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m wý I 1%7 A. IF 1988ANNUAL REPORT ,04 0NTENTS0 ýre>ideýnCi Sýmflvveraairy teller ý, J ear! 6 1988 ýeamfilýrmenCv ýGreý t> rs 22 0/0-1 X3 V. ýýppskWea'y JCýýCem.ertl i" lo (ýc,iýr,o/ziorý,aýapnd ýaýrýýaýes ý%e" "ä Jiaýdbre xs ýGOx ?6 t7 P8 0 /, 7S ý/r v RESIDENT'S ETTER oC/ A look out my office window shows that Philadelphia has a special place in the history of central banking. I can see Independence Hall, and only a short distance away are the sites of the First and Second Banks of the United States. They were the nation's first central banks and together they lasted only from 1791 to 1836. The nation's third central bank, the Federal Reserve System, is now 75 years old and going strong. This Diamond Anniversary is a time for reflection and it strikes me that the r leennno IGJJVIIJVI of hief^r IIIJLVIºIGIG mere umll IIG11 ý. ......... UJCU :... UI aL... .. ý...,.:...... UIC (IIdiI1I .. f aL... UI UIC Federal Reserve. The First and Second Banks functioned well in many ways, but they became extinct because they had serious flaws - their powers were overly concentrated, their locations too centralized, they wc;ic uui, uiiuied by special interests, and they became snared in bitter partisan politics. In contrast, the Federal ReserveSystem that born was on December 23,1913, has a regional structure, all sorts of checks and balances, and a workable blend of public and private interests. In addition, it was carefully insulated from short-run politics. Time has proven that the founders of the Fed knew what they were doing. Although there have been many changes in the Federal Reserve during the past 75 years, the basic design is still valid. The Fed changed its procedures as the world about it changed but never abandoned its basic principles. In addition to presenting information on the year 1988, this annual report commemorates the 75th anniversary year of the Bank. To do so, we feature photographs from 1914 on and interviews with present and former staff members. I want to thank Charles Herman, who joined the Bank in 1920,and all the others who shared their memories. The Bank began in the time of inkwells and now is well into the electronic era. Our operations kept up with every step, changing from adding machines to punch cards, then to magnetic ink and now to powerful mainframes. All the while, the Bank has maintained its birthright values - values that are grounded in public service. We have emphasized outreach, m 'V,,.B ý"ýýn1iýýtý111ýý'ýýýýtýY9ýl! rýliCý iý}`Sý'illiý uýýw,ýlý! lýýý ýýv_ uUa,liinglun,fl (!. . by J:; Fcý cý, Fl . _ý: unýcs. J, l? I: tin. týi: no. vn a: Fli. lý: k oý luýsýuoo atMo:c e, , l JZ4.4., ý (i r, , Itn Jl: ellon ýl''il'lianu, Cötnl:tul'ýr: oý'týtclü:: ýttcýý, I, `'j, ý .. a: ýy tI ih tl; __- ýlliilttlplli tiFaF: oI' ýýenn. ", Iwauta ý 1: licasrve lttlt ýa atttt: aJ ;na, . onS rincJ a> J: , ýlslattý; ll Hic atCott czý;: ` F."att: nce iA"ri. L Dlo. 'Cý. ý! Löi. Fu>u,:. uniEFc.. "> Fo: x: i: t>: aLt F. "a> ý: auF. J Fo iL" Cil Caa. 'A'l ýrb an: >: al klaftntOttt) aI"`"Ilic: Hti> ta'ýtGiýJ'. trihtc>. " , uy liand luattkc"c, : a, l oý" tilt, -^ /! 9 l: /(ý r/rn. 11iýýýcn ;,,.: u:, ..ý*,. ,., i 1e:,: l: P,): ex ell axtex, &Meä, d t/ie ýedsral.. `JýýlesPnýue `ýa, ýý 7ltýaýelýÜüa ýý: ýýaalýioxise. lo 4Tüt ýjiexalicýrý. going into the District to meet our constituents, gather information, and provide services to satisfy their needs. Obviously, staying out of partisan politics is as appropriate today as it was in 1913. For much of its history, the Bank has been employee oriented and considered a good place to work. For example, we pioneered pensions, job evaluation, and salary administration. Retirees have told us that the Bank's work force had a sense of pride and identity in its first decade, and 1 believe it still does. When the Bank first opened for business in 1914, the Federal Reserve had responsibility for promoting the efficiency of the nation's cash and check payment systems, and, as the Federal Reserve Act said, for "establishing more effective supervision of banking. " We still have these responsibilities, only more so. Combine them with our long-term emphasis on innovation, and you come down to some of the Bank's most important 1988 accomplishments. We are one of the lead banks in a pilot project to develop the most reliable electronic payments system for the 1990s, and work accelerated throughout the year. In addition, the Bank was selected to manage the Federal Reserve System's Check Product Office, which coordinates check services for all Reserve Banks. In our own shop, we made major changes in return-item processing to meet the standards of the new check availability regulations which took effect on September 1,1988. Through the years, this Bank's Supervision Department was known for its high standards, which are as important now as ever. The financial system is in the midst of momentous change and new bank charters and expanded international operation: have increasedour examinatio, caseload. We responded by strengthening our examinatio staff and adopting the latest dim" .. automated techniques. Looking ahead, I'm sure u)u uvuraii pace of change will continue, if not accelerate, and this Bank