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FEDERAL RESERVE BANK OF DALLAS
1992 ANNUAL REPORT

The
Churn
The
Paradox
of Progress

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

Capitalism ... is h)" natllre a form
or method a/economic change ({lid
not only nel'er is but nel'er can be
stationarJ~
-LIi/lilll/iSIlI. Socililis/ll.

Joseph A. Schumpeter

In the 1930s, Joseph A. Schumpeter
advanced the idea that an economy doesn't
grow but evolves, continuously re-creating
itself as people seek to improve their
standard of living. Schum peter called this
process "creative destruction." Today, "the
churn" is sometimes used to describe the
same principle. Implicit in either term is the
paradox that Schumpeter uncovered:
innovation-the manifestation of the
individual's quest for gain-is central to
economic progress but, at the same time, is
the cause of most economic difficulties.
The essay section of this Annual
Report explores Schumpeter's concept of
creative destruction in amodern context. A
look at how the U.S economy gained and
lost jobs in the past provides insight into
what today's job losses mean for the future.
Schumpeter, 1883-1950, born in
Triesch, Czechoslovakia, was anoted
economist and the author of numerous
works, including The Theory of Economic
Development, Business Cycles, and
Capitalism, Socialism, and Democracy. He
is quoted frequently in this report.

III/(/ /)('/1101'1"11(')

Contents
President's Message 2
The Churn:
The Paradox ofProgress 5
The Year in Review 19

Boards ofDirectors 22
Advisory Councils 23
Statement of Condition 24
Statement of Operations 25
Statement ofSurplus 26
Volume of Operations 27
Officers 28

President's
Message

The year 1992 was one of the busiest and most
productive in the history of the Federal Reserve
Bank of Dallas. For the first time in 71 years, the
Dallas Fed moved into a new headquarters building-a milestone event culminating almost a decade of careful planning and hard work. We are
very pleased with our new home and look forward
to serving our constituencies more efficiently and
effectively than ever.
The health of the Eleventh District economy
and banking system continued to improve in 1992.
As in the previous two years, our District economy
fared somewhat better than the nation as a whole,
possibly because the District was still on the rebound from the sharp contraction of the late 1980s.
In terms of employment, we managed to avoid the
recession but not the sluggish recovery. Our employment growth slowed below trend, but our
unemployment rates increased to national levels,
especially in areas vulnerable to defense cuts.
The financial condition of our banks has improved in the past two years, with bank lending
stabilizing in 1992 for the first time since 1985. The
credit crunch, however, is still very much a reality

2

in the Southwest. While it eased somewhat in 1992,
the credit crunch continues to impede job growth
in small- and medium-size businesses that rely on
banks for credit.
Despite these tight credit conditions-an issue
of concern during monetary policy deliberations-small- to medium-size businesses have continued
to lead the economy in the creation of new jobs in
the 1990s. This phenomenon of job creation during
a period of slow employment growth has led us to
explore some of the issues highlighted in our
Annual Report essay, "The Chum: The Paradox
of Progress."
For some time now, I have been struck by
how the usual statistics on labor markets can be
misleading. Month after month, small changes in
total employment and unemployment give the impression that not much is happening when, in fact,
those small net changes mask huge gross changes
that are revolutionizing our economy. A small net
increase of 100,000 in total employment may mean
job losses that month of several hundred thousand
and an even greater number of new jobs. We
should not let the small net gains obscure the un-

derlying dynamics of a growing, constantly changing economy.
One of my college professors, David McCord
Wright, used to say "Growth comes through change
and causes change" so often that I quickly learned
to tune him out. Only recently have I come to
appreciate the wisdom of his mantra. Joseph
Schumpeter also captured the essence of this message long ago in his classic description of "creative
destruction." It is natural during recession and sluggish recovery to worry about job losses. We read
almost daily of layoffs and downsizings at familiar
Fortune 500 companies. We rarely read of sizable
numbers of new jobs being created. Yet, in recent
months, we've had net job growth. While the net
growth may be small, the underlying restructuring
and revitalization are anything but. The churn is
revitalizing our economy.
That's not a picture of my grandfather on the
cover of this report. But it could have been. My
grandfather was a blacksmith, as was his father. My
dad, however, was part of the evolutionary process
of the churn. After quitting school in the seventh
grade to work for the sawmill, he got the entrepreneurial itch. He rented a shed and opened a filling
station to service the cars that had put his dad out
of business. My father was successful, so he bought
some land on the top of a hill and built a "truck
stop." (The quotation marks are to distinguish his
modest version from the interstate behemoths we
see today.) Our truck stop was extremely successful
until a new interstate went through 20 miles to the
west. The churn replaced u.s. 411 with Interstate
75, and my visions of the good life faded.
My relatively benign experience with the churn
has been multiplied millions of times, in much
harsher terms, as illustrated in the accompanying
essay. As myoid college professor often said,
"Growth comes through change and causes
change." Unfortunately, more often than not, this
change involves pain. Occupations come and go.
When they go, we aren't inclined to see the good
side of the churn. In today's world, defense cutbacks, military base closings, new technology, foreign competition and the need to cut government
spending to balance the budget all have the poten-

tial to raise our standard of living Significantly. Yet,
they are all job killers. It is fairly easy to identify
potential victims. But that is only half the story.
The people freed up will be available to produce
new things in new occupations. History is reassuring, as it shows us that new jobs will always be
there.
I hope the accompanying essay will also be
reassuring. It shows in historical context how
detrimental it would be to try to stop the steady
progress of the churn.

;f',w- J). ;tI.~/'
Robert D. McTeer. Jr.
President and ChiefExecutive Officer

.

The,/zl1Id([771Clllal impulse Ihal sets und keeps
the capita/isl engille in motion c0177es./;-o111 the
nell' COI/Sli mers· goods, the nell' methods (~/pro­
duelioll or trcl71SjJOrlulion. lhe nel{' !llurkets, Ihe
nelc./onns q/ industria I orgu/Zi.:al iOll Ihal capitalist enterprise creales.
-(lIj,illl/i'!1I ..'io('illli.'IJI. II/Id J)e!1lo('U/n

The Churn
The Paradox of Progress
The "invisible hand" of free enterprise-recognized
since the time of Adam Smith as capitalism's vital
force-seemed to slap the U.S. economy as the nation entered the 1990s. A defense build-down, a
glut of commercial real estate, and overdue corporate restructurings ushered in a persistent jobs recession that brought announcements of layoffs in
stunning numbers: 74,000 at General Motors, first
33,000 then another 50,000 at Sears, 25,000 at IBM
and 27,000 at Boeing.
More than a dozen of America's best-known
companies each cut back 1,000 jobs or more, while
across the country, smaller, local layoffs made news.
American workers worried that they would be next
to join the unemployment lines, and pundits predicted that many lost jobs would never return.
In hard times, layoffs are big news and understandably frightening to many. Seeing families with
uncertain futures, the public can easily overlook the
other work of the invisible hand-the jobs it creates
to provide new opportunities for employment.
New jobs seldom make the nightly news because they don't come in sudden bursts. New jobs
come without fanfare, in trickles that are overshadowed by the torrents of layoffs. Yet, during economic downturns as well as upturns, job creation
continues.
As Sears struggled, for example, Wal-Mart
added 260,000 jobs from 1985 to 1991. Home Shopping Network, offering consumers an alternative to
Sears' catalog, created 6,000 jobs over the past decade. While IBM trimmed its work force, aggressive
and innovative young computer companies expanded theirs. Microsoft climbed from 19,200 workers to 26,000 workers in five years. Dell Computer,
a start-up firm in 1984, employed 4,800 by late
1992. General Motors downsized, but American
autoworkers found more than 29,000 new jobs as
Honda, Toyota, Nissan and other Japanese companies opened u.s. plants.
Old jobs did disappear, but new jobs replaced
them. Capitalism wasn't failing. It was working. But

most Americans look at jobs intuitively: anything
that creates them is good; whatever destroys them
is bad. From this vantage, existing jobs are a national treasure to be hoarded, protected, saved.
Nothing could be more wrong.

