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Table of Contents Fro m th e Boardroom Na tiona l Scene Western Scene West ern Banking Administrative Objectives Pri ced Payments Services Services to Government Agencies Directors 2 4 8 10 13 19 23 25 8IdeIaI R...". Bank of San Flallcisco MAR 12 1984 LIBICAK Th e Fed eral Reserve Bank of San Francisco is one of twelve reg ional Reserve Banks whic h, together w ith th e Boar d of Gov erno rs in Wash ington, D. C. , comprise th e na tion's cen tral bank. The Federal Reserve Bank of San Francisco serves the Twelf th Federal Reserve Dis trict, wh ich includes Wash ingto n, O regon , California, Arizona, Neva da, Utah , Idaho, Alaska , Hawai i, Guam an d Ame rican Samoa. As the nat ion's cen tral ba nk , the Federal Reserve is respo nsib le for det erm ining and carryi ng o ut o ur na tio n 's mo ne tary po licy. It also is a bank regu latory agency, a provide r of who lesa le priced banking services , an d th e fiscal age n t for the United States Treasu ry. Th e An nu al Report of the Fed eral Reserve Bank of San Fra nc isco provides a review of the wes tern cen tra l bank's ro les in carrying out these System respo nsibilities agains t th e back grou nd of the ma jor economic, legislative, regu latory a nd ad minis tra tive develo pmen ts in 1983. 1 From the Boardroom John J. Balles Presid ent Caroline Leon etti Ahmanson Chai rman of the Board Alan C. Furth Deputy Chairman Th e nati on al eco nomi c re cove ry in 1983 w as w elcom e new s after the d eepe st recession si nce World War II. Rea l g ross nati on al pr oduct gr ew 6. 2 percent o ve r th e year; im p ress ive ga ins we re ma de in emp loyme n t a nd fur th e r inroa ds were ma de agai nst infla tio n. Co ns ume r spen d ing w as a leading con tr ib u to r to th e recovery, a ided in th e firs t part of th e year by hous ing a nd by bus iness s pe n di ng on equ ipment. By yea r e nd, th e une mplo y m ent ra te had dropped to 8 .2 percent from its rece ssion pe a k 000.8 percent re corded in Decem ber 1982 . Inflati on decli ned for th e second s tra igh t yea r, a s th e increase in th e a vera ge le ve l o f p rices o f a ll goods a nd se rvices produced in the U. S . fell from 4.4 percen t in 1982 to 4 .1 percen t. Th is improveme n t was all the mo re rema rkabl e when compared to the average in fla tion rate o f 9.4 pe rce n t for 1980-1981. F u r ther eco no m ic ex pa ns io n is expec te d in 1984 w ith real GNP foreca st to grow between 4 and 5 p ercent. H owever, co n tin ued large fed e ral bud get d e ficit s co n tribu tin g to hi gh real (in fla tio n -a dj us ted ) inte res t rat e s in th e U nited St ates m a y lim it th e rec ove ry o f ce rta in secto rs of th e economy. In 1983, the ad ve rse effec ts of h igh rea l interest rates were mos t eviden t in a n unu s uall y la rg e deficit in o ur fo reig n bal an ce o n goods a nd se rvices . A larg e ca p ita l infl o w from a bro ad , a tt rac te d b y hi gh re al interest ra tes in th e Ll.S.; push ed up th e fo reig n ex cha nge va lue o f th e d ollar a nd hurt U .s . ex ports w h ile a t th e sa me tim e e nco u raging im ports much mo re t ha n is ty p ica l at thi s st a ge o f a business recoverv . The re a lso were in d ications that the hou sin g in d us try may ha ve fel t the effects of hi gh real ra tes in the last quarter of 1983 when new housing starts tapered off sign ifica n tly. For m on etary policy, the challenges in 1983 involved maintaining an a n ti-infla tionary stance in the face of hi gh federal deficits and interna 2 tiona! financia l strains, wh ile a t the same time p romoti ng co ntinued eco no mic exp a ns ion . The challe nges were mad e mo re diffi cult bv the un cert ain ty ca use d by the im pact of financial d eregul ation and othe r factors o n th e cha racter of th e mon e tary ag gr egat es, and by the unu su aJly sharp decline in the velo city of M1 in th e ea rly pa rt of the year. In res pon se, less emp has is was placed o n M1 as a g u ide to po licy a nd the tar get s for th e o the r mon etary aggrega tes were ad justed as the FOMC so ug h t to co pe with th e increased uncertainty facing it. Beca use federa l de ficits are forecas ted to stay extrao rdi na rily high throughout th e 1980s (es tima ted to rem ain clos e to 5 pe rce nt of GNP based on current tax and spending progra ms), they pose one of the rna jor issues facing economic policy makers for th e next few vea rs. Ind icati on s of th e d e ficit~ crowdin g o ut spe ndi ng o n expo rts alrea d y h a ve a ppeared , a nd conce rn grows that bu siness s pe ndi ng o n plant a nd eq uipme nt a nd spe ndi ng o n hous in g also w ill suffer. Co ntin ued large deficits th ere fore s how signs of squeezing o u r major sources of comparat ive adva ntag e in w o rld markets, prod uc tiv ity and a rising s ta ndard o f living . In addi tio n to the respo nsi bility for mak ing monetary po licy, th e Fed eral Reserve also plays a n importan t ro le in the nati on's payme nts me ch an ism. In 1980, th e Co ngr ess passed the Mon etary Co ntro l Act to promo te grea te r efficiency in th e paym e nt s mechanism by mandating access to Fed er al Reserve services at exp licit prices for all depository ins titu tions subject to reserve requirements. Last year, th e Fede ral Reserve completed its last major pricing of services w he n it inco rp orated th e cos t of check floa t in to new check collection fee sche d u les . In th is Dis trict, the mandat e has fostered close scru tiny of service levels, cost s, a nd pri ce structures throughou t th e ind us try as the Fed era l Reserve con tinues to e nco urage the efficiency of payments se rvices bo th fo r th e ben e fit of the co ns umer and to fulfill its public interest responsibili ties . For the Fed er al Rese rve Bank of Sa n Franci sco, tw o ma jor 1983 man age me n t objectives-cost-containment an d autom at ion-comb ined with a s tro ng co ns u me r relations program hel ped th e Bank provide high q u ality, cost-effec tive serv ices. Moreover, th ese efforts allow ed the Bank to pro pose a 1984 budget only 4 .6 percen t high er than that of1983. The Bank's com mitment to meeting th e future need s of the Distri ct took tan gible form in the dedi cation of a new head qu arters building in Sa n Francisco on Marc h 2. Since then , the San Francisco Bank also em barked on a conceptua l design for a new building to hou se op erations in Los Ange les . In bot h cases, existi ng ac tivi ties had ou tgrow n th e o riginal facilities a nd " state- of-the- art " technology was need ed to improve se rvices. Automa tion efforts also are evid e nce of th e Bank's orientation toward th e fu tu re . In 1983, they included ma jor compu ter up grad es, e nha nce me nts to intra- d istrict co m m u nicatio ns sys tems , and active participatio n in System-wi de efforts, suc h as that to imp leme nt an auto ma ted sys tem for handling secu rities, developed a t thi s Bank. Combined , the Bank's a nd Sys tem's efforts w ill help the Fed e ral Reserve meet th e goal of imp roving the nation' s pay me n ts mech an ism . Man agemen t be nefited gre a tly during 1983 from th e broad -bas ed exp erience and ju dgme nt of the Bank's directors at its headquarters office and at its fou r bran ches. Th e d irector s provided gu ida nce o n majo r man agement d ecision s and plann ing goa ls. In addi tion, they s upplied information on eco no mic and finan cial condi tio ns to s u pport th e Fed eral Reserve's formulation of monetary policy. Tod ay, 37 public 3 spirited men and wome n serve as directors , re presen tin g a g rea t va riety o f pub lic a nd business inter ests from ma ny areas of th e West. We are gra tefu l to all of these indi viduals and to th ose who complet ed terms as di rectors during 1983. Th ey are: Ole R. Mettl er (Pres id ent an d Cha irm an of the Boar d , Farme rs & Me rcha nts Bank of Ce ntra l Ca lifor nia, Lod i, Ca lifornia) a nd J. R. Vaug ha n (Se nior Mem be r, Rich ard s, Watson, Dreyfuss & Ge rsho n, Los Angeles, California) at our San Francisco office; James D. McMah on (President and Chief Execu tive Officer, Western United Nation al Bank, Los Ange les, Ca liforn ia) a t Los Ange les; J. L. Ter te ling (P resi d ent, The Ter teling Co mpa ny , In c., Boise, Idah o) of Sa lt Lake City; and Virgini a L. Pa rks (Vice President for Finance and Treasurer, Seattle University, Seattle, Washington) at Sea ttle . Finally, we wis h to exp ress o u r a pprec ia tio n to th e o fficers a nd staff w hose efforts a nd d ed icati on mad e 1983 a su ccess. The ir cha llenge was to consolida te the cha nges mandated by the Mon etary Control Act and to develop an approac h to meeting th e lon g-ran ge need s of the Twelfth Distri ct's finan cial commu nity . Ca ro line Leonetti Ahma nson C ha irma n of the Board ,~ J . ~ L. [o hn ] . Balles Presi de n t National Scene The yea r jus t ende d ma rked the first fu ll yea r of recovery from the dee pes t recession since World War II. The recovery was cha rac terized by stron g consume r spend ing, h o u sin g, and business in vestment in equ ip men t. Nevertheless, it was not typical of pa st busi ness cycle u p turns. The combination of a no n in flatio nary mon eta ry pol icy a nd large fede ra l deficits res u lted in high " rea l," or infl ati on-ad justed , int er es t rat es that dep ressed the expo rt sec to r, stim ulated import s an d may ha ve d ampened int er est- sensitive sectors of the econ om y. By year e nd , th er e were indication s th at the da mpe ni ng effect may have beg un to mat e rializ e in th e hou sing ind us try w hic h, up until th en , had recove red sig nif ican tly fro m its recess io n low. Impro vemen ts in em ployment were im pressive, whi le fur the r gai ns we re made in reducing in flatio n . By the fourth qua rter, total employment h ad increased 3.5 percent, or 3.4 milli on jobs , from its low point the yea r