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1990 Annual Report Federal Reserve Bank o f Richmond 1 9 9 0 Annual Report C o n ten ts Message from the Chairman 3 Reflections on Deposit Insurance 4 Highlights 13 Directors 16 Advisory Councils 18 Operating and Financial Statements 20 Officers 23 ISSN 0164-0798 LIBRA RY O F C O N G R E S S CA TA LO G C A RD NUMBER: 16-7264 Fdra Rse e Bn of R m d P b tio Nme P e e l e rv a k ich on u lica n u b r: -l C stru p otog p : A v n Av rtisin on ction h ra h d a te d e g Additional copies o f this Annual Report may be obtained without charge from: P ublic Services D ep artm e nt Federal Reserve Bank o f R ic h m o n d P.O . Box 27622 R ic h m o n d , V irginia 23261 Federal Reserve Bank o f Richmond Message from the Chairman ver the past six years, I was honored to serve as a member and then chairman o f the board o f directors o f the Federal Reserve Bank of Richmond. These several years o f association with the Bank were a rewarding experience for me. I cherish the friendships that I have made with other directors and the members of the Bank’s staff. I am proud to have been part o f this nation’s central bank and to have served with directors who consistently demonstrated their business and professional expertise in their reviews o f Bank activities and in their assessments o f economic conditions. I began my tenure as a director on June 24, 1985. The econom y was in the middle o f its third year o f growth in what would turn out to be the longest peacetime expansion. I ended my service at the close of 1990 as the expansion slowed and possibly ended. Although the econom y grew during most o f the past six years, the financial system was severely tested. In these som e times trying times, our directors made every effort to act prudently and responsibly in establishing the discount rate. W e avoided the temptation to try to fine-tune the econom y and focused instead on what we believed should be the System’s primary goal: long-run price stability. The last decade ended with some indi cation of a resolution o f the crisis in the savings and loan industry and with the promise o f world peace. The new7 decade began with evidence o f spreading prob lems in the financial sector and with the Anne Marie Whittemore Hanne Merriman Robert P. Black D e p u ty C hairm an C hairm an President threat o f war. Just as the nation must address the problems in the international political arena, so must it also address those in our nation’s banking system. Changes in the banking structure and financial safety net are likely in the years ahead. In the next few pages, the president o f the Bank, Robert P. Black, shares some o f his thoughts on deposit insurance and its role in the problems besetting financial institutions. His thoughts include some proposals for reform. I com mend his reflections on deposit insurance to you. On behalf o f the directors, I thank you, our con stituents, for the support you have given the Bank over the past year. Chairman of the Board 3 1990 Annual Report Reflections on Deposit Insurance One of the most important public policy issuesfacing the United States currently in the area of financial markets is the need for reform of the nation's deposit insurance system. A number of proposals for change have been offered, including the proposal announced by the U Department of the Treasury on February 5, 1991. The .S. following article is adapted from an address on the subject by Robert P. Black, president of the Federal Reserve Bank of Richmond, before the annual convention of the West Virginia Bankers Association, July 27, 1990. The views expressed here are not necessarily those of the Federal Reserve System. The savings and loan crisis has changed all this. No one believes that deposit insurance was the only cause o f the crisis, and probably only a minority o f those w ho have studied the crisis think it was the principal cause. Nonetheless, there is now widespread agreement am ong those in the best position to judge that deposit insur ance has at least contributed to the thrift problem . Deposit insurance is n o w getting a great deal o f attention. The FIRREA (Financial Institutions Reform, Recovery, and En forcem ent Act o f 1989) law requires the Treasury Department to prepare a study o f deposit insurance; the American Bankers Association has already published a pro posal for reforming the deposit insurance system; and leading newspapers and finan cial periodicals currently are filled with articles about deposit insurance. I. F or many years deposit insurance was one o f the few instances o f govern N a tu re o f In su ra n c e th e D e p o s it P r o b le m H ow did deposit insurance contribute to ment intervention in the econ om y ing industry in the future? The response to idea. Since there was not much debate this question is that deposit insurance about deposit insurance, there was little presents a “ moral hazard” to banks and discussion o f it. insurance pose for the commercial bank conservatives alike— agreed was a good 4 the thrift crisis and what risks does deposit that just about everybod y— liberals and other depository institutions. Moral hazard, Federal Reserve Bank o f Richmond as applied to deposit insurance, means that the managers of 6 6 a thrift or a bank may have an incen . . . th er e tive to acquire riskier assets than a greem en t a m on g th ey sh o u ld b e ca u se insu red is n o w w id e s p r e a d th e b e s t p o s it io n depositors— secure in the kn ow l th o se in to ju d g e th a t d e p o s it in s u r a n c e h a s edge that their funds are safe in any a t le a s t c o n