Looking Beneath the Surface
Day in, day out, jobs are created and destroyed
through businesses' openings, closings, expansions,
contractions and relocations. Entrepreneurs start
companies, some of which will meet the test of the
marketplace and flourish. Eventually, many of these
enterprises will be eclipsed by other companies
that offer consumers newer and better products. In
this way, an economy continuously re-creates itself
through a process of "creative destruction." As competition grinds onward, it sets in motion both layoff
activity and new hiring.
A very descriptive, shorthand term for this turbulence in the labor market is "the churn." This
natural process of replacement of business enterprises by new or reformulated companies redefines
existing jobs and creates new industries. Eventually-and continually-this process reconstitutes
and restructures a nation's economy. It is this
churning of business enterprises and their work
forces in a free enterprise economy that spurs
income growth and creates wealth.
Job turnover in the churn is uneven and unpredictable; otherwise, it wouldn't be a subject of controversy. During recessions, the loss of jobs is more
apparent. Employment is hard to find, and there
are mismatches between workers' skills and available jobs' requirements. As people shift from one
job to another, transitional unemployment occurs.
Unfortunately, there's no guarantee that everyone
who loses a job will find a new job quickly or end
up with a better one.
The churn is not tidy. The new jobs
are far from exact replacements for the
old ones. The new companies and new
industries--and the work forces they
require--differ in unpredictable ways
from their predecessors. The outcomes
of the churn cannot be neatly engineered. Nonetheless, history tells us

tiC

essential
point to grasp is
that ill de([lin~
,
lcit h ca!)italisllI Ice
arc dealing with
an cI'olul i01Ulrr
process.
~

-CIlP/IIlIi"III. Soc/lllislII.
IIUri

6'

nell/oeme)

that the profit motive embedded in a free enterprise
system will provide employment opportunities for
workers who possess the education and skills that
are in demand. This process accelerates early in the
expansion phase of the business cycle as the churn
creates scores of jobs in growing companies that
didn't exist a few years earlier.
The churn isn't new; throughout history, one
job has always given way to another. In prehistoric
times, there was one job-survival. People spent
most of their time foraging for food. Over the millennia, the work reqUired just to get by lessened,
even as the number of mouths to feed increased.
Life became more than a daily struggle for sustenance, and people kept finding new tasks for their
hands and minds. Jobs multiplied and evolved, becoming more specialized and defined. Now, as
America prepares to enter the 21st century, the
roster of new occupations continues to swell.
EconOmists, questioning why America's job
creation in the recovery of the early 1990s fell short
of expected levels, have reconsidered the ideas of
Joseph Schumpeter, who offered the first scholarly
explanation of the churn in the 1930s. Schumpeter
advanced the paradox that economic progress destabilizes the world. Progress and job destruction
go hand in hand in a dynamic process he called
creative destruction. Today, as in the 1930s,
Schumpeter's insights help explain how jobs
emerge and disappear through the innovation
and entrepreneurship of free enterprise.

From the Horse and Buggy to the Space Shuttle
Innovation and competition fuel the churn.
New ideas, new products, new technologies, new
forms of industrial organizations and new markets
upset the status quo, rerouting demand from existing companies and industries. On the upside of the
churn, winners increase sales, and they add jobs.
On the downside of the churn, losers find their customers aren't buying as much, and they layoff
workers.
The churn operates all the time. It continues
during an expansion, although its most visible effect-job layoffS-is far more common during recessions, when industries come under stress. On an

individual level, the effects of lost employment can
be agonizing to displaced workers and their families. Unemployment, though typically only temporary, is seen as a negative result of the churn. The
long-term effect of the churn in the overall
economy, however, is positive. The process frees
labor in declining industries to produce more and
better goods in new industries. This facet of the
churn goes on almost invisibly as new jobs are
added, a few at a time, in thousands of new enterprises in areas that are geographically dispersed.
In 1900, for example, it took nearly 40 of every
100 Americans to feed the country. Today, it requires just three. But the decline in farm jobs hasn't
left the country hungry. Quite the contrary, the
United States has enjoyed agricultural plenty and
the creation of millions of industry and service jobs.
The 37 of every 100 workers no longer needed on
the farm moved on to proVide new homes, computers, pharmaceuticals, appliances, movies, stock
trades, video games, gourmet meals and an array of
other goods and services. The result is a material
abundance that wouldn't have been possible without labor released from farming.
Transportation in the 20th century provides a
dramatic, ongoing example of the churn at work.
The introduction of the automobile sparked an upheaval in jobs, creating a multitude of new occupations: car deSigner, mechanic, and truck, bus and
taxi driver, to name just a few. The automobile's
impact spilled over into dozens of other sectors of
the economy. The oil industry, for example, produced other new occupations: roughneck, refinery
and pipeline worker, and gas station attendant
among them. Nonexistent in 1870, the automobile
industry, directly and indirectly, created millions of
jobs in the U.S. economy. And soon after the automobile came the airplane, triggering yet another
reshuffling of jobs.
The automobile and the airplane, however,
weren't unalloyed benefits. They created unwelcome competition for established
transportation industries-everything from
(Continued on page 11)

7

eogress unstabilizes the
economic world.
-Business Crdes

T

he opening up of new
markets, foreign or domestic, and the organizational
development from the craft
shop andfactory to such
concerns as U.S. Steel illustrate the same process of
industrial mutation-if I
may use that biological
term-that incessantly
revolutionizes the economic
structure from within, incessantly destroying the
old one, incessantly creating a new one. This
process of Creative Destruction is the essential
fact about capitalism. It is
what capitalism consists in
and what every capitalistic
concern has got to live in.
-Capitalism, Sorinlism,
llnd

8

/)emO(TIU)

America's Top 30 Jobs Since 1900

The changing composition of America's top 30 jobs over the past century affirms that jobs lost in one field are replaced by jobs in emerging

fessors, engineers, mathematical and computer scientists, and others-

occupations. Between 1900 and 1991, for example, sawyers, masons
and miners disappeared from the top 30 list. In their places came pro-

cation in today's workplace.

