Full text of Annual Report of the Federal Reserve Bank of San Francisco : 1986 Annual Report

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San Francisco

HG2567
S3A1

1986

Table of Contents
From the Boardroom

2

Economic Research

4

Supervision, Regulation, and Credit

8

Bank Administration

12

The New Los Angeles Building

15

Priced Payments Services

19

Govenunental Services

23

Directors

25

The Fed er al Reserve Bank of San Francisco is one of twelve region al Reserve
Banks which , together with the Board of Govern ors in Washingto n, D.C., com ­
prise the nation 's ce nt ral bank. The Federal Rese rve Bank of San Francisco
se rves the Twelfth Federal Reserve District, wh ich include s Wash ington ,
Oregon , California , Arizon a, Nevada, Utah, Idah o , Alaska, Hawaii, Guam and
Ameri can Samoa .
As the nation 's central bank , the Feder al Reserve is responsible for determin­

ing and carry ing out our nation's monetary policy It also is a bank regulatory
agency, a provider of wholesale priced banking se rvices, and the fiscal agent for
the United States Treasury.

Fec:kHa. Reserve Bank
01 San

Frandsco

MAR 1 3 1987

LIBRARY

From the Boardroom
Last year was a period of significant
change for the Federal Reserve Bank
of San Francisco. Foremost among the
cha nges was new leadership.
John Balles, who served the Bank
with distinction for mor e than 13
years as President and Chief Executive
Officer, retired in January and was
succeeded by Bob Parry. In August,
Carl Powell was named First Vice Pres­
ident and Chief Ope rating Officer.
Among other impo rtant management
deve lop me nts, Tom Tho mson joined
the Bank as a membe r of the Manage­
me nt Committee and Executive Vice
President in charge of centra l ban k
function s, which include Economic
Research and Pub lic Information, Sta­
tistical and Data Services, and Super­
vision and Regulation. Finally, Tom
Warren , also a membe r of the Man­
age me nt Committee and an Execut ive
Vice President, moved to our Los
Angeles Branch to lead the Bank's
efforts in serving on e of the nation's
largest financial cen ters .
One important challenge to the
Bank in 1986 was to contin ue provid ­
ing high qu ality serv ice whi le contro l­
ling costs in accordance with the
Federal Rese rves deci sion to embrace
the spi rit of Gr-amm-Rud man budge t
cuts. To achieve the objective of
spending less than called for by the
Bank's approved budget for 1986, we
restructured seve ral func tions and
stre ngthened their management by
add ing individuals with proven expe r­
tise in cost controls. These moves,
along with other initiatives that
enhanced productivity, helped the
Bank hold 1986 expe nses 2.4 pe rcent
below budget.
Another challe nge last year was the
completion of seve ral innovative tech­
no logical projects that will form the
foundation for bett e r payments ser­
vices fo r years to come. STAT, a pack­
age developed for the Federal Reserve
System by the San Francisco Fed and
now in place throu gh ou t the entire
System, will process a broad spectrum
of data provided by depository institu­

tions. A seco nd natio nally used system
deve loped by San Francisco called
SHARE was enhanced to handle new
types of Treasury securiti es, including
mortgage-backed securities. Two
othe r systems implemented in 1986
- Treasury Direct and the Integrated
Accounting System - advanced the
Bank's capabilities to delive r service
electro nically and to provide more
infor mation in a timel y fashion to our
institutional and individu al customers.
In o ur pr iced payment services,
expanded electronic access co ntinued
to be a majo r the me as we introdu ced
new electronic prod ucts improving
our Fedwire and Automated Clearing
Hou se capab ilities.

Supe rvisory and regul ato ry respon­
sibilities were also conducted last
year in a changing arena. District
banking markets were substantially
modi fied by the acquisition of
Crocke r Natio nal Corporation by
Wells Fargo - the largest ban king
consolidation in U.S. history. Inter­
state banki ng became a promi nent
issue as, by the end of last year, every
state in the Distr ict except Hawaii had
passed legislation authorizing inter­
state acquisitions. To play o ur super­
visory role mos t effectively, the Bank
stepped up several aspects of its
ongoi ng exam inations of state mem­
ber banks and bank holding
companies.

The heightened efficiency and ser­
vice capabilities afforded by advances
in electronic banking are so me times
accompanied by new types of risks as
well. Last year, the Federal Rese rve
System implemented new policies to
restrict possible risks on large-dollar
transfer s of funds . Bank staff worked
closely with employees of District
institutions to en sure that the imp le­
mentation of these po licies was effec­
tive and appropriate fo r each
institutio n.

Because of the large expanse of the
Twelfth Fede ral Reserve District, the
Fed er al Reserve Bank of San Francisco
has developed a variety of ways to
info rm a geographically dispersed
public abo ut its policies and activities.
Last year, the Bank expanded its pub ­
lic outreach to the District th rough an
exte nsive program of speec hes ­
includi ng talks by the Bank's p resi­
de nt, senior management, econo­
mists, and othe r head office and
branch staff. Econ o mic publicatio ns
and videotapes produ ced by the Bank
reached ten s of thou sands of peop le
in the nation as well.

Monetary po licy is ano the r vital
area of respon sibility for the Bank. In
1986, changes at the inte rna tiona l as
well as the domestic level created
uncer tainties for the po licy environ­
ment. The large imp act of foreign
trade on the U.S. economic ou tlook
led Bank economists to focus particu­
lar attentio n on the slow reaction of
the U.S. trade deficit to the dro p in
the dollar. Uncertainties for the eco­
nomic outlook were also created by
the federal budget deficit and mea­
sures to contro l it and by the passage
of tax reform legislation . Banking
deregulation made the mo netary
aggregates a less reliable se t of guide­
posts for po licymake rs. These uncer­
tainties made the cond uct of
mo netary pol icy mo re difficult than
wo uld have been the case in a mo re
stable environment.

2

The Bank's branch offices play a
special role in providing se rvice to
the District. Here, too, we saw a grea t
deal of change - most notably in Los
Angeles, where a new branch build­
ing to se rve the West's most populo us
financial market neared completion .
The new building will provide the
ab ility to improve payments services
to depository institution s in Southern
Californ ia, Arizona, and Southern
Nevada and will serve the publ ic in
ot he r ways as we ll - by contri buting
to the revitalizatio n of the surround­
ing South Park ne ighbo rhood , and by
providing han ds-on econ omic ed uca­
tion th rou gh The World ofEconomics
exhibition featured in the main lo bby.

In meeti ng the challe nges of 1986,
management was particu larly aided
by the stro ng inv olvem ent and sup­
port of the Bank's Boa rd s of Direc tors
at its he adquarter s office and its
branches in Los Angel es, Portland, Salt
Lake City, and Seattle. We especially
wou ld like to extend o ur thanks and
appreciation to the directors who
completed their te rms of se rvice in
1986: Alan C. Furt h, Chairma n of the
Head Office Board (Vice Chairman,
Santa Fe Southern Pacific Co rpo ra­
tion , and President, Southe rn Pacific
Co mpan y, San Francisco ), Harvey ].
Mitche ll, director of the Los Ange les
Branch (Preside nt and Chief Execu­
tive Officer, Escon dido National Bank,
Esco nd ido , Californ ia), Lola McAlpin­
Grant, director of the Los Angel es
Branch (Attorney, Inglewood, Califor­
nia), William S. Naito, d irecto r of the
Portl and Branch (Vice President, No r­
crest China Company, Po rtland,
Oregon ), and Albert C. Giano li, direc­
to r of the Salt Lake City Branch (Pres i­
de nt and Cha irman of the Board , The
First National Bank of Ely, Ely,
Nevad a); as we ll as G. Ro bert Truex,
jr. , o ur 1985-86 Federal Adv isory
Cou ncil Mem ber (Chairman of the
From left, Alan C. Furth, Chairman ( 1986 ), Fred \v. Andrew, Chairman
Board and Chief Executive Officer,
(1987), and Robert T. Parry, President.
Rainier Bancorpo rtio n, Seattle,
Washi ngto n).
We also wish to than k the officers
and staff of the Bank, who worked dil ­
ige ntly to achieve a successful year.
TIl e professionalism and dedicatio n of
o ur almost 2,500 emp loyees were crit­
ical e lements in the Banks success
d ur ing 1986. Because the active
invol ve me nt of people is especially
crucial in an environment of rapid
and widespread change, this Annual
Report highli gh ts the personal co m­
mitment of Bank employees in the ir
role of serving the pe ople and institu­
tio ns of the Twelfth District. We fully
recog nize that it is on ly thro ugh the
efforts of all wh o wo rk he re that suc­
cess can be ach ieved .
Ro bert T Parry
President

Fred W Andrew
Chairman

3

Economic Research
The staff of economists at the San
Francisco Reserve Bank, like their
counterparts elsewhere in the System,
provide economic analysis to the
Bank's directors and president to as­
sist them in carrying out their respon­
sibilities in monetary policy and bank
regulatory and supervisory matters.
Policy analysis is used mainly in regu­
lar economic briefings for directors
and related special presentations, as
well as extensive briefings for the
president before his participation at
the Federal Open Market Committee,
or FOMC - the body within the
Federal Reserve responsible for mak­
ing monetary policy.

Foremost among those uncertainties
was the influence of the trade deficit
on economic growth. At the begin­
ning of the year, most observers
thought the foreign trade balance of
the United States would improve sub­
stantially in response to the sharp 35
percent depreciation of the foreign
exchange value of the dollar since
early 1985, and give economic growth
a major boost. The expected improve­
ment did not take place, and a signifi­
cant part of the Bank's analysis
concentrated on understanding why
Whether the anomaly was permanent
or temporary became a central issue
in assessing the outlook for 1986-87.

Deficit Reduction and Tax Reform
The uncertainties surrounding the
efforts of Congress to come to grips
with deficit reduction also clouded
the outlook for 1986-87. Public dis­
cussion had focused to an important
extent on the direct contractionary
effects of lower government spending
on economic activity. Our research
drew attention to an indirect offset­
ting effect. We noted that lower
federal budget deficits would reduce
the need for capital imports and
thereby take upward pressure off the
dollar. The resulting improvements in
the trade balance would stimulate the
economy

At the core of the Bank's economic
policy analysis is a program of basic
research. By monitoring and analyz­
ing national and regional develop­
ments, this program seeks to identify
and explain the key economic issues
monetary and regulatory policy need
to address. The results of this research
and policy analysis also form the core
of the Bank's public information pro­
gram, taking the forms of publica­
tions, speeches to outside groups,
conferences, seminars, and
audiovisual aids.

Our analyses indicated that the dis­
appointing performance of the trade
balance was due to an important
extent to a failure of imported goods
prices to rise as fast as historical expe­
rience would have predicted, given
the decline in the dollar's purchasing
power abroad. However, new esti­
mates of the relationship between the
dollar and import prices, while not
conclusive, suggested that import
prices would at least partly catch up
in subsequent years. In other words,
an improvement of the trade account
in response to the lower dollar, while
it might be postponed, ultimately
would occur.

TIle impact of tax reform on the
national economic outlook also
received considerable attention. The
research staff estimated that the siz­
able shift in the burden of taxation
away from households towards busi­
nesses embodied in the reform would
have roughly no net effect on eco­
nomic growth over the two-year span
1987-88. However, tax reform would
reduce economic growth in the first
year by approximately one-half per­
cent, and the economy would grow
somewhat more rapidly in 1988 to
make up the difference.

In addition, because of our unique
position on the edge of the growing
Pacific Basin economy, the Bank main­
tains a significant Pacific Basin pro­
gram. Through meetings and
exchanges of visitors, we foster closer
ties among the central banks and gov­
ernments of the region. We also pur­
sue studies in the economies of the
region, and we serve as a clearing­
house for information provided by
the region's central banks.
Delay in Trade Improvements
Briefings for bank directors and the
president on monetary policy in 1986
focused on key areas of uncertainty in
the outlook for the national economy

The Bank's economic staff also ana­
lyzed the question of whether the
increasingly important role played by
imports to the U.S. from newly indus­
trialized countries (NICs) in the
Pacific Basin (such as Korea and Tai­
wan) could account for the unex­
pected behavior of the trade balance.
The dollar had depreciated very little
against these countries' currencies
compared to those of our nation's tra­
ditional major trading partners (for
example, West Germany and Japan).
Our analysis, however, suggested that
the dollar had declined enough to
generate improvement in the trade
picture even with the changes in our
trading patterns.

