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./Z .-:/1,.)(,/1'11 / .j
abl e to failures, banking pani cs,
poli cy d ec isions and a lac k
. /;'orr "/
and o th e r malfun c ti o ns in
of tim e ly, re liabl e info r-
banking marke ts. Th e rcs ult
mation causcd th e c ri s s,
Co mpre he nsive banking
has bee n a g radu al but mi s-
not an inh e re nt weakn css
refo rm i; urge ntly need ed.
guid ed rc placem c nt o f marke t
o r banks .
Th e ri sing cos ts o f th e fed-
fo rces and fun c ti o ns by gove rn-
e ral safe t \' nc t fo r finan c ial
mc m regul ati ons and subsidi es.
As arg ued in thi ; yea r';
instituti o ns, th e real
Rece nt pro bl c m s in
banking see m to bc roo tcd
in th e in c rcasing ass umpti o n
re;Q urce Io;ses that th c;c
annual re po n e say, treating
o f finan c ia l ri sk b y govc rn -
cos ts re presc lll, and th e
banks as se parate, uniqu e firm,
m c nt and in th e g radu al
weakened compe titive positio n
is unn eccssa ry. Finance co m-
but pe rvasive tran sfe r o f
01 banks und e r;core th e
pani es , insuran ce co mpani es ,
that ri sk awa y fro m pri vatc -
impo rlan cc o f leg islative and
and bro ke rage ho u;es provid e
sec tor d ec ision make rs.
reg ulatory ac ti o n.
m any o f th e ; am e '>e n 'ice;
Whil e th e pro blem o f
as banks. Po li c ies that
gove rnm c nt ass umpti o n o f
man) compl ex and ime rrel au:d
;e parate banking lI'o m o th er
ri sk is no t uniqu e
h sues . On e i... th e
bu sin esses leave o ur banking
it is parti c u larl y se ri o us
and o pe rati o n o f th e fed e ral
",s te m ho bbl ed and un able
in banking .
,>a fe t v ne t itse lf. An o th e r se t
to co mpe te with finan c ial
o f iss ues invo lves th e po we rs
firm s, ",hil l' in c rea'> ing
banks' spec ia l pro tcc ti o n -
Il l' bank;" th e pro du c ts th ey
th e ta x paye rs' cx pos ure to
th e sa fe t y ne t - must be re -
arc able to produ ce and ;e li,
large cos t'>- bo th in e lft -
du ccd . Financ ial re fo rm sho uld
and th e loca ti o n o r th e ir
c ie ncy and in o Lilrig ht losses
re ly o n th e in ce nti ve and
fac iliti es . i-= inall ) , th e pro pe r
fro m d c po ' it insurance and
co rrcc tivc processcs o f th c
ro le and stru c ture o r th e
pay m c ills sys tc m g uaralllccs.
marke tp lace . Regulatio ns must
Refo rm must deal with
Si/ C ,
s o pe ,
regul ati o m gove rning th e busi-
r'urth erm o re, many o f o ur
to
banking ,
The soluti o n see ms clear:
b e g raduall y c liminatc d so
ne,>,> o f banking mu st be
no ti o ns abo ut bank fa ilure;
that banks are subj ec t to th e
reex am i ned .
and sys te m i ri sk arc based o n
sam c m arke t fo rccs as arc
Reg ulat o ry po li c ies and
disto rli on o f histo ry. A cl ose r
unreg ulated, unpro tec te d
th e sa fe ty ne t have bee n shaped
loo k at th e fo rces th at led to
fin anc ial firm s. Thc res u lt
by a be li e f th at banking i'>
th e G rea t De press io n and
wi ll be a m o re e ffi c ie nt,
''''pec ial:' and that th e
o th e r, ea rli e r pani C'> '>ce m s to
co mp e titi ve , and stabl e
eco no m y i., e'> pec iall ) vuln cr-
indi ca tc th at poo r m o nc tary
fin anc ial sys te m that will no t
J
n eed lO re ly o n ta xpaye r
ub , idi e,
LO
o mp e le , o r
Federal Rese rve age nt since
wh o served o n o ur Pittsburgh
1987. Jo hn R . 1ill e r, fo rm e r
Bran h boa rd.
eve n survive , in th e finan c ial
pres id e nl and c hi e f o pe rating
m arke lpl ace.
o ffi e r of land ard Oil Com-
ca li o n o f o ur m e mb e r of the
pany of Ohio, wh o has se rve d
Fed e ral Advi o ry Council,
o n o u I' Boa rd si nce 19 6 and
Thomas II. O'Brien ( hairman,
has served as de puty c hairman
pr side nt, and c hi ef exec utive
since 1987, ha been appoinled
o ffi ce r o f P
c hairman o f o ur boa rd.
Corp), will al so be mi ssed.
Special lhanks are
Thomas O'Brien has repre -
The Fourth Di st ri c l is
g uid ed in performing ils
ce ntral bank fun Clions and
The insig ht and d edi -
Financial
providing service to f1n an ial
ex te nd ed
inst iluli o n by o ur 23
wh o have co mpl e led their
on the Advisory Council ince
direclo rs, lO wh om we eX le nd
lerms o f se rvi ce o n o ur boa rd s:
1988 and se rved as pres ide nt
o ur deepesl apprecialion . Our
William II. )\ \ay (chairman and
o flhe
dire c lo rs rep rese nt a variel),
pres id e nl of Firsl
direclo rs have c hose n Jo hn B.
of ban king . business, ag ri-
Bank o f
c ultural, com um e r. and labo r
Robe rt D. torey (partn e r,
and c hi e f exec utive officer
inle reSlS fro m lhro ug ho ul
McDona ld, Il o pkin , Burke
o f Ban c One Co rpo rali o n) to
th e Di lri
& Il aber
re prese nt th e Fourlh Di stri c l
l.
Their valuable
LO
lho e directo rs
ational
se llled the Fo urth Di stri c l
e lso nvill e ) and
0 .,
L.P.A.), wh o
ouncil in 1990. Our
IcCo)' (c hairman. presid e nt.
and dedicaled se rvice and
se rved o n o ur
g uidan ce , a, well as lhal o f
boa rd; J e rry L. Kirb y (c hair-
lhe m e mb e rs o f ur mall
m an, presid ' nl, and c hi e f
my pe rso na l gra lilud e lO th e
Bank and
m all Business
exec ulive o ffi ce r o f Citi7ens
o ffi ce rs and staff of th e Bank,
Advisory
o un c il s, arc very
Federal Savi ngs & Loa n
wh ose e nergy, c rea tivil y,
Associalion), wh o se rve d o n
and co mmitm e nt mad e 1990
o ur Cin innali Branc h board;
,1
mu c h apprec ialed.
We are especially g rale-
leve land
during 199 1.
Finall y, I wi h to ex te nd
ucce sful year.
ful fo r th e lead e r hip o r
and Stephen C. Ilan se n
Charles W. Parry, re lired
(president and c hi e f exec ulive
c hairman and c hi e f exec ulive
o ffi ce r o f Do llar Bank, F B)
o fTI cer o rAluminum Company
an d 1ilto n A.WashingLOn
of America, wh o re lired fro m
(president and chi e f executi ve
W. Lee 11 0 kin s
o ur boa rd of direc to rs afler
o ffi ce r o f Allegheny Ii o u ing
Pres ide nl
hav i ng served a c hai rman and
Re habililati o n Corporal io n ),
April II. 1991
· /l
-7},., l/,fi/~1 · f/",,/u.).IIY:
Y/,/It'IfI~1-1/Jl(;;1 lit,
The ex i ~ tin g stru c ture o r th e
U .. banking syste m has bee n
fa nn ed as muc h by regulati o n
a~
b) marke t fo rces . Th e broad
regulato ry tru c ture impl em ented fo ll owing th e finan c ial
haos o r th e Great De press io n
was shaped b~ th e b e li e r
th at th e banking bu sin ess is
"uniquc" o r "spec ial;' di .,tin c t
fr o m o th c r fin anc ial indu ~
tri es. Ye t to day, IIn ance
co mpani es, in surance co m pani es , b ro ke rage firm s and,
m o re b roadl y, ca pita l marke ts
sa fe t y ne t fo r banks - d e pos it
p rov id e many o f th e sam e
insuran e, access to th e
co ntinu e
se rvi ces as banks .
