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F E D E R A L R E S E R V E B A N K O F S T. L O U I S
2003 ANNUAL REPORT
Branching
Out
“The St. Louis Fed’s value to
its branch communities
is more than
bricks and mortar.
It’s the Bank’s
intellectual contributions
that make the most
important difference.”
William Poole
PRESIDENT AND CEO
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
2003 ANNUAL REPORT
“
Simply put, we cannot afford to lose or lessen the
importance of the network of economic information gathering resources we’ve established. ... Indeed, we
plan to expand these networks.”
William Poole
PR ESI D EN T AND CEO
2
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
President’s
Message
In response to dramatic shifts in the payment landscape, the Federal
Reserve in 2003 made some tough decisions regarding the offices in
which it will continue to process checks. In the Eighth District, such
decisions have had a ripple effect, prompting us to shut down our
operational role in cash processing and vacate branch buildings in
Little Rock and Louisville. By the end of 2004, the Little Rock and
Louisville branches will no longer process any form of payment.
For an institution like the Fed, these changes
nation’s payments system. Finally, our employees
were seismic. If you searched for a single word
have always regarded the Fed as a stable place
to sum up what the Fed is all about, the word
to come to work each day.
stability would do a pretty good job. Our
primary mission is to maintain price stability.
In the wake of decisions that will reduce staff in
Stability also defines the Fed’s goals since 1913
Little Rock and Louisville to fewer than 10 each,
for supervising and regulating the nation’s
we have pondered the question: What’s a Fed
banking system, as well as safeguarding the
branch for anyway? Have branch offices served
2003 ANNUAL REPORT
3
Walter L. Metcalfe Jr.
C H A I RMA N
4
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
their time? The essay in this annual report
our visibility in the community.
answers the latter question with a resounding no.
Our new branch direction marks a new era. At the
We will detail the critical significance of the
same time, we should not forget the tremendous
St. Louis Fed’s regional presence in cities around
contributions of the employees who are leaving us.
its district. Simply put, we cannot afford to lose
Our employees in Little Rock and Louisville are
or lessen the importance of the network of
some of the finest in the Federal Reserve System,
economic information-gathering resources we’ve
and we will miss them. They routinely have led
established, the critical input we get from our
the System in measures of productivity and cost
branch boards of directors on the regional econ-
recovery, and I am saddened by the decisions that
omy, and the one-on-one relationships we’ve
have cost them their jobs. As we say goodbye to
nurtured among the region’s bankers, teachers,
these employees during the second half of 2004,
community development agencies and university
I will do my best to pay tribute to their dedication,
professors. Indeed, we plan to expand these
excellence and customer service, for they deserve
networks, as this report will discuss.
whatever thanks we can give them.
Our renewed efforts will result in a greater public
and intellectual presence in branch cities than
William Poole
we’ve had. Even as we reduce our role as an
employer of workers, we expect to be increasing
2003 ANNUAL REPORT
5
Branching
Out
The St. Louis Fed’s Three Branches
Expand Beyond Bricks and Mortar.
The
first thing they’ll
have to do is
order new business cards. That’s
because their titles will change from
“branch manager” to “senior branch
executive.” And that is just the first
of a multitude of changes the
Federal Reserve Bank of St. Louis’
three branch managers will
encounter in the second half of 2004.
New title. New mission. New era.
6
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
Future Greenspans? High school students opine about the state of the economy in the Fed Challenge, a competition in which
students participate in a mock Federal Open Market Committee meeting in front of a panel of judges. At its three branches, the
St. Louis Fed will increase its involvement in these types of outreach events.
▲
more meetings between lenders and community
Indeed, everything will change in the Eighth
m
District’s Little Rock, Louisville and Memphis
development groups—meetings that are mediated
branches starting later this year. If you live in these
by local Fed representatives and that address key
communities, expect to read, see and hear more
issues related to credit access.
about the Fed’s expanded role in a number of local
initiatives. One might envision this involvement
manifesting itself in a number of ways:
m
Robert Hopkins, Little Rock senior branch execu-
tive, welcoming attendees to a Fed-sponsored
urban planning conference;
m
Tom Boone, Louisville senior branch executive,
addressing high school seniors about the Federal
Reserve’s role in monetary policy and the payments
system;
m
Martha Perine Beard, Memphis senior branch
“I think those of us in the Eighth District
branches have a great opportunity in our communities to make our presence felt more broadly than
ever before,” Boone says.
Following a year in which national and local
consolidation decisions led the Bank to change the
role of its branches dramatically, the St. Louis Fed
will draw upon its intellectual capital in areas such
as community affairs, economic education, research
and monetary policy to increase its contributions to
the branch cities and surrounding regions.
This annual report will examine the decisions
executive, making TV and radio appearances to
that prompted the St. Louis Fed to redefine the
discuss economic and banking trends affecting the
traditional role of its branches to focus more on
Mid-South;
outreach and less on operations. In addition, it
m
a St. Louis Fed economist appearing at a chamber
of commerce luncheon to present her research on
employment trends in the community;
m
will review the evolving functions of the branch
offices since their inception. Finally, it will discuss
in greater detail the branches’ new and expanded
responsibilities and functions.
a Fed-sponsored speaker’s program attracting
high-profile business leaders from around the
country; or
2003 ANNUAL REPORT
7
CHECK: THE TRANSIT ION
F R OM PAPER T O ELE CTRONICS
banks handle about 16.5 billion of these checks annu-
What the Federal Reserve announced on Feb. 6,
But the bad news for the Fed’s check operations is
2003, is the type of news that has become com-
actually evidence of success given the Fed’s long-
monplace in most of the business world. At the
standing push for more electronic payments.
ally, and this volume is expected to decline as well.
On the day of
Fed, however, it
was a jolting,
the Fed’s check
paradigm-shifting
announcement,
event. The Fed
Cathy Minehan,
announced a con-
president and CEO
solidation of its
of the Federal
check operations,
Reserve Bank of
resulting in the
Boston and, at the
elimination of
time, chair of the
1,300 positions by
Fed’s Financial
the end of 2004.
Services Policy
Committee,
Smaller consolidations in the
explained:
past, in response
“Nationwide, con-
to market conditions, had resulted in some degree
sumers and businesses have made a significant shift
of employment shrinkage at the Fed. A sweeping,
in how they make payments, substituting electronic
nationwide wave of job cuts, however, was not
payments for checks. This development is good
something common to the Fed or its employees.
news for the nation’s payments system, and the
To understand why the Fed is consolidating from
Federal Reserve has strongly supported this shift.