be fore . This is 45 percent more th an th e typical increase for the sa me stage of a recovery. Com bined w ith slower grow th in th e labor fo rce, e m ploy me n t gai ns allowe d th e civi lia n une m ployme n t rate to d ro p to 8.2 per cent by Decemb er, d o wn sha rp ly from the 10.8-percen t cycli cal high in December.1982. Inflati on in 1983 decline d for th e second straig ht yea r. Th e ave rage level of p rices of all goods and se rvices produced in th e Un ited States, measur ed by th e GNP implicit price de flator, increased 4.1 percent over the four quarters of 1983 com pared with 4.4 pe rce n t in 1982. These rates represented a remarkable im prove me nt over th e av erage 9.4- percen t inflation rate for 1980 and 1981. Co nsumer prices showed eve n more im provemen t, inc reas ing jus t over 3 per cent in 1983, o r less than a third th eir ave rage rate of increase in 1980 and 1981. Unemployment Rate Consumer spending, housing and business spending on equipment led the recovery Percent 11 - - - - - - - - - 10 --------~~ Progress Through th e Year Th e eco n om ic recovery, as measured by g rowth in the real G ross National Product (GNP), began mo destly in th e firs t q ua rte r of 1983 but grew mo re rob us t in m id- year . From the four th q uarter of1982 to the four th q uarter of1983, rea l G NP rose 6.2 percent, o r onl y s lightly less th an the 6.8 perce n t average of th e first years of th e five business cycle up tum s since th e early 1950s . Real GNP 9--------f-"""'""""" 8 +-t - - - - - --+-- 7 ---11-- --1 I 1974 I , 1976 , I 1978 1600 - - - - - - - - 1500 ------=--F-~_r_ 1400 ---~'------- 1300 --~-----I I 1978 I I 1980 I I - - 6 -t---~_+---- 5' Bill io ns of 1972 Dollar s +- I 19821983 4 I I 1980 , I I [982 1983 Co ns u me r spendi ng was a lead in g contributor to th e recov ery in 1983. Despite its slow start in the first quarter, cons ume r spe nd ing by mid-year surpassed the average increase at the same stag e of pa st bu s iness recoveries. Housing and busi ness s pend ing on eq uipme nt a lso were exce ptio na lly stro ng . By the four th q ua rter, resid ential construction s pendi ng was ab out 40 percent above the level a year ea rlier compar ed with an average first year advance of on ly 25 percent. The pickup in busi ness eq u ipment spe nd ing was a welcome surp rise . By th e e nd of 1983 it ha d incr eased 20.4 pe rce n t in real terms, com pared wi th th e com pa ra ble average cyclical a dvance of9.5 pe rcent. 6-Month Commercial Paper Rate and Inflation Percent 16 ---------:~6-Mo n th Commercial Paper Rat; I1\\ 14 -----~~:--12 -----~-:-----+- 6-~r--"i'i"'----;-- 4--------- 2 L..J 1974 I I 1976 I I 1978 I I 1980 I I I 19821983 In contrast, both the foreign sector and business spending on structures were much we aker in 1983 than the historical norm . Spending on business structures, adjusted for inflation, usuall y increases by the final quarter of the first yea r of recovery but, at the end of 1983, these expenditures were still slightly below their level a year earlier. The weakest sector in 1983 was our foreign trade in goods and services. Typically, weakness in the inter national balance on goods and services develops during the early stages of economic recovery. The . export-import ch art illustrates this pattern by comparing the average differen ce between exports and im ports of goods and services (as percent of G NP) from six previous business upturns and the present recove ry. An upswing in the U.S . usually cau ses domestic income to grow faster than incomes abroad, spurring a greater demand for imports that outstrips the demand for exports; the foreign balance con sequently declines. The U.S. balance on exports and imports of good s a nd se rvices , however, has been much weaker than normal durin g this recovery, deteriorating from a $5.6 billion surplus in the fourth quarter of 1982 to a $18.7 billion defic it by the end of1983. The unprecedented weak performance of the forei gn sector is due to the high value of the U.S . dollar in foreign exchange markets and, to a lesser degree, the unusually slow pa ce of economic recoveries abroad . A high value for the dollar made U.S. exports less competitive in w orld markets and the prices of foreign goods and services more a ttractive to U.S. residents. As a resu lt, growth in U.S. exports lagged while our imports surged. Exports Minus Imports" an d the Business Cycle Percent o f GN P 1.5 - - . . . , . . . . - - - - - 82.2 ; Ave rage of Six Previou s Cycles 0.5 --+--+-r;.;.;....----~ 4 (, Quarters from Tro ugh -1.0 _ _.....L.. _ "Expo rts and imports of good s and services Not a Typical Recovery Past recoveries typicall y have seen more balanced growth among the ma jor economic sectors than the present one. The peculiarities of 1983 were due to a mixture of exp an sionary fiscal policy and. anti-infl ationary monetary policy th at have resulted in high " real", or inflation-ad justed, in terest rates. 5 Federal Deficit as Percent of GNP Percent of GNP 8- - - - - - - - 6 IV 4 ( ? ~ ,), a 1974 , I 1976 I I I 19821 983 Expan sionary fiscal policy in the form of large federal government de ficits placed upward pr essure on interest rates during 1983. Measured on a unified budget basis, the federal deficit was $195 .3 billion for fiscal 1983, or approximately 85 percent of available net savings from the private sector and state and local govern ments. According to the Congre s sional Budget Office, the projected deficits for the 1980s will avera ge close to $200 billion through 1986, or 5 percent of GNP, even as the economic expansion proceeds . Treasu ry borrowing to finan ce these deficits competes with pri vate credit demands and tends to keep interest rat es high . High interest rate s, in turn, discourage spending by business and households, thereby ensuring that enough resources are transferred from the private sector to meet the federal government's larger demands. The impact of federal deficits falls heavily on interest sensitive spending such as housing, consumer durables and business capital investment, alth ough in 1983 the effects on consumer and business spending were offset in part by the final 10 percent cu t in person al income tax rates, and by the accelerated depreciation allowa nces provided in the Economic Recovery Act of 1981. The toll of high real interest rate s was most prominent in 1983 in the unu sual weakness in our foreign account mentioned earlier. High real U.S. interest rates attracted capital funds from abroad which pushed the dollar's value significantly above the level consistent with the differ ence in price levels between the United States and its major trading partners. The competitive position of U.S. relative to foreign goods and services deteriorated, producing the marked decline in our international balance on goods and services des cribed above. In 1983, this problem reached record proportions. The International Debt Situation Weakness in the export sector of the economy also was aggravated by the international debt crisis as several less developed countries (LDCs) adopted austerity measures to meet international debt repayment obligations. Designed to cut back imports to bolster foreign exchange earnings, these measures resulted in a drop in U.S. exports to Latin America - the region hardest hit by the debt crisis - of23 percent between 1981 and 1982. these provisions were broadly con sistent with the proposals made in April by the three federal banking agencies - the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve. Problem areas remain, however. Brazil has had trouble operating within the terms of agreement for its IMF loans, and the Philippines is experiencing both capital flight and difficulties in gaining new credits from commercial bankers concerned with political instability in that country. A sharp decline in 1983 in international bank lending, particu larly by moderate-sized banks, increased the burden on the larger banks, governments and inter national lending agencies. Finally, continued high U.S. real interest rates exacerbated the liquidity problems of LDCs because the interest cost of a significant part of their debt is tied to Ll.S. rates. Resolving international debt problems depends on continued cooperation and a sustained economic recovery Further progress in resolving the LDC debt problem will continue to depend upon cooperation among the LDCs, banks, and international agencies, and on a sustained economic recovery both here and in other industrialized nations. Some progress was made toward defusing the LDC debt crisis in 1983. A restructuring of the public debts of Mexico and Brazil was accomplished and progress toward the same goal has been made for other large LDC borrowers. In addition, a substantial increase of over $30 billion in the International Monetary Fund's resources and an increase of about $11 billion in the General Arrange ments to Borrow provided that agency with larger funds for loans to countries with severe international payments difficulties. The authori zation for the $8.4 billion increase in the U.S. contribution was coupled with provisions to tighten controls over U.S. bank lending abroad; Monetary Policy In 1983, the Federal Reserve con tinued to pursue an anti-inflationary policy that, at the same time, would promote the economic recovery then underway. As the year began, monetary policy faced a number of important challenges. A primary challenge was to provide the basis for an economic recovery without re-awakening fears that monetary policy had become inflationary. The problems of designing an effective monetary policy were made espe cially difficult because of uncertainties about the impacts of continued high federal budget deficits and international financial strains on the economy. 