Fe d e ral Rese rve di sco unt
reg ul a to ry p o li c ies and
wind ow, and paym e nts syste m
pra ti ces will co ntinu e to
g uarantee.
beco m e less e ffec tive, and th e
Th e co nn ic t be t wee n
reg ulati o n and m arke t fo rces
has redu e d th e e m ie ncy,
Re ent fin anc ial pro bl ems
As finan c ial marke ts
to
evade r 'stri c ti o ns,
subsidi zed fe d e ral safet y ne t
stability, and o mpe titive n ss
in th e banking and thrift
fo r banks wi II beco m e e ve n
o f th e U.S. finan c ial sys te m.
industri es, whi c h are o fte n
m o re cos tl y. 1n sho rt, th e tim e
The re is a wid e~ pre ad be li e f
c ited as a rati o na le fo r
fo r finan c ial re fo rm to re place
that th e re~ t o ra ti o n o f co m-
co ntinu ed regul ati o n o r m o re
gove rnm e nt intrusio n with
pe titivc ness will require an
regulati o n, can just as easil y
co mpe titive m arke t fo rces is
ex pansio n o f powe rs lo r banks
be regard ed as th e res ult · o f
at hand .
and a redu c tion o f rcg ulati o n .
a process o f regulati o n since
The re is also co nc ern abo ut
th e 1930 . Banking reg ulati o n
th e d e l ive ry o f banking
sys te mi c finan c ia l instabilit y
has beco m e e lf~ ju tif)' ing :
se rvi ces and o bse rve that o the r
and poss ibl e cos ts to th e
regul ati o n th em selves impose
t ypes o f firm s are delive ring
cos ts and c rea te pro bl e m
th ose sa m e se rvi ces . The re is
tax paye r, as in th e rece nt
th at additi o nal reg ul ati o n
no thing inh e re nt in banking
thrift indw>try c ri sis.
e nd eavo r to co rrec t.
se n ' i es to justify se parating
6 ~--------------------------~
Th e impo rta nce o f th ese
Banks have los t marke t
1n th i essay, we e xam i ne
that bu sin ess fro m o th e r
is ues is wid e ly re og nit cd .
share to unregulated provide rs
finan c ial services . Banks'
Proposal s to re fo rm banking
o f finan ial se rvices . Th e
uniqu e ness must ste m from
have alread y bec n ad va nced,
co mbinati o n o f regul ati o n and
o th e r fa to rs, suc h as th e ri sk
and m o re arc sure to fo ll o w.
th e fe d e ral safe t y ne t has
o f di srupting o th e r parts o f
o mpre hc nsive refo rm mu st
nco uraged banks to take
th e eco no m y. Vile co nclud e
addrcss a numb e r o f diffi c ult
m o re ri sks. Th e os ts o f
that th ese sys te m ic ri sks can
i sues . Am o ng th e m will be
beari ng th ose ri ks have bee n
b e handl ed m o re e ffec tive ly
bank powe rs, th e own e rship
tran sfe rred to th e taxpaye r.
with m arke t m ec hani sm s. 1f
o f banks by no n banking finns,
Th e res ult has bee n losses to
bank s are no t treated as
th e pro pe r ro le and o rga niza-
tax paye rs and rea l reso ur e
spec ial finan c ial se n 'i es
ti o nal stru c ture of banking
los es fo r th e ec no m y as
firm s and are all owed to
regul ati o n, and th e appro priate
savings are di ve rte d to less
compe te with th e unregul ated
site and sco pe o f th e fe d e ral
produ c ti ve uses.
provid e rs of fin anc ial se rvi ces,
th e hea lth o r th e banking
th ey have received a bank loan ,
banks pl ay in providing in ter-
indu try will be maintain ed.
it is take n as good news and
m ediation, inrormation, and
th e ir stock pri ces ri se - in
tran actio ns erv ices indica tes
co ntrast to firms' announ ce-
that banks do have an impo r-
Banks pe rro I'm three primary
m e nts or ne w equity o r
tant rol e in th e eco nom y. But
fun c tion: th ey interm ediate
bo nd iss u s.
it is no lo nge r the case that
be t ween save rs and borrowers,
th ese e rvi es are provid ed
th e), process info rmati o n
mation about th e publi c's
o nl y by banks. A c lose r loo k
rega rding c reditworthin ess,
savings and transactions needs,
sho ws that many firm s fro m
and th ey playa prominent
and market va ri o us prod uc t
lraditi o nall y di slinc l indus-
ro le in th e nation's pa y-
and se rvices to m e l these
tri es - insuran ce co mpani e •
m Cllls sys te m.
need s. These info rmati o n -
fin ance co mpani es , and ap i-
ga th e ring a tivities. in turn,
ta l marke ts - co mp e le wilh
co nn ect b rro we rs with
prov id e part of th e basi of
banks in all o f th e ir tradi -
le nd e rs. providing th e publi c
banks' omparative advantage
ti o nal fun ti o ns.
with liquid d e pos its whil e
as inte rm ediari es .
As inte rm ediari es . banks
8
Banks a lso acquire infor-
.-:lJu n/- . Y;·!I'in.)
th e fund s are placed large ly
A partic ipants in o ur
with borrowers in th e (o rm
nalion's large and co mpl ex
r /t,
o f m os tl y illiquid loans. uc h
paym e nts sys te m , banks form
Consumers o f fin anc ial se rvi ces
deposits are an impo rtant
a highl y efficient ne two rk
ca re primaril y abo ut th e type
m ed ium o r exchange, and such
thro ugh whi c h huge volume
o r s rvices prov id ed and aboul
loa n are an impo rtant o urce
o r fin anc ia l tran actions lea r
lh e price and quality of th ose
or c redit in th e eco nom y.
and are se ttl ed. Th ese tran -
se rvi ces .
ac ti o ns take place among
in c reas ing ly d o, purc hase
loa n, banks acquire info rma-
re tail e rs and th ei r suppl ie rs ,
th ese services fro m a finan c ial
ti o n about firm s- mu c h o f it
fo r exa mpl e, o r among sec uri-
indu try that does no t fun c-
co nfid ential. This info rm ati o n
ti es firm s a live in the stock
ti o nall y e parate banks fro m
ca n lead to sup e ri o r c redit
marke t. Th e sys te m eco no-
no n banks.' Banks and no n-
analy is and also g ives banks
mize o n reso urces by e limi-
banks alike prov id e m a ny
an advantage in m o nitoring,
nating many cash transact ions
standard finan c ial se rvi ces :
writing, and e nrorc ing co m-
and by minimi7ing se ttl e-
loa ns. cas h manage m e nt.
plicated cove nants. As a result,
m e nt and transportation costs.
sav ings arrangements, c hec k-
In th e co urse orproviding
wh e n firm s announce that
Th e promine nt ro le
. II I ~/l/(1111'
usto m e r ca n, and
ab le d e posits, and so on .
S
o f d e posit (CDs ) o Ulslanding
po rtfo li o seco nd in sit e o nl y
Banks are slill th e do minanl
- banks' prim ary ve hicl e ror
lO C ilibank' . Am o ng all
pro vid e r o r lransac li o ns
rai sing rund ~ in th e wh o lesa le
le nding inslitulio ns wilh fin an-
c redil m arke Ls - m o re th an
c ial rece iva bl es above
doubl ed, rrom $256 billi o n lO
li o n in 198 7, no nbanks he ld
OURCES
OF
FUNDS
e rvi ces . In 19 9 0, c he kabl e
de pos ils in banks (including
541 billi o n. Al th e sam e lime,
d e m and d e pos its , m o ney
3 bil-
46 pe rce nl o f all finan c ia l
marke t d e pos it acco unlS
U .. Treasury bill s in c reased
rece ivabl es and 44 pe rce nl
[M IDAs] , and o lhe r c hec k-
fro m
o r th e co nsum e r loa ns. Banks
abl e de posils) we re 31 percel1l
Iio n , and co mm e rc ial pape r
he ld th e re maining 54 pe r-
0 1" 12 , th e Fed e ral Re~e rve
o Ul slanding in c reased fro m
ce nl and 56 pe rce nl o r loa ns
$ 124 billi o n lO $529 billi o n.
in th ose calego ri e . Th ese
ys te m's broad m easure o f
200 billi o n lO $ 4 07 bil -
numbe rs sho uld nOl b e lhal
m o ney in c irc ulali o n. Savings
and small lim e d e pos ils
E
XTENDING
surpri sing : th e larges l co n-
CREDIT
we re 4 8 pe rce nl o r M 2. BUl
Banks and no nbanks co mpe le
sum e r le nd e rs (in o rd e r o f
lran sac ti o ns d e pos ils are no
vigo ro usly in eX lending credit.
impo rta nce ) \\ e re G e ne ral
lo nge r th e exc lu sive d o main
Alth o ug h th e ro le o r bank s
o f co mm e rc ial banks.
ha s d eclin e d, bank slill
l o ney
'Io lors Acce plan e Co rpo ration, Citi co rp , Fo rd MOLO r
markel mULUal fund s ( IMJ\I Fs )
finan ce a sig nifi cant po ni o n o r
no w a co unl 1'0 1' 10.4
o ur co ul1lry's phys ical in ves t-
In th e co mm e rc ial
perc el1l o f M 2 ; cas h m akes
m e nl. Bank loan s (exc luding
le nding are na, large no nbank
up anolh e r 7. 3 pe rce nt.
m o rtgages ) acco unl ed fo r 15
le nd e rs e xl 'nd 4 8 pe rce l1l
p ' rce nl o r c redil give n
o f all co mm e rc ial loa m. r o r
Banks lo d ay co mpe le
LO
no n-
redil , and Am e ri can Ex press.
with th e gove rnm e l1l and
finan c ial busin esses in 1989 .
e xampl e , Ford MOlo r Credil
o lh e r m arke l pani c ipal1l
Today, bank s ho ld 27 pe rce nt
makes rea l 's lale loa ns and
fo r "purc hased m o ney"
o f o Ulslanding claim s aga insl
bu ys c re dit card rece ivabl es
o blain ed fro m th e wh o le -
no nfin anc ial firm s, allh o ug h
via lhrift and finan ce company
sal e c redil marke ls. Though
lhis share was 33 pe rce nl
sub sidiari e . And insuran ce
banks are ho lding th e ir o wn
in a rapidl y g ro wing marke l,
in
1980.2
co mpani es a lo ne acco unl
o nbanks also make
ror m o re than hal I' o f th e co m-
lhey fa e subslanli al
co mum e r and co mm e rc ial
m e rc ial loan s mad e by lh e
co mp e liti o n .
loa ns, and a 10 l o f th e m. Fo r
no nbank le nd ers o r lhis g ro up .!