45 check-processing sites to 32 and streamlining its
But declining check volumes are requiring the
check-adjustment functions from 43 locations to 12
is to understand the decline of checks themselves.1
Reserve banks to make changes in their check opera-
It is nothing short of precipitous.
ing market. The changes we are announcing today
Even though checks remain the most popular
form of retail payment outside of cash, they make
tions to address the challenges posed by the changwill help us meet these challenges.”
In light of the increased popularity of electronic
up only 60 percent of all noncash retail payments
payments at the expense of check growth, the
today compared with 85 percent in 1979. Federal
Federal Reserve had no choice but to take action.
Reserve studies suggest that roughly 40 billion
Because the Fed has a goal to recover its check
checks were written in the United States in 2002,
costs (as stipulated in the Monetary Control Act of
down from about 50 billion in 1995. Federal Reserve
1980), Reserve banks must continually balance rev-
1Check adjustments refers to the part of the check-processing operation in which errors are resolved.
8
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
enue and expenditures in its financial services.
About 160 Check employees, mainly in Little Rock
With check volumes declining across the nation,
and Louisville, will lose their jobs once the consolida-
however, the Federal Reserve System has missed its
tions are complete. Their departure has nothing to
cost-recovery targets in recent years. The Fed’s
do with performance. As St. Louis Fed President Bill
Check Re-engineering Initiative was launched to
Poole and First Vice President LeGrande Rives were
get the cost recovery effort back on track.
quick to point out, the decision was primarily “a fact
The initiative is expected to reduce the Fed’s
of geography.” The city of Louisville sits only 100
operating costs for check services by about
miles from Cincinnati. Little Rock is only 120 miles
$60 million in 2005 and about $300 million over
from Memphis.
the next five years. The Eighth District is projected
to save $5 million annually.
“We are not blessed in the Eighth District with a
branch infrastructure that supports the kinds of
changes we’ve seen,” Rives says. “When these
TH E IMPACT ON T HE
EIGHTH DIST RICT
branches were established, it probably made sense
The ramifications of the Fed’s check announce-
terms of transportation, the banking environment,
ment were more severe in the Eighth Federal
the way checks were handled. ... But, obviously, a lot
Reserve District than in most other districts in the
has changed in terms of technology, transportation,
Fed System. As a result of the decision, the follow-
economic conditions and population growth. When
ing actions will occur:
you look at these changes since the 1920s and
m
In Little Rock, all of Check Operations will shut
down, with processing moving to the Memphis
office in July 2004;
m
In Louisville, all of Check Operations will shut
to have branches that were only 120 miles apart, in
where the population is now, it becomes very difficult for us to maintain operations at branches that
are only 120 miles apart.”
TAK I NG I T O NE S T E P F URT HE R
down. In August 2004, Check processing will move
For some Federal Reserve offices that are losing
to Cincinnati, and Check adjustments will move to
their Check operations—Little Rock and Louisville
Cleveland.
among them—the announcement would translate
m
In Memphis, Check processing will expand with
the addition of Little Rock’s check volume.
m
St. Louis will maintain its check-processing function.
m
Management of Check adjustments in Little
Rock, Memphis and St. Louis will be consolidated in
Memphis.
into the exodus of the majority of staff. At the
time of the decision in early 2003, Little Rock and
Louisville each employed about 130 people,
roughly two-thirds of whom worked in the
Check Department. The remaining operation
function, Cash processing, employs far fewer
people than Check. Other employees work in
support functions such as protection, building
2003 ANNUAL REPORT
9
The night shift Cash operation in Louisville
maintenance, food services and housekeeping.
m
Each branch also has a Community Affairs
would move to Memphis on Jan. 1, 2004.
representative.
With the absence of the main revenue generator, Check, the cost of running the Little Rock and
Louisville branches would be shouldered almost
entirely by Cash. To avoid shifting these costs to
Reflecting the reduced staffing, the Bank will
also sell the Little Rock and Louisville buildings. A
small staff consisting of a senior branch executive,
community affairs representatives, economic education specialists and support staff will be working
in leased space and maintaining contact with local
banks, organizations and officials. In addition,
each branch will continue to have its own board of
directors to gather regional economic information.
Rives says: “We considered all kinds of alternatives that could possibly either put in new operations or shore up how we distributed costs at those
branches. And, really, none of them made good
economic sense.
“We asked ourselves, ‘Is there anything on the
horizon that would make the answer different two
years from now, or five years from now?’ And the
answer was, ‘no.’”
ORIGINS OF THE EIGHTH DISTRICT
The St. Louis Fed, importantly, is not closing its Little
Rock and Louisville branches. The current events repCheck and Cash consolidations will result in the
closure of the St. Louis Fed’s buildings in Louisville
(top) and Little Rock (bottom), though the Fed will
maintain a presence in both cities.
▲
the U.S. Treasury and to maintain the efficiency of
operations, the District made the following Cash
restructuring decisions in July 2003:
m
Cash operations and support services, including
resent the latest in the evolution of the Eighth District
branches, albeit the most dramatic changes in the
nearly 90-year history of the three branches.
To learn how the branches came into existence,
one must go back nearly a century to the creation of
the Eighth District. When the Federal Reserve Act was
enacted in 1913, St. Louis was the fourth-largest city in
the United States. In addition to being a major rail-
protection, building and food services, would close in
road hub, St. Louis was the world’s largest fur market,
the Little Rock and Louisville branches in late 2004.
the nation’s third-largest manufacturing city, a major
10
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
CHANGES IN T HE FE DERAL RESE RV E
SYSTEM’S CHECK – P ROCE S S ING L O C AT I O NS
Peoria RCPC to close;
check processing to move
to Chicago
Milwaukee RCPC
to close; check processing
to move to Chicago
Omaha check processing
to move to Des Moines
Indianapolis RCPC
to close; check processing
to move to Cincinnati
S E AT T L E
Pittsburgh check
processing to move
to Cleveland
HELENA
P O RT L A N D
MINNEAPOLIS
9
M I LWA U K E E
UTICA
DETROIT
CHICAGO
OMAHA
SALT LAKE CITY
DES MOINES
PEORIA
DENVER
K A N S A S C I T Y 10
12 S A N F R A N C I S C O
7
E. RUTHERFORD
COLUMBUS 4 C L E V E L A N D
INDIANAPOLIS
PITTSBURGH
CINCINNATI
BALTIMORE
8 S T. L O U I S
LOUISVILLE
OKLAHOMA CITY
LOS ANGELES
MEMPHIS
CHARLESTON
NASHVILLE
5
BIRMINGHAM AT L A N TA
E L PA S O
KEY
JACKSONVILLE
SAN ANTONIO
Regional Check Processing Center (RCPC)
This map does not reflect changes in check adjustments.
