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R ES EA R C H LIBRARY
Federal Reserve Bank
of St. Louis

APR 0 7 1988

FEDElRAIL RES ERVE BAN
YORK
OF




■W
Ay

F E D E R A L R E S E R V E B A NK OF NEW YORK

April

To t h e
Second

D e p o s i t o r y I n s t i t u t i o n s in
Federal R e serve Di strict

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E. G e r a l d
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Federal Reserve Bank
o f New York

SEVENTY-FIRST
ANNUAL REPORT
For the Year
Ended
D ecem ber 31, 1985

Second Federal Reserve D istrict

Contents:

Page
THE CHALLENGE OF FINANCIAL C H A N G E ......................................................................................

3

THE BASIC I M B A L A N C E S .................................................................................................................

6

THE NEW FINANCIAL E N V IR O N M E N T .............................................................................................

1
1

Innovation

.........................................................................................................................................

11

......................................................................................................................................

14

D e re g u la tio n ......................................................................................................................................

16

Securitization

...................................................................................................................................

17

The Growth of Ita d ln g .......................................................................................................................

19

ADAPTING TO FINANCIAL C H A N G E ..................................................................................................

22

COMPLEXITY AND INTERD EPEN D EN CE..........................................................................................

24

THE TASK A H E A D ................................................................................................................................

27

Financial S ta te m e n ts .......................................................................................................................

29

Changes In Directors and Senior O f f i c e r s ...................................................................................

32

List of Directors and Officers

36

Competition




........................................................................................................

S e ve n ty-firs t A n n u a l R e p o rt
F e d e ra l R e s e rve B a n k o f N e w York

T H E C H A LLEN G E O F FINANCIAL CH AN G E

Edward J. Frydl
V ic e P re s id e n t a n d A ssista n t
D ir e c t o r o f R e s e a rc h

The past year was the third year of economic recovery in the United States. Judged by
important general indicators of economic performance, this recovery has been notable.
The U.S. economy has added some 10 million jobs since the trough of the past recession
and the unemployment rate has fallen to about 7 percent from its peak of 10.7 percent.
Real GNP has expanded at an annual rate of more than A1 2 percent over the past three
1
years. These employment and output gains were achieved without a return of inflationary
pressures. General indicators of inflation last year were in fact stable at moderate rates
or even somewhat improved.
Extraordinary economic imbalances and financial strains, however, have marked the
course of this recovery. The problems posed by very large Federal Government and
international current account deficits—imbalances too large to be sustained in the long
run—have received the most attention. But the recovery has also been associated with
a disturbingly heavy reliance on debt, not just by the Federal Government but by
corporations and households.
Against this background of underlying sectoral and financial imbalances in the general
economy, rapid changes are taking place in the financial system that create new challenges.
• The volatility of prices for the entire spectrum of financial assets has risen con­
siderably. In step with this development, new financial instruments—such as futures,
options, and swaps—that provide additional ways to transfer price risks among
market participants flourished. The active trading of these new instruments and
of the more conventional instruments underlying them has burgeoned. The volume




3

of financial transactions has accelerated at an unprecedented rate.

• Competition has greatly increased in the whole range of financial services. Com­
mercial banks, thrift institutions, investment banks, and insurance companies are
all expanding the range of their activities and crossing over into each other’
s
traditional business preserves. Nonfinancial businesses are directly entering financial
services as well. And foreign financial institutions are increasing their involvement
in markets here at the same time that U.S. firms are expanding abroad. Competitive
pressures have been compounded by the ongoing trend toward financial deregulation
of the terms that institutions can charge or offer, the kinds of transactions in which
they may engage, and the geographical markets they may enter. This increased
degree of competition has squeezed earnings margins on many conventional financial
activities, accelerating the development and diffusion of innovations.
• The weakened economic and financial condition of major sectors—energy, agri­
culture, commercial real estate, and various developing countries—has diminished
the credit standing of many borrowers. One consequence has been that in recent
years the costs of capital and funding for some bank lenders to those sectors have
tended to rise relative to the costs for high quality commercial credits. At the same
time, the direct credit markets have become more accessible to business borrowers.
Banks have had a difficult time competing with the commercial paper and securities
markets for corporate credit demands, especially those of the “blue chip” firms.
Indeed, in many cases, banks have sought to profit from the trend toward market
financing by generating loans and selling them off, either directly or packaged as
securities, or by expanding their roles as guarantors and distributors of capital
markets instruments.
All of these forces—innovation, competition, deregulation, securitization, and the
growth of trading—have combined to create a challenging environment. Maintaining
a stable and well-functioning financial system in the face of such rapid change poses
difficult issues for policymakers.
The policy mechanisms for preserving financial stability have two broad aspects.
The first involves official arrangements for the regulation of financial activity and the
supervision of financial institutions. The second concerns the operations of official
deposit insurance and the central bank. The principal objectives of this official “safety
net” are to protect the safety and soundness of the banking system and to contain and
limit the spillovers from financial shocks to avoid widespread disruptions.
4




The rapid changes at work in the financial realm have consequences for both aspects
of maintaining financial stability. New thinking is needed at a basic level about the
function of regulation and supervision domestically and internationally. The current
structure of financial regulation in the United States applies by and large to classes of
institutions, not activities. This structure worked well in an environment where institutions
were more or less specialized in conventional activities: banks in commercial lending
and deposit taking; thrift institutions in mortgage lending and retail deposit taking;
securities firms in underwriting, brokering, and trading; and so forth. In recent years,
however, institutions have moved into new and nontraditional activities, markets in
new instruments have arisen, and the scope of financial activities carried out by institutions
or in markets that are not well integrated into the regulatory structure has rapidly
expanded. Official authorities face the challenge of designing a framework of oversight
better suited to this new environment marked by the breakdown of traditional special­
izations and the rise of new instruments.
The new financial environment is profoundly international in character. This makes
the need for coordinated oversight among countries a serious concern. Uncoordinated
regulation either creates opportunities for activities to shift from one geographical
market to another or puts one set of national financial institutions at a competitive
disadvantage in global markets without achieving effective regulation. Banking authorities
in the major countries have set up mechanisms to harmonize supervisory policies. But
much remains to be done, especially with regard to securities markets, where the latest
wave of international expansion is occurring. The prospect of having an independent
national financial policy—of allowing a national financial system to evolve along lines
compatible with the cultural and historical traditions of a country, once a desirable and
practical goal for public policy—is rapidly fading. The competitive forces at work in
the new environment are shaping a global financial structure that binds domestic markets
ever more closely together.
In addition to the consequences for regulation, the new environment poses two other
important concerns for the safety net. The first involves the de facto and de jure
operations of the Federal deposit insurance schemes. Indeed, the emerging character
of our banking markets raises important questions about whether and how the deposit
insurance mechanism should be altered to be more compatible with the current envi­
ronment. The second challenge stems from the expanded volume of financial transactions,
which has made huge intraday overdraft positions against the central bank on funds
transfer systems a commonplace. Managing these potential demands on the resources
of the deposit insurance funds and the central bank in a way that maintains confidence
in the efficacy of the official safety net is an important issue.




5

All of these developments pose broad concerns to the Federal Reserve in terms of
its oversight role regarding the strength and stability of the financial system. The present
time offers a good perspective to assess the evolution of the new environment and the
challenge of maintaining its stability. Usually, after three years of strong economic
recovery and growth, financial conditions should be broadly improved and generally
healthy. Instead, today many financial strains are apparent and the recovery period has
been pockmarked with isolated, but none the less troubling, incidents of financial
distress.

TH E B A SIC IM B A LA N C ES
Financial strains have emerged against a background of some fundamental imbalances
in macroeconomic policy and indebtedness in the American economy. The most prominent
problem of the recovery has been the huge Federal Government deficit resulting from
the excessively expansionary fiscal policy earlier put in place. Monetary policy, for its
part, has been reasonably accommodative throughout the recovery, within the constraints
of adhering to a long-run anti-inflationary posture. Money growth has been strong,
interest rates have declined, and no general indications of frustrated demands for liquidity
have been evident. Despite this accommodative tone to monetary policy, fiscal pressures
have helped to keep interest rates at a high level relative to inflation. These high real
interest rates certainly contributed to the extended period of dollar overvaluation, which
did not undergo a sustained correction until the latter part of 1985 following the Group
of Five agreement on concerted intervention. The dollar’ exaggerated value weakened
s
the competitive position of trade-intensive sectors, aggravating the financial strains on
many sectors such as agriculture and manufacturing.
Another major imbalance has been the increased leveraging of both the consumer
and business sectors in spite of the prevailing high level of interest rates. Households
in the United States have steadily increased their indebtedness relative to incomes in
recent years, with this ratio now at new highs (Chart 1). The growth of consumer credit
has been spurred by its increased availability from suppliers who are engaged in strong
competition in these markets. Several factors have been at work, among them: aggressive
marketing of credit cards; lengthened maturities on automobile and other installment
loans; new consumer lending efforts by thrift institutions; an expanded scope of the
secondary market for mortgages, including second mortgages; and the growth of accounts
that allow easy direct borrowing against the appreciated value of houses.
6




C h a r t 1.