4

Continuing Inflation Concerns
The forces shaping the inflation
outlook in 1986 and 1987 also came
under intensive scrutiny Relatively
lackluster growth over the past two
years meant no significant wage and
cost pressures at home; unremarkable
growth left international develop­
ments - the collapse in the price of
oil in 1986 and the substantial decline
in the value of the dollar since 1985
- to be the key determinants of the
inflation outlook.

I~..
I

Our estimates indi cated that , in
1986, the upw ard COSt pressures from
the weaker do llar, and co nseq uently
mo re expens ive impo rts, had been
large ly offset by the spectacular 58
percent decl ine in the price of o il
between Nove mber 1985 and Jul y
1986. However, the sam e est imates
showed that almost all of the defla ­
tionary impact of a lowe r o il price
would be ove r by 1987, whereas the
decline in the dollar 's value thro ugh
1986 would continue to feed inflation­
ary pressures to the U.S. econo my
duri ng 1987

Monetary Analysis
TIle Bank 's economic research also
focused o n analyzing regulatory
issues and thei r effects o n the mo ne­
tary aggregates use d in making mo ne­
tary poli cy. During 1986, the final
steps were taken to phas e out deposit
inte rest ra te ce ilings at commercial
banks and thri fts. TI1e removal of vir­
tua lly all de pos it inter est rate rest ric­
tion s over the past six years opened
the way for mo re peop le to earn rates
of return comparab le to mar ket rate s
on the ir bank an d thr ift acco unts.
At the same time, the key Ml mone­
tary ind icator (which includes all cur­
ren cy and fully checkable depos its
hel d by the public) bega n to behave
pecul iarly, g rowing rap idly desp ite
lackluste r economic growth and mod ­
erate inflation. Whet he r o r not
deregul ation was largely respo ns ible,
Ml's usefu lness as a mo netary target
and indicator was seve re ly impaired.
TI1e Fede ral Reserve con seq uently de­
e mp hasized the use of Ml as a gu ide
to mak ing mo netary po licy.

In this monetary pol icy enviro n­
ment, the question arose of wh ether
de regulation had impaired the
broade r monetary aggregates - M2
and M3 - wh ich encompass Ml bu t
also inclu de o ther types of acco unts
and instru me nts suc h as savings
depos its and money market mutua l
funds. The issue was crit ical beca use
the mo netary aggre gates provide an
"anchor" for the Federal Reserve 's
lo ng-ru n strategy of bri nging down
inflation and ach ieving reasonab le
price stability.
The Bank 's econo mic researc h indi ­
cated that deregu lation had not sig­
nificant ly co mpromised M2 and M3.
Much of the rapid growth in Ml
rep resented the transfer of funds from
acco unts and instruments that we re in
the broade r M2 and M3 measures.
Thus, whi le shifts of funds among
var ious accounts had destab ilized Ml ,
they had left the broader totals rela­
tively unaffected. Th is "stability" sug­
gested that M2 and M3 were still
use ful monetary targets.

Deposit Insurance
Comp lementi ng analytic work o n
the eco nomic ou tlook and monetary
po licy, the Ban k also stu dies develop­
me nts in the ban king ind ustry, with a
particu lar focus o n issues in banking
and reg ulatory and superviso ry po licy.
One of the se issues has been the
increased num ber of bank failures in
the 1980s, made more pro mine nt last
year by the high est number of failures
since the Depress ion . We traced the
increase in ba nk failure s mainly to
unforeseen changes in regio nal and
internati o nal econom ic cond itions,
and co ncluded that the increase do es
not appear to be a resu lt of deregula­
tion as some crit ics of that po licy have
alleged.

5

Fede ral deposit insur ance was
another primary focus of banking
research. TIle nation has bee n wit­
ne ssing strong mark et pressu res fro m
both inside and o utside the banking
industry to erode the legislative walls
that have se para ted commercial bank ­
ing, investment bank ing, and com ­
merce since the 1930s. Even with in
the legislated bou nds of banki ng,
banks incr easingly have so ught new
mark ets throu gh so -called "off-balance
sheet" activities, w hich incl ude loan
commitments and lette rs of credit.
And, with growing freq uency, bank
loans are packaged into secu rities that
can be traded in financi al markets.
Altho ugh the public stands to gain
from these devel o pments, the exten­
sive insurance guarantee of the
Federal Dep osit Insurance Corpora­
tion raises the possibil ity that more
and mo re financial activities coul d be
insured e ither directly or indirectly by
the federal government. More over, the
ser ious fund ing pro ble ms of the
Feder al Savings and Loan Insu rance
Corpo ratio n (the govern me nt agency
responsible for insuring savings and
loan institutio ns) have made concerns
about risks to the insur ance funds
even more pertinent.
Our research stud ies found that the
present deposit insura nce syste m
he lps protect aga inst bank run s, but
that the system also creates an incen­
tive for insu red instituti o ns to lower
their capit al ratios, to increase the risk
of their asse ts, o r to choose other
strategies that may increase the risk to
the insurance funds. These stud ies
also assessed p roposed deposit insur­
ance and banking regul atio n refo rms
inte nded to avo id the adverse incen­
tives of our current system .

Antitrust Policy
Ongo ing research also exam ine d
the e ffects of the structure of banking
marke ts o n the co nd uct and pe rfo r­
mance o f ba nks - an im portant issue
in banking antitrust poli cy. One
resear ch project stud ie d the effects of
the level of co m pe tition o n deposit
rates paid by ba nks, and anothe r
lo oked at the effec ts of ma rket co n­
ce ntratio n o n the entry of banks into
new ge ographic ma rkets. These p ro­
jects fou nd evidence that ban ks tend
to pay lower deposit rates, and new
ba nk e nt ry ten ds to be gre ate r, in
highl y concentra ted banking markets.
This evidence suggests that pr ofits
may be somewhat high er than the
co mpetitive rate in these concen­
trated mar kets.
Regional Research
A uniqu e feature of the Federal
Reserve System , with its network of
reg ional Reserv e Banks, is its ability to
accum u late and ana lyze statistical data
and o the r informatio n o btaine d
d irec tly fro m the var ious regional
eco no m ies in the United States.
Beca use of the uneven patterns of
econo m ic activity across the nat io n
d uring the 1 980~ , th is "g rass root s"
information has proven to be par­
ticul arl y useful in recent year s in
hel pin g the Bank form its views o n
moneta ry poli cy.
Last year, region al research fo cused
o n the divergent pro blems facing spe­
cific industri es and states w ithin the
West. Our stud ies showed a positive
tu rn arou nd in the fores t prod ucts
ind ustry, and an aerospace indust ry
that was bolste red by a pick-up in air­
line orders and a leve lling of defense
o rde rs at a histor ically high level. O n
the negative side, the Alaskan eco n­
om y and part s of the central Califor­
nia valley were hit hard by the d ro p
in o il p rices . Agri culture and agri­
cu ltural lender s co ntinue d to fare
poorly as well. The valu e of farmland
continued to slide and the volume of
p robl em agr icu ltura l loans at com­
mercial banks and the Farm Credit
Banks in the West gre w sizably.

The semiconducto r indust ry also is
imp ortant to many of the western
states, and it has been o n a ro ller
co aste r ride ove r the past few years. A
key issue for U.S. se micond ucto r
manufacturers is the intense com pe ti­
tion from Jap an . Our res earch sug­
ge sts that, give n the nature of the
industry and, to so me extent , the COSt
advantages of Japanes e prod ucers,
U.S. firms can expect little re lief from
stiff competition in the years ahead.

Public Information
Like other Reserve Banks, we have a
public information program that
strives to enhance public awareness
and understanding of the purposes,
functions, and activities of the Federal
Reserve System. Our program tries to
provide the public with the informa ­
tion needed to understand and evalu­
ate the conduct of monetary poli cy,
regulatory actions, and other Federal
Reserve responsibilities. We also su p­
port the public information activities
of Bank management and other
departments.

Information and Education
The core of o ur public information
prog ram has always been the publica­
tion of economic research o n imp or­
tant poli cy issues facing the U.S.
economy and the Fede ral Reserve.
Sho rt articles by research eco no mists
o n topical subjec ts written for a broad
audience appear in the Bank's \Veekly
Letter; wh ich has a cir culati on of
21,600, and reaches a larger aud ien ce
th rou gh freq uent newspaper citations
an d reprin ts. Our quarterly Economic
Retneui with 19,000 readers , comple­
me nts the Letter by providing longer,
more in-depth analyses.

6

Anothe r way the Bank informs the
public abo ut econo mics is throu gh
77Je World of Econom ics ex hibitio n,
permanent lv
, install ed in the lobbv
, of
o ur San Francisco office. Last year, this
exhibition attrac ted abou t 14,000 visi­
to rs, includ ing nearly 7,000 stude nts
who fo un d the ex hib ition to be fun
and infor ma tive. In 1986, the Bank
comp leted plans to make the co nte nt
of the exhib ition access ib le to the
pu blic in ot he r areas of the Twelfth
District. In the Los Angeles Branc h ,
The World of Economics ex hibition
has been rep licated almo st in its
e nti re ty and will be ope n to the pub­
lic in 1987. Both o ur Seattle and Port­
land Bra nc hes have p lanne d to make
two interactive co mp uter games from
the ex hibitio n available to the public
in po rtab le uni ts.
Audiovisual mate rials co nstitute
anot her e leme nt of the Bank's eco­
no mic information program. The
mo nt hly Fed Views prog ram features
interv iews with Bank econom ists o n
majo r issues in the econo mv, and is
des igne d pri marily for o u r Bran ch
di rectors and man agement. Last yea r,
we adde d two more units to Tbe
\Vorld of Econom ics Audiovisual Edu­
cation Series specifically design ed fo r
high schoo l use - o ne o n interna­
tio nal trad e and the seco nd o n the
h istory of econo mic thou ght . Two ea r­
lier unit s focused on mon ey's ro le in
the econo my and econo m ic decision ­
makin g, res pectively. TI1e humorous
app roach used in the Series attracted
mo re than 1,200 requ ests in 1986, and
an audie nce conservatively estimated
at aro und 30,000 stude nts. When com ­
pleted in early 1987, the Series will
con sist of six Vide ota pes with match­
ing curriculum materi als. As mor e
states mandate the study of eco­
nomics in high school, the dem and
for educational materi als such as o ur
Series will continue to grow.

The Bank 's tour program add s a
persona l dimension to our public
information effo rts. In 1986, 14,000
visito rs toured the Bank's o pe ratio nal
areas and viewed films and videotapes
abou t the Fede ral Reserve and eco­
nomic issues. Vide otapes produced by
the Bank that cover a wide range of
economic issues also are shown reg­
ularly at open no o ntime scree nings in
the lo bby aud itorium in San
Franci sco.

Other senior mana gement and
Bank staff gave abo ut 120 sp eec hes
thr oug hout the year, an increase of 10
percent from 1985. The g ro ups
add ressed ranged from busi ness
forums and university aud ie nce s to
legislative committees . To pics
included fiscal and monetary policy,
regio nal economics, challenge s to
de posit insurance, and the role of
Federal Reserve Bank directors in sys­
tem policymaking.

