Full text of Annual Report of the Federal Reserve Bank of Chicago : 1997 Annual Report : Electronic Payments: The Time is Now, The Sky's the Limit

View original document

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

1997 Annual Report Federal Reserve Bank of Chicago

Electronic Payments
the time is now
the sky's the limit

CONTENTS
President's Message

Electronic payments:
The sky's the limit

1997 Highlights

Operations Volumes

Financial Statements

Directors

Advisory Councils

Officers

OUR MISSION

OUR VISION

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 Washington, D.C.,
serve as the nation's central bank. The
role of the Federal Reserve System, since
its establishment by an act of Congress
passed in 1913, has been to foster a
strong economy, supported by a stable
financial system.

• Further the public interest by fostering a
sound economy and stable financial system

To this end, the Federal Reserve Bank
of Chicago participates in the formulation
and implementation of national monetary
policy, supervises and regulates statemember banks, bank holding companies and
foreign bank branches, and provides financial
services to depository institutions and the
U.S. government. Through its head office in
Chicago, branch in Detroit, regional offices
in Des Moines, Indianapolis and Milwaukee,
and facility in Peoria, the Federal Reserve
Bank of Chicago serves the Seventh Federal
Reserve District, which includes major
portions of Illinois, Indiana, Michigan and
Wisconsin, plus all of Iowa.

• Live by our core values of integrity, respect,
responsibility and excellence

• Provide products and services of unmatched
value to those we serve
• Set the standard for excellence in the Federal
Reserve System
• Work together, value diversity, communicate
openly, be creative and fair

President's Message

"THE CHECK'S IN THE MAIL"

We've all

h e a r d this excuse—or even u s e d it ourselves. To some, the
durable popularity of this expression is just one more reminder
t h a t p a p e r - b a s e d p a y m e n t s — l i k e death a n d t a x e s — a r e a
p e r m a n e n t part of the national landscape. Despite the continued popularity of checks, I believe we're approaching a
t u r n i n g point for electronic payments. After decades of unfulfilled promise, electronic payments are tantalizingly close to
achieving critical mass. The logjam has broken a n d we're
starting to see a flood of new products, providers, and users.
To be sure, I don't expect to see a checkless society in

Like the economy, the Chicago Fed was very successful
during 1997. (See page 16 for more information on the Bank's
1997 accomplishments.) Our achievements would not have
been possible w i t h o u t the o u t s t a n d i n g efforts of our staff
members as well as the invaluable guidance of our directors
in Chicago and Detroit, who unselfishly gave their time and
expertise to the Bank. In particular, I would like to t h a n k
three directors who completed their service as board members
in 1997: Stefan Anderson and Thomas Dorr from our Chicago
board and Charles Weeks from our Detroit board.
We're proud of our accomplishments during 1997 and

the foreseeable future. The check continues to be an effective

look forward to the future with confidence. The Chicago Fed's

and well-liked m e d i u m for m a k i n g p a y m e n t s — d u e in part

vision reaffirms our mission to serve the public interest and

to the Fed's nationwide check-clearing system. But it appears

commits us to setting the standard for excellence in the Federal

that electronic payments are much closer to finally achieving

Reserve System and providing services of unmatched value.

their potential.

We made substantial progress in achieving these goals during

W h y is this important? I firmly believe our financial

1997, and we're committed to p e r f o r m at even higher levels

system is e n h a n c e d by the use of efficient, cost-effective

d u r i n g 1998. Through these efforts, the Bank will assure its

electronic payments. For this reason, the shift to electronics

continued success for many years to come.

is very m u c h in keeping with the Fed's mission to foster a
healthy, growing economy and a stable financial system. A
recent Federal Reserve System study reinforced this idea by
recommending that the Fed take a more active role in fostering

Michael H. Moskow, President

the shift to electronic payments.

March 25, 1998

To do that at the Chicago Fed, we're providing improved
electronic products and aggressively marketing them. We've
established a task force to study how to promote the development and usage of electronic alternatives. We're also continuing
efforts to educate people about the benefits of electronic
payments — using tools such as this annual report. The growth
potential for electronic payments is tremendous, and we intend
to be a leader in making that potential a reality.
Tooking back on 1997, the U.S. economy performed at
a very high level. Real GDP growth was 3 3 A percent; inflation
as m e a s u r e d by the core C o n s u m e r Price Index (which excludes food and energy prices) increased 2V4 percent; and
the unemployment rate in the fourth quarter averaged 4 3 A
percent. In 1998, we expect that real GDP growth will continue
at a respectable, but more sustainable, rate and that inflation
and unemployment will continue to be favorable.

From left: First Vice President William Conrad,
President Michael Moskow, Chairman Lester McKeever,
and Deputy Chairman Arthur Martinez

Electronic PAYMENTS:

The Sky's the L I M I T
Gold. Silver. Paper currency. Checks. Plastic. Electronic

The committee, headed by Federal Reserve Board

blips. The face of money in the U.S. has undergone

Vice Chair Alice M. Rivlin, was formed to study the Fed's

significant change over time. Never has that been more

role in the payments system. After soliciting the views

apparent than today.

of representatives from depository institutions, third-party

In 1997, more than $2.4 trillion changed h a n d s

service providers, consumers, retailers and academics,

each day in America. That is not surprising given a

the committee recommended the Fed take a more aggres-

healthy economy, a bull market on Wall Street, low

sive role in encouraging development of and transition

interest rates and the highest employment level in 24

to electronic payments.

years. What may be surprising, however, is the way we

In collaboration with both providers and users,

paid for those purchases. Electronic payments—financial

the Fed is focusing on key issues related to electronic

transactions that move money between parties electron-

payments such as the legislative and operational frame-

ically rather than through physical exchange of cash or

work, and the need for uniform standards and broad-

checks—are incrementally, but indelibly, weaving their

based education. Like the transition from the horse and

way into the fabric of our economy.

buggy to the automobile, the shift to electronic payments

More than 90 percent of the volume of all payments

requires a better i n f r a s t r u c t u r e — t h e highways, gas

m a d e in the U.S. today still involves cash or checks.

stations, dealerships, rules of the road and driving

However, electronic transactions account for about 90

schools—before we can expect even greater traffic.

percent of the value of all payments, w i t h financial

In the following pages, we take a closer look at

institutions, businesses and governments generating

how banks, businesses and consumers in the Chicago

the lion's share of the total.

Fed's Seventh District are taking advantage of elec-

Where does the Federal Reserve fit into this scenario?
The Fed's mission is to foster a sound economy and stable
financial system. As part of that mission the Fed has
worked throughout our history to preserve the integrity
of the U.S. p a y m e n t s system, keeping it reliable and
efficient—no matter what form money takes. With the
recent release of the report of the Committee on the
Federal Reserve in the Payments Mechanism, the Fed
further defined its responsibility.

tronic payments.

Midwestern

BANKERS

are

using electronic payments to serve

C U S T O M E R S better

IOWA TOWN HARVESTS BENEFITS
OF ELECTRONIC PAYMENTS
In Mechanicsville, Iowa, electronic payments are
as common as the farm fields surrounding town.
Working with the Chicago Fed, the local

MECHANICSVILLE TRUST & SAVINGS BANK
has aggressively shifted to electronics, enabling
local residents to take advantage of a variety of
convenient payment services.
BOB STEEN, president of the bank and a
farmer at heart (above left), has led the effort.
Bank staff members use Fedline software to gain
access to a wide variety of Chicago Fed electronic
payment services. These allow the bank to offer
customers services such as direct payment of phone
and utility bills, and direct deposit of paychecks
and benefit payments such as Social Security.

The bank also has a more efficient internal
check-processing operation because of Federal
Reserve products such as Electronic Check Presentment and sophisticated check imaging.
Many of the 1100 residents in this agricultural
community 150 miles east of Des Moines appreciate the bank's efforts. After bank staff began
offering direct deposit and then worked with the
local phone company and city government to
offer direct bill payment, customers increasingly
gained confidence in electronic payments.
"Electronic payments have worked in Mechanicsville," said Steen. "If they can work here, they
can work elsewhere."