6 Another area of uncertainty concer ned the method by which the Federal Reserve has implemented monetary policy, namely, the targeting of monetary aggregates. Financial deregulation in the form of the new Money Market Deposit Account (MMDA) introduced in December 1982 and the debut of the Super-NOW in January 1983 raised questions as to how movements in the monetary aggregates should be interpreted as the public adjusted its portfolio to the new accounts over the year. Velocity and Ml Growth (Semi-annual Rate of Change on an Annual Basis) Ch'l llgC' ( °'0) 15 - - - - - - - - - - 10 - - - - - --H:---i--r o- - - - - --+--+-i -5 - - - - - - - -:"..+ I I 1976 1980 In addition, there was considerable concern about the continued useful ness of M1 as a policy guide given the surprising decline in its velocity in 1982. At the time, the decline raised concerns that financial dereg ulation and other factors had fundamentally changed the character of MI. M2 and M3 also had unusual velocity declines, but their declines were less pronounced in relation to normal cyclical patterns. The Federal Reserve responded to these two sources of un certainty about the aggregates by making some adjushnents to its mon etary targeting over 1983. First, the Fed eral Open Market Committee, th e ma jor monetary policy arm of th e Fed , decided to place less th an the usu al weight on the narrow transactions aggregate Ml, which in recent yea rs often ha s served as th e primar y inte rmediate tar get. Thi s decision w as ca rried over from th e O ctober 1982 meetin g w he n th e Committee began de-emphasizin g M1. At its Februa ry 1983 meeting, the FOMC established a monitoring range, in s tea d of a tar get ran ge, for M1 of 4 to 8 percent from the fourth qu arter of 1982 to the fourth qu art er of1983. The new deposit instruments also affected the tar get ranges for the broader monetary agg rega tes. For example, it was widely expected that the introduction of MMDAs would cause funds to flow in to M2 and temporarily distort its gro wth . The impacts of the new instrument were expected to be especially large in the first quarter of 1983 and to persist throughout the year. The FOMC's reaction was to establish a ta rget range for M2 from a base of Februa ry-March of1983 to the fourth quarter of 7 to 10 percent. The Committee also es tablished a tar get ran ge o f 6lf2 to 9 1h perc ent for M3 from the fourth qu arter of1982 to the fourth quarter of 1983, and a mon i toring range o f 8 1h to 11% percent for total domestic non-finan cial debt over the same period . The decline in velocity that occurred in 1982 carried over into the first qu arter of 1983 although it appeared th at this phenomenon was largely o ve r by mid-year. In retrospect, this de cline seems to have been the re sult in part of the drop in inflation in ea rly 1982, and a subsequent decline in nominal short-term inter es t ra tes in the latter part of the year. To a lesser extent perhaps, the velo city decline wa s related to increases during the recession in pre cautionary d emands for short-term finan cial asse ts, includi ng the NOW accounts in M1. At mid -yea r, the FOMC mo ved the base of the M1 mon itor in g range forward to the second quarter of 1983, and establi shed a new (hi gher) 5 to 9 percent ran ge th at extended to the fourth quarter of the year. Continued massive deficits threaten to undermine our standard of living At yea r-en d , two of the monetary aggreg ates, as well as total debt, wer e w ith in their ranges for 1983. M1 finished slightly above the m id point of its range, M2 marginally below its midpoint. M3 ended the ye a r just abo ve the upper bounda ry of its tar get ran ge . The Outlook The economic expansion is expected to co n tin ue in 1984 w ith real G N P g rowing bet ween 4.0 and 5.0 percent. The unemployment rate is expec ted to decl ine moderatel y over the year, but will rema in abo ve the levels that would indicate a bu ild-u p of inflationary pressures. Inflat ion in 1984 therefore should be up onl y modestly over 1983 barring an y sub stantial food or energy price increases. 7 Bas ed on current tax and spending programs, large federal defi cits are projected to con tin ue into the fu ture . According to the Congres sio nal Bud get Office, they will grow from 3. 0 percent of GN P in 1984 to 4.6 percent by 1989; this com pares with an average of 2.0 percent durin g the 1970s . Th ese stru ctural d ef icits , so -ca lled becau se thev will persist des pite con tinue d recovery in the econ om y, w ill absorb an unu su ally large sha re of the nation 's ou tpu t ov er the de cade. Mu ch of this tran sfer of resources from the pri vate to the publ ic sector w ill come at the expense of housin g, investment in bu siness plant a nd equ ipmen t a nd the forei gn trad e secto r (that is, lo we r ex po rts a nd output in the import-competing sec tors) . Thus, th e co n tin ued massive deficits threaten ultimatelv to undermine U.S. com petitiveness. productivity and stand ard of living. Western Scene The Twelfth District's economy, al tho ug h slow to begin its recove ry, g rew w ith increased vigor as 1983 progressed . In keeping w ith the national pattern, ga ins in employ m ent first came mainly from a turn around in the demand for in teres t se ns itive spending, parti cularl y hou sin g . Risin g con sumer spend ing a lso provided a major stim u lus for the regional econom ic recovery as consumers sharply increased their ou tlays for all retail goods a n d services, but especially for durable goods. Employment Gains One key indicator of the strength of the West's recovery was a 4.3-percent rate of employment growth over the course of the year that surpassed the nation 's performance . Arizona was the s tar performer w ith employm ent g row th o f just over 8 percent, but employment in Utah, Washington, Idaho, Ne vada and California also g re w faster than the national a ver age . As of December 1983, th e unemployment rates in Arizona and Cali forn ia had dropped we ll below th e national average, while in Utah th e unemployment rate rem ain ed below the national average , as it had during the 1981-82 recession. Only in Hawaii, Oregon and Alaska was em ploy men t growth over the course of 1983 below the national avera ge . Oregon's poor performance was due to the renewed weakness which developed in national homebuild ing a n d related industries in the second half of 1983. Hawa ii showed signs of sig ni fica nt im p rov emen t late in the yea r a nd its unemployment rate in a ny event remained below the national av e rage as it had during the 1981-82 recession. G rowth of Employment r Percent 8 6 4 2 -2 -3 , I oI 1 I ~ ~. ~ ~ 1 ~ C ~ '" T 0;- ~ SJ ~ 5 r :>- fr c 'J) • Decem be r 1981- December 1982 • Decem be r 1982-D ecem ber 1983 Recovery's Progress The s ta tes in the Pacific Northwe st were amo ng the first to bounce back fro m th e recession as the turnaround in na tional housi ng boosted em ploymen t in local construction, lu mber a nd other housing-related indu stri es . This early strength provid ed a major impetus to the Tw elfth District's recovery although the slowdown in western and national housing activity which began a fter Au gust adversely aff ected Oregon 's economy. In the seco nd qu arter of 1983, the recove ry began to boo st basic materials ind us tries such as chemica ls and paper, a nd spread to capital goo ds industries such as non-electrical ma chinery. At the same time bu siness capital s pe nd ing began to revive, the demand for cons umer durables continued to pick up, s purring employment in both ret ail trade and automobile manufactu rin g . And the rise in person al income throughout the nation spurred tourism in the West, parti cularly Hawaii, helping to give th at state the lowest unempl oyment rate in the region. 8 The ae ros pace a nd electronics industries became major so urces of stre ng th to the regional economy as 1983 pro gressed . Because the West is home to numerous military bases and man y of the nation 's leading aer ospace and electron ic eq u ipmen t manufactu rin g firms , the region ben efitted throu gh out the year from th e high er lev el of Federal gove rn men t defense sp ending. In Haw aii, this stimulus took the form of increased expe nd itu res for military payrolls and local purchases. Other states - including California, Wash ington , Arizona and Utah experienced a n increase in the Fed er al govern men t's demand fo r aero spa ce equip ment, including a ircraft, missiles a nd electron ic products . Aerospace and electronics industries were major sources of strength Emp loyment in the aeros pace a nd electronics in d ustries accelerated in the seco nd qu arter of 1983, when business demand for electronics products picked up. Th e only excep tion was in Washington , where declining ba cklogs in commercial aircraft orders reduced ae rospace payrolls throu gh out th e yea r. At year-end, however , there was optimism th at the co n tinue d ga in s in defense business would com bine with grow ing com mercia l aircra ft orders to halt future layoffs . Western mining, agriculture and energy industries showed persistent weakness Persistent Weaknesses Despite the general strength of the region's recovery, some sectors showed unusual or persistent weak ness. Western producers of copper, lead and zinc - located mainly in the Intermountain states continued to operate at low levels of capacity utilization because of excess worldwide production of their products. In Arizona, Utah, Nevada and Idaho, a declining demand for gold and silver caused a drop in metal mining and processing industry employment. Abundant supplies and relatively low prices for energy products " reduced coal production and synthetic fuel development in Utah, while opposition to the construction of nuclear plants continued to depress uranium mining in that state. Cutbacks in oil drilling and exploration activity, caused by a drop in the world price of oil, hurt Alaska, which also suffered from weakness in logging and fish pro cessing industries. The Outlook Further progress seems assured for the western economy in 1984, with the gains matching the national performance. Increased defense and business capital spending should increase employment in the West's capital goods industries. Further boosts in consumption expenditures as disposable income continues to rise should help the retail trade, service and tourist related industries. Exports of agricultural products also may rise as foreign economies strengthen. The huge increase in housing promises to make homebuilding less of a stimulus in 1984 although Western housing starts may rise moderately. Unless homebuilding activity improves further, Oregon's recovery could prove vulnerable because of its heavy dependence on the lumber industry. Prospects for significant recovery in the West's metal and energy mining operations are not promising. On balance, however, the West should do as well as the nation in 1984. In agriculture, lower farm operating costs were offset by bad weather and a fall in exports. On balance, net farm income rose only slightly. The continued weakness in both the mining and agricultural sectors kept western rural communities depres sed in comparison with metropolitan areas as 1983 drew to a close. 