1900
Job
Farmers
Agricultural laborers
General laborers
Servants
Merchants
Clerks
Salespeople
Carpenters
Railroad workers
Miners
Teamsters/coachmen
Teachers
Launderers
Dressmakers
Iron and steel workers
Machinists
Painters
Bookkeepers
Cotton mill workers
Tailors
Blacksmiths
Firefighters
Shoemakers
Sawyers
Masons
Housekeepers
Printers
Seamstresses
PhysiCians
Tobacco factory workers

Workers
5,674,875
4,410,877
2,577,951
1,453,677
790,886
630,127
611,139
600,252
582,150
563,406
538,933
438,861
385,965
346,884
290,538
283,145
277,541
254,880
246,391
229,649
226,477
223,495
208,903
161,624
160,805
155,153
155,147
150,942
132,002
131,452

highlighted here in color to illustrate the increasing importance of edu-

1960
Job
Retai I salespersons and managers
Farmers and farm managers
Teachers
Truck and tractor drivers
Secretaries
Private household workers
Farm laborers
Manufacturing laborers
Bookkeepers
Carpenters
Waiters and waitresses
Engineers
Vehicle mechanics and repairers
Apparel and textile workers
Construction workers
Assemblers
Janitors and sextons
Sewers and stitchers
Cooks
Typists
Machinists
Mfg. checkers, examiners, inspectors
Policemen and guards
Cashiers
Packers and wrappers
Accountants and auditors
Deliverymen and routemen
Painters
Launderers and dry cleaners
Attendants (hospital, nursing home)

Workers
4,351,867
2,525,907
1,683,667
1,662,723
1,492,964
1,281,740
1,244,276
960,998
936,270
923,837
896,273
871,582
862,363
808,378
751,085
686,754
621,027
617,029
597,056
543,801
515,532
514,135
513,200
491,906
491,695
476,826
438,002
416,040
412,042
408,587

1991
Job

6,200,000
Retail salespersons
4,029,000
Teachers
3,791,000
Secretaries
2,666,000
Truck drivers
2,368,000
Farmers and farm managers
2,126,000
Janitors and cleaners
1,912,000
Bookkeepers
1,846,000
Engineers
1,779,000
Cooks
1,778,000
Vehicle mechanics and repairers
1,712,000
Nurses
Freight and stock handlers
1,688,000
1,669,000
Police and guards
1,612,000
Financial salespersons
1,601,000
Wholesale commodities brokers
1,506,000
Nursing aides, orderlies, attendants
1,446,000
Accountants and auditors
1,379,000
Health technologists and technicians
1,355,000
Waiters and waitresses
Computer programmers and operators 1,287,000
1,277,000
Carpenters
1,227,000
Precision production supervisors
1,119,000
Assemblers
1,022,000
Heavy equipment operators
972,000
Child care workers
Engineering technologists and technicians 947,000
Mathematical and computer scientists
923,000
Postal clerks, mait carriers, messengers 923,000
Groundskeepers and gardeners
890,000
773,000
Professors

Total of top 30 jobs
22,894,100
(78.7 percent of employment)

Total of top 30 jobs
(42.6 percent of employment)

28,998,562

Total of top 30 jobs
(46.1 percent of employment)

Total employment

Total employment

67,990,073

Total employment

29,073.233

Workers

53,823,000

116,877,000

DATA SOURCE: US. Bureau of the Census

.9

, he cha IIRCS in the economic process brought about
by inl1ol'ation. logelher Lcith
all their effects. ([nd I he rcsponse to them by the economic srstem. u)e shalf designate by the term Economic
El)Ollltiol7.
L

-flIlS/III'SS

/ (/

Creles

the horse-and-buggy trade to railroads and water
transport. Jobs disappeared by the millions. In
1920, 2.1 million Americans earned their living by
working for railroads, compared with just 231,000
today. The country employed 109,000 carriage and
harness makers in 1900 and 238,000 blacksmiths in
1910. Only a few thousand Americans make a living in these occupations today.
The experience of the transportation industry
has been paralleled thousands of times with thousands of innovations-farm machinery, telephones,
television, computers, lasers, fax machines. The list
could go on for pages, but it would show a common theme: innovation has always had the direct
effect of creating new businesses and industries
and the indirect effect of destroying many of the
jobs in the existing industries that they eclipsed. As
a result, the mix of American jobs changed dramatically from 1900 to 1960, then changed just as much
from 1960 to 1991. Despite a constant turnover in
employment, the total job market expanded.
As the u.s. economy evolved, this churning
process tended to benefit workers overall, even
though it cost many individuals their jobs. On balance, paychecks grew fatter. Workweeks shortened. The backbreaking toil of farms and sweatshops gave way to the comfort of air-conditioned
offices for many.
The process that recycles labor into new jobs
is-more than ever-at work today. Nowhere is
this more apparent than in the electronics industry.
Among the fastest growing U.S. occupations in the
1980s were those of computer operator and programmer, software designer, fax machine repairer
and cellular telephone technician.
Not all technological progress creates the same
size waves in the job pool because some innovations are more significant than others. The invention of the airplane, for example, created more
havoc than the invention of the elevator.
Competition with existing products also determines the impact of new technology. The telephone proved much better at sending messages
than the telegraph, much to the dismay of displaced telegraph operators. But a product that's a
distant substitute for existing goods doesn't affect

Creative Destruction over the Past Century
Millions of American workers today earn their living in occupations
that did not exist at the beginning of the 20th century.
People Employed

Destruction
Railroad employees
Carriage and harness makers
Telegraph operators
Boilermakers
Milliners
Cobblers
Blacksmiths
Watchmakers
Switchboard operators
Farm workers
Creation
Airline pilots and mechanics
Medical technicians
Engineers
Computer programmers/operators
Fax machine workers
Auto mechanics
Truck, bus and taxi drivers
Professional athletes
TV and radio announcers
Electricians/electronic repairers
Optometrists

Today
231,000

213,000
851,000

Yesterday
2.076,000 1920
109,000 1900
75,000 1920
74,000 1920
100,000 1910
102,000 1900
238,000 1910
101,000 1920
421,000 1970
11,533,000 1910

Today
232,000
1,379,000
1,846,000
1,287,000
699,000
864,000
3,328,000
77,000
60,000
711,000
62,000

Yesterday
0 1900
0 1910
38,000 1900
* 1960
0 1980
0 1900
0 1900
* 1920
* 1930
51,000 1900
* 1910

8,000

25,000

* Less than 5,000
OATA SOURCE: U.S. Bureau of the Census

many workers. The parachute, the camera and
most wonder drugs, for instance, brought about
little job destmction.
Another factor that influences the impact of
new technology is the ease with which labor released from the declining industry can enter the
emerging one. Many of America's first autoworkers
previously made horse-drawn carriages. Some actors and reporters shifted to television after it began
to compete with movies and radio. On the other
hand, while the fax machine opened job opportunities for programmers and software designers, it's
unlikely that the mail sorters
and truck drivers ultimately displaced in
the overnight mail

11

Surely, nothing can be more plain or even
more trite common sense than the proposition
that innovation, as conceived by us, is at the
center ofpractically all the phenomena, difficulties, and problems of economic life in
capitalist society.
-Business CyclE

12

industry can easily switch to the new jobs.
Employment cycles become especially frustrating when the old jobs and new ones aren't in the
same location. A laid-off Fort Worth defense plant
worker with strong ties to the community and the
state might be reluctant to take advantage of job
openings in, say, New Mexico.
This situation is exacerbated when u.s. jobs go
to other countries. Many conclude that the so-called
export of jobs represents a failure of the u.s.
economy, and they call for restrictive trade policies
to save American jobs. There's no denying the
churn can cross borders, but the United States
doesn't really lose when a job migrates to another
country. The national resource isn't the job; it's the
workers and their talents. Workers remain available
as resources to produce goods of higher value in
new industries. In recent years, for example, textile
jobs moved to low-wage foreign countries, allowing North Carolina, Georgia and Florida-the
Southeastern states with the best-educated work
forces-to lead the region into a transition to more
advanced industries with better jobs.