tr ib u te d event— will not penalize the institu tion by withdrawing their funds or th e th r ift p r o b le m . requiring that a risk premium be to 9 9 added to the rates paid on their deposits. The hazard is all the greater if, as in too many institu tions at present, capital is relatively low so underpriced in the U.S. eco n o m y because that include deposit insurance reduces the risk premium managers— have only a m odest amount o f depository institutions have to pay when shareholders— w h o often their wealth at stake in the institution. It they com pete for deposits. Loan rates may seems clear in retrospect that the moral therefore not reflect adequately the risk hazard associated with deposit insurance associated with particular loans. If this is did in fact play a role in the thrift crisis, true, too many econom ic resources are be although it may not have been the initial ing drawn to relatively high risk ventures cause o f the crisis. Specifically, at least and away from lower-yielding but e co some thrifts invested the deposits entrusted nom ically more defensible projects. The to them in highly risky ventures that apparent excess supply o f office buildings depositors w ould not have tolerated in the and condom inium s in many parts o f the absence o f insurance. With this unfortunate country currently suggests that there may experience in mind, com m ercial bankers have been a significant misallocation o f obviously need to be aware o f the long capital in the United States over the last term risks that deposit insurance presents decade. Deposit insurance may have c o n to the banking industry so that they can tributed to this misallocation. If this c o n work with the appropriate regulators to jecture is accurate, it is essential to correct evaluate and avoid these risks. the problem quickly since America must Attention must also be given to the allocate its capital resources as productively problem s deposit insurance may cause in as possible to strengthen its com petitive the U.S. econ om y as a w hole as well as in ness in today’s highly particular depository markets. industries. Risk may institutions be and systematically efficient world 1990 Annual Report II. W a y s th e to D e a l w ith out with the bathwater seems especially ap propriate P r o b le m in the con tex t of deposit insurance reform. M oreover, any attempt The key question, obviously, is: how to overhaul overnight a system as popular should we reform the deposit insurance and extensive as deposit insurance w ould system? The recommendations that follow be unwise. A better approach w ould be to are not necessarily the views o f the Federal set strategic goals for reform o f the system Reserve as a w hole although many o f them and then develop a long-range, phased plan are held widely in the System. Many also to achieve these objectives with minimum correspond to points Chairman Greenspan disruption. The follow ing recom m enda made in his testimony on deposit insurance tions are in this spirit. reform on July 12, 1990, before the Senate Com m ittee on Banking, Housing, and Urban Affairs. A c c e le ra tin g an d Im p r o v in g R e s o lu tio n P ro c ed u re s Before considering what reforms should In dealing with the deposit insurance be made it should be recognized that problem , whatever problems may be associated with accelerate the the most urgent need resolution is to o f what are deposit insurance, it has produced signifi euphemistically called “ capital-impaired” cant benefits since its inception back in institutions: in plain English, insolvent or the 1930s. In particular, no systemic runs soon-to-be-insolvent institutions. This is on have the only sure way to protect the deposit occurred during this period. Every effort insurance funds and prevent or at least limit must be made to preserve this benefit. further potential losses to taxpayers. Tax The old adage about not throwing the baby payers are angry about their potential losses federally insured institutions from the thrift crisis to date. They have no stom ach for any further losses. 6 6 ... a n y Accelerating the resolution process and a tte m p t to o v e rn ig h t a p o p u la r a n d sy stem b e u n w is e . 9 9 as e x te n s iv e a s d e p o s it in s u ra n c e 6 overh au l w o u ld protecting the insurance funds, o f course, are easier said than done. O ne intriguing proposal for accomplishing this is the American Bankers Association’s “ final settlement paym ent” procedure put for ward in March o f 1990. Under this pro cedure, an insured institution w ould go Federal Reserve Bank o f Richmond into FDIC receivership immediately upon a determination that it was insolvent. On the next business day the FDIC w ould give insured depositors access to their full balances up to $ 1 0 0 , 0 0 0 and settle the claim s of unsecured uninsured creditors depositors through a and “ final settlement paym ent,” the amount o f which w ould be set so that the FDIC w ould break even over time in its receivership activities. According to the ABA this amount w ould be between 85 and 9 5 percent o f uninsured and unsecured creditor claims. This plan is appealing because it w ould subject depository institutions to a greater degree o f healthy market discipline than exists currently while at the same time giving uninsured depositors and unsecured creditors immediate access to most o f their funds. It w ould also help neutralize the “ too-big-to-fail” problem if it were applied consistently and therefore were a credible, permanent policy know n in advance by d e p o sito rs, b o n d h o ld e rs, and oth er creditors. There may be