All changes to be completed by the end of 2004.
El Paso check
processing to move
to Dallas
San Antonio check
processing to move
to Dallas
RICHMOND
Charleston RCPC
to close; check processing
to move to Cincinnati
Richmond check
processing to move
to Baltimore
District
Branch Office
3 PHILADELPHIA
COLUMBIA
D A L L A S 11
NEW ORLEANS
1
2 NEW YORK
CHARLOTTE
6
LITTLE ROCK
HOUSTON
BOSTON
WINDSOR LOCKS
Louisville check
processing to move
to Cincinnati
MIAMI
Columbia RCPC
to close; check processing
to move to Charlotte
Little Rock check
processing to move
to Memphis
Miami check processing
to move to Jacksonville
livestock market, a brewing center, a leading distribu-
of the four largest regional banks, hoping for all or
tor of dry goods, as well as a leading banking center.
parts of 12 states to be within its boundaries,
The Federal Reserve Act called for between eight
and 12 Reserve districts. Competition among cities
according to one newspaper report.
In the book A Foregone Conclusion:
was fierce. A total of 37 cities made formal pitches
The Founding of the Federal Reserve Bank of
to the Federal Reserve Bank Organizing Committee.
St. Louis, the St. Louis contingent was said to be
Because of St. Louis’ size and economic significance
pushing for “a long north-and-south axis to
to the nation, city representatives were confident
ensure a balance of economic interests. The
that St. Louis would be selected. What concerned
cotton-belt bankers from Tennessee through
officials more was the size of the territory St. Louis
Arkansas, Mississippi and Louisiana to Texas, with
would be granted. They sought to be awarded one
their heavy seasonal demands for credit, should
2003 ANNUAL REPORT
11
press the Organizing Committee to give St. Louis
It is the evident and proper intent of the law to
a self-sufficient district with a variety of economic
allow the free use of branches so that all privileges
interests, such as mining and manufacturing, and
could be carried near to all the people, no matter
enough banking resources to absorb seasonal
where the district bank be located.”
credit demands.”
Within the large territory St. Louis envisioned
In January 1914, St. Louis made its case to
Organizing Committee members William G.
for its district, eight other cities also were seeking
McAdoo, the secretary of the Treasury, and David
selection: Kansas City, Memphis, New Orleans,
Houston, the secretary of Agriculture. In an ambi-
Indianapolis, Nashville, Dallas, Houston and Fort
tious proposal—though one scaled back from the
Worth. In an attempt at gentle persuasion, those
previously reported version—Festus Wade, president of the St. Louis Clearing House Association,
presented St. Louis as “District Five” of a Federal
The current events represent
the latest in the evolution of the
Reserve consisting of eight districts.
When the Organizing Committee made its
announcement on April 2, 1914, 12 districts—the
Eighth District branches, albeit
maximum allowed by the Federal Reserve Act—
the most dramatic changes in
of the Eighth District. The inclusion of districts
the nearly 90-year history of
the three branches.
were created, with St. Louis named as head office
headquartered in Kansas City and Dallas cut into
the west and southwest areas that St. Louis desired
for its district. Mainly, that included Texas,
Oklahoma and western Missouri. The Eighth
District’s size, nearly 150,000 square miles, was the
hoping to land a Reserve bank in St. Louis sent a
fourth smallest among all districts, behind
letter to bankers in many of these cities to inform
Philadelphia, New York and Boston.
them that there would more than likely be 10 to 15
branches in a St. Louis district, each with local con-
ALONG CAME THE BRANCHES
trol through a seven-member board.
The notion of 10 to 15 branches sprinkled
Eighteen banks signed the letter, which was
throughout the St. Louis Federal Reserve District
sent to their correspondent banks. The bankers
never materialized. But within four years of the
said that in a 12-state district headquartered in
St. Louis Fed’s swinging open its doors in November
St. Louis, “every point could be served more satis-
1914, three branches were established. They were
factorily through the branches of the St. Louis
located in Little Rock, Louisville and Memphis.
Reserve Bank than through smaller banks or
through banks located in districts not so diversified.
12
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
Louisville was the first branch to open, in
December 1917. The St. Louis Fed’s Board of
Following a visit by William G. McAdoo and
the rest of the Federal Reserve Bank Organizing
Committee in early 1914, optimism ran high in
St. Louis.
▲
▲
The Federal Reserve Bank of St. Louis opened
for business on Nov. 16, 1914, with six officers
and 17 other employees.
2003 ANNUAL REPORT
13
Branch Function
Consolidations
1970s 1980s 1990s 2000s
redit Discount
C
Wire Transfer
Savings Bonds
of Funds
S T.
LOUIS
ACH
Book-Entry Securities
Payroll
S T.
Accounting/
Purchasing
LOUIS
S T.
Check Processing
to Memphis,
(Little Rock
*
Since the 1970s, branch consolida-
Louisville to Cincinnati)
Check Adjustments
tion has been on a one-way track.
to Memphis,
(Little Rock
Major functions that each branch used
Louisville to Cleveland)
to perform have merged to St. Louis
Cash Processing
(Little Rock to Memphis,
(except where noted).
Louisville to Cincinnati)
Directors heard arguments from the Louisville
Reserve Board in Washington, D.C. Once granted,
Clearing House Association for the establishment
the St. Louis Board could authorize the branches to
of a branch in Louisville back in September 1916.
perform formal functions, which it did during board
Not until the following summer did the board
meetings in September 1918. The branches’ powers
approve the establishment of the branch. The
were heavy on the operational side and included
Memphis Clearing House Authority petitioned the
clearing checks, processing cash and handling credit
Bank to establish a branch in that city in the spring
applications and wire transfers. The seven branch
of 1918. The St. Louis Board approved the request
functions and duties spelled out were:
in June 1918. Just a few weeks later, the directors
approved a request from Arkansas bankers to
establish a branch in Little Rock.
Before any of the branches could begin functioning, final approval was needed from the Federal
14
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
1. To receive from any member or clearing member
bank in its territory for collection and credit with it
checks drawn on any bank on the par list of the
Federal Reserve banks.
LO
*
The consolidation trend does not always stop once a
function moves to St. Louis. In recent years, some
operations have left the St. Louis office as the Federal
Reserve nationalizes more and more financial services.
1994 2000 2001 2002
OUIS
S T SavingsL O U Treasury Direct T .
