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ANNUAL
FEDERAL
OF
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Federal Reserve Bank of St. Louis
REPORT
RESERVE
BANK
CLEVELAND
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Federal Reserve Bank of St. Louis
Celebr.iun the 75 I Annrversary
ri the Feder-al Resm"P. S qem
On December B, 19IJ, Presidenc
Woodrow Wilson signed che federal
Reserve Act into law, embtishing the
nation's central haJ11king system.
The Federal Reserre System 1s responsible for formulating and implemendng
U.S. monetary policy It also supervises
banks and bank holding companies, and
provides financial services co depository
institutions and the federal government.
The federal Resenie &nk of Cleveland is
one of 12 regional Reserve Banks in the
Umted States which, together with the
Board of G0Ye111ors in Washington, D.C..
comprise the federal Reserve System.
The federal Reserve Bank oi Cleveland,
1u two branches in Cindnnati and
Pittsburgh, and rt.s Regional Ch eek !Processing Center in Corumbus se,r,e t~e
Fourth federal Reserve Di~trict. The
Faun~ Dlsvritt indudes Ohio, wescern
Pennsylvania, the nort~er11 panhandle of
We:s1 Virginia, and eastern Kentucky.
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Ttie President's ForewonJ
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Banking De.regulation:
Examining t~ Myths
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Comparative Fin.mcia, Smements
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Directors
Oflkerrs
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THE
PRESIDENT ' S
FOREWORD
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The past year was especially eventful for the
world e<:0nomy, for the Fourth District, and for the Federal
Reserve Bank of Cleveland. The economy continued to
exinnd, and notable progress was made in reducing the
trc1de deficit. Monetary policy has held the acceleration in
the rate of inHation to very modest proportions so far, but
directors of the Federal Reserve Bank of Cleveland and I are
disappointed by the lack of progress being made toward a
less inflationary environment.
Another issue that has become increasingly
critical o...er the last year is the need for banking deregulation
and for deposit insurance reform . Comprehensi...e government J>roposals now call for exJ>enditure of public funds,
reorganization of some supervisory and regulatory responsibilities, af;ld higher deposit insurance premiums for thrifts
and banks.
The current administration a11d structure of
this nation's deposit insurance prograrm effectively insulate
depositors from the consequences of their banks' business
c:lecisions. At tne same time , regul;itions limit the extem: 10
wh[ch banks are able co respond to market forces. Ultimately, Americans pay a high cost for cne results of regulation and deposit insurance.
The basic strength of a market system is that
markecs encourage and facilitate the efficient use of scarce
resources . With a deregulated banking system and reformed
deposit insurance struccure, consumers would enjoy the
benefits of a more competitive financial services market:
reduced prices, and new and better services.
Banks would also benefit from a more competitive environment. They would be free to become more
dr.oersified geographically. making them less vulnerable to
the economic problems of a particular community or region.
Banks would be able to adjust the range of services and
products co changing technology and market demands.
Well-managed institutions would prosper. as would the
American financial system.
If deregulation and deposit insurance reform
would be so beneficial to all inrticipants in the economy,
why haven't Lhe necessary steps toward change been taken
yet? The essay in chis year's annual report attempts to
explore the misconceptions that impede progress. ,Fundamental changes in both regulation and deposit insurance are
necessary to avoid severe, costly problems, such GS those
being addressed in the thrirt industry.
During the coming year, the Federal Reser...e
Bank of Cle~land will continue to monitor these issues and
other situations that affect the economy of the Fourth
Federal Reserve Oisuict. We are guided in these efforts by
our 13 directors, to whom we extend our deepest appreciation. We are especiallygrateful for the contributions of three
directors who ha...e completed their terms of service on our
boards: William A. Stroud (Chainnan and Chief Executive
Officer of First-Knox Banc Corp.). who served on the
Cleveland board; Robert A. Hodson (President and Chief
Executive Officer of 1st Security Bank), who served on our
Cincinnati branch board; and Lawrence F. Klima (President
of The First National Bank cl Pennsylvania. who served on
our Pittsourgn branch board.
Our directors represent a 'iilriety of banking,
busirness, and eduG1tional interescs from throughout ,he
District. Their Yaluable and dedicated service and guidance.
as well as tliat of our member of the Federal Advisory
Council, Thomas H. O'Brien [President and Chief Execuuve
Officer of PNC Financial Corp), and the members of the
1988 Small Bank and Small Business Advisory Councils, are
very much appreciated.
Finally, I wish to extend my personal gratitude co the officers and staff of the Bank whose energy,
creativity, and commitment made 1988 a successful year.
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W. Lee Hoskins
President
MaA:h9, 1'89
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Banking Deregulation: Examining the Myths
1. '!{)e banking inhm~tiv bas ffourisl)eb unber regufotion.
2. ffiegufo.tion of probucts is necessar\) to keep banks safe anb sounb.
3. 9catiomnibe interstate banking
aUoUJs an unbesitaole concentration of banking assets.
4. IDeposit insurance is essential to protect smaU
bepositors anb sofuent banks, anh to auoib the collapse of the mone\) supp{\).
5. Q3ank failures are harmful to bank customers anh the banking s\)stem.
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6. IDeregulation l)as causeb a beterioration in tl)e conbition of banks.