BANKS,

once

cautious in embracing the next wave in payment methods,

now are among the principal users of and most vigorous investors in electronics.
Witness the growth of Automated Clearing House (ACH) and Fedwire funds
REDUCED PRICES PROMOTE
ELECTRONIC PAYMENTS
Since 1995, the Federal Reserve has repeatedly lowered the prices of its electronic
payments services in an attempt to encourage the shift from paper to electronics.
The price changes are expected to
save Automated Clearing House (ACH) and
Fedwire customers a combined $42 million
in fees by the end of 1998.
Fedwire funds transfer fees were reduced by 11 percent in January 1998,
and fees for ACH transactions originated
by financial institutions decreased by an
average of 12.5 percent. Some ACH fees
have been reduced by as much as 73 percent in the last two years.
As a result, processing volumes have increased substantially, as illustrated below.

transfer services as fast, secure, and efficient alternatives (see charts at left). Equally
important evidence is the rapid proliferation of direct electronic links between financial
institutions and their customers. Spending by banks on electronic systems was $19
billion in 1997 alone, according to Newton, Mass. -based research and consulting firm,
The Tower Group.

THE ELECTRONIC HANDWRITING IS ON THE WALL
The Tower Group also found that while delivery of banking services through
branches is expected to remain stable over the next five years, more than 90 percent of
transaction growth will come from off-premise channels such as retail call centers,
online banking, and bill-payment services. Retail customers, pressed for time, accustomed to ATMs and increasingly computer literate, are starting to create demand
for electronic banking options.
For better treasury control, corporate clients are increasingly automating their cash
management functions and are looking for products that provide direct connectivity
to their financial institutions, especially for initiating electronic payments. Other
commercial customers are seeking additional ways to reduce cash and check use at
point of sale.

ACH Items Processed by the
Federal Reserve Bank of Chicago

Virtually all bank customers will feel the effects of the U.S. Treasury's goal to end
the flow of paper checks in and out of Washington. Individuals receiving government payments or benefits, companies conducting business with the Treasury and
employers withholding taxes—as well as the banks that service them—will enter the
electronic era.
Although the investment in developing alternative channels and sophisticated
products is high, future cost savings derived from increased electronic volume are
potentially enormous. According to the National Automated Clearing House Association, bankers save 80 cents for each electronic transfer that eliminates a paper check.
Perhaps most importantly, bankers realize they need to take the initiative to offer
electronic products or their non-bank competitors will. Banks run the risk of losing
business to software giants, credit card companies and telecommunications providers,
which already circumvent bank involvement by tapping the Internet and other existing
payment channels.
The banking industry's sources of customers and profit will undergo a vast

Fedwire Funds Transfers Processed
by the Federal Reserve Bank of Chicago

transformation over the next decade, according to William H. Phillips, director of policy
development for the American Bankers Association.
"Financial institutions must examine where their customers will come from in
the future and what they must do to create and sustain those relationships," he said.
"Both large and community banks have no choice but to become electronically adept."

THE FED FACILITATES THE TRANSITION
For most of its life, the Federal Reserve has been a leader in implementing new
payment technologies and supporting banks' migration to electronics. The earliest
version of Fedwire was coordinated by the Chicago Fed 80 years ago. Today, Fedwire
is an electronic interbank payments system for rapid transfer of large-value payments
made primarily by financial institutions, businesses and governments.
In the 1970s, the Fed launched its ACH service for recurring small-value payments
initiated by businesses and consumers. Today, the Federal Reserve processes nearly 80
percent of all commercial ACH transactions and 100 percent of government transactions.

Linking to a variety of Federal Reserve services—including Fedwire and ACH—
requires little more than connecting the bank's computer system to the Federal Reserve
via Fedline software.
Community financial institutions such as Iowa's Mechanicsville Trust & Savings
Bank benefit from such connections.
"Being online with the Federal Reserve has allowed us to be competitive, to affordably deliver services to our customers," said President Bob Steen. "By controlling the

THE CHECK I S STILL IN THE MAIL

flow of paper, we spend less time on manual handling, while increasing accuracy and

Even with the solid growth of electronic
payments, Americans still wrote about
63 billion checks in 1997. The Federal
Reserve processed nearly one-third of
them. Today, the Fed has vastly improved
efficiency by implementing cutting-edge

providing services such as direct deposit that mean something to our customers."
For a large bank such as First Chicago NBD Corporation, "Electronic payments
using ACH and Fedwire allow us to satisfy our customers' need for speed and same-day
settlement," said Michael Merony, senior vice president.

BANKING ON INNOVATION
The Fed is committed to protecting consumers, but its
goal is also to avoid developing overly restrictive regulations,
according to Jack Wixted, head of the Chicago Fed's Supervision
& Regulation Department.
"Financial institutions should be free to innovate and allow
market forces to determine acceptance," he said.
And those innovations are many and varied, including:
• A wealth of products that allow commercial clients to initiate
electronic payments to employees or payees anywhere in the
world using their PC, telephone or mainframe. These products
facilitate a range of payment forms, including wire transfer,
ACH and financial Electronic Data Interchange (EDI).
• Intranets that enable companies without EDI capability to
send and receive payments electronically using Windows®-based
secure electronic forms.
• Proprietary networks to support Internet banking applications and ensure security
and accuracy.
• Electronic bill presentment services that allow customers to view and pay bills from
participating merchants over the Internet.
• Round-the-clock call centers that enable customers to authorize bill payment using
a touch-tone phone.
• Online banking, which lets account holders dial up the bank from their personal
computer to access account information and pay bills.
• An array of debit cards and stored-value cards, including smart cards for Electronic
Benefits Transfer.

MOVING FORWARD
Bankers are working hard to tap the potential of electronics, but much remains
to be done before they can achieve widespread use and desired economies of scale,
said Dick Anstee, senior vice president at the Chicago Fed.
"Security, privacy and fees are key customer concerns," he said. "That's in addition to industry issues such as the lack of standards, rapidly changing technology,
and a large investment in current paper-based technology. We're committed to
working with banks to overcome the barriers that have hampered the growth of
electronic payments."

technologies that reduce paper flow, as
well as banks' transportation, handling
and storage costs. These include:
• Electronic cash letter (ECL) Banks
electronically capture pertinent information from checks and then transmit
the data via electronic file to the Federal
Reserve in advance of sending the
actual checks.
• Electronic check presentment This
works the same way as ECL, but for outgoing transmission of check data from
the Federal Reserve to paying banks.
• Check truncation After electronically
sending check information, the financial
institution of first deposit stores the
checks rather than routing them through
the system.
• Check imaging Digitized images of
the front and back of each check are
recorded on CD-ROM or magnetic tape,
then sent either to a paying bank or
kept at the bank of first deposit.

Electronic payments
are a

BOON

to B U S I N E S S

in a variety of ways

THE ELECTRONIC SIDE OF SEARS
Need a new hammer? SEARS, ROEBUCK A N D
C O . sells tools via an Internet Web site.
Sears, whose chairman, Arthur Martinez, serves
as a Chicago Fed director, uses a variety of electronic methods to better serve customers and suppliers while improving operating efficiency. Sears
pays about 2,500 vendors electronically. In fact,
the company averages about 6,000 financial EDI
(Electronic Data Interchange) payments a month,
worth roughly $1 billion.
EDI technology also lets the nation's second
largest retailer communicate a wide range of sales
data. People like Director of Electronic Commerce
J U D Y K E R C H (above left) oversee the use of EDI
to communicate purchase orders, purchase order
changes, invoices, and advance shipping notices.

The 70 million EDI transactions Sears carried
out in 1997 resulted in lower labor costs, less
paperwork, and more efficient internal operations.
"When you look at the cost benefits to the
organization, it's been far in excess of $100 million
since we implemented EDI in 1990," said Chief
Financial Officer Gary Crittenden.
In related areas, roughly 85 percent of salaried
employees and 50 percent of non-salaried employees have their paychecks deposited directly.
Automated cash-dispensing stations have been
installed at many U.S. full-line stores, and the
company is working on better use of the Internet
to manage vendor relationships.

BUSINESSES

are using electronic payments to lower operating

costs, streamline operations and tap new markets. Many companies credit the move
with helping them stay competitive.
Manufacturers, retailers or service providers are taking advantage of new technology
and sophisticated tools. These firms are engaging in electronic transactions on three
major fronts: behind-the-scenes treasury management through their banks, businessto-business commerce with trading partners and business-to-consumer sales.
I N D I A N A FIRM B U I L D S
S O L I D ACH CONNECTION
Shelter Components started working
with its bank to take advantage of the
Chicago Fed's ACH because it's an efficient payment method. But in the process, the Elkhart, Ind.-based supplier
of building products to the manufactured housing industry found ACH to be a
valuable tool for managing cash flow.
ACH lets the firm coordinate the
timing of payments to suppliers to match
up with payments received from customers. Thus, Shelter can minimize shortterm borrowing needs. The company,
a subsidiary of Kevco, Inc., finds the
certainty of ACH payments a real
plus—and also a benefit to customers
and suppliers.
Shelter's electronic access to its
bank is also helpful. With it, the company can track its daily cash activity.
But the real benefit is at month's end.
Shelter's bank sends the company an
electronic file that can be downloaded
with only minor changes before being
entered into the firm's general ledger.
Shelter gets the information it needs,
in the form it wants, in only a day or two.
With a paper-based system, it took 9 or
10 days to receive the information.