. Bonds
IS S
(to Kansas City)
(to Minneapolis)
ACH
L O U I Electronic Access
S Support
(to Minneapolis)
(to Minneapolis)
MINNEAPOLIS MINNEAPOLIS
Funds
Book-Entry Securities
(to Boston)
KANSAS CITY KANSAS CITY
BOSTON
BOSTON
BOSTON
2. To receive from any member or clearing member
through the head office, notes, drafts, coupons
bank or Federal Reserve bank or branch thereof
and other legitimate collection items which are
for collection and credit with or through the head
payable within its territory.
office checks on any bank in its territory on the par
list of the Federal Reserve banks.
3. To receive from any member or clearing member
bank in its territory for collection and credit when
paid, notes, drafts, coupons and other legitimate
collection items.
4. To receive from any member or clearing member
bank or Federal Reserve bank or branch thereof
for collection and credit when paid with or
5. To receive and pass on applications for redis-
count and transmit such applications to the head
office for approval.
6. To receive and make wire transfers for the mem-
ber and clearing member banks in its territory.
7. To receive and transmit by wire to the head
office for their approval and advice of rate of discount, all applications of member or clearing member banks to buy or sell mail transfers.
2003 ANNUAL REPORT
15
RO LE OF THE BRANCHES: HE LPING
T O KEEP TH E
S TO OL STEA DY
qualifications as directors of the head office. The
The Federal Reserve is often referred to as a three-
industry, labor and consumers. Current branch board
legged stool, performing functions and offering
members in the Eighth District hail from sectors of the
expertise in three distinct areas:
economy as diverse as banking, academia, health
m MONETARY POLICY
– Basing its decisions on hard
data and anecdotal evidence, the Fed acts to keep the
level of overall prices stable and the economy growing at a sustainable rate without igniting inflation.
seven directors who serve on each branch board
represent the interests of agriculture, commerce,
care, manufacturing and affordable housing.
Like the St. Louis board, each branch board generally meets monthly. The directors report on the
latest developments in the local economy, and
those reports are shared with the Bank president
m SUPERVISION AND REGULATION OF FINANCIAL
and Bank economists. The president then weighs
INSTITUTIONS – The Fed is one of several regulators
this information with hard data before attending
monitoring the banking industry. Fed examiners
meetings of the Federal Open Market Committee
identify areas of risk that could affect a bank’s safe-
(FOMC). The FOMC, which determines the target
ty and soundness, and ensure compliance with con-
level of the federal funds rate, meets eight times a
sumer regulations.
year to review economic and financial conditions,
m PROVIDING FINANCIAL SERVICES
– A component of
the Fed’s mission is to foster the integrity, efficiency
and accessibility of the payments system. To support
its mission, the Fed offers financial services to banks
and the U.S. government to encourage competition,
innovation and efficiency in the marketplace.
Since the early days of the Eighth District, the
Little Rock, Louisville and Memphis branches have
played a significant role in the monetary policy and
financial services arenas while supervision and regulation functions have been carried out through
the St. Louis office.
determine the appropriate stance of monetary policy and assess the risks to its long-run goals of price
stability and sustainable economic growth.
St. Louis Fed President Bill Poole regards as critical the anecdotal information provided by sources
like board members because it is more timely than
formal data such as Gross Domestic Product (GDP)
or unemployment statistics. Quantitative measurements that are released monthly or quarterly tend
to lag current economic conditions.
“Anecdotal information helps us to see what is
going on in the economy almost as it is happening,” Poole says. “Also, because it is collected from
MONETARY POLICY: A branch’s contribution to the
the people who are actually making day-to-day
monetary policy leg of the stool comes primarily
decisions, it helps us to understand why trends in
from its board of directors. The Federal Reserve Act
the data are occurring.”
stipulates that each Reserve bank branch be operated by a board whose members possess the same
16
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
As an example, Poole describes the case of a
branch director who in the summer of 2000
reported that loan demand at his bank was falling
contacts to get a good idea of the sectors that
and that other firms in his area were beginning to
were affected the most, weeks before any formal
experience problems. At the time, the economy
data were available.
seemed to be growing rapidly, and nearly all fore-
Poole says: “We found out very quickly that the
casts indicated that rapid growth would continue.
Fed’s injection of liquidity into the banking
Reports of this sort surfaced throughout the rest
system had been successful, in that few banks
of 2000 and into 2001, helping the Fed to get
reported having liquidity problems despite the
ahead of the recession by lowering its federal
near-complete shutdown of financial markets.
funds rate target in early 2001, even though cur-
We also found that retail sales came to a halt in
rent GDP data suggested that the economy was
the two to three days after the attacks but surged
still growing.
back to near-normal levels by the weekend and
that manufacturers in the District were anticipating
The directors report on the
latest developments in
the local economy, and those
that they would be reducing their output by an
average of 10 percent.
“All of this information was vital in the weeks
immediately following the attacks, when the Fed
had to react very quickly while navigating the
reports are shared with the
uncharted waters of September and October.
Bank president and Bank
but without any substantial amount of formal data
economists.
Indeed, based on anecdotal reports and experience,
applying to the period after Sept. 11, the FOMC cut
the intended federal funds rate on Sept. 17 and
again on Oct. 2.”
Poole also notes that while most of the anec-
Information from directors and sources is com-
dotal information collected by the Fed supplements
piled and shared with the public in a special report—
other information at the Fed’s disposal, the anec-
informally called the Beige Book—which is issued
dotal reports at times become the primary source
about two weeks before each FOMC meeting.
of information. Tried and true standard data are
not reliable guides whenever history has not
recorded a pattern for how the economy is likely
to respond. The Sept. 11, 2001, terrorist attacks,
for example, had immediate and dramatic economic consequences, but nothing in history could
be used to predict the consequences of such an
event. The Fed was able to use its network of
FINANCIAL SERVICES: Fewer than 30 employees were
on hand to open each of the St. Louis Fed’s three
branches. Quickly and steadily, however, the need
for more workers and larger facilities at each
branch became obvious to accommodate the
branches’ main function, providing financial services to depository institutions.
2003 ANNUAL REPORT
17
The Louisville Branch moved into a new building
Employment at each branch peaked at more
less than two years after opening its doors. The
than 200 in the early 1970s. Trends such as inter-
Branch stayed in growth mode for many years to
state banking and advancements in technology
come: taking over check clearing on city banks
hastened the movement toward consolidated
from the Louisville Clearing House Association in
financial services among Reserve banks. Since then,
1920; installing machines for counting currency in
branch functions have gradually been consolidated,
1928; taking over the issuance and redemption of
culminating with the check and cash announce-
Defense Bonds (later known as War Bonds and
ments of 2003. (See chart on page 14.)
