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II:I)I;K L \[ Ri SI K\ I I U N K OI S I , i . o n i s i<i92 A N N U M . KI:I»()K I THE ROLE OF REGIONAL RESERVE BANKS PRESIDENT'S MESSAGE Each year in this space, I thank our retiring directors for their leadership and service to our Bank. As usual, the Bank has benefited control, regional representation and the public interest. Today, more than 75 years after Congress established the Federal from the guidance and dedication Reserve System, the regional Reserve of many outstanding directors. Banks continue to serve this purpose. I would like to express my deepest They participate in monetary policy- appreciation to the following: making, supervise and regulate finan- H. Edwin Trusheim, who served as cial institutions, provide financial ser- both chairman and deputy chairman, W. E. vices and act as the government's banker. Ayres and Frank M. Mitchener, Jr., St.Louis; Through these activities, we ensure that all James R. Rodgers and Patricia M. Townsend, regions of the country have access to the Federal Little Rock; Morton Boyd, Louisville; and Reserve, that the nation's diverse regional eco- Michael J. Hennessey and A C Wharton, Jr., nomic developments and needs are represented Memphis. Thanks also to Dan W. Mitchell for and that the public has a voice in central bank his years of service as our Federal Advisory affairs. As a result. Fed policy reflects a diversity Council representative. in thought, real-world views and regional differ- In carrying out our role as a regional Reserve Bank, our directors play a crucial part. From the Fed's inception, there was an innate American ences as Congress intended. In the next few pages, we set out to explain the role of the regional Reserve Bank. distrust, almost fear, of centralized power. So to be successful in creating a central bank that would provide a safe, stable banking system. Congress had to ensure that power was dispersed and that, inherent in the Fed's structure, regional interests and the public were represented. Establishing 12 geographically diverse Reserve Banks with individual boards of directors helped Congress achieve its goal of balancing centralized Thomas C. Melzer President and Chief Executive Officer i^Sgf^ U q q 3_ 4 ^ '^si <v^^.^S?^aR|!»^-Ji1| •FEpERAI RESERVE SYSTEM- Its members are pfesidehtial appointees whose WHAT IS THE FED? responsibilities include formulating monetary and banking policy, Regional Reserve Banks The regional Federal Reserve Banks are the decentralized component of the Fed's structure. A regional Reserve Bank is organized much like a private establishment and carries out the Fed's day-to-day operations. Federal Open Market Committee The FOMC unites the Board of Governors and the Reserve Bank presidents in the task of monetary policymaking. The FOMC, the Fed's chief monetary policymaking body, determines which open market transactions the Fed will There are many phrases used to describe conduct to achieve its policy goals. Open market operations are the Fed's principal monetary the Fed: a decentralized central bank, a policy instrument. quasi-governmental organization, an organization independent within government. These descriptions reflect the Fed's unusual structure and complex responsibilities. The Fed's structure can be divided into three entities: the Board of Governors, the regional I THE FEDERAL BESERVE BANK OF ST, LOUIS Department or Branch Administration Audit Banking Supervision Reserve Banks and the Federal Credit and Community Affairs Open Market Committee (FOMC). Legal Board of Governors Operations No. of Employees 353 22 1 87 The three main components of the Federal Reserve System are integral, yet different, parts that complement each other to achieve the System's goals. Of the three, the Reserve Banks are perhaps the least understood. In the following 12 ; 6 258 sections, we examine the main responsibilities of a regional Reserve Bank—looking primarily Besecuvh and Public Information 88 Litde Bock Branch 125 Governors, or Federal Reserve Louisville Branch 135 structure, although imcommon, is' Board, a government agency that is Memphis Branch 139 well suited for its purpose, the Fed's centralized component. TOTAL At the core of the Federal Reserve System is the Board of 1225 at the Federal Reserve Bank of St. Louis^—^to see how the Fed's THE FED'S THREE MAIN COMPONENTS BOARD OF GOVERNORS The Board of Governors comprises seven members^ who are appointed by the President of the United States (md confirmed by the Senate, A governor-s term is 14 years. The Board's chairman and vice chairman are appointed by the President from among the seven governors to serve four-year terms. In addition to overseeing the activities of Reserve Banksj the Board of Governors has several important responsibiUties. In monetary poUcy, it participates in FOMC discussions, approves changes in discount rates and estabhshes reserve requirements f6r depository institutions. The Board also exercises broad supervisory control over various financial institutions, ensuring that commercial banks and bank holding companies operate responsibly €md comply with federal regulations and that the nation's payments system functions smoothlyi Finally, the Board implements regulc^ons to carry out the mandates of federal consumer credit laws. FEDERAL RFISERVE BANKS The Federal Reserve System is divided into 12 districts, each served by a regional Reserve Bank. A Reserve Baiik has its own board of directdrs, whichis drawn from the public and oversees the activities of the organization. The board of directors comprises nine members: six, including the chairman (md deputy chairman, serve as representatives The chairman of the Board of Governors reports twice a year to Congress on the Fed's monetary policy objectives, testifies before Congress on numerous other issues and meets.occasionally with the President and regularly with the Secretary of the Treasury. Other Board officials are also called to testify before Congress, and they maintain regular contact with other government organizations. THE FEDERAL RESERVE SYSTEM " ^ r http://fraser.stlouisfed.org/ <w^"'^;:^xsg%_ .