Media Outreach and Speeches
TI1e media relati on s portion o f o ur
public informatio n program both
respo nds to inqu irie s from the press
and suppo rts the Bank 's outreach to
the public. During 1986 , the bu lk of
media inq uiries con ce rned the ro le of
the Federal Reserve in regu latory and
ope ratio n matters, especially the
acqu isition of Crocker Nationa l Bank
by Wells Fargo , First Interstate's draft
app licatio n to acquire Bank of Amer­
ica, an d the new Treasury Direct pro ­
gr am. Toward the end of 1986, we
expanded med ia supp ort for br ingin g
the published writings and bri efing
docu ments of o ur economists to the
attention of the press by establish ing a
program of direct contact with
se lec ted press.

Research Library
To he lp meet the Bank's own infor­
matio n ne eds , our Research Library
offers curre nt news and refe rence ser­
vices to Bank staff that range from cir­
cu lating a daily news packet and
answering specific qu estions to
providing in-de pth support for o ngo­
ing projects . In 1986, the Library
responded to nearl y 1,800 in-house
requests for informat ion . Autom ation
is a key co mpo nent of this effort, and
last year, the Library expanded both
com puterizatio n of inte rn al o pe ra­
tio ns and use of o nline databases for
reference searches .

Last year, o ur new president under­
took an extensive public sp eaking
pr ogram that re quired expanded
media re latio ns support. In ab out 30
speeches throughout mos t of the Dis­
trict, the presid e nt ad d ressed bus iness
and co mmunity leade rs, pol icy­
makers, and news med ia on to pics
that included the ec on omic o utlook,
ch alle nges to monetary policy, de posit
insurance, and ba nkin g deregu lation .

The Library also plays a key role in
pub lic o utreach by providing informa­
tion abou t the Federal Reserve and its
activities to audiences o utside the
Bank , including financial institution s,
bu siness and acade mic co mmunities,
government agencies, the media, and
other libraries. In 1986, o ur libr arians
resp onded to abou t 3,400 suc h pub lic
req uests. To answe r com mo n inte rest
rate inqu iries, 19,000 of wh ich were
recei ved last year, we provide a
recorded telepho ne message updated
wee kly. We also allow special use (by
app ointment) of o ur co llect ion, wh ich
is regarded as o ne of the finest in eco­
nomics and banki ng in the West and
which inclu des un ique mater ials o n
Pacific Basin cou ntries.

7

Branching Out
O ur Branch offices play essent ial
pa rts in the Bank 's o utreach to the
Twelft h District by adapting District­
wide materials to their own special
needs, as we ll as by pro ducing inn o­
vative programs of their ow n. In 1986,
the Portland Branch co-sp on sored
with the Oregon Governor 's Council
of Econ omic Advise rs a two-day sym­
posium - "O rego n's Gre at Pos­
sibilities" - de signed to en courage
current and future eco nomic growth
in that state . The Salt Lake City Branch
reg ularly invites representatives of
var ious trade and business asso cia­
tio ns, such as members of Utah's
import/exp ort community, to join the
Branch board of directo rs for lunch
and a presen tation by an ec onom ist
o r member of senior mana gement
fo llowin g regularly sched uled board
meetin gs.
In 1986, Seattle again offered
"Inside the Fed ," in wh ich stude nts
from local un iversities simu lated a
meeting of the Bran ch board of direc­
tors with emp hasis o n the "eco no mic
go-aro und " in which d irector s
exchange their econ om ic views. Look­
ing ahead, Los Angeles has planned a
multi-faceted pu blic information pro­
gram, whi ch makes use of The World
cfEconomics lo bby exhibition , to
se rve the most popu lous financ ial
cente r in the West.

Supervision, Regulation, and Credit
Promoting a sound financial system
by supervising and regulating state
member banks and bank holding
companies is the central activity of
our Supervision, Regulation, and
Credit department. This involves, pri­
marily, examining banking entities
and processing applications for such
activities as mergers and the establish­
ment of bank holding companies and
their international and domestic sub­
sidiaries. Processing applications
involves consultations with other
Bank departments, especially Bank
counsel and economic research, as
well as meetings with the applicant
and affected parties.
General Improvement
Our examiners evaluate banks'
assets, liabilities, organization, sys­
tems, and internal controls, and assess
their compliance with banking laws
and regulations. Last year, we found
that most banks in our District
improved the quality of their assets
and maintained their profit margins.
Credit problems were confined to a
few institutions whose portfolios were
dominated by loans to weak sectors of
the economy, such as agriculture and
energy The number of commercial
bank failures in our District increased
to 13 (or about 10 percent of the
national total) but involved a smaller
volume of assets at $461 million than
the $623 million high that resulted
from 12 bank failures in 1984.

The results of each examination are
reported to the senior management of
the bank examined, to that bank's
directors, and to the Board of Gover­
nors of the Federal Reserve. Where
problems are identified, examiners
recommend corrective actions. We
had formal corrective programs in
place at 31 bank holding companies
and state member banks, down
slightly from the 39 total for 1985, and
we continued to work closely with
other federal and state agencies in
coordinating examinations and other
supervisory activities. We also fostered
increased participation by personnel

from state banking departments in
various System examiner training pro­
grams conducted regionally.
Enhanced Supervision
The Bank implemented a major ini­
tiative to strengthen bank supervision
in 1986. The initiative called for
increasing the frequency and scope of
state member bank examinations and
bank holding company inspections,
and for improving the communication
of examination findings to each
institution's board of directors. The
required additional staff and training
activities were phased in over the
course of the year, and will allow us
to meet the full 1987 schedule
planned for the initiative.

In another change implemented as
part of the enhanced supervisory pro­
gram, we emphasized the internal sur­
veillance systems of bank holding
companies and state member banks
in evaluating their financial condition.
The increased frequency of reports
and the greater detail now available
from regulatory reports filed by finan­
cial institutions permit us to incorpo­
rate more intensive analytical review
into our pre-examination planning. In
brief, we will be able to choose an
institution whose reported data indi­
cate a deterioration in its condition
for earlier examination, and an
institution with strong financial
indicators for less frequent examina­
tion. We will be able to identify
potential problems earlier and make
a better allocation of staff.
Last year, we also incorporated
changes in the formats of examination
and inspection reports made by the
Federal Financial Institutions Exam­
ination Council and the Board of Gov­
ernors in our automation of report
preparation and processing
procedures.

Mergers and Interstate Banking
The Bank processed a number of
applications in 1986 that significantly
altered the structure of major banking
markets in the District. The most
important was the application by
Wells Fargo and Company to acquire
Crocker National Corporation, which
resulted in the largest consolidation
of banking organizations in U.S.
history.

Another significant development
affecting applications was the move­
ment of states to enact legislation per­
mitting interstate commercial
banking. By the end of 1986, all states
in the Twelfth District, except Hawaii,
had passed legislation authorizing
interstate acquisitions of banks by out­
of-state holding companies. We pro­
cessed eight interstate applications,
four of which were to acquire Arizona
banks as institutions from other states
moved to participate in the growth of
Arizona's economy. The number of
interstate acquisitions is expected to
increase in 1987 when the regional
provisions of California's new inter­
state banking law take effect.
The total volume of applications
dropped slightly from that in 1985.
The number of applications for new
bank holding company formations
decreased by almost 50 percent, con­
firming that the rapid movement dur­
ing the early 1980s toward this form
of bank ownership has subsided.
Largely offsetting this decline was an
increase in applications by our Dis­
trict's 329 bank holding companies for
acquisition of banks and nonbanking
companies as well as entry into new
lines of business. The character of
these applications suggests, however,
that most bank holding companies
have a cautious, selective attitude
toward expansion.
International economic conditions
in 1986 continued to restrain overseas
expansion by District banks. The vol­
ume of international applications fell
by one-third and most applications

8

GEORGE WESTERlvlAN and JO
MALIN), Review Ana lysts, App lications
Unit, Sup ervision, Regu lation, a nd
Credit Dep a rtmen t. George Wester­
ma n processed the app lication by
Wells Fargo & Company to acquire
Crocker Nat ional Corp oratio n , the
pro cessing f or this largest acqu isition
in hanking history was completed in
only 45 da ys [o Matins ba ndied the
proposal by Lloyd 's Bank Pic to
acqu ire Sta nda rd Chartered PLC ­
tbe fo u rth and fifth largest hank ing
organizations, resp ectively, in Great
Britain - uhicb in volved holdings of
domestic ba nks.
How would yo u describe the Review
Analyst's job?
JM:
I find the wo rk a lot like case­
wo rk in business schoo l. Yo u
loo k for acceptable variations of
financial, managerial, legal, and
co mpe titive co mpo nents. By
acceptab le, I mean consistent
with statute and with po licy set
by the Board of Govern o rs. The
analyst doesn 't do all of that, so
the parallel to a "project man­
ager" is also re levant. We're
exclusively responsible fo r the
financial and manage rial ana­
lyses.

GW:

I ag ree with Jo. We act as the
central po int in the coo rdina­
tion of all information flows,
and p rodu ce the memo randum
to the Board of Governors that
co ntains the Bank's recommen­
dati on fo r action on an
app lication .
What do you loo k for in an applica­
tion?
GW:
We have specific information
requirements that enable us to
eval uate the many aspects that Jo
has mentioned. But, in a general
se nse, we review what an
institution wants to do and
e nsures that the way it proposes
to go about doing it is funda­
mentally so und .
JM:
Often, the applicants
respon ses raise new q uestions
invo lving financial , legal, or po l­
icy iss ues that need to be pur­
sued and resolved.

Can yo u philosophize abou t the
applicat ions process ?
JM:
Certainly o ur man date is to
ensure the safety and sou nd ness
of banking, and, in that se nse, I
can do what I do with a sense of
purpose . Safe ty and so undn ess
in the public interest . .. I can
get behind that.
Right now, bank holding com­
panies are really driven by an
entrepreneurial spirit; they want
to be co mpetitive with less regu­
lated p roviders of financial ser­
vices. We see pro posals that are
highly innovative , but, of course,
as regulators, o ur level of risk
aversion is much different.
GW:
The app lication is basically a
regulatory vehicle . We make
sure that what happ e ns in the
bank ing indust ry happen s in an
o rde rly manne r - o ne that is
9

con sistent with banking law and
System po licies and guidelines.
However, the applications
process is not adversarial, We're
all in it together, and I feel we
have a goo d rappo rt with the
District:" vast cliente le.
But i t ~" no t so much what we
do for the specific applicant. I
feel it's mostly what we do to
maintain p ublic confidence in
the banking system .
I get satisfaction just from
be ing involved. I can come in at
7:30 so me mornings and I'll
alread y have a whole stack of
phone messages because of the
time difference with the East
coast. That's the kind of stuff that
reall y keeps me going. Crocker/
Wells was the largest consolida­
tion in U. S. banking history, and
I was right there!

involved only minor additi o nal invest­
ments or modifications to previou sly
approved activities. No new export
trading companies were approved
during the year, and bank holding
companies that had previou sly
received approval for these co m­
panies continued to run them o n a
relati vely small scale. Cong ress autho ­
rized export tradi ng compan ies in
] 982 to e ncou rage U.S. exports, but
the results to date have been disap­
pointing largely because of the loss of
export markets since that time.
Moderate Borrowing
A key adjunct to o ur supervisory
and regul ato ry responsibilities is the
supply of neede d liqui dity to e ligible
deposito ry instituti on s. Our Cred it
Unit also has res pons ibility fo r ad min­
istering the Federal Rese rve's po licy
on reducing the risk inhe rent in
large-dollar transfer s.

Borrowings for sh ort-t er m ad just­
ment credit and seasonal needs
remained moderate through out] 986.
The number of borrowers acco mmo­
dated at what is gener ally called the
"discount wind ow " decreased to ] 30
from 149 in the previou s year. A num­
ber of smalle r institutio ns conti nued
to experience se rious fi nancial prob ­
lem s and rec eived advan ces und e r the
"othe r extended cre d it prog ram"
while the y took oth er steps to
imp rove liquidity In se veral instances,
advances from the discount wind ow
provided the time need ed by regul a­
to rs to arrange an o rderly closu re of
failing instituti on s.

