

workers in highly unionized durable-goods manufacturing industries experienced particularly large losses.
High-seniority workers appear to have been particularly hard-hit by the effects of layoffs, j u d g i n g from the results of
the Bank's study. It should be noted, however, that such workers
have been a relatively small portion of all layoffs nationally, acc o u n t i n g for an estimated 18 percent of displacements from 1980
t h r o u g h 1986.
A Brighter Outlook
Like the other industrial countries in the world, the
U.S. is u n d e r g o i n g w r e n c h i n g changes in its economic structure,
particularly in the m a n u f a c t u r i n g sector. Nevertheless, the outlook is relatively bright for the Midwest, which has become significantly m o r e c o m p e t i t i v e since the recession of 1 9 8 1 - 8 2 .
M a n u f a c t u r i n g e m p l o y m e n t may inevitably decline, b u t if the
Midwest has a competitive advantage it will maintain or increase
its market share as compared to other regions a n d retain more
j o b s than it w o u l d have otherwise.
An

example

can clarify the point. Say
Manufacturing Employment
average annual rates of change, 1979-92
Canada

France

Germany

Japan

U.K.

the
U.S.

Heartland Widget Com-

pany employs a large n u m ber of people w h o w o r k on
one shift. As competition in
the widget i n d u s t r y heats
u p , Heartland changes production and becomes more

The U.S. as well as most other highly

efficient, thus

industrialized countries have experienced stagnant or

requiring

fewer e m p l o y e e s to p r o d u c e

declining manufacturing employment.

the same a m o u n t . As a result, Heartland
fewer workers.

employs

However, Heartland's increased efficiency may

enable it to gain market share a n d eventually start a second a n d
even third shift. The additional employees required to r u n these
extra shifts may not equal the total n u m b e r of workers Heartland
employed in the past. But certainly this is preferable to the alternative: n o j o b s at all because Heartland h a d to close or move.
The Midwest will continue to face n e w challenges.
The region still has a p r e p o n d e r a n c e of mature industries that are
unlikely to experience rapid expansion. Yet, the region is m u c h
more productive and has positioned itself for solid, sustainable
economic growth that could continue to slightly exceed the rest
of the nation d u r i n g the remainder of the 1990s.
A decade ago, the region faced the prospect of a continual decline in competitiveness. Now, the Midwest can look to
the next ten years with rediscovered optimism.

The Midwest's

investment d u r i n g the 1980s helped restore its m a n u f a c t u r i n g
sector to a more competitive position, a change that will continue
to have a ripple effect on the region. The Midwest today is more
productive, more efficient, a n d better able to meet the challenges
of the future.

9

The

Bank in

1993

The Federal Reserve Bank of Chicago had
another successful, productive year in 1993.

Like the

Midwest economy, the Bank has had to anticipate

and

respond to many changes. And, like the Midwest economy, the Bank has been able to rise to the challenge.
That the Bank was able to respond to these
changes was due entirely to the exceptional efforts put
m E f f o r t s to a n a l y z e t h e D i s t r i c t e c o n o m y

forth by employees in 1993. Many of the Bank's activities

i n c l u d e d the increased u s e of i n p u t / o u t p u t

were broad-based projects, bringing together employees

m o d e l s to p r e d i c t r e g i o n a l activity a n d

from a wide variety of functions and all the Bank's offices

" E c o n o m i c R o u n d t a b l e s , " f e a t u r i n g local
leaders familiar w i t h e m e r g i n g d e v e l o p m e n t s .

to achieve an ambitious goal. In each case,

management
• The Conference on Bank Structure and

and staff were more than equal to the task.

C o m p e t i t i o n , FDICIA: An Appraisal,

The following pages focus on the Bank's

comple-

m e n t e d research o n c o n t r o l l i n g financial sys-

1993

t e m risk.

accomplishments, listing selected achievements and high• T h e Bank h o s t e d a n d p u b l i s h e d the pro-

lighting just a few of the employees whose efforts enabled

c e e d i n g s of a c o n f e r e n c e i n t e n d e d to e n c o u r -

the Bank to accomplish its goals and successfully respond

age d i s c u s s i o n o n m a r k e t - b a s e d a p p r o a c h e s

to change. Hopefully, placing the spotlight on only a hand-

to e n v i r o n m e n t a l policy.

ful of the outstanding individuals who work at the Bank

• T h e C h i c a g o F e d played a significant role

will serve to pay tribute to all of their associates as well.

in d e v e l o p i n g a h i g h s c h o o l t e a c h i n g p a c k age for n a t i o n w i d e u s e f e a t u r i n g f o u r videos
o n the F e d e r a l Reserve.
Training w a s e m p h a s i z e d to k e e p e x a m i n ers abreast of d e v e l o p m e n t s in the b a n k i n g
i n d u s t r y (see page

12).

• Bank staff c o n d u c t e d 9 0 6 e x a m i n a t i o n s ,
• T h e Bank again a c h i e v e d its b u d g e t goals
a n d met a n a m b i t i o u s m a n a g e m e n t plan.

i n s p e c t i o n s , a n d special reviews, a n d p r o cessed 5 2 6 applications, a m o n g the top w o r k l o a d s in the System.

• Federal Reserve C h a i r m a n Alan G r e e n s p a n
j o i n e d directors in c o m m e m o r a t i n g the Detroit

• A u t o m a t i o n Services s u p p o r t e d the Bank's

Branch's 75 years of service.

t r a n s i t i o n in the c o n s o l i d a t i o n of the F e d e r a l
Reserve's m a i n f r a m e d a t a - p r o c e s s i n g f r o m 12

During a particularly c o m p l e x year for
d e t e r m i n i n g m o n e t a r y policy,

sites to three.

Economic

Research e n h a n c e d t h e collection a n d analysis

• The Bank hosted a public hearing on

of i n f o r m a t i o n p r i o r t o m e e t i n g s of t h e

CRA m o d e r a t e d by F e d G o v e r n o r L a w r e n c e

Federal O p e n M a r k e t C o m m i t t e e (see page 14).

Lindsey a n d o t h e r regulators.