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Many myths about bank regulation - conventional wisdoms
chat "everyone knows to be true" - are causing substantial
harm. The myths are harmful because rhey are used to justify
extensive, unnecessary, and costly regulation of the banking
indusrry. These misconceptions have also been used to justify
the current structure and administration of a deposit insurance syscem that reduces the incentives for banks to operate
responsibly.
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Although chis article is specifically about
the comrnercial banking industry, some of it is apphcable to
the thrift ind~stry. We endeavor to dispel some ol those
myths d1ac have doude<J discussions of comprehensive banking reform. Rather than being an attempt co present all points
of view, this analysis is a .statement of one view: this Bank's
view. We believe that removing restrictions on the products
banks may offer and on where banks may do business deregulation - would be a positive seep for the future.
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Furthermore, reform of deposit insurance, beyond pro-
posals now being considered by the Administration and
Congress, is essential to achieve the benefits of deregulation.
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1. 'rl)e manking S:nbuMl'\) S;?as trfourisl)eb Sl.lnber 9?egulation.
9J1an\) people belieue tf)at tl)e banking inbustn, is 'f)eartl)v anb prosperous.
~eople 1.Ditl) tl)is uiel.D often bismiss recommenbations
to rebuce regulation of tbe banking inbustrv as mere{\) partisan efforts to featl)er
tl)e nest of an alreab\)-prosperous inbustrv.
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The fortunes of the banking industry have been hurt in recent years by sewral developments. Banks have incurred
substantial loan losses due to the financial problems of the highly indebted developing nations, the oil industry, and the
American fann sector.
DVERSE TRENDS
be even more damaging.
Adding to these problems are some adverse long-term trends that could
1 Fim, banks are losing market share in commercial lending, traditionally banks' primary
market. Large and even medium-sized firms are now turning to the commercial paper market for more and more of their
borrowed funds.
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Se<ond, banks are losing market share in the consumer installment credit market due to
competition from unregulated business firms. While banks have earned an increasing share of the re\lOlving credit market,
these gains have not fully offset their declining share of automobile financing .
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nird, banks are atu-aci:ing sma'l!er shares
of the funds that gvers place in time and savings deposits and in money market mutual funds. Although banks are now free
to offer competitive interest rates, money market murual funds can offer some services to customers that banks cannot offe r
because of regulatory restrictions.
As a result of these and other adversities. the banking industry's return on assets
has been falling during the 1980s, reaching a level in 1986 not seen since 19S9.
[I} 00D OR BAD Even if the banking
industry is experiencing some hard times, it is not dear whether this is a good or bad trend ror the nation. No industry
deserves to prosper, or even survi..-e, merely because it is large or has existed for a long time. The decline of an industry is
11ot ro be lamented if the industry has become uncompetitive because of its own acts or failures to act.
NNECESSARY RESTRICTIONS
However, ii an industry's efforts to remain competitive are hampered by unneces-
sary regulations. as is che case with banking, it is sensible to remove those restrictions. The marl<et system will determine
whether the industry provides useful services, measures up to the competition, and deserves to prosper.
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2. ffiegufotion of ~robucts is 91ecessatV to
~eep 5Banks 6afe anh 6ounb.
~or man\) \)ears, people l)aue been conuinceb tl)at t{)e
gouernment neebs to regulate banks' probucts, permitting some wf)He proscribing
others, in orb er to keep banks safe anh sounb.
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Produce restrictions are nm only unnecessary for achieving bank safety, but may accually detract from bank safety. The idea
that bank services must be restricted stands on rwo shaky pillars.
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First, if commercial banks were free to engage in
investment banking, there is a fear that they would repeat the securities abuses that led to enactment of the Glass-Steagall
Act in the 1930s.
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J Second, some lines of busine$ supposedly are more risky than "traditional" banking activities,
espeoally for newcomers.
N OLD MYTH Despice the aura of truth 1hat can develop around a myth that is more
than a half-century old, scholars today argue chat the securities abuses in the 1920s and 1930s were not widespread among
banks, nor were they limited to banks, nor were chey the Gluse of bank failures.
Some of the abuses resulted from
unregulaced activities in securities markets that the Securities and Exchange Act of 1934 $Ought to eliminate. Permimng
banks to engage in investment banking activities wou!d not necessarily make securities abuses any more likely to recur.
'[ a HIN ESE WALL Banks did have conflicts of interest between their lending activities and their securities activities prior
to 1933, and those conflim of interest could return if banks obra1n more invescmem banking powers.
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However,
conmccs of interest are present in many lines of business. For example, there is a potential for a conflict of interest between a
bank's trust department and its corporate lending department. This problem has been de-alt with by building a "Chinese
wall" - forbtdding exchange of information - between the department!>, rather than by forbidding banks to engage in both
activities simultal\eously.