---^sry^-v^x-y-^ ^»^m^wxj»m~^ism!i:n^^is-^^\-'w-.^iT^^^^^^^ Federal Reserve Bank of St. Louis t ^r~i \ ® ^\ - o • : i d .•'..• ••'• r^ O \y ^ M , ^ ijK Sji i. L-s~ o j^^ J0^ The Eighth Federal Reserve District comprises the state of Arkanisas and parts of Illinois, Indiana, Kentucky, r Mississippi, Missouri and Tennessee. _,^>. ,r« of the public; three serve as representatives of banking. The board of directors imparts a private-like management perspective to the Reserve Bank that emphasizes efficiency and quality. The board of directors, v^ththe approval of the Board of Governors, also appoints the president of the Reserve Bank. Reserve Banks may have \ one or more branches. There are 24 branches in the Federal Reserve System, and each branch has its own bdard of directors. FEDERAL OPEN MARKET COMMITTEE The FOMC, a monetary policymaking body, comprises, the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four other Reserve B(mk presidents on a rotating basis. All 12 Reserve Bank presidents participate in FOMC policy deliberations, whetiierornottheycurrentiy are voting members. The FOMC typically meets eight times a year. -''^^.•-fr.-ygf;.5^f>|y^-^.'gy,tr?f.%«r^a^^^>i»»t^»»^^.:m"^T'»^^ FORMULATING MONETARY POLICY When you wall: through the St. Louis Fed's Research Department, what you notice first is the can have a broad influence on economic thought. The four main activities of the Research relative quiet. A group of economists ambles Department include: conducting theoretical toward the conference room to brief the and empirical research in banking, monetary president on the economy. Another policy and macroeconomics; monitoring the economist toils away at a PC, working on the third draft of national, international and regional economies; his article on the usefulness of the monetary collecting economic data; and providing aggregates. A statistical analyst is on the phone economic information to the public. verifying deposit data collected from an Conducting Arkansas bank. On the other side of the depart- Research Economists at the St. Louis Fed analyze a ment, the calm is punctuated by an economist wide range of economic data and investigate who learns that her article has been accepted for a broad spectrum of topics. Money-demand publication in a professional journal. analysis, money-stock measurement and the The Research Department is made up of causes and consequences of inflation remain economists, research assistants, statistical key topics of study, as do foreign exchange, analysts, editors and support staff, all of whom bank structure and regulatory policies. contribute to the Bank's long-term research into Research agendas vary from Reserve Bank to economic topics and dissemination Reserve Bank, which fosters a of economic information to the public. These staff members support the Bank president in his role as an FOMC member, publish research for the professional economics community and promote economic literacy in the Eighth District. As such, the work of a Reserve Bank's research department goes well beyond the Federal Reserve System. By contributing to the current economic literature, participating in professional meetings and interacting with the public. Reserve Banks diversity of viewpoints w t h i n the A MONETARIST HISTORY The St. Louis Fed has a wellknown research tradition. Reginning in the late 1950s, it adhered closely to the principles of what is now known as monetarism and was labeled a maverick for its views. Given the independence permitted by Fed structure, however, the St. Louis Fed continued emphasizing the importance of money over interest rates in monetary policymaking, contradicting the conventional wisdom of the time. Today many of these concepts enjoy widespread acceptance. System. Some research departments have become well knov\m outside of the Federal Reserve System for their contributions. Monitoring the Economy The U.S. economy is made up of diverse regional economies, each with its own defining characteristics. At any time, for example, credit availability or the demand for business loans may differ markedly among regions, states or cities. Monitoring its district's economy is therefore another critical FORMULATING MONETARY POLICY , function of the regional Reserve Bank. Before each FOMC meeting, Reserve Banks prepare the Beige Book, a.report that describes the economic conditions in each of the Federal Reserve districts. The Beige Book, which is used as a backdrop for FOMC discussions, can spot meaningful trends in economic activity before they show up formally in aggregate data. Though the methodology for data collection varies from Reserve Bank to Reserve Bank, the research staff typically relies heavily oii informal surveys and anecdotal information THE THREE TOOLS OF MONETARY POLICY In implementing monetary policyf the Fed chooses firom among the following tools: OPEN MARKET OPERATIONS, or the buying and selling of government securities, are the Fed's most frequently used policy tool, THE DISCOUNT RATE is the rate Reserve Banks charge depository institutions on loans. Rate changes are initi' ated by Reserve Bank boards of directors and approved