10

• T h e District c o n t i n u e d to convert ins t i t u t i o n s to r e c e i v e a n d s e n d v a r i o u s
s t a t e m e n t s a n d r e p o r t s electronically.
• T h e District w a s a leader in c h e c k productivity, with three offices r a n k i n g a m o n g
the t o p f o u r in the System.

• T h e Bank e x p a n d e d A u t o m a t e d Clearinghouse (ACH) processing, providing

• P r e p a r a t i o n s for t h e p r i c i n g of intra-

c u s t o m e r s w i t h a m o r e flexible service.

day "daylight" overdrafts were c o m p l e t e d ,
i n c l u d i n g a n e w m e t h o d for m e a s u r i n g
overdrafts.

T h e District successfully c o m p l e t e d the
all-electronic A C H initiative in the Seve n t h District, converting more institutions

• T h e Bank's N e t w o r k M a n a g e m e n t C o n T h e C h i c a g o Reserve B a n k b e g a n in-

t h a n a n y o t h e r District (see page

15).

trol C e n t e r c o n t i n u e d to oversee the curm T h e D i s t r i c t b e g a n to p h a s e - i n t h e

stalling s e c o n d - g e n e r a t i o n c u r r e n c y pro-

rent Federal Reserve c o m m u n i c a t i o n s net-

cessing e q u i p m e n t , w h i c h involved exten-

w o r k w h i l e p r e p a r i n g to p r o v i d e d a t a

c o n s o l i d a t i o n of Seventh District savings

sive staff t r a i n i n g a n d r e n o v a t i o n of the

c o m m u n i c a t i o n a n d b a c k b o n e services o n

b o n d o p e r a t i o n s at t h e

C a s h D e p a r t m e n t (see page

the n e w n e t w o r k , FEDNET.

Reserve Bank.

m T h e Bank c o n t i n u e d to participate in the

• T h e Des M o i n e s Office k e p t o p e r a t i n g

•

N a t i o n a l I n f o r m a t i o n Center, a System da-

s m o o t h l y d u r i n g t h e " G r e a t F l o o d of

tise to o t h e r countries, travelling overseas

tabase, a n d in the Shared N a t i o n a l Credit

1 9 9 3 , " h a n d l i n g c h e c k p r o c e s s i n g vol-

on temporary assignments and hosting

p r o g r a m , a c o o p e r a t i v e p r o j e c t to b e t t e r

u m e s 47 percent h i g h e r t h a n usual.

n u m e r o u s p r o g r a m s for foreign visitors.

• Electronic c h e c k i t e m s soared to 250

• T h e B a n k c o n t i n u e d to o p e r a t e t h e

16).

Minneapolis

Chicago Fed staff p r o v i d e d their exper-

evaluate i n s t i t u t i o n s ' large s h a r e d loans.
m i l l i o n as t h e District i n t r o d u c e d n e w

Securities Product Office, guiding Fed

n e w m e d i c a l b e n e f i t s package i n t e n d e d to

services s u c h as e n h a n c e d electronic cash

securities activities t h r o u g h a particular-

c o n t r o l costs while m a i n t a i n i n g e m p l o y e e

letter, basic electronic c h e c k p r e s e n t m e n t ,

ly c h a l l e n g i n g period.

flexibility.

and check truncation.

• H u m a n Resource Services d e v e l o p e d a

• A s t a t e m e n t of values w a s d i s t r i b u t e d
• T h e C h i c a g o F e d c o n t i n u e d to refine its

• The District excelled in achieving check

to e n c o u r a g e e m p l o y e e s to recognize a n d

disaster-recovery capabilities, i n c l u d i n g en-

quality goals, r a n k i n g first in the System

discuss the Bank's core values—integrity,

h a n c i n g its off-site relocation center.

for fewest processing e r r o r s (see page 13).

respect, excellence, a n d responsibility.

• T h e Bank i n t r o d u c e d a n e n h a n c e d ac-

• T h e C h i c a g o Fed p r e p a r e d for the im-

• Bank staff c o n t i n u e d to play a leader-

c o u n t i n g s t a t e m e n t a n d cash m a n a g e m e n t

p l e m e n t a t i o n of s a m e - d a y c h e c k settle-

s h i p r o l e by p a r t i c i p a t i n g in v i r t u a l l y

p r o d u c t , part of n e w System-wide a c c o u n t -

m e n t by c h a n g i n g o p e r a t i o n s , h o l d i n g

every System g r o u p dealing w i t h issues

ing services.

s e m i n a r s , a n d d e v e l o p i n g n e w services.

facing the Fed.

1
1

Examiner Training Intensifies

staff in 1993.

Because FDICIA is such a

complex a n d wide-ranging piece of legislation, employees were required to develop

T

comprehensive a n d i n - d e p t h programs. A

he accelerating pace of change in the

complicating factor was the ongoing nature

b a n k i n g industry is challenging, not

of the project as Bank staff n e e d e d to devel-

only for practitioners b u t for examiners as

o p n e w programs as each section of the leg-

well. The challenges multiply w h e n Con-

islation was i m p l e m e n t e d into regulation.

gress passes a comprehensive piece of bank-

While forces outside the b a n k i n g

ing legislation such as the Federal Deposit

system often initiate change, the Bank m u s t

Insurance Corporation I m p r o v e m e n t Act

also r e s p o n d to changes resulting f r o m in-

(FDICIA).

novation within the b a n k i n g industry. In

The Federal Reserve Bank of

Chicago, w h i c h is responsible for examin-

1 9 9 3 , Federal Reserve Bank of C h i c a g o

ing state m e m b e r b a n k s a n d b a n k holding

employees were System leaders in develop-

c o m p a n i e s in the Seventh District, has tra-

ing training p r o g r a m s on one of these im-

ditionally provided extensive training t o

p o r t a n t d e v e l o p m e n t s — t h e sale of m u t u a l

examiners. In recent years, efforts in this

f u n d s by banks. The Banks p r o g r a m s o n

area have intensified to enable examiners

m u t u a l f u n d s i n c l u d e d classes providing

to stay abreast of the m a n y changes taking

general b a c k g r o u n d as well as m o r e spe-

place in the b a n k i n g industry.

cific training o n examination guidelines.