9 Western Banking The e ffects o f ma jor legislation enacted in 1980 and 1982 combined to create a new o per ating environ ment for the banking ind ustry in 1983 . Deposit deregulation was the most im po rta n t, but br oader th rift lendin g and holding co m pa ny powe rs also ch anged the bankin g e n viro n me n t by effectively placing sav ings and loan associations in direct competition with banks for a lm os t the enti re arra y of retail bankin g se rv ices . Moreo ver, a ne w rash o f e ffo rts to expand bank holding company activities, as well as to es ta blis h " non ba nk" banks (ins titu tions th a t eith er take d e posits o r make commercial loans, but not bo th), h ighlighted aggr essive co m pe titio n in the market for financi al serv ices. Deposit Deregulation Deregu lation o f deposit rates hit w es te rn banks a nd S&Ls with full fo rce in 1983. The introduction of the Money Market Deposit Accou nt (MMDA) in mid -Dec ember 1982 and the Super-NOW in January 1983 g a ve de pos ito ry in s titu tions the a u th o rity to offer "market" rates on depos its of $2,500 or m ore. Then, in O ct ober, d eregulati on of all time deposits with o riginal maturities g rea te r than 31 da ys left onl y a small portion of banks and S&Ls deposits s u b jec t to rate regu la tio n . Billions of doll ar s flow ed into the unregulated acco u n ts, re structuring the bal ance sheets of depository in s titu tio n s in the process. Mo ne y Market Deposit Accounts Billions of Dolla rs 400- - - - - - - - - 300 ----:---.......:.--+---;-- T hrift s ~ 200 Banks ~ 100 o n Dec MM July Sep t D(;'( 'J9H2 19H3 1983 19H3 1983 the account. Western S&Ls garnered $35 billion in MMDA d eposits o ver o ne-fift h of all their de posits. The money market funds, on the o ther hand , los t not only market s hare, but also s u ffe red signific ant net outflows o f funds . As much as on e-third of bank a nd thrift fu nd s flowing into MMDAs were " new " fu nd s th at enabled these institutions to reduce th eir reliance on " p ur chased fu nds" such as lar ge denomination negotiable CDs, fed funds and repurcha se agreements . Large CDs outst anding at western banks, for example, de clined fro m 32 percen t to 20 percent of th eir liab ilities . The success of the MMDAs, howe ver, wa s not costless, as District ban ks and S&Ls reported a $14 billion decline in the lower-cost passbook savings deposits. The bankin g ind ustry e merge d as the clear leade r in the MMDA battle in th e West and in th e nation , largely because it offered higher yields and bonuse s in the initial weeks th an S&Ls, m u tu al savin gs banks , and cred it unions . By year-end , we stern banks a lo ne held more than $51 billion in MMDAs, or about 21 percent of their total domestic depo sits. In contrast, western thrifts lost tot al retail saving s market share to commercial banks, but were able to att ract sign ificant net inflows with 10 Slow Loan Growth The influx of MMDA funds sent ba n ks and S&Ls scram blin g to find profitable lending opportunities in 1983. Consume r credit provided the most attractive lendin g market as man y western banks made a concer ted e'ffort to pr omote th ei r ins ta ll ment loan and credit card products. Boosted by th e rise in con sumer spend ing on durable good s, banks experienced the first sustained increase in consumer lending since 1979. The residentia l mo rtgage market s howed con siderable s tre ng th despite a rise in mortgage rat es in the late sp ring and early summer. S&Ls extended the lion 's sha re o f mortga ge credit in the West, as their mortga ge loans o u ts ta n d in g g rew by 17 percent in 1983. Western banks' real es ta te loan s outst an ding , by contrast, grew onl y 3 percent, alth ou gh thi s fig u re und erstates banks' o rigi na tio n activity since most o f their fixed rate mortgage loans were so ld in the seco nda ry market. By contrast, improvement in corporate cash flow s a nd better terms in debt a nd equ ity allowed man y corpora tion s to reduce their depend ence o n s ho rt-te rm ba nk borrowing. O verall, we ak d emand for business credit limited the domestic loan g row th o f western banks to a s luggish 5- pe rcent rate, well below the moderate 8.5-percent ra te for ban ks nationwide . Foreign loan portfolios also co n tracted slightly as lesser developed coun tries (LDC) continued to face prob lems se rv icing their debts . Western S&Ls fa red much better ov erall; their loan po rt folios gr ew by 19 per cent because of the pickup in mortgage lending and the ir broade r consumer lending powers . Earnings On balance, banks and S&Ls enjoyed a reduction in their overall cost of funds because of lower inter est rates in 1983. S&Ls managed to show positive aggregate earnings of $1.1 billion in 1983 despite the lingering effects of poor loan quality and interest rate mismatches. Loan losses at banks, however, placed a significant drag on their earnings growth. Deterioration in the quality of LDC, housing, and energy-rela ted loans, in particular, resulted in a 60-percent increase in loan loss provisions in this District, with the problem much more severe at some banks than others. Nevertheless, most western banks posted increases in earnings over the level in 1982. A new banking environment in 1983 was highlighted by aggressive price competition A primary source of earnings growth for banks in 1983 was the sharp 25 percent increase in fee and fiduciary income. Banks raised fees to recoup the cost of providing here tofore "free" services, particularly deposit services, and expanded the array of financial services offered. Supervisory and Credit Services Developments in this Reserve Bank's supervisory, regulatory, and credit activities confirmed the gen erally healthy condition of banks and banking organizations in the Twelfth District in 1983. But despite improved earnings for most institu tions, many individual banks continued to be troubled by the effects of the recession that ended in late 1982, although their problems were less severe than banks in the rest of the country. Conditions at 16 of the 137 commer cial banks and bank holding com panies examined by this Reserve Bank warranted formal corrective programs. These institutions suf fered from depressed earnings and problems with liquidity brought on by a combination of the legacy of the 1981-82 recession and regional prob lems with asset quality, especially poorly performing western real estate, energy-related, and interna tionalloans. Such conditions hit small commercial banks hardest, with more such banks failing nationally in 1983 than 1982. The economic environment, poor loan quality, and a federal funds rate that exceeded the discount rate for most of 1983 led a post-war record number of institutions to seek ac commodation at the discount window. Although most borrowed for short-term adjustments, 23 of the 102 borrowing institutions sought credit for extended periods to meet seasonal or more acute liquidity strains. In general, institutions con tinued to pledge large balances of collateral to secure potential borrow ings, and, at the end of1983, the five offices in this District held $18.5 billion collateral in total. The San Francisco Reserve Bank continued successfully to coordinate examination efforts with related state and federal regulatory authorities in such programs as the Alternating Examination Program and the Extended Examination Cycle Program. These efforts have resulted in greater cooperation, coordination and significant cost savings for all involved. 