by the Board of Governors, RESERVE REQUIREMENTS are the regulations governing reserves that depository institutions must hold against their deposits. in assembling the report. Anecdotal information about the District extensively in the collection of economic data. Economic statistics are culled from a variety of sources and are used by economists in both current and long-term analyses. Loan and deposit data from District banks and bank holding companies are arguably the most important statistics Reserve Banks collect. These data are collected directly from financial institutions. Such information is used extensively in analyzing regional and national bank performance, credit demand and other banking topics. Providing Economic biformation to the Public In addition to collecting data for analytical economy is acquired in many other ways as w^ell. purposes, a regional Reserve Bank also makes Both the Bank president and research economists such data available to the public. At the St. learn firsthand about District economic and Louis Fed, data are made available through the banking conditions in day-to-day interaction publication of five statistical releases and an with the District community—giving speeches, electronic bulletin board. The research efforts of participating in seminars and informational economists dre published in a bimonthly journal. meetings, or talking on the telephone. They also Review, which features articles on national and obtain such information at monthly meetings of international economic topics, and a quarterly the boards of directors at each regional Reserve publication. The Regional Economist, which Bank and branch and at twice-a-year meetings of concentrates on information that affects the the Economic Advisgry Council, which reports Eighth Fedetal Reserve District. Subscriptions to on the unique concerns of smallbusiness and these publications number more than 80,000. agriculture. Collecting . In addition to publications, the Research Data Regional research departments are involved Depiartment participates in or hosts public programs. Last year the St. Louis Fed president and economists made more than 150 public "The most important cohtributions to the presentations, primarily, in the Eighth District, understanding of monetary theory and for educators, media, and business.and commu- monetary institutions have not come from nity leaders. Finally, economists participate in Washington . . . The Federal Reserve Bank professional seminars and conferences regularly. of St Louis in the 1950s, '60S and '70s was Summary by far and away the preeminent producer . One ofthe Research Department's key >. of significant monetary research within responsibilities is to keep the St. Louis Fed the System. More recently several other president apprised of current economic trends regional banks, including (the Minneapolis' to help him in his role a:s a policymaker. By Fed), have joined them and have made conducting careful empirical research in an important contributions/' institutional framew^ofk that permits a free Milton Friedman, Senior Research Fellow, exchange of ideas among Federal Reserve Banks .Hoover Institution, Stanford University . and the Board of Governors, Fed research Friedman, Nobel prize winner in economics in 1976, is one of the nation's'foremost authorities on monetary economics. His, quote was reprinted from The Region, Federal Reserve Rank of Minneapolis (June 1992). departments improve the policjmiaking process. The broad spectrum of policy views that results adds credibility and insight to policy deliberations. In a broader sense, the work of Reserve Bank research departments contributes to the knowledge of other policymakers, economic professionals and the public^pdtentially influencing long-term economic thought and economic policy. . The Research Department's work on regulatory, policy,'bank structure and payments issues, together with' its insight into the economy, enable'the Bank to better understand the issues facing the financial iristitutions it serves and regulates. . SUPERVISING FINANCIAL INSTITUTIONS It's a typical Monday morning for the Banking banks can elect to become members of the Fed.) Supervision and Regulation Division. A dozen Reserve Banks are also responsible for the foreign examiners are either on the road or boarding activities of these organizations, as well as the airplanes as they set out for bank U.S. activities of foreign banking organizations. examinations or bank holding company inspections through- The St. Louis Fed, either directly or through out the Eighth District. At the Federal Reserve bank holding companies, supervises about Bank, an equal amount of activity occurs as $130 billion in banking assets. These assets applications specialists discuss pending merger represent 729 institutions, ranging in size from applications, enforcement examiners review the a $7 million bankers' bank to a $23 billion bank progress of a troubled institution, and other holding company and including many holding examiners monitor the condition of District companies engaged in interstate operations. institutions. With the banking panics of the late 1800s and Banking Supervision activities can be divided into four areas: examining financial institutions; early 1900s still fresh in their memories, the evaluating applications for merger, expansion, Fed's founders wanted to create an institution acquisition, change in ownership or new prod- that would be able to contain such financial dis- ucts; providing protection for consumers in turbances. To foster safe, sound and competitive financial transactions; and ensuring the stability banking