legal or technical problem s with this approach which have not surfaced yet, but, apart from this possibility, the A B A ’s proposal seem s to have considerable merit. Any proposal that holds out a hope o f halting the erosion o f the insurance funds deserves serious consideration. O ne particularly It is well know n that conventional ac counting practices based on historical book values do not always accurately reflect the true current condition o f an institution. C on sequ en tly, som e econ om ists and others have urged the adoption o f market value accounting in som e form. There are a lot o f knotty practical problem s involved in switching to market value accounting, and the solutions to all these problem s are not clear yet. Changes along these lines may have to be considered, how ever, since it will not be possible to im prove resolution procedures unless accurate and timely information on the true sticky problem in volved in accelerating the resolution o f insolvent institutions deserves m ention— the question o f what accounting system should be used in determining insolvency. condition o f insured institutions is avail able. If a way can be found to develop 1990 Annual Report institutions prior to resolution. If so, it w ould tend to undermine reforms such as the ABA’s proposal since one o f the prin cipal benefits o f these proposals w ould be the increased depositor discipline it would stimulate. Therefore, it may be desirable for the Federal Reserve to reevaluate its ex tended credit policies in conjunction with the larger effort to im prove the deposit in surance system. In doing so, it should be kept in mind that the System can discharge its lender-of-last-resort duties to a very substantial extent by supplying liquidity to the banking system through ordinary open market operations. this information, it w ould then be incum bent on the supervisory agencies to review Stre n g th en in g C apital P o sitio n s Although im proving resolution pro it at least annually for each insured bank cedures is particularly urgent in order to in a full in-bank examination. prevent any further erosion o f the in Finally, whatever specific procedures are surance funds, m ore fundamental reforms adopted for resolving insolvencies, it is are also needed. A m ong the m ost im por important that the Federal Reserve rein tant o f these is an additional strengthening force them in administering the discount o f capital positions. Considerable progress w in dow . In the past the Federal Reserve in this direction has already been made has provided extended credit on several with occasions to undercapitalized institutions, capital standards, which are being phased including som e that may have been insol in and will be com pletely in place by the vent on a market-value basis. This practice end o f 1992. Nonetheless, a strong argu has evolved from the System’s “ lender-of- ment can be made for even higher capital la st-re so rt” standards, as Chairman Greenspan has resp o n sib ilities and has reflected its desire to help prevent or at least limit the disruption that may occur when individual institutions fail. the new international risk-based indicated quite forcefully. Higher capital ratios w ould obviously The benefit the deposit insurance system. First, availability o f extended credit from the they w ould enlarge the buffer protecting w indow , however, may facilitate the with drawal o f uninsured funds from troubled Federal Reserve Bank of Richmond the insurance funds. Second, they w ou ld reduce the moral hazard in the system because shareholders w o u ld have a prop ortion ately larger interest in an institution and therefore w ou ld im pose greater discipline on managers. B eyond these direct benefits to the insur ance system, higher capital ratios w ou ld make it considerably m ore likely that banks w ou ld be per mitted to engage in a w ider range o f activities. This is so because the additional capital buffer w ou ld reduce the risk that the safety net o f w hich deposit insurance is a part w ou ld be extended im plicitly to these new activities. Smaller institutions may not find this last argument o f great interest, but many observers o f the U.S. banking industry believe firmly that bank powers must be extended if American banks are to maintain their com petitive position in w orld financial markets. One other argument for increasing bank capital merits special attention. In the present situation with relatively low capital ratios in many banks and, in practice, som ething approaching full coverage o f all depositors, the governm ent and the tax payer effectively are bearing m ost o f the risk associated with the depository in dustry. The savings and loan debacle has made both the governm ent and taxpayers keenly aware o f the nature and full dim en sions o f this risk. Consequently, it is likely that the governm ent will demand in 6 6 .. . m o re fu n d a m e n ta l r e fo r m s a r e ... n eed ed . A m ong th e m o s t im p o r ta n t o f t h e s e is a n a d d itio n a l s tr e n g th e n in g o f c a p ita l p o s itio n s . 