H O U S E H O L D DEBT

D uring the economic recovery,
both total household debt . . .

. . . and debt service payments
have outpaced personal income.
Percent

Percent
D e b t to d i s p o s a b l e p e r s o n a l i n c o m e

D e b t s e r v i c e p a y m e n t s to d i s p o s a b l e

r .

p e rs o n a l incom e

50 —
45

12

Hom e m ortgage
debt

\

40

—

35

-

—

25 -

X

—

30 -

C o n s u m e r installm e nt
debt paym ents

-

10

-

8

Consumer

20

__

installm e nt
^ ^

15
10

1 11L u
1978

debt

1.1 111 1 I l 1 11 l l l l
,

79

80

^ * 00‘

81

82

6 —

__

L 1..1.L J 1 . 1 1 1 L
83

84

4

85

Hom e m ortgage
paym ents

J L n lU - l.l
1978

79

*0* * * * *

.

—

-****"*—

1 1 1 1..LI 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 L.
80

81

82

83

84

85

At the same tim e, perform ance indicators w orsened.




7

There are offsetting considerations that make some observers relatively sanguine
about the financial condition of the household sector. To some extent the rise in personal
debt ratios mirrors demographic trends: the baby boom generation has grown up. With
so many people in a prime age for family formation, typically a time of heavy borrowing,
the U.S. population now has a structural tilt toward acquiring debt. Household financial
assets, particularly liquid assets, have also grown strongly and overall household net
worth positions are not in bad shape. Lengthened maturities have reduced the debtservicing burdens on auto loans. Part of the expanded use of credit cards represents a
substitution for other means of payment, not the accumulation of debt.
Even after acknowledging these points, though, a sense of concern about the state
of consumer finances is still merited. It is very unlikely that the same households are
acquiring large amounts of both financial assets and debt obligations. Household debt
service ratios cannot be measured with great precision, but they are surely at or near
record levels and are clearly deteriorating. And performance indicators—consumer loan
and mortgage delinquency rates, mortgage foreclosures, and personal bankruptcies—
are all rising, with many indicators at historical records.
On balance, household debt conditions do not pose an immediate threat to the economy.
But they mightily suggest that many households are not well placed to absorb either a
recession or a sharp rise in the costs of debt servicing unless their financial conditions
improve.
Debt use in the business sector has been a source of concern, too. The debt of
businesses has been growing at a rate in excess of GNP for several years now. And
this debt build-up is associated with an increased leveraging relative to the corporate
equity base (Chart 2). In the recovery years 1983-85, U.S. nonfinancial corporations
added around $375 billion to their outstanding debt while retiring on balance nearly
$125 billion worth of equity at book values, despite heavy net stock issuance during
the bull market of 1983.
Just how advanced this leveraging is in a longer term perspective and how serious
a problem it poses is not easy to say. The degree of debt to equity leverage in the
corporate sector varies widely, as it has since the mid-1970s, depending on whether
equity is measured at market values or as corporate net worth with assets valued at
replacement cost. These two measures probably offer boundary extremes on the “real”
degree of leveraging. But since the early part of the 1970s, they have diverged so much
that it is practically impossible to assert whether or not corporate sector leverage has
increased over a longer run.
Amid this uncertainty, one point stands out. The divergence between the two measures
arose suddenly in the years 1973-74, strongly suggesting that it was linked with the




Ch a rt 2.

C O R P O R A T E DEBT

C o rp o ra te debt has been

. . .

gro w in g ra p id ly . . .

re tire m e n t of e q u ity ca p ita l.

in l a r g e p a r t t o f i n a n c e t h e

1978

79

C o r p o r a t e d e b t-to - e q u ity ra tio s m o v e d u p d u r in g the r e c o v e r y .

80

81

82

83

84

85

B u t w h e r e t h e y s t a n d in a

lo n g e r perspective d e p e n d s on h o w they a re m e a su re d .




* N e t w o r t h m e a s u r e d as c u r r e n t r e p l a c e m e n t v a l u e
o f a s s et s less m a r k e t v a l u e o f l i a b i l i t i e s .

9

onset of virulent inflation and the wrenching shift in energy prices. In an environment
of lower inflation and falling oil prices, a truer reading on the degree of corporate
leveraging should result.
Lower inflation and lower oil prices should lead to an overall financial improvement
for corporate America. The weakness in corporate equity values during the 1970s was
connected to accelerating inflation in many ways: through greater variability in corporate
earnings, through higher risk premiums attached to real interest rates, through extraordinary
returns for competing investments like real estate, and through the interactions of
inflation with the tax system that reduced after-tax yields on stocks. A return to greater
price stability, then, should bode well for equity values. And lower oil prices should
benefit the profitability of most enterprises by lowering production costs.
But there are no guarantees that an unwinding of inflation and high oil prices will
fully restore overall corporate finances to the condition of earlier stable times. There
are some potential offsets to the broad benefits of lower inflation and reduced energy
costs. If lower inflation is accompanied by high real interest rates, high real debtservice burdens will be in store for companies that borrowed heavily. Lower oil prices
may also have some negative financial effects. For one thing, companies in the oil
sector were prominent among those increasing their leverage. For another, declines in
oil prices are not necessarily an unambiguous benefit to the equity values of all firms
outside the energy sector. Some, like airlines, are by the nature of their business clearcut winners from cheaper oil. Other firms, however, may have made large capital
investments designed to economize on expensive energy. As oil becomes cheaper, the
value of such equipment can also fall. This is a reversal of what happened in the mid1970s to the valuation of energy-intensive capacity. Both sharp relative price shifts and
their reversals can have adverse effects on stock values if the swings are far enough
apart in time so that the character of the capital stock has accommodated the initial
shock. This does not mean that equity values do not on balance improve from lower
oil prices; rather, the benefits need not add up to a complete reversal of the losses that
took place last decade.
In summary, there are good reasons to be concerned that the rapid substitution of
debt for equity that has gone on during this recovery could pose a difficult financial
burden for the corporate sector.
Relatively high real interest rates during this recovery have not much restricted the
demands for credit of either the household or business sector. Concerns about the extent
of leveraging would be somewhat less if the financial markets were responding in ways
that, on balance, make the supply of credit more cautious or offered participants better
hedges for the risks. Certainly the menu of hedges has greatly expanded. But the forces
10




at work in the new financial environment have also lubricated the supply of credit in
the American economy.

TH E NEW FINANCIAL EN VIRONM ENT

A multitude of powerful forces is working in the financial sector to produce change.
Five broad trends—innovation, competition, deregulation, securitization, and the growth
of trading— are of particular consequence. The sheer pace of change from the interplay
of these forces can be cause for concern. Because experience with this new environment
is very brief, the ways in which it responds to shocks are not clear. What is striking,
however, is that despite inherent uncertainty created by rapid growth, the current rate
of expansion in new financial markets remains unrestrained.

Innovation
The pace of financial innovation has been dynamic in recent years. New instruments
and techniques have arisen that transform price, credit, and liquidity risks and that
promote wider use of capital markets. There is no single best perspective on innovation,
but it is fruitful to view the process in terms of its effects on major broad features of
the financial system: risk, liquidity, and access to capital. Following these lines, then,
innovations can usefully be classified as risk-transferring, liquidity-enhancing, creditgenerating, or equity-generating.

Risk-transferring innovations
Risk-transferring innovations are new instruments or techniques that allow economic
agents to transfer the price or credit risks in financial positions. Price risk-transferring
innovations— interest rate and foreign exchange options, currency and interest rate




11

swaps, and a host of new futures markets and contracts—have been among the most
prominent features. Demand for these arose because of the higher risks posed by more
volatile asset prices, particularly exchange rates and interest rates. And deposit deregulation
aided the growth of these innovations by amplifying the risk at some financial firms,
notably thrift institutions, from a severe balance sheet mismatch.
Innovations in transferring credit risks also arose. These stemmed from the combination
of general credit difficulties that lingered from the 1981-82 recession and the severe
sectoral problems in agriculture, energy, and developing countries. The falls in credit­
worthiness heightened lender and investor demands for protection.
New techniques to deal with these worries emerged, building on the opportunities
created by a greater use of capital market financing. Insurance companies and other
financial firms provided a variety of guarantees on securities issues and other credit
risks. Commercial banks themselves sought to benefit from the trend to direct securities
financing. They set up programs to sell off to investors certain classes of business loans,
lease receivables, or consumer finance receivables. They expanded their use of stand­
by letters of credit to lend their credit rating to borrowers seeking capital market access.
And they sought a wider role in placing securities, often testing the limits of GlassSteagall rules.