must keep pace. The challenge will be to maintain our traditional standards of quality and efficiency, to make sure we remain flexible and innovative, and to sustain staff motivation and morale. No mean feat, but hardly daunting when you considerour 75-yearrecord or accompüsrnmenr. The recent performance of banks in our District must not cause complacency because we are in that time of the business cycle when good time excesses often carry over and worsen the next recession. Both management and regulators should be particularly watchful to be sure that lending standards are upheld. The business expansion entered its seventh year in 1988, which qualified it for a book of records. The Third District economy continued to compare favorably to the nation in broad measures of activity such as unemployment, residential construction and sales. Inflation threatened throughout 1988, but the Federal Reserve did a good job of helping to contain it. A major part of the reason is that we acted early before rising prices could gain momentum. As a result, only relatively small increases in interest rates were required, and they didn't choke the expansion. In this anniversary year, the nation's prime economic objective still is to keep prosperity rolling. With fiscal policy constrained by politics and deficits, I believe that the Fed can contribute most effectively to sustained prosperity by keeping inflation in line. This lesson of the past should remain valid in years to come: stay ahead of the inflation curve. H hilade/phia got its first look at the new Federal Reserve System when this Bank opened its doors at 406-08 Chestnut Street on November 16,1914. It was a difficult time. The nation was in a recession, and Secretary of the Treasury William G. McAdoo had insisted that the Reserve Banks open before they were fully prepared to do all the jobs assigned to them. A typewriter company and severalcommercial banks loaned clerical workers I to augment our own staff in the first few months of operation. With the U.S.'s entry into World War! in 1917, the Philadelphia Fed went into high gear, managing the Liberty Bond drives that helped finance the war effort. We raised almost $1.6 billion in four such bond drives. The task called for I vast amounts of clerical work, and the Bank grew from 28 employees in 1914 to 430 employeesby the end of 1918. To make room for all those workers, the Bank moved to larger quarters at 925 Chestnut Street, the address it would call home for almost 60 years. After the war came the job of redeeming the war bonds and handling new issues to refinance the debt, which made for busy days at the Philadelphia Fed. "As one issue matured, they refinanced it with another. We worked Saturdays, Sundays, it didn't make any difference," remembered Charles Jii. e ýlainäimf 9[e11y Herman, who joined the Philadelphia Fed's Fiscal Agency Department in 1920 at a salary of $100 a month. That may not sound like much today, but consider that the Bank's cafeteria charged 25 cents for a meal, and a dime for dessert, in those days. Monty Magee came to work at the Philadelphia Fed as a page boy in the late 1920s. Our pages would attend high school one day a week and work the other four and a half days. The page boys sat in a row "on the bench, " oving up each time the first boy in line left to run an errand,Magee said. Ray Yarroll, another page, remembers that Governor (as the Bank's CEO was then called) George W. Norris was served tea each afternoon by the head of the Building Department.Thepage boys 'would have to take the tray back to the cafeteria, and all eleven of us would try to get in the No. 1 spot on the bench when Governor Norris would have his tray returned because there were always a couple of pieces of toast or crumpets left on the tray, " said Yarroll. Afternoon tea may have been a muchneeded break for Governor Norris in the 1930s, when he led the Philadelphia Fed through the difficult days of bank closings. DONT BF A MlSEFX (uaxCe) . BÜYABONA AND LICK THE KAIsER A " ýý b10RRI1vG. ýaNý 12 Rese%, 8D ýFinaýý EP /n paNK4QENSHEýE ch 000 Rc ý5, <nst'iThaý More Member Day k ceivea Otl c "°" o.'Fý : ,a": to wt, rtºw° _vrtt Photo: The Historical Society of Pennsylvania tu, V ýý_Gather the'.. Wi11Betl5ö Ban toiuDt ks of ý oýý Work First to to the ýbiec Fromthe Toýo't ot peQosds . od te.1Kr'P prO... or. b'°L. myeº '..:..... coeýYkYý he ' theu. tew.tiýýý{t , pisu;cts ý ý tý 00ý ºlw ý1 DY. tM Uý,np, dýý'ýbt. ý[ Woo m. otti4 W .. ýo.,. 'byydl ýý(wý ý.. ý~.. '- %°ý ýý ýw. {O.:: bý SnDeTýýtku . tr. aV ýýý ,,j.4, >9f8sey& u A. ° am. E i 99k9 -/tinA: ý, )6 äaaeka. /.C Ceami. A /918, "Xe;! Jan.: niaaed vnta tiiýs äui. l.dirtý a.t 9X5 Ti%eetmýct ýýxee/ nnýý liýlex Jteaa. f xecdred Photo: Bulletin/Temple Archives Center. ýn a ýefvýc. exa uýnc & ýýýýý %/ee Acvn. E ärýam. mneCxuclian %e 6oýeý AA/- ý :A2n. EÄ`iaýe ý93c. iý äuýýcüirý Gn 1982 e ýmea, ivnrinefclaä "" rom his vantage point in the Transit Department (as the Check Department was called then), Al Roberts saw the bank closings mount at the end of 1932 and the beginning of 1933. "When the banks started closing, we were the first ones to know" because checks drawn against those banks would become unpaid items, he said. When the Banking Holiday was declared in March 1933, we kept right on working, because all the checks then in the Transit Department had to be processed and sent to the banks on which they were drawn before they reopened. "My wife never knew what time i was coming home for supper, " said Roberts. The PhiladelphiaFed also helped to relieve the Depression by making loans of working tJn. ýýaýxcýt 4, a ýýw!!! J1C(CýaaeC, l/e natce J%ý vccýuý. 