11 The Bank's examination policies also continued the trend toward focusing on the internal audit procedures of depository institutions. This ap proach extended into credit services as exem plified by the Qualified Loan Review Program. Implemented in late 1982, this program qualifies institutions to pledge certain types of customer paper as collateral for advances at the discount window and for Treasury Tax and Loan deposits without the Reserve Bank's prior analysis and approval of the financial condition and creditworth iness of the pledging institution's customers. Instead, the Reserve Bank, along with the appropriate other supervising agency, judges the institution's financial soundness and loan review program. For all examinations in 1983, this bank used the new Commercial Bank Report of Examination adopted by the Board of Governors near the end of 1982. The new report was designed to reflect current con ditions and practices in the industry by incorporating additional empha ses on interest rate sensitivitv and items recorded off the balanc~ sheet, revised definitions and guidelines relating to capital adequacy! end-of quarter financial statements! and extensive peer group comparisons. The San Francisco Reserve Bank also embarked on a long-term objective to im prove the efficiency and quality of administrative functions in its supervisory! regulatory and credit services by automating activities that permit the cost-effective appli cation of computer technology. This effort is a response to the increasing volume and complexity of regula tory data as the financial industry continues to expand and diversify. Exa m p les of ne w deve lopme n ts wi thi n th e ban king indus try were mos t ev iden t in th e ty pes of ba n k h olding co m pa ny (BHC) appl ica tio n s processed in 1983. BHC form a tions co n tin ue d at a brisk pace a lthough their nu mbe r decli ned after rising in each of th e last th ree vears. In 1983, however, the com p lexity of ap p lica tio ns submi tted increased , as d id the nu m be r of BH C applica tions to expand non -banki ng o p e ra tio n s a nd to acq uire add itio nal banks . Alth o ugh many applica tio n s deal t w ith thrift a nd loan com panies, co n s u m e r fina nce , and insurance underw ritin g, more sign i fican t fo r the s tr uc ture of banking in the fu ture, we re applications to engage in rece n tly approved a c tiv ities s uc h as d iscount brokering and the se lling of fu tures con tracts. Banking organizatio ns also co n tin u e d to ex pa n d th ei r in terna tio nal ba nking facilities and Ed ge Co rp o ra tion ope ra tions , as 20 of the forme r were es tablis he d or approved and 3 of the latte r we re esta blis hed in 1983. In addi tio n, th e Bank Export Se r vices Ac t, passed by Congress in 1982 , p ro d u ced app lica tions by seven ba n kin g or ga n izati o ns to esta b lish Ex p o rt Tradi ng Compa n ies in th e Twelfth District. These ne w compan ies w ill s trive to promo te expor t grow th by offering such services as marke ting assis tance, freig h t forwardi ng, a nd insura nce a n d financ ing of all ty pes of domes tically produced goods a n d raw m a te rials . In th e area of co ns u me r edu cati on and protec tio n, most complain ts to which th e cons umer affairs unit responded co nce rned unregu lated ma tters s uc h as se rv ice charges and d e p osit dis p u te s typically involving a utomatic teller machines , whi le most re g ula tory inquiries fell un d e r the Tru th-in-Lend ing reg u lat io n . Consu mer affa irs a lso maintai ned its o u treac h ac tivi ties by providi n g speakers to ba nki ng and credit asso cia tion semina rs, offe rin g the Ed uca tio nal a nd Ad visory Se rvice to sta te member banks to h e lp th e m u nd e rst a nd and comply wi th consumer law s a n d regulati ons, and d evelo pin g comm u n ity co ntacts . Community co n tac ts prov ide in form ation for exami nation s of compliance wi th th e Com mu nity Reinvestmen t Ac t. They a lso he lp th e Bank iden tify and eva lua te community developme nt programs it may be able to assist. Examples in clu d e the Ne ig h bo rhood H o u sing Services and Bay Ar ea Resid e nt ia l Investmen t and Develo pm e n t G rou ps , w hic h ha ve the co m mo n objective of d evelo p ing affordable ho us ing th rough a part nership of communi ty represen ta tive s , loca l governme n ts and fina ncial ins titu tio n s; the Res e rve Ban k's role is to facilita te co m m u n ica tion among the differen t par ties . 12 Administrative Objectives Durin g 1983, the focu s o f the admi n ist rati on of th e Sa n Fran cisco Fed er al Reser ve Ban k shifted from comple tin g th e ma ny ope ra tiona l cha nges mand at ed bv the Mon et arv Co n tro l Ac t o f 1980 to o ne o f fu lly adap ting to th e changes th at occurred in the tran sition , a nd plann ing for th e fu tu re . Th e dedication of th e Bank's ne w headquarters office in Sa n Francisco o n March 2, 1983 sign ified , in a se nse, both a commitment to the long-ran ge needs of the Twelfth Dist rict's financial communitv, a nd re cog ni tion o f th e fundam en tal ch an ges in th e Federal Reserve Syste m's a pproach to so me of its trad ition al roles . Sp ecifically, the Co ng ressio na l mandat e to price Rese rve Ban k services to recov er cos ts , a nd to ens ur e open access to th ose services, led thi s Ban k to emp has ize sta te -of-the-a rt facilities for se rv ice d eli v e rv an d cos t containm ent to m ~ ke th ose services e fficien t an d mar ket ab le. Cost Containment Th e Twelfth Distri ct's emphas is on co n tain ing cos ts pe nnea ted all parts o f th e budget process a nd resu lted, in 1983, in internal rea lloca tions of resources a nd new in itiat ives to . dampen th e u pward trend in expenses. A key elemen t in cost containment was th e adoptio n of an a u tomation stra tegy that has yielded both additional con tro l ov er the investment of resources in computer eq u ip me n t and e fficiencies in opera tions amenable to au toma tion . This Reserve Bank also revised medical a nd hosp ital ins u ra nce plans for em ployees and achieved add itiona l sav ings in ne w a rmo red carrier co n tracts a nd new s taffing me thods fo r cu rrency processing . O v erall, th e Sa n Franci sco Bank's cos t-co n ta in me nt e fforts held 1984 expe ns es to $114,383,000 (within bu dget) a nd allowed the Bank to p ropose a 1984 budget only 4.6 p ercent high er th an that of 1983. Facilities Planning Co m ple tio n of th e Fed eral Reserve Ban k o f Sa n Fran cisco's new head q ua rte rs facility capped several years o f e ffort in planning and co ns tructio n. To meet th e cha ngi ng and gro wi ng need s of the Twelfth Dist rict, the building was design ed to facilita te au to ma tion to impr ove Ban k serv ices. Increased use of computer technology is the key Em p loyees forme rly housed in several d iffe rent locati on s, man y in leased s paces , we re brought together unde r o ne roof w ith e no ug h spa ce for expa ns ion. Life-su pport and elec trical sys te ms comp leme nt the Ba n k's co mp u ter-ass isted opera tion s, and high -securi ty sp ace should acco m mo da te grow th in cas h and fiscal age ncy ope ratio ns th rou gh the next 30 years . Th e ne w bu ilding's d at a center co nta ins facilities for ad d itio na l p rocessors, s torage m ed ia, a nd telecommunication s eq uip me n t, a nd its ne w telecommunications control center e m p loys th e la test control and sw itching technology. In additi on to housing the Reserv e Bank 's ad m in istra tion and banking se rv ices , a portio n of the new bu ilding is dedi cated to public ed uca tio n in eco no mics . An exten s ive ex hi bition, called The World of Economics, is hou sed in the build ing's lobby. Co ns isting of twe nty- three se pa ra te ex hi bits that range from a mural d epic ting th e de velo p ment of eco no mic th eo ry to com puter ga mes th at pe rm it the pa rticipa nt to sim ulate th e man agement of fisca l and monet ary policy, the m ulti media exh ibition is o pen to th e publ ic every wee kday. New h eadquarters building in San Francisco 13 In June of 1983, the Board of G over nors a uthorized the Bank to pr oceed on th e conce ptua l design of a new building for its Los An geles Branch office. Existing oper ations alre ad y hav e outgrown the Los Ang eles facility built in 1929 and expa nd ed in 1953. Moreover, primary mechanical and electrical building sys tems a re outdat ed , and specia l facilities, such as th e cash va ults, are in ad equat e. The pro posed new bu ild ing, on a site adjacent to th e old, w ill pr ovid e for all exis ting opera tiona l need s of cas h, checks, and comp u ter services a nd for their ex pa nsion in th e fore seea ble futu re. The new bu ildin g also will have a back- up so urce o f po wer and other critica l sys tems for emer gencies . In su m, the new facility will he lp th e Bran ch meet th e cha llen ge of supplyin g effective and efficien t banking se rvices to on e of the na tion's fast est gro w ing com m u nities. Automation Efforts The Federal Reserve Ban k of Sa n Franci sco's com mitme n t to a utoma tion efforts has res ulted from emphasizin g th e qu ality of service performed at th e lowest cost cons is tent with modem man agement techniques, app licable technology, and security . In ad d ition, th e Bank views th e increased use of comp u te r technology as a key mean s of fulfil ling its public int erest respon sibility to promote im proved pay me nts se rvices in th e financia l ind us try. Planning, impl em enting a nd develop ing resou rce-sha red a pp lications systems (tha t is, those sys tems for w hich the costs of de velopm ent are sha red by Rese rve Banks) as part of the Federal Reserve System's Au toma tion Program wa s the major emphasis of th e Reserve Bank's computer services staff in 1983. Last yea r, Bulk Dat a and Administrati ve Message sys tem s were succ essfull y imp lemen ted and plans were com pleted to impl ement the Funds Tran sfer, Cus tomer Information an d Automa ted Clearing Hou se (ACH) resou rce shared system lat e in 1984 or ea rly in 1985, and th e Int egr at ed Accounting Sys tem in 1985. As the de velop er of the highl y s uccessfu l SHA RE sys tem for a uto mated secu rities han dl ing, th is Ban k continues its lead er shi p role wi thin the Federal Reserve Sys tem Au to mation Program. The SHA RE system has been installed at a number of Reserve Ban ks, including St. Louis, Dallas and Kansas City, and is nearing final installation in Chicago. Installation s in 1984 are planned for Cleveland , Boston and Atlanta . Moreover, the Twe lfth District was chosen to be th e developer of th e System's resource s ha red Sta tis tical Dat a Reporting Syste m-STAT. STAT will bu ild on the Microd ata Processing Efficiencies (MIPE) sys tem d eveloped by Sa n Francisco, an d initial ava ilability is planned for ea rly 1985. A commitment to the long-range needs of the Twelfth Di strict's financial community The Bank also retain ed its leader ship role in establish ing nation wid e automation pol icy throu gh th e pa r ticipation of se nior man