practices, they gave the Federal Reserve and liquidity of U.S. financial markets. System responsibility to supervise and regulate Examining Financial Institutions the banking system. Bank examinations focus primarily on the The distinction between supervision and reg- prompt identification and containment of bank- ulation is often misunderstood. Bank regulation ing risk. During annual on-site examinations of refers to the formulation of laws and guidelines state member banks, St. Louis Fed examiners that define a framework for acceptable bank evaluate the quality of a bank's assets, particular- behavior. This responsibility is carried out ly its loans, and review a bank's ability to cover primarily by the Board of Governors. Bank its potential loan losses adequately. Examiners supervision ensures that those regulations are also review a bank's performance in complying followed by individual banks and is primarily with its own internal policies, as well as federal the responsibility of regional Reserve Banks. and state laws and regulations. Reserve Banks are charged with supervising During on-site inspections of bank holding bank holding companies, state member banks, companies, which own and control most banks, and certain nonbank corporations. (All national examiners assess whether the condition or banks are members of the Fed; state-chartered activities of the holding company cause undue .^Cjj^LJPa^r^*? £»M jiy^siOM 'R lU 8AL eSCRCi z^po 36 -00 00 •00 00 02 37 •07 '25 00 00 00 •oq 91 •02 •00 •00 •90 •69 76 64 00 00 46 16 -00 -00 -00 00 07 41 -66 74 00 00 00 -00 SUPERVISING FINANCIAL INSTITUTIONS A LIAISON BETWEEN BANKS AND THE COMMUNITY When Congress passed the Comnmnity Reinvestment Act of 1977, it charged hank regulators with encouiraging financial institutions to meet the credit needs of their local communities, including low- and moderate-income areas. To help achieve these goals, the Board of Governors prompted each Reserve Btmk to gather and disseminate information about community credit needs and sources to lenders, community groups, federal agencies, and state andloccd governments. At the St Louis Fed, the Community Affairs Depcartment distributes materials and sponsors District seminars on the various investment and economic development progrcuns in its area. In addition, it facilitates commuiiication among borrower groups, local governments, development organizations andfinancicd institutions, and mediates disputes between bankers and members of the community in appUcations for merger or acquisition risk to its banks. In many inspections, Fed examiners work closely . with other supervisors, such as the Office of the Comptroller of the Currency (OCC) for national banks and the Federal Deposit Insurance Corporation (FDIC) for state banks that are not Fed member^. At the and of an on-site^review, the lead examiner discusses examination findings with the bank or bank holding company's management and recommends an overall rating that reflects the institution's financial condition. The rating indicates whether the institution is sotmd enough to withstand fluctuations in the econpmy or whether it exhibits weaknesses that require corrective action and close monitoring. Between on-site examinations. Fed analysts monitor financial institutions by examining various bank reports filed with the Fed. Evaluating Applications Regional Reserve Banks strive to achieve two objectives when evalu- *' ating applications for such things with both the law and a competitive banking system. As with, bank examinations, most decisions on application matters are made at the regional level. Last year, for example, the Federal Reserve Board delegated final authority to the St. Louis Fed on 90 percent of the 192 applications that were approved in its District. Providing Protection for Consumers iii Financial • Transdctions Another goal of banking supervision and regulation is to safeguard consumer interests in lending and deposit transactions. Congress has given broad powers to the Board of Governors to make, interpret and enforce laws that protect consumers from inaccurate disclosure of credit costs or Interest rates and discrimination in lending practices. Fed examiners specially trained in consumer compliance laws examine banks for their adherence to such regulations. In the Community Affairs Department, tibe St. Louis Fed takes a more active role in as bank expansions, mergers, acquisitions and helping institutions understand and comply with the introduction of new products: to ensure that consumer laws and regulations. the resulting organization or product will be safe and soimd and that the transaction is consistent -Ensuring the Stability of Financial and Summary Liquidity Ife^Pfr- St. Louis Fed examiners and supervisory Markets officers have a broad knowledge of District insti- One of the Fed's original responsibilities was fo act as lender of last resort for the nation's tutions, their business strategies and the markets banking system. Through its discount window, in which they operate. Thus the regional the St. Louis Fed provides liquidity to batiks so Reserve Bank's approach to banking supervision that a shortage of funds at one OF more institu- reflects an appropriate balance between-national tions does not disrupt the flow of money and : and regional policy priorities. credit in the banking system as a whole. The Fed Through its supervision and regulation func- . makes loans to satisfy a bank's short-terjn needs tion, the St. Louis Fed ensures that banks are safe for funds or its longer-term need to manage, for deposits, able to provide stable payments seasonal fluctuations in the