100 typists drafted to work overtime. "Friday night, all day Saturday and possibly all day Sunday, the one hundred ladies were typing, preparing lists of securities, " said Yarroll. r. /l93, Alll(/ý'J I'(1J111 Aa.4; -Ad, `- UýOU, oleras 6y xeadswy an bieia "Checks were sorted by hand on tables and listed on sheets of paper, " said Warren Moll, who joined the department in 1933. '7t was very difficult and settlement was a horrendous problem. " Magee and Yarroll, who graduated from the page boys' bench to the Audit Department, recalled the manual labor that went into periodic audits of the securities in the Bank's vault. The two men would scour the Bank on Friday night for 100 typewriters, which they took to the recreation room for the [,`/v. Ileadwm an /{ýI/7(l. capital to businesses under a law passed by Congressin 1934. Virginia M. Lilley was one of many Philadelphians who lost a bank job during the Depression,but she was luckier than most; the very day she was laid off, a friend told her that the Philadelphia Fed was hiring. "I hotfooted it up to 10th and Chestnut" and filed an application, Lilley said. That night, she received a message to report the next morning for a physical. She had the job. Lilley, who worked in Cash Department, recalled the how much of the Bank's work was done by hand in those days. "All the money was counted and sorted, one piece at a time, " she said. In the Check Departit ment, was no different. IIfI'J"J ! /I dmx Photo 6., iiet. n. Ternpie AlCni)-es Ce: -". e' V he nation went to war again in 1941, and, just as the Reserve Banks helped finance World War I with Liberty Bonds, so they undertook to sell War Savings Bonds. It was an enormous task and required many, many hands. The Fiscal Agency Department, as Herman remembered it, had 39 employees when Pearl Harbor was bombed. After the declaration of war, "we expanded within five months to 586 people. " Savings bonds carried coupons that were submitted for payment of interest. "Millions and millions of them came rolling in, " said Herman. "There wasn't enough room at 10th and Chestnut," and the Bank had to rent space in other buildings to house the savings bond operation. Finding enough clerical workers at a time when many Philadelphians, including Fed employees, had gone to war tested Personnel Director Robert Hilkert's creative thinking. He solved the problem when he took his wife's advice and enlisted married women to work parttime, a solution with a modern ring to it. More than one retiree has pointed to the change in the way employees were treated under the leadership of Bank President Alfred Williams, beginning in 1941. "Before Williams, the Bank was very hierarchical, with everybody in his place, " recalled David Eastburn, who joined the Bank in 1942 as a statistical clerk and rose to be president. "I give Williams a great deal of credit for changing that. When I was president, we tried to continue in that tradition. " As Hilkert recalled the 1942 personnel situthere ation, were vague job descriptions, pay scales apparently unrelated to market conditions, and varyingrules for promotions and pay increases. When that situation was cleaned up, the next challenge was to improve fringe benefits and establish clubs and classes that fit with employees' leisure-time interests. Williams led the Bank in forging closer ties throughout the Third District. He personally toured far and wide for War and Victory bond drives and, in 1946, began the annual field meetings that still take representatives from the Philadelphia Fed to various parts of the District to speak with local bankers. About the same time, the Research Department's Business Review began focusing less on the collection of numbers and more on articles written in a readable style, said Eastburn, who was then in the Research Department. JIXe ýan. /ta xnlcleäaard ý/, ýý,(s iurne :it. ll wded all äý felejeiiarae enaomi,na calli. dv /. and in t/e ly40i. HO >A' ý. a. N"! / un m` ._- ýDY{ LcTYttý_ l, AND UyýAlTý 6ýý flbý ONH mVn T xr uS ru a nv} A orl, ApA'v '' `ly DENA. .11 SEAREý'U_ n'1 Ll'ý SUD ºý AT ýºýý ,ý ýº,eaýý'F MAKES ýýr HTjNG a.k.ý .Fýý, . ýTv .ýn ýýýj- j' `-- ý. HEý'' ý'ý'``, t _M ýl, -ý .