Iii OW-RISK ACTIVITIES There is also little threat to bank safety hidden ir-1 other lines of
business. Many accivicies chat banks would like to enter, such as real estate brokerage, insurance brokerage, travel agency,
and data processing, are not inherently risk~ These mivioes may be less risky than some currently approved activities, such
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nonbank providers of such services, who are more worried about new competitors than the safety of the banking system.
t§loREIGN ACTIVITIES
Many large U.S. bank holding companies have subsidiaries that for ~ars ha'le engaged in
several activities abroad that currently are prohibited in the United States. The fact that Glass-SLeagall Ace restrictions do
not apply to foreign activities of U.S. banking organizations suggests Lhat domestically prohibited activities are not
necessarily dangerous.
YNERGY
E'len if the income variability of a new activity is greater than that of already-.
permitted activities, which might be the case wich. say, insurance underwriting. the variability of a bank's total income
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slream still could be reduced if the income strea,ns of the mdillidual acti11iti;e~ were negatively correlated.
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The
important idea 1s that a bank cannot be viewed as a portfolio of separate activities. New activities will not have an isolated
•effect on bank safety, since importam synergies and efficiencies are generated when additional ~rvices are offered through
the same outlet.
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IMITATIONS AND FAI LURES
Limitations on produce offerings make it more difficult for b:anl<.s to
compete with some non depository financial firms . Securities firms and retail stores have the advantage of being able to offer
a broad range of fi nancial services through nationwide networks.
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Jn addition, the primary contributor to the safety
and soundness of banks, and of every other business in the market economy, is the discipline imposed on owners and
managers by the ever-present possibility of failure.
ESTRICTIONS AND REFORM
Restrictions on banks' produce
powers probably should not be remo¥ed without arso reforming the deposit insurance system. The deposit insurance
system, as currently administered, has removed many of the incentives for safe and sound banking by making good the losses
of failed banks. To avoid extending this subsidy to .iddicional b1rnness acti111cies, reform of the deposit insurance system
should be a prerequisite or a corequisite for tne expansion or bank powers.
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3. 9'ationlUibe ~nterstate 5.8anking 31:floUJs
an ~nbesirable (£onieentration of 5Banking .'ll0sets,
anb 5ll\oulb mehuce t~e 3luaifobilit\1
of 5.8onking 6eruice~ in -SmaUer (£ommunitie6.
~eople fear t{)at intet6tate bank mergers rebuce coml)etition anb
encourage some banks to become too l>ig.
Rather than causing problems, full interstate banking would yield important benefits to the nation. If full interstate banking
were permined, competition would be increased rather than reduced.
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Banks could enter another state by opening a
new bank or a new branch, or by merging or acquiring an existing bank. Of these, the most popular way for a bank to enter a
new market would undoubtedly be through purchases of or mergers with existing banks. It is unlikely that such mergers
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would significantly reduce competition. Existing anutrust Jaws could be used, on a case-by-case basis, to prevent problematic
banking dominance tn an area. If 1ncemace banking were pennicted, the increased chreac of pocemral entry would encourage
competitive behavior by the banks that are already in a market.
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In addition, concerns about "undesirable"
concentrauons of economic and pohucal power could be easily allayed by limiting the share of the nauon 's banking assets
that any one bank is permitted to hold. Such a limitation would be a more direct and efficient approach to the problem than
using restnct1ons on interstate bankmg co mdireccly hmrt bank me.
MALL BANKS
Interstate banking need not
mean the end of small banks that serve their communiti.es well. A few years ago, when large New York City banks were first
permitted to branch into upstate New York , they generally were unable co displace the small banks that were already
operating. Numerous small banks operate successfully in California, a state that has always permitted statewide banking.
~ MALL COMMUNITIES lntemate banking is unlikely to be detnmental to small communities.
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First, current
restrictions on interstate banking do not prevent the. flow of capital between communities or across states.
The free now of capital to where 1t will be most produmve and can earn the highest returns is desirable within a nattonal
market. To the extent, if any, that interstate banking facilitates the now of capital, economic efficiency is enhanced.
Second, a bank can tit-afford to be insensitive to local needs, because such behavior would be an invitation to moresensitive competitors.
ARRIERS REMAINING
Some barriers to interstate banking have been removed in recent years.
However. many barriers to full interstate banking remain, Some states still do not permit interstate banking through bank
holding companies. Many states that do permit entry. limit acquisitions and mergers to bank holding companies from nearby
states. This increases the probability that several regional banking systems will develop, instead of a national banking system.
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And little, if any, interstate branch banking 1s permitted, despite the fan that branching would be the simplest and most
direct approach to interstate banking.
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4. '.Deposit S:nsuronce sts '.tssential to ~roted 6m«H IDep,ositors onb
Gofoent 58onks, anb to sruoib tf)e C£olla'J.)!3e of tl)e ID?onev 6u\rph;.
'f)roponents of beposit insurance usuatl') offer tl)ree basic
justifications for tl)e program: tl)e neeb to 'protect small bepositors, tf)e neeb to
preuent bank runs. anb t'f)e neeb to contain a banking s\)stem 'panic.
Deposit insurance was established to protect small depositors from loss due to a bank fa ilure. Deposit insurance protects
those who cannot afford co seek advice about the soundness of a specific bank or who cannot afford to hire a qualified
fi nancial manager.