Liquidity-enhancing Innovations
Liquidity-enhancing innovations improve the “moneyness” or the negotiability of financial
instruments. They arise from a generally increased demand for liquidity in the economy.
Cash management programs, money market mutual funds, and new types of negotiable
deposit accounts are all examples. The most recent steps aim at improving the liquidity
of capital market-type instruments. Note issuance facilities, securities sold with various
put options, or multiple financial guarantees are among the techniques employed.
High interest rates, the increased use of direct credit markets, and leveraging are all
factors that have worked to promote liquidity-enhancing innovations. High rates raised
the cost of holding transactions liquidity in the usual forms like checking accounts.
When investors shifted away from bank deposits to capital market instruments, they
generally acquired less liquid vehicles—after all, in normal conditions, deposits convert
back into cash at par in short order, if not on demand. This loss of liquidity, then,
created a demand for innovations that would restore it. A final underlying factor has
12




been the increased leveraging of the household and business sectors; a stronger demand
for liquidity in the face of greater debt burdens is not unreasonable.

Credit-generating Innovations
Credit-generating innovations are a third class. These innovations, which broaden the
access of economic agents to credit supplies, may result in an increase in the volume
of all credit or in a shift by some kinds of borrowers from their traditional credit
channels— say, bank borrowings—to nontraditional ones— say, the capital markets.
Increased demands for credit in general or for broad subclasses of credit are the driving
force behind these new instruments.
Credit-generating innovations appear to work in two ways. First, some innovations
mobilize dormant assets to back borrowings. An example is the new type of account
that allows homeowners to draw against a line of credit supported by the appreciated
value of their houses. This is a far more convenient borrowing vehicle than a junior
mortgage. Leveraged buyout financing, backed by the expected future cash flows of
the firm, is another example.
Second, credit-generating innovations tap previously unaccessed pockets of the supply
of credit. This may be done directly, as in the case of newly-issued junk bonds, or
indirectly, for example, through liability-based interest rate swaps.

Equity-generating Innovations
Equity-generating innovations make up a final broad class of new instruments. They
have been more limited than other types of innovations in recent years. But two examples
are noteworthy: variable rate preferred stock is structured to pay a dividend that varies
with market interest rates, and mandatory convertible debentures are debt instruments
that must convert to equity in a definite time period. Commercial banks have made
extensive use of both, a consequence of demands on the part of markets and regulators
for increased capital in banking.
Innovations have been principally spurred by demands for certain characteristics or
functions provided by the financial sector. But other forces have also promoted their
growth on the supply side by making financial institutions more willing and able to




13

provide new instruments. Chief among these have been the extraordinary changes in
telecommunications and computing technologies. These technical advances increased
the depth and breadth of trading by forging a global financial market. They made it
possible for market-makers to design and price new instruments with complex financial
structures and to monitor almost continuously the exposures generated. Finally, better
information for customers brought about more competitive pricing and lower earnings
in traditional areas of business, thereby encouraging financial institutions to pursue
more innovative lines.
Another push to innovation has come through regulatory action. Banks have been
required to operate with a lower ratio of balance sheet assets to capital. Exposures
generated through off balance sheet business, however, were not, by and large, subject
to similiar rules. At the same time, the costs to many banks of raising new capital were
high, largely because of the very asset quality problems that prompted the regulators’
demands for more capital. These conditions combined to move banks in the direction
of earning revenues through off balance sheet activity that did not tie up capital.

Competition
A second major factor defining the new financial environment is an unprecedented
degree of competition, which has come in two forms: that between the U.S. financial
system and systems of other nations and that between banks and nonbanks within the
United States.
Foreign financial institutions have set up significant presences in American markets
in both banking and securities. Foreign banks have competed aggressively in markets
for business loans and letters of credit. In the Government securities market foreign
firms are a growing presence. At the same time, U.S. banks and financial firms have
been active abroad, seeking to move into new banking and securities operations in
major foreign countries.
With these inroads have come highly complex questions of maintaining equivalent
standards for regulation and supervision of international financial firms, as well as
highly charged questions concerning the equitable treatment of these firms. The governing
principle of international financial relations in the United States has been that of national
treatment—that is, foreign firms operating in American markets should be allowed the
same scope for activities that domestic firms have. But there may be valid practical
concerns in the application of national treatment when U.S. firms operating abroad do
14




not have access to those markets on the same terms as domestic firms. As global
financial integration grows in importance, the need to harmonize principles of equitable
treatment will become more apparent. Competition in world financial markets would
be strengthened if this harmonization moved all countries toward applying national
treatment.
In the domestic arena, competition between banks and nonbanks has intensified.
Nonbanks have exploited narrow definitions of banking in existing legislation to expand
into lending and deposit-taking operations across the country. Banks have sought out
the limits on entrance into securities and insurance businesses. They have used the
opportunities for interstate expansion offered by state and regional reciprocal banking
pacts. And banks from states that are excluded from the regional compacts have seized
the chances presented by bank and thrift failures to build networks across state lines.
Without doubt, a driving edge to this competition has been aggressive utilization of
the “nonbank bank” loophole in current law. Unless this channel is controlled, it offers
to nonbank entities the prospect of conducting the functions of banking on a nationwide
scale simply by making rather modest changes in the forms of banking. The response
of conventionally-structured banks has been to work on eroding existing limitations on
their expansion into nonbank financial services or across state lines. One mode of these
expansion efforts has been banks’ own applications to set up limited service banking
organizations in new markets. If left unchecked, the current highly competitive envi­
ronment certainly has the potential to render moot the program of legal and regulatory
restraints on banking expansion that has been in place for many years. Whether the
consequences of that are good or ill is debatable. But the process now is going on
rapidly and haphazardly, and not as a conscious choice of public policy.
The result has been a turbulent financial sector. Struggles to get and keep market
shares in the face of strong competition have led to pricing structures that even participants
describe as unacceptably narrow.
Technological advances have played a strong role in this. Telecommunications equipment
and computers—technologies commonly available to all enterprises, regardless of their
business traditions—work to level the field of financial competition. They allow any
company from any business tradition to generate and control offers of generic versions
of financial services— loans, deposits, credit cards, and insurance are all important
examples— to the company’ existing customer base. Out of this comes the concept of
s
the financial supermarket. Efforts to implement this supermarket strategy have led to
intense competition in exploiting customer bases. Any company with a large number
of customers, such as a merchandise retailer or national credit card issuer, is at an
immediate advantage, even if it has no tradition of financial services.




15

Also, in part, this competition reflects stronger entrepreneurial attitudes in finance.
Managements of many firms in the financial sector now follow a strategy of expanding
into new areas and testing the market and regulatory limits to growth. This attitude has
certainly been promoted by another strong force at work, the trend toward deregulation
and liberalization of financial markets.

Deregulation
Deregulation differs in its nature from the forces of innovation and competition. The
latter two have grown up within the financial markets themselves. Deregulation, however,
has been a political process, with the chief goal of providing to end-users of financial
services higher returns and lower costs. Actions on deregulation fall into two major
categories: rate deregulation and liberalization of powers for financial firms, including
the relaxation of geographical restrictions on business.
Rate deregulation has been the more familiar; it is the more advanced and has so far
had the more pronounced effect on the broad economy. Recent legislation has almost
totally removed limits on the payment of deposit interest (with the major exception of
ordinary demand deposits). One important consequence of this has been to aggravate
the squeeze on net interest margins from traditional business lines for many depository
institutions, spurring the growth of competition and innovation. Another has been large,
unanticipated changes in the deposit-holding behavior of the economy that have made
monetary aggregates a significantly less reliable compass for policymakers.
Interactions between interest rate changes and deregulation played a big role in the
erratic behavior of the aggregates, especially last year. As rates declined, the cost of
holding what are basically precautionary savings rather than true transactions balances
in checkable deposits like NOW accounts also fell. More and more, depositors opted
for this more liquid form of savings, throwing far out of kilter the expected relation
between money measures and the level of GNP With further deposit rate deregulation
occurring in 1986 and with monetary aggregate velocity behavior so abnormal, great
uncertainties still surround monetary targeting in the new environment.
The second major trend in deregulation is the liberalization of powers. To date this
has gone on in a piecemeal and uneven way as a result of specific judicial and regulatory
challenges by market participants. At times, different regulators have held different
views of permissible powers. There has been no sea change in powers deregulation as
there was in rate deregulation. But inroads have been made in many directions: nonbanks
16




have assumed the functions of banking; banks have expanded their activities across
state lines; and banks have entered areas related to brokering, underwriting, and insurance.
This has led to a confused, even inequitable, regulatory environment. And it may very
well have increased the total risk in the overall financial system by allowing previously
segregated institutions to engage in new markets but in a hit or miss way. The need for
a legislative rationalization of this confusion grows clearer and more pressing.