Total co llate ral pledged by Twelfth
District institutions amounted to $21.0
billion at the end of 1986, down from
$26.3 billion in 1985 due primarily to
the me rge r of two large institutions
and co nso lida tio n of their collateral.
Consumer Affairs
In San Franc isco, our Supervision,
Regul ation , and Credit Department
also ad ministers cons ume r credit laws
and regul ation s and en courages co m­
mun ity develo pment and reinv est­
me nt throu gh a co mmunity affairs
unit. Cons ume r Affairs co ntinued to
prov ide advice to banks and informa­
tion to co nsume rs about the wide
bo dy of co nsu me r protecti on laws
and regulations . Our staff handled
approxi mate ly 200 co nsume r co m­
plaints against state member bank s
last year, abo ut the same number as in
1985. Nearly 20 percent of those co m­
plaints involved allegations of
unauth orized withdrawals from auto­
matic teller machines.

In a program begun in 1985, con ­
sume r affairs examiners conducted
their regular compliance examina­
tion s with an increased reliance on
"off-site" analysis of documents and
records. This procedure permitted
more thorough reviews in advan ce of
exam inations, especially at those
banks gro wing quickly or experienc­
ing problems.

10

Community Affairs
Our Com munity Affairs functio n
promotes the goa ls of the Community
Reinvestment Act by assisting co m­
munity groups and financial institu ­
tion s in forming co mm unity
development programs . This assis­
tance can take the form of education
as in o ur sponso rship of a ma jor co n­
feren ce in 1986 to kee p co mme rcial
bank comp liance officers and
atto rneys info rmed of the standa rds
expected und er the Commun ity Rein­
vestme nt Act. Assistance can a lso take
the form of acting as a liaison o r facili­
tator in resolving di ffe ren ces. On sev­
e ral occas ions last year, Community
Affairs and Bank co unse l met with
protest groups and applicants whe n
bank merge r app lications raised co n­
trove rsial co mmunity issu es. Oth er
ways in wh ich we assist the co m­
munity development process include
information al me et ings with groups
such as the Bay Area Urban Banker s
Association and the provisio n of meet­
ing facilities wh ere planning for com­
munity de velopment can take place.

Management Committee
(Seated , from left )
Th omas D. Thomso n, Executive Vice Preside nt
Robert T Par ry, Preside m
1110m as C. Warren , Execut ive Vice President
( Stand ing, from left )
Carl E. Powell , First Vice President
Michael J Murray, Senior Vice President

11

Bank Adtninistration
The management of the San Fran­
cisco Reserve Bank continu ally strives
to improve the efficiency and
reliability of all Bank operatio ns. Each
year, senior management sets new
o bjectives designed to meet and antic­
ipate the developing needs of finan­
cial institutions, the federal
gove rn ment, and the ge neral pub lic
in innovative ways.
During 1986, a new manage ment
team d irec ted the co mpletion of sev­
era l major multi-year initiatives that
will act as the fou nd ation fo r deliver­
ing reliable, cos t-effective serv ices for
years to co me. These initiatives
included auto mation efforts that
embraced new software and new
tec hno logy; the implem entatio n of a
Federal Rese rve poli cy to red uce risk
in the electronic tran sfer of large do l­
lar payments; expansion of d isaster
contingency plans; and laying of new
foundations in the form of a new
building for the Los Angele s Branc h.
Benefits from these initiatives will
accrue to both the Bank and o ur
customers. TIle Bank will benefit from
greater flexibility and ease in its inter­
na l ope ratio ns. Our custo me rs and
the pu blic will recei ve mor e depe nd­
able, sec ure, and higher quali ty se r­
vices. Alread y, the initiatives have
helped the Bank hold 1986 expe nses
2.4 percent bel ow the budgeted level
- a savings of nearl y $3.3 million ­
as part of o ur progr am to co mp ly with
the spirit of the Gra mm-Rud man­
Hollings balan ced budget legislation .
Looking ahead, the g reater operating
eco no mie s now available will e nab le
us to tighten control over o ur
expenses.

Automation Efforts
Over the last several years, the
Bank has co mple ted a major automa­
tio n prog ram that has transformed the
way we o rganize our operations, the
services offered , and the technologies
use d. In the area of software develop­
ment, we have focused primarily on
developing and installing systems that
were des igned for use throughout the
Feder al Reserve Syste m. Our compu­
ter ope rations area has also changed
sig nificantly. Whereas many functio ns
involved batch p rocessing in the past,
the y are now co nd ucted o n-line to
p rovide be tte r service to o ur large ,
geograp hically dispersed custome r
base.

We have devoted a great deal of
attent ion to upgr adi ng the Data Cen­
ter s in o ur Head Office in San Fran­
cisco and o ur four Branches using
uniform up-to-date technology; we
have impl em ented an intradistrict
data communicatio ns network; and
we have ce ntralized most major pro­
cessi ng functions in San Francisco. In
many respects, we have reached a
plateau in o ur efforts, having estab­
lished a stab le automation and com­
mun icatio ns env iro nme nt that meets
curre nt and anticipated future needs.
Software Applications
TIle Bank staff that develops and
supports business systems was par­
ticu larly active in 1986 with the crea­
tio n, installation , and maintenance of
the e ight critical software applications
co mmo nly used by the Fede ral
Rese rve System. San Francisco was the
developme nt site for two of tho se
eight app lications. The Banking Statis­
tics Application (STAT), was com­
pleted in 1985 and installed in all
o ther Reserve Banks and the Board of
Govern or s in early 1986. STAT pro­
cesses a wide range of data collected
from dep ository institutions, includ­
ing basic information some of which
is used to co mpute the various money
supply measures. The new system will
signi ficantly reduce the costs of main­
taining the data and increase flex­

12

ibility in respo nd ing to chang ing data
collection needs.
The auto mated sec urities handling
system (SHARE) is the second appli ca­
tion develop ed in San Francisco.
Major enhanceme nts to SHARE during
1986 included increas ing its capacity
to supp ort the Treas ury in its new
securities offe rings, such as mortgage­
backed sec urities and discount notes.
In addition to de velop ing so ftware
fo r the Federal Reserve System , San
Francisco also installe d seve ral major
so ftware app lications deve loped
e lsewhe re. On e of these, the Inte­
grated Accounting System ( lAS) is the
new standa rd acco unting app lication
be ing installed throu gh out the
Federal Reserve Syste m. Cu lminating
a three -year e ffo rt, lAS was success­
fully implemente d on schedu le in all
five offices of this Bank. Implementa­
tion was acco mp lished with no major
disru ptio n to o ngo ing operations or
custo mer servic es thanks largely to
extensive planni ng, training, and pre­
testin g.
The three modul es that make up
the co re of the lAS - Data Entry,
General Ledger, and Dep osit Account­
ing - are fully integ rated with o ne
another, unlike the systems they
replaced . As a resul t, lAS has ena bled
the Ban k to ce ntralize and standa rdize
the automate d acco unting fun ction s
for the Distri ct and ther eby en hance
o ur ab ility to inco rpo rate changes
while afford ing greate r co ntro l of
financial data. The use of lAS
th rou ghout the Fede ral Reserve Sys­
tem will ens ure nation al co nsistency
and co mpatib ility in custome r
acco unti ng serv ices. lAS also provides
the framewo rk for the future elec­
troni c de livery of accounting informa­
tion and will allow us to ce ntralize
our accounting function s further in
support of cos t-containme nt efforts.
lAS will benefit depos ito ry institutions
by helping the Feder al Reserve meet
the evolving need s of an interstate
banking enviro nme nt.

TERRY IJ:.]A, Employm ent Administra­
tOI; Personnel. In 19 8 6, the Bay Area
Urban Bankers Associa tion a warded
the Federa l Reserve Bank of San Fran­
cisco its Bank ofthe Year Awardf or
outstan ding tcorle with their organi­
z ation. 77.Je Bank teas also n ominated
f or the Gocernor s Award/or Employ­
ment of the Handicapped.
What purp oses does co mmu nity out­
reach se rve?
11.: It se rves two pur po ses. First, the
Pe rson nel Departm e nt is co n­
tinuall y seeking ways to incre ase
our presen ce in the com munity
in orde r to e ncourage people,
especially minori ties, females and
the handicapped , to apply for
po sitions at the Bank. One way
we can do this is thro ugh our
invo lve men t with local
organizations.
Second, it is our way of pro viding
sup po rt to the co mmunity,
espec ially for stu dent groups and
co mmunity organization s that
need profes sio nal and admi nistra­
tive assistance. Basically, we want
to be a good corporate citizen .
Would yo u give so me examp les?
11.: We've worked with the Bay Area
Urban Banke rs Associatio n - a
mino rity ban king group that
hel ps their adu lt member s
deve lop p rofessiona lly and
pro vides college scholarships fo r
higl school students. We hosted
their scholarship reception last
year at which Mr. Parry, the Bank's
President, gave the keynot e
add ress. We were also a spons or
for the ir national affiliates' con­
feren ce in the summe r. We
helped organize the conference,
made our confe re nce facilities
available, and participated in a
job fair. In recognition of this sup­
POrt we received the "Bank of the
ear" award.
I se rve on the Job Forum , which
is a Chamber of Commerce panel
made up of professionals in the
Bay Area who give advice to job
seekers . The Bank will be pa r­
ticipating in the Bay Area Urban

League job Fair, wh ich focuses on
emp loying minority stud ents in
high school and college .
Members of the Personnel
Department also serve on seve ral
employers advisory boards for
local co lleges . I serve o n San
Francisco State iniversirvs Board,
as a member of the wo rkshop
committee - assisting students
in transferring the ir liberal arts
degrees to the bus iness world,
\Ve also seek to create a more
positive image of the libe ral arts
degree in the emp loyer 's mind .
Another comm ittee I'm involved
with is the Community Vo lunt eers
Cons ultants Com mittee, affi liated
with the No rthe rn Californ ia
Human Resources Counci l. We
provide voluntee r consulting se r­
vices to nonprofit groups. For

13

examp le, we helped an Indian
triba l group resolve some organi­
zation issues that subsequently
helped them obtain fund ing,
How are you personally committed to
what you do?
Tl.. One of the nice things about what
I do is that I can take som e per­
sonal feelings, personal commit­
ments , and put them into action .
111e Bank asks a lot from the com­
munity, and after all, the Bank is
com posed of people who live
he re, who work here, and who
send the ir children to schoo ls in
the Bay Area. 111e people he re at
the Bank abso rb a lot of the
resources from the com mun ity: it
is our resp o nsibility to rep lenish
som e of these resou rces through
our out reach effort s.

New Technology
To meet the gro wing use of co mpu­
ter resources, the Bank upgraded its
compute r in the San Francisco Data
Center with a ce ntral processor that
ma kes use of state-of- the-art techno l­
ogy and which sho uld serve the
Twelfth Distri ct's needs for the next
seve ra l years.
Along with deve lo ping new soft­
ware an d upgrading our data centers,
the Bank has a lso emphasized the
innovative use of co mp uter-re lated
te chn ology. Fo r exa mple, we have
esta b lished a substantial base of
mic roco mpu te rs that wo rk in co ncert
with our large ma inframe processor s.
We are also expanding the use of
so mewhat large r co mputers dedi ­
cated to serving the ne eds of ind ivid­
ual departments. The new Cash
Automation System is o ne examp le of
the successful use of suc h technology.

Payments Systems Risk
The growing electro nic sophistica­
tion of the financ ial indu stry has also
posed so me major risks to the
natio n's payme nts system. Last year,
the Bank comp leted implem entation
of the Federal Reserve Board 's po licy
to redu ce risks on systems that tran s­
fer large-dol lar payme nts. The new
policy, which took effect March 27,
1986, calls for electro nic transfe r net­
wo rks and individu al instituti on s to
limit the amou nt of cred it risk the y
pose to the payme nts system.