ROTECTING DEPOSITORS This justification for deposit insurance is based on the premise that
society should protect people who are not able co protect themselves. Seen in this light, it would appear that the present
federal insurance system, which insures an unlimited number of $100,000 deposir accounts per person, offers ~uch more
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insur.rnce than is neceS-sary to protect those who are unable to protect themselres.
R0TECTING BANKS
The
second justification for deposit insurance is that it is necessary to prevent runs on S-olvenrt banks, The fear is d1at a run could
make a solvem bank insolvent, ii the bank had to selll assets quickly at fire-sale prices to meet demands for withdrawals .
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This is ;rn unfounded concern, because a solvent. bank can use its good assets as collateral to borrow at the federal
Reserve's discoum window. Only insolvent banks have difficulties meeting crises, and shouldn't be protected from the
consequences of their own weaknesses.
fli1 VOIDING A CONTRACTION OF THE MONEY su;PPLY Usually, when
depositors withdraw funds from a bank because of concerns about the bank's solvency, they redeposit their fonds in anolher
bank. It is possible that large numbers of depositors would s1mulcaneously withdraw currency and would not redeposit it in
other binks This could caL1se a contraction of the money supply.
However, the Federal Reserve could prevent a
contraction of the money supply by providing additio,nal bank reserves through open market operations
and discount window lendir.g. Thus, deposit insiurance is unnecessary to avoid a contraction of the money supply.
ROM PT CLOSING
Panics are unli1kely ii bank regulators establish a record of promptliy dosing insolvent banks and if
the Federal Resei"'le B.mh le(ld io sol-.1ent banks facing incipient runs. These actions should be sufficient to maintain
depositor confidence, effectively preventing contagious bank runs.
ONHERENT WEAKNESS
The current federal
deposit insurance system actually impairs the soundness of the banking system in two related ways.
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First, overly
generous deposi~ insurance eliminates the concern d1at depositors otherwise would na1te with the soundness of their bank.
Such levels of deposit insurance, in tum, remove the necessity for a bank to h_ave a prndent ratio of capital ro assets to
reassure deposH
tors.
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Second, because deposit insurance eliminates depositors' concern with the quality oftheir ban rs
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portfolio of assets. a bank's management may freely make riskier loans and investments. This concern is especially relevant
when a bank is insolvent or is near insolvency. With a safety net of deposit insurance. management can gamble with VP..J"'/
risky assets mthe hope of earning a large return and rescuing the bank.
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Because of the limited legal liability feature of a
corporation. the management and stockholders would be no worse off for having taken the gamble if the bank failed. The
deposit insurance fond would absorb the additional losses..
E FACTO INSURANCE The
deposit insurance system,
as presently administered, usually provides de facto msurance to uninsured depositors and other bank cre<litors. Thus, the
market discipline that these groups would have exerted on bank management also has been removed.
INSURANCE REFORM
9EEPOSff
Clearly, deposit irnsurance meeds to be reformed. The amount of depos1ts insured (or any one
person might be limited to a level consisten,t with the objective of pro~iding protection for those unable to protect
'themselves. Si.Jch a level might be surprisingly low, because the average (arithmetic mean) insured deposit account was only
about $8,000 at year-end 1987.
ELL-MANAGED BANKS Amore
realisti( deposit insurance system would eliminate
both de jure and de facto insurance for large depositors, other bank creditors, and bank stockholders. To atcract funds,
banks would need to be well-managed, because depositors would prefer to patronize banks with high capital-co-assets ratios
and low-risk portfolios, or banks that offered depositors higher interest rates to compensate them for the higher risk.
Regulators and banks might be required co provide more financial infonnat1on, so that the public would make informed
judgments about a bank's soundness.
LOSURe
Regulators would an swiftly to close an insol\'ent bank or to
recapitalize it and mstlll new management. These actions, along with market forces, would encourage sound management
of banks, and thereby would remove the incentive and opportunity for a railing bank co gamble with risky investments.
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5. 5Sank trnilures are S)armfu( to ~u5tomers anb t6e 5San·king 6vstem.
ID1an\1 people oelieue tl)at regufo.torv
polic\,l sl)oulb be biredeb at preuenting bank failures,
oecau~e of t()e iU effects of failures on customers anb on tbe banking svstem.
In recem years, banks have been failing in larger numbers th~n at any time since che Greac Depression. When a bank is
liquidated, depositors and borrowers need w find another bank with which to do business. Consequently, they lose the
11alue of the banking relationship chey have bui1t up over tne y-ears.
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However, insolvent banks often are not liquidated
but are purchased and operated by new owners. In such cases, bank customers would not be inconvenienced.
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IQUIDATIONS
If a failed bank were liquidated, borrowers and other customers of the bank would be inconvenienced,
but this also would be true for customers of any firm that failed. Inconvenience to customers is not a persuasive argument
for using regulatory policy to prevent bank liquidations. Even without deposit insurance, if a bank were liquidated.
depositors would not necessarily lose much of their funds. Depositors of banks that failed between !930 and 1933 received,
on average, more than 99 cents for each dollar of deposits, even though the Federal Deposit Insurance Corporation had not
yet been established. For most depositors, the real cost was delay in obtaining their funds, racher than loss of funds .
(ETHER BANKS
Failure of a large bank could lead to losses for ocher banks with which it does business. This possibility
is sometimes offered as evidence chat some banks are coo big co let fail.