Securitization
Another major force to note that is at work in the new financial environment is secur­
itization. This refers to an increased use of capital market-type instruments—commercial
paper, bonds, pass-through securities, etc.—as a source of finance, sometimes at the
expense of traditional channels of bank credit (Chart 3). Occasionally this trend has
taken the form of banks themselves setting up new structures that move assets off their
books into the open market.
A number of influences have converged to bring about a setting conducive to secur­
itization trends.
• Expensive intermediation. High-quality business borrowers could easily fund more
cheaply in commercial paper markets than from banks. Large banks in particular
saw their business loan growth stall. The very competitive interest rate swap
market could also be used as a way to gain attractively-priced floating rate funding
while bypassing the banking system.
• Cheaper credit enhancement. The market for credit enhancements—letters of
credit from banks and guarantees from insurance companies or other institutions—
has been highly competitive. Borrowers have found a ready supply of inexpensive
enhancements. This has broadened borrowers’ access to capital markets and increased
the use of securities issuance.
• Mobilization of assets. Financial markets are proving particularly inventive in
finding new ways to mobilize assets to support securities issuance. The pass­
through structure has been extended far beyond its original roots in FHA/VA home
mortgages. Commercial mortgage pass-throughs on selected properties have been
issued. Lease receivables and auto loan receivables have been securitized using




17

C h a r t 3. THE G R O W I N G I M P O R T A N C E O F SECURITIES F I N A N C E

Di r ect s e c u r i t i e s c r e di t c o n t i n u e d to r i s e
in o v e r a l l i m p o r t a n c e . . .

. . . a s a c t i v i t y in t h e c o m m e r c i a l p a p e r
market . . .

. . . a n d in t h e b o n d m a r k e t s s u r g e d .

L a r g e b a n k s , in p a r t i c u l a r , s a w t h e i r
s h a r e o f sho r t - t er m b us i nes s credit fa l l .

B illio n s of
d o lla r s

150

100

50

0
1978

79

18




80

81

82

83

84

85

1978

79

80

81

82

83

84

85

related structures. Thrift institutions have used Treasury and agency securities or
other good quality assets to structure highly secured, over-collateralized issues of
floating rate notes for the Euromarket that trade mostly on the quality of the
collateral rather than the name of the issuer. These and other related techniques
have one major feature in common: they are innovative ways of using existing
assets to back the creation of new capital market liabilities. And they can contribute
to the growth of debt and leveraging in the economy.
• Capital requirements. Regulatory demands for a stronger capital base in banking
have also played a role. Asset sales programs at banks are underpinned by the
greater willingness of nonbank investors to hold direct claims, but they also reflect
the pressures on banks of tighter capital requirements. These techniques allow
banks to turn over their asset positions more frequently, thereby increasing the
loan origination and sales fees components of earnings per dollar of capital required
against balance sheet exposure.
Asset sales and securitization generally can work to lubricate the supply of credit in
the economy. They enhance the transferability and improve the liquidity of assets. Such
efforts can also create attractive new asset characteristics for investors. Securitized
automobile loan receivables, for example, can generate high yield notes with maturities
of two to four years, a range usually populated only by lower yielding Government
paper. Institutional investors, then, may provide a strong demand for such securities.
With a ready resale market established, originators may be more competitive and
aggressive in making new loans. Through such channels, the securitization process can
work to boost the supply of credit.

The Growth of Trading
An enormous growth in the volume of financial instruments traded has come along
with securitization and the other forces in the new environment (Chart 4). To some
degree, this is a part of the process of absorbing the volume of debt issues coming
from all quarters. Expanded secondary securities markets activity and expanded trading
of hedges— swaps, options, futures, and forwards—are needed to give the markets
enough breadth and liquidity. Otherwise, investors could balk at taking up the new debt
offerings.
But other factors have promoted the growth of trading as well. The new technologies




19

C h a r i 4.

THE G R O W T H O F T R A D I N G

T r i l l i o n s of
d o liars

12

10
8

6

4

2

0

1966

20




1969

1977

1980

1983

have played obvious roles. They have linked previously segregated markets on a global
basis and have allowed analysts and traders to resolve complex relations among asset
prices and to act promptly when prices are “out of line”. These developments produce
a nearly continuous stream of ever-changing arbitrage opportunities that feed the high
volume of trading. The success of trading-oriented firms that were early to exploit
these conditions has started a trend. Managements of many financial institutions, and
even of treasury departments in some large corporations, have committed substantial
resources to trading and view such commitments as essential in the new environment.
An emphasis on short-term financial performance, itself a consequence of the greater
degree of competition, also spurred trading volumes. Pressures to beat broad market
averages necessitate going beyond diversification and taking trading risks to increase
total returns.
With the ballooning of financial transactions have come new risks—or, more precisely,
the magnification of old risks to an unprecedented scale. The volume of daily transactions
on large dollar payments systems such as CHIPS or Fedwire has become huge. Annual
Fedwire volume totaled $175 trillion in 1985. And daily amounts for the CHIPS and
Fedwire systems combined at times exceeded $1 trillion. With this growth in traffic,
many institutions regularly build up payments imbalances within the course of a trading
day before settlement that are very large relative to their capital base. Total intraday
overdrafts on reserve accounts easily exceed $100 billion.
Normally, of course, the ebb and flow of payments on these systems occur without
incident. But the exposures involved are so large that even minimal risks of settlement
failure cannot be ignored. Active efforts have to be made to control these paymentsrisk exposures.
Settlement can fail because of technical problems in completing payments transactions.
Large dollar payments systems are complex, and complex systems are subject to unan­
ticipated problems. The frequency of delays in concluding settlements has risen as
higher volumes of traffic tax the operational limits of existing computer systems. And
last November a major clearing bank for securities transactions experienced a severe
computer problem that could not be put right before closing. As a consequence, this
Bank extended a record $22.6 billion loan on an overnight basis.
That incident was well-contained and did not threaten to spill over to other institutions
or markets. The computer difficulties were resolved the next day. But it dramatically
points out the types of risks we face. Settlement disruptions stemming from more
protracted operational problems may not be so limited in their consequences. And, of
course, a settlement failure stemming from a default could play havoc throughout the
financial system.




21

Concern with these risks has led the Federal Reserve, working with the banking
industry, to press for more control over the growth of daylight overdraft exposures. A
key feature has been a voluntary program for banks using large dollar payments systems
to classify themselves into overall categories that will limit their maximum daylight
overdraft position across these systems. Disciplines such as these can provide some
help in limiting the spillover effects of a major settlement failure, although they can
hardly isolate the financial sector from those consequences. Their principal benefit is
to strengthen the incentives for bank management to set up and monitor good controls
for payments systems operations. That, in turn, lowers the chances of a systemic
disruption.

ADAPTING TO FINANCIAL CH AN G E

The financial sector was caught in the crosscurrents of change last year. Financial
institutions were adapting to the quickly shifting environment and making important
progress toward putting themselves on a stronger footing.
The commercial banking system offers an example of constructive response to the
challenges of financial change (Chart 5). Faced with a need to strengthen capital positions
in light of expanded activities—both on and off the balance sheet—and of weakened
loans to some sectors, commercial banks responded notably. Over the recovery period
1982-85, banking system primary capital rose from $142 billion to $182 billion and
capital to asset ratios increased almost eighty basis points to 7.27 percent. Gains for
the large bank groups were even more impressive, despite historically high levels of
charge-offs. In fact, large banks have significantly reduced their exposures relative to
capital on loans to developing countries and other troubled sectors.
The overall earnings performance of commercial banks last year was also noteworthy.
The slide in their rates of return on assets and equity that characterized the past several
years leveled off. Again, the large bank group showed a good profit performance last
year, despite another large addition to loan loss reserves.
So the banking system in recent years has been able to improve its capitalization
significantly and stabilize its earnings while still dealing with losses on troubled loans—
a strong performance that overshadows the limited problem of bank failures in weakened
22




C h a r t 5.

COMM ERCIAL B AN KIN G

T h e n u m b e r o f b a n k f a i l u r e s r o s e a g a i n in 1 9 8 5 . B ut t h e p r o b l e m s
w e r e c o n f i n e d to s m a l l b a n k s .

Number

Commercial

bank

Billions

failures

of d o l l a r s
N u m b e r of c o m m e r c i a l
bank

failures

-*------------ S c a l e

__

mm
1980

—

commercial

of f a i l e d
banks

S c a l e ------------►

BHtSSL
1 981

Large banks im pr o v ed their
earnings performance despite
b i g g e r l o a n loss r e s e r ve s . . .




Asset val u e

1985

. . . and also i m p r o v e d their
capitalization,

*Nine

m o n t h s of 1 9 8 5 ,

annualized.

■+■ S e p t e m b e r 3 0 , 1 9 8 5 .

23

sectors such as agricultural lending. Still, a complacent attitude has to be avoided and
efforts to maintain an adequate margin of soundness in the financial condition of banks
must go on.
To that end, banking regulators have taken a number of actions to complement the
requirements for adequate amounts of capital. One step in this broader approach has
been the Federal Reserve’ proposal of a supplementary set of risk-based capital guidelines
s
(other bank regulators have proposed similar actions). These guidelines are compatible
with the general supervisory principle of distinguishing among the risks in broad asset
classes when judging capital adequacy. They also extend capital requirements directly
to some contingent items, notably letters of credit and loan commitments, as the first
step in a thorough review of the regulatory treatment of off balance sheet instruments.
A total supervisory policy must, of course, encompass features other than capitalization.
Important examples here include the issuance by the Federal Reserve of a policy statement
on payment of dividends by banks and bank holding companies experiencing financial
difficulties and a stepped-up frequency of examinations for large banks and banks with
weak ratings. In addition, work is now under way to review the supervisory guidelines
on loan concentrations and loan loss reserves. And active efforts are being made to
upgrade the amount and quality of resources dedicated to supervision. These are some
illustrations of the comprehensive approach to supervision and regulation in the new
environment that is being fashioned.