dejx)sit or credit services to customers and able to respond to demands of its customers. changes in the supply of money and credit in a The discount'window was origincilly conceived manner consistent, with the Fed's objectives for as the principal instrument of monetary policy. monetary policy. . Today it complements open market operations in "The St LouisFed's seminars offer the day-to-day implementation of policy. insight to the local bankers about how a particular community development \ project hgjs been structured elsewhere in "The ped has been ah invaluable the country and why its been successful. resource to us. A seminar there gave my That fa'/id of information is a whole lot organization the opportunity to meet peo- more valuable that a textbook approach. ple who fund conimunity development It becomes practical information that's projects across the nation- It actually useful.'' gave you the where, the how and the DeanKeye^, Vice President, Community who to put successful conimunity devel- Investments, Merqantile Bdncorporation Inc., opment projects togeihet." St. Louis, Mo. . John Lussky, Executive Director (acting), At the end of 1992, Mercantile Bancorporatibn Inc. had assets of $9.5 billion and operated 38-banks in^ Missouri, Kansas and Illinois. Mercaritile • Bank of St. Louis, the lead bank in Mercantile Bancorporatiori's Community Partnership affordable loan program, has placed more than $25 milliori in mortgages in St. Louis during the last three yearSs Neighborhood Housing Services of St. Louis Inc. . - Neighborhood Housing Services is a notfor-profit ugency devoted to revitalizing neighborhoods through affordable housing . and community development programs.' When Congress established the Federal PROVIDING PAYMENTS SERVICES Reserve System, it charged the Fed with the critical task of providing a safe and efficient method of transferring funds throughout the banking system. Regional Reserve Banks and their branches carry out this mission, offering payments services to all financial institutions in the United States, regardless of size or location. Hand in hand with that mission is the obligation to improve the pa3mients system through increased efficiencies and technological advances. Regional Feds offer a wide variety of payments services. They process checks, wire It's 4:45 a.m. and there's a trajfic jam in the Bank's garage. Couriers are arriving to pick up transfers and ACH payments, distribute currency and coin, and provide banking services to the Treasury. Since 1980, Congress shipments of processed checks for delivery to financial institutions thro ugh out the region. Upstairs in the Check Department, the activity subsides momentarily as night-shift employees start preparing for the next deadline, which is less than two hours away. On another floor, an electronic version of this scenario plays itself out, as institutions retrieve their Fed-processed automated clearing house (ACH) payments through computer links. At a regional Reserve Bank this process of receiving, processing and dispatching payments goes on 24 hours a day. LANDMARK LEGISLATION Before 1980, the Fed provided its check, electronic payment and securities services for free but only Fed member banks could use them. The Depository Institutions Deregulation and Monetary Control Act of 1980 required the Fed to offer these services to all U.S. banks, savings and loans, cmd credit unions, regardless of size and location, and to recover the costs ofproviding them. The act also established a privatesector adjustment factor to prevent the Fed from having an unfair pricing advantage over private institutions. has mandated that Federal Reserve Banks recover the costs of providing many of these services. To fulfill this requirement, the Fed adopted a strict private-sector discipline to deliver high-quality services at low cost. Regional Reserve Banks work continually to improve the payments system by introducing new services and enhancing old ones. In 1992, for example, the St. Louis Fed began processing checks on Saturday to meet the financial community's needs in its District. The Memphis Branch introduced an PROVIDING PAYMENTS SERVICES innovative check deposit program in its area in service. The future system will ^ p p o r t nearly 1992 that will enable depositors to reduce their continuous ACH processing and electronic deliv- Fed check service fees. Such regional innova- • 6ry, arid it will give financial institutions greater tions may be adopted by other Federal Reserve flexibility in scheduling and choosing a method Banks, either in an identical form or one tailored of originating or receiving ACH pajmietits. to meet their districts' needs. As the needs of Check local financial communities change, Res^^e . Processing hi ju3t one day, the Federal jReserve Bank of Banks are often able to respond quickly and^ St Louis processes rnore than 850,000 commer- contribute to the evolution of the payments cial checks. To handle ari increasing volume mechanism of checks efficiently, regional Reserve Banks Electronic Funds continually evaluate new services and new Transfer technology. Eveiy day billions of dollars are transferred electronically among^U.S. financial institutions. ! The Fed is currently undertaking initiatives The regional Reserve Banks provide two to introduce electronics and image technology electronic payment services: funds transfer to check processing. Electronic check services and ACH. increase the speed of check collection and ^., .-^ ;;'^;: :;V--:.'