ý foýiý* iýFýtSii` ýwcttssoýtotro ý>ºý"a M! r-U. uwo , ý. ý, a... ý-ý ýýýý ý., 'N uwsselsº. '°ý' TuW"; tW -rýO--"'ý, scnýºtnttý ý1Ra. ýýn, /ýa-n.E ýieüdrnt r/,«<a. n...Ode ý[. ILCL dXGNCJ Sroenc ýdreni, &ard cýu', /ovad a rale im d",w, 4. ...................... -'ýl/uýxls ýý-nralexrýCi, ri, ehu%uný9r,aliambiuom, icýrr eaýýr.cC. eciýtýx hortly after World War ll, the Bank began an innovative training program. It had dual help to goals: returning veterans find careers and to help banks whose management was aging and lacking in younger,groomed successors. Traineeshad to go to the Wharton School of the University of Pennsylvania to study for an M. B.A. while they worked in most departments of the Bank. They would start in Night Transit and end up in Research, said Hilkert. After two years, they usually moved on to management positions in commercial banks. "There was a period when practically every president of every Philadelphia bank came from that training program, " he said. Changes in machinery changed the way people did 6mý i. 44. m lýn cice j'rant uene /ýF 1940i. their jobs in the 1940s. Money was still sorted by hand, and only humans could determine whether a bill was too worn to recirculate, but machines were developed that could count the bills fed into them, said Lilley. In the 1940s, punch cards began to replace manual operations. The location of holes in the cards would introduce information into tabulating machines. Hugh Barrie had a knack for fixing machines and tinkering with radios, and he was selected to go to school at IBM to learn about punch cards. One of the first applications of this new technology was to improve the Bank's payroll system, remembered Barrie. "That proved to be successful, and we looked for other applications, " said Barrie. "The Safekeeping Department held securities for member banks, and every time the auditors came in, they would have to type up lists showing each one. We converted the inventory over to punch cards, which provided a current, dayto-day record" and eliminated the need for the 100 typists and typewriters that Magee and Yarrollrecalled. In the late 1940s,major improvements were r made in the Check Department. The introduction of proof machines ended the hand-sorting of checks on tables, said Moll. "The proof machine, which contained revolving pockets, performed four functions. It proofed the checks, it endorsed the checks, it sorted them and it listed the items in each new sort. " ý he proof machine was only the beginning of a whole series of improvements in the check clearing system that took place during the 1950s and the early 1960s. For example, we were the first Reserve Bank to set up its own transportation network to move checks more quickly and efficiently, said Moll. "First, we'd get one or two carriers to deliver checks to banks not far from Philadelphia. When that worked well, we'd move out to another group of banks. When volume increased enough to make it practical, we started flying checks to Harrisburg, Williamsport, Scranton and other areas." As the Eisenhower era drew to a close, the Philadelphia Fed began testing high-speed machinery for check sorting and, in 1962, we put it into operation, Moll said. The equipment read magnetic ink characters at the bottom of each check and moved it at high speed into the appropriate pocket. The first true computer arrived in the Philadelphia Fed in 1961, and its effect was felt in almost every department of the Bank. Hugh Barrie and his team, with their punch cards and increasingly versatile tabulating machines, had already found ways to use their new tools in many of the Bank's operations. With the advent of true computers, those jobs could be done much faster and with much greater control on machines that were smaller. The ways the Bank could put computers to use grew. "I had great cooperation from senior management and we became a leader in certain fields of automated accounting, " said Barrie. Computers also had a large impact on the Bank conducted bank examinations. the way "When / first did exams, they were entirely different from today," said Lou Pinola, who joined the Bank in 1960. "First, we would go into a bank and seal up the cash and collateral. Then we would count the teller cash and the vault cash and make sure that balanced. Next we would check the collateral, making sure that what was on the books was actually there, " he said. In an examination of a large bank, the Supervision and Regulation Department frequently would not have enough people to handle all the counting and inventorying, and other Philadelphia Fed employees would be drafted to help. By the time Pinola retired in 1984, he said, "a lot of the information an examiner needs is now prepared in the Reserve Bank before an examination even starts. " With computers able to compile information from various sources, examiners can get printouts showing exactly what's involved before they leave the office. The Bank's operating departments weren't the only ones to change in the 1960s. The whole field of economics, and consequently the Philadelphia Fed's Research Department, was changing too, says Eastburn, who headed the Research Department during that decade. Economic analysis was becoming more sophisticated and far more mathematical. The Business Review "became more professional, more analy- d*X, 7°""" ýi. t'. eýe Aaxýexl cýca, r nýa erav,K. ýxýuý: rreý Pirta. +rolanrý äl, eci tfýeýarr: ýte 'JJaieý ýi. J. tical, " but presenting material in a readable style was still important, said Eastburn. Eastburn said there's no question that the to move hiring more highly trained economists served him well when he became president of the Bank in 1970. They would help him prepare for meetings of the Federal Open Market Committee, which establishes monetary policy. Photo: Bulletin/Temple 4d ý, SfR! /lli7tPS QO[GýLtP. Cý IXUXI"' delexnei/te aw.re/%ex a di#toaa (Y Archivaa First ý... ---... --', M' o, our of re ,wr...,. too ream to areciirau" , Moon-'- Page_5 _-_ _/__ fn "rý R pI. LIC LEW 'ý..',`.......