C O M P LEX IT Y AN D INTERDEPEN DEN CE

A hallmark of the current financial environment is its complexity. Markets and institutions
lock together in new connections and risks spill over in previously unexpected ways.
A telling illustration of such a network of exposures arises from the failures last year
of two relatively obscure trading firms in the Government securities market. The two
firms—ESM Securities in Florida and Bevill, Bresler, and Schulman in New Jersey—
had built up very large positions in the repurchase agreements market and had masked
major losses in their own capital positions by structuring multiple repurchase deals on
the same underlying securities. They were able to keep up this pyramid of dealing
because their counterparties— a wide range of thrift institutions and local government
24




organizations—did not take actions to safeguard their own positions, failing to secure
their underlying collateral or providing excess collateral to the dealer.
Perhaps the most dramatic consequences of this were the temporary closures of
nonfederally-insured thrift units in the states of Ohio and Maryland. The Ohio events
were a direct consequence of the failure of ESM Securities. Losses sustained by a large
Ohio thrift that was an ESM counterparty were so large that they threatened the integrity
of the state-sponsored insurance fund. As that news became widely known, runs by
depositors on some other nonfederally-insured units arose. In fact, the international
attention focused on these developments had repercussions in the exchange markets,
contributing to declines in the value of the dollar in late-March.
Later a similar string of events arose in Maryland. Some thrift units in that state
were revealed as counterparties to the two failed dealing firms. Although the securities
positions involved were not so large as in the case of the Ohio thrift, the market attention
focused on thrift institutions throughout Maryland exposed other serious weaknesses.
With depositors in an already sensitive condition, that news was enough to touch off
a similar sequence, leading to the closure of some thrift institutions in that state.
Fortunately, such problems did not spread to other states with similar insurance
coverage. Thrift units in those areas were in a sounder condition, or state-sponsored
or private funds insured only a very small portion of the thrift industry. The erosion of
depositor confidence was limited. But the episodes do point out conditions when the
sensitivities of depositors are heightened and they underscore the need to take steps to
strengthen financial stability in the new environment.
Still, there were further spillovers from the problems of the Maryland thrifts, reaching
out this time into the secondary markets for mortgages and mortgage-backed securities.
Equity Programs Investment Corporation (EPIC), a subsidiary of one of the Maryland
thrift institutions under depositor pressure, defaulted on more than $1 billion of mortgages
and mortgage-backed securities. The cash flow generated on the real estate came from
rental incomes and property sales plus borrowings from the Maryland thrift. This cash
flow was inadequate to service the debt. Some major mortgage insurance firms were
heavily exposed on the EPIC securities and suffered damaging losses.
A common feature of this and other recent mortgage market incidents has been a
slippage in the monitoring of credit risks. Originated mortgages were resold to investors
in a national market, either directly or repackaged as securities. The responsibility for
credit judgments on the underlying mortgage loans has been diffused among originators,
agents, investors, and guarantors. This laxity in standards may have been helped along
by the ready availability of credit enhancements and financial guarantees, whether from
mortgage insurers or other sources.




25

While these kinds of problems have particularly plagued the secondary mortgage
market, they are a concern across the whole range of securitized assets. Right now the
risks are significant but limited. As the markets for traded assets expand, however, the
threat of widespread disruption from shocks to financial guarantors can become a
greater worry.
Another important consequence of the shocks in the Government securities market
was the rise of Congressional pressures for some regulation specific to trading Government
securities, an area so far basically free of regulation. Even before the failures, the
Federal Reserve had promulgated voluntary guidelines on adequate capital for unregulated
dealing operations. Whether those or other rules should now extend to all dealing firms,
whether that extension should be voluntary or compulsory, and which body should
make the rules are all still being actively discussed.
Both the United States Treasury and the Federal Reserve have strong, direct interests
in maintaining an efficient, well-functioning Government securities market. To this
end, any regulatory framework should be limited and tailored to address the specific
areas of weakness. Any rule-making should be restrained. After all, the notorious
failures of recent years have all been firms on the fringe of this vast market. The core
of the market—comprised of the primary dealer group and the trading operations of
other sophisticated, well-capitalized firms—has performed well over this period. It
should not be disrupted by restrictions aimed at the market periphery. Provided such a
judicious approach is followed, the Federal Reserve does support steps to regulate the
Government securities market that do not upset the Government’ ability to place its
s
debt or the central bank’ ability to conduct monetary policy operations.
s
The financial shocks of 1985 were serious but they were not a systemic danger. Yet
they teach a broad lesson that must be heeded. The interconnections among institutions
and markets in the new environment get more and more complex. A shock that starts
in one market may spread quickly along this network of linkages until it finds a weakness
in some seemingly unrelated place. In fact, there is a growing tendency to build financial
links along regulatory “faultlines”, where the responsibility for supervisory oversight
is weak, divided, or cloudy. Nonfederally-insured thrift units engaged in the unregulated
Government securities market were a prime example. For the public authorities, main­
taining financial stability today means making a concerted effort to find these faultlines
and repair them.

26




TH E TA SK A H E A D

The financial landscape is rapidly changing. The speed of change has obscured a full
understanding of the long-term implications of these events. Clearly, the financial
system is moving to a new level of sophistication and such a step is in line with its
earlier evolution. But the history of finance also teaches that rapid change can bring
new sources of uncertainty. Even those actively involved in these new markets wonder
aloud if all of the complexities are understood and all of the risks appreciated. The
challenge ahead, for regulators and market participants both, is to deepen our understanding
of how the new markets and techniques affect the whole financial system, to consolidate
the useful features of this financial revolution, and to tailor the regulatory structure to
the changed environment.




27




Financial Statem ents
S TA TE M E N T O F EARN ING S A N D EXPENSES FOR
TH E CALENDAR Y E A R S 198 5 A N D 19 8 4 (In dollars)

1985

Total current e a r n in g s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,8.51 ,3 6 3 ,1 58
..
Net e x p e n s e.s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 08,566,877
.

198 4

5,795 ,6 2 9 ,3 47
211,272,339

Current net earnings
5,642,796,281
5,584,357,008
Additions to current net earnings:
Profit on sales of United States Government securities and Federal
agency obligations ( n e t ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 3 ,056,598
Profit on foreign exchange ( n e t ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 95,250,560
-0 All o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,049
Total additions

328,329,207

Deductions from current net earnings:
Loss on foreign exchange (net)
.................................................
A llo th e r..............................................................................
Total deductions

-0 -

16,181,828
110,974,967
1,563,926
1,160,787

1,160,787

112,538,893

Net d e d u c t io n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
-0 Net a d d itio n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .327,168,420
..

96,357,065

Assessments by the Board of Governors:
Board e x p e n d itu re s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 9,025,200
.
Federal Reserve currency c o s t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assessments
Net earnings available for distribution

7 1,764,289
5 f8 9 8 ,2 0 0 ,4 1 2

Distribution of net earnings:
Dividends p a i d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 .5,607,747
.
Transferred to s u r p lu s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to United States Treasury
(interest on Federal Reserve notes)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,829,661,765
.
Net earnings distributed

5 ,8 9 8 ,2 0 0 ,4 1 2

-0 -

2 0,162,400
52,739,089
51,203,994
71,366,394
5 ,4 1 6 ,6 3 3 ,5 4 9

22,886,593
42,930,900
5,354,673,706
5 ,4 1 6 ,6 3 3 ,5 4 9

SURPLUS ACCOUNT
Surplus— beginning of y e a r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferred from net e a r n i n g s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,930,900




Surplus— end of year

4 3 9 ,4 4 0 ,7 0 0

396,509,800
39,073,250
3 9 6 ,5 0 9 ,8 0 0

29

35

S TA TE M E N T O F CO N D ITIO N
In dollars

A ssets

DEC. 31, 1985

DEC. 31, 1984

Gold certificate a c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 .,2 .76 ,8 2 5 ,3 94
. .
Special Draw ing Rights certificate a c c o. u .n. t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .
1,3 54 ,0 0 0 ,0 00
C o i n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16,102,893
...
Total

3 ,3 56 ,5 8 4 ,8 28
1,335 ,0 0 0 ,0 00
17,788,603

4 ,6 46 ,9 2 8 ,2 87

Advances
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.060.475.000
......
United States Government securities:
★ Bought o u t r ig h t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59,304,687,096
......
Held under repurchase agreem ents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.528.905.000
Federal agency obligations:
Bought outright
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,744,267,910
.....
Held under repurchase agreem ents
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.693.395.000
.