agem ent in the two national committees that se t the direction for th e Sys tem 's auto mati on program s; man y of th e Bank's se nior technical staff also se rve on various nati on al task forces. Internal au toma tion efforts included completing a ma jor comp uter up grade progr am for th e San Francisco data center with th e installa tion of a new central processor. Bran ch computers were up graded in Los Angeles and Salt Lake City, an d Portland and Seattl e will see sim ilar upgrades early in 1984. Ins tallation of the new equipme nt in San Fran cisco in th e first qu art er of 1984 for chec k processin g support will enab le all offices to process checks under a s ta nd ard operatin g env iron me nt. Pr oposed new Los An geles Branch 14 This w ill lead to reduced operati ng and support cos ts as well as a uniform check p rod uct and a common base for backing up our District-w ide p rocessi ng. In 1983, th e Ba nk ins talled a new cha rgeb ack sys tem to su pport the a lloca tio n of a ll District dat a proces sing cos ts o n the basis of the actua l use of resources . Thi s sys tem is now a major factor in un der standing and monitoring resource use, and in developing cos t-based prices for compute r services . The new in tradis trict com m unica tion s net w o rk (SPINE), ta rgeted for co m plet ion by mid -1984, uses sta te of -the -ar t telecom mu nicati on tech nology to provide improved se rvice with lo w er internal opera ting cost s to the Ban k. In th e latter part of 1983, all older ter minals in fina ncial insti tu tion s co n nec ted to our network w e re re p lace d wi th new personal compu ters as part of this project. The San Francisco Ban k also has placed a major emphasis o n curta il ing the future growth of au toma tio n costs. It has embarked on a stra tegy of using the micr o processor to p ro vide users with increased automa tion su ppo rt at smaller incremen tal cos ts. Th is technology, w hic h com pleme nts the use of large dat a base orien ted processo rs and w hich has been high ly successful in cus tome r ne two rks for electronic access to services, will be a fund amental aspect of future automa tio n stra te gies . In ad d itio n, the Ba nk co nt inu es to a na lyze the capacit y of ex isting p rocessors a nd to tune th e ir perfor mance for bett e r service. As part of ong oing effor ts to suppo rt the Ban k's se rvices, several major projects were started in 1983 in the areas of co ntinge ncy backu p a nd d isaster recovery plannin g, q uality assura nce , and securi ty en ha nce me nts. Com bined, these efforts wi ll posi tion the Bank to ma in tain a lead ersh ip role in au to ma tion a nd comm u nicatio ns a nd to meet new and changin g business require me nts in a cost -effective and responsive manner. 15 vice Prt...;id,'nl GenNal Audilur Robert L C,lCcht'!1 Gt"ner,dCou~I&Sl'(retdr'\< : _ LourcE. Re ith As..i"I,ml General Auditor A......i,l .ml C e nl' r,ll ,\ udilo r CuI (;l(f w.mi \1.10 Blurl!('lllh,JI Audit O fficer Petcr H-,ieh Audit Oilin'r AudilOffiC("r Ch.HIl:"() RO\"ol'rl C .;lr".' G . HtX'l h A~S<K : Gent'Tal Co unsel Rote-t D. v\ljlllJrcJ •• Assoc . wneral Coun"!oel ~\' llh ,lm L. Coopl.' r A....t . vice PH.... . , " " ix '. C l' ne r,)1 . Cou nse l [)!lU~ld" K,Sb .l\\ & wcret.lrv Elj/. ~ht-lh R.·l'rl:.·tlvln,:l(\ Exec utive vic e Pre...ident Di..trill Department.. Distr ict Dep a rtm ent s " POl() ....rm .. ${<nior vic e Pre...lder n& Director ot Research Senio r vi ce Presid ent lntema! Cons ulta nt Robert v, .....\1 Ci ll Vice President Fdcililil'S Planning \Vil h,ullK Glf ller Vile President F,lCi li li~ Planning O n-n L. Cbn..te nse n Vice President Accoun ling Viet' President Vice Pres ide nt Bank hamin..rtion 'aerle E. Borchert Adelte Polev A,,~1. Vice Pre'S. Finan cia l Planning & Cont ro l Assl. Vice P~. Accou nti ng Automation Gft'gOry B. W i l l i a m ~ Sh(lron Reisdorf Acco c nt iog Officer Thnnl,l<'R. Thaa nurn Per sonnel and Adm inistrative Services ..., .. h. )('I \ \' K, ·ro.l n BHe & Inlern ational Regu lation Har rv wGreen A..sr.vkc Pre.... App lic.ltinn.. and Ana ly...i" Robert 1\ . lohn~ton Supe rvisin~ O fficer Sail lake City ThllrH,l" p,,\\('Gr,ll h Vice Preside nt Credi t & COm>ume r Affai rs W. Gordon Smith vi ce Presid ent Bdnl<ing Sl udi~ Jon n t 1. Beebe Asst. Vice Pres. BHC & Intern ational Regu lation I{od rl('y' E. Reid Hank &-Consume r R ~. O fficer \ V,]" OI' l. RII'hJ rd .. Vice President & A..soc . Direc tor of Rt"<t"im .n loseph R. Aio;iKn.Jno Vice of Asst . vic e Pres . & Eco nomi ..t Chenl-: H,lfl ~·St lt'n~ District Credi t OHicN Do nald R. li e h Research Officer lo hn P. Judd Computer Servi ces Senior Vice Prt'Sidenl John L Clt<,nn Vice Presid ent District SecurityrBldg. Oi\l i~ion C(>or~> A~s( . Vice Pres . Ad m in. Servin ... J,m_ I.Ten$il' Vice President Compuler Operations Edw ard Dugan Vice President Comm. Support Service, p, G .lllow,lV l,lrr\'\V,l...hnen A..st. Vice Pres. Co rpo ra te Perwnnel Sn-vr-n F. \-Vnl lm m l' As.,I. Vice Pres , Corporate Personnel P.:\.. Tarbutton A.....t.YkePre--. A~~1. Vice Pres. Com pute r Operation') Oi' lrkl O pe ra tion.. Admin . P,llntk Ton~ \1.I Wf 'l"11E 'hll'lch 1 System v Officer toan l. Mo~hold,lm Sysle rn~ Ofiic c r 101' Fuch .. Svsterrs Of flcer Iud\' A lohnstom 1 Po rtl and los Angeles vlce Prt"'lident Operations Ilt>t·flir ."1. "",Htin A~sl . Vice Pre..... ,\ ~t. Vice Pre.... Pavme nt Service, -e.bh Services RO"<" C . ·\.,.hllldn C h,Jrlt"l. t luti~h-rlt'r Sl'( u r i l k~ Asst. vke Pre'S. Admin . Services Brent M. Dux bu ry As.,!. Vice Pres . Personne! Barbara L. Coman Scr\-'kl'" Officer r heodorf:' A. Schroeder 16 ;\..."1. Vice Pre<>. f indoc idl Services . ..' drv Ellen 'o,\.artln Asst. vic e Pres . Payments Services As\t . vi ce Pres . Custodv Con t ro l A....t, vtc e Pres. AdminServices H . W ill iam Pennington Dean C. Connemwn ....t . TimOlh v eo.lr( A!ost Fina n Su....n Federal Reser ve Bank of San Francisco Organization Chart February L 1984 f i rts vice- Pre-;. iden t Sld li..lic al & Data Sen ke, Sa ra K. GdrrN >rl A....1. vice Pr~ . Legi..ldli \ l' An.al"..t Verle B. lonn-.fon Inl N n.llio n.. t Rcpo rh Off icer Domestk R ('port~ Of fic er G<li IA . Iavlor ElirnLGlul1i Distri ct Operations VKl' S.F. Bank Oper ati on s P~idenl Oi!llricl Fin,mcial Service"> lohn F HOOI;('f A....l_Vin·~. ,\ ....1. Vice Pnos. A..,t. Vice' Pres . ,.\....1. Viet.' PrN . fin.lnci .lISt-ni<. ~ Srturitie-o Services Electioni<' Pavments Cbeck Seni<:t·~• . '.' dnn.J F. Perno BtuceH Ibomp-on Rl:lht'rT ()'Dorl(~hul' O<""~.l'" 0. Knud-en I C....h Servlccs Off ice r I nH . W()ng J Sea tt le Sal t l ake Cit y vice Prp.;,idenl SJ Il Lake City :\. C r.:anlljotn'klfl AssI.VK:t'P1'eo. financi.llServices "\\..(,1.v ice P~. A....t .vk e Pre-. Pd,.menl.. Servi ces SU'>Jn I . Rubt'rI':-on Kt'nl'1t.'th l. Peterson ( lK l uch _x ' n in... E Ronald LIAAl ·!t «, A..sf. vice Pn..... And~·"i .. &, Co nt rol G,lh."r '\ n-.cll Finandal Senke-;. A....I. Vice Pres. Anoll.,...i5& Control \Vi ll1<lnl C. Ft"rl'n~' 11 cer.lI d R. Dattme AMI. vice Pres. A""l. vice Pres. Cu..lod.,.Control Of;n w Sht't·" M\I. Vice Pres . Services P.lYrTM"f1I~ Robert R. Ric hard.. f in.l n ci d l S('-r\'ic e s O ffice r 17 ,)"ndr <'J I' \Vnk o M Branch Operations (Show n fro m le ft to righ t, s tandi ng) Rich a rd C. Du n n, Se nior Vice President, Los Angeles A ngelo S . Carella , Vice President, Portlan d H. Pe ter Franzel, Se nior Vice Pre sid ent, Distric t O pera tions Administra tion David J. Ch ris terso n, Vice President, Sa n Francisco Ope rations (sea ted ) G erald R. Kelly, Senior Vice President, Sea ttle Richar d 1. Gri ffith , First Vice President A . G ra n t H olm an , Vice President, Salt Lake City 18 Priced Payments Services • Whe n Co ng ress passed the Mo ne tary Co n tro l Act (MCA) of 1980, it so ug h t not o nly to promo te grea ter competi tio n in fina ncia l ma rke ts th rou gh deregul ati on , bu t a lso grea ter efficie ncy in the pa yme n ts mech ani sm. It d id th e Ia tte r by ma nd a tin g access to Fede raI Reserv e services a t ex plicit pri ces for all depository ins titutions s ubjec t to reserve requ ireme n ts . Th e pri cing of paymen ts services was to be phased in over d iffer en t pe riods of tim e d ep end ing on th e service in volved . In 1983, th e Federa l Rese rve com pleted its last ma jor p ricing of se rvices by incorpo rating the cos t o f check floa t int o ne w check collectio n fee sched u les. The Fede ra l Reserve Bank of San Fra nc isco has responded to the m andat es of the Monetary Control Act by instituting strict cost-contain ment me asures, pursuing efficiencies from automation, and by continually improving the quality of its services in response to the needs of the financial community in the nine wes te rn states it serves. The Twel fth Federal Reserve District is th e most p opulous in the System . It is also th e lar ge st in terms of geo g ra p hic size an d industrial activity. Th is western regio n has a popu lation of ove r 38 m illion people spr ead ove r five d iffe re nt tim e zo nes . Withi n this area, la rge com me rcia l banks tend to look to th e Fede ral Reserve for h ighl y au toma ted services, compa t ible w ith th eir int ernal opera ting syste ms, w h ile sma ller institution s ofte n see k mo re s pecia lized, lab or intensive serv ices . Furthermo re, the n eeds of d eposit o ry inst ituti on s vary by locati o n a nd the circ ums tances o f their local env iro nme nt. O ne ke y means by which this Reserve Bank lea rn s o fand resp onds to th e needs of more than 4,000 depository institu tions is throu gh th e activities of service-orie nted officers a nd accoun t man age rs in its five offices . Th ese members of o ur s taff are respo nsib le for developin g a nd mai n taini ng customer relation s h ips wi th ins titu tion s in their separa te zones . Their effo rts a re coordina ted cen trally in the Sa n Fra ncisco headq uarters office th ro ugh Distric t Financia l Se rvices . Th is un it co nd uc ts marke t research a nd Dis trictw ide serv ice informa tion p rog rams such as a series of broc h ures, prod uced in 1983, d esign ed to exp lain each of the Fe de ra l Reserve 's se rvices . Growth of Payments Services Cha nge (°'0) 40 -~:.::------:--30 --+-T-~~-T- 20-+-+-- -+-- ....;;... o----.....;:~---:-- 10 - - - - - -....:0:--:- - In tot al, abou t 250 new cus tomer rela tionships we re es tablished in 1983, and ap prox ima tely 700 ins titu tions in th e Twelfth Dis trict now us e Reserve Bank se rvices . Through the knowledge ga ine d fro m these relation ships, thi s Reserve Bank continues to en ha nce its priced payments services. Check Services In terms o f th e resour ces used , the San Fran cisco Rese rve Ban k's largest p riced paymen ts service is check p roc essing. In the latt er half of 1983, du e to a nu m ber of Systemwide improvemen ts, the Twelf th Dis trict handled the la rgest vo lume of checks of a ny District in the Federal Rese rve Sys tem . 