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2018 Annual Report
President’s Letter

Greetings and my gratitude to all for your ongoing commitment to the Federal Reserve Bank of Chicago.
Here’s a snapshot of economic activity and a summary of what’s transpired at the Chicago Fed during the
past year.
The Economy

Congress has tasked the Federal Reserve System with the goals of maximum employment and stable prices.
In 2018, we made good progress towards these dual mandate objectives. Growth was strong, the unemployment rate declined further, and inflation picked up and was near our two percent objective.

The economic performance in the Federal Reserve’s Seventh District was comparable with that of the
nation. In all five of the Seventh District states, the unemployment rate was at the lowest level observed
over the past 15 years. Overall, activity in the manufacturing sector was solid and auto production leveled
off following a slowdown in 2017. The agriculture sector experienced stellar yields, especially for corn
and soybeans, while facing uncertainty due to trade tensions.
At the Federal Reserve Bank of Chicago (FRBC)

Here at the Chicago Fed’s LaSalle Street headquarters, Detroit branch and Des Moines office, employees
do an exceptional job of supporting the Federal Reserve’s mission to foster the stability, integrity and
efficiency of the nation’s monetary, financial and payment systems to promote optimal macroeconomic
performance. To this end, we participate in the formulation and implementation of national monetary
policy, supervise and regulate designated financial institutions and provide financial services to depository
institutions and the U.S. government.
Given the current business environment, we have identified three strategic priorities:

–Reinvent how we do business to anticipate developments in the economy, financial markets and
payment systems.
–Evolve our skills and expertise to position us for future success.
–Advance an inclusive culture to build a great place to work.

We’ll assess our priorities regularly to ensure they continue to support our drive for continuous improvement.

In this report, we summarize some of our achievements. These are just a few of many examples that show
how the FRBC continues to evolve to achieve breakthrough business results and to create excellence in
thought leadership.
Charles L. Evans, President and Chief Executive Officer
2018 Annual Report


Economic Research: Fostering a Healthy Economy

The Federal Reserve Bank of Chicago began quarterly releases of our Detroit Economic Activity Index.
This index measures economic performance of the City of Detroit and highlights how its economy has
performed since the bankruptcy in 2013. Throughout 2018 the new index shows that Detroit’s economic
performance averaged above trend. That’s very encouraging news.

Additionally, the Chicago Fed Economic Research team produced 22 articles for peer-reviewed academic journals and published articles in eight books, conference volumes and special journal issues. One of
those articles, co-authored by Luojia Hu, Robert Kaestner, Bhashkar Mazumder, Sarah Miller, and Ashley
Wong, “The Effect of the Patient Protection and Affordable Care Act Medicaid Expansions on Financial
Wellbeing,” was published in the Journal of Public Economics. This article attracted interest in the policy and
medical communities, given the important roles of medical spending and debt in the financial condition of

Community Development and Policy Studies:
Engagement Across Our District

CDPS staff joined Bank leaders on listening tours held in Fort Wayne, Indiana, and Flint, Michigan, and
gave speeches at the Opportunity Finance Network and the Regional Alliance community development
conferences in Chicago. Staff delivered presentations on community and economic development topics,
provided technical assistance, and met with stakeholders.

CDPS sponsored or supported more than 50 events, including the Tools Toward Market Restoration
Conference in Detroit; Workforce Development listening sessions conducted around the District; an
economic development forum on fair lending; and three Chicago Small and Medium-sized Business Ecosystem
meetings. The latter focused on opportunities and challenges of business owners of color and in low- and
moderate-income communities. In addition, CDPS published several research papers.
2018 Annual Report


Supervision and Regulation: Identifying Risks

The Bank’s Supervision and Regulation department (S&R) continued to identify, analyze and address
risks through efficient and effective supervision. S&R staff were actively engaged in supporting critical
Federal Reserve System groups and projects, including co-chairing the development of the System’s
supervision function strategic plan. The District’s S&R leadership led the execution of System high-priority
initiatives, including updating supervisory programs for community banks. In addition, S&R staff led an
effort to identify opportunities to improve interagency regulatory cooperation and the coordination of
cybersecurity supervisory programs on a national level.