^' - ^^^^ The funds transfer service provides a commu- reduce the costs of processing and transporting nication^ link among financial institutions and paper. Image technology, a method of scanning government agencies. Funds transfers are checks and capturing their images in electronic . originated and received through a sophisticated. form instead of on microfilm or paper, could telecommunications.network known as Fedwire, change check processing even more drama- which links all Reserve Banks electronically. tically. The St. Louis Fed is currently piloting a Institutions can move their balances at the Fed high-speed image capture and archival system or send funds to another institution through this for the Federal Reserve System. network. Currency and Coin ACH provides a nationwide network to- Regional Reserve Banks are responsible for exchange paperless payments among financial meeting public demand for currency and coin. institutions and government agencies. The ACH The Reserve Banks' primary responsibility in accommodates a wide range of recurring corpo- providing this service is to ensure that fluctua- rate and consumer transactions, such as payroll tions in the demand for currency and coin do not deposit and insurance payments. disrupt the banking industry. . Current Fed initiatives will dramatically improve the efficiency and reliability of the ACH Recently, the Miami and New Orleans branches of the Atlanta Fed were called on to increase the cash supply in Florida and Louisiana during Hurricane Andrew. Because electronic payment and verification networks were destroyed or disabled, many areas affected by Andrew became cash-only societies. Through the prompt action of the Ideal Reserve Banks, however, the cash . needs.of the public were met and the integrity of the payments system remained intact. Treasury Services As the nation's central bank> the Fed provides a variety of services to the U.S. Treasury. Federal Reserve Banks maintain accounts for the Treasury, process government checks, postal money orders and U.S. savings bonds, and collect federal tax deposits. Reserve Banks also sell new Treasury securities, service outstanding issues and redeem maturing issues. When the Treasury offers new issues of marketable securities to the public, regional Reserve Banks disseminate information about the issues, process orders from customers, collect payments, credit the Treasury's account for the proceeds and deliver the securities, hi recent years, the Fed has introduced electronic processing and delivery in many ofthese services. -• "We haveji't always used Fed services in the past, but now we basically everything particular do through the Fed, And if a situation comes Up, all I do is dial them iip and I get the help I need.'^ Linda Long, Vice President and Cashier, First State Banic of St. Charles, Mo. First Sta te Banl: of St. Ch arles, which, recently mar]<:ed its 125th anniversary,, holds about $75 million in deposits. First State processes about 80,000 eh ecks a rnonth thro ugh the Fed and receives.its check data electronically. In addition, it Uses the Fed's computer network to process an array of other financial .transactions. . PROVIDING PAYMENTS SERVICES Summary Like private organizations, regional Reserve Banks strive to increase their operational efficiency to provide high-quality services at low prices to all financial institutions^ In addition, they work to advance payments technology. Together with, the Board of Governors, Reserve Banks help develop national payments system policies, such as the recent initiative mandating that all ACHs be electronic. And when nation- wide policies are approved, regional Banks help financial institutions in their districts implement such policies in the least disruptive way. Through a Reserve Baiik's involvement in payments services, it gains a more comprehensive and sophisticated understanding of banking operations. In addition, the management and customer service skills its employees gain as active participants in the financial services marketplace spread throughout the organization. "We do all'our ptocessing with the Fed the Fed gives iis top-notch services. Fve known a tot of the people at the Fed for years. good to be able td caU somebody It feels over ih^r^ and know that they are going to be responsive whatever because to I need." Ollie Camillo, Senior Vice President, First Collinsville Bank, CoUinsville, 111. First CoUinsville Bank, a community-oriented bank, opened for business on luly 9, 1990. As of March 1993, its deposits had grown.to $69 million. First Collinsville processes about 20,000 checks a month through the Fed and receives both ACH items and MICBJine detail daily through its Fedline connection. For the past several pages, we have described Through the combined efforts of the Board, the three main responsibilities of a regional the regional Reserve Banks and the FOMC, the Reserve Bank -^ formulating monetary policy, Federal Reserve is in a strong position to make supervising and regulating banks, and providing monetary policy, provide a safe banking syst-em, payments services — and how they are per- contribute to ah effective payrnents mechanism, formed. What becomes apparent is riot just hov^ and carry out these responsibilities with an ' important these functions are, but how together they reinforce one another. Contributions in each activity are enhanced by involvement in the others. This interrelationship becomes . : crucial when considering the Fed's ultimate responsibility: to provide economic and financialstabllity for the nation. This task can be fulfilled only through the joint eJB^orts of the Fed's monetary policy, supervisory and paymerits functions Working in concert. The. structure of the Fed itself further con- tributes to carrying out this