Savings Bonds) from the St. Louis office in the
In 1980, Congress passed the Monetary Control
1940s; moving again into its current building in
Act, which required the Fed to begin charging for
1958; and installing an electronic check-handling
its financial services. The act also opened the Fed’s
system in the 1960s.
services to all depository financial institutions.
In Memphis, the Branch’s employees moved to
expanded offices in 1920. During the decade, the
Branch grew to serve 61 banks in eastern Arkansas,
Previously, only member banks had direct access to
Fed services.
“The Monetary Control Act was clearly a water-
northern Mississippi and western Tennessee.
shed event,” says Karl Ashman, senior vice president,
Business growth necessitated the construction of a
Administration, and Little Rock branch manager
new two-story building before the end of the
between 1990 and 1995.
decade. Even though a third story was added in
Louisville Branch Manager Tom Boone adds,
1944, by the mid-’60s the building became increas-
“From an operations perspective, the Monetary
ingly inadequate to serve the needs of Memphis
Control Act pushed us into the real world. Not only
financial institutions. In 1972, the Branch moved to
did we quickly and dramatically improve our effi-
a new, four-story downtown building from which it
ciency and productivity, but we also began thinking
continues to serve more than 400 financial institu-
strategically in terms of competing for business.”
tions in its zone.
The Little Rock Branch exhibited similar growth
Now, in the midst of another historic turn of events,
the St. Louis Fed prepares to begin a new chapter.
since its inception. On the first day the Branch
opened in January 1919, clerks processed 750 checks.
A NE W F E D I N T O W N
By December, the quantity had grown to more
Barring consumers en masse holstering their debit
than 12,000 daily. Employees moved to a new
and credit cards, logging off banking and commer-
building in 1925 and would stay there for 42 years.
cial web sites, and canceling their direct payment
With the number of member banks rising to 67 and
accounts, the large check-processing operations
check volume surging, the Branch moved into its
employing scores of people will never return to
current building in 1967.
Little Rock and Louisville. Consumers have made
18
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
it clear: They are increasingly comfortable with
St. Louis Fed’s branch cities continue to evolve, the
electronic forms of payment. What’s more, recent
outlines of the effort are already taking shape:
legislation like Check 21 is expected to push the electronic payments trend further. (See sidebar on page 21.)
What is not certain at this point is how successful the District’s new branch model will become.
EXPANDED EMPHASIS ON MONETARY POLICY: The
St. Louis Fed will deepen its knowledge of economic
developments across the District, with the effort
Can offices that once employed more than 200
people make viable contributions to their communities and the Fed with drastically reduced staffs?
Mary Karr, senior vice president of Legal, Public
and Community Affairs, is in charge of the effort to
establish a new model for an Eighth District branch
office. If history is a barometer, Karr believes the
transition will be a success:
“The St. Louis Fed has a great tradition of
conducting research that supports monetary policy
decisions,” Karr says. “We are excited to build on
that reputation as we strengthen our intellectual
presence in our branches. Shifting our focus from
operations will give us an opportunity to be more
visible in programs designed to increase the
public’s understanding of monetary policy and
the economy.”
Little Rock Branch Manager Robert Hopkins is
fully aware that his branch is about to sail in
uncharted waters.
“For the Little Rock and Louisville offices, outreach is going to be the primary mission,” Hopkins
says. “Memphis will still have a huge operations
facility, so that branch will be important regardless
of what happens on the outreach side.”
Many companies use the term outreach to mean
charitable contributions or employee volunteerism.
What the Fed means by outreach is different.
Indeed, while plans for expanded outreach in the
The St. Louis Fed will be more visible in its branch
communities, hosting events similar to this recent
urban revitalization conference in East St. Louis, Ill.,
which attracted acclaimed speakers to address how
distressed cities can reverse their fortunes.
▲
2003 ANNUAL REPORT
19
managed from the four District offices. Equally
THE ADDITION OF A SUPERVISORY PRESENCE IN
important, the Bank will increase its efforts to
MEMPHIS: Experienced examiners will relocate to
communicate policy issues to improve general
Memphis from St. Louis. Julie Stackhouse, the
understanding of how policy is made and its
St. Louis Fed’s senior vice president over Banking
effects on the economy.
Supervision and Regulation, plans for the operation
EXPANDED RESEARCH INTO REGIONAL ECONOMIC
ISSUES: To further aid in monetary policy research,
the St. Louis Fed will hire additional economists
who will specialize in studying regional issues
affecting the District and later present their findings
to academic, business and community audiences.
EXPANDED ECONOMIC EDUCATION PROGRAMS: These
programs demystify the Fed and explain money,
banking and the Fed in simple language for teachers and their students. With dedicated economic
education staff members located at a branch, the
St. Louis Fed will be able to work more effectively
with teachers and students in the branch cities.
The Fed has a tremendous range of resources
available for use by teachers and students.
EXPANDED COMMUNITY AFFAIRS PROGRAMS: The
Bank’s Community Affairs Office links lenders with
community development organizations. By facilitating partnerships within communities, employees in this department foster dialogue and understanding on issues such as the Community
Reinvestment Act, economic development, affordable housing, and fair and equal access to credit.
Community Affairs publishes numerous materials
on these topics and also hosts or sponsors forums
throughout the District. The St. Louis Fed will
expand Community Affairs’ role in all three
branches by increasing staff and sponsoring
additional programs.
20
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
to grow to about 10 members over time.
Stackhouse says, “Our reason for establishing
this satellite office is simple: We want to become
more accessible. I believe we can be more effective as a Mid-South banking supervisor if we
establish a physical presence in Memphis.”
A COMMITTED AND PROFESSIONALLY DIVERSE BOARD
OF DIRECTORS AT EACH BRANCH: Maintaining a
strong board is perhaps the most critical piece of
the new branch model, for the District will need
engaged directors to make these ideas successful.
Hopkins, for one, is optimistic that business and
community leaders will continue to want to serve
on a branch board, saying, “I think the directors
are tied to the Federal Reserve System more than
they are to these large buildings.“
All of the evidence presented here indicates
that the St. Louis Fed’s branches had momentum in
several areas of outreach and monetary policy,
even before last year’s decisions were made. An
intellectual presence at each branch was already in
place, co-existing as an essential element of a
branch’s makeup, along with operational services.
By the end of 2004, however, an intellectual presence will be what remains in two of the three
branches.
“Time will tell as to whether we’ll be successful,” Hopkins says. “It depends on what we do
and how we do it.”