Training e x a m i n e r s o n the n u -

These training p r o g r a m s proved to be so

m e r o u s provisions of FDICIA was a signif-

successful that they were a d o p t e d a n d ap-

icant challenge for Chicago Reserve Bank

plied elsewhere in the Fed System.

Bank staff enhanced training programs in 1993 to help
examiners keep pace with changes in the banking industry

Working with employees
throughout the Supervision and Regulation
Department, D'Le Borg
(pictured at right) teamed
with Betty Starsiak and
Marion Vicek to develop
and coordinate training
programs on new legislation such as FDICIA
and industry innovations
such as mutual fund sales.
These training programs
helped examiners keep
pace with developments
in the rapidly changing
banking industry.

12

Check Quality Goals Achieved

Seventh District employees
achieved top ratings in the quality
of check services

E

very year, the Federal Reserve Banks
are engaged in a horse race of sorts.

Each Federal Reserve office measures its

performance in providing financial services, tracking its progress in meeting System
goals a n d c o m p a r i n g its results to the other Fed offices. Measuring its performance
in this way helps the Fed to continually
improve its service to customers.
Staff at the Federal Reserve Bank
of Chicago a n d its offices focused, more
t h a n ever, o n i m p r o v i n g the quality of
check services in 1993. The efforts paid
off: Seventh District e m p l o y e e s r a n k e d
first in the System for m a k i n g the fewest
processing errors.
Bank staff improved quality in a
n u m b e r of ways.

To generate ideas, the

Bank established a District-wide task force
so that staff could meet periodically to discuss check quality efforts. O n e important
initiative was developing a closer relationship with the c o m p a n y that services the
Bank's check processing e q u i p m e n t . By
w o r k i n g more closely with the servicing
Improving quality was a District-wide effort. Among those

c o m p a n y on an ongoing basis, employees

contributing at the Chicago Office were (from left to right)

were able to remedy problems more quickly

Lynda Hatten, Gloria Jackson, Dovin Salmorin, Mike Gordon

or prevent them from h a p p e n i n g in the first

and Marsha Coleman. Jackson and Gordon work in check

place. Staff also w o r k e d with fellow em-

processing; Hatten and Salmorin work in the check adjust-

ployees a n d customers submitting w o r k to

ment function. Coleman, check processing manager, served

let t h e m k n o w if an error occurred and to

on the check quality task force.

help t h e m prevent future problems.
The result was a significant improvement in the quality of check services,
not only providing better service for customers but helping to improve the efficiency of the payments system.

13

Briefing Process Enhanced

T

he process begins every six to eight

weeks. Economic Research staff be-

gin to prepare for the next meeting of the
Federal O p e n Market Committee (FOMC),
the F e d s most i m p o r t a n t policy m a k i n g

body.

Bank employees w o r k with infor-

mation—collecting, u p d a t i n g , analyzing,
discussing, sometimes arguing. This effort
is all part of the briefing process, w h i c h
provides President Silas Keehn with the
information he needs to take part in F O M C
deliberations.
D e t e r m i n i n g m o n e t a r y policy
was especially difficult in 1993 because of
the structural changes taking place in the
economy. In response, Bank staff focused
their research studies on the effects a n d
tradeoffs of m o n e t a r y policy a n d w o r k e d
to improve the quantity a n d quality of information available for the briefing process.
This effort included reformatting the "briefing b o o k " to allow for more continuity in
the analysis of current conditions a n d to
highlight in-depth studies on special issues.
Research staff e n h a n c e d t h e i r
expertise on the regional e c o n o m y by exp a n d i n g the use of "Economic Roundtables," featuring economists a n d business
leaders familiar with emerging local developments.

Among the employees involved in preparing for FOMC meetings are (from

Staff also c o n t i n u e d t o s t u d y

left to right) Paula Worthington, Mike Singer, Anthony Suh, Rick Mattoon,

important regional developments that may

and Argia Sbordone. Singer and Mattoon studied regional developments

affect the overall e c o n o m y s u c h as the

such as the effects of the "Great Flood of 1993." Worthington and Sbordone

"Great Flood of 1993." The expertise of

provided expertise on issues such as balance sheet restructuring and pro-

Research staff in this area proved to be use-

ductivity trends. Suh worked on further automating the flow of information

ful, n o t only to those d e t e r m i n i n g m o n e -

used for the briefing process.

tary policy, b u t also to a n u m b e r of national a n d state g o v e r n m e n t officials.

Economic Research staff worked to enhance
the briefing process during a particularly complex year
for determining monetary policy

14

operational, and technical s u p p o r t effort.
First, Bank staff w o r k e d with depository

All-electronic ACH Project Completed

i n s t i t u t i o n s t o e x p l a i n the a l t e r n a t i v e s
for setting u p an electronic connection.
For most institutions the best option was

F

Fedline, the Federal Reserve's s o f t w a r e

or m a n y years Automated Clearing-

package for electronic access. Once an in-

house (ACH) was an electronic service

stitution signed u p for an electronic con-

that was not entirely electronic. In fact, most

nection, employees at the Chicago Reserve

depository institutions received ACH trans-

Bank and Detroit Branch conducted hands-

actions on tapes or diskettes delivered via

on training sessions. In 1993 alone, 700

courier or mail. To encourage a more effi-

institutions attended training classes. To

cient a n d reliable ACH, the Federal Reserve

provide s u p p o r t for so m a n y n e w users,

a n n o u n c e d in 1991 that it would accept and

Bank a n d Branch staff set u p hotlines for

deliver only electronic transmissions of ACH

Fedline questions, w h i c h h a n d l e d some

transactions, effective July 1, 1993.

2 0 , 0 0 0 customer inquiries in 1993.

Chicago Fed employees faced a

District e m p l o y e e s c o m p l e t e d

m a j o r challenge. As one of the most active

this ambitious project on schedule in 1993,

participants in ACH, the Seventh District

converting a total of 1,456 institutions to

had the most non-electronic ACH receivers

an electronic status. The result is an im-

in the Fed System. Converting District in-

proved ACH service for depository insti-

stitutions t o an electronic alternative re-

tutions and, on a m u c h larger scale, a more

quired a massive educational, marketing,

efficient and reliable payments mechanism.