4 ,7 09 ,3 7 3 ,4 31
7 8,150,000

53,45 3 ,2 3 7 ,99 6
1,626,895,000
2 ,816,403,197
3 8 7,840,000

69,331,730,006

58 ,362,526,193

Other assets:
Cash items in process of collection
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,338,272,704
..
B ank p r e m is e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,546,080
..
tA II o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,233,873,931
.......

725,094,536
25,584,445
1,990,276,344

4,602 ,6 9 2 ,7 15

2 ,740,955,325

Total loans and securities

Total other assets

Interdistrict settlement a c c o u n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3 ,2 10 ,0 1 3 ,1 57 )
...

(2 ,0 07 ,7 6 7 ,4 55 )

Total Assets

7 5 ,3 7 1 ,3 3 7 ,8 5 1

6 3 ,8 0 5 ,0 8 7 ,4 9 4

★ Includes securities loaned—fully secured..........................................
t Includes assets denom
inated in foreign currencies revalued monthly at market rates.

1,419,795,000

1,092,275,000

30




S TA TE M E N T O F CO N D ITIO N
In dollars

Liabilities

DEC. 31, 1985

DEC. 31, 1984

Federal Reserve notes ( n e. .t .). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 3,847,800,939

51,096,394,262

Reserves and other deposits:
Depository institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 ,153,348,889
...
United States Treasury— general account
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9. ,350,978,604
Foreign— official a c c o u n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,626,943
..
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .495,725,063
....

4,392,132,027
5,316,146,626
139,851,548
4 79,787,646

Total deposits

18,366,679,499

Other liabilities:
Deferred availability cash i t e m s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,484,943,003
..
★All o t h e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793,033,010
....
Total other liabilities
Total Liabilities

2 ,277,976,013
74 ,4 9 2 ,4 5 6 ,4 5 1

10,327,917,847

6 87,840,471
899,915,314
1,587,755,785
6 3 ,0 1 2 ,0 6 7 ,8 9 4

Capital Accounts

Capital paid i n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.39.440.700
. ..
S u r p l u s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4. 39.440.700
...

396.509.800
396.509.800

Total Capital Accounts

8 7 8 ,8 8 1 ,4 0 0

7 9 3 ,0 1 9 ,6 0 0

Total Liabilities and Capital Accounts

7 5 ,3 7 1 ,3 3 7 ,8 5 1

6 3 ,8 0 5 ,0 8 7 ,4 9 4

★ Includes exchange translation account balances reflecting the m
onthly revaluation of outstanding foreign exchange com itm
m ents.




31

Changes in Directors and Senior Officers
c h a n g e s in d i r e c t o r s .
In November 1985, the Board of Governors of the
Federal Reserve System reappointed John Brademas a Class C director for a three-year
term beginning January 1, 1986 and redesignated him Chairman of the board of directors
and Federal Reserve Agent for the year 1986. Dr. Brademas, President of New York
University, New York, N.Y., has been serving as a Class C director and as Chairman
and Federal Reserve Agent since January 1983. Also in November, the Board of Governors
redesignated Clifton R. Wharton, Jr. Deputy Chairman for the year 1986. Dr. Wharton,
Chancellor of the State University of New York System, Albany, N. Y., has been serving
as a Class C director since January 1983 and as Deputy Chairman since January 1985.
In December 1985, member banks in Group 1 elected Lewis T. Preston a Class A
director and Richard L. Gelb a Class B director, each for a three-year term beginning
January 1, 1986. Mr. Preston, Chairman of the Board of Morgan Guaranty Trust Company
of New York, New York, N .Y , succeeded Alfred Brittain III, Chairman of the Board
of Bankers Trust Company, New York, N.Y., who had served as a Class A director
since January 1983. Mr. Gelb, Chairman of the Board of Bristol-Myers Company, New
York, N .Y , succeeded William S. Cook, President and Chief Executive Officer of
Union Pacific Corporation, New York, N.Y., who had served as a Class B director
since August 1980.

Buffalo Branch. In November 1985, the Board of Governors of the Federal Reserve
System appointed Mary Ann Lambertsen a director of the Buffalo Branch for a threeyear term beginning January 1, 1986. In addition, the board of directors of this Bank
designated her Chairman of the Branch board for the year 1986. Mrs. Lambertsen is
Vice President-Human Resources of the Fisher-Price Division of The Quaker Oats
Company, East Aurora, N.Y As Chairman and a Branch director, she succeeded
M. Jane Dickman, a partner in the accounting firm of Touche Ross & Co., Buffalo,
N.Y., who had served as a Branch director since January 1977 and as Chairman of the
Branch board since January 1983.
At the same time, the Board of Governors appointed Matthew Augustine a director
of the Buffalo Branch for the unexpired portion of a term ending December 31, 1986.
Mr. Augustine, President and Chief Executive Officer of Eltrex Industries, Inc., Rochester,
N .Y , succeeded Laval S. Wilson, former Superintendent of the Rochester City School
District, Rochester, N.Y., who had served as a Branch director from January 1984 until
his resignation in September 1985.

32




Also in November, the board of directors of this Bank appointed R. Carlos Carballada,
and reappointed Donald I. Wickham, directors of the Buffalo Branch, each for a threeyear term beginning January 1, 1986. Mr. Carballada, President and Chief Executive
Officer of Central Trust Company, Rochester, N.Y., succeeded William Balderston III,
President and Chief Executive Officer of Chase Lincoln First Bank, N.A., Rochester,
N.Y., who had served as a Branch director since July 1984. Mr. Wickham, President
of Tri-Way Farms, Inc., Stanley, N.Y., has been serving as a Branch director since
January 1983.

In November 1985, the board of
directors of this Bank selected John E McGillicuddy to serve during the year 1986 as
the member of the Federal Advisory Council from the Second Federal Reserve District.
Mr. McGillicuddy, Chairman of the Board of Manufacturers Hanover Trust Company,
New York, N.Y., succeeded Lewis T. Preston, Chairman of the Board of Morgan
Guaranty Trust Company of New York, New York, N.Y., who had been this District’s
member of the Council during 1983, 1984, and 1985.
m e m b e r

o f

f e d e r a l

a d v is o r y

c o u n c il

.

in s e n io r o f f i c e r s .
The following changes in official staff at the
level of Vice President and above have occurred since the publication of the previous
Annual Report:
c h a n g e s

Henry S. Fujarski, Senior Vice President, died on May 2, 1985. Mr. Fujarski had
joined the Bank’ staff in 1958 and became an officer in 1973. Since 1982, he had
s
been serving as the officer in charge of the Operations Group.
Effective June 20, 1985:
Suzanne Cutler, Senior Vice President, formerly assigned to the Management Planning
Group, was assigned responsibility as the officer in charge of the Operations Group.
Israel Sendrovic, Senior Vice President, formerly assigned to the Automation Group,
was assigned responsibility as the officer in charge of the Automation and Electronic
Payments Group.




33

Effective July 1, 1985, J. Andrew Spindler, formerly Vice President and Executive
Assistant to the Vice Chairman of Continental Illinois National Bank, Chicago, 111.,
was appointed an officer of this Bank with the title of Vice President and assigned to
the Bank Supervision Function with supervisory responsibility for the Bank Analysis
and Banking Studies Departments.
Effective July 19, 1985:
James H. Oltman, General Counsel, was appointed Executive Vice President and
General Counsel and assigned responsibility for the Management Planning Group and
the Administrative Services Group in addition to his responsibility for the Legal Function.
Chester B. Feldberg, Senior Vice President, was assigned to the Bank Supervision
Function, in addition to his assignment as the officer in charge of the Loans and Credits
Function.
M. Akbar Akhtar, Assistant Director of Research, was appointed Vice President and
Assistant Director of Research.
James O. Aston, Vice President, formerly assigned to the Check Processing Function,
was assigned to the Personnel Function.
Carol W. Barrett, formerly Assistant Vice President, was appointed Vice President
and assigned as the System Product Director for Securities Services in the Electronic
Payments Function.
Robert T. Falconer, Vice President, formerly assigned to the Loans and Credits
Function, was assigned to the Foreign Exchange Function.
Edward J. Frydl, Assistant Director of Research, was appointed Vice President and
Assistant Director of Research.
Roberta J. Green, Vice President, formerly assigned to the Personnel Function, was
assigned to the Loans and Credits Function.
Charles M. Lucas, Vice President, formerly assigned to the Foreign Exchange Function,
was assigned to the Foreign Relations Function with responsibility for the newly established
International Capital Markets Staff.
Cathy E. Minehan, Vice President, formerly assigned to the Accounting Function,
was assigned to the Check Processing Function.
A. Marshall Puckett, formerly Vice President assigned to the Bank Supervision
Function, was appointed Payments System Adviser.
Don N. Ringsmuth, formerly Assistant General Counsel, was appointed Associate
General Counsel.