Fo r e xampl e , be twee n
19 0 and 19 89 , ce rtifi cate s
e xampl e , G E Fin an ial
e rv-
ices has a co mm e rc ial loan
Bo th banks and no nbanks
arc dive rse . So m e , suc h as
Citicorp, ear, and Prudential,
and so ld . Th e vo lum e o f
bank loa ns as a so urce o f
a im to be finan c ial sup e r-
m o rtgage -bac ked sec uriti es
co rpo rate funding5 A m ajo r
marke ts. Oth e rs, suc h as
exceeds all comm e rc ial and
fa c to r in th e shift to capital
Banke rs Trust, Ho use ho ld Inte r-
industri al loa ns made by banks.
marke ts has been th e ad ve nt
nati o nal, and J.C. Pe nn ey,
In rece nt years, comm e rc ial
o f she lf reg istrati o n,
have a m o re sharpl y fo c used
m o rtgages, auto loa ns, and
Rul e4 lS . lnitiall y ad o pted in
range o f se rvi ces . till oth e r,
c redit ca rd rece iva bl es have
earl y 19 82 , th e rul e all ows
small e r firm s - bo th banks
bee n sec uriti zed, th o ugh th e
co rpo rati o ns to fil e just o ne
and non banks - have take n
to tal is still less than 5 pe rcent
reg istrati o n state m e nt cove r-
an eve n m o re speciali z d,
o f th ese loa ns o utstanding .
ing securiti e that may be , but
bo utiqu e approac h to provid-
These ne w instrum e nts pro-
need no t be, iss ued anytim e
ing fin anc ial se rvi ces .
vid e a way fo r banks to m ake
in th e ne xt two yea rs. Co rpo-
Pe rhaps thi s dive rsity bes t
loa ns m o re marke tabl e , to
rati o ns can also list a numbe r
de m o nstrates th e no n -
di ve rsify po rtfo li os, and to
o f inves tm e nt banks, leav ing
uniqu e ness of banks.
rem ove so me loa ns fro m th e ir
th e c ho ice o f und e rwrite r
Th e se rvices o f banks no w
bal ance shee t , in c reasing
until late r. Thi provides fl ex i-
com e fro m many diffe re nt
re turns to equity.4
bility and th e ability to ac t
firm s, both co nglom e rates
Howe ve r, firm s o th e r
EC
qui c kl y, takin g away two
than banks sec uriti ze loan,
advantages of bank loans.
whi c h is o ne impo rtant way
A m o r so phi sti cated
ca pital marke ts ma y substitute
finan c ial ecto r has deve lo ped
An area o f rapid g row th that
fo r th e inte rm edi a ti o n fun c-
a wid e range o f fl e xibl e, less
hig hlig hts th e comp e titi o n
ti o n banks ha ve hi sto ri call y
co nve nti o nal m e th ods fo r
be twee n banks and capital
pe rfo rm ed . Thi process
acquiring fund s. Securiti es,
marke ts is asse t sec uriti za-
e ro d es o ne more bo undar y
suc h as o pti o ns, 7.e ros , and
and spec iali sts.
C APITAL
MARKETS
ti o n - th e process o f c rea ting
e parating banks fro m no n -
swap, are abl e to inco rpo rate
a ne w, tradabl e asse t that is
banks, since fewe r and fe we r
mu c h o f th e fl ex ibility
ultimate ly bac ke d by th e
asse ts can be rega rd ed as
required to deal with co ntin-
o ri g inal lo an.
be ing illiquid.
ge nc ies , whi c h have bee n
th e hallm a rk o f bank loa n
Mo re than o ne- third o f
Capita l m arke t inc reas-
a ll ho m e m o rtgages mad e in
ingly provid e fund s direc tl y
ag reem e nts. Bo th bo rrowe rs
th e Unite d tates are sec uri -
to o rpo rati o ns, as marke tabl e
and le nd e rs have inc reasingly
ti n d, bundl ed into gro up ,
securiti es continue to re place
acce pted th e e inst rum e nts.
pE
PAYMENTS
In rece l1l
As m o re fi rm s have
SYSTEM
year~,
the
pay m e nl~
wh e n they d o prov id e it. T he
bcco m c in te rc led in o lTering
se ltling ac ti vit y o f ne lting
bmin ess has bccom e an are na
va ri o us kind s o f pay me nts
o ut transacti o ns and ac tuall y
o f g ro wing co m pc titi o n
sc rviccs , th e lin es be twee n
de li ve ring payme nls has
bctween banks and no n ba nks,
ba nks and no n banks have
litvo re d banks beca u e it has
alth o ugh banks still d o min alc
b lurred .
bee n so easy fo r banks lO
lh e maj o r pay m e nts m e th ods.
o ft e n bu y these se rvice
Chccks ac o unt fo r 25 pe rcent
fro m ba nk , and lh c banks
with th c Fed e ral Resc rvc-
of th e vo lum e o f paym e nts
th c mse lves o fte n bu y th ese
ce rta inl y ea ie r than
and 20 pc rce nl o f t he va lu c.
sc rviccs fro m third parti es :
cas h ac ross co unlry.
Wire lransfe rs acco unt fo r
so m e tim es a data process ing
0.04 pe rce nt o f th e vo lum e of
subsidiary in lh c ho lding
we ll -d efin ed g ro ups o f lrans-
pay me nls and 78 pc rcc nl
co mpany, so m c tim es an
acto rs m ay es tabli sh acco unts
o f thc va lu c.f'
o utsid c vc nd o r.
al co rres po nd c nt banks to
Slill , a good frac ti o n o f
o nfln ancia l firm
With fe w cxce pti o ns,
hifl lh e ir re c rve acco unts
~e ndin g
BUl in th e future , m o re
se ttl e th e ir paym c nts, as some
wh at peo pl e use a th e ir
o nl y banks and o th c r d e pOS i-
c redil ca rd compani es alrcad y
m edium o f exc hange is pro -
to ry finan c ial i nsti tu li o ns,
do . As tcchn o logy prog resses ,
vid ed by firm suc h as ea rs,
~uch
and e lec tro ni c ne two rks gc t
Pe nn ey's, and Am e ri ca n
lO have direc l acce s lO lh e
c hea pc r, th e ro le o f bank in
Ex press. Th ese firm s have a
m ajo r se ttl e m e nl sys te ms.
lh e pay m e nts sysle m m ay
large po rti o n o f th e nali o n's
The majo r settl e ment sy te ms
furth e r d e te ri o rate .
credil ca rd business , and
inc lude C IIIP (C lca ring
Am e ri ca n Ex prc 's no w has
I lo use I nte rbank Pay me nts
cash mac hin es in airpo rts. T he
as thri fts, are all o wed
ys tc m) and FcdWirc (lh e
T he co mp c lili o n banks
face in eac h of th e ir ro lcs
refulcs th e idea that regul ati o n
acces ca rd s th ey prov id e to
Fede ral Rese rve ys te m's
is needed because banks o r
th e ir c ustom e rs have an evc n
c lc lro ni c co mmuni ca ti o n
th c se rvi es th ey produ ce are
m o re pro mi sing future: th e
nelwo rk) .
uniqu c. Vigo ro us competiti o n
Th e c lca ring aC li vit y o f
prov id cs th e bcsl sa fcguard
m ati o n fro m wh ic h th e
prov iding info rm al io n abo ut
against fin anc ial co ncentra-
c ustome r's acco unl ca n be
wh o owes w ho m n ed no t
ti o n. Evc n small in vcs lo r
auto m ati ca ll y d ebi ted and
no w thro ug h a bank and, a
choose MMMFs, c redit ca rd s,
c redited , whil e th e acco unl
me nti o ned above, m any banks
and m o rtgagc bro kc rs-
balance ea rn s intc res t .
co ntrac t o ut fo r thi s se rvice
indi ca ting a ca pac ity to use
ca rd s ca n ca rry acco unt info r-
CD
info rmati o n wh e n ince lllives
banks a th o ug h th e) we re
acco mpani ed by run s and
ex ist lO prov id e it.
uniqu e is to safeg uard th e
pani cs th at see ming ly prec ip -
eco no m y in ge ne ral , and fInan -
itated eco no mi c co ll apses .
Instead, th e case fo r banks
be ing uniqu e mu st res t o n
c ial marke ts in pa rti c ular,
o n equ e llli y. th e re are two
o th e r co nsid e rati o ns. Pe rh aps
aga inst fin anc ial pani c and
co nce rn s abo ut bank fa ilures
co nsum e rs need pro tec t io n
co llap e . By pro tec ting indi-
to day: th at banb' lin e o f
fro m th e info rm ati o na l ad va n-
vidu al d e po ilOrs and banks
busin e s makes th em pro ne to
tages gain ed by ban ks. Pe rhaps
from th e e ITe ts o f bank fa ilure,
fa ilures and pani cs ; and th at
th e pro min e nt ro le banb still
th e arg um e nt goes , th e e o n-
bank failures have a c rippling
pl ay in inte rm ediati o n and
o my is insul ated fro m sys te mi c
im pac t o n th e wid er eco no m y.
paym e nts poses pro bl e m s o f
ri sk.
far wo rse than failur es o f
sys temi c ri k o r co ncelllrati o n
up th e image o f wid es pread
o f finan c ial po we r.
fa ilure o f banks, wh e re o ne
Ifbanks are uniqu e o r
s pec ia l. it is b eca use o f th
ri sk o f di srupti o n
to
asp c t o f eco no mi
o th e r
life th at
y te mi
ri sk co njur 'S
bank failure cau ses o th e r
banks to fail , and so fo rth.
Unfo rtunate ly. th e
co mm o n vi ew o f bank failure ' ,
similarl y sited industri al f1ml s.