ELECTING ELECTRONICS
The drive for higher productivity, lower business costs and financial control—
not to mention a burgeoning volume of paperwork—are among companies' reasons
for automating their treasury management functions. In the process, many businesses
are streamlining payment operations by reducing the number of checks issued and
going online with their banks.
While many large corporations, especially those with accounts at several financial
institutions, create their own software in house, middle-market businesses often turn
to off-the-shelf products offered by their primary bank. With these products, cash
managers—using PC workstations or mainframes—can initiate global and domestic
payments in a variety of forms, including wire transfer and automated clearing house
(ACH), and then transmit the information to their bank in a single electronic file.
Many programs also incorporate financial Electronic Data Interchange (EDI)
features, which enable companies to send detailed remittance information along
with electronic payment.
The majority of corporate domestic payments can be transferred over the Federal
Reserve's cost-efficient ACH network.
"With ACH, it's easy for us to make payments electronically," said Mark Neilson,
chief financial officer for Shelter Components Corporation, Elkhart, Ind. "We see
improved efficiency and cost savings. We do not have to handle a check through its lifecycle and can eliminate the expense of postage, reconcilement and losses through fraud."
American businesses are expected to reduce check volume one to four percent
per year as a result of broader use of electronic funds transfer. One of the forces driving
the increased use of electronics is the government mandate that businesses pay taxes
electronically. In July 1997, businesses withholding $50,000 or more for employee
taxes were required to remit those payments electronically.

E-C0MMERCE TAKES OFF
Today, more and more companies also receive payments
electronically. This system of disbursement and collection of
funds spills into the arena of electronic commerce.
Some of the country's biggest buyers are the catalysts behind
this trend, requiring their vendors to accept electronic payment as
a condition of sale. These large companies say electronic payment
not only saves them time and money over paper, it gives them
negotiating clout. Many businesses are using electronic payments
to obtain vendor discounts.
Similarly, online capability will be essential for companies
conducting business with the federal government. As of January,

1999, the Treasury will pay electronically all businesses providing products and services
to the government. The Treasury says it can issue an electronic payment for two cents
versus forty-three cents for a paper check. Recipients also benefit because electronic
funds transfers are 20 times less prone to error.

CONDUCTING BUSINESS ON THE WEB
The area of greatest opportunity for e-commerce lies
in the Internet. Today, most businesses use the Internet
only for quoting, bidding, placing orders and invoicing.
Less than five percent of business-to-business Web sites
are set up for direct sales.
That may change as various technologies are applied
to Internet payments. Some approaches seek to apply to
Internet transactions the same sophisticated mathematical
devices—such as encryption and digital signatures—that
protect electronic payment file transfers. Still other alternatives involve proprietary networks that provide corporate-to-corporate payment information with limited
bank involvement.
Businesses also are integrating electronic payment
vehicles into their consumer marketing. Companies are
participating in point-of-sale debit card programs, issuing
proprietary stored-value cards, encouraging direct debit and retooling their Web sites
to promote online sales. Different businesses are taking different approaches:
• For retailers, debit cards speed up checkout, reduce processing charges, improve
funds availability and guarantee payment.
• Phone companies, office service companies and transit systems are marketing
stored-value cards to capitalize on consumer need for convenience.
• Utilities, insurance companies and lenders are urging consumers to sign up for
direct debit programs to ensure receipt of payments and reduce billing and collection expenses.

THE POTENTIAL OF THE INTERNET
Many companies are exploring the potential of the Internet. The total value of all
business-to-consumer e-commerce transactions is expected to increase dramatically
during the next three years. Hot Internet sellers include retailers, car makers, software vendors and virtual businesses such as bookseller Amazon.com, whose only
market is online.
"So much opportunity exists today for businesses to benefit from electronic
payments," said Bill Conrad, Chicago Fed first vice president. "From the Internet to
electronic bill payment, a lot of things are possible. The time appears right to move
ahead more aggressively to take advantage of them."

CHICAGO FED PROMOTES ACH
In 1997, the Chicago Fed aggressively
promoted the benefits of the Automated
Clearing House (ACH), an electronic payment delivery system most often used to
process recurring, small-dollar payments
such as utility bills.
Numerous promotional and educational efforts were undertaken jointly with
other key players in the ACH industry.
The Chicago Fed's colleagues in promoting ACH in the Midwest include the
National ACH Association; the Wisconsin
ACH Association; the Midwest ACH
Association; the Mid-America Payment
Exchange; SHAZAM, Inc.; and The Payments Authority, Inc.
As a result of marketing and education efforts, 116 financial institutions
in the Seventh District began originating
ACH payments in 1997, bringing the
total number of ACH originators in the
District to 1,433.

CONSUMERS h a v e m o r e
e l e c t r o n i c p a y m e n t OPTIONS
t h a n ever

ELECTRONIC PAYMENTS HIT HOME
FOR THE BROWN FAMILY
" I haven't received a paycheck in years, and
I haven't been inside a bank in almost as long,"
says Clark Brown, here with his wife, Dawn, and
daughters Katie, 10, and Kendra, 2, in front of
their Munster, Ind. home.
How does he do it? Electronically. Clark's paid
via direct deposit from his employer, Schneider
National, a Green Bay, Wis.-based trucking company. He and Dawn pay their credit card bills over
the phone by instructing the bank to transfer
funds. They use a debit card to pay for their
groceries and gas.

he's getting more confident and expects to be
doing a lot more banking on-line in the future.
Electronic payments are also a part of his work
as a truck-driving instructor. Donald Schneider,
president of Schneider National and a Chicago Fed
director, has emphasized the use of electronics
at the company. In addition to direct deposit, all
of Schneider's drivers have debit cards to pay for
fuel and repairs.
Both on the job and at home, electronic
payments offer Clark increased convenience and
efficiency.

"We feel safer carrying less cash," Dawn says.
"And with a debit card we avoid the interest charges
of credit cards and annual fees. It sure beats
writing a check."

"We don't have to go to the bank to deposit a
check or sit down to write checks to pay bills, or
worry about whether there's enough cash on
hand," he says. "It just wouldn't make any sense
to do i t any other way."

Clark likes checking bank balances on his home
computer. Though still concerned about security,

CONSUMERS

have more choices than ever. No cash in your pocket?

Swipe your debit card or stored-value card. Feel like paying bills at midnight? Put
down that pen and pick up the phone, turn on your PC or plop down in front of
interactive TV. Have an itch to go shopping? Log on to the Internet and don't forget
to pack your cybercash.
Thanks to technology and enterprising banks and businesses, these choices are
possible today, with many more on the way.

NIPPING AT THE HEELS OF CASH AND CHECKS
An increasingly popular electronic payment option for
consumers is debit cards, which immediately deduct payments from a bank account. U.S. financial institutions
have issued more than 205 million of these "pay as you
go" cards, with the number now increasing 40 percent to
45 percent each year.
Also on the rise are single-purpose stored-value cards,
which use magnetic strips to record a dollar balance that
is either pre-determined or established when the consumer
purchases the card. These pre-paid cards often are issued
for items costing less than $10, such as phone calls, transit
fares and photocopying. Another type of stored-value
card is the smart card, which replaces the magnetic strip
with a microchip with a memory and can be reloaded
through an ATM or special telephone. Some smart cards
can cover multiple types of purchases, including groceries,
gas and stamps.
Another popular electronic payment alternative is direct debit. With this conFOOD STAMPS GO ELECTRONIC

venience, banks are pre-authorized to move funds electronically from individual

The federal government is reguiring
states to distribute food stamp benefits
electronically by 2002. Illinois is at the
forefront of that effort with its LINK
program. Now, instead of paper stamps,
Illinois recipients receive a LINK card.
It's used to pay for food using pointof-sale (POS) machines in grocery and
convenience stores.
People like the program. More than
80 percent of recipients prefer the LINK
card over paper food stamps, saying it's
safer and easier to use. Retailers like
it too because it reduces paperwork,
accounting and administrative costs.
The new system is expected to
save Illinois $9.6 million a year, the
federal government $4 million a year
and recipients, who won't have to pay
for check-cashing services, $10.6 million
annually.

accounts to appropriate recipients on a certain day of each month. These transfers
typically include mortgage and car payments, insurance premiums, student loans,
even alimony. Among the advantages: not having to write checks, buy stamps, or
worry about payments arriving on time.
On the flip side, the most popular method of receiving funds is direct deposit.
About half of Americans authorize their employer to automatically deposit their paychecks into their bank account. Federal Reserve staff receive their salaries in this way
as do nearly all federal government employees. Many people also receive expense
reimbursements, commissions, dividends and pension payments through direct
deposit. In addition, 69 percent of Social Security recipients opt for electronic payment.
By January 1999, all government payments—with some exceptions including tax
refunds—will be delivered electronically. Direct deposit recipients don't have to worry
about their check being lost or stolen and can count on their money being in their
account on a certain date.