19 I I I I I I .......I =~~ 20 1~IL-..~~-~::;_'_ 976 1%11 1978 1 9~2 "19~ 3 1.:' New Sys tem pro grams impleme nted in check services last year included noo n presen tm en t, sev eral prod uc t en hanceme nts and imp rovements to the Fede ral Reserve's trans portat ion netw or k. In combi nation , th ese pro grams res ul ted in more favorab le depos it de ad lines and a one -da y improveme nt in the co llection time of approximately th irty percen t of the items han dl ed by th e Federa l Reserve Syste m . After th e imp le men tation of new d eposi t dead lines, the Federal Reserve expa nde d its check so rting equipmen t to acco m modate the red uced a mo u n t of time ava ilable for processing . In ad d itio n, the Sys tem develo ped a natio na l mon itorin g sy s tem to track de livery and credit performance o n indivi d ua l cas h lette rs so tha t che ck floa t ca n be appropriately assigned to deposito rs . Funds Transfer The Twe lfth Dist rict's on line fund s trans fer se rvice con tin ue d to grow in 1983, es pe cially w ith th e increas ing pop ularity of the m icrocomputer based serv ice-FedLine . This bank con tinued to install Fed Line termi nals and , in the process, increased th e tot al number of cus to mers accessing our services th rough dia l-u p com p u ter con nec tio ns to ap proxi ma te ly 450. Strong customer relations help to identify and respond to the needs of financial institutions At first, FedL ine was d eveloped to allow a w ider ra nge of subsc ribers to tran sfer fund s directly through th e Fed eral Reserve's com m u n icatio ns sys tem- Fed w ire . Du ring 1983, th e Ban k expand ed its capabilities further to allo w cus to me rs to plac e orde rs for cu rre ncy an d coin, an d made subs ta n tial progress toward provid ing cu stome rs wi th the ability to request acco untin g info rm atio n throu gh FedLine . In ad di tion , th e terminal device u sed by leased lin e electro n ic access cus tomers was cha nged to a mi cro processor for compatibility wi th FedLin e . Th e cha nge also provid es be tte r service to lea sed line cus to me rs . Automated Clearing House Th e Bank's Autom at ed Clea ring Ho use (ACH) service rem ained an im porta n t a nd rapidly growing service in 1983. ACH consists of the exc ha ng e and de livery of e lectro nic p ayments items. In 1983, a new program to handle Co rpo rate Trad e Payme nts was impl em ented in Jun e, an d night cycle pr ocessin g was ex te nded to all ty pes of tran sactions. Fo r 1984, th e Ban k plan s to con tinue work ing wi th th e private sector to d evelop and expa nd the ACH fu rthe r. While incentive pricing has been em ployed as a mean s to e nco urage rapid growth in this electro n ic service, th e cos t recovery target fo r thi s service has increa sed a nn ua lly. S tarting at 40 per cent in 1983, th e target wi ll be raise d 20 percent in each subseque nt year. By 1986, the Feder al Reserve System pl ans to have phased in full reco very of all costs for ACH se rvice. Thi s challenges Reserve Banks to m aintain low cos ts w hile identi fying o p po rtu nities for sti m ulating wider acce p ta nce of efficie nt e lectro nic pa yme nts. Cash and Securities Services Th e Federal Reserv e Sys tem play s a n important ro le in meeting the fin a ncia l com m u nitv's need s for cash a n d Treasury sec~rities services . Th e d eman d for coin and cu rren cy th rou ghout th e Tw elfth Dist rict re ma ined high in 1983 des pite grow th in th e use of othe r payments se rv ices . The Federal Reserve circu lat es new Fed eral Rese rve notes, wi thd raws un fit bills from circula tion , a nd accommoda tes tran sfers of de no mi na tions amo ng financial ins titu tio ns . Coi n also is collected , co u n ted and redi stributed by th e Federal Reserve Sys tem . Whil e the transportation of cu rrency and coin is priced, pro cessing and relat ed ac tivities ar e provided as a gov e rn me n t service. Du ring 1983, cash orde ring was added to FedL ine service to e nab le fina ncial institutions to order cas h de liveries promptl y a nd easily. 20 Growth of Cash Services Chan ge (%) 32 - - - - - - - - Pa id in to Circulation 24 - --H------- 16 - ..:.....;.---+-; - - --f- o --+~----.;=-....;.~-- - 8' I 1976 , I 1978 , , 1980 , , , 1982 1983 " Does no t includ e weigh ed coin, so 1977 figu re is not comp a rable. "Ii"Change in mint sh ipments. This Bank also provides a variety of sec u rities services to financial ins ti tutions in th e Twe lfth District, inclu d in g safekeeping and transferring of boo k-e n try sec u rities , purchase and sa le of G overnment sec u rities, and co llection o f non cash item s . The pricing o f book-e ntry sec uri ties se r vices has prom pt ed in itiatives to red uce costs, fore mos t among w hich is a reconfiguration of our data co m m u n ica tions network. Summary of Operations Volume (thousand s) 1981 1982 Custody Services Cash Services Currency paid in to circu la tion Coin paid in to circulat ion Securities Services Savi ngs Bond s or igina l iss ues Savings Bonds red emption s proce ssed * O ther Treasu ry original issues Food co u po n s processed 1,556,278 4,895,3061 1,700,557 4,649,901 1,767,236 4,779,4 09 1,925,085 5,078,150 1,327 372,420 231 274,058 1,136 402,885 232 318,497 995 339,820 182 313,761 1,235 285,420 116 .. 333,5 12 1,406,489 804,248 106,470 21,833 1,393,822 1,201,909 103,154 22,431 1,210,143 2,619,403 101,310 23,952 1,226,778 3,367,031 96,136 24,707 4,883 41,298 5,143 55,483 5,882 76,944 6,674 91,838 1,092 67 1,821 106 1,281 105 . .1,234 108 Payments Mechanism Services Check Processing Services Commercial checks processed Fine sort bu nd les processed" G overnmen t checks proc ess ed Ret u rn items processed Electronic Funds Transfer Services Wire tran s fers processed Au toma ted cleari nghouse tran saction s processed Discounts and Advances Total d iscou nt s and ad vances" Nu mber of fina ncia l ins titution s accommoda ted* "Nu mbe r (no t in th ousan d s) 1 Unusu all y high vo lu me o f payo ut du e to im plementa tion of d irect mint shipmen ts to banks 21 Management Committee (Shown from left to right, standing) John J. Carson, Senior Vice President Thomas C. Warren, Senior Vice President, Computer Services (sea ted) Richard T. Griffith, First Vice President John J. Balles, President Kent O. Sims, Executive Vice President, District Departments 22 Services to Government Agencies The Federal Rese rve Syste m provides a di verse array of service s to the Treasury De partment as well as other go ve rn me n t agencies. The se services fall in to three overall catego ries : mana gem ent of th e pu blic deb t; processing of gove rn ment payments; and maintenance of th e na tion's cu rre n cy and coin sup p ly. Due to its lar ge size, the Twelfth District is a major provide r of govern m en t services. The Federal Rese rve acts as the conduit between private "i ssuing agent s" of gov ern me n t financial instruments a nd the Treasu ry De partment. It also accommod ates requests from individuals for pur chasi ng certain government tenders, prim arily Treasury bills. Th e demand for savin gs bonds and Treasury bills has proved to be qu ite ela sti c w ith res pect to in teres t rat es . New com pet itive programs a nd stable ra tes in 1983 caused sa ving s bonds volume to hold s teady at 1982 levels, an d Treasury issues to decline sub stantially. As an agent for th e Treasu ry, th e Fed also con centrates Treasury Tax an d Loa n d ep osits from collecting finan cial in stitutions and busin esses . Th e Federal Reserve System also acts as agent for the fed eral gov ern ment in making tran sfer pa yments to ind ividuals . The se go vern me n t payments to individuals are made in th ree ways: electronically, through food coupo ns, a nd through Trea su ry che cks. The federal gov ern me n t's use of electron ic payments thr ough the Au toma ted Clearin g Hou se (ACH) has accelera ted in recent years and promises con tin ue d growth in the fu ture . In 1983, gov ernment payments rep resented 75 per cent of Federal Res erve ACH volume . Th e Fed collects , sorts, cancels and de stroys food coup ons after circulati on. It also collects all government checks for payment, forwa rds accounting data to th e Treasury, and ships checks to selec ted storage sites. The Twelfth District is the coun try's largest processor of govern me n t checks. To mak e the se op erations more efficient, thi s Bank has in tegra ted them into its ove rall pro cessin g capability for electronic and pape r payments systems . As m entione d earlier, an imp ortant fun ction o f the Fed eral Reserve is to mak e coin and currencv available to fin an cial inst itutions . The proces sing of coin a nd curren cy is provided as a govern men t service . In 1983, the San Francisco Distri ct automated maj or porti on s of the coun ting and sorting of bills. For this pu rpose, it add ed three new high-speed cur rency processin g units to the eleven alr ead y in pl ace at the Branch offices. Th ese high-speed processing un its detect counter feit money and d estroy un fit o r mutil ated currency, thereby im proving the qu ality of the currency in circul ation. The San Fra nc isco Bank also is coop erating w ith othe r Reserve Banks in efforts to develop even more efficient and effecti ve "second gen eration" currency processin g equipme n t. 23 -~ ' .... ~ .