Each institutio n that participates in
a large -dollar funds transfe r network ,
including the Fede ral Reserve's Fed­
wire serv ice, is encouraged to adopt a
cross-system net deb it cap. The cap
esta blishes an institutio n's maximu m
intra-day overdraft amo unt. An over­
d raft occurs when an institution wires
o ut mor e fund s tha n it has in its
account with the Fede ral Rese rve o r
when it sends mo re funds over a p ri­
vate funds transfer networ k than it has
received. The cap is based o n each
institution's evaluatio n of its own
cre ditworthiness, operationa l co n­
trols, and cred it po licies and pro­
cedures. The Fede ral Rese rve, and
other superviso ry age ncies, then
review each institutio n's evaluation
file during regu lar financial
exam inatio ns.
Dur ing the year, the Bank wor ked
with institutions throughout the Dis­
tr ict to e nsure that ap propriate steps
were being take n to con d uct evalua­
tions and to esta blish caps limiting
the level of intra-day overdrafts. We
also incorpora ted a review of each
institution's evaluat ion file into the
Fed eral Reserve's regul ar financial
exami nat ion program.

Disaster Contingency Planning
A crucial part of any sound bus i­
ness prac tice is providing backup
capabi lity in case disaste r disrupts
regular operat ions. In 1986, thro ugh
r igorous testing and documentation,
we enha nced d isaster continge ncy
plans that ca ll for locating the San
Francisco data ce nter to the Federal
Reserve Syste m's computer co n­
tingen cy site at Culpeper, Virginia and
moving some cr itical operations to
other Twelfth District Branch offices.

14

In San Francisco, the addi tion of
tech no logical improveme nts in ser­
vice of the disaster co ntingency plan
improved the Bank's emergency read­
ine ss. A new generato r will allow the
Head Office building to beco me
e ne rgy se lf-sufficie nt sho u ld the re be
a local power o utage. A Crisis Hotline,
installed in San Francisco, wil l
provide emp loyees and thei r families
current informatio n on the status of
Bank operatio ns afte r a disast e r.
Finally, an emergency rad io system
will enable senior manage rs to com­
munica te with the Bank and one
another fro m their hom es duri ng any
local te leph o ne failure .
The contingency planning effort
also was expanded to include the four
Branch offices , wh ere co mprehensive
plans were deve loped to provide crit­
ical services with efficient recovery
fro m e mergencies and lon g-te rm
computer o utages. Through its par­
ticipatio n in the Earthquake Recovery
Task Fo rce of the Californi a Bankers'
Clearinghou se Association , the Los
Angeles Branch joined a Bank emer­
ge ncy radio network in the Los
Angeles Basin.
Together, these efforts e nab le us to
mini mize business interruption s and
related costs and ensure the o ngo ing
delive ry of critical services to Bank
custo mers in the eve nt of sh ort-ter m
or lo ng-te rm se rvice disruption s.

IJ

The NeW" Los Angeles Building
After a decade of planning and
three years of construction, the Bank
neared completion of a new building
for the Los Angeles Branch. Services
provided by the Los Angeles Branch
make it among the largest units in the
Federal Reserve System; they include
check processing, cash and fiscal
operations, and bank supervision. The
building will be fully occupied and
dedicated in March 1987 in conjunc­
tion with the joint meeting of the
Twelfth District Head Office and
Branch Boards of Directors.
Within the District, the Los Angeles
Branch serves about 4,000 depository
institutions and their branches, hand­
ling the largest volume of federal tax
deposits and processing over a billion
dollars daily in its automated clearing
house activities. The savings bonds
operation in Los Angeles is the
regional processing center for the
Twelfth District in original issues over
the counter, reissues, and redemp­
tions. This operation puts the Los
Angeles staff in contact with more U.S.
savings bonds agents in a larger pop­
ulation base than any other District in
the System.
The move into the new building
began toward the end of the summer
of 1986 with installation of computer
equipment followed shortly by the
relocation of check processing and
related activities in October. Cash
operations occupied the vaults and
basement area prior to December.
In the short time that these large
operating departments have occupied
the new facility, the quality of services
has improved dramatically. Adequate
vault space, expanded operating areas,

and up-to-date equipment have
increased the efficiency of Branch
operations and boosted the morale of
Branch employees.
Service reliability also has been
vastly improved by the installation of
a second computer that backs up the
Branch's data processing capacity. In
addition, service continuity during
power outages was assured with the
installation of emergency generators
and an uninterruptable power supply.
The new facility plays a major role
in the program of the Los Angeles
Community Redevelopment Agency to
revitalize the surrounding 100-acre
South Park area. Designed by

15

Dworsky and Associates, the structure
stands out as a fine example of con­
temporary architecture. An undulating
granite wall in the front of the build­
ing defines a graceful pedestrian
arcade, and bows out toward the
street to enclose a multi-storied skylit
atrium containing the Branch's lobby
The World ofEconomics, a major
exhibition explaining economic prin­
ciples and the workings of the u.s.
economy, is featured in the main
lobby. Open to the public, the perma­
nent exhibition is a replica of one that
has proven to be a highly popular and
effective educational tool in the Head
Office building in San Francisco.

6<xu'd o (Uln: l1o n

Organization Chart
Robc; r l T. P:uTy
Pre-sl d cnc

February 1, 198 7

",d
ChId b«UUvl: O fficer

C.u l E. Pa.-eU
flnl Vic e Prni d e·f U
and

Chl t.-fOpcnUng Oflke r

Tb'

e",

CO'

Statistical and Data Servi ces

Super

Sara K. Garrison
Se ni or vlc e Pn::s ldcm
SlaU5Ua\l an d 02tI 5e rricc:5

Eu ge n e ,
Sl.:nlO t \'
SUPCf"\U

Ro bert O. M,ull o rd
vr ee Pn::oIldcnt

(i2lI A . Ta )'lor

:'ll1d Cou~ 1

.\t oll c ClTy ~ l es

'&.Gotd.
vice 10ft:
Cr,: di l )J

law
Loub E. Rc Wy
ScoRi a r VIce' PTold e n l
~d ~oe lOl1

J am : W. lAoghomc :

Om butb man

Do ugb." R.

Cou PKl

Ass t. \-1 ("(" Prcsllknl

an d RQC,", 'c Rtpor ts

Stu_

.\ tc-r1e E.

",« P re sldC'fl1

Elio t E. GiuUI

and Co Wl..,,<1

.~.

W UlUm L Coo pe r

fLoand.d

vl cc lor'1;':

v jcc Pn.:S.ld e n l
ln lc nu d oJUJ and Oo OloC'1'UC

."'" Ex

~portl

As5IOCUlc

Ce DcDI Coun.....,1

Computer Services

Perso.

",,
"'"
SotA Jor Vice Presldenl
Co m pu te r

Accounting and Finance

Secretary's Office

Sharon L. R,ell;do rf
Vic e:' lOn.....Idem

Elfzabeth R. ~ rc n
Vice Pre stdent

DJ..
n rl C1Accounting

and 5ecreClt')' or d i e Boar d

~Udud

Se n lo r \ '

~ rv:lC C!lo

Pc rso nn

Judy A. }o lvutone

~ p b8. f udu

Vic e Preside DI

A.~ f . Vice P rl:'Sid cnf
Appli calio Nl Sy stc lrul

Ap pU ClU Ons Systems

Lau re DCl:'wusbuen
VI", Preside",

Co mp u te r and Commurucaecn

S~l cms

) O'.ul
A.~1 .

,~n: C

L Mogba. da.m
Vic e President

~t.

,\ p p Uc;a d Oo..,;S}'$ It."1JlS

.\. llndemun

Vi ce Pres ldenf

App Ue:tti o ns

S )·~ tt.· llUi

Palr lcll.Ton g

John Lln

vi ce Pn.osld enl
Co m pUler Opent tio n....

Syst em., and Co mm u n le-at:lo ru O ffice r

C . ~·nn

Gfi:gory B. wu uace
Dlrcctor
FlJunelal Pla.nning:\tld Co IIU'OI

vic e Pr l,:.
DJ..~ tr i ct :

WIW1m

Th omas R. Tba,:\n UDl
A....~ I. VI«- Prc.'I'ldenl
AccounlJn g

viee P""

8 u Udln $
Ade' Ue F
Vice Pre
COrpClt:l
)UIU:.~ J.
~ 1 .Vic

Adroinh

.

San Francisco Branch

Porlland Branch

Sal . Lake Cil)' Branch

H. Peler Fr.uucl
Scttior vic e Pr csl dtn l
in Charg("

i\ngdo S. C;vdb
SnUor VI«: Pn:.s ld e nl
in Ch:u"gc

E. Ro ruJd U u cn
St:nlo r vt ce Prc l' lde m

On.-n L. Chrl~ lt ~
vte e Pn:sldc: n l
:"I'e w 8 u1ldlri g PT'ogr""lL"

,\t. Tim olh) ' Dzr

Ct' ral d R. Dal llng
k..~I . Vice Pn.....l d c:nl

Admln b lr;u i\'(' xrvl«:.s

A6ut}~'b :u1d

DOUIlU " 0. Kn u d.<\C o

If . \l'Wlun PCl\olnglo n
As.... L "1« Prn ld \-n t
SpccW A....~ l gnna-n 1

D . Ke rry \l'ebb
A...."1. VIC<"Pn. ....i dl ·nl

$US3l1 L. Ro b cr bO n
A» I. Vice Presl d e nl

Roberl R. RlchMd....
A.s..~ I. Vice Pr e" id c m
P".lymcn ts Sc:n ico

gdward A. Bonhc:u r
A......1. Vic e' P ~ ld c nl

Andrc:;J,P. \\oU1(Vn
A.....I. VI«. " PR.osld l:OI
FilunctaJ S~..nicc~

Ga.1t: P.Anso.- U
As..<iI. vi ce Prnldt: ft l

AI;st .

vtee

Paym c n~

josep h

lO n.~ldc-ol

Sot.'n'lca

J. Grbn..~w

"-..,... vice Presld e DI
S«'urit:iCli X f"\'j c...,

A~1 .

VI«: PTnid cn l

FinancWx rvt c~

'"

""",.

Cu.~1 ody

C.on U'OI

s.:,...;C\"$

Seattle Branch
~ ra ld

1 Los An gel
Th orna..~

R. Kelly

Sc.:nJo r vlcc Prc-,;lden C
inCh :l."8'-·

C. \1, :

E."( \·("Uti~·c Vl c

'"

in C harg c

Kcnn\'t h L. PClt"'I'WO
A.....
...L VIce: Pf'Clild \:n l
CUl'IOdy Sc rvl ('C'S

xe..

wunam C" ~R' n.,,<" n

HI"ClOr M. .\1:1

.\.\oJJ,( . \'I «,· ~ l de'nl

Vrcc P rn id rm

Flrtancta l

Pnym\:n LJi

Sc f"\i~

Sc: ,... i~-s

RJchard L Ib
Viet: Prcsldu
DulldJn~

Opc t:l tJo n.~

-'bf)'

Ell e n \1,;

Dtrecto r
Fln anc bl Sc ..,
.'Uld Pu b Uc I n

}o hD H. 'I 'On a
<b.~ I .

VIc e Prn ld e n l

Ca.~b k rvlc:c ...

C. Gonncnn.-m

[k~
J~L

Vlcc P n: , lde' n l

P:aymenl!i krvlce'fi
U lOU C R. W:lUcn;
ClL~ l od y Sc rvl ctS ODi c!,'r

16

An.....ly!u an d Co n tro l

Audi ting
Robert I. G:uchcU
Ge n e ral Audho r
Gul Gid'o\-:rnJ
As.,l<mml
GeJ:Ic rn.l ,Au dJtor

Pel e r K.C. Hstc h
Audi t Offie.:r

Bruc e: H . 111omp>ou
A....~ bt.·U1 t
G<:nc ral A udiCQf

Qu.r ks 0. BO'I~..d cn
Audh O ffice r

G:tr)' G. Hoe m

Audi t OffiC\:f

r

l
Tb ofD..;ol.s D . Tboauon
ExiK"U dYc Vi ce Pre sJdcn!