ý.. -dd ow ol Man on tbe Center. /ia'mama . 111ýQY MYwww" ,: ý., .. _. .. ýruýiý ýý.. ý. _.._. (;n ýe . _-_ `rd /! [( lot for Step `Small %irr. ýfurufrxrrýrarrr Mankind' ýtronauta , Surface, ; plore //a (z n~ ý(: Yrr (rf. . Caýci Jlf. 'J1li- (ýe ([;ýý/9G(, ýimrrtrcu, G'an cý t% nera äucldinzý are JltR'Le/nltP/n! '.e Jkll uaaa arncrfaK r yjRCl vn de wui1.199ßi. Xre 44 steel ý n'z. IR ': ixlial ýeuýrv laaid 'f/e. urndex . ýa/dex aae% aa Neia eoexe no ýaýleEüxn /-, YexIIL-ed-ldUe 10"/an l/iaC ýa. nýi mdde ä. [ia 64. iJan. a+n.uexfion i{slem in &a "Om4y de micG198& A. ýý eedm, aTAvreex 74 ýl! ad ý r . -r ,,, n, na -TM[w-n, ýwýpiprýyc, nrcdýiýýs . IT n 1974, the Automated Clearing House (ACH) Department began operations. With a speed and accuracy unthinkable before computers, it became possible to transfer millions of dollars between financial institutions in the wink of an electronic eye. According to Eastburn, declining membership was one of the biggest problems confronting the Philadelphia Fed, and the entire System, during the 1970s. Membership in the Federal ReserveSystem was dropping because many banks viewed the costs of membership (required reserves) as outweighing the benefits (free services), he said. The problem wasn't resolved until 1980, the Monetary Control Act launched the when Philadelphia Fed and the entire System into a new era. The act required that all depository institutions be treated the same with respect to reserves held at the Fed, whether they were members or not, which removed the incentive to withdraw. At the same time, the Fed's services were made available to all financial institutions, but only at a fee. The Bank had to learn to compete for business such as check clearingand wire transfers, which large commercial banks also offer, and high-quality work was crucial. The Bank learned to cover its expenses with its revenues, just as private businesses do. The Bank tackled this job under the leadership of Edward G. Boehne, who succeeded Eastburn as president in 1981. "lt was a real change and a tough job the first few years, " said Boehne. "We had to learn to think more like a private company in some respects. " &6ýlleauih4h ý «ýýý. ý.."..'ý`, ý_°.. rcýýy[n ýýnc.. výýr, ý ýýAO[o. M"ý ý ýp" ... ý.. sýiýt --- ý scaýcs E-t909 . x.w ouc rýii oou*yunxicrrou++ýý' _ Ow, ýý noF tlý arrws ADM"- wwýT°`ýýraºriaeossE-= nýsuss. rý'6 y sruOtK++R ýrýa ýruOS- a S. 11s1 Ný ... ( : usýur ws. cr ý`4n Owx I I d munity Affairs Department in 1984 to provide information to help financial institutions better serve their own communities. "We're a catalyst, " said Fred Manning, who has headed the department since its organization. By bringing differing groups together to discuss community development, "we put education in front of the people who can be the agents of change, " he said. The Bank expanded its outreach to the public in 1984 with a tour program in which Bank retirees work part-time as guides. Ed Smith joined the tour program when it started, and still enjoys the wide variety of people he meets. "A couple of years ago, I took a group of ten foreign bank representatives on a tour. That group included seven different nationalities, " he said. "We also get high school groups in, and sometimes about half of the kids are interested and about half aren't. It is a challenge to work with the ones who are interested and try to stir up the ones who aren't. " nn Dwyer, a Philadelphia Fed account representative who calls on financial institutions to explain and sell our services, remembered the initial confusion some financial institutions had about the Fed's new role. "All the savings and loan people would assume, when they heard the word 'federal,' that we were from the Federal Home Loan Bank, " she said. Dwyer also remembered the credit union executive who was learning, in light of the new law, about the Fed's reserve requirements. Upon hearing that vault cash counts toward reserve requirements, she facetiously asked if the credit union had to now buy a vault. Under Boehne, the Bank expanded its outreach programs to financial institutions and the public at large. Just as a Consumer Affairs Department was set up in 1976 to provide consumers with information and resolve their complaints, the Bank established a Com- A major operational improvement arrived in the Bank's Cash Department when the first high-speed currency verification units began operating in 1981. Not only could these machines count currency at incredible speeds, but for the first time a machine was able to sense unfit bills, withdraw them for destruction and detect possible counterfeit money. In the mid-1980s, the Philadelphia Fed took on an important leadership role with the design and operation of the Treasury Direct Book-Entry System, which simplified the way the public buys and holds U.S. Treasury securities. Treasury Direct was a time-consuming, team project, remembered Ed Coia, the officer in charge. "The typical workday was 12 hours, and in the beginning, we still managed to get weekends off. In the final seven months, we went to a sevenday workweek, " Coia