R .UNS
AND
PANICS
V hy mi g ht bank be m o re
pro ne to failure th an o th e r
~~------------~(})
mi g ht res ult fr o m malfun -
whi c h is roo ted in th e finan c ial
t ypes o f e nte rpri se are? It
ti o n o r di so rd er in th e banking
co ll a pse o f th e 19 30s. is mi s-
ha bee n arg ued that th e
svs te m. Th e d es ire
leading. It ove re mph as i7 es
fra ti na l rese rve stru c ture o f
o r avo id u h sys te m ic ri sks
th e like lihood and e fTcc ts o f
th e banking sys te m m akes
was an impo rtalll facto r m o ti -
fin anc ial frag ilit y and has bee n
th e illle rm edi ary process
vating th e specia l trea tm e nt
used to ju sti fy res tri c ti o ns,
vuln e rabl e to runs and pani cs.
o f banks and . supposedl y, justi -
reg ul ati o ns. and a safe t) ne t
Und e r a frac ti o nal rese rve
fying th e sa fet y ne t o f fe d e ral
to pro tec t th e banking
sy te m. a bank m ay no t have
d e pos it in surance , access
industry and th e publi c .
e no ug h read y cas h to m ee t a
th e di sco unt wind o w, and pay-
Thi s mi inte rpre tati o n is
co nce rted cas h withdrawal. If
m e llls y te m g uarantees.
res po nsibl e fo r m aking th e
a bank we re fo rced to liquidate
ba nking industry less co m -
ass ' ts q ui kl y. it mi g ht
pe titi ve and fo r shifting lOO
o bta in fa r less th an th e asse ts'
mu c h ri sk to th e publi
illlrinsic va lue (th e lire ,a le
Ili sto ri ca ll y, bank
proble m) . Th ose d ep ressed
to
redu ce
lo
. Y'yj(~ nll/' .1f,;JJ
~/
. /.)
£'"
//
().rr(11,·'a,n
Th e rat io nale fo r th e sa fe t y
net and fo r regul ati o n trea ting
fa ilures o ft e n ca m e in waves.
asse t pri ces co uld redu ce th e
c urre nt m arke t value o f o th e r
suppl y to shrink ra pidl y, with
Peo pl e fear that if a few banks,
banks' asse ts and inc rease
th e class ic case o f this be ing
o r even o ne pivo tal bank, ca n-
banks' vulne rability to run s.
th e Great De pre sio n . As
no t settl e (that i , pay aga inst
banks fail ed , de po ito rs los t
th e cl aim s prese nted to it) ,
whi c h we asse rt is m o re
co nfid e nce in banks and
othe r banks counting o n those
accurate, is that in a fra cti o nal
withdre w th e ir m o ney. Banks
fund s wo uld become un abl e
rese rve banking sys te m ,
pro tected th e m e l ves by
to settl e, and failures co uld
pani cs are caused by a lac k o f
ho lding m o re cas h , whi c h
spread . With th e usual process
info rm ati o n ab o ut th e co ndi-
e xa ce rbated th e pro bl e m .
fo r co mpl e ting transac ti o ns
ti o n o f indi vidual banks.
Co nsequ e ntl y, a give n
co mpro mi sed , routin e co m -
During a recession o r a c redit
m o n tary base supp o rted far
m e rcial transac ti o ns - selling
c runc h, peo pl e might suspec t
I ss m o ney th an had bee n
stock , pay ing wo rke rs, and
that so me banks are d o ing
ci rc ulating, and th e m o ney
bu ying g roceri es - co uld
poo rl y. but th ey d o n't kn o w
suppl y dro pped by a third.
becom e mu c h mo re diffi c ul t,
the tru e xtent o f the probl em
Thi s dee pe ned an o rdin ary
if no t impossibl e .
o r xac tl y whi c h banks are
rec ssio n into th e landmark
in tro ubl e . Eve n if th e e ntire
eco no mi c co l laps o f th e
sys te m is so und and so lve nt,
twe nti e th ce ntury.
An alt rnative vi e w,
CD
peo pl e do n't wan t th e i r
Apart fro m shrinking th e
TH
E F A I l U REF All A C Y
Earli e r in o ur nati o n's hi sto ry.
banks ad o pted prac ti ces
de pos i ts stu c k in th e o n ·
m o ney suppl y. bank failures
co nsiste nt with survival in a
bank th at ac tuall y has a fatal
ca n c lose o ff bo rrowe rs fro m
less- reg ul ated e nviro nm e nt
pro bl e m. Unfo rtunate ly, in
fund , o r o th e rwise di srupt
and , in ge ne ral, th e ir adapta-
th e c urre nt siruati o n, th e
c redit re lat io nships by making
ti o ns we re su cessful. In th e
pe rvas ive presence o f th e
fund s m o re dirtl c ul t and cos tl y
year be fo re th e D press io n.
fede ra l sa fe ty ne t dimini shes
to o btain . Bank failures
banks suppressed pani cs by
th e ince ntives fo r banks to
inte nsifi ed th e De press io n
" c urre nc), suspe nsio n:' Banks
prov ide suc h info rm ati o n and
in th e U. S. re lati ve to th at
sto pped co nve rting no tes and
fo r co nsum e rs to use suc h
ex perie nced in co untri s
de po its into go ld (o r
info rm ati o n.
suc h as Ca nad a, w hi c h had no
g ree nbac ks ). Und e r suspe n-
bank fa ilures.
sio n, banks did no t c lo e;
Co uld multipl e bank
fa ilures affec t th e e ntire
Bank f.l ilure co uld have
t hey c lea red c hec ks, and th ey
eco no my? Multipl e bank fail-
a broad eco no mi c impac t o n
m ad e and se rviced loa ns.
ures co uld ca use th e m o ney
th e pay me nts sys te m, too.
O fte n , th e banks all owed
withdrawa ls fo r small am o unt
o nl y 1.3 pe rce n t of t he
Fed e ra l Rese rve was c rea ted
o r fo r m ee ting pay ro lls. In
ba nks fa il ed, and d e pos ito rs
in 19 13, pri vate clea ringho uses
so m e ex t re m e cases, th e
o f th ose fail ed banks 10 t, o n
and pri va te insurance fun ds
c lea ring ho use assoc iati o n
ave rage , 2 .1 ce nts fo r eve ry
ac ted as le nd e rs o fl as t reso rt .
wo u Id iss ue ce rti fl ca tes th at
d o ll ar o f d e pos its. Co nve n-
ince th e De pressio n, d eposit
se rved as m o ney.
ti o nal wi sd om also exagge rates
insurance and an ex pand ed
losses in th e ea rli e r Free
Fed e ral Rese rve have fu rth e r
as a de fe nse aga inst bank
Banking Era, wh e n banks
suppl ante d clea ring ho uses
fa ilures. Branc hing all owed
iss ued th e ir own c urre ncy.
and ot he r m arke t m ec hanism s
banks to di ve rSify geog raphi -
I n fac t, using ba nk no tes was
to pro tect aga inst ri sk and
as afe as using go ld. M
fin anc ial fa ilure.
Branc h banking also ac ted
all y, so th at cash d e m and s,
loca l fraud , o r ad ve rse
M isco nce pti o n also sur-
c hanges in loca l busin ess
ro und s th e m os t fea rso m e
we re no t fa tal. Branc hes
banking pani c, th e Grea t
A fa lse di ag nos iS o f pani cs as
co uld poo l and shift cas h and
De pressio n. Bank fa ilures
rand o m o utbrea ks th at sud -
ex pe rti se to m ee t loca l
co ntri b uted to th e c ras h in
d e nl y strike an illiquid
e m e rge nc ies. The rem arkabl y
mo ney, but th e Federal Rese rve
frac ti o nal rese rve sv te rn has
small e r numbe r of fa ilures
co uld have o ffse t thi by
led to inappro pri ate banking
and pani cs bo th in Canada and
m aintaining th e mo ney suppl y.
po li c ies . Thi s inte rpre tati o n,
in th ose U.. states that
I MPERFECT INFORMATION
o nsequ e nti y, th e G rea t
whi c h stresses th e unpredi t-
all o wed branc hing tes tify to
De press io n re prese nts a
abl e and myste ri o us conditi o ns
its e m cacy'?
fa ilure of rn a roeco no mi and
p ro m ting banking pani s,
m o ne tary po li cy, no t o f
se rves to j usti fy too m any
banking prac ti c es o r po li cy.
regul atory presc ri p ti o ns th at
T he uph eava l o f th e
De press io n ha I d to di to n ed inte rp re ta ti o n abo ut
Furth e rm o re , th e Grea t
a re rea ll y pl acebos.
previ o us banking pani cs in
Dep ress io n was uni q ue in
th e nin e tee nth ce ntury. But
ano th e r res pec t. T he Fed e ral
t io n th eo ry, whi c h leads to
co ntrary to po pul ar no ti o ns,
Rese rve was no t an e ilcc ti ve
ve ry diffe re nt po li cy co nc lu-
no nba nk firm s fa il ed m o re
le nd e r o f las t reso n in th e
sio ns, prov id es a supe ri o r
freq ue ntl y th an ba nks did
1930s, th e re by co nt ributing
ex pl anati n o f pani cs. Bank
during th e
bo th to th e sharp d ecli ne in
pani cs , in fac t, fo ll o w a
Era ( 1864- 19 14 ). In th e m os t
m o ney and c red it and to
p redi c tab le pa tt e rn, and
seve re ba nking pani c ( 1873),
banking fa ilu res. Be fo re th e
occ ur w he n th e fa ilures o f
ati o nal Banking
T he impe rfec t - info rm a-
CD
no nbank firm s reac h a
o n fa ul ty co nventi o nal wisdo m
pro bl e m loans no r th e loss o f
thres ho ld leve l.
abo ut banking failures. Th e
purc hased rund s had a sig nifi-
Co ntin e ntal Illin o is resc ue i
ca nt impac t on o th e r bank
Grea t De pres io n, banks
wid e ly regard ed as th e o nse t
stoc k pri ces.