Bank staff completed the ambitious all-electronic
ACH project on schedule in 1993

The ail-electronic ACH
initiative was a broad-based
effort, including staff from all
five District offices. Among
the key participants (from left
to right) were Charles Textor,
Automation Support; Ken
Zvihra, Electronic Services,
Detroit Branch; Lysette Bailey,
Electronic Access; Eve Boboch,
Automated Payments; and
Ron Bogner, Banking Services.
Other key participants not
pictured here include Richard
Jung, Des Moines Office;
Fred Chafin, Indianapolis
Office; and Pete Retsinas,
Milwaukee Office.

15

New Currency Machines Installed

The team that received
special training and subsequently operated the first
ISS3000 currency processor
in Chicago consisted of
(from left to right) Mary
Lehnerer, Robbie Alleyne,
Dianne Gray, Maria Pyzalski,
Cristelle Wertelka, Dorothy
Johnson (hidden), and Irena
Lasota. Dianne Gray is one
of two "District trainers"
who work with employees
making the transition to the
new equipment.

Bank employees began installing a new
generation of cash-processing machines in 1993

Installing the m a c h i n e s has been
a broad-based effort involving staff in Cash,
Protection, Facilities Planning, a n d H u m a n
Resources.

following extensive preparations

Because the n e w processors

have more sophisticated capabilities that
place a d d e d d e m a n d s o n operators, the

A

Bank has provided extensive training. Be-

m o n g its m a n y other functions, the

fore t h e m a c h i n e s w e r e i n t r o d u c e d i n

Federal Reserve Bank of Chicago is

Chicago, eight Bank employees travelled

a m o n e y factory of sorts, constantly receiv-

to a n o t h e r Fed District to w o r k with the

ing a n d s h i p p i n g out large quantities of

n e w e q u i p m e n t . Two of these employees

currency. Bank staff processed some $29

became "District trainers" w h o helped train

billion in 1993 using sophisticated high-

other staff in Chicago. Another effort re-

speed equipment, which counts and

lated to the installation of the machines was

sorts, detects potential counterfeits, shreds

the renovation of the Bank's second a n d

w o r n - o u t money, a n d b u n d l e s n o t e s t o

third basements.

be recirculated.

Planning a n d Cash w o r k e d closely to co-

Employees in Facilities

In 1 9 9 3 , Bank e m p l o y e e s in-

ordinate the renovation, which will provide

stalled two n e w ISS3000 c u r r e n c y p r o -

for a more efficient a n d secure w o r k area.

cessors, b e g i n n i n g the transition to a n e w

Staff at the Chicago Office a n d

generation of high-tech e q u i p m e n t . T h e

Detroit Branch will i m p l e m e n t nine more

n e w p r o c e s s o r s , w h i c h will b e u s e d

machines over the next two years. The en-

t h r o u g h o u t the Fed System, are more effi-

h a n c e d capabilities of the ISS3000 m a -

cient, provide a higher quality of notes for

chines will enable Bank employees to effi-

recirculation, a n d have improved counter-

ciently meet the public's currency needs for

feit detection capabilities.

years to come.

16

Operations Volumes

dollar amount
1993

number of items
1992

1993

1992

Check & Electronic Payments
Checks, N O W s , &
share d r a f t s p r o c e s s e d

1.3 t r i l l i o n

1.2 t r i l l i o n

1.9 b i l l i o n

1.9 b i l l i o n

Fine sort & p a c k a g e d
checks h a n d l e d

261.7 b i l l i o n

261.6 b i l l i o n

614.6 m i l l i o n

620.7 m i l l i o n

U.S. g o v e r n m e n t checks p r o c e s s e d

48.9 billion

50.8 b i l l i o n

51.4 m i l l i o n

52.8 m i l l i o n

Automated Clearinghouse
1.9 trill ion7"

482.0 million

419.7 million''

(ACH) i t e m s p r o c e s s e d

2.3 t r i l l i o n

Transfers o f f u n d s

31.4 trillion

32.8 t r i l l i o n

Currency received & c o u n t e d

28.9 b i l l i o n

27.9 b i l l i o n

2.2 b i l l i o n

2.2 b i l l i o n

U n f i t currency d e s t r o y e d

6.5 b i l l i o n

7.5 b i l l i o n

720.6 m i l l i o n

733.9 m i l l i o n

Coin received & c o u n t e d

700.2 million

691.9 m i l l i o n

6.3 b i l l i o n

5.9 b i l l i o n

13.5 m i l l i o n

13.0 m i l l i o n

Cash Operations

Securities Services for Depository Institutions
Safekeeping balance December 31:
securities

7.5 b i l l i o n

6.3 b i l l i o n

Book-entry securities

Definitive

437.3 billion

360.0 billion

Purchase & sale

2.5 b i l l i o n

3.1 b i l l i o n

8.3 t h o u s a n d

11.8 t h o u s a n d

500.0 million

700.0 million

91.0 t h o u s a n d

119.8 t h o u s a n d

1.6 b i l l i o n

1.7 b i l l i o n

53.6 t h o u s a n d
—

145.4 t h o u s a n d
—

Collection of securities
& other n o n c a s h i t e m s

Loans to Depository Institutions
Total loans m a d e d u r i n g year

763

870

Services to U.S. Treasury and Government Agencies
Issues, r e d e m p t i o n s & e x c h a n g e s :
U.S. savings bonds

3.0 b i l l i o n

3.8 b i l l i o n

Definitive government securities

900.0 million

400.0 million

Book-entry government securities

4.8 t r i l l i o n

3.3 t r i l l i o n ' '

G o v e r n m e n t c o u p o n s paid
Federal t a x d e p o s i t s processed

142.7 b i l l i o n

Food s t a m p s r e d e e m e d

r

93.5 m i l l i o n
142.6 b i l l i o n
2.5 b i l l i o n

2.4 b i l l i o n

= Revised

17

91.0 m i l l i o n

8.0 m i l l i o n
12.3 t h o u s a n d
1.1 m i l l i o n

8.5 m i l l i o n
9.2 t h o u s a n d
1.1 m i l l i o n

40.7 t h o u s a n d

59.3 t h o u s a n d

858.1 t h o u s a n d

884.4 thousand

477.9 m i l l i o n

473.0 million

Statement of Condition

12/31/93

12/31/92

Assets
Gold certificate account

$

1,186,000,000

$

1,270,000,000

Interdistrict settlement account

1,743,124,989

(3,443,626,096)

s e r v e B a n k a s s e t s a n d liabilities largely

Special drawing rights
certificate account

1,036,000,000

1,036,000,000

reflect general e c o n o m i c d e v e l o p m e n t s a n d

Coin

32,338,258

29,757,418

Loans

500,000

1,950,000

Federal agency securities

539,045,358

670,355,724

U.S. government securities

38,584,498,535

36,537,178,964

Y e a r - t o - y e a r c h a n g e s i n Re-

System m o n e t a r y policy actions.