said. EIGHTIES IN j/. ýý le/4x vruac%iirarm c%a,. ryeed -y Me Aal+ae " 1-)b4 ýAni Jýilladeýfe, 4¬a A;/enrfekyees 6a" )üX6 Cb%J1, "Je L(CGYX a! C/ie6x deLiu. ! ex»um. a4 he Expedited Funds Availability Act of 1987 put limits on the length of time financial institutions can hold funds from check deposits and gave the Federal Reserve the job of implementing the law. To make this law work both for consumers and financial institutions, the Philadelphia Fed and the other Reserve Banks worked to streamline the processing of checks. The law resulted in a lengthy Federal Reserve regulation, and a massive job for our print shop, which produced thousands of copies of 350-page books for two rounds of seminars we conducted for financial institutions. "That job was strung across the shop end-to-end, " remembered Bob Burns. "We had plates out our ears, paper out our ears, and we lined our pockets with overtime. " The Philadelphia Fed prepared, at the end of 1988, to again assume a leadership role in the Federal Reserve System when it was designated the lead Reserve Bank in the Electronic Payments Processor Pilot Project, the goal of which is to develop a new electronic payment system for the 1990s. The tools will continue to change and the jobs will change, but the basic missions will be the same missions that those first Bank employees assumed in 1914: Keeping the nation's banking system safe and sound, making sure the payments mechanism works well at all levels of the economy, and steering a policy course that will maintain the country's economic strength. 20 jum McGrail, copyright 196o. Q The quality and efficiency of many major operating systems were improved significantly through the Performance Improvement Program, now in its third year. Q Overall, the Bank improved its financial performance compared with 1987 while meeting a very challenging operating plan. Q We completed conversion to Fedline ll, which now offers a much broader gateway for the delivery of electronic services to financial institutions. Q The Automated Clearing House (ACH) service was upgraded with a new automated return-items system. Q The Bank improved the TreasuryDirect program with processing enhancements. Q Check Operationsinstalled a new service to expedite return items, as necessitated by the Expedited Funds Availability (EFA) legislation. Q The Fiscal Department put in a new definitive book-entry system designed to process FHA debentures. Also installed was the new E-Z Clear System for processing redeemed U.S. Savings Bonds. Q The Bank offered an early retirementprogram that was accepted by 97 employees. Q Computer Services improved the security of electronic funds and securities transfers by encrypting transmittal messages. Q Weinstalled a new uninterrupted power supply system for the Bank's computers. Q Supervision and Regulation substantially increased its examination resources. Q Research expanded its international efforts with articles on the Eurocurrency market, LDC debt, and the trade deficit among other topics. Q The Bank extended its public outreach with new Community Affairs Councils in Wilmington and Harrisburg. Q We took on a new System leadership role when work began on the Electronic Payment Processing (EPP) pilot system. Q The Bank was selected to manage the System's Check Product function. THEBANK HADMANY ACCOMPLISHMENTS IN1988: m ýOARD ýIRECTORS 0F Nevius M. Curtis, chairman and chief executive officer of Delmarva Power & Light Co., completed his term as chairman of the board in 1988. Peter A. Benoliel, chairman of Quaker Chemical Corp., became deputy chairman, succeeding George E. Bartol, Ill, chairman of Hunt Manufacturing Co. Twonew directors joined the board in 1988. Constantinos 1. Costalas, chairman, president and chief executive officer of Glendale National Bank of New Jersey, took office as a Class A director. He succeeded Ronald H. Smith, president and chief executive officer of CCNB Bank, N.A. Jane G. Pepper, president of the Pennsylvania Horticultural Society, was appointed to a term as a Class C director. In addition, Charles F. Seymour, chairman of JacksonCross Co., was reelected a Class B director in 1988. Chairman Nevius M. Curtis Chairman and Chief Executive Officer Delmarva Power & Light Co. Wilmington, DE Deputy Chairman Peter A. Benoliel Chairman Quaker Chemical Corp. Conshohocken, PA George A. Butler Chairman and Chief Executive Officer First Pennsylvania Bank, N.A. Philadelphia, PA Constantinos I. Costalas Chairman, President and Chief Executive Officer Glendale National Bank of New Jersey Voorhees, NJ Clarence D. McCormick President Farmersand Merchants National Bank Bridgeton, NJ Jane G. Pepper The Pennsylvania Horticultural Society Philadelphia, PA eýiairneýcn and ý YW401 ST/ ÄP, na/ýel dt, udy riiaLxmeon. m I/ee äaaxd ýia 190 Nicholas Riso Executive Vice President Ahold U.S.A. Harrisburg, PA Charles F. Seymour Chairman Jackson-Cross Co. Philadelphia, PA Carl E. Singley, Esq. Philadelphia, PA 6FFICERS In 1988, Malcolm T. Humphrey was promoted to Senior Vice President in charge of the Computer Services Department, Joanna H. Frodin moved up to Vice President and Check Product Manager, and John B. Shaffer became Vice President of General Administrative Services. Sherrill