Technological Unemployment
Unemploymenlis'a common, lhoughtypicaUy'only temporary"result'oftechnol,ogical
progress.I\Senlrepreneursinvenlnewproducls. old jobs orten give, way to new ones.
New Product

Labor Needed

Automobile

Assemblers
Designers
Road builders
Pelrachern1sls
MeChanicS.
Tluckdrlvers

Airplane

Plastics

Pelrotheniisls

Laaor'RlJleased

Ho~/cl!m.ge

Blacksmiths
Wall1wriQhts
Drovers
Teamslers
RRVioikers
Canalrnen

Train

Boats

Train

Ocean liner

steel'

Aluminum
BarrelslJub!;

PClUell/glass

Television

Electronic engineer
Actors
Reporters
Electricians

Computer

Programmers
Computer engineil(S
tleclricalehgineers
Software designer~

Entering the 21st Century "Headfirst"
Throughout the 20th century, the demise of old
industries and the creation of new ones coincided
with rising incomes and huge net gains in employment in the United States. The transition, however,
has been bumpy and uneven. Job losses can be
traumatic for workers and their families. Yet, seen
as a whole, the American experience certainly confirms Schumpeter's thesis that an economy can't
progress without the revitalization that brings job
destruction. Intervention to save jobs almost always
fails. Policies designed to protect jobs retard economic progress and, ultimately, destroy jobs by
short-circuiting the vital process of innovation. It is
for this reason that we must stop focusing only on
the number of jobs; we must also concentrate on
the composition of jobs. Added emphasis should
be placed on high pay, high productivity and high
educational embodiment.
History demonstrates the futility of saving employment. For instance, it's hard to miss the absurdity of a well-intentioned program that 100 years

Pilols
Mechanics
Flight attendants
Travel agents

Old PrOdilct

RRworkers
Sawyers
Mechanics
Shill haMs
Boilermakers
Miners
Founders
Metalworkers
Coopers
Potters
Colliers

Newspaper
Theater
Movies
Radio

Reporters
Attars

Addingmacbine

ASsemblels
fiAillfuig~~
Clerks
Tinsmiths
lumberjacks

Slide rule
Filingcabinels
Paper

Fax machine

Programmers
Electricians
Software designers

Express mail
Teletype

Mail sorters
Truck drivers
Typists

Telephone

Etectronic enginejlrs
Operators
Optical engineers
GiJllular techniCians

Mail

Postal workers
Telegraphpperators
Coach drivers '

Chemists
Lab technicians
Pharmaclsts

Iron lung

Polio vaccine

Telegraph
Overnight coach

Manufacturers
Attendants

DATA SOURCE: US. Bureau of the Census

ago might have aimed to keep blacksmiths and
harness makers employed. As recently as 70
years ago, the United States had 10 million
registered passenger cars but 20.5 million
horses. Had our ancestors been able to
freeze jobs, the United States would be
stuck in the horse-and-buggy era. Few
Americans would willingly return to life
as it was before the automobile because

13

Innovation is the
outstanding fact in
the economic history
of capitalist society or
in what is purely economic in that history,
and also it is largely
responsible for most
of what we would at
first sight attribute to
other factors.
-Business Cycles

11;

the jobs of the past would imply the products and
productivity of the past, depriving consumers of the
benefit of generations of new technology.
If a society doesn't allow the replacement of
outmoded enterprises and their concomitant jobs, it
won't be able to advance. The former Soviet Union
guarded its citizens' jobs; its fate shows what happens to a nation that tries to repeal the economic
forces at work in the labor market. Instead of spiraling upward with innovations, the Soviet Union stagnated and finally collapsed.
The process of creative destruction worked in
the past, taking a country built by muscle power
through the industrial revolution and into the information age. Yet, today's skeptics wonder whether
the U.S. job machine still works. As layoffs dominate the news, people worry about whether there
will be good jobs to replace those being lost. As a
society, we are uneasy about what many analysts
regard as declining living standards. Many parents
fear that their children may be among the first
Americans to be less well-off than the previous
generation.
These questions and anxieties aren't new. Time
and again, people caught in the churn have been
fearful of the future. In truth, there are few guarantees that an economy will always move forward. At
the moment of job losses in one industry, it's often
difficult to see the new opportunities already opening in emerging businesses. Figuring out which industries will employ the next generation becomes
an even more troublesome task. The best a society
can do is prepare itself to adapt to change.
A well-educated, well-trained labor force more
readily shifts from the jobs of declining industries
to those of emerging ones. Nowhere is this more
true than in contemporary America, where the bulk
of lost jobs are in heavy industry and most of the
new jobs are in the so-called knowledge industries.
The skills needed in the past aren't likely to be the
same as those valued in the future. Only education
followed by constant reeducation and training can
help bridge the gap. In an era of international competition, a society that doesn't adequately educate
its work force may have to settle for the less desirable jobs.

Education and skills loom so large because
technology plays a leading role in forging new industries in the United States and other advanced
economies. The world today possesses a large inventory of inventions to help plant the seeds of
tomorrow's industries. Already, jobs are emerging
from such discoveries as DNA, lasers, fiber optics,
high-tech ceramics, hard plastiCS, holography,
photonics and micromachines. As the pace of technological innovation quickens, the churn of jobs is
likely to become even faster. The challenge for the
United States lies in training its workers for the jobs
that will be created as these industries grow.
With that in mind, one of today's most pressing
jobs question might be better turned on its head.
Instead of asking whether the u.s. economy will
create enough good jobs, we ought to be asking
whether our educational system will produce
enough qualified workers. If its people are educated, trained and willing to work, a society with a
properly functioning market economy will be able
to provide an abundance of opportunities.
As long as people will pay for more and better
products, entrepreneurs will figure out what consumers want and will try to find new ways to produce it. Thus, a free enterprise system provides its
own fuel for the churn. In this way, the economy
will move forward-as long as labor and other resources are able to move from old industries to
new ones.
Job creation and job destruction are intertwined. They are both key elements in the process
through which a society raises its living standards.
This shouldn't be all that surprising to most Americans. It's so familiar, in fact, that the concept is captured in a single word-progress. Societies that
deny the churn by trying to freeze employment actually retard the formation of new jobs and new
sources of income. Societies that allow the churn to
work reap the rewards of more employment and
better living standards. In these fundamental concepts, ironic as they may seem, lies the key
to achieving higher living standards.

15

It is, after all, only common sense to realize that,
but for the fact that economic life is a process
of incessant internal
change, the business
cycle, as we know it,
would not exist.
-Business Cycles

16

created 61 percent of the new jobs between 1985 and 1989; companies'

The Churn Remakes the Dallas Economy
The Dallas area during athree-year period in the 1980s illustrates
the churn at work. Although an oil bust racked the area's economy after
1985, by 1989 employment data indicated anet decline in the job base
of just 3.1 percent, according to research by Donald A. Hicks, vice chair
of the Bruton Center for Development Studies at the University of Texas
at Dallas.
Traditional counting of jobs showed very little happening in the
Dallas area, but net gain or loss numbers don't begin to tell the story
that Hicks' research uncovered. Job by job, almost 27 percent of the
area's 1985 jobs disappeared over aperiod of three years. Largely offsetting the job losses, however, were gains. In 1989, almost one in four
Dallas-area residents held jobs that hadn't existed three years earlier.
The churn of job creation and job destruction amounted to arecycling of fully afourth of the Dallas-Fort Worth region's economy in the
short period of 36 months. Hicks' research revealed that beneath the
surface of what appeared to be astagnant regional economy, dynamic,
vital processes were at work.

new business accounted for 35 percent of the area's employment gains.
The recruitment of firms from outside the region-the goal of so much
economic development activity-contributed only 3percent of the new
employment.
The Dallas area regenerated its employment base by throwing off
unsuccessful companies and building new ones. The old jobs, of
course, aren't the same as the new ones. With the oil industry in disarray, jobs at energy companies went away. Banks and construction firms
lost jobs, too. The gains for the Dallas area came mostly in high-tech
manufacturing (particularly in telecommunications and electronics),
retail trade and assorted services.
The lesson of the churn in the Dallas area is clear: job losses are
often underestimated, but the vitality of free enterprise provides new
opportunities for workers in new industries, helping offset layoffs in
troubled sectors. What's significant about this 1986-89 period is that
the whole industrial base of the area shifted toward more successful,
competitive industries.
The Churn in the Greater Dallas Area, 1986-89