ge ne rall y we re no t strapp ed
of th e "too big to fail" doc trin e,
fo r cash during pani cs. Banks
a prac ti ce that e nco urages
ne ws of Co ntine ntal's diffi-
could qui c kl y obtain fund s by
large banks to de pe nd o n
c ulties did not produce a large
liquidating th e ir large
regul ators all th e m o re . The
shift o f fund s o ut o f th e U . .
ho ldings of marke tabl e
bail out orContine ntal in 1984,
banking sys te m. The re was a
in whi c h uninsured d c posits
ni g ht to qualit y, ho weve r,
arrival o f fund (go ld)
(m o re than 90 pe rcent of
with inve tor transre rring
suffi c ie nt to mee t th e public's
de posits ) we re ex pli c itl y
fund s to sare r banks and m o re
de mand was o rte n no t suffi-
g uaranteed by th e fede ral
sec ure de posi tS.11
c ie nt to stc m pani cs . I twas
gove rnm e nt, was rati o nali 7Cd
o nl y wh e n th e publi c received
as a m ean o f pro tec ting
e xplain away th e marke t'
e noug h info rmati o n to o rt
small er banks ho lding deposits
di savo wal o r co ntag io n ri sk-
out th e sare rrom th e failing
with Co ntin e ntal. Offi c ial s
sig na led by th e small reac tions
banks that th e pani c subsided.
co nte nd ed that sm all e r banks
in the stock marke t and mo ney
mig ht fail irCo ntin e ntal
no ws - as co nfid e nce in th e
good banks with th e bad.
co uld no t ho no r its obligations
too big to fail doc trin e . Thi s
Befo re th e De pressio n, in part
to th e m. In re tros pect,
on ly re inforces th e point.
because banks he ld mu c h
regulato rs we re also co ncerned
Co ntine ntal's exposlll'e to high
m o re capi tal th e n they now
that th e funding so urces o f
ri sk stemmed fro m an e rosio n
do , ve ry fe w oth e rwise
o th e r large banks wo uld
o f incenti ves to protec t against
solve nt banks fail ed because
become unstabl e if Continental
loss. A cl ear precommitm e nt
o f bank run s. 9 Rath e r, th e
we re pe rmitted to fa il. 10
to all ow th e ri sk o f failure to
Furthe rmore, be for e th e
ec uriti es . Moreove r, th e
Pani cs did no t drag down
pani cs so rted o ut th e so lve nt
and inso lve nt banks.
Evide nce fi'om th e m arke ts arg ues aga inst an y large
In similar rashion, th e
On e ca n, o f co urse ,
fall on banks would cau se
banks to take o n less ri sk. 1l
co ntag io n e ffec t o f a Co nti-
Too
BIG
TO
FAIL
o luti o ns to co nte mpo rary
ne ntal failure upo n o th e r
bank.
e ithe r Co ntine ntal's
P AYMENTS
SYSTEM
GUARANTEES
Co nce rn s abo ut sys te mi c ri k
banking pro bl e ms are , unfo r-
ann o uncem nt o f a large
have also innu e nced th e
tunate ly, based all to o o fte n
inc rease ( 400 milli o n) in
reg ul ati o n and o pe rati o n o f
th e payments mechanism.
passed directly on to the
reduce th ei r ex pos ure to any
With a few exceptions, o nl y
Federal Reserve Sy tem. This
o ne fa ilure. Private lin es of
banks have clearing and settl e-
leads to daylight ove rdrafts,
c red it co uld also prov ide
ment pri vileges o n the nati o n's
o fte n exceeding $50 billion
needed liquidity during
paym ents sys tem. By restri cting
eac h day, where banks wir
e m rge nc ies . 1J
access and by regulating th e
fund s o ut be fo re th
settling of paym e nts, th
are wired in .
Federal Reserve ha attempted
I n th e absence of th e
funds
safe ty n t , man age rs o f banks
would maintain large r
Th e ass umpti o n o f
to provide tabi lity to thi s
res po nsibility by th e gove rn -
c u hi o ns in th e fo rm o f cas h,
impo rtant sys te m.
ment fo r so me o f th e ri sks
liquidit y, and ca pital , raising
inherent in the paym nt proc -
th e thres ho ld o f payme nts
ess reduces th e paym e nts
g ridl oc k and
sys te m's ince ntive to deve lop
run s, and redu c ing inte rbank
its ow n de fe nses against th ese
ex pos ures . Mo reove r, pri va te
C III P o r FedWire, banks ca n
ri sks. Other marke ts success-
ri sk-co ntro l m eas ure would
und e rtake and se ttl e larg
full y re ly o n private
be deve loped and adopt d a
transa tions for parti es abo ut
c lea ring ho uses. I n fa t, the
whi c h th ey have inad equate
stock and o pti o n exc hanges
bank manage rs so ug ht o rd e rl y
have improved th e ir ri sk
ways to redu ce the ri sk o f
banks und e rtake suc h ri sk?
managem ent systems to lessen
failure. Ince ntives to
In th e ca e o fCIIIPS , th e
th e impac t of de faults, as
d emand and use info rmati o n
cos ts associated with a failing
vo lum e has inc rea · d and
about the financial co nditi o n
party are reduced by the
defaults have become po te n -
and prac ti ces of banks would
probability o f the Federal
tiall y m o re damagi ng.
be g rea t! y st re ngt he ned.
Federal Rese rve over ight
of th e payment
yste m
rea tes real, but less o bvi o us,
di sto rtions. Through
ith e r
redit info rmati o n. Why d o
Rese rve's suppo rt of that
I c tro ni c bank
~----------------------4
Paym e nts system parti ci -
party - via a dis o unt
pants co uld take imilar ste p
window adva nce - in o rd e r
to protect against ri sk.
to maintain th e integ rit y
pro posa l is to pri ce or limit
re lu tant to let banks, ven
of th e e nti re sys tem.
the day light ove rdrafts now
medium -s ized banks, fail
On FedWire, the Federal
allowed o n FedWire. Without
outright? One reaso n may be
Reserve g uara ntees paym e nts
g uaranteed support, banks in
the desire, o n th e part of
und e r th e policy of paym e nts
the system would diverSify
regulators as well as co n-
finality, so c redit ri sk is
among their res po nd e nts to
sum ers of financial se rvi ces,
ne
R
EGULATORY
INCENTIVES
Why ha v r g ul ator been
0
7
to avo id all ri sks o f wides pread
de pos itO rs, insured and
pri vate-sectO r initiati ves
failure th at co uld re ult fro m
uninsured alike , and o fte n
aga inst ri sk. In o ur vie w, th at
a fail ed bank , eve n wh e n th at
o th e r de btors o f th e sic k
is c lose to be ing th e case in
ri sk is ve ry small .
bank as well.
th e United States , wh e re th e
Ano th e r reaso n is that
Regul alOry trea tm e nt o f
afety ne t has been substituted
regul ato rs ca n co nse rve th e
in solve nt banks di ffe rs fro m
fo r pri va te capital and
cash in th e de posit insuran ce
o th e r comme rc ial bankruptcy
liquidity. The effect is
fund by findin g ways lO avo id
procedures . Thi s c rea tes
pe rverse because it und ennin es
pay ing o ff th e de pos ito rs o f
dange ro us ince ntives fo r
fin anc ial ince ntives to
unh ea lthy banks, that is, by
regulato rs. Fo r exa mpl e,
co ntro l ri sk in fin ancial
no t ac tu all y all owing a bank
becau se it can ac t bo th as a
m arke ts. 15
lO f.li1. Finall y, reg ul atO rs
c laimant and as bank man age-
may want lO avo id fa ilures
ment in th e failure-resoluti o n
e lectro ni c tec hnol ogies and
beca u e a bank f.l ilure can be
process , th e FDIC is subj ec t
more deve lo ped bo nd, futures,
seen as an inc riminati o n o f
to a co nfli c t o fint e res t . 14 Th e
and de rivative sec uriti es
th e reg ulalOry process itse lf.
FDIC does no t ac t so le ly as
marke t all ow banks to add
I f reg ulati o ns are e ffec tive ,
an insure r, co ncern e d with th e
ri sk fas te r and more readil y,
th e th o ug ht goes , why are
lo ng-te rm viability o f its
if th ey des ire to . Thi s
banks failing?
insurance fund . Th e FDIC has
ri sk-taking is inc reaSingly
bro ad powe rs to co ntro l th e
dange ro us as inso lve nt firm
banks to f.li1 can be ve ry cos tl y.
o pe rati o ns o f weak banks,
play th e gam e fo r large r and
Reg ul alOrs reso lve m o t bank
including se i7ure o f th e bank
large r stakes. Eve n insolve nt
failure using th e "purc hase
and o pe rati o n o f it directl y as
thrifts pursuing a go-fo r-bro ke
and ass umpti o n" m e th o d . In
a receive r. All too o fte n, good
strategy we re abl e
thi s m e th o d, an o th e r (pre-
m o ney i thro wn afte r bad.
fund s fro m d e pos ilOrs ac ross
The re luc tance to all o w
sum abl y hea lthy) bank
In sho rt, sys te mi c ri sk,
Co nstantl y improving
10
o btain
th e Unite d States thro ug h
purc hases th e ub-par bank as
prope rl y viewed , is no t a
we ll -develo ped nati o nal
a go ing co nce rn, o btaining
catastro phi c pro bl e m , e ith e r
capital m arke ts.
its de posits and asse ts. Th e
in th e paym e nts m ec hani sm
FDIC o fte n add s m o ney to
o r in finan c ial m arke ts m o re
may be te mpted to ado pt
co mpe nsat e th e acquiring
gene rall y, unl ess th e mi sguid ed
risk y strateg ies if too
bank. Thi s transac ti o n e nd
e ffo rts to pro tec t aga inst
man y bank ge t into tro ubl e .
up pro tec ting all o f th e
systemic ri sk diminish effecti ve
Whe n the de po it fund ca nno t
Reg ulatOrs th e m selves
-.