34




William L. Rutledge, formerly Assistant Vice President, was appointed Vice President
and assigned to the Bank Supervision Function.
Effective in the fall of 1985, Stephen G. Thieke, Senior Vice President, formerly
assigned to the Bank Supervision Function, was assigned to the Open Market Operations
Function.
Effective January 1, 1986:
Ralph A. Cann, HI, Vice President, formerly assigned to the Fiscal Services Function,
was assigned to the Accounting Function.
Whitney R. Irwin, formerly Senior Bank Services Officer, was appointed Vice President
and assigned to the Fiscal Services Function.
The Bank Supervision Function was restructured as the Bank Supervision Group,
consisting of the Bank Examinations, Banking Applications, and Banking Studies and
Analysis Functions. In this connection:
Frederick C. Schadrack, Senior Vice President, was assigned responsibility for the
Group.
Chester B. Feldberg, Senior Vice President, was assigned responsibility for the Bank
Examinations and Banking Applications Functions, continuing as the officer in charge
of the Loans and Credits Function.
William L. Rutledge, Vice President, was assigned to the Banking Applications
Function.
J. Andrew Spindler, Vice President, was assigned responsibility for the Banking
Studies and Analysis Function.




35

Directors of the Federal Reserve Bank of New York

D IR E C T O R S

Term expires D ec. 31

T. Jo s e p h S e m r o d .......................................................................................................................

Class

1986

A

1987

A

1988

A

J o h n R. O p e l ...................................................................................................................................................................................
Chairman o f the Board, International Business Machines Corporation, Armonk, N.Y.

1986

B

E W e l c h , J r .................................................................................................................................................

1987

B

R i c h a r d L . G e l b .......................................................................................................................................................................
Chairman o f the Board, Bristol-Myers Company, N ew York, N.Y.

1988

B

C l i f t o n R . W h a r t o n , J r . , Deputy C h a irm a n ..........................................................................

1986

C

1987

C

Reserve A g e n t ............................................................

1988

C

M a t t h e w A u g u s t i n e ...............................................................................................................................................................
President and C hief Executive Officer, Eltrex Industries, Inc., Rochester, N .Y

1986

H e r b e r t F o r t ...............................................................................................................................................................................
President, The Bath National Bank, Bath, N.Y.

1986

Ross B.

K e n z ie
...........................................................................................................................................................................
Chairman o f the Board, Goldome FSB, Buffalo, N.Y.

1987

J o s e p h Y a n t o m a s i .......................................................................................................................................................................
UAW Consultant, United Auto Workers, Region No. 9, Buffalo, N.Y.

1987

R.

C a r lo s C a r b a lla d a
.......................................................................................................................................................
President and C hief Executive Officer, Central Trust Company, Rochester, N.Y.

1988

M a r y A n n L a m b e r t s e n , C hairm an ...........................................................................................
Vice President-Human Resources, Fisher-Price Division o f The Quaker Oats Company, East Aurora, N .Y

1988

D o n a l d I. W ic k h a m
...............................................................................................................................................................
President, Tri-Way Farms, Inc., Stanley, N .Y

1988

Chairman o f the Board, United Jersey Bank, Hackensack, N.J.

R o b e rt

W. M o y e r

....................................................................................................................

President and C hief Executive Officer, Wilber National Bank, Oneonta, N.Y.

L ew is

T. P r e s t o n .......................................................................................................................

Chairman o f the Board, Morgan Guaranty Trust Company o f New York, New York, N .Y

John

Chairman o f the Board, General Electric Company, Fairfield, Conn.

Chancellor, State University o f N ew York System , Albany, N .Y

V ir g in ia

A. D w y e r ....................................................................................................................

Senior V ice President-Finance, American Telephone and Telegraph Company, New York, N.Y.
J o h n B r a d e m a s , Chairman and Federal
President, N ew York University, N ew York, N.Y.

D IR E C T O R S — B U F F A L O B R A N C H

M E M B E R O F F E D E R A L A D V IS O R Y C O U N C IL — 1 9 8 6
J o h n E M c G i l l i c u d d y ...........................................................................................................................................................
Chairman o f the Board, Manufacturers Hanover Trust Company, New York, N.Y.

36




1986

Officers of the Federal Reserve Bank of New York
E . G e r a l d C o r r i g a n , President
THOMAS M . TlMLEN, First Vice President

SAM Y. CROSS, Executive Vice President
Foreign

J a m es H . O lt m a n , Executive Vice President
and G eneral Counsel
Administrative Services; Legal; Management Planning

PETER F o u s e k , Executive Vice President
and D irector o f Research
Research and Statistics

PETER D . S t e r n l i g h t , Executive Vice President
Open Market Operations

A U D IT

DATA P R O C ESS IN G

JOHN E . F l a n a g a n , G eneral Auditor
ROBERT J. A m b r o s e , Assistant G eneral A uditor
L o r e t t a G . A n s b r o , A udit Officer
E d w a r d J. CHURNEY, Manager,
Auditing D epartm ent
A l l a n V ir g in ia , Manager,
A udit Analysis Departm ent

P e t e r J. F u l l e n , Vice President
HOWARD F C ru m b , Assistant Vice President
RONALD J. C l a r k , A ssistant Vice President
GEORGE LukOWICZ, Assistant Vice President
JAMES H . G a v e r , Manager,
G eneral Purpose Computer Departm ent
P e te r
G o r d o n , Manager,
Telecommunications O perations D epartm ent
J o h n C . H e id e lb e r g e r , M anager (Evening Officer)
K e n n eth
L e f f l e r , Manager,
Analytical Computer D epartm ent

H.

A D M IN IS T R A T IV E S E R V IC E S G R O U P

H.
R.

JAMES
O lt m a n , Executive Vice President
and G eneral Counsel
E d w in
P o w e r s , Vice President
J e r o m e P PerLONGO, M anager (Night Officer)

A C C O U N TIN G
R a lp h A . CANN, III, Vice President
LEON R . H o l m e s , A ssistant Vice President
D o n a l d R . A n d e r s o n , Manager,
Accounting D epartm ent
J o sep h R . P r a n c l , J r ., Manager,
Accounting D epartm ent

M.

M.

E LE C TR O N IC P A Y M EN TS
J o r g e A . B RATHWAITE, Vice President
CAROL W. B a r r e t t , Vice President
HENRY F W ie n e r , Assistant Vice President
H . JOHN COSTALOS, A ssistant Product M anager
(Securities Services)
A n d r e w HEIKAUS, Manager,
Funds Transfer Departm ent
F r e d e r ic k P. S h i e l d s , Manager,
Securities Transfer D epartm ent

S Y S T E M S D E V E LO P M E N T
S E R V IC E
J o h n M . ElGHMY, Vice President
RONALD E . L o n g , Assistant Vice President
J o sep h C . M e e h a n , Manager,
Building Services D epartm ent
Jason
S t e r n , Manager,
Adm inistrative Support Services Departm ent
R u t h A n n T y l e r , Manager,
Food and Office Services D epartm ent

M.

A U T O M A T IO N A N D
E L E C T R O N IC P A Y M E N T S G R O U P

S u s a n C . Y o u n g , Vice President
Om P B a g ARIA, Assistant Vice President
BARBARA
B u t l e r , Assistant Vice President
P a t r ic ia Y. J u n g , Assistant Vice President
V ie r a A . CROUT, Manager,
Common Systems D epartm ent
KAHNER, Manager,
D ata Systems D epartm ent
HARRY Z . M e l z e r , Manager,
D ata Systems D epartm ent
M o n ik a K . N o v ik , Manager,
D ata Systems D epartm ent

R.

IRA

I s r a e l SENDROVIC, Senior Vice President




37

Officers

(Continued)

B A N K S U P E R V IS I O N G R O U P

FOREIGN GROUP

FREDERICK C . SCHADRACK, Senior Vice President

S am Y. CROSS, Executive Vice President
T e r r e n c e J. C h e c k i, A dviser

B A N K E X A M IN A TIO N S

B.
R.

C h e ste r
F e ld b e r g , Senior Vice President
GEORGE
J u n c k e r , C h ief Compliance Examiner
ROBERT A . O ’S u l l i v a n , C h ief Financial Examiner
JAMES P. B a r r y , Assistant C h ief Examiner,
Compliance Examinations D epartm ent
JOHN M . CASAZZA, Assistant C h ief Examiner,
D om estic Banking D epartm ent
ARTHUR L . C a s t r o , Examining Officer,
M ultinational Banking D epartm ent
A . JOHN M a h e r , Assistant C h ief Examiner,
Specialized Examinations D epartm ent
T h o m a s P. M c Q u e e n e y , Assistant C h ief Examiner,
International Banking Departm ent
GERALD P M in e h a n , Assistant C h ief Examiner,
M ultinational Banking D epartm ent
WALTER W. Z u n iC , Examining Officer,
International Banking D epartm ent

FO R EIG N E X C H A N G E

L.

MARGARET
G r e e n e , Senior Vice President
R obert
F a l c o n e r , Vice President
PATRICIA H . K u w a y a m a , Assistant Vice President
PETER S . H o lm e s , Foreign Exchange Trading Officer

T.