9 9 creased control and regulatory authority over banks and other institutions if it is asked to continue to bear this risk. Some sharpening o f supervision and regulation is probably needed in view o f the thrift problem . But a wholesale increase in regulatory control and interference w ould not serve the interests o f either banks or their customers. The innovative banking activity that has served the United States so well in the past w ould be stifled and the industry w ou ld wither. This is obviously a strong argument for increasing capital ratios. For that matter, it is a strong argu ment for any change that increases market and depositor discipline. In short, there are several solid argu ments for raising capital standards, and Chairman Greenspan stated in his testi m ony that the Federal Reserve currently is developing m ore specific proposals to 9 1990 Annual Report accom plish this as sm oothly as possible. Many bankers undoubtedly w ou ld like to know where they are going to find this capital and h ow m uch it is going to cost. Unfortunately, there is no simple answer to this question. An increased demand by the banking industry for capital w ould almost certainly raise its cost, and this in turn might lead to further structural changes and possibly slower growth in the industry. These things d o not sound very desirable at first, but this kind o f outcom e might well be a blessing in disguise if, as is very likely, it w ere to increase the effi ciency and therefore the viability o f the banking industry over the longer haul. In any event, the alternative o f greater regulatory control is almost certainly worse. It w ould probably be acceptable, in this regard, to count fully subordinated debt along with equity capital toward fulfill ment o f required capital minimums. Most independent small and m edium sized institutions probably will find it less costly, how ever, to at tract equity capital than invest ment in subordinated debt in the foreseeable future. O th er M easures It has b e e n e m p h a size d already that the tw o most effec tive, practical steps that can be taken to deal with the problem s in the deposit insurance system currently are (1) im proving the 10 procedures for resolving insolvencies and (2) increasing capital ratios. There are a number o f other useful measures, h o w ever, that w ou ld com plem ent these tw o primary reforms. Im proved supervision clearly w ou ld be one such step. One o f the great advantages o f higher capital ratios is that they w ou ld reduce the pressure for any marked in creases in regulation and supervision. Measured changes in supervisory activity such as annual in-bank examinations o f all insured banks, how ever, w ou ld not be unduly intrusive and w ou ld benefit indi vidual institutions as well as regulators. Another potentially helpful action might be to introduce a limited form o f risk-based insurance premiums. Such prem ium s w ou ld link the price o f insurance paid by a particular institution (and, indirectly, its customers) directly to the potential burden the institution is putting on the insurance fund and therefore give the institution an 6 6 O n e o f th e g r e a t a d v a n ta g e s o f h i g h e r c a p i t a l r a t i o s is th a t th ey w o u ld p ressu re fo r r e d u c e th e any m a rk ed i n c r e a s e s in r e g u l a t i o n a n d s u p e r v is io n . 9 9 Federal Reserve Bank of Richmond incentive to reduce this burden. It w ould not be a g o o d idea, how ever, to base these premiums on a detailed categorization o f assets according to risk. It is exceedingly difficult as a practical matter to define and rank such categories, and attempts might be made to manipulate the system in order to direct credit to favored industries. C onsequently, any differentiation o f premiums probably should be based primarily on capital adequacy. Whatever other reforms may be made in the insurance system, som e people will not be satisfied unless action is taken to reduce the system’s overall coverage from present levels. These people argue that in practice the system currently covers virtu ally 100 percent o f deposits and a substan tial portion o f other unsecured liabilities. They argue further that this situation and the subsidization o f risk-taking it entails will inherently prod u ce a continuing, sig nificant misallocation o f resources and make the e co n o m y correspondingly less efficient— a condition the nation can ill af ford w hen it is lock ed in a global c o m petitive struggle with the highly efficient Japanese and German econom ies. This rather fundamental econ om ic argu ment for reducing coverage is very per suasive. The question is: h ow should it be accom plished? The ABA proposal dis cussed above is one possibility. Another option, o f course, w ou ld be to reduce the explicit insurance limit per account from the current $100,000 to som ething less. One does not have to be terribly astute to realize that this w ould be very difficult to achieve politically. It might also weaken the com petitive position o f U.S. banks in international m oney markets. A better approach might be to enforce the $ 100,000 limit m ore effectively by restricting the use o f multiple accounts by individual depositors. This cou ld be done in a straightforward way using social security numbers. Perhaps the most productive way to limit coverage, how ever, w ou ld be to introduce— or at least study the possi bility o f introducing— som e form o f coinsurance for larger insured accounts. Coinsurance probably w ou ld be as effec tive or nearly as effective in increasing depositor discipline on institutions as a reduction in the insurance limit. It also 11 1990 Annual Report III. 6 6 ., . i t w o u ld b e im p o r ta n t to a n a l y z e c a r e fu lly th e im p lic a tio n s o f c o in s u r a n c e fo r th e c o m p e t it iv e n e s s o f U .S . d e p o s i t o r y in s titu tio n s in w o r l d m a r k e ts . 