Cent:r3.1Bank f unttlo ns

Economic Research
and PubUc Information

Su pe rvis io n, Regulation and Credit

John

£.ugc:nc A. TbOtn.a.1o
Senior Vic e Prelildcn l
Sup<-rvt:<Ion . RC1fUlalio n and Credit
'11'. Gordon Smi th

l. Scad dlnK
Senior Vice Pre:$ldenl

ao d J)lre(:tor of ~

t . RJcka«l"!

Vlcc Pffsid col

Do culd R. U c b
,",­"SI. VIce Pre!'ld c nl

A$$L Vice Pn:sldcn l

C~dJl

and Co n.'iumc r AftLIrs

D b U'l C1Cn:dJl

Bank an d Coru>umcr Rc1ubtion

~ c r lc

E. Borchert

Vlcc P~dc!u

B.V\k EumJ.natlons

Harold H. Blum
4 ..1. Vice PlTs ld cnl
Bank Examinations

H"'tT)' ~Grec n

W 3 }'1l C

Th o mas P. Mc(in lh
Asst. vlce Prc,s;l dcnt
Bank EumlnalJo ns . S.LC.

Onld )-l. Van dre

John

Co ns u m e r Afbln; Offittr

Vice Presid eD I and
A.."SOC. Direaor o f Research

Rob ert C. johnson
~ g O fti C'C"r

Kt:nn cth R. Blnning

'rbo roas H . Gordon
E."Ulninl.ngOfficcr

W. StarT Scl :'gDllll c r
E:x;un1n1ng O ffitt r

}ohn P. j ud d

Adrl:1JI W. Throop
Vice: PresJden t
~~ch Offi Cf:r
Domestic
M.1Cf'OC'OOOomJe Studies

lbomau J. Backer
E:cuninlng Officer

\ 1...1.: PTc,.ldenl

Rober t A. Johns ton
Director

A.....~ I. vtcc P ~ I dl;:nl

Rodn ey E. Reid
OI" ;(lor

BH C OI.ndInlcnul':l.onal Regulation

Reports :LOd Ao a.lysls

Ap p ll cauo ns

S He an d tmemauo car Supcrvtston

H . Beebe

RJducd S. Campos
ExamlnlngOfli~r

Pblllp M. Ry.m
E.u.mlnlng Offi ett

Hang-Sbe eg Ch C:OK

vtce Pn::sld eJll
lnlt.."C'D3tional SD.ldJes

john M.L. GrueDSLein

VICf:Prcsldem and DJ:reetot"
PubUc InfonnaLlon

Personnel and Administrative Services

District Financial Services

,\fJd1.ad J . Mu rray
x nJo r Vice Pn:..\.Idc n l
Pc: ~ nn d and AdmlIW.traLlve Services

john F. Hoover
Se nio r Vice P'tT3oldcn l
O ls lrl C1FlnancJaJSc: f'\i c\' lJ

~e

P3ttlda K. Un8
vlce Presid e nl
Corponte Penonnel

A.~q .

H. Wclsslngc r

V ice

P~slcknl

Dawn S. All en
PCnoOlU'Id O ffice r

Bobby A. JclJct')'

w. Gleason
v ice PresJ dcnl
Ptod UC'lM:uugcm c n l

John

Pl;n;Qoncl Offi(e r

Corporate Pcr.-oo.ocl

C. tu:nnelh Arnol d
vt cc P1T$ldcnl
OlstrlclSt;eu rl ry

8uffmgt oo Cla y MUler
Vice Pre :<ld eDI
produc t ManaK em c n!

\lo'lIlbmK.. Glnler
VIC\: Presldenl
8uJJdinit an d Prope rty M3I:1ag e mcnl

PetcrW. Homes
Fl~eW scectces O ffice r

Ad eUe Fo ky
vl ce Pru ld e n t
Corpof';llIC Plannlng

j ohn A. 'rrcccoe
Manning Officer

);UIU;5j. Tens e
Moor. vtce P ~Jdcnl
AdlTl ln.l~trative Se evlccs

\

Los Angel e s Branch

l

ln Charg..·

Stcpben A. K;ruIman

B.vban J. Cool1n.l

As$L Vice Preslden l
zrceeomc P;,yme n b

Produ ct

Palge B. ScoI1
Dab security an d
Contingency PbP-ning O ffi« r

SyJvia A. Cunningham
seocurcmcm scevtccs Officer

Tbonu." C. \l ': un:n
Uct\l.Ih'l." Vice PrcYldeol

Rlchald L. Ra.!.mu.<;.Sf:n
V1('(' Pr,,-:<Idl;nl
N("W8 uiJdinR
Henor ~ .

," b:rtin

Charl~

L Hu ffsl eLl"'r

'VI« P~i dc n l

Dteeceor

Optf';ll lJon'\

~h

Servtces, Accounting

Bren t M. OU.''lb ury
vj ce Pr C$id cnl

'n wcccee

AS.~I .

'\''''-; 1.

Adrn tnksu-atfv e services

Securtucs Serv lco

1\ .

Scneocdcr

vtcc P rC"l'ldenl

G. 8 r.1dJc y Snodgrass
Checks O ffice r

V:a(2Jl(

Electronic Payments Officer

an d Ad.minis tr.ut vc sco-rces
."t;ary EUenM.ar1in
Olrc n o r
FirumeiaJ Sc n· l«s. ~r.a.lb lJon Man.1gt:mcnl
:tnd Pu blic Jnf omuLlon :LOd Protocol

17

Mansgem~l

Oftitt r

Branch Operations
(Fro m left)
Angelo S. Carella , Senio r Vice Preside nt in Charge, Portland
Thom as C. Warr en , Executive Vice President in Charge, Los Ange les
Gerald R. Kelly, Sen ior Vice President in Cha rge , Sea ttle
H. Peter Franzel , Senior Vice President in Cha rge, San Francisco
(No t available fo r ph otograph )
E. Ron ald Liggett, Se nior Vice President in Cha rge, Salt Lake City

18

Priced Payments Services
The Fede ral Reserve in its role as a
provid er o f wh olesale bank ing ser­
vices strives to promote the efficiency,
safety, an d sou nd ness of the nation's
payments syste m. To the average
depositor, an efficient payments sys­
tem me ans rea dy access to cash as
nee ded and a sh orter hold o n depos­
ited checks. To de pository instituti on s,
an efficient payments syste m me ans
mu ch the same: cash as needed to
meet customer demands and the
q uick and re liab le transfer of fund s
between acco unts .
As required by the Monet ary Con­
trol Act of 1980 , man y of o ur pay­
ments se rvices a re priced to
e nco urag e competition, and thereby
greate r e fficie ncy, in the mar ket for
finan cial se rvices . Approximately
1,500 deposito ry instituti on s in the
San Francisco Reserve Bank 's Distri ct
use on e o r more of the Bank 's se r­
vices . Electroni c access to those se r­
vices has proven particularly popular ;
we have over 1,200 terminals now in
use at custo me r sites.

Check Services
The Fede ral Reserve Bank of San
Francisco handl es the large st chec k
volume of any District in the Federal
Reserve System. In 1986, the number
o f ind ivid ual checks processed for
co llec tion exceed ed 2.5 billion . More­
ove r, moving checks in our nine-state
district, which is rou ghly o ne-third
the geogra phica l size of the United
States and spans fi ve time zo nes,
requires a highly so phisticated check
transportation system . Give n the sub­
stantial volume and co mplexity of o ur
check co llectio n syste m, we co n­
tinually seek opportunities to improve
service levels and qu ality.

Our success in meeting the needs
of our diverse mark et is parti ally the
result of exte nsive market research
and listening and responding to
custo me r conce rns. During this past
year, Bank re presentatives parti cipat ed
in nume rou s industry meetings and
se m inars to discu ss curre nt issues in

che ck co llection, two of which stoo d
out: the slow processing of dish on­
o red o r returned chec ks and the
del ayed availability of fun ds . "Delayed
availability" is simply the number of
days a bank hold s a check befor e
making the fun ds available to the
depositor.

mic rofilm. Digital image processing
could be a cost-e ffective and rel iable
means of transmitting, sto ring, and
rece iving check information. Studying
the feasibility of new technologies
helps us estab lish the methods that
will lead to further efficiencies in the
payments syste m.

Return Item Notification
Late in 1985, as part of o ur effort to
resp ond to these payments system
issue s, we implemented the Large­
Dollar Return Item Notification Ser­
vice. This new se rvice, which ap plies
to checks in the amo unt of $2,500 o r
more, provides a means of noti fying
the instituti o n whose custo me r first
deposits a "bad " check that the chec k
has be en disho nored. Beca use th is
notification must now take place
within 48 hou rs, the new se rvice has
sub stantially improved the timeliness
and reliabili ty of the return item
process.

Electronic Payments
Our electronic payments serv ices
provide the means for transferring
funds (o r payments) from inst itution
to institution o r accou nt to acco unt
via telephone lines and computers.
O ne of the se se rvices is Fedwi re,
which is the Federal Reserve's fu nds
transfer system providing same-day
transfer of funds and settleme nt of
payments. 111e Autom ated Clearin g
Hou se (ACI-!) also provide s for the
electronic exc hange and deli very of
payments , but ACH payments transac­
tion s are processed in batch es twice
daily and se ttle me nt is made o n a
next-day basis. ACH has traditi on ally
bee n used fo r high volume payme nts
of low doll ar amo u nts, such as payro ll
dep osits o r Social Security payments.
Fedwire is more often used fo r high
dollar tran sfers. Both the Fedwire and
ACH se rvices can be accessed in a
variety of ways, including per sonal
telephone co ntact, delivery of a mag­
neti c tape, and co mpute r co nnection.

In add itio n, we are developing
autom ated systems to repl ace
ob solete equipment used to process
return items and checks rejected by
high-speed so rte rs. The new system s
will be o pe rational in all o ur check
processing centers by Septe mbe r
1987.

Finally, to help depository institu­
tions understand o ur check collection
process better, we have updated and
simplified both o ur "Guide to Making
Dep osits" and "Ad justme nts" manuals.
Thes e newly designed pu bl ication s
will be ready fo r d istribu tion earl y in
Janu ary 1987.
Much of the success in o ur curre nt
che ck process ing se rvice is the result
of o ur long-standing commitment to
identifying the future ne eds of deposi­
tory instituti on s. In this regard , we are
a principal parti cipant in a Syste m­
wide effort to exp lore new tech­
nologie s for che ck and return item
trun cation. On e new techn ology,
called digital image cap ture, wo uld
enable us to reco rd che ck informa­
tion o n co mpute r files rather than

19

Fedwire
For our pri ced electronic payments
se rvices, we have put the emphasis o n
improving security and reliability, and
have co ntinued to promote the use of
electronic access meth ods. Last yea r,
we installed a new rele ase of the
Funds Transfer software that supports
Fedwire, and nearly co mpleted the
e ncryption of o ur co mmunications
connections with all Fedwire
customers. The encryption proj ect,
wh ich started in the fourth qu arter of
1984, will be completed in early Janu­
ary 1987. Our installation mana ge­
me nt team has made over 1,000 trips
to deposito ry instituti on s to deli ver
en cryption boards and help with their
installation.

BARBARA TARRANT, Analyst, Installa ­
tion Managem ent. One of tbe major
projects of Installation Management
last rear iniolied insta lling encryp­
tion fo r Fedl.ine, On -line and compu­
ter interface con n ections in tbe
District and con ducting some limited
on-site training at Fediine terminals.
Barbara Tarra nt was part oftbis
group effon . In addition, sbe partici­
pated in tbe Bank 5 project team tbat
deceloped tbe Fediine Check Retu rns
produ ct, resolied custo mer problems,
and tested n ew softtoare in supp ort of
the Bank's produ cts.
Describe wha t you do.
BT: I work with customers who use
ou r micro computer products,
training them in the use of the
products and helping them over
the phone as well as on location
when problems arise. Also I help
develop new products; we give
input to the design and testing of
new products, and develop
cus tomer-oriented documenta­
tion, Installation Management is
basically a support group to our
customers and, internally, a
development group.
Can you descr ibe your relat ionship
with the customers?
BT: Most of the time , we're dealing
with people who use funds trans­
fers - our main product. When
they run into a prob lem transfer­
ring large sums of money they
can panic , wh ile we have to
remain calm in helping them. To
us, working with our products
has become automatic, but we
have to keep the customers per­
spective in mind.
We also keep in mind that people
with a wide range of expertise
use our programs: anyone from
clerks to \>1)5, depending on the
size of the bank. In some small
banks, five people make up the
operations staff and everybody
does everything. 111e training we
provide must be appropriate for
different levels of personnel.