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But if banks are exercising prudent limits on
their exposures to the failed bank, their losses won't be fatal. Losses w other bainks would be moderate if regulatory
authorities seized a failing bank quickly, rather than waiting until it had depleted all of its capital and perhaps had moved to a
large negative net worth position.
OT TOO BIG
It may be true that some banks are so big that liquidating one of
them would be awkward. If a bank is liquidated, customers must establish new banking relationships, bank mfr must find
new employment, and bank property, loans, and investments must be sold. These actions might be difficult if a very large
bank is liquidated, but it is unlikely that any bank is too big co let fail.
and continue to operate.
All.URES
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A failed bank can be recapitalized by new owners
Rather than being harmful, permitting banks to fail can strengthen the banking
system and the nation. First. the possibility of bank failure provides stronger incentives to bank management to follow
sound banking pract1Ces. Second, the reality of a bank failure is a powerful reminder to others.
bank prompts the reallomion of scarce labor and property resources to more efficient uses.
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6. ~eregufation S;?as ~,auseb a ~eterioration in t'f)e ~onbition of SBanks.
<J"'f)e s'f)arp increase in tl)e number of bank faifores
in tl)e 1980s bas been attrfbuteb b\.> some people to recent beregufotion, so tnev
argue that furtf)er bereguiation i~ unbe~irab(e.
It is lrue that some of the constraints on the banking industry have been removed or successfully bypassed ,in the last decade,
but che progress of deregulation has been piecemeal, incomplete, and pursued without a set of guiding principles. Interestrate ceilings on deposits were phased out between 1980 and 1986, allowing banks to compete more freely with other
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institutions for funds. ;t
Regulators have granted some new powe~ w banks in the absence of new bank-powers
legislation. For example, the Federal Reserve Board recently has permitted some limited securities underwriting privileges
co banks on a case-by-case basis.
ORE DEREGULATION NEEDED
In any eVEnt, the recent increase in bank failures
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is not a result of the deregulation tha, has occurred . Instead, the difficulties of some banks would have been lessened if more
deregulation had occurred sooner.
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Many bank failures in the 1980s resulted from hard times in the agricultural and oil-
producing areas of the nation, parcicu~rly in the Southwest, that caused many bank loans to go sour.
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Banking
deregulation ceminly did nol cause the hard times in oil and agriculture. But the regulations that limit banks' product lines
and prevent their geographic diversification ha11e made banks more vu!nerabl.e to downturns in che !oca,I economies in which
they operate. The fact that fraud and insider abuses continue to be among the leading causes of bank failures in the 1980s,
just as m the past, is further evidence that deregulation i.s not at fault.
(meNEFITS OF DEREGULATION
Rather than
weakening the banking industry, deregulation allows banks to become stronger - more efficient, more competiti\le, more
responsive co consumers. In a deregulated environment, banks could diversify geographically, making them less vulnerable
co the economic problems of a particular community or region. Banks could offer a broader range ol services, increasing
their ability to serve customers while diversifying their sources or income. Those banks that chose to broaden their
geographic and product ranges and to increase their size would be better able to compete against larger and less-regulated
foreign banks for the business of multinational corporations.
Many myths about bank regulation and deposit insurance have fonned through the years. Those myths have placed an aura
of necessity and desirability around certain bank regulations and around some aspects of deposit insurance that are anuaHy
harmful to the public and co the banking system. This an.de attempu to dispel those myths, in the hope that the nation can
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move forward with banking deregulation. If this is accomplished, we would reap the benefits of free markets and eliminate
some of the hidden costs of regulation.
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Statement of Condition
1988
COMPARATIVE
FINANCIAL
Gold cer tificate account ...... . .... . ...... . ....... . ....... . . . ....... . . . .
Special drawing rights certificate account . .............. . .. .. . .... .. . .. . . . . .
Coin .............. . . . ...................... . . . ....... . ... ... . .. .. . .
Loans and securities:
Loans to deposicor y institutions ............. . .............. . . . .. . ..... .
Federal agency obligations bought outright.. . ... . ... ... . .. . .. ........ . ... .
U.S. government securities
Bills . .... . .. . .................... . . . ...... . .. ... . .. . . .......... .
Notes ....... ... ... . ............... . .. . . . . . .. . . . ... .. .. . ....... .
Bonds .... . .............. .. . . .. . . . ..................... . ....... .
Total U .S. government securities . .. . . .. . .. .. ... . . ................. .
Total loans and securities .. .... .... .. . . . . .. . . . .. ..... ............. .
Cash items in process. of collection . . . . . . .. . . .. . .. . . ... .. ... . ...... . ..... . .
Bank premises . . . ..... . . . . .. . ............ . .. . . . ... ., . . . ............... .
Other assets .. . ... ... . .... ... ... .... . . . . . .. . ... . .................... .
lncerdistrict settlement account .. .... . . . ... . . . . .. . . .. . . . .... . . ......... . .
Tota/ Assets .. .. .. . . .... ... . .. ..... . .... . ... ..... .. . . .. . . ...... . .. . . .