responsibility. The combination of a centralized board in Washington and 12 decentralized Reserve Banks in touch with economic conditions, financial instittitions and the public provides the Federal Reserve with the infoTmation and knowledge to do its job effectively. Should a financial crisis arise in any part of the«country, a Reserve Bank is close at hand with the discount window, banking and payments system expertise necessary to respond quickly! ; understanding of hovy^ they will affect both individuals and the economy. CONCLUSION BOARD OF DIRECTORS - St. Louis Sandra B. Sanderson John F. McDonnell Chairman and Chief Executive Officer McDonnell Douglas Corporation St. Louis, Missouri President and Chief Executive Officer Sanderson Plumbing Products, Inc. Columbus, Mississippi Warren R. Lee President W. R. Lee & Associates, Inc. Louisville, Kentucky Douglas M. Lester Richard E. Bell Chairman of the Board and President Trans Financial Bancorp, Inc. Bowling Green, Kentucky President and Chief Executive Officer Riceland Foods, Inc. Stuttgart, Arkansas Ray U. Tanner Chairman, Director and CEO Volunteer Bank Jackson, Tennessee Robert H. Quenon Chairman lenry G. River Janet M. Weakley Deputy Chairman President Janet McAfee Inc. Clayton, Missouri resident irst National lank in inckneyville inckneyville, Mining Consultant St. Louis, Missouri BOARD OF DIRECTORS - Little Rock James V. Kelley Robert D. Nabholz, Jr. Chairman Barnett Grace L. Dickson Flake President Barnes, Quinn, Flake & Anderson, Inc. Little Rock, Arkansas Chairman and Chief Executive Officer First Commercial Bank, N.A. Little Rock, Arkansas Chief Executive Officer Nabholz Construction Corporation Conw^ay, Arkansas Mahlon A. Martin President Winthrop Rockefeller Foundation Little Rock, Arkansas Mark A. Shelton III President M.A. Shelton Farming Company Altheimer, Arkansas Betta M. Carney President and Chief Executive Officer World Wide Travel Service Inc. Little Rock, Arkansas Chairman, President and CEO First United Bancshares, Inc. El Dorado, Arkansas BOARD OF DIRECTORS - Louisville Charles D. Storms Laura M. Douglas Legal Director Louisville and Jefferson County Metropolitan Sevier District Louisville, Kentucky Thomas E. Spragens, Jr. President and Chief Executive Officer Farmers National Bank Lebanon, Kentucky Robert M. Hall Ov^ner Hall Family Farm Seymour, Indiana John A. Williams Chairman Malcolm B. Chancey, Jr. Chairman of the Board and CEO Liberty National Bank and Trust Company Louisville, Kentucky Daniel L. Ash Consultant Louisville, Kentucky Chairman and Chief Executive Officer Computer Services, Inc. Paducah, Kentucky President and Chief Executive Officer Red Spot Paint & Varnish Co., Inc. Evansville, Indiana (not pictured] BOARD OF DIRECTORS - Memphis Lewis F. Mallory, Jr. Larry A. Watson Chairman of the Board and President Liberty Federal Savings Bank Paris, Tennessee President and Chief Executive Officer National Bank of Commerce of Mississippi Starkville, Mississippi Seymour B. Johnson Chairman ^ ^ ^ \ Kay Planting Company Indianola, Mississippi Sidney Wilson, Jr. President Wilson Automotive Group, Inc. Jackson, Tennessee M. Rita Schroeder Anthony M. Rampley President St. Francis Hospital Memphis, Tennessee President and Chief Executive Officer Arkansas Glass Container Corporation Jonesboro, Arkansas Thomas M. Garrott Chairman and Chief Executive Officer National Commerce Bancorporation Memphis, Tennessee OFFICERS FEDERAL ADVISORY COUNCIL MEMRER Andrew B. Craig, III Chairman, President and CEO Boatmen's Bancshares, Inc. St. Louis, Missouri ECONOMIC COUNCIL ADVISORY Carol Barnes Secretary and Co-Owner The Missouri Peddlers St. Louis, Missouri Assistant Vice Thomas C. Melzer President and Chief Executive Officer Michael T. Belongia James R. Bowen First Vice President and Chief Operating Officer Brady Deaton Chair Department of Agricultural Economics Uniyersity of Missouri Columbiia, Missouri Allen Franks Guthrie, Kentucky Senior Mandgem eiit ' RoyH. Huiit President Hunt Tractor and Equipment Louisville, Kentucky W.K. McGehee Jr. President Spurling Fire & Burglar Alarm Go. & Telecom, Ino. Fort Smith, Arkansas Margaret McKee Friars Point, Mississippi Presidents Audit Keith M. Carlson Michael D. Renfro General Auditor Cletus G. Coughlin ' Little Rock Rranch Judie A. Courtney Karl W. Ashman Vice President and Manager Jeffrey M. Dale ^ Henry H. Bourgaux Senior Vice President Administration and Operations Hillary B. Debenport Joan P. Cronin Senior Vice President Banking Supervision and Regulation Susan B, McCoUum David T. Rennie Assistant Vice President Jerome J. McGunnigle, Louisville William G.Dewald Senior Vice President Research and Public Information Vice Presidents MaryH.Karr General Counsel Richard E. Kay Valuables Processing R. AltonGilbert Walter W. Jacobs John P. Merker Michael J. Mueller Jerome R. Rodgers Frances E. Sibley John A. Tatom Robert J. Taylor Daniel L. Thornton Other Officer's Richard G. Anderson Ra)miond H. Laurence Payments . Ljmn M. Barry JeanM. Lovati Information Systems Dermis W. Blase Martha L. Perine Accounting and Personnel KristiD. Short Electronic Services Bernard E. Bems Jr. John W. Block Jr. Timothy A. Bosch Martin J. Coleman Edward A. Hopkins William J. Sneed Support Services Robert A. Hopkins Randall C. Sumner Credit and Conmiunity Affairs Kirn D. Nelson Patricia A. Marshall Gregory S. Pusczek Harold H.Rieker Harold E. Slingerland Thomas R. Callaway Assistant. Vice President Rranch W.Howard Wells Vice President and Manager Thomas A. Boone Assistant Vice President Thomas O. Short Assistant Vice President Memphis Rranch John P. Baumgartner Vice. President and Manager Anthony C. Cremerius Jr. Assistant Vice President Michael R. Sinnett pperatLons Officer • ^ wm December 31 1992 ASSETS ' Gold certificate account ................ Special Drawing Rights certificat-e account. Coins. ...... .\.;.;,.....;..;...... Loans to depository i n s t i t u t i o n s . . . . . . . . . . . . December 31 1991 (thousands/of dollars) $ 304,000 168,000 25,274 5,000 "•$" 326,000 307,00028,685 24,725. Securities: Federal agency obligations . . . . . . ..., U.S. government securities . . . . , , . . . . . . . . Total securities . . . . . . . . . . . . . . . . . . . . , . , 132,435 7,218,244 $ 7,350,679 Cash items in p r o c e s s . . . . . . . . . . . . . . . . . . / . . . . . Bank premises (net) .. *.. ..............;. Other assets — ......:...;....... Interdistrict settlement account . . . . . . . . .^..'. TOTAL ASSETS. . . . . . . . , . . . . . . . . ! . . . . . . . 293,612 29,797 683,302 5,311,031 $14,170,695 LIABILITIES Federal Reserve notes . . . . . . . . .J..;... .*;...;.. $12,823,759 $.' 6,034,906 Deposits: Depository institutions ,. Foreign banks . . . . . : . . . . . , . . . . . . . . . , , . . . , Other d e p o s i t s . . . . ; . , : . . . , ; . . . . . . . . . . . . . . . Total d e p o s i t s ; . . ; . . . . . . . . . . . . . . : . . . . . , 952,292 3,433 2,644 958,369 913,513 3,930 42,048 959,491 , Deferred availability cash items . . ; . . . . . — Other liabilities . . . . . . . . . . . . . . . . . , . . . ' . . . . . — Interdistrict settlement accouiit . . . . - , . . . , . . , TOTAL LIABILITIES . . . . . " ; . . . . . . . , . . . . . CAPITAL AtCOtJNTS ' .Capital paid in . . . . , . . . . . . . . . . . . . . . . ; . .\ . . . . Surplus.;..........;... ..,....,.;. TOTAL CAPITAL ACCOUNTS . . . . . . . . . TOTAL LIABILITIES AND CAPITAL... STATEMENT OF eONDITION $ 204,338 44,365 160,083 7,057,649 • $ 7,217,732 4 i ,:A 69,932 69,932 $ 139,864 $14,170,695 255,223 72,467 V 0 $14,030,831 -275,264 28,567 852,436 (1,609,158} 7,453,251 0 .. $ 7,322,057 $ 65,582 65,582 131,164 7,453,251 $_ $ • $ INCOME AND EXPENSES (thousands of dollars) Decejmber 31 December 31 1992 CURRENT INCOME Interest on loans to depository i n s t i t u t i o n s . . . . . . . . Interest on government securities Earnings on foreign currency * Revenue from priced services . All other income .......:.......... Total current incorne CURRENT EXPENSES Current operating expenses ., •.•: Less reimbursables .. ..........;............,... Current net operating expenses Cost of earnings c r e d i t s . . . . . . . . . . . . . . Current net expenses . ; . . ,..; .......... ,..,, CURRENT NET INCOME.......................... 1991 $. 2,525 522,560 65,658 31,357 495 $" 622,595 $ 841 432,402 52,606 30,873 253 $ 516,975 68,172 (8,686) 59,486 $ 72,235 (10,001) $ 62,234 $ 4,141 66,375 I. 5,935 65,421 $ 450,600 $ 557,174 $ $ PROFIT AND LOSS Additions to current net income: Profit on sale of government securities ( n e t ) . . . . Profit on foreign exchange transactions (net) . . . All other additions . . . . . . . . . . . . , - . . . . . . . . Total additions .., Deductions from current net income: Loss on foreign exchange transactions ( n e t ) . . . . . All other deductions ....... .... .•....... Total deductions .... Net additions or d e d u c t i o n s , . . . . . . ' . .-........:. Cost of unreimbursed Treasury s e r v i c e . . . . . . . . . .••.. Assessment by Board of Governors: Expenditures . . . / . . . '..... Federal Reserve currency costs . . . ..... . NET INCOME AVAILABLE FOR DISTRIBUTION . DISTRIBUTION OF NET INCOME Dividends p a i d . . . . . . . . . Payments to the U.S. Treasury (interest on Federal Reserve notes) . Transferred to surplus Surplus, January 1 Surplus, December 31 ........ .. ... •" $ 3,154 78,088 5 ' 81,247 $ 104,732 105 $ 104,837 $ (23,590) (1,669) $ 4,177 10,301_0 14,478 (3,183) (7,170) 548 4 552 13,926 (4,274) ,$ • $ $. (2,843) (7,330) $ 414,988 $ 556,653 $ $ (4,092) (406,546) 4,350 65,582 $ 69,932 (3,881) (550,750) 2,022 63,560 65,582 .• 4 Operations Dollar Amount (thousands) Number 1991 1992 . 1992 1991 26,414,000 20,188,000 377,213,000 30,029,000 17,716,000 371,73.4,000 Services to Depository Institutions Check Services: ' U.S. g o v e r n m e n t . Postalmoney o r d e r s : . . . . - . . / . . . . . . . . . . . Commercial . . . . . . . . , . . . . . . . . . . . . . . . . . . ACH Services: . 29,988,000 30,369.000 180,904,000 165,332,000 572,736,000 '. 569,064,000 . Commercial , . . ; . . . . . . . . , . . . . . . . . , . . . . . U.S. g o v e r n m e n t . . . . : . . . . . . . . . . . . . . . . . . ' 93,787,000. 25,227,()00 Collection Services: . ' 79,175,000 •24,399,000 416,676,458; 55,074,285 -359,985,657 38,345,085 . U.S. government coupons paid . . . . . . .. .. All other. 30,459 78,367 36,096 115,622 14,867 248,539 17,492 253,715 Currency received and counted . . . . . . . . .. 740,377,000 692,465,000 9,057,263 8,147,804 3,163,027 3,951,305,000 3,721,547,000 767,000 1,314,000 "Wire transfer of funds 3,267,365 Loans to depository institutions;. . 585 1,545 Servicer of U.S. Treasury Transfer of government securities . . . . . .'•. *. ' * • ' . . . . . .^...;.. Food stamps r e d e e m e d . . . . . . . ....... 173,031 257,79^,000 154,279 222,487,000. 446,756,000 .314,291,000 1,248,585 1,119,157 OPERATING STATISTICS Federal Reserve Bank of St. Louis Post Office Box 442 St. Louis, Missouri 63166 314-444-8444 Little Rock Branch Post Office Box 1261 Little Rock, Arkansas 72203 501-324-8300 Louisville Branch Post Office Box 32710 Louisville, Kentucky 40232 502-568-9200 Memphis Branch Post Office Box 407 Memphis, Tennessee 38101 901-523-7171
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