BYE, BYE, BRANCH?
Direct deposit eliminates one reason to physically visit the bank. Coupled with
the proliferation of ATMs and the advent of online banking, some predict that many
account holders might never need to set foot in a branch again.

Over the past two years, many bank customers have begun taking advantage of
electronic alternatives that literally place banking services at their fingertips. Many
banks nationwide operate call centers, providing live operators and automated voice
response units, up to 24 hours a day, seven days a week. Using a touch-tone phone,
customers can access accounts, apply for a loan, and authorize bill payment.
Online banking offers the same services through a person's home computer.
Customers use bank-provided software and a commercially available money management
program to point and click to pay bills.
Consumers also have the option of banking in cyberspace. While a handful of
virtual banks—that is, banks that exist only in cyberspace—currently operate on the
Internet, many brick-and-mortar banks have Web sites, with some conducting
business on the Web.
Even the trusty ATM is gaining super powers. The new generation of ATMs sells
everything from postage stamps and travelers checks to phone cards and gift certificates. And ATMs are showing up everywhere—in office buildings, health clubs,
supermarkets, convenience stores, hotels, restaurants, malls, even as freestanding
units on street corners. ATM cards have turned into money machines on their own,
functioning as debit cards at the gas pump and designated retailers.

OVERCOMING HURDLES
Despite so many electronic choices, surveys show a mere one to four percent of U.S.
households conduct banking transactions online. What's slowing down acceptance?
"We're all creatures of habit. And habits die hard," said Chicago Fed Senior Vice
President David Allardice. "Writing checks has become ingrained, part of our routine.
Add to that consumer questions about security, privacy, liability and the sometimes higher
cost of e-banking over traditional checking, and the allure of electronics can fade."
Security concerns may be more perceived than real. The

S H O W ME THE E-MONEY
Convenience. Time savings. Availability
of a broad array of products and services
any time of day. Many of the benefits
associated with electronic banking apply
to shopping on the Internet. Where they
differ is in payment. The overwhelming
majority of consumers who charge purchases over the Internet use credit cards.
However, alternatives are emerging.
Digital cash—stored and retrieved
online—can pay for Internet purchases.
Digital cash is especially useful for online
news and databases, whose cost of less
than a dollar makes it impractical for
credit card use. Another innovation is
the electronic check, which the consumer
generates on a computer, then digitally
signs and encrypts before electronically
forwarding for payment.

Federal Reserve System's Regulation E and the Electronic Fund
Transfer Act provide the framework for establishing rights and
liabilities in electronic funds transfer systems, including preautho-rized
transfers from a consumer's account. Banks, merchants,
third-party service providers, industry associations and the
Federal Reserve are all working together to protect consumer
interests. Encryption technology, PINs, digital signatures and
proprietary networks are just some of the safeguards for online
banking payments and Internet transactions.
"The outlook for electronic payments is bright," Allardice
concluded. "Consumer concerns such as security are being
addressed. Technology is making giant steps, and there are just
so many advantages for this safe, fast and efficient payment
method that consumers are bound to be attracted to using
electronics more and more."

Federal Reserve Bank of Chicago 1997 Highlights
• The Bank had a very successful year, achieving its critical
objectives while keeping expenses well below budget.

• Commercial ACH volume increased more than 15 percent.

• Six cultural transformation teams were established to assure
that the Bank's culture is aligned with its goals.

• The Check Department began processing government
checks using imaging technology and was selected as one of
the System's long-term archival sites.

• A task force was organized to examine issues related
to diversity.

• Cash Operations was the Federal Reserve's best currency
processor based on System-wide efficiency ratings.

• The Bank implemented a corporate measurement system,
which uses both quantitative and qualitative measures to
determine Bank results.

• The Fed System extended Fedwire hours to help reduce settlement risk in foreign exchange markets.

• The Bank played a leadership role on 20 System committees.
ECONOMIC RESEARCH
• The Research Department held a series of conferences
announcing the results of the comprehensive study, Assessing the
Midwest Economy: Looking Back for the Future.
• The Bank hosted a conference with the World Bank on
preventing banking crises.
• The Bank hosted the 33rd annual Conference on Bank Structure
and Competition, with the theme "Technology: Policy Implications for the Future of Financial Services."
• Economic Research staff had 43 papers published or accepted
for publication in leading scholarly journals and presented 183
papers to professional groups.
• Research Statistics met more than 94,000 report deadlines.
S U P E R V I S I O N A N D REGULATION
• Supervision and Regulation performed more than 770
inspections and examinations, one of the heaviest workloads
in the System.
• The Bank implemented new CRA examination procedures
for large banks.
• Supervision and Regulation implemented a risk-focused
approach to examinations.
• The Bank established a new risk management and payment
system risk function to coordinate all payment system risk
activities.

• The Government Securities Department developed the "Sell
Direct" service for the entire Federal Reserve System, handling
the sale of Treasury Securities for holders of the securities.
• The Bank was selected to direct the System-wide Business
Development Office, which coordinates financial services
marketing activities.
• A new centralized customer service call center opened and
by year-end was handling more than 6,000 calls a month.
• More than half of the 460 million checks processed by the
Detroit Branch were "electronic checks."
• The staff at the Detroit Branch suggested more than 450 ideas
to improve workflow, operations and quality, with 76 percent
of the ideas being implemented.
• The Des Moines Office moved to a new, more efficient building
located adjacent to the Des Moines airport.
• The Bank began distributing newly designed $50 bills.
SUPPORT
• The Bank converted to the National Book-Entry System, the
Fed System's new centralized computer processing application.
• The Bank's mainframe and LAN/WAN computer operations
were centralized to increase efficiencies.
• The Bank was one of three Reserve Banks that piloted for the
Fed System a new internal control framework developed by
the Committee of Sponsoring Organizations (COSO).
• The Bank worked closely with financial institutions as part
of an ongoing effort to help assure that their computer systems
are prepared for the century date change by Summer 1998.

• Supervision and Regulation processed 247 applications.

• The Bank conducted tours of its operations for more than
10,400 visitors.

F I N A N C I A L SERVICES

• Consumer and Community Affairs led the Mortgage Credit
Access Partnership to help promote fair treatment in the
home-purchasing process in the Chicago metropolitan area.

• The Bank fully recovered the costs of providing priced
financial services, including the cost of taxes and capital the
Fed would incur if it were a private firm.
• The Automated Clearing House (ACH) Department had the
lowest unit costs and highest recovery rate of all Reserve Banks.
• Electronic cash letter (ECL) volume increased by approximately
35 percent over 1996, bringing ECL volume to 28 percent of
total check volume.

• The Bank initiated a new performance management
system to more closely align Bank objectives with individual
employee goals.

OPERATIONS VOLUMES

Doltar Amount
1997
1996

Number of Items
1997
1996

Check & Electronic Payments
Checks, NOWs, &
share drafts processed

The Federal Reserve Bank of Chicago's
volumes of operations during 1997 re1.3 trillion

1.3 trillion

1.9 billion

1.8 billion

Fine sort & packaged
checks handled

64.1 billion

77.7 billion

120.3 million

152.8 million

use of electronic payments. The volume

U.S. government checks processed

41.4 billion

48.1 billion

40.7 million

48.1 million

of funds transfers and Automated Clearto rise. Food stamps processed decreas-

Automated Clearing House
(ACH) items processed*
Transfer of funds
Electronic cash letters processed

flected the System's continuing efforts
to improve efficiency and encourage the

ing House (ACH) transactions continued
2.2 trillion

2.2 trillion

687.1 million

657.9 million

37.0 trillion

33.8 trillion

16.8 million

15.6 million

181.7 billion

115.9 billion

524.3 million

377.9 million

ed because of the migration to the
Electronic Benefits Transfer program.
Federal tax deposits processed decreased
because of the continued use of the

Cash Operations

Electronic Federal Tax Payment System,

Currency received and counted

39.3 billion

35.9 billion

2.8 billion

2.6 billion

which is handled by ACH. Sell Direct

Unfit currency destroyed

10.8 billion

9.6 billion

831.2 million

801.9 million

is a new service the Chicago Reserve

759.8 million

777.4 million

5.0 billion

5.8 billion

Coin received and counted

Bank implemented in 1997 in which
the Bank sells Treasury Securities for
the holders of the securities.