_
...
~-- -'~-~-.:--= :-~~ -.~---:..: .. -:
--===~
~-----
~:.:---:-- -::.::-?:~
-'- - - - - ---
-_.'--:'.---:: :.:--: .- -' ---==-==:::-_.
.
::-=:~-
co ve r e xp ec ted 10 ses, ilS
g uardi ans ca n o nl y inslilute
fo rb earance po li c ies lO g ive
bank fund c lea rl y indi cates
m e nt, lhi s "pro lec ti o n"
ig nifl cant additi o nal
aCluall y c reates vuln e rabilil Y
ta x paye r e xpos ure.
wavward ba n~ ano ther chance .
Reg ulato rs ho pe th ese be t
will pay 01'1'.
Th e like ly o utco m e o f
thi ~
co nstantl y c hang ing e nviro n-
and in c rcases th e COSlS o f
6/I11t Ina 11/~1
lit, tj,;)lllIrll(
bank failures. Co nsid ering th at
th e go al o r reg ul ati o n sho uld
1/
o be l Laurea te Jam es To bin,
be to co rrec t marke t failures
in a c lass ic lreatm e nt o f
that re tard eco no l11 ic g rowth
mu l ante up aga in. Th e
banking nearl y 30 yea rs ago .
and we ll-be ing. finan c ial
tran sfe r o f ta xpaye r ' lund
summ ari7 ed his vi ews on many
regulati o n sho uld fo~ t e r th e
sce m s es pec iall y absurd in th e
o f th e iss ues di sc ussed
ac tiviti es and se rvi ce that
case o f th c rec kl ess savings
t h is essay a~ fo ll o w~ :
approac h is lhat tax paye rs
III
se rve to pro m o te lhat g rowth.
Fo r exa mpl e , co ncc n-
and loa ns, in whi c h th e
Th e dislinClion belll'cen
trating reg ul ato ry atlc mi o n
d e pos ito rs' m o ney was used
commercial banks and olh er
o n spec ifi c se rvi ces provid ed
to build, am o ng o lh e r lhings,
fi nancial intermediaries has
by banks d e Oec ts e ne rgy fro m
see-th ro ugh o fTI ce bu i ld i ngs .
CD
been LOO sharph drall n. Thc
large r iss ues . Th e lesso ns
e mpt y mall s, and unb oo ked
diffcrences are of degrec, nOl oJ
o f capilali sm sugges t lhal we
dese rt re o rt s.
kind .. .. In! olhcr fi nanCia l
sho uld rcs pec t di ve rsit y in
ES limates publi she d by
in d usl ~I
subjccl LO lh e sa mc
how film stru cture themsc lves
lh e Trcas ury De panm c nt
kind ofrcsulaLions lI ·ould behclI'e
lO d e live r se rvi ccs , p ro m o lc
place th e prese nt valu e o f
in much th c sa mc 1I·D.1 . 1o
co mp c titi o n am o ng c urre nt
re o lving th e failures o f
ro ughl y 600 thrift inslitu-
A~
li o n. targe ted fo r a i tancc
th e appare nt uniqu e ne s o f
and e nco urage co nsum e r
at so m c wh c re be twee n
banking res ults fro m gove rn -
c h o ice thro ug h th e p rov isio n
5 150 billi o n and $200 billi o n.
m e nt reg ulati o ns. We be li eve
o f b e tte r info rm ali o n.
Pri va te es tim atcs go hi g he r. If
th al d e posil insurance.
ano th e r 400 o f th e c urre ntl y
pa ym e nts sys te m g uarantees .
sys te m ca n d o a be tt e r jo b
lro ubl ed thrifls fail, th e
and spcc ial ba nkruptcy rul es
than is co mm o nl y supp osed.
es timales inc rease by ano lh e r
are exampl es o f situati o ns in
The g rowth 01' no n banks and
$ 100 billi o n . l o re
whi ch regul ati o n has artifi Ciall y
a m ore reasoned ime rpre latio n
impo rtant. rece nt evid e nce o n
" stabilized " an indu stry.
o f th e hi slO rv o f bank
th e ad eq uacy o f th e FDI C
To bin o bse rvcd , mu c h o f
in ce all indu stri es ex ist in a
and po tenti al sc rv ice provid ers,
We think th at th e marke t
failures suppo rt thi s id ea
and, taken to th e ex tre m e ,
make a strong case for lotal
deregulation o f th e banking
indu stry. While some kind of
financial safety net might be
usefu l, th re should b no
presum ption that it take the
form of th e curre nt ostly, and
co m pletel y pu bl ic, system.
Financial re form i
moving onto the legislative
agenda. This re form shou ld be
haped to rely on market
forces and outcomes. II' it was
ever correc t to treat banking
as a uniqu e vehicle - a
eparate line of co mmerce - it
is not co rrec t no\\'.
Th e stead il y in creasi ng
cos ts of ignoring or blocking
evoluti on within th e financial
ervices industry make it
imperative for all of usconsumers, producers, eve n
regulators - to face the
c hall enges ahead. Continuing
to rely on regulatory direction wi II further weake n the
compet itiveness of the U. S.
banking system, misalloca te
scarce re ources, and undermine the long-term growt h
and stab ility of o ur economy.
Banking has been trc" ted a,
though it is a se parate "line of
co mmerce" fro m o ther Ilnanci al
se rvi ces . From an cconom ic
perspective, a lin e o f comm erce
is a distin t product marke t, a
se t o f goods and ,e n 'ices 10 1'
which there are on ly wea k
substitutes. Genera ll y, banks
arc dell ned as IIrm s that prov idc
checkabl e transacti o ns depo its
- a"ailabl e at par on demand and make comm erci al. industrial.
and co nsum er loa ns. The te rl11
"banks;' as used througho ut thi s
essay, encompasses all depositor)
Ilnan c ial instituti ons, in c lud ing sav ings and loa ns and
credit uni ons.
A m ore dramati c decline in
marke t share occ urred in lending
to largc co rpo ration s, those best
able to use the ca pital market.
Frol11 1975 to 19 6, banks' share
o r th e sho rt-te rm debt or luge
co rporations fell by almost hair,
rrom 50 percent to 27 perce nt.
This sharp dec line in market
share see ms to indi ca te that
banks have not been able [0 CO I11pete in thi s very active, rapidl y
ex panding market ror commercial
lending to large, high-qualit ),
borrowers.
CD
The data o n large instilUti o ns arc
from Linda Ag uilar, " Still Toe to-Toe: Banks and No nbanks at
th e End o r th e '80s:' Fede ral
Reserve Bank o r Chicago, Economic
Perspeclives (J anuary- Febru ary
1990). PI" 12-23 .
4
Fo r a m o re e xte nsive di scuss io n.
sec Lo we ll L. Brya n, Breaking Up
the Bank (Dow Jo nes- Irwin. 1988 ).
chap. 6.
On th e o th er hand, banks do
play an impo rtant rol e in sup po rting co rpo rate bo rro wing
rro m no nbank sources. o r th e
1,400 issuers o f comm erci al
pa pe r in 1988 . o nl y 56 o r them
did no t bac k that pape r with a
100 pe rce nt lin e o r c redit rro m
a bank (c redit co mmitm ent). or
th ose 56, o nl y 15 had less than
50 pcrcent backing, and no nc less
than 10 pe rcent . ee Charl es W.
Calomiri s. "Th e Motivati o ns ro r
Loa n Commitm ents Backing
o mm erc ial Pa pe r:' Journal of
Banking and Finance (May 1989 ).
PI" 27 1-78.
In additi o n, m erge rs and
acqui siti o ns (M&A s) arc o ften
f'inan ced initi all y by bridge loans
rro m banks whil e o th er runding
is be ing arranged . Banks al so
prov ide much e xpe rtise and earn
ree incom e in M&A and LBO
(l eve raged bu yo ut) ac ti vities.
CD
6
7
in th e Propagati o n o r the Grea t
Depression;' A merica n Economic
RevIe'" (Jun e 1983 ). Pl" 257- 76;
Jose ph G. Ilaubri ch, " Nonm o ne tary Errec ts o r Financ ial
C ri ses: Lesso ns fro m the Grea t
De press io n in Canada:' Journal
of Monetar), EconomICS . vo l. 25
(1 990). PI" 223-52; and Charl es W.
Calomiri s, " Is De posit In surance
ecessary? A Ili sto ri cal Perspec tive :' Journal of [conomlC
lIisLO~Y (June 1990 ). PI" 283-96.
Additi o nal dctails o n th e
paym e nts sys te m can be ro und in
Mark J. Fl ann e ry, "Paym ent s
System Risk and Publi c Po li CY:'
in Willi am S. Ilarar and Rose
Mari e Kushm eid cr, cds.,
Rest ructuTlng Bonking and Financwl
Services in America (Am eri can
Ente rpri se Institute, 1988 ),
PI" 26 1-87.
Di sc ussio n o n branc hing and
its e rrec ts o n bank railures and
th e eco no my ca n be fo un d in
Ben S. Be rnanke, " o nm o nctary
Errec ts o f the Financ ial C ri sis
8
9
'0
T he my th~ o f th e Free Banking
Era arc de bunked in m o re detail
in Arthur Ro lni c k and Warre n E.