The
To
Check 21:
Check Stops
Here
enhance efficiency and foster
How quickly banks will adopt all of the provi-
innovation in the payments
sions of Check 21 is unknown. While all banks will
system, the Federal Reserve
need to ensure they can process substitute checks,
System sponsored the Check
they will need to determine whether they can make
Clearing for the 21st Century Act (Check 21), which
a business case for investing in the systems and pro-
will go into effect Oct. 28, 2004. Check 21 facili-
cesses necessary to implement check electronifica-
tates the use of check electronification to help pro-
tion. Some banks will quickly see the advantages
mote a more efficient system of check collection
for their business, while for other banks it may not
and processing. It also reduces legal impediments
make sense immediately.
to check truncation that exist under current law.
Overall check volumes have declined over the
It works like this: Currently, when you deposit a
past several years. About 40 billion checks continue
check at your bank, the bank must present the orig-
to be written annually in the United States, and the
inal paper check to the paying bank, unless there is
Federal Reserve processes 16.5 billion of those
an agreement in place between the banks. Under
checks. So while checks may be in decline, it is clear
Check 21, the paying bank is also required to accept
they are not going away overnight.
presentment of a substitute check—a paper repro-
What Check 21 may mean for the Federal
duction of the original check that contains an
Reserve banks is fewer checks to process and
image of the front and back of the original check,
reduced costs associated with the relatively slow
including its magnetic ink character recognition
and expensive check transportation network. The
(MICR) information.
act may also result in an increased share of check-
As a result of Check 21, banks may choose to
truncate original paper checks, process and deliver
checks electronically, and print substitute checks at
processing resources devoted to receiving, sorting
and delivering check data and images electronically.
Says Timothy C. Brown, vice president, Check, at
a location near the paying bank for presentment.
the St. Louis Fed: “This legislation facilitates check
The act does not require banks to accept checks in
electronification while allowing consumers and busi-
electronic form, nor does it require banks to create
nesses to continue using paper checks. With Check 21,
substitute checks. But it does require banks to
we can accelerate the check-clearing process, reduce
accept substitute checks, which will serve as the
some of the risks associated with ground and air
legal equivalent to the original check.
transportation, and reduce operating costs.”
2003 ANNUAL REPORT
21
As the Eighth District’s
“ hange is always a challenge, and the extent to
C
which we are reducing our physical presence will
be a very difficult transition. But on the other side
of that transition, I see opportunities to make our
presence felt in a very positive and meaningful
way. For example, by opening new dialogues and
forging new partnerships in our communities, we
will be able to improve the exchange of economic
information and, I hope, make some inroads in pro-
moting economic education and financial literacy.”
Tom Boone
L O UI S V I L L E
22
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
branch managers prepare for major changes
to their offices’ roles and responsibilities,
they share their thoughts on the challenges
that lie ahead:
“ The redesigned mission of the Little Rock
Branch affords us the opportunity to expand
our existing relationships with bankers, educa-
tors and other business leaders across the state,
making relevant contributions to economic
research, education and community service.
We at Little Rock look forward to building on
our years of service to the people of Arkansas.”
Robert Hopkins
L I T T L E RO CK
“ The Memphis office will be challenged to
achieve some very aggressive productivity
measures. Overnight, we will leap from being
the smallest to the largest operations office in
the District. Our operations in Check and Cash
will double. Memphis’ employees, however,
are eager to face the challenge. Although the
Memphis office will have a strong operations
presence, I am excited about the expansion
that will occur with regard to our intellectual
presence in the community.”
Martha Perine Beard
MEM P HI S
LITTLE ROCK
Scott T. Ford
Chairman
P RE S I DE NT AND CE O
AL LT E L CO RP.
L I T T L E RO CK , ARK ANS AS
Everett Tucker III
F I RS T S TAT E BANK
L ITTL E ROCK, ARK ANS AS
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
P RE S I DE NT AND CE O
MOSES TUCKER RE AL E S TAT E I NC.
24
David R. Estes
CHAIRMAN
L O NO K E , ARK ANS AS
Board
of
Directors
Lawrence A. Davis Jr.
Sonja Yates Hubbard
C H A N C ELLO R
CEO
U N I V ERSI TY O F A RKANSAS AT PINE BL UF F
E- Z M AR T S T O RE S I NC.
PI N E B LU FF, A R K ANSAS
TEXA RK ANA, T E X AS
Raymond E. Skelton
Stephen M. Erixon
REG I O N A L PR ESI DENT
CEO
U .S. B A N K
BAXT E R RE G I O NAL M E DI CAL CE NT E R
N O R TH LI TTLE R OCK, ARKANSAS
MOUNTAI N HO M E , ARK ANS AS
2003 ANNUAL REPORT
25
LOUISVILLE
Cornelius A. Martin
Chairman
P RE S I DE NT AND CE O
M AR T I N M ANAG E M E NT G RO UP
BO W L I NG G RE E N, K E NT UCK Y
David H. Brooks
T HO M AS W. S M I T H & AS S O CI AT E S I NC.
L OUISVIL L E, KEN T UCK Y
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
P RE S I DE NT
STOCK YARDS BA NK & T RUS T CO .
26
Thomas W. Smith
CHAIRMAN AND CE O
DANV I L L E , K E NT UCK Y
Board
of
Directors
Maria Gerwing Hampton
Norman E. Pfau Jr.
PRESI D EN T
PRES I DE NT AND CE O
TH E H O U SI N G PA R TNERSHIP INC.
GEO. P FAU’S S O NS CO . I NC.
LO U I SV I LLE, K EN T UCKY
J EF F E RS O NV I L L E , I NDI ANA
Gordon B. Guess
Marjorie Z. Soyugenc
C H A I R MA N , PR ESIDENT AND CEO
EXECUT I V E DI RE CT O R AND CE O
TH E PEO PLES B A NK
W EL BO RN F O UNDAT I O N
MA RI O N , K EN TU CKY
EVAN S V I L L E , I NDI ANA
2003 ANNUAL REPORT
27
MEMPHIS
Meredith B. Allen
Chairman
V I CE P RE S I DE NT, M ARK E T I NG
S TAP L E CO T T O N CO O P E RAT I V E AS S O CI AT I O N
G RE E NW O O D, M I S S I S S I P P I
Walter L. Morris Jr.
E NT E RP RI S E NAT I O NAL BANK
W EST HEL ENA, A RK ANS AS
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
CHAI RM AN AND CE O
H&M L UMBER CO. I NC.
28
Tom A. Wright
PRESIDENT
M E M P HI S , T E NNE S S E E
Board
of
Directors
Gregory M. Duckett
Russell Gwatney
SEN I O R V.P. A N D CORPORATE COUNSEL
P RE SIDE N T
B A PTI ST MEMO RI AL HEALTH CARE CORP.
GWAT NE Y CO M PANI E S
MEMPH I S, TEN N ESSEE
MEM P HI S , T E NNE S S E E
James A. England
David P. Rumbarger Jr.