Securities Services for Depository Institutions
Safekeeping balance December 31:
Definitive securities

12.7 billion

11.7 billion

Book-entry securities

282.5 billion

349.0 billion

3.1 billion

2.9 billion

78.7 million

110.2 million

7.2 trillion

7.1 trillion

979.4 thousand

4.0 billion

3.1 billion

1.6 thousand

Purchase & sale
Collection of securities
& other noncash items
Book-entry government securities

23.5 thousand
-

11.1 thousand

16.9 thousand
-

12.7 thousand

133.0 thousand 232.2 thousand
1.1 million

Loans to Depository Institutions
Total loans made during year

1.3 thousand

Services to U.S. Treasury and Government Agencies
Redemptions of definitive
government securities

37.4 million

189.3 million

3.2 thousand

6.3 thousand

Government coupons paid

3.8 million

35.3 million

11.7 thousand

11.4 thousand

46.8 billion

87.9 billion

1.5 billion

2.2 billion

Federal tax deposits processed
Food stamps redeemed
Sell Direct transactions processed

132.3 million

773.2 thousand 874.5 thousand
291.3 million
4.2 thousand

435.3 million
-

* The methodology for reporting the number of ACH items processed was different in 1997 than in 1996.
As a result, 1997 volume may be slightly understated in comparison to 1996 volume.

1997 Financial Statements

STATEMENT OF CONDITION
(in millions)

12/31/97

12/31/96

Assets
Year-to-year changes in Reserve Bank

Gold Certificates

assets and Liabilities largely reflect

Special Drawing Rights Certificates

general economic developments and

Coin

System monetary policy actions. By pur-

Items in Process of Collection

chasing securities in the open market
and making loans to depository institutions, the Federal Reserve increases
reserves, providing a base for monetary

Investments Denominated in Foreign Currencies

national economy's growth needs. In
1997, the Bank's total assets increased,

Accrued Interest Receivable
Interdistrict Settlement Account

accommodating an increase in deposits

Property and Equipment, Net

of depository institutions and fluctuations

Other Assets

1,069

900

Loans to Depository Institutions
U.S. Government and Federal Agency Securities, Net

and credit expansion in accord with the

1,140
979

773

1,537

46,293

42,727

1,989

2,296

438

385

157

143

149

in the interdistrict account that more
than offset a decline in currency in

Total Assets

51,757

49,534

40,531

44,858

circulation. Nationally, however, currency
outstanding increased in 1997.

Liabilities and Capital
Liabilities:
Federal Reserve Notes Outstanding, Net
Deposits:
Depository Institutions
Other Deposits
Deferred Credit Items
Statutory Surplus Transfer Due U.S. Treasury
Interdistrict Settlement Account
Accrued Benefit Cost
Other Liabilities
Total Liabilities

3,570

2,574

679

808

5,705

74
22

50,728

48,473

Capital:
Capital Paid-in

527

Surplus
Total Capital
Total Liabilities and Capital

537

502

524

1,029

1,061

51,757

49,534

STATEMENT OF INCOME
For the years ended Dec. 31, 1997 and Dec. 31, 1996 (in millions)

1996

1997

Interest Income:
Interest on U.S. Government Securities

Interest on Foreign Currencies
Interest on Loans to Depository Institutions
Total Interest

Income

2,696

2,604

A Reserve Bank's income is Largely a

by-product of monetary policy rather

than the pursuit of profit. Most of the

2,742

2,658

Bank's income is interest on its share
of the System's Open Market Account
portfolio of securities, and appropriately,

Other Operating Income (loss):

the vast majority of this income is turned
over to the U.S. Treasury each year.

Income from Services

Reimbursable Services to Government Agencies

(303)

(199)

Government Securities Gains, Net

more than offset a slight increase in

Other Income

interest on U.S. government securities.

Current income decreased slightly compared to 1996, primarily because of a net

Foreign Currency Losses, Net

Total Other Operating Loss

(186)

loss in foreign currency income, which

(77)

Operating Expenses:
127

126

Occupancy Expense

Equipment Expense

Salaries and Other Benefits

Cost of Unreimbursed Treasury Services
Assessments by Board of Governors
Other Expenses
Total Operating Expenses
Net Income Prior to Distribution

61
89

96
$

323

317

2,233

2,264

Distribution of Net Income:
Dividends Paid to Member Banks
Transferred to (from) Surplus
Payments to U.S. Treasury as Interest
on Federal Reserve Notes

(10)

1,587
582

2,211

Payments to U.S. Treasury as Required by Statute
$

2,233

2,264

1997 Financial Statements

STATEMENT OF CHANGES IN CAPITAL
For the years ended Dec. 31, 1997 and Dec. 31, 1996 (in millions)

Surplus

Capital Paid-in

Total Capital

Seventh District member banks are required to purchase capital stock in the
Federal Reserve Bank of Chicago equal

Balance at January 1, 1996
(9.4 million shares)

to six percent of their capital and surplus.

Net Income Transferred to Surplus

A six-percent annual dividend is provided

Statutory Surplus Transfer
to U.S. Treasury

on the paid-in stock, as specified by law.
The holding of stock does not carry with
i t the control and financial interest
conveyed to holders of common stock
in for-profit organizations. During 1997
the value of Bank capital decreased

Net Change in Capital Stock
Issued (1.3 million shares)
Balance at December 31, 1996
(10.7 million shares)

473

(13)

(13)
64

64
$

537

946

524

1,061

because of effects of consolidations

Net Income Transferred to Surplus

(10)

brought on by interstate banking.

Statutory Surplus Transfer
to U.S. Treasury

(12)

Net Change in Capital Stock
Redeemed (0.2 million shares)
Balance at December 31, 1997
(10.5 million shares)

(10)

(10)
$

527

502

The statements of income, condition, and changes in bank capital are prepared by
Bank management. Copies of full and final financial statements, complete with
footnotes, are available by contacting the Federal Reserve Bank of Chicago's Public
Information Center, P.O. Box 834, Chicago, Illinois 60690-0834,
312-322-5111.

1,029

March 11,

1998

To t h e B o a r d o f D i r e c t o r s
of the Federal Reserve Bank o f Chicago:
The management of the Federal Reserve Bank of Chicago (FRBC) is responsible
for the preparation and fair presentation of the Statement of Financial Condition,
Statement of Income, and Statement of Changes in Capital as of December 31,
1997 (the "Financial Statements"). The Financial Statements have been prepared
in conformity with the accounting principles, policies, and practices established
by the Board of Governors of the Federal Reserve System and as set forth in the
Financial Accounting Manual for the Federal Reserve Banks, and as such, include
amounts, some of which are based on j u d g m e n t s and estimates of management.
The management of the FRBC is responsible for maintaining effective internal
controls over financial reporting and the safeguarding of assets as they relate to
the Financial Statements. Such internal controls are designed to provide reasonable
assurance to management and to the Board of Directors regarding the preparation
of reliable Financial Statements. These internal controls contain self-monitoring
mechanisms, including, but not limited to, divisions of responsibility and a code
of conduct. Once identified, any material deficiencies in internal controls are reported
to management, and appropriate corrective measures are implemented.
Even effective internal controls, no matter how well designed, have inherent
limitations—including the possibility of h u m a n error a n d costs versus benefits
considerations—and therefore can provide only reasonable assurance with respect
to the preparation of reliable Financial Statements.
The m a n a g e m e n t of the FRBC assessed its internal controls over financial
reporting and the safeguarding of assets reflected in the Financial Statements, based
u p o n the criteria established in the "Internal Control—Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on this assessment, the management of the FRBC believes that
the FRBC maintained effective internal controls over financial reporting a n d the
safeguarding of assets as they relate to the Financial Statements.

Michael H. Moskow
President

William C. Conrad
First Vice President and Chief Operating Officer

March 1 1 ,

1998

To t h e B o a r d o f D i r e c t o r s
of the Federal Reserve Bank o f Chicago:
We have examined management's assertion that the Federal Reserve Bank of
Chicago (the "Reserve Bank") maintained an effective internal control structure
over financial reporting and over the safeguarding of assets as they relate to the
Financial Statements as of December 31, 1997, included in the accompanying
Management's

Assertion.