By pur-

Loans and securities:

c h a s i n g securities in t h e o p e n m a r k e t a n d
m a k i n g loans to depository institutions, the
Federal Reserve increases reserves, p r o v i d i n g a base for m o n e t a r y e x p a n s i o n in accord with the national economy's growth

Total loans and securities

39,124,043,893

37,209,484,688

n e e d s . T h e Bank's total assets rose in 1993,

Items in process of collection

674,167,146

922,908,474

p r o v i d i n g t h e basis for a n increase in cur-

Bank premises

113,379,859

112,034,234

Other assets

3,490,675,049

3,380,201,671

r e n c y o u t s t a n d i n g a n d d e p o s i t s of District
institutions.

T h e overall increase i n t h e
Total assets

$

47,399,729,194

$

40,516,760,389

Federal Reserve notes

$

41,540,669,371

S

35,484,730,443

Bank's assets a n d c u r r e n c y o u t s t a n d i n g w a s
also in p a r t a t t r i b u t a b l e to d a y - t o - d a y interdistrict f l u c t u a t i o n s .

Liabilities

Deposits:
Depository institutions

4,021,546,173

3,422,357,347

U.S. Treasury—general account

0

0

Foreign, official accounts

15,748,700

16,819,000

Other

80,694,358

49,357,129

4,117,989,231

3,488,533,476

Deferred credit items

679,010,501

620,709,248

Other liabilities

282,329,891

230,600,822

Total deposits

Total liabilities

s

46,619,998,994

$

39,824,573,989

Capital paid in

$

389,865,100

$

346,093,200

Capital Accounts

Surplus
Total capital
Total liabilities and capital

18

389,865,100

$
$

346,093,200

779,730,200

$

692,186,400

47,399,729,194

s

40,516,760,389

Statement o f Income

1992

1993
Current Income
Interest on loans

$

351,679

$

403,053

Interest on government securities

1,988,279,841

2,145,434,724

Interest on investments
of foreign currencies

142,291,217

257,123,513

largely a b y - p r o d u c t of m o n e t a r y policy

Service fees

101,646,876

99,463,226

r a t h e r t h a n the p u r s u i t of profit. Most of

790,056

952,994

the Bank's i n c o m e is interest o n its share of

2,503,377,510

the System's O p e n M a r k e t A c c o u n t p o r t -

A R e s e r v e Bank's i n c o m e i s

All other
Total current income

$

2,233,359,669

$

folio of securities, a n d , appropriately, t h e
vast m a j o r i t y of this i n c o m e is t u r n e d over

Current Expenses

to the U.S. Treasury each year. C u r r e n t inOperating expenses

$

Other current expenses
Total current expenses

198,076,414

$

176,999,479

32,414,846

Less reimbursement for certain
fiscal agency and other expenses

230,491,260

205,964,270

19,478,772

$

28,964,791

19,557,478

c o m e d e c l i n e d c o m p a r e d to 1 9 9 2 , p r i m a rily d u e t o l o w e r m a r k e t i n t e r e s t r a t e s .
O p e r a t i n g e x p e n s e s rose, largely reflecting
t h e c o n t i n u e d c o s t of r e s p o n d i n g t o

Current net expenses

$

211,012,488

Current net income

$

2,022,347,181

$
$

186,406,792
2,316,970,718

increased supervisory

responsibilities

m a n d a t e d b y legislation.

E x p e n s e s also

i n c r e a s e d b e c a u s e of the costs associated
w i t h t h e i m p l e m e n t a t i o n of Financial Ac-

Additions to (or Deductions
from) Current Net Income
Net profit (or loss) on sales of securities

c o u n t i n g S t a n d a r d (FAS) 1 0 6 ,

S

4,626,090

$

15,087,036

Net profit (or loss) on foreign
exchange transactions

30,081,072

(130,523,858)

Assessment for Board of Governors
expenditures

(15,939,100)

(15,443,600)

Cost of Federal Reserve currency

(37,898,065)

(33,248,750)

All o t h e r — n e t

(58,169,054)

Net additions (or deductions)
Net income available for distribution

$

$

(77,299,057)
1,945,048,124

(3,272,441)
$

$

(167,401,613)
2,149,569,105

Distribution of Net Income
Dividends paid

$

22,248,839

$

19,888,623

Payments to U.S. Treasury
(as interest on Federal Reserve notes)

1,879,027,385

2,104,451,832

Transferred to surplus

43,771,900

25,228,650

Total income distributed

which

r e q u i r e d c h a n g e s i n t h e a c c o u n t i n g for

s

1,945,048,124

$

19

2,149,569,105

p o s t - e m p l o y m e n t benefits.

Directors and Advisory Councils

1993 Board of
Directors, Federal
Reserve Bank of Chicago,
from left to right:
Robert Healey,
Richard Cline, Stefan
Anderson, Charlene
Sullivan, Arnold Schultz,
David Fox, Donald
Schneider, Thomas Dorr,
and Duane Burnham.