What occurred in the Dallas area isn't an isolated case. To one
extent or another, all parts of the country are continuously going
through asimilar process. Unfortunately, it's not yet possible to track
the churn across the country or through time, counting the disappearance of every old job and the emergence of every new one. However,
preliminary data for ahandful of metropolitan areas for 1984 to 1989

Uncompensated Employment Loss (3.1%)

confirm that the turnover in employment can be substantial:
Job Base Lost
(Percent)

Job Base Gamed
(Percent)

Atlanta

31.5

Austin
Lexington
Orlando
San Diego

35.0
24.7
39.8
34.1

41.7
40.9
29.5
45.3
40.4

An explanation of what goes on in the churn must start with the
reasons for job losses. The data point to business failures as the reason
for 70 percent of the Dallas area's job losses. Layoffs at surviving firms
account for almost all the rest. Aregion can lose employment as companies migrate to other cities, but the incidence of that in the Dallas
area as awhole was small. (Within the metropolitan area, the story is
quite different. More than one in four of the jobs lost within Dallas city

.~_~l

Jobs Retained and Redefined

: Jan. 1986

: Jan. 1989

In three years, the Dallas area lost 26.7 percent of its jobs but only 3.1 percent of
its employment base. New jobs came about because of new business formation
(612 percent), secondary expansion of existing business (35.5 percent), and
business in-migration (3.3 percent). The causes of jobs lost were business
closure (69.7 percent), employment contractions in existing business
(28.7 percent), and business out-migration (1.6 percent).
SOURCE: Bruton Center for Development Studies,
the University of Texas at Dallas

limits resulted from relocations, revealing ashift of business to the
suburbs)
Job creation comes from new business formations, expansion of
existing businesses and in-migration. For the Dallas area, start-ups

17

Selected Bibliography

Acknowledgment

Barger, Harold. The Transportation Industries, 1889-1946: ASiudy 01 Output,
Employment, and Productivity. New York: National Bureau of Economic
Research,1951.

This essay was written by W. Michael Cox and Richard Aim, based on research
conducted by W. Michaei Cox, vice president and economic advisor, Federal
Reserve Bank of Dallas, and Donald A. Hicks, vice chair of the Bruton Center for
Development Studies at the University of Texas at Dallas.

Burke, James. Connections. Boston Little, Brown and Company, 1978.
Chronicle ot the 20th Century. Mount Kisco, N.Y.: Chronicle Publications, 1987
Cox, W Michael. "Technological Unemployment." Federal Reserve Bank of
Dallas Research Paper no. 9314. Dallas, March 1993.
Hicks, Donald A. "Beneath the Surface and Beyond the Borders: New
Dimensions of Dallas Area Economic Development." In State ot the Region 1992,
23-37. Richardson: University of Texas at Dallas, Bruton Center for Development Studies, 1992.
Kaplan, David L., and M. Claire Casey. "Occupational Trends in the United
States, 1900 to 1950." U.S. Bureau of the Census Working Paper no. 5.
Washington, D.C.: U.S. Department of Commerce, Bureau of the Census,
Population Division, 1958.
National Geographic Society. Inventors and Discoverers: Changing Our World
Washington, D.C., 1988.
Panati, Charles. Panati's Extraordinary Origins ot Everyday Things. New York:
Harper and Row, Perennial Library, 1987
Romer, Paul M. "Endogenous Technological Change." Journal ot Political
Economy98 (October 1990, pt. 2): S71-S102
Schmookler, Jacob. Invention and Economic Growth. Cambridge: Harvard
University Press, 1966.
Schumpeter, Joseph A. Capitalism, Socialism, and Democracy. 3d ed. New York:
Harper and Brothers, 1950.
- - . Business Cycles: A Theoretical, Historical, and Statistical Analysis ot
the Capitatist Process. 2vois. New York: McGraw-Hili Book Company, 1939.
- - . The Theory ot Economic Development: An Inquiry into Profits, Capital,
Credit, Interest, and the Business Cycle. Harvard Economic Studies. Cambridge:
Harvard University Press, 1934.
Smith, Adam. An Inquiry into the Nature and Causes ot the Wealth 01 Nations.
6th ed. 2vols. London: G. Bell and Sons, 1921.
U.S. Bureau of the Census. Historical Statistics ot the United States, Colonial
Times to 1970. Bicentennial ed. 2 pts. Corrected reprint. White Plains, NY:
Kraus International Publications, 1989.
- - . Historical Statistics ot the United States, /789-1945. Washi ngton,
D.C., 1949.
- - . Statistical Abstract ot the United States. Annual. Washington, DC.,
1922-92.
Williams, Trevor I. The History ot Invention: From Stone Axes to Silicon Chips.
New York: Facts on File, 1987

18

The Year in Review
Overview
In 1992, the Federal Reserve Bank of Dallas took a
historic step. The Dallas Fed moved into new headquarters at 2200 North Pearl Street in downtown
Dallas after nearly a decade of research and analysis, a lengthy selection process involving 17 possible sites, and two years of nonstop design and
construction. This step placed the Bank in a stateof-the-art facility incorporating the most up-to-date
technological capabilities available-a move that
prepares the Bank and the financial institutions of
the Eleventh District for the 21st century, poised to
meet the challenges of an industry that continues to
undergo major change.
The move into a new, custom-designed building gives the Dallas Fed an opportunity to pass to
its customers increased efficiency and flexibility in
the Bank's operations. From fiber-optic cabling that
provides a more secure and efficient electronic payments system, to dual-technology motion detectors
that enhance Bank security, to an Uninterruptible
Power System that prevents the loss of even 1 millisecond of computer capability, the Dallas Fed and
the financial institutions it serves are today supported by an imposing array of technology.
Moreover, in pursuit of its goal to continually
improve the efficiency and flexibility of its overall
operations and the nation's payments system, the
Federal Reserve in 1992 began two major consolidation efforts.
In April 1992, the Federal Reserve Automation
Services (FRAS) project was launched by the Federal Reserve System to provide the Reserve Banks
and the financial institutions they serve a more reliable, cost-effective automation environment. For
many reasons, including the increased capabilities
of the new building, the Dallas Fed was selected as
a site for the project, which consolidates the
System's 12 data processing operations into three.
The Dallas FRAS Data Center-which now houses
three state-of-the-art mainframes and more than 100
pieces of computer hardware, communications
equipment and tape devices-was completed by

year's end and will be serving the Chicago, Dallas,
Kansas City, Minneapolis, St. Louis and San Francisco Federal Reserve Districts.
In July 1992, the U.S. Bureau of the Public Debt
and the Federal Reserve System consolidated the
processing of savings bonds from all 12 Districts into
five sites. The Eleventh District's savings bond activities will be merged with those of the Kansas City
Fed. Organized by function, the new savings bond
system will be more cost-efficient by taking advantage of advances in automation technology.