-. • 0' •• o Hawaii Arizona lwelfth Federal Reser ve District 24 " Head Office Directors The central-bank functions of the Federal Reserve are handled throu gh a n ati onwide network of 12 Federal Reserve Banks and their 25 branches, und er th e policy guid ance, coordination and genera l supervision of th e Board of Gover nors in Washington, D.C The Head Office of th e Fed eral Reserve Bank of San Francisco ha s a nine -member Board of Directors . Each of the Bank's other offices at Los Angeles, Portland , Salt Lake City and Seattle has a seven-member board. Federal Rese rve directors bring mana gement experti se to the task of o verseeing Reserve Bank opera tions . Th ey also provi de first-hand information on key economic devel opments in va rious areas of th e District, complementing the Bank's internal res earch efforts . In addi tion, Board members giv e ad vi ce on the ge ne ra l direct ion of mon eta ry policy, especially w ith regard to the Bank's d iscount rate. Th e He ad Office Board has specific responsi bility for initiating changes in the discount rate, s ubject to review a nd a p prov a l by the Board of Go vernors. Chairman of the Board and Federal Reserve Agent Carol ine Leonetti Ahman son Ch airman of the Board Caroline Leonetti Ltd . Holl ywood, California Deputy Chairman Alan C Furth Vice Ch a irm an Santa Fe Southern Pacific Corpor at ion and Presid ent Southern Pacific Compan y San Francisco, California Ahmanson Furth Fred W. Andrew Ch airman of the Board , President and Chief Executi v e Officer Superior Farming Compan y Bakersfield, California A nd rew Rayburn S . Dezember Ch airman Central Pacific Corporation Bakersfield , California Spencer F. Eccles Chairman , Pre sident and Chie f Executive Officer First Secu rity Corporation Salt Lake City, Utah Dezern be r Eccles John C Hampton Chairman, President and Chief Executive Officer Willamina Lumber Compan y Portland , Oregon Togo W. Tan aka Chairman Gramercy Ent erprises Los An gele s, Ca lifo rn ia Hampton ~ '.' George H . Weyerhaeuser President and Ch ief Executi v e Officer Weyerh aeu ser Company Tacoma , Washington Robert A . Youn g Chairman of the Board and Pres ident Northwest National Bank Vancouver , Washington Federal Advisory Council Member Joseph J. Pin ola Chairman of the Board First Int erst at e Bancorp Los An geles , California 25 .. Tan aka i , Weyerh aeu ser Federal Adv isory Co unci l Me m ber Young Pin ola Los Angeles Chairman of the Board Bruce M. Schwaegler President Bullock's-Bullock s Wilshire Los Ang eles , California Schwaegler Thomas R. Brown, Jr. Ch airma n of the Board Burr-Brown Corporation Tucson, Arizona Robert R. Dockson Ch airman and Chief Executive Officer Californ ia Federa l Savings a nd Loan Associa tion Los Ang eles, Cali fornia Brown Dockson Bram Goldsmi th Cha irma n of th e Board City National Bank Beverl y H ills, California Lola McAlpin-Grant Attorney Los Ang eles, California Goldsmith Harvey J. Mitchell Presiden t and Chief Executive Officer Escond ido National Ban k Escond ido, California McAlpin-Gran t Mitchell Toole y 26 William L. Tooley Man aging Partner Toole y & Compa ny, Investment Bu ild ers Los Angeles , Cali fornia Portland Chairman o f the Board Paul E. Bragdon Preside nt Reed Colle ge Portland, Oregon Herma n C. Bradley, Jr. Preside n t a nd Chief Execu tive Offi cer Tri-Co u n ty Banking Com pan y Ju nc tio n City, O rego n •r Bragd on Caro ly n S. Chambers President C ham be rs Cab le Corn.. Inc. Eu gene, O regon John A. Elorriaga Chairman a nd Chief Execut ive Officer United S tates Na tiona l Bank of O regon Portland , Oregon Bradl ey , Cha mb ers Jack W. G ustavel President and Chief Executive Officer The First Na tio na l Bank of No rth Id ah o Coeur d'Alene , Idah o Elorriaga William S. Naito Vice President Nor crest Chi na Compa ny Po r tland, O rego n G . "Jo h n ny" Parks Northwest Region al Director Internati onal Longs horemen's & Warehousemen's Union Po rtland , O rego n 27 Seattle Ellis Chairman of the Board John W. Ellis Preside nt a nd Chief Execu tive Off icer Puget Sound Powe r & Ligh t Compa ny Belle vue, Was hing to n Lonnie G . Bailey Execu tive Vice President and Chief Opera ting Officer Farmers a nd Me rchan ts Ban k o f Rockford Spoka ne, Was hing to n Baile y Ca ro l Birkholz Managing Pa rt ne r Laventh ol & Horwath Sea ttle, Was hington Birkh olz Byron I. Mallott President and Chief Executive Officer Sea laska Corpora tion Juneau , Alaska Mal le t John N . No rds tro m Co -Chairma n of the Board N ord st rom , In c. Sea ttle, Wash ington Nordstrom W.W. Ph ilip Chai rma n, Pres iden t an d Ch ief Execu tive O fficer Pu get Sound Ba ncorp Tacom a, Washington G. Rob e rt Truex, Jr. Ch airm an Rai nier Ban cor pora tion and Rain ier Nationa l Bank Sea ttle, Wash ing ton Ph il ip Truex 28 Salt Lake City Chairman of the Board WendellJ . Ashton Publisher Deseret Ne w s Salt Lake City, Utah John A. Dahlstrom Chairman of the Board Tracy-C ollins Bank a nd Trust Company Salt Lake City, Utah Ashton Lela M . Ence Executive Director Uni versity of Utah Alumni Associa tion Salt Lake City, Ut ah Albert C. Gianoli President and Chairman of the Board First National Bank of Ely Ely, N evada Fred C. Humphreys Pre sident and Chi ef Executive Offic er The Idaho First N ati onal Bank Boise , Id aho Da vid Nimkin Executive Director Salt Lake Neighborh ood Housing Services, Inc. Salt Lak e City, Utah . , G ianol i ":l Humphreys Robert N . Pratt President White River Shale Oil Corpor a tion Salt Lake City, Utah Nimkin Prall 29 Comparative Statement of Account (Thousa nd s of Dollars) Dece mber 31, '1983 1982 Assets 5 1,233,000 518,000 78,347 5 1,182,000 518,000 81, 178 2,800 23,305 1,129,600 1,096,249 . . . 6,879 ,306 7,915,801 2,345,411 8,3 45, 211 8,107, 233 2,639,318 . . 17,140,518 18,272,918 19,091,76 2 20,211, 316 . 1,783,155 103,914 22,848 1,477,963 106,4 22 30,350 945, 296 418,700 608,520 438,043 - 702,277 1,273,952 22,673,901 25,927 ,744 15,730,215 19,930,151 4,717,959 34,440 81,716 4,009 ,671 24,750 52,001 4,834,115 4,086,422 1,396,541 265,766 1,130,877 298,710 22,226,637 25,446,160 223,632 223,632 240,792 240,792 22,673,901 25,927,744 Gold ce r tifica te acco u n t Special Drawi ng Righ ts cer tifica te account Oth er cas h . Loan s to d ep ositor y insti tu tions . Federal Agency obliga tio ns . . . Un ited S ta tes Govern ment secu rities : Bills N o ~s . . Bo nd s . . . Total United States Government securities Total lo an s and secur it ies Ca sh ite m s in pro cess of collectio n Bank pr e mises ......... Oper atin g eq uip me n t . . . . Oth er asse ts : Den o m ina ted in foreign curre ncies All o the r . In te rd is trict Se ttlemen t Accoun t . . . Total asset s Liabilities Fe d e ra I Rese r ve not es Depos its : Tota l d ep os itor y insti tu tions- reserve accoun ts For ei gn . Oth er d ep osi ts . Total deposits . . . . Deferred a vai labi litv cas h items O ther lia bilities ' . Total liabilities . Capital Accounts Ca pi ta l pai d in Sur p lus . . Total liabilitie s and cap ita l accounts . . 30 Earnings and Expenses (Thousands of Dollars) December 31, 1982 1983 Current Earnings Disc o un ts and ad vances United Sta tes G overn ment securities . . . . . . . . . . . . . . . . .. . . . . Forei gn currencies Incom e from services All o the r . . . . . . Total cu rr ent earnings s 8,691 1,978,747 70,551 38,341 918 9,111 1,910,065 45,176 52,279 1,443 5 2,097,248 2,018,074 Current Expenses To tal current expenses Less reimbu rsement for certain fiscal agenc y and other expenses . . 116,726 7,741 114,383 8,485 Net expe nses Co st of ea rn ings credit . . . . 108,985 105,898 4,724 . 1,988,263 1,907,452 10,677 2,656 35,545 . ° Profit and Loss Curren t net ea rn ings Addi tions to curren t earnings Pr ofi t on sales of United Stat es Government securities (net) AJI o the r . Total ad ditions Deductions from current net earnings Loss o n foreign exchange transactions (ne t) All o the r Total deductions 38,201 24,536 2,459 75,289 26,995 75,289 . . - 16,318 1,294 - 37,088 . . . . . - 10,147 1,960,504 13,053 1,933,119 -11,734 - 16,143 1,842,487 13,949 1,811,378 . . . 14,332 209,300 223,632 17,160 223,632 240,792 . . . Ne t ad d itions (+ ) deduction s (- ) Earn ed credits used by dep ository institutions Asse ssments by Board of Gov ernors Board Expend itures Federa l Reserve currency cos t Net earnings before paym ents to United States Treasu ry ...................................... Div idends pa id Payments to Unit ed States Treasury (inter est on Federa l Reserve notes) Tran sferred to surplus Surp lus Janua ry 1 Surplus December 31 31 . ° 10,677 ° ° ° San Fran cisco Office P.O . Box 7702, Sa n Francisco, Ca liforn ia 94120 Los Ang e les Branch P.O . Box 2077, Ter m inal An nex, Los Angeles, Califo rn ia 90051 Portland Bran ch P.O . Box 3436, Por tla nd , O rego n 97208 Salt Lake Cit y Branch P.O . Box 30780, Sa lt Lake City, Utah 84125 Seattle Branch P.O . Box 3567, Term inal Annex, Sea t tle, Washi ngto n 98124 This rep ort was prepared by the staff of the Federa l Reserv e Ban k of San Fran cisco : prod uced by Kare n Rusk; graph ics desi gned by William Rose n th a l; edi ted by Joh n L. Scaddi ng and Grego ry J. Ton g . Assistance pro vided by Econo mic Resea rch; Sup ervision, Regulation a n d Credi t; District Oper ation s; Acco unting; and Compu ter Services . 32 Fed eral Reserve Ban k of San Francisco P.O . Box 7702 San Fran cisco, California 94120 BU LK RAT E MAIL U.S . POSTAGE PAID PERMIT NO. 752 SAN FR A NCISCO , CALIF.