Usually, our customers do not
have a technical background. So
in all our traini ng programs we
assume that the customer has
never seen a PC before. Depend­
ing on the product, customers
may come here to be trained or
we send the product out with
documentation. For the most
part , the customers are anxious
to learn and enjoy solving their
own problems once they feel
comfortable with our electronic
services.
How do you want your customers
view you'

to

BT: r think the name "Federal Reserve
Bank" scares a lot of people ini­
tially - they think it's a very for­
mal orga nization. We represent

20

the Federal Reserve to a lot of
these institutions, and for some
of them, we're the only people at
the Fed thev ever deal with. So
thev come to us for help in areas
not'related to our electronic
products too.
We joke with them , try to be
friendly, not stuffy, and hope they
see us as "real" people. I've been
in Installation Management for
four years and the number one
rule is that the customer comes
first. When a call comes in, its
answered at that time. We follow
up on equipment problems even
when it means going to different
departments throughout the
Bank. I think our customers feel
we are thinking about them and
meeting their nee ds.

Because service reliability must
include predictable o pe rating hours,
we have made a co nce rted effort to
reduce the number of days when Fed­
wire closing times are extended. We
also cont inue to test and refine our
co ntinge ncy plan to ensure that the
funds transfer system will op er ate
even in the event of a crisis or natur al
d isaste r.
ACH Improvements
Automa ted is the key word in ACH.
Our consolidation in San Francisco of
ACH process ing for the Seattle, Port­
land and Salt Lake City branches gives
us the oppo rtunity to make so me sig­
nificant automa tion improveme nts to
ou r services. For instance, our ACH
staff in San Francisco and each of our
consolidated Branches now has on ­
line access to informat ion about
customer transactions . This method of
retr ieving infor matio n mea ns that we
can respond more quickl y to
custome r inquiries. In 1986, Los
Angeles benefited from the installa­
tion of a new release of Systemwide
ACH software.

The biggest improvements to our
ACH service are those gained by
customers who choose to access ACH
electronically In 1986, we introduced
th ree e lectronic access products:
FedLine ACH Retu rn Items, FedCom,
and Bulkdata. In ea rly 1987, deposi­
tory institutions will also be ab le to
receive daily ACH transactions o n
FedLine.
FedLine ACH Return Items enables
a customer to enter retu rn items into
a microco mp ute r and transmit the m
to us through a telecommu nications
connection. This meth od eliminates
the phys ical paper return and associ­
ated item fee, and, since the delivery
me thod is electro nic, gives the
custome r more process ing time to
meet the ACH deadline.
FedCom and Bulkdata, bo th elec­
tro nic access me thods, e nab le a
custo me r to send to or receive ACH
transactions fro m us using a com ­
municat ions connec tion. Because we

offer a range of electron ic access
prod ucts, depository institutions of
vario us sizes and varying degrees of
computer sophistication can choose
the access me thod that best suits their
needs.

transportation needs of a numbe r of
depository institutions in one region.
We are thus ab le to maintain favorable
transportation costs and improve ser­
vice to our customers , particularly
those located in remote areas .

FedLine, a microcomputer system
introduced in 1982 to allow a wider
range of de pos itory institutions direct
access to the Bank's funds transfer sys­
tem, cont inued to attract more
customers. At the end of 1986, we had
over 1,000 FedLine customers.
Fedl.ines tremen dou s acceptance has
enab led us to handle 99.8 pe rcent of
all funds transfer messages
e lectro nically.

In early 1986, we established a cash
terminal in Phoenix to co nsolidate
cash shipments for many institutions,
and thereby red uce costs and imp rove
service levels for institutions
throughout Arizona.

Cash Transportation and
Securities Services
We also provide priced transporta­
tion services for currency and coin as
a means of foster ing efficient and safe
access to cash. Because we act as a
liaison between contracted carriers
and depository institutions in the
des ign of armored car routes, we are
in a pos ition to coordinate the cash

The Bank also offers a variety of
securities services to depository
institutions, includ ing the safekeeping
and transfer of book-entry (elec­
tro nically recorded) sec ur ities issued
by government age ncies. These
pr iced safekeeping services co ntinue
to grow at a fast pace. In 1986, we
made improvements to the secur ities
transfer service to handle mo rtgage­
backed sec ur ities issued by Fannie
Mae and Freddie Mac. We also
developed several other features to
improve our customers' backroom
operations.

Summary of Operations
Volume (tho usands)
1983

1984

1985

1986

Custody Services
Cash Services
Cur rency paid into circu lation
Co in paid into circulation

1,925,085 2,188,831 2,438,168 2,651 ,545
5,078,1 50 5,302,832 4,773,270 4,980,392

Securities Services
Savings Bonds original issues
Savings Bonds rede mptions proce ssed
Other Treasury origi nal issues
Food Coupons processed

1,235
285
116
333,512

1,549
279
138
310,450

2,019
293
108
272,231

2,821
231
63
265,921

Payments Services
Check Services
Comme rcial che cks collected
Government checks processed
Return items processed

1,997,022 2,140,020 2,431,129 2,690,145
96,136
95,548
93,451
91,458
24,707
35,580
28,800
31,239

Electronic Payments Services
Wi re transfers processed
Automa ted clearinghouse
transaction s processed

8,671

10,361

11,457

12,632

91,838

111,408

129,930

150,272

1,234

2,348

1,818

1,074

108

136

149

130

Discounts and Advances
Total disco unts and advances'
Number of financial institutions
accommodated'
*Whole num be r (not in thou sands )

21

MARY CARRuTH PATRICK, Produ ct
Pla n n ing Ana lyst, Product Manage­
men t. A, a product pla n ning a na lyst,
Man' Patrick coordinates tbe decelop­
ment of n ew electronic access prod­
ucts that co nnect our customers to tbe
Bank's Fedl.in e products, iobicb
in clude Fu n d, Tra nsfer; Cash Order­
ing, Uplrate Statements, UpDate
Cbecles, ACH, and Cbeck Returns.
Ma ry Patri ck lead , the proj ect team
f or FedCom ACIJ, one of the n ewest
electronic access methods.
What do you co nsid e r the most
important part of what you do?
MP: Commun ication is the mos t
impo rtant part of my job because
if I'm not co mmunicating with
pe op le, the produc t we come o ut
with may not fit anyone's needs or
expectation s. So I'm o n the
phone a lot - as yo u can see by
the photo!

;

:;

To deter mine what the custo me r
wants, we start with data from
custo me r surveys and informa­
tion from Branch Financial Ser­
vices staff who visit o ur custo me r
institution s regu larly. Som etimes
we rece ive ideas directly from
custom er s. In fact, custome r feed ­
back has resulted in bu ilt-in
"help" screens and tutorials in the
newer products.
O nce we gather this informat io n
together, the Bank's Compute r
Services Group gives us a ge neral
u nde rstand ing of the tec hnical
imp lications of potential pro d­
ucts, and the various operating
de partme nts let us know how the
p rod uct can be delive red. Installa­
tion Manage me nt, wh ich provides
custome r train ing and on-go ing
tec hnical support, and Product
Manage me nt work closel y on
new product de velop me nt and
o n enhancing curre nt products.
If o ur commu nicatio n process is
succ essful, both inte rnally and
with ou r customers, we find that
each new product is a little bet ­
te r than the last.

What kinds of new products might we
see ?
MP: There is a big growth in the
demand for tools which provide
our customers timely, usable
info rmation about their activity
with the Fed. Products that handle
transaction data, such as a return
item not ification or a wire trans­
fer, will still be imp ortant, but the
need for ready access to informa­
tion al services will increase
rapid ly.
Right now, we are taking a critical
look at the FedLineJFedCom
products we currently offer to
ide ntify any gaps in our prod uct
linc and to determine if the re are
area s that may need imp rove-

22

me nt. And we are cont inually
looking at the technologies avail­
able to us fo r prov iding these
pro du cts; these tech no logies may
allow us to provide be tte r, mo re
timely information to our
custo me rs.
Now is a good time for o ur
custo mers to think abo ut what
types of information they nee d
that cou ld be delive red ele c­
tron ically. And the y should com ­
municate that information to us.

Governmental Services
The Ban k is an imp ortant provider
of fiscal and financial se rvices to the
United States govern me nt and to the
publi c o n behalf of the government.
O ur pr ima ry fiscal services to the U.S.
Treasu ry include the issuing, serv ic­
ing, and re demption of Treasu ry
secu rities (Treasury biJJs and no tes)
and savings bon ds, an d the d istr ibu­
tion of cash and co in to depos ito ry
institutio ns. Addition al financial se r­
vices provided to gove rn me nt age n­
cies inclu de check collection and
fund s transfer s, and the pr ocessing of
elec tron ic payme nts and food
coupons.
Securities Services
We achieved an important
m ilesto ne in 1986 with the impl em en­
tatio n of the Treasury Direct system in
a ll five Twelfth Distri ct offices . Treas­
u ry Direct, developed jointl y by the
U.S. Treasu ry and the Fede ral Rese rve
System, allows indi vidu als to hold
thei r Treasu ry sec ur ities in their ow n
book-ent ry safekeeping acco un ts. A
book-entry acco unt is simply an elec­
troni c record of transactions. The new
system, whi ch will ultimately maintain
acco unts fo r ove r two million inves­
tors through out the country, provide s
comprehensive statements of acco unt
transactions. Principal and interest
payments are made d irectly - e lec­
tronically - to the investors' acco unts
at parti cipatin g deposito ry
instit ution s.

Und er Treasury Direct, engraved
ce rtificates will no longer be issued.
All future U.S. Treasury marketable
bills, notes, and bonds will exist o nly
in book-entry form. Advantages to the
Treasury Direct book-entry system
inclu de accurate and curre nt tra nsac­
tion infor mation, faster tracing of
items, and no lost o r misplaced Treas­
u ry certificates.

Most people will recall television
news stories in late October 1986 of
lon g lines of customers in cities
throughout the country waiting to buy
United States savings bon ds just
before the guaranteed interest rate
was lowered from 7.5 perce nt to 6
pe rce nt. We too had o ur share of
custo me rs as we accepted appli ca­
tion s for nearly 300,000 bonds in less
than three days. That total was nearly
four years' worth of normal vol ume!
Ten weeks later, we co mpleted pro­
cessing all application s.
The new reduced guaranteed rate
o n savings bonds has not lowered the
po pularity of savings bonds as an
investm ent alternative for many peo­
ple. To accommodate the increasing
vo lume of bonds pu rchased thr ough
payroll savings plans, the Bank has
purchased add itional eq uipme nt and
is preparing to centra lize the issuance
of all payro ll bonds o n magneti c tape
from the San Francisco office begin­
ni ng in early 1987.
Payments Services
The Federal Reserve is the largest
processor of government chec ks in
the United States and handled over 90
million of them in 1986. The San
Francisco Reserve Bank co llects, so rts,
pays, and cancels all U.S. gove rn me nt
chec ks deposited in financial institu­
tion s in the nine western states . We
provide the Treasury Depart ment with
microfilm and magnetic tape records
of a11 checks - a process known as
truncation - and ship the cance11ed
item s to a storage facility

The Federal Rese rve also se rves as
the chief agent for relaying e lectro nic
transfer payments, such as Social
Security payments, from the govern ­
ment to individuals and business. We
issue Treasu ry chec ks assoc iated pri­
marily with gove rnment securities
transactio ns. As part of a Systemwide
program to reduce the cost of pro­
cess ing government payments, we are
preparing to use Federal Reserve
checks in place of govern me nt checks
for payments made o n be half of the
U.S. Treasury. Our checks will be
known as fiscal agency checks since
we will be functi oning as an agent for
the U.S. government. This new pro­
gram will be in place in all offices
early in 1987.
Cash Services
The San Francisco Reserve Bank is
resp on sible for distributing and rec ir­
culating currency and coin to deposi­
tory instituti on s thr o ughout the nine
western state s. As SUCh, we have the
second highest cash processing vol­
ume in the System. To acco mmodate
this high volume, we use high-speed
equipment to count, SOrt, and ver ify
currency deposits. These h igh -speed
machines have dram atically increased
the efficien cy of o ur o pe ratio ns and
raised the quali ty of curre ncy in
circulatio n.