655,000,000
314,000,000
25,463, 147
$
1987
$
664,000.000
314,000.000
27,530,552
890,000,000
402,430,203
63,475 ,000
453,028,595
6,515,038,679
5,253,906,524
1,728,921,594
13.497,866.797
14.790,297.000
243,970,219
31,674.850
793,404,407
(559,500,560)
6,459.213,324
4,976,685,879
1,693.907,233
13, 129,806,437
13.646.310.032
293.797 .319
32.,265,020
750,233 ,144
135.947,039
$16,294,309,063
SIS.864,083 ,106
Federal Reserve notes . . ........ . . . .. . .. .. ... . ........ .. ............... .
Deposits:
Depository institutions . . . .. . ....... . ................................ .
Foreign ....... .. . . ................ . .............................. .
Other deposits ............. . ...................................... .
Total deposits .. . . . . . .. ... .. ....... . . . .... . ...................... .
Deferred availability cash items .......................... . ...... . ...... . . .
Other liabilities ... .. . . ........ . .. . ....... . ...... . ......... . ..... . .. . . .
S13,703,779,373
S 12,987,455,204
1,893,425.046
8,250,000
13,993,166
1,915,668,212
266,000,247
179,054,731
2, 123,425,856
Total Uabilities . . . . . . . . . . . . . . . . . . . . . . . . . ............................ .
$16,064,502,563
S15,638,696,306
Capital paid in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S
114,903,250
114,903.250
S
112,693,400
112,693.400
Tota! Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
229 ,806,500
$
225,386,800
Tota! Liabilities and Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S 16.294.309.063
STATEMENT
Liab '"t1es
For years cnclcd 'xccrn!:ler 3 I
w
N
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Federal Reserve Bank of St. Louis
9,000,000
42,239.230
2, 174,665,086
317,030,608
159,545,408
$15,864,083.106
Income and Expenses
1988
r ....
+•,
1987
m
Interest on loans. ............. ... . ..... ...... .. ...... ..... .. ... ........ . .
Interest on government securities ........ ... ........... . ........... . ...... .
Earnings on forei,gn currency ................. . ...... ... . .... ... . ...... . . . .
Income from services ... .. ..... .... . ..... . ................. . ............ .
All other income ......... . ....... ... . .. ....... .... ..... . .......... ... .. .
Total current income ........ . ... ............... ....... ..... ........... .
s
1.384.919
1.055,774.529
16,607.328
40,109,734
571,323
$1 , 114.447.833
555,1146
965,834.554
20,633,487
39,224.730
524,982
$1,026,773,599
$
Current operating expenses . . . ..... . ... . ......... ........................ .
Cost of earnings credits . . .................. . ...... . . ... .... . .... ... . .... .
65,237.787
11 ,043,526
63,432,778
10,452,713
Current Net Income...... . ................ . . .... . .. ... . . ... . . .. ... .. ..... .
$ I .038, 166,520
$ 952,888,108
s
$ 108,256,617
2.5111,01 I
20,142
$ 110.787.770
Additions to current net income
Profit on foreign exchange transactions ...... . ... .... .... . . ... .. ........ .. .
Profit on sales of government securities ........ . . ... ... . ....... .. ..... .... .
All other additions .................... . . . .. . . ......................... .
Total additions ....... . ... ......... .... . ...... . ... ..... . ........ .... .
Dedunions from ,c urrent net income
Loss on foreign exchange transactions . . .. ... ........ . ...... .. .. . . ........ .
All other deductions . . .......... . ... .. ........ . ....... . ............... .
Total deductions ... . ......... ... ....... . ... . .... . .......... . ....... .
$
-01,369,885
5,885
1,375.770
$
-0-
$
28,098,147
108,533
28.206.680
$
691
691
Net additions or deductions ... .... . .... .. ............ . ................... .
$
26,B30,9IIO
$ 110,787,079
Cost of Unreimbursable Treasury Services ........ . . ........... .. ............ .
Board of Governors expenditures .... .. .. ... .... ......... ................. .
Federal Reserve currency costs .... . ............... ... . . .................. .
Total assessments by Board of Governors .... ... . . ..... . . .. . .... ... ....... .
$
1.924.431
4,620,100
10,064,330
16,608,861
$
Net Income Available for Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . .
$ 994,726.749
$
$
$
3,094.741
4,822,900
10,906,391
18,824.032
$1,044.851, I 55
T
w
D ividends paid .......... . .............................................. .
Payments to U.S. Treasury
(interest on federal Reserve notes) .................... . .......... . ... ... .
Transfer,red to surplus ......... . ........... ..... ... . .. ................... .
Total distributed ... .................................................. .
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Federal Reserve Bank of St. Louis
$
6,811 ,391
$
6,719,445
T
985.705,508
2,209,850
$ 994,726,749
1.036.752,610
1,379,1 00
SI ,044,851, 155
0
N
Cleveland Directors
(fot row) Depu,y Chairman John R M,lle,-
(second row) Robcn D. Storey, fr.u,k Wobst, Laban P. Jackson. Jr.