Financial Services
The Dallas Fed's relocation provided substantial
opportunities for the development of financial services in 1992. The Bank converted to advanced
processing equipment that uses the latest technology, allowing a larger volume of paper and electronic checks to be processed faster and more efficiently than before. Bank operations also began
processing on the Federal Reserve Automation Services mainframe in the Dallas FRAS Data Center in
1992, and hardware and software were standardized throughout the District.
In addition to creating several new products to
meet the needs of its customers, the Dallas Fed also
initiated a pilot program with a District bank to explore check truncation and image processing for the
development of services to facilitate institutional cash
management for large corporate customers.
During the year, the Bank undertook substantial efforts to enhance customer service. The Dallas
Office began a comprehensive quality control program for paper-check processing. The program incorporates employee incentives and increased
employee responSibility for correcting errors that
may occur at each step of the check sorting and
delivery process. The El Paso Office implemented a
quality improvement program in 1992 to work with
customers to reduce the number of external errors
related to paper-check processing, and it introduced several measures to improve the quality of
service in currency operations. The Houston Office
initiated a Total Quality Management Program to
develop a standardized system of improving customer service in all areas of operations, and the

1.9

San Antonio Office put process improvement teams
and quality control groups in place in the papercheck processing and currency processing areas.
As part of the Dallas Fed's continuing review of
Eleventh District services to ensure that they are the
best available, the Bank initiated several operations
research projects, including the testing of various
hardware and software products to establish an automated adjustments system aimed at providing greater
efficiencies and timeliness in responding to customer
requests for adjustments-related information.
The Bank also took advantage of the new
building's high-tech capabilities to enhance currency and coin operations for the territory served
by the Dallas Office. Currency is stored in an underground vault the size of a five-story building.
The currency vault is fully automated, using a computerized carriage system to store and retrieve.
Also, the currency and coin area will be linked to
the Bank's central processing unit, allowing a
greater degree of efficiency and better control of
assets. In addition to lowering costs, the computerized system will allow closer adherence to the
System's custody control standards for protecting
valuable assets. Meanwhile, in response to increases in volume, both the Houston and the San
Antonio Offices instituted second-shift operations in
currency processing, joining the Dallas Office, which
already had second-shift operations in place.
In implementing the Federal Reserve System's
initiative to streamline the automated clearinghouse
function and move all commercial transactions to
electronic access, the Dallas Fed worked with more
than 90 percent of the financial institutions in the
District to facilitate the conversion. As designed, the
move toward an all-electronic ACH system has provided customers with improved efficiency by promoting timely posting and has given customers
greater processing flexibility, a higher level of security, and improved disaster recovery capabilities.
In the Dallas Fed's securities area, two initiatives beyond the consolidation of savings bond
processing were taken. In response to a steady decline in volume throughout the Eleventh District, due
largely to conversion of securities into book entry,
the Dallas Fed's noncash collection services involving

20

municipal coupons and bonds were consolidated at
the Jacksonville Branch of the Atlanta Fed on February 1, 1993. For similar reasons, the Federal Reserve
System announced that it will withdraw from the
priced definitive safekeeping service, including the
safekeeping of definitive securities pledged to state
and local governments, by the end of 1993.

Supervision and Regulation and Loan
As the regulator of state member banks and bank
holding companies in the Eleventh District, the Dallas Fed performs examinations for safety and
soundness and for compliance with consumer protection laws, as well as the Community Reinvestment Act. In 1992, the Dallas Fed's examiners conducted 430 examinations related to the supervision
of District financial institutions, down from 556 in
1991, reflecting improved banking conditions and a
decrease in the number of state member banks. Of
the 430 examinations, 19 were of U.S. agencies of
foreign banks, and 40 were consumer affairs
examinations.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA), passed by Congress in
1991, began to affect the bank supervision process
in 1992. Although the legislation is not yet in full
effect, bankers and regulators have responded to
various proposals for the drafting of regulations
mandated by the legislation. These cover risk-based
assessment of deposit insurance premiums, real estate lending guidelines, standards for prompt corrective action, minimum standards for safety and
soundness, an improved methodology for assessing
the adequacy of the reserve for loan and lease
losses, and truth in savings.
As a result of the continuing emphasis on efficiency of operations, financial institutions in the
Eleventh District experienced a dramatic increase in
consolidation activity in 1992. The Dallas Fed processed 207 applications for mergers and acquisitions, changes in control and management, and
other actions requiring regulatory approval-up
from 114 such applications in 1991.
The profitability of Eleventh District banks was
greater than in 1991 and again surpassed the profitability of U.S. banks overall. The return on District

banking assets rose to 1.2 percent in 1992 from 0.7
percent in 1991. Meanwhile, reflecting the stability
of the District's banking industry, the number of
bank failures and FDIC-assisted resolutions continued to decrease, declining slightly from 33 in 1991
to 31 in 1992.
Largely because of increased seasonal lending
to meet the temporary liquidity needs of various
financial institutions throughout the District, the
number of loans extended by the Dallas Fed's discount window increased from 421 in 1991 to 521 in
1992, and total credit extended rose slightly from
$1 billion in 1991 to $1.3 billion in 1992.
The provisions of FDICIA affecting discount window operations will go into effect on December 9,
1993, effectively reducing the number of loans that
can be extended to undercapitalized institutions.

Research and Public Affairs
In addition to its role as a provider of financial services and as the regulator of state member banks
and bank holding companies in the District, the
Dallas Fed is strongly committed to playing a vital
role in the economic life of the region. The new
building, with its greatly expanded capacity for
seminars, conferences and other public outreach programs, is enabling the Bank to establish itself as a
prominent center of economic research and education for the Southwest, especially through promoting
a better understanding of free enterprise and its significance to the region's economic viability.
In pursuit of this goal, the Dallas Fed expanded
its role in the area of free trade during 1992 by establishing relations with Banco de Mexico, as well
as with several prestigious universities and research
institutions throughout Latin America. In addition,
the Bank began researching the interrelationship
between U.S. and Mexico banking markets and the
opportunities arising from the North American Free
Trade Agreement. Other important areas of study
were the Federal Deposit Insurance Corporation
Improvement Act's impact on the region's banking
industry and, also, new technologies for detecting
and predicting changes in a bank's financial condition. Moreover, research was conducted on such
issues as regional labor market conditions, interna-

tiona] trade and the growth of the money supply.
The Dallas Fed's activities in these and other
areas were supported and communicated in a number of ways. Economic research on issues affecting
the Eleventh District was published for various audiences-in Economic Review, The Southwest
Economy, Financial Industry Studies, Financial Industry Issues and Houston Business. In addition, the
Bank conducted several conferences to provide a
better understanding of key industry and economic
concerns; among these were its annual conference
on banking, which examined market forces versus
regulatory decision-making, and its conference on
the Southwest economy, which focused, in part, on
the region's trade relations with Latin America. The
Bank also conducted a series of eight meetings
with community bankers across the District to discuss their needs and address their concerns.
As part of its efforts to encourage and promote
community development in the Eleventh District,
the Bank sponsored two major conferences on economic development and community reinvestment,
participated in a variety of forums that promoted
community development, conducted several workshops and seminars on community reinvestment
policy issues and application requirements, and began publishing a newsletter highlighting successful
community development initiatives. Moreover, the
Dallas Fed has taken a leadership role within the
District in the area of economic education. In 1992,
the Bank held 18 teacher-training conferences on
international trade, sponsored an upper-level high
school essay contest on the topic of free trade, coordinated with Southern Methodist University to
provide an economics program for junior high
school students, and published an economic information resource guide for teachers.
All this reflects a year of significant activity for
the Dallas Fed and for the banking industry. As
changes continue to take place within the Federal
Reserve System and the industry, the Federal Reserve
Bank of Dallas will continue to meet the challenges
of providing efficient, cost-effective and reliable financial services while promoting safe and sound
banking throughout the Eleventh District.