C H A I R MA N , PR ESIDENT AND CEO
PRESIDE NT AND CE O
D EC ATU R C O U N TY BANK
COM M UNI T Y DE V E L O P M E NT F O UNDAT I O N
D EC ATU R V I LLE, TENNESSEE
TUPE L O , M I S S I S S I P P I
2003 ANNUAL REPORT
29
S T. L O U I S
Walter L. Metcalfe Jr.
Chairman
CHAI RM AN
BRYAN CAV E L L P
S T. L O UI S , M I S S O URI
Lewis F. Mallory Jr.
M E T RO P O L I TAN NAT I O NAL BANK
STARKVIL L E, MIS S I S S I P P I
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
P RE S I DE NT AND CE O
NATIONAL BANK O F CO M M E RCE
30
Lunsford W. Bridges
CHAIRMAN AND CE O
L I T T L E RO CK , ARK ANS AS
Board
of
Directors
Gayle P.W. Jackson
Deputy Chairman
Bert Greenwalt
Bradley W. Small
MA N A G I N G D I RECTOR
PAR T NE R
P RE S I DE NT AND CE O
FO N D ELEC C LEA N ENERGY GROUP INC.
GREE NWALT CO .
THE FARMERS AND MERCHANTS NATIONAL BANK
ST. LO U I S, MI SSO URI
HAZE N, ARK ANS AS
NAS HV I L L E , I L L I NO I S
Charles W. Mueller
J. Stephen Barger
A. Rogers Yarnell II
A MEREN C O RP.
EXECUT I V E S E CRE TARY- T RE AS URE R
P RE S I DE NT
ST. LO U I S, MI SSO URI
KENT UCK Y S TAT E DI S T RI CT CO UNCI L
YARNE L L I CE CRE AM CO . I NC.
OF CARP E NT E RS
S E ARCY, ARK ANS AS
F RAN K F O R T, K E NT UCK Y
2003 ANNUAL REPORT
31
THANK YOU
Retiring Board Members
We would like to express our deepest gratitude to those members
of our Eighth District boards of directors who retired in 2003.
Our appreciation and best wishes go out to:
Vick M. Crawley
FR OM T HE LIT T LE R OC K B OAR D,
Frank J. Nichols
FR OM T HE LOUISVILLE B OAR D,
E.C. Neelly III
F R OM T HE ME MP HIS B OAR D AND
Robert L. Johnson
32
FR OM T HE ST. LOUIS B OAR D.
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
Economic
The
Outlook
Through the Eyes
of Our Board Members
W HAT
CH A LLEN G ES D OES Y OU R ORG A N IZATION OR
IN D U STRY FA CE IN 2004 A N D BEY ON D ?
“Challenges that face the banking industry, inclusive of our organization,
continue to be the shrinking margin due to the competitive nature in the
commercial lending arena, plus the unprecedented low interest rates. It is
also very difficult to gather deposits due to lack of attractive rates and the
availability of alternative investments that currently exist.”
Raymond E. Skelton,
RE G I O NAL P R E S I D E N T
U.S . BANK , NO R T H L I T T L E RO CK , AR KA N S A S
“The energy industry’s emphasis today is on going back to basics—investing in
bread-and-butter energy distribution assets and building financial strength.
While more than 85 percent of all customers surveyed express strong satisfac-
tion with our service, my utility company and the entire industry must respond
to customer demand for even higher levels of service quality—near-flawless
energy delivery—in the face of constrained resources. Our focus must continue
to be on diversifying our fuel sources, employing technology to keep our
operations clean and efficient, and relentlessly cutting costs where we can.”
Charles W. Mueller
AM E RE N CO RP., S T. L O UI S , M I S S O U R I
2003 ANNUAL REPORT
33
“The ability to consistently grow earning assets
“The confidence of builders in Louisville metro is
will remain a challenge to banks in areas that do
high. A strong housing market and stable interest
not provide a steady supply of good loans.
rates will result in healthy choice and pricing
Sensitivity to interest rate risk can be an added
options for first-time home buyers. However, in
challenge to these banks when funds are placed
the affordable housing arena, the challenge of
into extended investment portfolio maturities to
delivering attractive mortgage products, with fair
generate more profitable margins.”
and affordable rates and fees, will be great. First-
time home buyers, as well as those homeowners
Lewis F. Mallory Jr.,
CHAIRMAN AND CE O
N ATI O N A L BANK OF COMMERCE, STARKVIL L E, MISSIS S I P P I
who have earned equity, will continue to be
offered subprime mortgage packages that may
“I am in the philanthropic world. … Our challenge
not be in their long-term interest.”
in 2004 and the future is to keep to our missions
Maria Gerwing Hampton,
and assure our communities that the investments
P RE S I D E N T
T HE HO US I NG PAR T NE RS HI P I NC., L O UI S V I L L E , K E NT U C KY
we make through grants to improve the quality
of life are effective, and that we are accountable
in how we use these funds.”
Marjorie Z. Soyugenc,
EXECUTIVE DIRECTOR AND CE O
W EL BORN F OUNDATION, EVANSVIL L E, IND I ANA
“Our greatest challenge will be getting accurate
market information from China, which has
become the major customer for our product. Our
industry is having to shift from a U.S. market to
an export market, primarily China.”
Meredith Baird Allen,
VICE PRESIDENT, MARKE T I NG
STAPLE COTTON COOPERATIVE ASSOCIATION,
GREENWOOD, MISSISSIPPI
“I think that the greatest challenge to the banking
industry will come from nonbank financial institu-
“Small and/or independent banks face the same
tions. Community banks in particular will continue
old challenges—primarily, training new personnel
to face strong competition from credit unions.
and retaining experienced personnel in this era
Community banks will also find it difficult to
of advanced technology and specialization.”
keep up with new technology trends and will
have trouble in continuing to find new products
Gordon B. Guess,
CHAIRM AN, PRESIDENT AND CE O ,
THE PEOPL ES BANK, MARION, KENT UCK Y
to increase noninterest income.”
James A. England,
C H A IR M A N , P RE S I DE NT AND C E O
DE CAT UR CO UNT Y BANK , DE CAT UR V I L L E , T E NNE S S E E
34
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
“The construction industry will be impacted by the
budget deficits faced by state, local and federal
legislative bodies. Highways, bridges, water and
sewage treatment facilities and government
ARE
TH ERE A N Y N EW TREN D S O R
BU SIN ESS PROCESSES TH AT
YOU EXPECT WILL HAVE A MAJOR IMPACT
ON Y OU R ORG A N IZATION OR IN D U STRY
IN TH E N EA R FU TU RE?
offices funded by federal, state and local tax dol-
lars make up a large percentage of dollars spent
“The most immediate impact to my industry will
on construction. Construction projects are normally
be the impact of Check 21. I believe new alliances
the first items to be cut during budget crunches.