Payments: Working to Provide Faster Service

The Customer Relations and Support Office (CRSO) advanced key initiatives in three areas: enhancing
the safety and security of the FedLine Network; engaging customers and industry stakeholders to advance
payments improvement; and achieving financial services cost recovery and meeting marketplace needs.

In addition, Chicago hosted the inaugural FedPayments Improvement Community Forum in October,
which provided an opportunity for payments industry stakeholders to collaborate and provide feedback
on the latest payment system improvement initiatives through keynote speeches and workshop-style sessions.

2018 Annual Report


Fintech Forum: Building Ideas for a Better Future

More than 200 Bank employees participated in the FinTech Forum which focused on the use of artificial
intelligence (AI) across the Bank and in the financial services industry. Over the course of three separate
events and through a dedicated website site, employees increased their knowledge, shared ideas, and
proposed solutions that could be implemented at the Bank..

Diversity and Inclusion: Signs of Progress

The Federal Reserve Bank of Chicago earned a spot on the Working Mother magazine 2018 100 Best
Companies list. This list recognizes employers for their support of working families, and the FRBC ranked
highly for providing generous parental leave and superior healthcare benefits.
As a top 100 employer, the Bank was invited to honor a Working Mother of the Year. We’re proud that
Kandice Alter, Assistant Vice President in the Payments Policy Group, represented the Bank. You can read
her story and more about the Bank’s ranking among other top employers here.
In 2018, the FRBC reached an important milestone: for the first time, half of our officer population was
comprised of women. This is one example of our commitment to creating a diverse and inclusive culture.

2018 Annual Report


New Leadership: Chicago Board of Directors
Helene D. Gayle
Class B Director,
Term: 2019-2021

Christopher J. Murphy III
Class A Director,
Term: 2019-2021

New Leadership: Detroit Board of Directors
James M. Nicholson
Term: 2018, 2019-2021

New Leadership: Executive Committee
Michael Hoppe
Senior Vice President,
Executive Committee
Member and Detroit
Branch Manager

Pamela Rieger
Senior Vice President,
Enterprise Strategy
and Risk Management,
Business Continuity,
Business Transformation and Information

Julie Williams
Executive Vice President,
Supervision and

Financial Statements
Auditor Independence

The Federal Reserve Board engaged KPMG to audit the 2018 combined and individual financial
statements of the Reserve Banks.1

In 2018, KPMG also conducted audits of internal controls over financial reporting for each of the
Reserve Banks. Fees for KPMG services totaled $7.0 million. To ensure auditor independence, the Board
of Governors requires that KPMG be independent in all matters relating to the audits. Specifically,
KPMG may not perform services for the Reserve Banks or others that would place it in a position of
auditing its own work, making management decisions on behalf of the Reserve Banks, or in any other
way impairing its audit independence. In 2018, the Bank did not engage KPMG for any non-audit

The Federal Reserve Bank of Chicago — Financial Statements as of and for the Years Ended December 31,
2018 and 2017, Management’s Report on Internal Control Over Financial Reporting, and
Independent Auditors’ Report
In addition, KPMG audited the Office of Employee Benefits of the Federal Reserve System (OEB), the Retirement Plan for
Employees of the Federal Reserve System (System Plan), and the Thrift Plan for Employees of the Federal Reserve System
(Thrift Plan). The System Plan and the Thrift Plan provide retirement benefits to employees of the Board, the Federal Reserve
Banks, the OEB, and the Consumer Financial Protection Bureau.

Photo Credits: Ping Homeric/Federal Reserve Bank of Chicago; Mark Joseph/Mark Joseph Photography; Victor Powell/Powell Photography.

2018 Annual Report