21

Boards of Directors

EI Paso Branch

Walter E. Johnson

Chairman:

PresidenVChief Executive Officer
Southwest Bank of Texas
Houston, Texas

Federal Reserve Bank of Dallas

Alvin T. Johnson

Chairman:

Senior Vice President
Management Assistance Corp. of America
EI Paso, Texas

Leo E. Linbeck, Jr.
Chairman of the Board and
Chief Executive Officer
Linbeck Construction Corp.
Houston, Texas
Deputy Chairman:
Vacancy

J. B. Cooper, Jr.

Chairman Pro Tem:

I. H. Kempner, III
Chairman of the Board
Imperial Holly Corp.
Sugar Land, Texas

Diana S. Natalicio
President
The University of Texas at EI Paso
EI Paso, Texas

W. Thomas Beard, III

Clive Runnells
President and Director
Mid-Coast Cable Television, Inc.
EI Campo, Texas
President and Director
Runnells Cattle Co.
Bay City, Texas

Farmer
Roscoe, Texas

President
Leoncita Cattle Co.
Alpine, Texas

T. C. Frost

Hugo Bustamante, Jr.

San Antonio Branch

Owner and Chief Executive Officer
CarLube Inc., dba ProntoLube
EI Paso, Texas

Roger R. Hemminghaus

Chairman of the Board
Frost National Bank
San Antonio, Texas

Robert G. Greer

Veronica K. Callaghan

Chairman:
Chairman of the Board, President, and
Chief Executive Officer
Diamond Shamrock, Inc.
San Antonio, Texas

Chairman of the Board
Tanglewood Bank, NA
Houston, Texas

Vice President and Principal
KASCO Ventures, Inc.
EI Paso, Texas

Eugene M. Phillips

Ben H. Haines, Jr.

Erich WendI

President and Chief Operating Officer
First National Bank of Dona Ana County
Las Cruces, New Mexico

President and Chief Executive Officer
Maverick Markets, Inc.
Corpus Christi, Texas

Wayne Merritt

Gregory W. Crane

Chairman of the Board and President
Texas National Bank of Midland
Midland, Texas

Chairman of the Board, President, and
Chief Executive Officer
Broadway National Bank
San Antonio, Texas

Houston Branch

Javier Garza

Chairman:

Executive Vice President
The Laredo National Bank
Laredo, Texas

Chairman of the Board and President
The First National Bank of Panhandle
Panhandle, Texas

Cece Smith
General Partner
Phillips-Smith
Specialty Retail Group
Dallas, Texas

GaryE. Wood
President
Texas Research League
Austin, Texas

Peyton Yates
President
Yates Drilling Co
Artesia, New Mexico

Chairman Pro Tem:

Judy Ley Allen
Partner and Administrator
Allen Investments
Houston, Texas
Chairman Pro Tem:

Lawrence E. Jenkins
Vice President (retired)
Lockheed Missiles & Space Co., Inc.
Austin, Texas

Milton Carroll
Federal Advisory Council Member

Ronald G. Steinhart
President and Chief Operating Officer
Bank One, Texas, N.A.
Dallas, Texas

Chairman of the Board and CEO
Instrument Products, Inc.
Houston, Texas

Jack Moore
Owner/Manager
T. J. Moore Lumber Inc.
Ingram, Texas

T. H. Dippel, Jr.
Chai rman of the Board and President
Brenham Bancshares, Inc.
Bren ham, Texas

Sam R. Sparks
President
Sam R. Sparks, Inc.
Progreso, Texas

Jenard M. Gross
President
Gross Builders, Inc.
Houston, Texas

22

Effective December 31, 1992

Advisory Councils
Finane/allnstitutions

Small Business and Agriculture

John H. Arnold

Joe Alcantar

Lois Farfel Stark

President and Chief Executive Officer
Southwest Corporate
Federal Credit Union
Dallas, Texas

President
Alman Electric, Inc.
Mesquite, Texas

President
Stark Productions, Inc.
Houston, Texas

Patrick E. Boyt

Charles R. Tharp

Managing Partner
P. E. Boyt Fanms
Devers, Texas

Partner/Manager
Tharp Farms
Las Cruces, New Mexico

Ron Davenport

L. C. Unfred

Owner
Davenport Cattle Co.
Friona, Texas

Farmer
New Home, Texas

Arno J. Easterly, Jr.
President and Chief Executive Officer
Barksdale Federal Credit Union
Barksdale Air Force Base, Louisiana

P.M.Elvlr
Managing Director
Operations and Cash Management
Bank One, Texas, N.A.
Dallas, Texas

Paul T. Gray

Jeffrey W. Wilson
Robert D. Dooley
Partner
KPMG, Peat Marwick
Dallas, Texas

Senior Vice President
NationsBank of Texas, N.A.
Dallas, Texas

T. Mike Field

James L. Hawkins, Jr.

Agriculture and Real Estate
Lubbock, Texas

Senior Vice President
First National Bank in Alamogordo
Alamogordo, New Mexico

Annette Bailey Hamilton

J. W.Pieper
Senior Vice President
New First City, Texas-San Antonio, NA
San Antonio, Texas

President
Cattle Baron Restaurant, Inc.
Roswell, New Mexico

Effective December 31, 1992

Chairman of the Board
Annette 2CosmetiQues, Inc.
Dallas, Texas

J. Jay O'Brien
Cattleman
Amarillo, Texas

Jimmyseay
President and Chief Executive Officer
The City National Bank
Mineral Wells, Texas

John Michael Solar
Principal Attorney

J. Michael Solar & Associates
Houston, Texas

Kenneth A. Trapp
Executive Vice President
Frost National Bank
San Antonio, Texas

23

Statement of Condition
December 31. 1992

December 31. 1991

(Thousands)

(Thousand's)

ASSETS
Gold certificate account'
Special drawing rights certificate account 2
Coin
Loans to depository institutions
Securities:
Federal agency obligations
U.S. government securities
Total securities
Items in process of collection
Bank premises (net)
Other assets
Interdistrict settlement account
TOTAL ASSETS

$

o

515,000
463,000
42,850
2,500

198,566
10,822,673
$ 11,021,239
418,164
161,185
1,998,586
2,314,128
$ 16,780,728

237,160
10,455,745
$ 10,692,905
772,558
140,461
2,296,846
1,599,508
$ 16,525,628

$ 14,082,302

$ 13,530,418

1,808,300
11,092
26,894
$ 1,846,286
355,660
72,594
$ 16,356,842

1,645,660
11,430
96,637
$ 1,753,727
722,424
96,179
$ 16,102,748

$

$

$

463,000
377,000
27,426

LIABILITIES
Federal Reserve notes
Deposits:
Depository institutions
Foreign
Other
Total deposits
Deferred credit items
Other liabilities
TOTAL LIABILITIES

CAPITAL ACCOUNTS
Capital paid in
Surplus
TOTAL CAPITAL ACCOUNTS
TOTAL LIABILITIES AND CAPITAL ACCOUNTS

, This Bank's share ofgold certificates deposited by the
2

24

211,943
211,943
$
423,886
$ 16,780,728

u.s. Treasury with the Federal Reserve System.
u.s. Treasury with the Federal Reserve Bank of New York.