FO R EIG N R E LA TIO N S

D.
W.

Ir w in
S a n d b e r g , Senior Vice President
GEORGE
R y a n , Vice President
J o h n H o p k in s H e ir e s , A dviser
GEORGE R . A r r i n g t o n , Manager, Foreign Relations D epartm ent
GEORGE H . B o s s y , Manager, Foreign Relations Departm ent
FRANCIS
R e is c h a c h , Manager, Foreign Relations D epartm ent

J.

International Capital Markets
C h a r l e s M . L u c a s , Vice President
ANDREW
H o o k , Senior International Economist
CHRISTOPHER
M c C u r d y , Senior International Economist

T.

B A N K IN G A P P LIC A TIO N S
C h e s t e r B. F e l d b e r g , Senior Vice President
W il lia m L . R u t l e d g e , Vice President
B e n e d ic t RAFANELLO, Assistant Vice President
E ugene
E m on D , Manager,
Supervision Support D epartm ent
D o n a ld
a n g e l , Manager,
D om estic Banking Applications Departm ent

P
T. V

B A N K IN G S T U D IE S A N D A N A L Y S IS
J. A n d r e w SPINDLER, Vice President
LEON KOROBOW, Assistant Vice President
B e t s y B u t t r i l l W h it e , A dviser
W il lia m M . P e t e r s e n , Manager,
Banking Studies D epartm ent
D o n a ld
S c h m id , Manager,
Bank Analysis Departm ent

E.

E C O N O M IC A D V IS E R
RICHARD

G.

D a v is , Senior Economic A dviser

E Q U A L E M P L O Y M E N T O P P O R TU N ITY
DONALD R . M o o r e , Equal Employment
Opportunity Officer

38




J.

LEG AL
JAMES H . O lt m a n , Executive Vice President
and G eneral Counsel
E r n e s t T. P a t r ik is , D eputy G eneral Counsel
D o n N . RlNGSMUTH, A ssociate G eneral Counsel
MlNDY R . S ilv e r m a n , A ssistant G eneral Counsel
T h o m a s C . B a x t e r , J r ., Assistant Counsel
D o n a ld
BiTTKER, Assistant Counsel
JOHN S . C a s s id y , Assistant Counsel
JEFFREY F INGBER, Secretary and Assistant Counsel
J o y c e E . MotYLEWSKI, Assistant Counsel
BRADLEY
SABEL, Assistant Counsel
M a r y S u e S u l l i v a n , Assistant Counsel
RALEIGH M . T o z e r , Assistant Counsel
WEBSTER B. W h it e , Assistant Counsel

L.

K.

LO ANS A N D C R E D ITS

B.
T.
A.

CHESTER
F e ld b e r g , Senior Vice President
R o b e r t a J. G r e e n , Vice President
F r a n k li n
L o v e , Manager,
C redit and D iscount D epartm ent
K a th le e n
O ’N e i l , Manager,
C redit and D iscount D epartm ent

Officers

(Continued)

M A N A G E M E N T P L A N N IN G G R O U P

CHECK PROCESSING

JAMES H . O lt m a n , Executive Vice President
and G eneral Counsel

C a t h y E . MlNEHAN, Vice President
JOHN E S o b a l a , Assistant Vice President
HARRY A . C u r t h , J r ., Regional M anager
( Utica Office)
F r e d A . D e n e s e v ic h , Regional M anager
(Cranford Office)
A n t h o n y N . SAGLIANO, Regional M anager
(Jericho Office)
S t e v e n J. GAROFALO, Manager,
Check Adjustment and Check Processing D epartm ents
P a u l L . M c E v ily , Manager,
Check Services D epartm ent

PER SO N N EL
J a m es O. A s t o n , Vice P resident
C a r l W. TURNIPSEED, Assistant Vice President
E v e ly n E . K e n d e r , Manager,
Personnel Departm ent
R o b e r t C . S c r iv a n i, Manager,
Personnel D epartm ent

P LA N N IN G A N D C O N TR O L
R o b e r t M . ABPLANALP, Vice President
J a n e t L . W y n n , A ssistant Vice President
NlRMAL V. MANERIKAR, Manager,
M anagement Information D epartm ent

FIS C A L S E R V IC E S

R.

W h it n e y
I r w in , Vice President
FRANK C . ElSEMAN, Assistant Vice President
P a u li n e E . C h e n , Manager,
Government Bond D epartm ent
A n g u s J. K e n n e d y , Manager,
Safekeeping D epartm ent
J o h n J. S t r i c k , Manager,
Savings Bond D epartm ent

OPEN M A R K E T O P E R A TIO N S
P e t e r D . S t e r n l i g h t , Executive Vice President
S t e p h e n G . T h ie k e , Senior Vice President
M ary
C l a r k i n , Vice President
JOAN E . L o v e t t , Assistant Vice President
K e n n e t h J. G u e n t n e r , Manager,
Securities Departm ent
A n n - M a r ie MEULENDYKE, Manager,
Securities D epartm ent

R.

Dealer Surveillance
EDWARD J. G e n g , Senior Vice President
EDWARD J. OZOG, Assistant Vice President
B a r b a r a L . W a l t e r , Adviser
GARY HABERMAN, M anager

P R IC IN G A N D P RO M O TIO N
B r u c e A . CASSELLA, Bank Services Officer
M i c h e le S . G o d f r e y , Bank Services Officer

P AY M EN TS S Y S T E M S TU D IE S
E r n e s t T. PATRIKIS, D eputy G eneral Counsel
A . MARSHALL P u c k e t t , Payments System A dviser

P U B LIC IN FO R M A TIO N

O P E R A T IO N S G R O U P

PETER BAKSTANSKY, Vice President
RICHARD H . H o e n ig , Assistant Vice President
M a r g a r e t E. B r u s h , Manager,
Public Information D epartm ent

SUZANNE C u t l e r , Senior Vice President

C A S H P R O C E SS IN G

P
P

J o se p h
B o t t a , Vice P resident
M a r tin
CUSICK, Manager,
Currency Services Departm ent
T h o m a s J. L a w le r , Manager,
O perations Support Staff
C h a r l e s E. R o c k e y , Manager,
Paying and Receiving D epartm ent
L i l l i e S . WEBB, Manager,
Currency Verification Departm ent




39

Officers

(Continued)

R ES EA R CH A N D S T A T IS T IC S

SECRETARY’S OFFICE

P e t e r FouSEK, Executive Vice President
and D irector o f Research
M . AKBAR AKHTAR, Vice President
and Assistant D irector o f Research
E d w a r d J. F r y d l , Vice President
and Assistant D irector o f Research
R ic h a r d J. GELSON, Vice President
* J e f f r e y R . S h a f e r , Vice President
WILLIAM J. GASSER, Assistant D irector o f Research
SUSAN F M o o r e , Assistant Vice President
JOHN W e n n in g e r , Assistant D irector o f Research
P a u l B. B e n n e t t , Research Officer
and Senior Economist
N a n c y BerCOVICI, Manager,
Statistics D epartm ent
C h r is t in e M . CUMMING, Research Officer
and Senior Economist
R o b e r t W. D a b b s , Manager,
Statistics Departm ent
*EDNA E . EHRLICH, Research Officer
and Senior Economist
A . S t e v e n E n g l a n d e r , Research Officer
and Senior Economist
G e r a l d H a y d e n , Manager,
D ata Reporting Support D epartm ent
C h a r l e s A . PlGOTT, Research Officer
and Senior Economist
L a w r e n c e J. R adeCK I, Research Officer
and Senior Economist
D a v id L . R o b e r t s , Research Officer
and Assistant Secretary

JEFFREY F INGBER, Secretary and A ssistant Counsel
T h e o d o r e N . OPPENHEIMER, A ssistant Secretary
D a v id L . R o b e r t s , Research Officer and Assistant Secretary

SECURITY CONTROL GROUP
H e r b e r t W. W h it e m a n , J r ., Vice President

E LE C TR O N IC S E C U R IT Y
R ic h a r d P PASSADIN, Security Officer

P R O TE C TIO N
R o b e r t V. M u r r a y , Assistant Vice President
W il lia m J. K e l l y , Manager,
Protection D epartm ent

S E C U R IT Y C O N TR O L
J o h n CHOWANSKY, Security Control A dviser

*On leave o f absence.

OFFICERS— BUFFALO BRANCH
JOHN T. K e a n e , Vice President and Branch M anager
PETER D . L u c e , Assistant Vice President

A C C O U N TIN G ; C A S H ; CR ED IT, D ISC O U N T,
A N D F IS C A L A G E N C Y
G a r y S . W e in t r a u b , Cashier

B A N K S E R V IC E S A N D P U B LIC
IN FO R M A TIO N ; P ER SO N N EL;
P R O TE C TIO N
R o b e r t J. M c D o n n e l l , O perations Officer

B U ILD IN G O P E R A TIN G ; C H EC K ;
S E R V IC E
D a v id P SCHWARZMUELLER, O perations Officer

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