9 9 w ou ld be easier to sell politically since the public is n ow well accustom ed to dedu c tibles in their autom obile and health in surance plans. The public might well regard a system like this as a fair and reasonable effort to prevent a recurrence o f the savings and loan problem . In c o n sidering such a system, h ow ever, it w ould be important to analyze carefully the im plications o f coinsurance for the co m petitiveness o f U.S. depository institutions in w orld markets. 12 C o n c lu sio n These com m ents and observations can be b oiled d ow n to tw o main points. First, prom pt and meaningful reform o f the deposit insurance system is needed both to correct the distortions the present system has introduced into the e co n o m y and, m ore urgently, to prevent the savings and loan disease from spreading to the com m ercial banking industry. Second, there are a variety o f feasible options for reform available. Accelerated resolution procedures and higher capital ratios are especially important, and, as indicated above, a number o f other beneficial changes could be made to supplement and reinforce these fundamental reforms. Some o f these changes may require som e adjust ments, both in the Federal Reserve and other regulatory agencies and in the banking industry. If the changes are made carefully and diligently, how ever, Ameri can banking and financial markets will almost certainly be m uch stronger and m ore efficient in the years ahead. Federal Reserve Bank of Richmond 1 9 9 0 H ig h lig h ts P e rs o n n e l A u to m a tio n and O p e ra tio n s Ronald B. Duncan was named to replace Robert D. McTeer, Jr., as officer in charge o f the Baltimore Branch. Mr. Duncan assumed his new responsibilities on February 1, 1991, w hen Mr. M cTeer becam e president o f the Federal Reserve Bank o f Dallas. The Baltimore Office offered other Reserve Banks its on-line settlement for ch eck and return systems (OSCAR). The Atlanta Bank began formal acquisition o f the check appli cation software; other Reserve Banks also have show n interest in this system. First Vice President Jimmie R. M onhollon was named product director o f a new System management group that will revitalize the System’s Functional Cost Analysis Program, a cost accounting program for depository The Bank outlined procedures for Fifth District depository institutions to fo llo w in the event o f a disaster at the Federal Reserve institutions. Walter A. Varvel was appointed as product manager and G eorge L. C ox as assistant product manager. Bank o f Richm ond and con d u cted tw o suc cessful tests o f plans to m ove critical op er ations to the Culpeper Contingency Process ing Center. The Regional Delivery System (RDS), developed by the U.S. Treasury, was im ple mented by the Bank. This new procedure issues savings bonds at Federal Reserve Banks rather than at depository institutions. The Bank im plem ented FLASH-Light— a new, limited service, electron ic access method that requires less expensive personal com puters than the standard FOX network. The Bank also expanded its electronic check processing services by enhancing existing services and b y introducing a new service, A ccount Total Plus, w hich provides Ronald B Duncan (left) and Robert D McTeer, Jr., . . congratulate one another. 13 1990 Annual Report additional cash management capabilities to financial institutions. The pilot site for check truncation in 1985, the Bank becam e the first in the System to truncate m ore than one million checks per m onth. (Check truncation eliminates the cancelled ch eck in favor o f electronic records.) The Bank achieved full cost recovery for its priced financial services. The quality o f the Bank’s financial services was well above System targets and among the best in the System. At the request o f the Bank, the Board o f G overnors enlarged the official territories served by the Baltimore and Charlotte offices. Eastern North Carolina was added to Char lotte’s territory, and the District o f Columbia and several counties and cities in northern Virginia w ere added to Baltimore’s territory. 14 M eetin gs The Bank sponsored several conferences on the Comm unity Reinvestment Act. A conference held in Richmond for senior bank officials featured a keynote address by Federal Reserve G overnor John P. LaWare. Confer ences held in Maryland, North Carolina and West Virginia, w hich w ere cosp on sored by the Bank and state banking associations, focused on community reinvestment training. D on Patinkin, one o f the most influential monetary econom ists o f the postwar period, was a visiting scholar at the Bank. During his visit, he gave tw o seminars for Bank e co n omists and guests. N oted econom ist Martin S. Feldstein ad dressed a large group o f business, com m u nity and academic leaders in the Bank’s auditorium in Richmond. The Bank and three universities in Richm ond jointly sponsored Mr. Feldstein’s presentation, the first in a series o f seminars featuring w ell-know n speakers on business and financial topics. Federal Reserve Bank of Richmond Bank Digest D irectors/Richm ond Directors/Baltimore Directors/Charlotte Operations Advisory Com m ittee Small Business and Agriculture Advisory Council Comparative Financial Statements Summary o f Operations 16 17 17 18 19 20 22 Officers 23 15 (December 31, 1990) R. E. Atkinson, Jr.; A. Pierce Stone; Hanne Merriman Jack C. Smith: John F. McNair III; Anne Marie Whittemore R ic h m o n d CHAIRMAN Henry J. Faison Hanne M erriman President Retail Business Consultant W ashington, D.C. Faison Associates Charlotte, North Carolina DEPUTY CHAIRMAN C. R H Jr. . ill, Anne M Whittemore arie Partner Chairman of the Board and President McGuire, Woods, Battle & Boothe Richmond, Virginia M erchants & M iners National Bank Oak H W Virginia ill, est R E Atkinson, Jr. . . John F M . cNair III