We be r, .. ew Ev id ence o n the
Free Banking Era;' America n
Economic Revie" (December 1983 ),
PI" 1080-9 1; and Gary B. Go rto n
and Do nald J. Mullin eau x , " Th e
Jo int Produ c tion o fCo nf'id ence:
End ogeno us Regul ati o n and
ineteenth Century Co mmerc ial
Bank Cl earinghouses:' Journal
of Mone}. Credit and Banking
( ovember 198 7), PI" 4 57-68 .
A criti ca l co mpari so n o f banking pani cs can be fo und in Gary B.
Go rton and Charl es W. Calomiris.
"Th e O rigins o r Banking Pani cs:
Mode ls, Facts. and Po li cy
Impli cati o ns:' in R. Gl enn
Ilubbard , cd .. Financial Ma r~"ts
and FinanCIal Cnses (Uni ve rsit y
of Chi cago Press ro r the Nati o nal
Burea u o r Econo mi c Researc h,
ro rth coming ).
,2
Sec Walker F. Todd and Jam es B.
T ho mso n, "An Insid er's Vi ew o r
th e Po liti ca l Econo my o f the
Too Big to Fa il Doc trin e :'
Fede ral Rese rve Bank o r
C leve land. 1V0rklng Paper 90 17
(Decembe r 1990) .
,J
Th ese and o the r re lated po ints
are ro rce full y arg ued in Marvin
Goodfri e nd and Ro bert G . King ,
" Financ ial De regul ati o n.
Mo netary Po li cy and Ce ntral
Banking:' Federal Rese rve Bank
o f Ric hm o nd , LconomlC Rev,""
(M ay/ June 1988 ). PI" 3-22 .
'4
Fo r a d etail ed compari so n. see
Mi chae l Do tsey and Anato li
Kupri ano v. "Re ro rming De posit
Insuran ce: Lesso ns rro m th e
Savi ngs and Loa n Crisi :' Federal
Rese rve Bank o r Ri c hm o nd,
I' conomic Review (March April
1990). Pl" 3-28 .
'5
An e xcell e nt , tho ug h techni cal .
cstimate o r this errect is in George C.
Pe nnacc hi , "A Reexaminati o n
o f th e Over- (O r Und e r-) Pricing
o r De pos it Insuran ce:' Journal
of . lton~' . Credll and BonklnB (August
1987 ), PI" 340 -60.
,6
James To bin, " Comm e rc ial Banks
as Creato rs o r Mo ney ;' in Deane
Carson, cd .. BankinB and Moneta ry
StudIes (Ri chard D. Irwin. 1963 ).
PI" 40 8- 19 .
Fo r an in sider's acco unl, see
Irving II. Sprague, Bailout (BasiC
Books, 1986 ).
Th,s essa) presents this Bank 's
"
Mo re de tail s o n market reacti o ns
arc in Anth o ny aunde rs, "The
Interbank Marke t, Co ntagio n
Errec ts and Internati o nal
Financ ial Cri scs ;' in Ri c hard
Po rtes and Alexander K. Swo boda,
cds .• Th reats to In U!rnallonal
Fma nclOl Stab llm (Ca mbridge
Uni ve rsit y Press . 1987 ), chap. 6.
"jews aboul th e u'nent need (or
comprehenSIVe banking reform that
aI/oil's mad" t competlLlon 10 replace
costl" government Teg ulations and
subsidies. Th e vIews e' pressed In
this essal' are not necessari/l shared
bl' the other fede ral ReseTl'e Banks
or~' the Board of GOIwnors of the
fede ral Reserve Srstem.
,4~let« l , ~'~'ll'( //Ja nA
As
rI' (r'/n,,/a ml f'l!/r"M
of December 31, 1990
WIlII\\\J.
MITII
AssIStant I ICC President
W. Lll 1I 0SK I NS
President
EDWA ){ D J .
WilliAM T. GAVIN
WilliAM II . III /'o.D IU CKS
First "ice President
RA NDO lI'll G. COl rMAN
Ilice President
.·lssjSlOnt
ELL/'o.A M, MCCAll
I'I A INI G. GlllLll
l'ice President
.. lss;Slont I'ice
Vice
PresIdent
&",Lconomisl
&..lconomisl
Senior Vice President
Tlvr/'o.S
ASSlSlDnt
J A \IIS B. Til 0 \\ ,0/'0.
President
IlsslSwn l Vice President
&. tconomist
R. CllfUS Mool"
JOliN M. DAVIS
Semor Vice President
&. D"'!CIOr of Research
R OB lIn J . GOlllUS
Vice Prl!Sldent
i lssislonr l'ice President
SA/'o. DIlA P IA/'o.AI TO
lticc PresIdent
JO liN J. RIT C IIII'
&.. SecrcIOTJ'
. ISSISlont Vice PresIdent
IIINIlY P. T){O II O
ROBI Ilf W. PIllcr
Lxammmn Officer
R OBElll E. WIII1I
011111
Senior Vice President
1:.
EDWA ){D
R, C IIAll)) ,ON
&,.AsslJtant General Audllor
AssIStant Vice President
AI)) G. V,NC, l
Senior Vice PresIdent
MARK
. SN IDI '''' AN
R AY I ORD P. KAUCII
Vice Ptl!sidem
Roann
F.
of Research
KrVIN P. Kru
J OSll' 1I
Senior Vice PTf!sidenl
C.
Senior I icc PTf!sidem
I ice Prestdent
R OB I nT VAN VAl KI
Vice President
JO li N E. KIII,,"r/'o.L
D
Vice PTi!.S,dent
ANDIHW
l'ice PresIdent
W.
Ass;SWnl Vice PTf!sidem
Vice President
." tssistonL Vice President
Assistant Vice President
Tl:IUty
.B I i\.I\. I Tl
DAVID
E.
R' C II
J O li N P. R OIl I/'o. S
Assistant Vice PresJdt'nI
P~I nICK V. CO~ r
I'ice PresIdent
ROBun B.
S U SA
G.SCIIUELlIR
Vice PTf!sJdent
C II AU II
lss;stanl
~ke
President
Assistant I ice PreSIdent
Columbu! Olfl«
JOliN J. EIlC[G
CRII(;IITON R. F,UCrK
/tssiSWnL Vice President
Assistant Vice PreSIdent
W. EIl I In S
&..I:conomisl
BHII'.KM t\1\.
ASSIstant lice PreSident
L O IS A, RIB ACK
Assistant Vice PreSident
C[ CUY
President
LxomlnlnB Officer
TI nn[NCL J. R O TtI
R \/'0. DALL
\ija
L.
RAYMOND
TIIOMA, J. CALl.A II A/'o.
WAIl'-
Senior
AssislOnL I'ice PresIdent
&.. Assistant SecretaT!
Rr
P'lI.Sburnh Ilranch
II A H OLD J .
Jill GOUBrAUX CLAnK
Vice PlImdent &. General II udllor
JIRR Y S. WII SON
JA "r sW.RA KOW KY
Assistant Vice President
&.Associate General Counsel
W, ISB IH)))
." tSSlStant Vice President
I ARGnlT A. BII ~II
,lssiswnt l'ice President
Ilice PresIdent
F.
LAURA K . McGowA
ANDRI \\ C. Bunur, JR.
Vice PresIdent
DAVID
ilssislom Vice PreSident
WAnS
. BR OW
Vice PreSIdent
CO I l:. IIAIlRI ON
WII UAM J. M /\j O R
&. Regulator) Counsel
WII I lAM
Ro
' BUIlG
ASSIStant Vice PreSident
JA Kl D. BIIlI A
CIn( InnOH Branch
CIIAnl [S A. C[1l 1 0
TIIORI'
ASSIstant l'ice PTf!sident
ANDIU W J. BA/.An
ASSIStant l,ce Pres,dent
[Y
Assistant Vice PresIdent
J O II/'o. J. W,X rLD, In.
DARLII R.WI1 -lnUI'
Assistant Vice Ptl!sident
&..Associate D,tl!CLOr
WAIH
Senior l"ice President
L.m
rlss;slOn t I ice President
DAVID P. JA Gr n
Vice President
Do
Issiswnt I "ice President
I ))J)lr L. IIAIl DY
Vice Presldenl
SAMurl D.
, Issiswnt General Counsel
&. Research Officer
NOI{\1.\ N K. II AGt/'o.
Senior Vice President
&. General Counsel
WAlKI I{ F. TOD))
Assiswnt I'ice PTf!sident
&. [conomist
BU IHON G. SIIUTAC ~
ISS;SlanL I ice PreSIdent
C II A IH rs
r.
WII LI \\1 ~
1'ice Presu/ent
CD
, /f.-;/rla/ , ~'J"'I'" , ~a III
rj' '(""'/, I'I-!,.()U/
fj'iltrir
M
As of December 31. 1990
Clt." "dand DIfl'U(lfl
(srandm81 Chairman Charles II. Pam: Depull ChOlrman John R.. lIll1er: Laban I' Jackson. Jr.
(seatedl 1I',ulOm O[ lIeConnell; Wilham /I . •IIO!: Frank lI obsl
\ V I Ll IA\IT.Me
0/>./>. 1 1 1
Presldcnl, I he Park ,v'"lOnal Bank
ChOlrman &. I"d.,al Res.,.'e IBelll
llAHLI 5
DOLIGI ,\ 5
W. PAHIIV
Retired ChOJrman &. Chlcf
L.,ccUlIVC
Officer
L.
ewark, OhIO
LI SL/>.
PreSlc/enr and h,e! [H!CUIII C Officer
Bauelle lIemorrallnslllUle Columbus. OhIO
. l/ummum Company of ..ImcflCQ PltIsburnh. Pcnnsyh'o 11lo
ROBIIIT D.10H I )
Depur,l Chairman
J O ll />.