Board of Directors
Federal Reserve Bank
of Chicago

Reserve Bank directors have a general governance
responsibility for the m a n a g e m e n t of operations, a p p r o v i n g

Chairman

budgets, expenditures, a n d official a p p o i n t m e n t s . In addition,

Richard G. Cline
C h a i r m a n , President,
a n d Chief Executive Officer
N I C O R Inc.
Naperville, Illinois

directors provide advice a n d counsel t o the Reserve Bank
president o n the state of the e c o n o m y and financial system.
Reserve Bank directors also determine, subject to review by

Deputy Chairman

the Board of Governors, the Bank's discount rate. The Chicago

Robert M. Healey
President
Chicago Federation of Labor
a n d Industrial U n i o n Council,
AFL-CIO
Chicago, Illinois

Reserve Bank a n d Detroit Branch directors are selected t o
represent a variety of interests a n d activities within the District
a n d bring to their diverse duties as directors a broad range of
expertise a n d experience.

Stefan S. Anderson
C h a i r m a n , President,
a n d Chief Executive Officer
First M e r c h a n t s C o r p o r a t i o n
Muncie, Indiana

The Federal Advisory Council, consisting of one
representative f r o m each District, meets quarterly with the
Board of Governors to discuss economic conditions. T h e

Duane L. Burnham
Chairman and
Chief Executive Officer
Abbott Laboratories
Abbott Park, Illinois

Chicago Reserve Bank's advisory councils o n small business
and agriculture provide a vital c o m m u n i c a t i o n link between
the Bank a n d these i m p o r t a n t economic sectors.

Thomas C. Dorr
President a n d
Chief Executive Officer
Dorr's Pine Grove
Farm Company
Marcus, Iowa

20

David W. Fox
Chairman and
Chief Executive Officer
The N o r t h e r n Trust C o r p o r a t i o n
Chicago, Illinois
Donald J. Schneider
President
Schneider National, Inc.
Green Bay, W i s c o n s i n
Arnold C. Schultz
C h a i r m a n a n d President
GNB Bancorporation
G r u n d y Center, Iowa
A. Charlene Sullivan
Associate Professor
of M a n a g e m e n t
Krannert G r a d u a t e School
of M a n a g e m e n t
P u r d u e University
W e s t Lafayette, Indiana

1993 Board of
Directors, Detroit
Branch, from left to
right: Norman Rodgers,
Daniel Smith, William
Odom, John Forsyth,
Beverly Beltaire,
Charles Allen, and
J. Michael Moore.

Board of Directors
Detroit Branch

Federal Advisory
Council Representative

Chairman

Eugene A. Miller
C h a i r m a n and
Chief Executive Officer
Comerica, I n c o r p o r a t e d
Detroit, Michigan

J. Michael Moore
Chairman and
Chief Executive Officer
Invetech C o m p a n y
Detroit, Michigan
Charles E. Allen
President a n d
Chief Executive Officer
Graimark Realty Advisors, Inc.
Detroit, Michigan
Beverly Beltaire
President
P.R. Associates, Inc.
Detroit, Michigan
John D. Forsyth
Executive Director
University of Michigan Hospitals
A n n Arbor, Michigan
William E. Odom
Chairman
Ford Motor Credit C o m p a n y
a n d G r o u p Vice President
Ford Motor C o m p a n y
D e a r b o r n , Michigan
Norman F. Rodgers
President a n d
Chief Executive Officer
Hillsdale C o u n t y
National Bank
Hillsdale, Michigan
Daniel R. Smith
Chairman and
Chief Executive Officer
First of America Bank
Corporation
Kalamazoo, Michigan
(director to August 1993)

Scott E. VanderVeen
Clinton, W i s c o n s i n
W i s c o n s i n Pork P r o d u c e r s
Jerry L. Vandeveer
F r a n k e n m u t h , Michigan
Michigan Agri-Business
Association

Advisory Council
on Agriculture

Donald B. Villwock
E d w a r d s p o r t , Indiana
Member-at-Large

Glen Balbach
W a r r e n , Illinois
Wisconsin Milk
Marketing Board

Peter J. Wenstrand
Essex, Iowa
Iowa C o r n G r o w e r s
Association

Leland E. Behnken
Altona, Illinois
Illinois C o r n G r o w e r s
Association

Advisory Council
on Small Business

Marion L. Butler
Blandinsville, Illinois
Illinois Beef Association

Phyllis L. Apelbaum
Chicago, Illinois
National Association of
W o m e n Business O w n e r s Chicago C h a p t e r

Jon D. Caspers
Swaledale, Iowa
Iowa Pork P r o d u c e r s
Association

Fernando Chavarria
Rolling Meadows, Illinois
U.S. Hispanic C h a m b e r
of C o m m e r c e

Richard E. Leach
Saginaw, Michigan
Michigan Farm Bureau

Noelle A. Clark
Lansing, Michigan
National Federation of
Independent BusinessMichigan

Barry A. Mumby
Fulton, Michigan
Michigan Soybean
Association
Merlin D. Plagge
W e s t Des Moines, Iowa
Iowa Farm Bureau

Susan E. Funk
Detroit, Michigan
National Association of
W o m e n Business O w n e r s Michigan C h a p t e r

Kenneth G. Stremlau
Mendota, Illinois
National Farmers
Organization

21

J. Paul Jordan
Milwaukee, W i s c o n s i n
Milwaukee Minority
C h a m b e r of C o m m e r c e
Susan M. Larson
Chicago, Illinois
National Association of
W o m e n Business O w n e r s Illinois C h a p t e r
Eleanore A. Levy
W e s t Des Moines, Iowa
National Association of
W o m e n Business O w n e r s Iowa C h a p t e r
D. Larry Sherman
Birmingham, Michigan
Michigan Retailers Association
Toby B. Shine
Spencer, Iowa
Iowa Association of Business
and I n d u s t r y
Robert J. Stevens
C o l u m b u s , Indiana
Member-at-Large
Jude M. Werra
Brookfield, W i s c o n s i n
Wisconsin Manufacturers
and Commerce

Silas Keehn
President
William C. Conrad
First Vice President
Central Bank
Activities

Charles L. Evans
Senior Research Economist
and Research Officer
Kenneth N. Kuttner
Senior Research Economist
a n d Research Officer

Economic Research
and Information Services

Robert H. Schnorbus
Senior Business Economist
a n d Research Officer

Karl A. Scheld
Senior Vice President
and Director of Research

Daniel G. Sullivan
Senior Research Economist
a n d Research Officer

Economic Research

Officers

William A. Testa
Senior Regional Economist
and Research Officer

David R. Allardice
Vice President a n d
Assistant Director of Research
Gary L. Benjamin
E c o n o m i c Adviser
a n d Vice President