Chairman Director Dilm Oil Company, Inc. ar Florence, South Carolina Wachovia Bank & Trust Company, N . .A and The Wachovia Corporation W inston-Salem, North Carolina Edward H Covell . President The Covell Company Easton, M aryland Jack C. Sm ith Chairman of the Board and Chief Executive Officer K-VA-T Food Stores, Inc. Grundy, Virginia Henry J. Faison; Edward H. Covell; C. R. Hill, Jr. A Pierce Stone . M em b er, Federal A d v is o r y C o u n c il Frederick Deane, Jr. Chairman Emeritus and Chairman of the Executive Committee Signet Banking Corporation Richmond, Virginia 16 Chairman. President, and Chief Executive Officer Virginia Community B ank Louisa, Virginia B a ltim o r e C A MN H IR A John R Hardesty, Jr. . P en resid t Preston Energy, Inc. Kingwood, W Virginia est Gloria L Johnson . D u D ep ty irecto for r A m istra n d in tio The Baltim M ore useum of A rt Baltim ore, M aryland Richard M Adam . s Joseph W M . osmiller United Bankshares, Inc. Parkersburg, W Virginia est Loyola Federal Savings and Loan Association Baltim ore, M aryland C a mna d h ir a n C ief E ec tiv O er h x u e ffic H Grant Hathaway . C a m n of th B a h ir a e o rd M aryland N ational Bank Baltim ore, M aryland C a a of th B a h irm n e o rd Thomas R Shelton . P en resid t Case Foods, Inc. Salisbury, M aryland Raymond V. Haysbert, S r. P en a d resid t n C iefE ec tiv O h x u e fficer Parks Sausage Company Baltim ore, M aryland Seated: H Ga t H th w y; J h R H rd . r n a a a ■ o n . a esty, J. r J se h W Msm o p . o iller; R ym d V H ysb S. a on . a ert, r Standing: R h r M A a s; G ria L J h so ; ic a d . d m lo . o n n To a R Se n h m s . hlto C h a rlotte C A MN H IR A David B Jordan . P e en r sid t P en C ief E ec tiv resid t, h x u e O e a dD ffic r, n irecto r Anne M Allen . Omni Capital Group, Inc. and Home Federal Savings B ank Salisbury, North Carolina W illiam E M . asters Perception, Inc. Easley, South Carolina P e en r sid t . Anne Allen & Associates, Inc. Harold D Kingsmore resid t a d en n Greensboro, North Carolina P C ief O era g O h p tin fficer Crandall C Bowles . Graniteville Company Graniteville, South Carolina The Springs Company Lancaster, South Carolina Jam G. Lindley es Pe e t r sid n Jam M Culberson, Jr. es . C a m n a dP e e t h ir a n r sid n The F National B of irst ank Randolph County Asheboro, North Carolina Ca a a d h irm n n C ief E ecu e O h x tiv fficer South Carolina National Corporation C a a , P en a d h irm n resid t, n C ief E ecu e O h x tiv fficer South Carolina National B ank Columbia, South Carolina Seated: A n MA n W m . M ste s; Ca d llC B w n e . lle ; illia E a r r n a . o les Standing: fa es G L d J m M C lb rso , J m . in ley; a es . u e n r.; D vid B J rd n H roldD K g o a . o a; a . in sm re 17 1990 Annual Report A d v is o r y C o u n c ils (December 31, 1990) O p e r a tio n s A d v is o r y C o m m itte e C A MN H IR A E ec tiv V e P en x u e ic resid t W illiam V. Bunting Crestar Bank, N .A. Richmond, Virginia W illiam E Albert . V e P en a d C sh ic resid t n a ier The F National Bank of Bluefield irst Bluefield, West Virginia Robert Baldwin S io V e P en en r ic resid t Crestar Bank, N .A. Washington, D.C. Robert A Barton, Jr. . S io V e P en en r ic resid t Perpetual Savings Bank, F.S.B . Vienna, Virginia George E Beckham . S io V e P en en r ic resid t South Carolina Federal Savings Bank Columbia, South Carolina Robert L BeHage O era n E ecu e O p tio s x tiv fficer Sovran Bank, N .A. Richmond, Virginia Vernon D. Conway V e P en ic resid t M ercantile-Safe Deposit & Trust Company Baltim ore, M aryland David A Denton . V e P en ic resid t Investors Savings Bank Richmond, Virginia W alter A Howell . E ec tiv V e P en x u e ic resid t The Riggs National Bank of W ashington, D.C. W ashington, D.C. Daniel E Lanier, S . r. V e P en ic resid t One Valley Bank Charleston, W Virginia est Kenneth L Richey . S io V e P en en r ic resid t Citizens & Southern National Bank of South Carolina Columbia, South Carolina Charles C. Schm itt E ecu e V e P en x tiv ic resid t Ashpy P Lowrimore . Loyola Federal Savings and Loan Association Glen Burnie, M aryland Southern National Bank of South Carolina Florence, South Carolina E ecu e V e P en a d C sh r x tiv ic resid t n a ie S io V e P en C E ecu e en r ic resid t— ity x tiv H.Jerry Shearer Clement E Medley, Jr. . Commercial Bank of the South, N .A. Columbia, South Carolina E ecu e V e P en x tiv ic resid t F Federal Savings and Loan Association irst of Dunn Dunn, North Carolina E ecu e V e P en x tiv ic resid t Raymond L Gazelle . S io V e P en en r ic resid t Douglas R Denton . M aryland National B ank Baltim ore, M aryland S io V e P en en r ic resid t Citizens Bank of M aryland Laurel, M aryland Harrison Giles E ecu e V e P en x tiv ic resid t N BN CN ational Bank of North Carolina Charlotte, North Carolina Kenneth L Greear . V e P en ic resid t United National Bank Charleston, W Virginia est D. C H . astings P en a d C ief E ecu e O resid t n h x tiv fficer Virginia Bank and Trust Company Danville, Virginia 18 P en a d C ief E ec tiv O er resid t n h x u e ffic Ricky B Nicks . First Wachovia Operational Services, Inc. W inston-Salem, North Carolina Richard D Pillow . V e P en ic resid t Virginia Credit Union League Lynchburg, Virginia Charles M Purvis . V e P en ic resid t F Carolina Corporate Credit Union irst Greensboro, North Carolina Jam W Ricci es . P en resid t Educational System Employees s Federal Credit Union Bladensburg, M aryland Rita A Sm . ith West Virginia Savings League Charleston, W Virginia est Thomas J. Strange V e P en ic resid t South Carolina Credit Union