This Bank's share ofspecial drawing rights certificates deposited by the

211,440
211,440
$
422,880
$ 16,525,628

Statement of Operations
For the year ended December 31

1992

1991

(Thousands)

(Thousands)

CURRENT INCOME
Interest on loans
Interest on government securities
Income on foreign currency
Income from priced services
Other income
Total current income

181
645,883
168,875
53,345
290
868,574

$

107,879
8,863
99,016
11,217
110,233
758,341

$

4,565
0
4
4,569

$

$

$
$

0
86,081
36
86,117
(81,548)

$
$

0
0
28
28
32,634

$

2,318

$

4,272

$

10,274
14,354
649,847

$

8,034
11,210
882,024

$

$

$

292
729,590
190,408
49,082
663
970,035

CURRENT EXPENSES
Current operating expenses
Less expenses reimbursed
Current net operating expenses
Cost of earnings credits
Current net expenses
CURRENT NET INCOME

$
$
$
$

$
$
$

98,422
7,342
91,080
6,049
97,129
872,906

PROFIT AND LOSS
Additions to current net income:
Profit on sales of government securities (net)
Profit on foreign exchange transactions (net)
Other additions
Total additions
Deductions from current net income:
Loss on sales of government securities (net)
Loss on foreign exchange transactions (net)
Other deductions
Total deductions
Net additions (deductions)
Cost of unreimbursable Treasury services
Assessment by Board of Governors:
Expenditures
Federal Reserve currency costs
NET INCOME AVAILABLE FOR DISTRIBUTION

$

$
$

$

$

$

4,908
27,748
6
32,662

25

Statement of Snrplns
1992
(Thousands)

Surplus, January 1
Net income available for distribution
LESS:
Dividends paid
Payments to the U.S. Treasury
Net amount transferred to (from) surplus
Surplus, December 31

26'

$

$
$

211,440
649,847
13,077
636,267
503
211,943

For the year ended December 31
1991
(Thousands)

$

$
$

184,737
882,024
11,468
843,853
26,703
211,440

Volume of Operations
District Summary
Dollar Amount (Thousands)

Number of Pieces Handled

1992

1991

1992

1991

984,670,412
724,822,479
436,547,796

1,018,631,771
474,163,877
392,604,472

15,556,204
127,515
2,241,908

14,065,791
68,592
1,960,574

6,199,053

6,007,500

8,082,428,378

8,170,674,245

CHECKS HANDLED
Commercial-processed
Commercial-fine sorted
U.S. government checks

1,105,328,973
476,632,826
29,769,663

1,091,740,644
427,791,335
31,245,000

607,988,036
124,205,173
36,933,809

521,793,307
104,621,557
37,790,042

ACH ITEMS HANDLED
Commercial
U.S. government

128,009,669
46,265,782

108,278,400
42,578,234

509,256,382
54,355,908

435,011,018
49,189,268

11,519
132,126

12,546
219,855

9,867
292,312

23,138
679,211

3,403,064

4,358,666

1,876,923,996

1,358,640,070

521

421

1,295,073

1,021,049

Currency received and counted
Coin received and counted
Food stamps redeemed
Transfers of funds

COLLECTION ITEMS HANDLED
U.S. government coupons paid
Municipal coupons and bonds
ISSUES, REDEMPTIONS,
EXCHANGES OF U.S.
GOVERNMENT SECURITIES
Definitive and book-entry
LOANS
Advances made

27

Officers

Rebecca W. Meinzer

Philip R. Spear

Vice President

Assistant Vice President

Federat Reserve Bank of Dallas

Gerald P. O'Driscoll, Jr.

Gayle Teague

Dallas

Vice President and
Economic Advisor

Assistant Vice President

Robert D. McTeer, Jr.
President and
Chief Executive Officer

Tony J. Salvaggio
First Vice President and
Chief Operating Officer

Robert D. Hankins
Senior Vice President

JayK. Mast
Senior Vice President

Harvey Rosenblum
Senior Vice Presidenl and
Director 01 Research

James L. Stull
Senior Vice President

Millard E. Sweatt
Senior Vice President,
General Counsel, and Secretary

Basil J. Asaro
Vice President

Lyne H. Carter
Vice President

Jack A. Clymer
Vice President

W. Michael Cox
Vice President and
Economic Advisor

Billy J. Dusek
Vice President

J. Tyrone Gholsoa
Vice President

Jerry L. Hedrick
Vice President

Helen E. Holcomb
Vice President

Joel L. Koonce, Jr.
Vice President

Robert F. Langlinais
Vice President and
General Aud itor

28

San Antonio
Thomas H. Robertson
Vice President in Charge

Taylor H. Barbee
Michael N. Turner

Dean A. Pankonien

Assistant Vice President

Vice Presidenl,
Assistant General Counsel,
and Assistant Secretary

Stephen M. Welch

Larry J. Reck

Marlon E. White

Vice President

Assistant Vice President

Assistant Vice President

John A. Bullock
Assistant Vice President

Assistant Vice President

Richard A. Gutierrez

Jesse D. Sanders

Robert L. Whitman

Vice President

Assistant Vice President

Genie D. Short

Bob W. Williams

Vice President

Assistant Vice President

Larry M. Snell

Emilie S. Worthy

Vice President

Assistant Vice President

W. Arthur Tribble

Meredith N. Black

Vice President

Supervisory Information Officer

Earl Anderson

Gloria V. Brown

Assistant Vice President

Community Affairs Officer

Stephen P. A. Brown

Joanna O. Kolson

Assistant Vice President and
Senior Economist

Operations Officer

Richard J. Burda

EI Paso

Assistant Vice President

samC. Clay
Terry B. Campbell

Vice President in Charge

Assistant Vice President

J. Eloise Guinn
Robert G. Fell

Assistant Vice President

Assistant Vice President

Javier R. Jimenez
Johnny L. Johnson

Assistant Vice President

Assistant Vice President

C. LaVorLym

Houston

Assistant Vice President

Robert Smith, III
James R. McCullin

Senior Vice President in Charge

Assistant Vice President

Vernon L. Bartee
John R. Phillips

Vice President

Assistant Vice President

Rene G. Gonzales
Larry C. Ripley

Assistant Vice President

Assistant Vice President

Luther E. Richards
Mary M. Rosas

Assistant Vice President

Assistant Vice President

Robert W. Gilmer
Robert J. Rossato
Assistant General Auditor

Research Officer

Assistant Vice President

Effective January 1, 1993

The federal Reserve Bank of Dallas
is one of 12 regional Federal Reserve
Banks in the United States. Together
with the Board of Governors in
Washington, D.C., these organizations
fonn the Federal Reserve System and
function as the nation's central bank.
The System's basic purpose is to provide
a 110w of money and credit that will
foster orderly economic growth and a
stable dollar. In addition, Federal
Reserve Banks supervise banks and bank
holding companies and provide certain
financial services to the banking
industry, the federal government and
the public.
Since 1914, the Federal Reserve
Hank of Dallas has served the financial
institutions in the Eleventh District. The
Eleventh District encompasses 350,000
square miles and comprises the state of
Texas, northern Louisiana and southern
New Mexico. The three branch offices of
the Federal Reserve Bank of Dallas are
in El Paso, Houston and San Antonio.

Historieal photographs are from The Heitmann ArchilJe.

Federal Reserve Bank of Dallas
2200 North Pearl Street
Dallas, Texas 75201
(214) 922-6000
EI Paso Branch
301 East Main Street
EI Paso, Texas 79901
(915) 544-4730
Houston Branch
] 701 San Jacinto Street
Houston, Texas 77002
(713) 659-4433
San Antonio Branch
126 East Nueva Street
San Antonio, Texas 78204
(2]0) 978-1200

Mr. Lawrence G. Rex
Audit Coordinator
Federal Reserve Bank
2200 N. Pearl st.
6Flr
Dallas, Tx 75201-2272