L. Shaffer joined the Bank as a Research Officer and Economist, and Herbert E. Taylor was promoted to Research Officer and Economist. In other official changes, Gerard A. Callanan was named Planning Officer; Patrick L. Donahue was promoted to Assistant Vice President in the Business Development Department; Edward J. Fox was appointed Financial Services Officer; Stephen M. Hoffman was named Assistant Vice President in the Supervision and Regulation Department; Alan L. Kiel was promoted to Assistant Vice President with responsibility for coordinating disaster planning activities; Mary M. Labaree was appointed Assistant General Auditor; Thomas P. Lambinus became Assistant Vice President in Accounting. Also, Edward C. Morrison was promoted to System DevelopOfficer; Benjamin L. Nadola joined the Bank as Assistant ment Vice President in Check Operations; Camille M. Ochman was named Budget Officer; Richard A. Sheaffer was promoted to Assistant Vice President in the Fiscal Department; Milissa M. Tadeo was appointed Fiscal Officer; Marie Tkaczyk was promoted to Assistant Vice President in Computer Services; and Sharon N. Tomlinson was named Staffing and Development Officer. Edward G. Boehne President William H. Stone, Jr. First Vice President Malcolm T. Humphrey Senior Vice President Richard W. Lang Senior Vice President and Director of Research J. Warren Bowman, Jr. Vice President Steven P. Cohen Vice President Edward J. Coia Vice President Peter M. DiPlacido Vice President Robert A. Dobie Vice President James B. Duffy Vice President Ronald G. Foley Vice President Joanna H. Frodin Vice President Konstanty G. Adack Executive Vice President Stephen A. Meyer Vice President and Associate Director of Research Thomas K. Desch Senior Vice President and Lending Officer Donald J. McAneny Vice President and General Auditor Donald F. Doros Senior Vice President Lawrence C. Murdoch, Jr. Vice President and Secretary James F. Gaylord Senior Vice President Louis N. Sanfelice Vice President Hiliary H. Holloway Senior Vice President and General Counsel John B. Shaffer Vice President Vish P. Viswanathan Vice President Robert J. Bucco Assistant Vice President and Assistant Secretary James F. Burns Assistant Vice President E Gerard A. Callanan Planning Officer Edward C. Morrison Systems Development Officer Theodore M. Crone Research Officer and Economist Camille M. Ochman Budget Officer Patrick L. Donahue Assistant Vice President Benjamin L. Nadola Assistant Vice President Robert N. Downes, Jr. Applications Officer Patrick M. Regan Data Communications Officer William Evans, Jr. Assistant Vice President Edward G. Rutizer Assistant Vice President Edward J. Fox Financial Services Officer Sherrill L. Shaffer Research Officer and Economist Eugene E. Hendrzak Assistant Vice President Richard A. Sheaffer Assistant Vice President and Assistant Secretary Stephen M. Hoffman Assistant Vice President Jerry Katz Assistant Vice President Alan L. Kiel Assistant Vice President Robert H. Klein Assistant Vice President Mary M. Labaree Assistant Vice President Thomas P. Lambinus Assistant Vice President Edward M. Mahon Associate General Counsel Frederick M. Manning Assistant Vice President and Community Affairs Officer Ronald R. Sheldon Data Services Officer Milissa M. Tadeo Fiscal Officer JoAnne Tarnoff Automation Planning Officer Herbert E. Taylor Research Officer and Economist Marie Tkaczyk Assistant Vice President COMMUNITYBANK ADVISORYCOUNCIL Chairman F. Parker Renelt Citizens State Bank Sharon N. Tomlinson Staffing and Development Officer Deputy Chairman Frank Kaminski, Jr. Pennsylvania Independent Bank Elizabeth S. Webb Assistant Counsel Gary E. Burl Delaware National Bank Bernard M. Wennemer Examination Officer Dennis W. DiLazzero Minotola National Bank William K. Francis Citizens & Northern Bank m Wayne H. Hainley Glendale National Bank of New Jersey John R. Howell First ValleyBank Jon C. Nichols Felton Bank Harold A. Queen Mauch Chunk Trust Co. David L. Tressler Northeastern Bank of Pennsylvania George R. Welch Continental Bank of New Jersey Robert G. Zullinger Farmers & Merchants Trust Co. ýý ýý ý /1/DVISORY ---- 7n0UNCIL The Bank's four advisory councils meet regularly with President Boehne and other officers to exchange information and discuss problems. In 1988, the Nonmember Bank Advisory Council was renamed the Community Bank Advisory Council and opened to member and nonmember banks alike. The 1988 members of advisory councils are listed below. SMALLBUSINESS/ AGRICULTURE COUNCIL CREDIT UNION ADVISORY COUNCIL Chairman Robert Smith Tri-County Area Federal Credit Union Deputy Chairman Donald A. Stiles Deepwater Industries Federal Credit Union Betty L. Baker Delaware State Employees Federal Credit Union Chairman Donald C. Hershey Hershey Farms Deputy Chairman Linda J. McAleer Melior Group Walter Ellis New Jersey Farm Bureau William J. Gordy Gordy Farms and Gordy Poultry Farms Cynthia Hudson Waterfront Corporation Edward J. Boyle NJDOT Credit Union Walter P. Lomax Lomax Health Systems Gladys Duling Louviers Federal Credit Union Noah Kreider, Jr. Kreider Farms Alice R. Gift Rohm and Haas Del- Val Credit Union Howard Papen Papen Farms Inc. Helen Hirsch Fischer & Porter Employee Credit Union John Ladd 609 