League, Inc. Columbia, South Carolina Charles E Thomas . V e P en ic resid t W Virginia Credit Union League, Inc. est Parkersburg, W Virginia est Rick A Wieczorek . P en resid t District of Columbia Credit Union League Washington, D.C. C. L Wilson III . S io V e P en en r ic resid t Branch Banking and Trust Company Wilson, North Carolina Federal Reserve Bank of Richmond S m a ll B u s i n e s s a n d A g r i c u l t u r e A d v i s o r y C o u n c i l C A MN H IR A Robert W Stewart, Jr. . C a a a d C ief E ecu e O er h irm n n h x tiv ffic Engineered Custom Plastics Corporation Easley, South Carolina V EC A M N IC H IR A Joan H Zimmerman . P en resid t Southern Shows, Inc. Charlotte, North Carolina Leonard A Blackshear . P en resid t Associated Enterprises, Inc. Annapolis, M aryland C. Champ Clark On w er C C. Clark Farm . Chilhowie, Virginia William M Dickson . On w er Spring Valley Farm Ronceverte, W Virginia est Michele V. H agans P en resid t Fort Lincoln New Town Corporation W ashington, D.C. John W H . ane P rtn a a er a er/M n g Blackwoods Farm Fort M otte, South Carolina Joseph C Jefferds, Jr. . C a a , Pesid n a d h irm n r e t, n C ief E ec tiv O h x u e fficer Jefferds Corporation Charleston, W Virginia est Louise Lynch P en a d C ief E ec tiv O er resid t n h x u e ffic Courtesy Associates, Inc. W ashington, D.C. Robert A Quicke . P en a d G era M n g resid t n en l a a er Southside Transportation Co. Inc. Blackstone, Virginia George B Reeves . P en resid t Reeves Agricultural Enterprises, Inc. Chaptico, M aryland Joe M W . illiams O n p tor w er/O era W illiams Dairy Olin, North Carolina 19 1990 Annual Report C o m p a r a tiv e F in a n c ia l S ta te m e n ts C O N D IT IO N December 31, 1990 December 29, 1989 Assets Gold certificate account Special Drawing Rights certificate account Coin Loans to depository institutions Federal agency obligations U.S. government securities Bills Notes Bonds Total U.S. government securities Cash items in process o f collection Bank premises Furniture and equipment (n et) Other assets Interdistrict settlement account Accrued service income TOTAL ASSETS $ 1,008,000,000.00 961,000,000.00 105,399,370.81 5,500,000.00 590,231,351.74 $ 943,000,000.00 745,000,000.00 78,277,772.64 2,500,000.00 540,738,815.08 10,472,630,017.39 8,507,532,420.48 2,900,468,325.79 8,667,303,585.84 7,573,372,060.47 2,553,731,839.1 1 21,880,630,763.66 18,794,407,485.42 341,348,225.88 122,201,413.95 31,064,976.72 2,892,933,948.51 -5,673,760,517.80 5,122,043-92 533,933,842.12 126,996,552.52 25,404,871.19 2,194,241,892.71 3,701,851,815.94 5,188,047.66 $22,269,671,577.39 $27,691,541,095.28 $18,904,361,212.00 $23,180,117,124.00 2,653,964,940.55 9,300,000.00 15,557,083-89 3,455,840,334.35 8,700,000.00 87,986,717.96 2,678,822,024.44 3,552,527,052.31 118,955,637.30 271,411,903-65 446,638,237.85 233,397,281.12 $21,973,550,777.39 $27,412,679,695.28 148.060.400.00 148.060.400.00 139.430.700.00 139.430.700.00 $22,269,671,577.39 $27,691,541,095.28 Liabilities Federal Reserve notes Deposits Depository institutions Foreign Other Total deposits Deferred availability cash items Other liabilities TOTAL LIABILITIES Capital Accounts Capital paid in Surplus TOTAL LIABILITIES AND CAPITAL ACCOUNTS 20 Federal Reserve Bank of Richmond E A R N IN G S A N D E X PEN SE S 1990 1989 Earnings Loans to depository institutions FDIC assumed indebtedness Interest on U.S. government securities Foreign currencies Income from services Other earnings Total current earnings $ $ 5,208,025.73 14,830,154.07 1,791,699,651.19 160,792,748.66 64,590,429.92 757,144.90 $2,037,878,154.47 1,612,252.18 N /A 1,624,011,524.12 60,079,567.77 62,099,087.82 748,779.88 $1,748,551,211.77 100,263,888.19 12,372,510.49 112,636,398.68 $1,925,241,755.79 95,066,398.60 12,053,256.92 107,119,655.52 $1,641,431,556.25 5,866,671.72 132,642,248.68 13,033.49 138,521,953.89 1,208,662.07 74,329,418.38 6,538,983.13 82,077,063.58 0 16,063.89 16,063-89 + 138,505,890.00 6,766,914.72 6,446,700.00 18,507,249.00 $2,032,026,782.07 0 53,115.52 53,115.52 + 82,023,948.06 2,919,938.22 5,258,200.00 15,253,971.00 $1,700,023,395.09 $ 8,693,666.59 2,014,703,415.48 8,629,700.00 $2,032,026,782.07 $ $ $ Expenses Operating expenses Cost o f earnings credits Net expenses CURRENT NET EARNINGS Additions to current net earnings Profit on sales of U.S. government securities (net) Profit on foreign exchange transactions All other Total additions Deductions from current net earnings Losses on foreign exchange transactions All other Total deductions Net additions or deductions Cost o f unreimbursed Treasury services Assessment for expenses of Board of Governors Federal Reserve currency costs NET EARNINGS BEFORE PAYMENTS TO U.S. TREASURY Distribution o f Net Earnings Dividends paid Payments to U.S. Treasury (interest on F ederal R eserve notes) Transferred to surplus TOTAL 7,902,911.62 1,676,145,633.47 15,974,850.00 $1,700,023,395.09 Surplus Account Balance at close of previous year Addition o f profits for year BALANCE AT CLOSE OF CURRENT YEAR $ 139,430,700.00 8,629,700.00 148,060,400.00 $ 123,455,850.00 15,974,850.00 139,430,700.00 Capital StOCk Account (Representing am paid in, which is 50% of am subscribed) ount ount Balance at close o f previous year Issued during the year $ 139,430,700.00 12,172,000.00 151,602,700.00 3,542,300.00 $ 123,455,850.00 18,763,100.00 142,218,950.00 2,788,250.00 $ 148,060,400.00 $ 139,430,700.00 Cancelled during the year BALANCE AT CLOSE OF CURRENT YEAR 21 1990 Annual Report S u m m a ry o f O p e r a tio n s Operation Number Amount ($thousands) 1990 1989 1990 Currency and coin processed Currency received and verified Currency