O u r examination was m a d e in accordance with standards established by
the American Institute of Certified Public Accountants and, accordingly, included
obtaining an u n d e r s t a n d i n g of the internal control s t r u c t u r e over financial
reporting, testing, and evaluating the design and operating effectiveness of the
internal control structure, and such other procedures as we considered necessary
in the circumstances. We believe that our examination provides a reasonable
basis for our opinion.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projections of any evaluation
of the internal control s t r u c t u r e over financial reporting to f u t u r e p e r i o d s are
subject to the risk that the internal control s t r u c t u r e m a y b e c o m e i n a d e q u a t e
because of changes in conditions, or that the degree of compliance w i t h the
policies or procedures may deteriorate.
In our opinion, management's assertion that the Reserve Bank maintained
an effective internal control s t r u c t u r e over financial reporting a n d over the
safeguarding of assets as they relate to the Financial Statements as of December 31,
1997, is fairly stated, in all material respects, based u p o n criteria established
in "Internal C o n t r o l — I n t e g r a t e d F r a m e w o r k " issued b y the C o m m i t t e e of
S p o n s o r i n g Organizations of the Treadway Commission (COSO).

Coopers & Lybrand L L P
Chicago, Illinois

Directors

1997 Board of Directors,
Federal Reserve Bank of
Chicago, from left to right:
Stefan Anderson, Thomas
Dorr, Arthur Martinez,
Migdalia Rivera, Lester
McKeever, Verne Istock,
Robert Darnatl, Arnold
Schultz, Donald Schneider

BOARD OF DIRECTORS
FEDERAL RESEVE BANK
OF CHICAGO
CHAIRMAN
Lester H. McKeever, Jr.
Managing Partner
Washington, Pittman & McKeever
Chicago, Illinois
DEPUTY CHAIRMAN
Arthur C. Martinez
Chairman and Chief Executive
Officer
Sears, Roebuck, and Co.
Hoffman Estates, Illinois

Stefan S. Anderson
Chairman, President
and Chief Executive Officer
First Merchants Corporation
Muncie, Indiana

Verne G. Istock
Chairman, President and Chief
Executive Officer
First Chicago NBD Corporation
Chicago, Illinois

Robert J. Darnall
Chairman, President
and Chief Executive Officer
Inland Steel Industries, Inc.
Chicago, Illinois

Migdalia Rivera
Executive Director
The Latino Institute
Chicago, Illinois

Thomas C. Dorr
President and Chief Executive Officer
Dorr's Pine Grove Farm Co.
Marcus, Iowa

Arnold C. Schultz
Chairman and Chief Executive
Officer
The Grundy National Bank
Grundy Center, Iowa

Donald J. Schneider
President
Schneider National, Inc.
Green Bay, Wisconsin

1997 Board of Directors, Detroit
Branch, from left to right: Denise
Hitch Lites, Charles Weeks, Florine
Mark, Richard Bell, Stephen Polk,
Timothy Leuliette, Irma Elder

BOARD OF DIRECTORS
DETROIT BRANCH
CHAIR
Florine Mark
President and Chief Executive Officer
The WW Group, Inc.
Farmington Hills, Michigan

Richard M. Bell
President and Chief Executive Officer
The First National Bank
of Three Rivers
Three Rivers, Michigan
Irma B. Elder
President
Troy Motors, Inc.
Troy, Michigan

Timothy D. Leuliette
President and Chief Operating Officer
Penske Corporation
Detroit, Michigan

Stephen R. Polk
Chairman and Chief Executive Officer
R. L. Polk & Company
Detroit, Michigan

Denise Ilitch Lites
Vice Chairwoman
Little Caesars Enterprises,
and President
Olympia Development, Inc.
Detroit, Michigan

Charles R. Weeks
Chairman
Citizens Banking Corporation
Flint, Michigan

Advisory Councils

CUSTOMER ADVISORY GROUPS

Federal Advisory Council
Seventh District Representative

Central Illinois

Roger Fitzsimonds
Chairman and Chief Executive
Officer
Firstar Corporation
Milwaukee, Wisconsin

Dale Baraks
Southeast National Bank of Moline
Moline, Illinois
Gary Elliott
The Havana National Bank
Havana, Illinois
Richard Giebelhausen
Herget National Bank of Pekin
Pekin, Illinois

ADVISORY COUNCIL ON
AGRICULTURE, LABOR,
AND SMALL BUSINESS
Henry Carstens
Brillion, Wisconsin
Wisconsin Agri-Service Association

Ronald Willis
Chicago, Illinois
Chicago Federation of Labor

Alan Garner
Mason, Michigan
Michigan Farm Bureau

Lloyd Falconer
Seward, Illinois
National Federation of Independent
Business, (NFIB)

Brad Glenn
Stanford, Illinois
Illinois Soybean Association
Brent Hailing
Perry, Iowa
Iowa Pork Producers Association
John Howell
Bryant, Indiana
Indiana State Poultry Association
Charles Shaw
Hope, Indiana
Milk Promotion Services of Indiana
John Whipple
Shenandoah,Iowa
Iowa Corn Growers Association
Carl Camden
Troy, Michigan
Member-at-Large
John Challenger
Chicago, Illinois
Member-at-Large
Linda Ewing
Detroit, Michigan
International Union, UAW
David Newby
Milwaukee, Wisconsin
Wisconsin State AFL-CIO
Steve Redfield
Chicago, Illinois
Member-at-Large
James Rohan
Chicago, Illinois
Member-at-Large

Harold F. Force
Columbus, Indiana
Indiana Chamber of Commerce
Sue Ling Gin
Chicago, Illinois
Member-at-Large
Manuel T. Gonzalez
Indianapolis, Indiana
United States Hispanic Chamber
of Commerce
Richard T. Koenings
Elm Grove, Wisconsin
Independent Business Association
Myrna Ordower
Chicago, Illinois
National Association of Women
Business Owners (NAWBO)
James Michael Schultz
Effingham, Illinois
Illinois State Chamber
of Commerce
Billie Jo Wanink
Royal Oak, Michigan
National Association of Women
Business Owners (NAWBO)
Alan C. Young, CPA
Detroit, Michigan
Booker T. Washington Business
Association

William Glaze
First Bank of Illinois
Collinsville, Illinois
Wilbur R. Lancaster
Magna Bank of Illinois
Decatur, Illinois
Randall Ross
First Mid-Illinois Bank & Trust, N.A.
Mattoon, Illinois
Donald Schlorff
Busey Bank
Urbana, Illinois
Diane McCluskey
Independent Bankers' Bank of
Illinois
Springfield, Illinois
John McEvoy
Metro Bank
East Moline, Illinois
Michael King
First National Bank of Decatur
Decatur, Illinois
Chicago Metropolitan
Diane Anderson
Financial Federal Trust
& Savings Bank
Olympia Fields, Illinois
John Collins
Great Lakes Credit Union
Great Lakes, Illinois
John Bailey
Baxter Credit Union
Deerfield, Illinois

Arlene Kowalczyk
Downers Grove National Bank
Downers Grove, Illinois
Ronald Maryas
Cole Taylor Bank
Chicago, Illinois
Deborah Schneider
First Midwest, N.A.
Joliet, Illinois
Charles Sanger
Bank Calumet
Hammond, Indiana
Indiana
H. Matthew Ayers
State Bank of Lizton
Lizton, Indiana
Lynn Bierlein
Salin Bancshares, Inc.
Indianapolis, Indiana
Debora L. Cox
Irwin Union Bank & Trust
Columbus, Indiana
Robert E. Fall
NBD Indianapolis, NA
Indianapolis, Indiana
Steven D. Flowers
Bank One Indianapolis, NA
Indianapolis, Indiana
Pamela S. Gossett
DeMotte State Bank
DeMotte, Indiana
Dee Ann Hammel
First Federal Savings Bank
Huntington, Indiana
Stan V. Hart
Terre Haute First National Bank
Terre Haute, Indiana
H. Dean Hawkins
First State Bank
Morgantown, Indiana
Paul Hoover
First Merchants Bank, NA
Muncie, Indiana