(ch,rd row) Daniel M. Galbreath, Cha,rrnan Charles W. Parry
(back row) William H. M•~ William A. Stroud
FEDERAL
RESERVE
BANK
OF
CLEVELAND
Chairman
& federal Reser,e A&e•t
Charles W. Parry
Retired Chairman
& Chief Executive OffKer
Aluminum Company of America
Pittsburgh, Penruylvania
WilliamH.May
Deputy Cha,nnan
Chairman & Presrdent
Fir:st National Bank
DIRECTORS
John R. Miller
Former President
& Chief Opera1ing Officer
Standard Oil Company of Ohio
Cleveland, Ohio
Daniel M. Galbreath
President
John W. Galbreath & Co.
Columbus, Ohio
Verna K. Gibson
President
N
T
The Limited Stores, Inc.
Columbus. Ohio
Laban P. Jackson, Jr.
Chairman ol the Board
0
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Federal Reserve Bank of St. Louis
lmemational Spike. Inc.
Lexington. Kentucky
of Nel!>Onville
Nel~onville. Ohio
Robert D. Storey
Partner
Burke, Haber & Berick
Cleveland, Ohio
William A. Stroud
Chairman
& Chief Executive Officer
First-Knox Banc Corp.
Mount Vernon, Ohio
Frank Wobst
Chairman
& Chief Executive Officer
Huntington
Bancshares Incorporated
Columbus, Ohio
Piccsburgh Direc1ors
Cincinnati Dircc1ors
(first row) Jerry L. K.rb)( Roben A. Hodson
l«<ond row) Kate lrebr.d, Jack W. Budwun
(first row) Milton A. W.slun,gton
(secor.d row) Stephen C Hansen. Karl M. •on der Heyden
(th.rd row) Chairman Jame• E. Haas
(back row) George A. Davidson, Thomas G. Do,ve
(back row) M•rvin Rosenberg, Robert M. Dunon
Chairman
James E. Haas
Chairman
President & Cnief Operating Officer
National Intergroup, Inc.
Pittsburgh, Pennsyl"ania
Owen B. Butler
Retired Chairman of the Board
The Procter & Gamble Company
Cincinnati . Ohio
George A. Davidson, Jr.
Chajrman & Chief E>cecucive Officer
Consolidated Natural Ga.s Company
Pittsburgh. PennS)'1variia
Jadt W. Buchanan
President
Spnar & Company, Inc.
Winchester, Kentucky
Robert M. Duncan
President
First National Bank of Louisa
Louisa , Kentucky
Robert A. Hodson
President & Chief Executi11e Officer
1st Security Bank
Hlllsboro, Ohio
Kate Ireland
National Chairman
Frontier Nur.ing Service
Wendover. Kentucky
lihomas G. Dove
Chainnan of the
Executive Committee
& Chief Executive Ollicer
Wheeling Dollar Bank
Wheeling. West Virginia
Stephen C. Hansen
President & Chief Executi•e Officer
Dollar Bank, FSB
Pittsoo rgh , Pennsylvania
Lawrence f. Klima
Presidem
Tne f irst N.acional Bank
of Pennsylvania
Erie. Pennsylvan,a
Kari H . von der Heyden
Jerry L. Kirby
Chairman of the Board,
President & Chief Execu cive Officer
Geil.ens Federal Savings
& loan Association
Dayton. Ohio
Marvin Rosenberg
Partner
Towne Properties. Led.
Cincirmati , Ohio
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Federal Reserve Bank of St. Louis
Senior Vice President-Finance
& Chief Financi.al Officer
H.J. Heinz.Company
Pittsburgn, Permsyl-.ania
Milton A. Washington
Pres.dent
& Chief Executive Officer
Allegheny Housing
Rehabilitation Corporation
Pittsburgh, Penns,yl-.ania
T
w
Lawrence Cuy
Vice President
Creighton R. Fricek
V,ce President
W. Lee Hoskins
President
William H. Hendricks
R. Chris Moore
Vice President
Sandra Pianalto
Vice President & Secretary
First V,ce President
Elaine G. Geller
Assistant Vice President
Robert J. Gorius
Assistant Vice President
Norman K. Hagen
Assistant Vice President
Robert W. Price
Randolph G. Coleman
Senior Vice President
John H. Davis
Senior Vice President
& Director of Research
FEDERAL
RESERVE
BANK
OF
CLEVELAND
OFFICERS
A
s
John J. Ritchey
Senior Vice President
& General Counse,
Samuel D. Smith
Senior Vice President
Donald G. Vincel
Senior Vice President
Marie S. Sniderman
Vice President
& Associate Director
of Research
Robert Van Valkenburg
Vice President
Andrew W. Watts
Vice President
& Regulatory Counsel
JohnJ. Wi,xted,Jr.
Senior Vice President
Margret A. BeekeJ
Assistant Vice President
Andrew J. Bazar
Voce President
Terry N. Bennett
Assistant Vice President
Lynn M. Hartig
Examining Officer
Jake D. Breland
V,ce President
Thomas J. Callahan
Assistant Vice President
& Assistant Secretary
David P. Jager
Assistant Vice President
Rayford P. Kalich
Directing OHker
Kevin P. Kelley •
Assistant Vice President
John E. Kleinhenz
Assistant Vice President
Elena M. McCall
Assistant Vice President
James W. Rakowsky
James B. Thomson
Assistant Vice President
&Economist
Walker F. Todd
Assistant General Counsel
& Research Officer
Robert E. White
Assistant Vice President
& Asmtant General Auditor
Darell R. Wittrup
Assistant Vice President
Cincinruti Sranch
Charles A. Cerino
Senior Vice President
Roscoe E. Harrison
Assistant Vice President
David F. Weisbrod
Assistant Vice President
Jerry S. Wilson
Assistant Vice President
Assistant Vice President
Andrew C. Burkle, Jr.