Area Federal Credit Union Michael R. Prettyman Defense Activities Federal Credit Union Teresa C. Trudeau Southwest Germantown Federal Credit Union Frank Wielga Pennsylvania State Employees Credit Union Virginia Williams F.A. A. Technical Center Federal Credit Union Charles A. Wiggs Town & Country Sheet Metal Corp. Robert A. Winner Pleasant Acres Dairy Farm John H. Wright, Jr. Wright Motor Sales Co. Abram S. Zeiset Zeiset Farms THRIFTINSTITUIONS ADVISORY COUNCIL Chairman David W. Lindstrom Franklin Savings & Loan Association Deputy Chairman Robert W. Pullo York Federal Savings & Loan Association Pearl H. Brown Gloucester County Federal Savings Bank Frank M. Calletta Empire Savings Bank, SLA Ronald P. Crouch Ninth Ward Savings & Loan Association Armondo Felicetti Fidelity Federal Savings & Loan Association I. Maximilian Martin Berean Savings Association Virgil P. Moir, Ill Progress Federal Savings Bank William C. Gamble Dime Savings Bank of Chester County John M. O'Brien Central Pennsylvania Savings Association Robert H. Trewhella First Federal Savings & Loan Association Gregory L. Walker Huntingdon Savings & Loan Association m ATEM ENT OF ASSETS Gold certificate account Special drawing rights certificates Other cash-coin Loans and securities: Discounts and advances Federal Agency obligations United States government securities Totalloans and securities Other assets: Cash items in process of collection Bank premises-net Operating equipment-net All other lnterdistrict settlement account Total assets DECEMBER 31,1988 DECEMBER 31,1987 $ 389,000,000 162,000,000 29,001,574 $ 385,000,000 162,000,000 23,639,616 168,030,000 197,503,576 131,525,000 228,558,271 6,624,445,534 6,624,142,252 $6,989,979,110 $6,984,225,523 420,822,813 45,902,623 12,004,535 596,824,027 469,653,714 477,347,586 46,222,477 12,787,107 542,821,293 (598,874,816) $9,115,188,396 $8,035,168,786 $6,654,710,948 $5,705,826,311 1,776,712,363 0 7,200,000 5,613,595 1,647,973,725 0 7,050,000 28,217,510 $1,789,525,958 $1,683,241,235 374,895,992 90,497,599 368,685,906 82,923,734 $8,909,630,497 $7,840,677,186 102,778,950 102,778,950 97,245,800 97,245,800 $9,115,188,397 $8,035,168,786 LIABILITIES AND CAPITAL ACCOUNTS Note liabilities: Federal Reserve notes Deposits: Reserve accounts of depository institutions U.S. Treasury-general account Foreign All other Totaldeposits Other liabilities: Deferred availability cash items All other Totalliabilities Capital accounts: Capital paid in Surplus Total liabilities and capital accounts fýlARNINGS AND Z11 v. _._____ Current earnings: From U.S. government securities From discounts, advances and miscellaneous sources From services to depository institutions Total current earnings Net expenses: Operating expenses (after deducting reimbursable expenses) Cost of earnings credits Total net expenses Current net earnings Additions to current net earnings: Gain on sales of government securities Gain on foreign currency transactions Miscellaneous nonoperating income Total additions Deductions from current net earnings: Assessmentby the Board of Governors: Board expenditures Federal Reserve currency Loss on foreign currency transactions Miscellaneous nonoperating expenses Totaldeductions Net additions Net earnings before payment to U.S. Treasury Dividends paid Paid to U.S. Treasury (interest on Federal Reserve notes) Transferred to surplus, additions 1988 1987 $522,231,597 $497,305,569 17,362,397 19,546,033 32,017,493 30,841,255 $571,611,487 $547,692,857 $ 53,212,802 8,872,596 $ 50,643,891 8,970,751 $ 62,085,398 $ 59,614,642 $509,526,089 $488,078,215 $ $ $ $ 693,204 1,268,641 0 9,075 84,801,017 4,393 702,279 $ 86,074,051 4,014,300 4,421,601 24,522,019 2,706,399* $ 3,789,200 4,817,304 0 7,399,965* $ 35,664,319 $ 16,006,469 $ (34,962,040) $ 70,067,582 $474,564,049 $588,145,797 $ $ 6,039,635 5,537,791 462,991,264 5,533,150 541,827,706 10,780,300 $474,564,049 $558,145,797 m *Includes nonreimbursed Treasury services I/ /PERATING 'ff TAT ISTICS 1988 1987 Millions of Dollars Loans to depository institutions Currency received and counted Coin received and counted Checks handled: U.S. government checks All other Issues, redemptions and exchanges of U.S. government securities Transfersof funds Food stamps redeemed $ 7,804 13,422 166 $ 8,276 13,755 169 27,540 859,672 31,440 821,334 2,495,551 8,958,131 369 2,240,210 6,927,621 405 1,566* 1,098,100 1,042,100 1,694 * 1,099,500 1,006,600 27,500 951,960 31,700 916,400 15,100 4,000 81,300 13,850 3,600 87,100 Thousands of Items Processed Loans to depository institutions Currency received and counted Coin received and counted Checks handled: U.S. government All other Issues, redemptions and exchanges of U.S. government securities Transfers of funds Food stamps redeemed 'Unfounded data w Design by NGS Associates Photographs on pages 3,19,20 and 22 by John McGrail Additional photography by Edward J. Bonner Newspaper material on page 10, copyright 1941 by The New York Times Co. Reprinted by permission. Newspaper material on page 6, copyright 1914 by The Philadelphia Inquirer; on page 15, copyright 1969 by The Philadelphia Inquirer. Reprinted by permission. Text and project coordination by Jane Hinkle Typesetting and printing by the Federal Reserve Bank of Philadelphia