Thomas Darovic
Superior Bank, FSB
Oak Brook Terrace, Illinois

Sherri Jones
Phillips Electronics Federal
Credit Union
Fort Wayne, Indiana

Richard Brattland
AMCORE Financial, Inc.
Rockford, Illinois

Sharon A. Marx
National City Bank
Indianapolis, Indiana

Edward Furticella
Peoples Bank SB
Munster, Indiana

Carl A. Minick
Fort Wayne National Bank
Fort Wayne, Indiana

Denise Currier
First of America
Chicago, Illinois

Robert J. Ralston
Lafayettte Bank & Trust Company
Lafayette, Indiana

Iowa

Kathleen Taskey
First National Bank of Gaylord
Gaylord, Michigan

Robert Branch
Ionia County National Bank
Ionia, Michigan

Paul Fuller
Republic Bank
Ann Arbor, Michigan

Michael Thompson
First Community Bank
Harbor Springs, Michigan

Connie Scheurer
Ionia County National Bank
Ionia, Michigan

Richard Roty
Republic Bank
Ann Arbor, Michigan

Marilyne Joy
Charlevoix State Bank
Charlevoix, Michigan

Carole Sanocki
Ionia County National Bank
Ionia, Michigan

Catherine Joslin
The State Bank
Fenton, Michigan

Patrick Duffy
Commercial Bank
Alma, Michigan

Chantele M. Neal
Hillsdale County National Bank
Hillsdale, Michigan

Ronald Justice
The State Bank
Fenton, Michigan

Janet Davison
Commercial Bank
Alma, Michigan

Debra S. Smith
Hillsdale County National Bank
Hillsdale, Michigan

Wisconsin

Victoria Sager
Central State Bank
Beulah, Michigan

Joan Heffelbower
Hastings City Bank
Hastings, Michigan

Nikki Bright
State Savings Bank of Frankfort
Frankfort, Michigan

Jerry Van Blarcom
Southern Michigan Bank & Trust
Coldwater, Michigan

Marti T. Rodamaker
First Citizens National Bank
Mason City, Iowa

Susan A. Eno
Citizens National Bank of
Cheboygan
Cheboygan, Michigan

Emily Stafford
Hastings City Bank
Hastings, Michigan

Darrel Posegate
Liberty Services Inc.
Johnston, Iowa

Mary Ann Breuer
Isabella Bank & Trust
Mt. Pleasant, Michigan

Detroit Metropolitan

Jesse L. Calkins
Blackhawk State Bank
Beloit, Wisconsin

Robert A. Steen
Mechanicsville Trust
& Savings Bank
Mechanicsville, Iowa

Dennis P. Angner
Isabella Bank & Trust
Mt. Pleasant, Michigan

Michael McMinn
Metrobank
Farmington Hills, Michigan

Robert W. Fouch
Wisconsin Corporate Credit Union
Hales Corners, Wisconsin

Marianne Hellebuyck
Metrobank

James W. Lansing
Firstar Bank
Milwaukee, Wisconsin

Daniel G. Augustine
Security National Bank
Sioux City, Iowa
Monte Berg
John Deere Community Credit Union
Waterloo, Iowa
Randy E. Burrack
First Security Bank & Trust
Charles City, Iowa
Dale C. Froehlich
Community State Bank
Ankeny, Iowa
Nelson Klavitter
Dubuque Bank & Trust
Dubuque,Iowa
Bill Logan
State Central Bank
Keokuk, Iowa
Victor Quinn
Quad City Bank & Trust
Bettendorf, Iowa

Steve Tscherter
Lincoln Savings Bank
Reinbeck, Iowa

Leo D. Marciniak
Huron Community Bank
East Tawas, Michigan
Western Michigan

Northern Michigan
Barbara Gurn

The Empire National Bank
of Traverse City
Traverse City Michigan
Brian Bromley
The Empire National Bank
of Traverse City
Traverse City, Michigan
Kathleen Alford
The Empire National Bank
of Traverse City
Traverse City, Michigan
John R. Kluck
First National Bank of Gaylord
Gaylord, Michigan
William Kirsten
First National Bank of Gaylord
Gaylord, Michigan

Robert De Jonge
Grand Bank
Grand Rapids, Michigan
Patricia Lunog
Alliance Banking Company
New Buffalo, Michigan
D. Scott Hines
The First National Bank
Three Rivers, Michigan
Linda Pitsch
ChoiceOne Bank
Sparta, Michigan
Linda Comps-Klinge
State Bank of Caledonia
Caledonia, Michigan
Jaylen T. Johnson
Southern Michigan Bank & Trust
Coldwater, Michigan

Farmington Hills, Michigan
Laird Kellie
Lapeer County Bank & Trust Co.
Lapeer, Michigan
Kathleen Rhoades
Citizens State Bank
New Baltimore, Michigan

Paul Adamski
Pineries Bank
Stevens Point, Wisconsin
Terry Anderegg
Mutual Savings Bank
Milwaukee, Wisconsin
Steven Bell
Community State Bank
Union Grove, Wisconsin

Guy Ringle
M&I Data Center
Milwaukee, Wisconsin
Marcie Scheibe
Bank One Data Services
Milwaukee, Wisconsin

Bonnie Vanderbossche
Citizens State Bank
New Baltimore, Michigan

Ronald L. Slater
Bankers Bank
Madison, Wisconsin

Joseph Hallman
Citizens State Bank
New Baltimore, Michigan

Thomas Smith
Heritage Bank and Trust
Racine, Wisconsin

Chanda L. Booms
Signature Bank
Bad Axe, Michigan

Leonard Steele
Associated Data Services
Green Bay, Wisconsin

Cynthia Bourjally
Madison National Bank
Madison Heights, Michigan

Eugene Szymczak
Educators Credit Union
Racine, Wisconsin

Richard Bauer
Fidelity Bank
Birmingham, Michigan
Stephen M. Mazurek
Bank of Lenawee
Adrian, Michigan

Officers

Federal Reserve Bank of Chicago Management Committee, from left to right: Glenn Hansen, George Coe, David Ritter,
John Wixted, Thomas Ciesielski, William Hunter, Michael Moskow, Richard Anstee, William Conrad, Carl Vander Wilt,
Nancy Goodman, David Allardice, William Gram, Charles Furbee

Frederick L. Miller
Regional Director—Wisconsin

Macroeconomic Policy Research

Supervision and Regulation*

William C. Conrad
First Vice President

Charles L. Evans
Senior Economist and
Assistant Vice President

John J. Wixted, Jr.
Senior Vice President

CENTRAL BANK ACTIVITIES

Anne Marie L. Gonczy
Senior Economist and
Assistant Vice President

James A. Bluemle
Vice President and Division Leader

Compliance/Community
Reinvestment Act

Economic Research and Programs

Microeconomic Policy Research

Douglas J. Kasl
Vice President and Division Leader

William C. Hunter
Senior Vice President and
Director of Research

Sheryn E. Bormann
Director

Daniel G. Sullivan
Senior Economist and
Assistant Vice President

Terry R. Ferrari
Director

Richard D. Chelsvig
Regional Director—Wisconsin

Administration and Publications

Philip R. Israilevich
Senior Regional Economist
and Research Officer

Michael R. Jarrell
Director

William M. Hill
Regional Director—Illinois

Karen M. Whalen-Ward
Director

Ellen J. Holmgren
Regional Director—Indiana/
Michigan

Bank and Bank Holding Company
Supervision

Kevin P. Murray
Regional Director—Iowa

Michael H. Moskow
President

Vance B. Lancaster
Administrative Officer
Financial Markets Regulation
and Payments Issues
Elijah Brewer I I I
Senior Economist and
Assistant Vice President
Douglas D. Evanoff
Senior Economist and
Assistant Vice President
James T. Moser
Senior Research Economist
and Research Officer

Paula R. Worthington
Senior Research Economist
and Research Officer
Regional Economic Programs
Gary L. Benjamin
Economic Advisor and
Vice President

Administration

Barbara D. Benson
Vice President and Division Leader

Mary T. Musgrave
Resource Coordinator

Paulette M. Myrie-Hodge
Director—Operations

A. Raymond Bacon
Special Exams Director

Global Supervision

William A. Testa
Senior Economist and
Assistant Vice President

Robert A. Bechaz
Regional Director—Illinois

James W. Nelson
Vice President and Division Leader

Statistics

Richard C. Cahill
Regional Director—Indiana/
Michigan

Adrian B. D'Silva
Director

Jean L. Valerius
Vice President
Loretta C. Ardaugh
Statistical Reports Officer

Jeffrey A. Jensen
Regional Director—Iowa

Philip G. Jackson
Director
Mark H. Kawa
Director

*Includes directors as well as officers.