Vice President
Jill Goubeaux Clark
V,ce President
& Associate General Counsel
0
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Federal Reserve Bank of St. Louis
Eddje L Hardy
Examining Officer
William C. Schneider, Jr.
Robert F. Ware
Senior Vice President
T
IJ
Edward E. Richardson
Vice President
Vice President
William S. Brown
V,ce President
N
Vice President
Edward J. Stevens
Assistant Vice President
& Economist
Patrick V. Cost
Vice President & General Auditor
Randall W. Eberts
Assistant Vice President
& Economist
JohnJ. Erceg
Assistant Vice President
& Economist
William T. Gavin
Assistant Vice President
&Economi~t
David E. Rich
Assist.int Vice President
John P. Robins
Examining Officer
Terrence J. Roth
Asmtant Vice President
Pittsburgh Bnnch
Harold J. Swart
Senior Vice President
Raymond L. Brinkman
Assistant Vice President
Lois A. Riback
Assistant Vice President
Susan G. Sc·hueller
Assistant Voce President
Robert B. Schaub
Assistant Vice President
Burton G. Shutack
Assistant V,ce President
Columbus ornce
William J. Smith
Assistant Vice President
Charles F. Williams
Vice President
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Federal Reserve Bank of St. Louis
Federal Reserve Bank
of CleveJand
MAIN OFFICE
East 6th Street and
Superior AYenue
Cle,ebnd, OH 4111 ◄
216.579.2000
Cl CINNATI BRANCH
150 East 4th Street
Cincinnau, OH 45102
513.Til.4787
PITTSBURGH BRANCH
717 Granc Street
P1tcsburgh, PA 15219
◄ 12.261.7800
COWMBUS REGIONAL
CHECK PROCESSING CENTER
965 Kingsmill Parkway
Columbus, OH 4312'1
614.846.7050
This annual report was prep.ired by the
Research Department and the Pubhc
Affairs and Bank Relations Depmmenc,
Federal Reserve Bank of Cleveland. For
additional copies of this rej>Ort, contact
the Publ1C Affairs and Bank Rel.mans
Department, Federal Resene &nk of
CleYeland, P.O Box 6387, Cleveland
OHHI0I.
le 1s the pol cy of the Bank to provide
equal employment opportunity for all
employees and applicants without "&3rd
to race, religion. sex, national ongin, age,
or hand!Glp. The Ban also maintains a
wnnen Affinnacive Acuon Pbn, which s
revised annually
Des,gn: j2mie FeldExecutr,e Port~ M,ke Steinberg
Phocography: Mark Schwaru
The following a~ reprinted wich
pemm.ston. where applicable.
COYer, The Horizon Boole of che
fliz;abechJn l¾irld (ongmally published
m Compendium Milefiarom, Francesco
Mana Glllzzo. luruted ed1uon publ shed
by i Rod er, 1929). published by
Americ.in Hent1ge Publishing Co .
Inc., New Yorlc.. l'.16'1;
p.. 4. Hiklegard of Bmgen 's Medicine,
(origin.aDy from Hisconc Alph.ibecs arKJ
ln,a;i/s, publ,shed by Dover Publications,
Inc.) modified and pubbshed (1983) by
Bear & Company. P.O. Drawer 2860.
Santa Fe. NM. 87S04:
p. 6, The Honzon Book of rhe
fJ,r;ibeI.han 1-11:lrld (ongmally from the
Dance of Dah. Hans Holbein), publi~
by American Hentage f>ublislung Co.,
loc .. New Yori,., 1'169;
p.. 8, Trustees of the Brmsh Museum,
London. En-gland;
p. 11, Folger Sh.kcspeare Library,
Washington, DC:
p 13, European Folk ilnd Fairy Tales.
11lustmed by John D. &tten Jnd
published by G. P. Putnam's Sons,
~ York, 1916;
p.. II>, The Horizon Book of rile
Eli'li1belhan l1b-id (ongmally publ shed 1n
Compendium t1Jle(/Glft/m, Francesco
Mana Guazzo. ~llllted ed tion published
by J.. Rodke.-, 1929~ published by
American Henuge Publishing Co.,
Inc .. New York, 191>9,
p. 18. The Honzon Book of che
Elizabethan 1-11:lrld (originally from the
Dance of ~ch, Hans Holbein), pub11~
by Amenan Hencage Publ1sh1ng Co.,
Inc .. New York, 1969:
page borden, adapted from IfuSlracion m
Hildegard of Bingen 's Mef/,ane, I ustra1ed
by Angela C. W;meke copynght 1988,
published by Bear &Com?any, P. 0.
Drawer 2860, Sana Fe, NM, 87504.
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Federal Reserve Bank of St. Louis
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