A p p o i n t m e n t s to a n d p r o m o t i o n s within the Federal
Reserve Bank's official staff are m a d e by the Bank's board of

Information Services
Nancy M. Goodman
Vice President
Statistics,

directors. The board a p p o i n t s the Bank's president (chief exec-

Larry R. Mote
E c o n o m i c Adviser
a n d Vice President

Jean L. Valerius
Vice President

Steven H. Strongin
E c o n o m i c Adviser
a n d Vice President

utive officer) a n d first vice president (chief operating officer) to

Supervision and
Regulation and Loans

five-year terms, subject to approval by the Board of Governors.
The primary activities of the Chicago Reserve Bank
are divided into eight functional areas, overseen by senior vice

Anne Marie L. Gonczy
Senior Economist a n d
Assistant Vice President

presidents w h o report t o the Bank's president a n d first vice
president.

An additional function, the Auditing D e p a r t m e n t ,

reports directly to the b o a r d of directors' Audit Committee. The

Douglas D. Evanoff
Senior Research Economist
and Research Officer

Bank's senior officers together form the Management Committee
a n d determine the Chicago Reserve Bank's strategic direction.

Franklin D. Dreyer
Senior Vice President
Supervision
and Regulation
Barbara D. Benson
Vice President
James A. Bluemle
Vice President
David S. Epstein
Vice President
Roderick L. Housenga
Vice President

Federal Reserve
Bank of Chicago
Management
Committee, from left
to right: Silas Keehn,
Richard Anstee,
William Conrad,
Karl Scheld, William
Gram, George Coe,
Charles Furbee,
Jerome John, Roby
Sloan, Franklin Dreyer,
Carl Vander Wilt.

22

Geoffrey C. Rosean
Vice President
A. Raymond Bacon
Assistant Vice President
William A. Barouski
Assistant Vice President

Services to Depository
Institutions

Electronic Services
Wayne R. Baxter
Vice President

Operations and
Cheek Services

Stephen M. Pill
Vice President a n d
Data Security Officer

Charles W. Furbee
Senior Vice President
Cash and Fiscal Agency

Robert A. Bechaz
Assistant Vice President
John L. Bergstrom
Assistant Vice President
George M. Gregorash
Assistant Vice President
Douglas J. Kasl
Assistant Vice President
Barbara T. Kavanagh
Assistant Vice President
William H. Lossie, Jr.
Assistant Vice President

James M. Rudny
Assistant Vice President

William A. Bonifield
Vice President

Federal Reserve System
Securities Product
Office
Dara L. Hunt
Assistant Vice President a n d
Securities Product Manager

Office of the
General Auditor

Valerie J. Van Meter
Assistant Vice President

Guadalupe Garcia
O p e r a t i o n s Officer

Robert M. Casey
Assistant General Auditor

Support Functions

Lawrence J. Powaga
Assistant Vice President

Jerome F. John
General Auditor

Kathleen H. Williams
Assistant Vice President

Jerome D. Nicolas
Assistant Vice President

Office of the
General Counsel

Check Services

Automation and
Communications Services

Diane S. Noble
Assistant Vice President

George E. Coe
Senior Vice President

William H. Gram
Senior Vice President, General
Counsel, and Secretary

Operations Administration
James A. Nelson
Assistant Vice President
Patrick J. Tracy
Assistant Vice President
Barbara A. Van Den Bossche
Assistant Vice President
Daniel L. Westrope
Assistant Vice President

Automation Support

Legal Services

Angelina S. Chin
Assistant Vice President

R. Steve Crain
Assistant Vice President

Erich R. Mueller
Operations Officer

Elizabeth A. Knospe
Assistant Vice President and
Assistant General Counsel

Brenda D. Ladipo
Assistant Vice President

Regional Offices

Frank S. McKenna
Assistant Vice President

David R. Starin
Vice President

Yurii Skorin
Assistant Vice President a n d
Assistant General Counsel

Des Moines
Gay Whiting
Assistant Vice President
Alicia Williams
Assistant Vice President
Kathleen E. Benson
Examining Officer

Karen L. Rosenberg
Assistant Vice President

Anna M. Voytovich
Assistant Vice President a n d
Assistant General Counsel

L. Edward Ketchmark
Assistant Vice President

Network Management
Control Center

Office of the Rank
Secretariat

Indianapolis

Thomas M. Matsumoto
Assistant Vice President

Joan M. De Rycke
Assistant Vice President and
Assistant Secretary

Donna M. Yates
Assistant Vice President
Milwaukee

David E. Ritter
Assistant Vice President

Anthony J. Tempelman
Assistant Vice President

Robert J. Sandusky
Systems Officer

Detroit Rranch and
Electronic Services

Financial and
Management Services

Roby L. Sloan
Senior Vice President a n d
Branch Manager

Carl E. Vander Wilt
Senior Vice President a n d
Chief Financial Officer

Robert D. Lauson
Vice President

Detroit Rranch

Accounting Services

Kenneth R. Berg
Assistant Vice President

Yvonne H. Montgomery
Vice President

Richard P. Bush
Vice President

Gerard J. Nick
Vice President

Patrick A. Garrean
Assistant Vice President

Maria Semedalas
A c c o u n t i n g Officer

William J. O'Connor
Assistant Vice President

Joseph R. O'Connor
Assistant Vice President

Ranking Services

Betty P. Chow
Staff D e v e l o p m e n t Officer
Maureen A. Cummings
I n f o r m a t i o n Processing Officer
Michael R. Jarrell
E x a m i n i n g Officer
John M. Montgomery
Examining Officer
John A. Valenti
I n f o r m a t i o n S u p p o r t Officer
Loans and Reserves

Glen Brooks
Vice President

Richard L. Simms, Jr.
Assistant Vice President

Theodore E. Downing, Jr.
Assistant Vice President

F. Alan Wells
Assistant Vice President

Management Services

Brian D. Egan
O p e r a t i o n s Officer

Glenn C. Hansen
Vice President

Robert M. Marable
O p e r a t i o n s Officer

Margaret A. Koenigs
Assistant Vice President
Jeffrey B. Marcus
Assistant Vice President

23

Support Services
Richard P. Anstee
Senior Vice President
Administrative and
General Services

Kristi L. Zimmermann
Assistant Vice President
Tyler K. Smith
O p e r a t i o n s Officer
Check Adjustment
Richard F. Opalinski
Assistant Vice President
Human Resource
Services
Thomas G. Ciesielski
Vice President
Sheryn E. Bormann
Assistant Vice President
Angela D. Robinson
Personnel Officer

Executive Changes

Directors

David W. Fox and A. Charlene Sullivan

Members of the Federal Reserve Bank
of Chicago's board of directors are selected
to represent a cross section of the Seventh
District economy including consumers, in-

• James A. Nelson to Assistant Vice Presi-

elected to second three-year terms as

dent, Supervision and Regulation.

directors.