verified and destroyed Coin bags received and verified 1.983.165.000 652.908.000 271,156 1,756,230,000 614,044,000 329,468 24,016,852 5,302,701 203,200 22,602,281 5,473,785 248,019 Checks handled Commercial—processed * Commercial—packaged items U.S. government 1.526.891.000 339.774.000 66,707,000 1,457,293,000 295,102,000 66,372,000 1,039,571,000 119.968.000 128.155.000 963,051,688 108,394,000 137,260,000 Collections items handled U.S. government coupons paid Noncash items 32,859 126,268 63,174 135,278 10,603 278,658 28,750 383,324 Commercial book-entry transfers originated 247,973 231,928 1.824.636.000 1,818,399,000 5,471,584 5,230,327 238,973,000 169,121,000 1,129,760 961,097 463 540 16,025,063 4,041,710 Funds transfers sent and received Food stamps redeemed Loans advanced * x d g c e k o th Bn .. E clu in h c s n is a k 22 1989 9.782.720.000 8,888,053,000 Federal Reserve Bank of Richmond O ffic e r s (December 31, 1990) R ic h m o n d Robert P Black, P . resid t en Jimmie R Monhollon, F st V e P . ir ic resid t en Lloyd W. Bostian, Jr., S io V e P en r ic resid t en J Alfred Broaddus, Jr., S io V e P . en r ic resid t a d en n D irecto of Rse r h r e ac Roy L Fauber, S io V e P . en r ic resid t en Joseph C. Ram age, S io V e P en r ic resid t en Jam D. Reese, S io V e P es en r ic resid t en Bruce J. Summ S io V e P ers, en r ic resid t* en Fred L Bagwell, V e P . ic resid t en Dan M Bechter, V e P . ic resid t en W illiam H Benner, Jr., V e P . ic resid t en Timothy Q. Cook, V e P ic resid t en W illiam E Cullison, V e P . ic resid t en Donna G. Dancy, V e P ic resid t en W yatt F Davis, V e P . ic resid t en M ichael Dotsey, V e P ic resid t en George B Evans, V e P . ic resid t en W illiam C. Fitzgerald, A cia G era C u sel sso te en l o n M arvin S Goodfriend, V e P . ic resid t a d en n A cia D sso te irecto of Rse r h r e ac Robert L Hetzel, V e P . ic resid t en David B Humphrey, V e P . ic resid t a d en n P ym ts S mA viser a en yste d Thomas M Humphrey, V e P . ic resid t en Jam McAfee, V e P es ic resid t a d G era C u sel en n en l o n Yash P M . ehra, V e P ic resid t en M ichael W. Newton, V e P ic resid t en John W Scott, V e P . ic resid t en Andrew L Tilton, V e P . ic resid t en W alter A Varvel, V e P . ic resid t en Roy H Webb, V e P . ic resid t en Kemper W Baker, Jr., A . ssista t V e P en n ic resid t Jackson L Blanton, A . ssista t V e P en n ic resid t W illiam A Bridenstine, Jr., A . ssista t G era C u sel n en l o n Bradford N Carden, A . ssista t V e P en n ic resid t Betty M Fahed, A . ssista t V e P en n ic resid t Sharon M H . aley, A ssista t V e P en a dS reta n ic resid t n ec ry Eugene W. Johnson, Jr., A ssista t V e P en n ic resid t Thomas P Kellam A . , ssista t V e P n ic resid t en Anatoli Kuprianov, R rc O esea h fficer Harold T. Lipscomb, A ssista t V e P en n ic resid t Edgar A M . artindale III, A ssista t V e P en n ic resid t David L M . engle, Rse rc O e a h fficer Susan Q. Moore, A ssista t V e P en n ic resid t Joseph F M . orrissette, A ssista t V e P en n ic resid t Virginius H Rosson, Jr., A . ssista t V e P en n ic resid t G. Ronald Scharr, A ssista t V e P en n ic resid t Gary W. Schemmel, A ssista t V e P en n ic resid t M arsha S Shuler, A . ssista t V e P en n ic resid t Jam R Slate, A es . ssista t G era C u sel n en l o n W illiam F White, A . ssista t V e P en n ic resid t Howard S Whitehead, A . ssista t V e P en n ic resid t Bobby D Wynn, A . ssista t V e P en n ic resid t Arthur J Zohab, Jr., A . ssista t V e P en n ic resid t Malcolm C Alfriend, E a in g O . x m in fficer Whitley K Crane, In rm tio S . fo a n ystem O er s ffic Floyd M Dickinson, Jr., E a in g O . x m in fficer A. Linwood Gill III, E a in g O x m in fficer Jeffrey S Kane, E a in g O . x m in fficer Lawrence P Nuckols, E a in g O . x m in fficer Virginia W Shelor, In rm tio S . fo a n ystem O s fficer Charlotte L Waldrop, E a in g O . x m in fficer H Lewis Garrett, G era A d r . en l u ito Robert E Wetzel, Jr., A . ssista t G era A d r n en l u ito B a ltim o r e Robert D. McTeer, Jr., S io V e P en r ic resid t en Ronald B Duncan, V e P . ic resid t en W illiam E Pascoe III, V e P . ic resid t en John S Frain, A . ssista t V e P en n ic resid t William J. Tignanelli, A ssista t V e P en n ic resid t John I. Turnbull II, A ssista t V e P en n ic resid t RW . illiam Ahern, A tom tion O er u a ffic Patricia S Tunstall, O era n O . p tio s fficer C u lp e p e r John G. Stoides, S io V e P en r ic resid t en Jam J. Florin III, A es ssista t V e P en n ic resid t Thomas C Judd, A . ssista t V e P en n ic resid t Julius M alinowski, Jr., O era n O p tio s fficer C h a r lo tte Albert D. Tinkelenberg, S io V e P en r ic resid t en Sam W. Powell, Jr., V e P uel ic resid t en Robert F Stratton, V e P . ic resid t en Jefferson A. W alker, V e P ic resid t en M arsha H M . alarz, A ssista t V e P en n ic resid t Lyle C DeVane, O era n O . p tio s fficer Ronald D. Steele, C e k O era n O h c p tio s fficer C o lu m b ia Woody Y. Cain, V e P ic resid t en C h a r le s to n Richard L Hopkins, V e P . ic resid t en * On leave of absence 23 Fifth Federal R eserve District Offices R ic h m o n d 701 East Byrd Street Richmond, Virginia 23219 (804) 697-8000 B altim ore 502 South Sharp Street Baltimore, Maryland 21201 (301) 576-3300 C h arlotte 530 East Trade Street Charlotte, North Carolina 28202 (704) 358-2100 C h a rleston 1200 Airport Road Charleston, West Virginia 25311 (304) 345-8020 C o lu m b ia 1624 Browning Road Columbia, South Carolina 29202 (803) 772-1940 C u lp e p e r Mount Pony Road, State Route 658 Culpeper, Virginia 22701 (703) 829-1600