During 1986, the Bank developed
and installed a new Cash Automation
System in all Branche s. This minicom­
puter-based system provides auto­
mated record-keeping and acco unting
of a11 processing activities.
Looking ahead, we are working
with other Reserve Bank s to de ve lop
imp roved "seco nd ge ne ration" cur­
ren cy processing equi pment, and will
co ntinue to enco urage the use of
ele ctronic systems.

23

Hawaii

Twelfth Federal Reserve District

24

Directors
D irecto rs of the Federal Reserve
brin g management expertise to the
task of ove rseeing Reserve Bank oper­
atio ns. TIley provide information on
key eco no m ic devel opmen ts in
vari o us areas of the D istr ict, comple­
me nt i ng the Ban k 's inte rn al research.
In additio n, Bo ard members give
adv ice o n the gene ral direction of
mon etary policy, especiall y w ith
regard to the Bank's di sco unt rates.

Head Office
Chairman of the Board and
Federal Reserve Agent
Fred W. Andrew
Partner
An drew & Willi am son Sales Co.
Bakersfie ld , Cal iforn ia

Deputy Chairman
Robe rt F. Erburu
Chairman of the Board and
Chief Executive Officer
Th e Times Mirro r Company
Los Ange les, California
Caro lyn S. Cham bers
Preside nt and Ch ief
Executive Officer
Cham bers Com mu nications Cor p.
Eugene, Oregon
Rayb urn S. De zember
Chairman, President and
Chi ef Executive O ffice r
Cent ral Pacific Corp oration
and Chai r man
American Nationa l Bank
Bakersfield , Cali fornia

Andrew

Erbu ru

Spencer F. Eccles
Chai rma n, and
Ch ief Executive O fficer
First Security Co rpo ration
Salt Lake City, Utah
Donald J Gehb
Presid ent and Chief
Executi ve O fficer
Al am eda Banco rpo ration and
Alam eda Fir st National Bank
Alameda, Cali fornia

Chambers

Dezernber

Eccles

Jo hn C. Hampto n
Presid ent
Wil lam i na Lumber Company
Port land , Oregon
Gehb

Togo W. Tanaka
Chair man
Gramercy Ente rp r ises, In c.
Los Angeles, Califo rn ia
Hampton

George H . Weyerhaeu ser
Preside nt and Chief
Executi ve Offi cer
Weyer haeuser Com pany
Taco ma, Washi ngto n

Federal Advisory Council
Member
John D. Mangels
Chairman
Rainier Nation al Bank
and President
Rainier Bancorporation
Seattle, Washi ngto n

..-/. j

Weyerhaeuser

Mangels

25

Los Angeles
Chairman of the Board
Rich ard C. Seaver
Cha irman
Hyd ril Company
Los Angeles, California
Seaver

Thomas R. Brown, Jr.
Chairman of the Board
Burr-Brow n Corporatio n
Tucso n, Arizona
Yvonne Brath waite Burke
Se nio r Partner
Burke, Robinson , Pearma n
Atto rneys at Law
Los Ange les , Califo rn ia

·

Brown

Burke

Ro bert R. Dockson
Chair man
CalFed, Inc
Los Angeles, California
Fred D. Jensen
Chairman of the Board, President
and Chief Exe cutive Office r
National Bank o f Long Beac h
Long Beach , Californ ia

Do ckson

Howard C. McCrady
Chairman of the Board
Valley National Bank of Arizo na
Phoe nix, Arizona
Jensen

McCrady

Tooley

26

William L Tooley
Cha irma n
Toole y & Company
Investment Builders
Los Angel es, California

Portland
Cha irman o f th e Board
Paul E. Bragdon
Presid ent
Reed Co lle ge
Po rt land, Oregon
Herman C. Brad ley,Jr.
President and Chief
Executi ve Offi cer
Tri- Cou nty Bank ing Company
Ju nction Ciry, Oregon

Bragd on

John A. Elorr iaga
Chair man and Chief
Executi ve Offi cer
Uni ted States Natio nal Bank
of Oregon
Portland , Oregon
G. John ny Parks
For mer No rt hwest Region al Di rector
Internation al Lo ngsho remen's &
Wareho usem en's Unio n
Po rt land, Oregon

Bradl e y

Elorriaga

Wayne E. Phil Jips, Jr.
Vice President
Phill ips Ra nch, I nc.
Baker, Oregon
Sandra A. Suran
Parm er
Peat, Marw ick, Mitchell & Co.
Po rt land , Oregon

Parks

Phillips

G. Dale Weight
Chair man and Chief
Executive Officer
Benjam in Frank li n Savings
and Loan Association
Po rt land, O regon

Su ran

Weigh t

27

Salt Lake City
Cha irman of th e Board
Do n M. Wheeler
Presid ent
Wheeler Mach inery Company
Salt Lake City, Utah

Whee le r

Ge rald R. Chr istensen
Presid ent and Chair man
First Federal Savings
& Loan Associati on
Salt Lake City, Utah
Lel a M. Ence
Executi ve Director
Un iversity of Utah Alumni
Association
Salt Lake City, Utah

Ch ris te nsen

Ence

Rona ld S. Hanson
Preside nt
Zi on s First Nation al Bank
Sa lt Lake City, Utah
Fred C. H um phreys
Di recto r
Moore Financial Group
Bo ise, Idaho

Han son

Rob ert N. Pratt
Presid ent
Moriah Enterprises, In c.
Bountiful, Utah
Hu m ph reys

Pratt

Rose

28

D. N. "N ick" Rose
President and Chief
Executive Officer
Mountain Fuel Supply Company
Salt Lake City, Utah

Seattle
Ch airman of th e Board

John W. Ellis
President and Chief
Executi ve Officer
Puget Sou nd Powe r & Light Company
Bell evue, Washington
H . H. Lari son

Ellis

President
Columbia Paint Co.
Spokane, Washington
Byro n 1. Mallott
Chief Executive Officer
Sealaska Corporatio n
Juneau , Alaska
Jo hn N. Nordstrom
Co-Chairman of the Boa rd
Nordstro m, Inc.
Seattl e, Washington

Mallott

Carol Nygren
Managin g Partner
Laventhol & Horwath
Seattl e, Washington
Nor ds tro m

w. W. Philip
Chair man of the Board
and President
Puget So und National Bank
Taco ma, Washington
William S. Rand all
Chairman, Pres ident and
Chief Exec utive Officer
First Interstate Bank
of Wash ingto n, N.A.
Sea ttle, Washi ngton

Ph ilip

Randall

29

Comparative Statement of Account
(Tho usands of Dollars)
December 31
1986

Assets

1985

s 1,470,000

$ 1,361,000

670,000
106,026

590,000
83,682

21,050

41,840

1,091,697

1,103,353

14,470,075
9,499,237
3,586,854

11,456,076
9,071,851
3,315,969

27,556,166
28,668,913

23,843,896
24,989,089

1,544,691
153,781
31,503

1,607,278
128,015
27,785

.

1,496,892
451,117

1,101,355
443,219

.

154,261

1,333,364

34,747,184

31,664,787

.

23,371,204

24,210,803

.
.
.
.

9,037,467
23,700
81,595
9,142,762

4,979,368
23,550
106,447
5,109,365

.
.

1,390,792
300,946

1,479,492
304,181

.

34,205,704

31,103,841

Capital paid in
Sur plus

.

270,740
270,740

280,473
280,473

Total liabilities and capital accounts

.

34,747,184

31,664,787

Gold ce rtificate acco unt
Spe cial Drawing Rights certificate account
Other Cash

.
.
.

Loans to depository institutions

.

Federal Agen cy o bligations

.

United States Gove rnm ent sec urities:
Bills
Notes
Bonds

.
.
.

Total United States Government Securities
Total loans and securities . . . . . . . . . . . . . . . . . . . . . . . .
Items in p rocess of collectio n
Bank prem ises
Operating equ ipment
Other assets:
Denomi nated in fo reign currenc ies
All othe r

.
.

.

.
.
.
.

Inte rd lstrict Settlement Acco unt

Total assets

.

Liabilities
Fed e ral Rese rve notes
Dep osits:
Total depository institutions-reserve acco unts. . . . . . . . . .
Foreign
O ther deposits
Total deposits

.

Deferred cre dit item s . . . . . . .
...................
.
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total liabilities

.

Capital Accounts
.

30

Earnings and Expenses
(Thousands of Dollars)
Dece mber 31
1986
1985

Current Earnings

s

4,106
" 2,219,340
35,859
69,524
1,740

Discounts and advances
United States Government securities
Foreign currencies
Income from se rvices
Allother

.
.
.
.
.

Total current earnings

.

2,345,266

2,330,569

Total current expenses
Less: reimbursement for certain fiscal agen cy and other expenses
Netexpense s

.
.
.

136,643
12,314
124,329

128,391
10,589
117,802

Cost of earnings credit

.

7,853

7,711

Currentnet earnings

.

2,213,084

2,205,056

.
.
.

9,193
311,360
320,553

12,967
189,977
202,944

Allother
Total deduction s

.
.

5,692
5,692

1,268
1,268

Net additions ( +) deductions (-)

.

+ 314,861

+ 201,676

Assessment s by Board of Governors
Board expenditures
Federal Reserve currency costs
Net earnings before payment s to the United States Treasury
Dividends paid
Payme nts to the United States Treas ury (interest on Federal Reserve notes)

.
.
.
.
.

- 14,937
- 24,121
2,488,887
16,343
2,482,277

- 12,150
- 21,726
2,372,856
16,237
2,331,636

Transferred to sur plus
Surplus,January 1
Su rpl us, December 31

.
.
.

- 9,733
280,473
270,740

24,983
255,490
280,473

2,447
2,205,867
62,188
72,767
1,997

$

Current Expenses

Profit and Loss
Additions to cur rent net earn ings
Profit o n sales of United State Government secur ities (net)
Profit on fore ign exchange transactio ns (net)
To tal additions
Deductions from current net earnings

31

San Francisco Office
PO Box 7702, San Francisco, California 94120
Los Angeles Branch
PO Box 2077, Terminal Annex, Los Angeles, California 90051
Portland Branch
PO Box 3436, Portland, Oregon 97208
Salt Lake City Branch
PO Box 30780, Salt Lake City, Utah 84125
Seattle Branch
PO Box 3567, Terminal Annex, Seattle, Washington 98124

This report was prepared by the staff of the Federal Reserve Bank of San
Francisco: produced by Karen Rusk; graphics designed by William Rosenthal;
edited by Gregory J Tong. Assistance provided by Economic Research; Supervi­
sion, Regulation and Credit; and Corporate Planning, which coordinated the
contributions of District Operations, Computer Services, Finance and Product
Management, Statistical and Data Services and Personnel.

32

Federal Reserve Bank of San Francisco
P.O . Box 7702

San Francisco, California 94UO

BULK RATE MAIL
U.S. POSTAGE
PAID
PERMIT NO. 752
SAN FRANCISCO, CALIF.