R. ~ Ill LL II
furm., Presidenr &. ChIef OperoC/n8 Officer
Slandard Oil Compo III of OhIO CleI'c/ond. Oh,o
VI H
1\
K. G i llSON
Pres/delli, The Limi"d rores, Inc. Columbus, OhIO
LAIl /\/>. P. J \
Parlner. ,lIeDonald. /lopkms. Burke
heland, Ohm
&. /lab., Co .. 1.1' ,1.
FnA/>'K WOIl, 1
Chamnan &. Ch,c! I .\ CCUlI"C Officer
/lunlin[/Ion Boneshorcs In corporaled Columbus. OhIO
K,O/>., J H.
Chairman, Cleorcfl!ck Properties LeunYlon. hcnruck.'
PresIC/enr, Icderal Id'lson Counerl
II. "' I A\
Chairman &. Presidelll
hm Val/onal Bank of Vc/sonr Ille \'c/sonlllle, Oh,o
\\'11 LI,\\I
T ll O\l,\;
II. O'BHll'
Cholfman, Prrsu/cnt &.. Chll.f L\ccut,re Officer
P\C Iman(/ol Corp Pursbur8h. Pennn/mnw
ChmrnwlI
Ro,"", P. BOlio"
Prendel1l I..X ChIef L \eCUlln~ OfflCcr
lIIeflhclII I udlum Corporal/on PlIIsburgh. Penns,/l'<l/lw
(m(mnatl
[)/rt'(wn
(""ndlng) jem I. kITb.; Kate Ireland; lIIen /. DOli<; Clal Parker Dam
(sCC/led) I/aflln Ro«nberf/; [Ieanor /lICks; jack II: Ruc/wllan
G,
0'1(;' ,\.
D\\
'0.,0'. J't.
Chamnan &.. CllIef 1 \(.'CUlwe Officer
ConsolIdated 'votural Gas Compam PIIIS/1Urflh. PcnllSl/.anw
11"ltLi'
.
II
\ N"t t
Prent/cn l &.. ChIef [\l'Cutll'e Offlccr
D"//Clr Bank, I SB PlIIsburflh. Pelll'" kallla
J\
~
B.
PIAl I
ChaITman of Ihe Boord
tlt/luaft InJuuflcf. Inc Uashm[lwn. Pennn kama
WIIII\\I I. ROI \11"
Presldelll lie ChIC! L\cCUIII'. Officer
111Ii!fl'a Im(lncial Corporation Pwsburflh. Penml/rama
I . J\\" ,> IIII\L"IC III
&.. C/uef L\ecutl\"(.' Officer
Commonueahh ill1anCla/ Corpor(ulon Inr/mna , Pennn/"onw
Pre,fi(h'm
{,,'it
" 1111 0, A.
\\' \SII"Gro,
PreSldell1 &.. ChIC! L 'CCUIII', OffIcer
111ellhem 1/()Uf1l19 Rchablillollon C()rpOrall(l1l Plluhurflh, l'cnnsllranlO
ham"an
KAT[ IIILl " 0
j\ allonal (harrman
I ronllcr Nurs'"n Sen'icc Item/over, I\cntuch
J\
K
"V.
BUCIIAI'.AI'.
PrCSldent, Sphar &.. Compam, Inc. Il'lI1chcsrer, kemuck,
Al "
C,
N
L. DAVIS
PreS/dem lie ChlCf I '<(IlIIl<' OffICer
fhe Prol/dem Rank (",ellllloll. OhIO
\Y P"IKIII
D\VI'>
Presldem lie ChIC! L \CeUllle Officer
Cill/cns ~altonal Bank Somersct. I\.cnluckl
1: ,
' ANOIl IIICKS
Ie/"isor for InternatIOnal I /alson
UnH'crslly of ClI1cinnUlI CU1C1nnall, Ohio
PllhhUf,(/h DIrt'(wn
J IIIIIY
M
L. K ' " aY
Chalfman of lhc BOCJfd, Prenclcnl &. Ch,c! L\cculll'C Officer
CIII/cns ITdcra/ 5alln9f &. Loon InoClatlOn Dalton. Oh,o
\OWl:-.
Ro
[Naillc.
Partncr, Toune Propcrtlcs. ltd. Cincmnau. OhIO
(Handlnfl) I. james I"ma"h" II olton I. II ",hIllEI,on
(scolcd) 1\ oIl",m I. Roemer; jack R. Pili"
CD
For years ended December 31
STATEMENT
Of
CONDITION
Gold certificate accou nt
Spec ial drawing rights certificate account
Coin
Loans and securiti es:
Loans to depository institutiolls
Federal agency ob ligat ions bought outright
U. S. government securities
Bills
otes
Bonds
Total U. S. gove rnm ent securiti e
Total loans and securities
Cash items in process of co ll ection
Bank premi e
Other assets
Interd istri ct settl e m e nt accounl
Towl !IsseIS
1990
19 8 9
688,000,000
66 1,000,000
645,000,000
39, 28 9,60
508,000,000
3),198 ,010
-0-
260,49°,000
379,9 0 7,7 I 3
37),348,52 I
6,740 ,802,4 I 4
5,47) ,949. 688
6,016>3 23,]86
5,25 6 ,9 81 ,59 6
1,866,9 12,50 I
14, 08 3,664, 6 °3
1,77 2 ,647,794
13,045,952,776
13,68 I ,79 I ,297
3 11 ,132,94 1
14,463,5]2>3 16
256,888, 68
36 .1 21.850
2, I 26,7 I 5,647
1,076 ,62 7,13 2
1,213,58 1,5 14
19>332,2 I 5,42 I
$18.440 ,907. 62 4
33,63 6 ,690
1, 99 6 ,5 6 7,17 2
...................................................................................................
L J\ B IIIIII ~
Federal Reserve notes
Deposits:
Depository institutions
Fore ign
Other deposits
Total deposits
Deferred availability cash items
Olher li ab ilili es
Total Liabilities
$17,0°5. 0 7 6 ,555
$15,565.8 16, 189
1,816,4 6 3,4° 8
8,250 ,000
2,06 1,4 27
2, 107,23 6 ,707
8,100.000
62,17 1,052
1,826,774,83)
82, 867,14 2
166,7 8 5,489
2, 177 ,5 0 7,759
28 7,754,553
19,081,5°4,02 I
$18,193,9°7>3 24
162,828,82 3
............. .. .................. ... ........... ...... ................ .... ................... .. .... .
C.' P II\I
\ ('t()U"l~
Capital paid in
urplus
Towl Capiwl !lccounlS
Total Liabilities and Capital llccounlS
12 5>355,7° 0
12 5>355,7 00
123.5°0. I 50
12 3,500 ,150
$
247.000.3°0
INCOME
AND
EXPENSES
199 0
CUllnl'l
I nte res t o n loa ns
Inte res t o n gove rnm e nt sec uriti es
Ea rnings o n fo re ig n urre nc),
Inco me fro m se rvices
All ot he r in co me
To ta l c urre nt in co m e
$
et In come
Current
2,4 29 ,63
773 , 106
I
1, 17 6 ,904 ,432
143 ,05 2,007
1, 149,099,4 68
43,4 60 ,03 0
62 3, 08 7
4 2 ,9 68 ,475
59 2 ,1 4 6
$ 1,J64,8 12,662
$ 1,25 1, 157 ,9 6 7
69,5 1 ,'3 8
10,432, 18 4
66 , 379,062
11 ,69 1,875
$ 1, 284,862 , 340
$ 1, 173,08 7,03 0
$
$
Curre nt o pe rating ex pe nses
Co t o f earnings redits
PHC}111
19 9
"CO'"
56 ,06 , 247
, ' I ) I (),..,
Additi o ns to c urre nt ne t inco m e
Pro fit o n fo re ig n exc hange transac ti o ns
Pro fit o n sa les o f gove rnm e nt sec uriti es
All o th e r additi o ns
To tal additi o ns
Dedu c ti o ns fro m c urre nt ne t in com e
Lo o n fo r ig n xc hange transac ti o ns
All o th e r dedu ct io ns
To tal dedu c ti o ns
et additions or ded ua ions
\S<,fSS\Il'I~B\
BCHlIf)01
et In come Avoilable tvr Distribution
01
II
$
$
$
,432
121 .45 0 • I 34
702,956
68 ,40 3,659
3. 27 0
$
69, 109,885
-0 -
-0-
1,7 12
1,7 12
1,1 90
$
1, 190
12 I ,448,422
$
69, 108,695
1,878,60 I
$
GO\'II1'ClRS
Cos t of Unre imbursa bl e Treas ury e rvices
Boa rd o f Gove rn o rs ex pe ndi t ure
Fede ral Rese rve c urre ncy cos ts
To ta l assess m e nts by Boa rd of Gove rn o rs
1)1\ 11\1 BUIIO'
3,77 2 ,1 9 1
11 7,666,5 11
$
I
3, 33 8 ,60 4
5,67 6 ,400
12,4 27.9 14
4,877 , 500
10 ,402 , 14 1
29 ,9 82 ,9 15
18,6 18,245
$ 1>37 6 ,327 ,847
$ 1, 223 ,577 ,4 80
1.3 66 ,9 8 3.7 6 3
1,855,550
1,37 6 , 327, 47
1, 207,926.053
" 1 I "CO\I!
Di vid e nds paid
Pay me nts to Uo lioeas ury
( inte re t o n Fede ral Rese rve no tes)
Transferred to surplus
To ta l di st ri buted
0
8 . 59 6 ,9 00
$ 1,223 ,577 .480
CD
@FedFRASER