Anna M. Voytovich to Assistant Vice

• J. Michael Moore redesignated Branch

President and Assistant General Counsel.

Chairman.

Daniel L. Westrope to Assistant Vice

dustry, agriculture, services, labor, and vary-

Florine Mark (President and Chief Exec-

President, Supervision and Regulation.

ing sizes of commercial banks. The nine-

utive Officer, The W W Group in Farm-

m e m b e r b o a r d i n c l u d e s three b a n k e r s

ington Hills) and Charles W. Weeks

and three nonbankers elected by member

(President and Chief Executive Officer of

banks.

Three additional nonbankers are

Citizens Banking Corporation in Flint)

appointed by the Board of Governors, which

appointed directors, replacing Beverly

also designates the Reserve Bank chairman

Beltaire and Daniel R. Smith.

and deputy chairman from among its
three appointees.
Similarly, the Board of Governors

appointed to second three-year terms as
Branch directors.

meets quarterly to discuss business and

The Branch board selects its own chairman

financial conditions with the Board of

each year.

All Reserve Bank and Branch

Governors in Washington, D.C., is com-

directors serve three-year terms, with a

prised of one m e m b e r from each of the

two-term maximum.

12 Federal Reserve Districts.

Branch effective in 1993 were:

Each year

the Chicago Reserve Bank's board of directors selects a representative to this
group.

Eugene A. Miller, who served as

the Seventh District's representative in
• Richard G. Cline redesignated Chairman
and appointed to a second three-year

1992 and 1993, was reappointed by the
Chicago board for 1994.

term as a director.
Robert M. Healey redesignated Deputy
Chairman.
Donald J. Schneider and Arnold C. Schultz
elected directors.
• J. Michael Moore redesignated Branch
Chairman and appointed to a second
three-year term as a Branch director.
• N o r m a n F. Rodgers appointed to a sec-

councils, w h o are selected from nominations by Seventh District small business
and agriculture organizations, served the
third year of their terms in 1993. T h e
councils provide a vital communication
link between the Bank and these important sectors.

Officers
pointments and elections to terms beginning in 1994 were announced:
Richard G. Cline redesignated Chairman.
Robert M. Healey redesignated Deputy
Chairman and appointed to a second
three-year term as a director.

Economist and Research Officer, Eco-

nomic Research.
Kenneth N. Kuttner to Senior Research
Economist and Research Officer, Economic Research.
Robert M. Marable to Operations Officer,
Detroit Branch.
Daniel G. Sullivan to Senior

Research

Economist and Research Officer, Economic Research.
Frederick S. Dominick, Vice President and Assistant Branch Manager, Detroit
Branch, retired in 1993 after 41 years of

Members of the Bank's two advisory

ond three-year term as a Branch director.
At year-end 1993, the following ap-

m Douglas D. Evanoff to Senior Research

Economist and Research Officer, Eco-

lected by the Chicago Reserve Bank board.

at the Chicago Reserve Bank and its Detroit

Brian D. Egan to Operations Officer,

Charles L. Evans t o Senior Research
Advisory Councils
The Federal Advisory Council, which

Director appointments and elections

President, Electronic Services.

nomic Research.

Four additional directors are se-

Branch.

Valerie J. Van Meter to Assistant Vice

Detroit Branch.

• Charles E. Allen and William E. O d o m

selects three n o n b a n k e r s to serve on the
seven-member board of the Bank's Detroit

New officers appointed by the board
in 1993 were:

The Bank's board of directors acted
on the following promotions within the
official staff during 1993:
•i Yvonne H. Montgomery to Vice President, Detroit Branch.
Barbara T. Kavanagh to Assistant Vice
President, Supervision and Regulation.

24

service to the Bank.

From Rust to Robust:
The Midwest Responds
Data Sources—Graphs 1-5

U.S. Industrial Production Index,
Federal Reserve Board; Midwest
Manufacturing Index, Federal
Reserve Bank of Chicago; U.S.
and foreign employment, U.S.
Department of Labor, Bureau
of Labor Statistics; capital
expenditures, U.S. Department
of Commerce, Bureau of the
Census, Survey of Manufacturers and Census of Manufacturers, various issues; estimated
efficiency gains, Federal
Reserve Bank of Chicago.

Head Office
2 3 0 S o u t h La Salle Street
P.O. Box 8 3 4
Chicago, Illinois 6 0 6 9 0 - 0 8 3 4

Detroit Branch
160 W e s t Fort Street
P.O. Box 1059
Detroit, Michigan 4 8 2 3 1 - 1 0 5 9

Des Moines Office
6 1 6 T e n t h Street
P.O. Box 1903
Des Moines, Iowa 5 0 3 0 6 - 1 9 0 3

Indianapolis Office
8 3 1 1 N o r t h P e r i m e t e r Road
P.O. Box 2 0 2 0 B
Indianapolis, Indiana 46206-2020

Milwaukee Office
304 East State Street
P.O. Box 3 6 1
Milwaukee, Wisconsin 53201-0361

FEDERAL RESERVE BANK
OF CHICAGO

For a d d i t i o n a l copies of this r e p o r t ,
c o n t a c t the Public I n f o r m a t i o n C e n t e r ,
Federal Reserve Bank of Chicago,
at 3 1 2 - 3 2 2 - 5 1 1 1 .

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