Catharine M. Lemieux
Director
William H. Lossie, Jr.
Director
Anne M. Phillips
Director
Barbara A. Werner
Director
Human Resource Development
and Technology
William A. Barouski
Vice President and Division Leader
Gregory J. Bartnicki
Director
Margaret M. Beutel
Director
Catherine M. Bourke
Director
Kathrine L. Kielma
Director

SERVICES TO DEPOSITORY
INSTITUTIONS
Business Development
Richard P. Anstee
Senior Vice President
Business Development Office
Valerie J. Van Meter
Vice President
Strategic Marketing
and Customer Service
Frank S. McKenna
Assistant Vice President
Rosemarie A. Wilcox
Administrative Officer
Retail Payment Services
Charles W. Furbee
Senior Vice President
Automated Clearing House
and Customer Support
Jerome F. John
Vice President
Kathleen H. Williams
Assistant Vice President

Check Services
Yvonne H. Montgomery
Vice President

SUPPORT FUNCTIONS

Legal Department and
Office of the Secretary

Community and
Information Services

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

Tyler K. Smith
Assistant Vice President

Nancy M. Goodman
Senior Vice President

Regional Offices

Consumer and Community Affairs

Des Moines Office
L. Edward Ketchmark
Assistant Vice President

Alicia Williams
Vice President

Indianapolis Office
Donna M. Yates
Assistant Vice President

Corporate Communications

Milwaukee Office
David R. Starin
Vice President

Legal Services

James R. Holland
Corporate Communications Officer
and Assistant Vice President
Robert W. Lapinski
Corporate Communications Officer
and Assistant Vice President

Peoria Facility
Mary H. Sherburne
Assistant Vice President

Facilities Management
and Protection

Branch Operations
and Cash Operations

Wayne R. Baxter
Vice President

David R. Allardice
Senior Vice President
and Branch Manager

General Services
Kristi L. Zimmermann
Assistant Vice President

Cash Operations
William A. Bonifield
Vice President
Guadalupe Garcia
Assistant Vice President

Culture Transformation

Human Resource Services
Richard F. Opalinski
Assistant Vice President

Patrick A. Garrean
Assistant Vice President

Angela D. Robinson
Assistant Vice President

Joseph R. O'Connor
Assistant Vice President

Information Services
George E. Coe
Senior Vice President
Custom Services

Electronic and Fiscal Services

Carl E. Vander Wilt
Senior Vice President and Chief
Financial Officer
Loans, Accounting, and Payment
System Risk
Gerard J. Nick
Vice President

Ellen J. Bromagen
Accounting Officer

Brian D. Egan
Assistant Vice President

James M. Rudny
Assistant Vice President

Management Services,
Accounting, Loans and Payment
System Risk

Human Resource Services

Detroit Branch

Thomas G. Ciesielski
Vice President

Anna M. Voytovich
Assistant Vice President and
Assistant General Counsel

William J. 0 Connor
Assistant Vice President

Thomas G. Ciesielski
Vice President

Electronic and Fiscal Services

Elizabeth A. Knospe
Assistant Vice President and
Assistant General Counsel

David E. Ritter
Vice President

Jerome D. Nicolas
Assistant Vice President

F. Alan Wells
Assistant Vice President

Yurii Skorin
Vice President and
Associate General Counsel

Brenda D. Ladipo
Assistant Vice President
Anthony J. Tempelman
Assistant Vice President

Robert A. Lyon
Loans Officer
Management Services
Margaret K. Koenigs
Assistant Vice President
Jeffrey B. Marcus
Assistant Vice President
Office of the General Auditor
Glenn C. Hansen
General Auditor
Robert M. Casey
Assistant General Auditor
Joseph B. Green
Audit Officer

District Services

Business Improvement Planning

R. Steve Crain
Assistant Vice President

Jeffrey S. Anderson
Assistant Vice President

Thomas M. Matsumoto
Assistant Vice President

Cynthia L. Rasche
Operations Officer

1997 Executive Changes

DIRECTORS
Members of the Federal Reserve Bank of Chicago's board
of directors are selected to represent a cross section of the

• Florine Mark redesignated Branch Chair.
• Timothy D. Leuliette reappointed as Branch director.

Seventh District economy, including consumers, industry,

• David Wagner, Chairman, President, and Chief Executive

agriculture, the service sector, labor, and commercial banks

Officer of Old Kent Financial Corporation and Chairman of

of various sizes.

Old Kent Bank, Grand Rapids, Michigan, appointed to three-

The board consists of nine members. Member banks elect

year term as Branch director, replacing Charles R. Weeks.

three bankers and three nonbankers. The Board of Governors
appoints three additional nonbankers and designates the Reserve
Bank chair and deputy chair from among its three appointees.
The Detroit Branch has a seven-member board of directors.

ADVISORY COUNCILS
The Federal Advisory Council, which meets quarterly to

The Board of Governors appoints three nonbankers and the

discuss business and financial conditions with the Board of

Chicago Reserve Bank board appoints four additional directors.

Governors in Washington, D.C., is comprised of one member

The Branch board selects its own chair each year. All Reserve

from each of the 12 Federal Reserve Districts. Each year the

Bank and Branch directors serve three-year terms, with a two-

Chicago Reserve Bank's board of directors selects a representative

term maximum.

to this group. Roger L. Fitzsimonds, completed the maximum third

Director appointments and elections at the Chicago Reserve
Bank and its Detroit Branch effective in 1997 were:
• Lester H. McKeever, Jr. designated Chairman.
• Arthur C. Martinez designated Deputy Chairman.
• Robert J. Darnall appointed to three-year term as director

one-year term as the Seventh District's representative in 1997.
Norman R. Bobins, President and Chief Executive Officer of
LaSalle National Corporation and LaSalle National Bank, was
appointed to a one-year term for 1998.
Members of the Bank's Advisory Council on Agriculture,

replacing Robert M. Healey.

Labor, and Small Business, who are selected from nominations

• Verne G. Istock elected to three-year term as director replacing

by Seventh District small business, labor, and agricultural

David W Fox.

organizations, served the first year of their terms in 1997. The

• Migdalia Rivera elected to three-year term as director replacing
A. Charlene Sullivan.
• Florine Mark redesignated Branch Chair.
• Irma B. Elder appointed to three-year term as Branch director
replacing Charles E. Allen.
• Timothy D. Leuliette appointed as Branch director to fulfill
the remainder of John D. Forsyth's term.
• Denise Ilitch Lites appointed to three-year term as Branch
director replacing William E. Odom.
At year-end 1997 the following appointments and elections
to terms beginning in 1998 were announced:
• Lester H. McKeever, Jr. reappointed to second three-year term
and redesignated Chairman.
• Arthur C. Martinez redesignated Deputy Chairman.
• Jack B. Evans, President of The Hall-Perrine Foundation,
Cedar Rapids, Iowa, and Robert R. Yohanan, Managing Director
and Chief Executive Officer of First Bank & Trust, Evanston,
Illinois, elected to three-year terms as directors replacing
Thomas C. Dorr and Stefan S. Anderson.

council provides a vital communication link between the Bank
and these important sectors.
OFFICERS
The Bank's board of directors acted on the following
promotion during 1997:
• James R. Holland to assistant vice president, Corporate
Communications.
New officers appointed by the board in 1997 were:
• Robert W. Lapinski to assistant vice president, Corporate
Communications.
• Vance B. Lancaster to administrative officer, Economic
Research.
• Rosemarie A. Wilcox to administrative officer, Strategic
Marketing.

HEAD OFFICE
230 South LaSalle Street
P.O. Box 834
Chicago, Illinois 60690-0834
312-322-5322
DETROIT BRANCH
160 West Fort Street
P.O. Box 1059
Detroit, Michigan 48321-1059
313-961-6880
DES MOINES OFFICE
2200 Rittenhouse Street
Suite 150
Des Moines, Iowa 50321
515-256-6100
INDIANAPOLIS OFFICE
8311 North Perimeter Road
P.O. Box 2020 B
Indianapolis, Indiana 46206-2020
317-244-7744
MILWAUKEE OFFICE
304 East State Street
P.O. Box 361
Milwaukee, Wisconsin 53201-0361
414-276-2323
PEORIA FACILITY
6100 West Dirksen Parkway
P.O. Box 4318
Peoria, Illinois 61607-0318
309-633-5000

For additional copies of this annual report contact the Public Information
Center, Federal Reserve Bank of Chicago, at 312-322-5111 or access the
Bank's Internet home page at http://www.frbchi.org.

FEDERAL RESERVE BANK
OF CHICAGO

Full text of Annual Report of the Federal Reserve Bank of Chicago : 1997 Annual Report : Electronic Payments: The Time is Now, The Sky's the Limit

FRASER