The impact will be felt in the next few years.”
J. Stephen Barger,
banks will need to unite and be nimble in the
market in order to compete. I further believe
EXECUTIVE SECRETARY- T RE AS URE R
KENTUCKY STATE DISTRICT COUNCIL OF CARP E NT E RS
will be made in the banking industry, and small
F RANKF OR T, K E NT UCK Y
that five years from now, the banking landscape
will look nothing like it does today.”
Bradley W. Small,
“Over the
P RE S I DE NT A N D C E O
T HE FARM E RS AND M E RCHANT S NAT I ON A L B A N K
course of the
NAS HV I L L E , I L L I N O I S
next few years,
the overall
“Driven by changes in consumer preference and
automobile
innovations in food production and processing
market in the
technology, the structure of agriculture is evolving
United States
from one of small independent farmers producing
should increase.
for open markets into a vertically coordinated
With the num-
agribusiness system. The transformation will sig-
ber of new
nificantly impact food manufacturers, consumers
drivers that
and farmers. Consumers will benefit from a wider
will come of
selection of food products and possibly lower
driving age
prices. Farmers may gain or lose depending on
from the ‘Y Generation’ and longer life spans,
their size, location and skill in negotiating with
some are predicting that annual sales could reach
integrated food companies.”
20 million units within the next five years. The
effects of this should have an impact over the
Bert Greenwalt,
PA R T N E R
G RE E NWALT CO ., HAZ E N, A R KA N S A S
short run looking ahead in 2004. However, the
industry as a whole is suffering from the loss of
“Both consolidation and expansion in the banking
pricing power and the high cost of incentives,
industry create activity in the commercial real
which will remain the biggest obstacles facing the
estate sector. The merger and acquisition of larger
automobile market.”
old-line banks has opened the door for the forma-
Russell Gwatney,
P RE S I DE NT
GWATNEY COMPANIES, MEMPHIS, T E NNE S S E E
tion of new community banks. The former often
puts space/property on the market, and the latter
often takes it. This trend should continue.”
Everett Tucker III,
CHAIRMAN
M O S E S T UCK E R RE AL E S TAT E I NC., L I T T L E RO CK , A R KA N S A S
MANAGEMENT COMMITTEE
FR O M LE FT TO RIGHT
Karl Ashman
Mary Karr
Hank Bourgaux
LeGrande Rives
William Poole
Robert Rasche
Julie Stackhouse
Dave Sapenaro
36
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
A
Message
from
Management
As this year’s annual report clearly illustrates, the Federal Reserve
Bank of St. Louis is undergoing considerable change. A new model
for how we operate our branches is just one indication—though a
significant one—that the phrase business as usual no longer applies
to the Eighth District.
Thus, for 2004 we deemed it necessary to write a
the St. Louis Fed oversees the full range of projects
new vision statement for the Bank, which reads:
and services that Reserve banks around the coun-
The Federal Reserve Bank of St. Louis will be rec-
try provide to the Treasury. In addition, the
ognized as a leader in shaping the future of the
District continued its leadership and operational
Fed’s business and support functions, and as a
support of the Treasury’s cash management, tax
benchmark provider of services among Federal
collection and collateral monitoring business.
Reserve banks. Looking back on 2003, we are
Year-end feedback from Treasury senior executives
encouraged to see that in many aspects, we are
indicated a high level of satisfaction with our per-
already fulfilling these critical roles.
formance at both the District and System level.
Many of our employees—like those who support
The District’s Banking Supervision and Regulation
the Fed’s important relationship with the U.S.
Division displayed leadership in a number of areas.
Treasury—exhibit leadership on a daily basis. As
Division management either chairs or participates on
home to the Treasury Relations and Support Office,
several critical System-level committees and work
2003 ANNUAL REPORT
37
groups. On behalf of the Federal Reserve System,
This endeavor resulted in a savings of approximately
the consumer compliance function developed a web
$2 million in the two districts as productivity was
site to train bankers on significant changes to
improved and redundancies eliminated. The collab-
Regulation C. The web site received national acclaim
orative approach may serve as a template for similar
across the banking community. The Center for Online
sales and marketing consolidations in other districts.
Learning, one of the division’s unique offerings,
continued to grow as the System leader in web-
Continuing to place a high priority on the Bank’s
based training, resulting in a savings in time and
public presence, the Community Affairs Office
money for learners.
sponsored 42 meetings for District audiences on
topics such as serving immigrant markets, community
Our Research Division continued to be a leader in the
investment opportunities and personal financial
electronic transmission of economic data and Bank-
education. Our economic education efforts drew
related information via the Internet. After 38 years,
more than 900 people to 34 events throughout the
the printing of U.S. Financial Data was discontinued
year. The Bank’s tour program attracted 255 groups
and successfully transitioned to electronic distribu-
for a total attendance of 5,359. The St. Louis Fed
tion. Federal Reserve Electronic Data (FRED) traffic
led a System work group to create a single web
increased 79 percent over 2002, and the Research
page from which visitors can link directly to all
function’s web pages received 18.8 million hits dur-
regional and national Fed web sites, as well as other
ing 2003, a 65 percent increase over 2002. St. Louis
selected Fed resources. The page is located at
Research economists realized substantial increases in
www.federalreserveonline.org
productivity last year, with 43 articles published or
accepted for publication in refereed journals, 20
To explain what it means to be a benchmark provid-
more than in 2002. Also, Bank economists made 118
er of services, one need only look at the Bank’s Check
presentations at System meetings, professional con-
and Cash departments. During a year of uncertainty,
ferences and university-sponsored seminars, double
these departments performed in an outstanding
the amount from 2002.
manner. All four District check operations areas met
their net revenue, cost and productivity targets.
In partnership with the Fourth Federal Reserve
Cash exceeded its bundles-per-hour target, as well as
District, the Bank pioneered the first regional
the System average.
approach to financial services sales and marketing.
38
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
In Treasury services, the District achieved 18 of 19 oper-
In order to meet System security requirements and add
ational/service quality measures in 2003, and a formal
some additional office space, last spring we announced
customer satisfaction survey conducted in late 2002
a multiyear, multimillion-dollar strategy to renovate
showed that 94 percent of Treasury Tax and Loan
and expand our existing downtown
(TT&L) customers are “very satisfied” or “satisfied”
St. Louis office. In addition to the extensive security
with the District’s services.
improvements, we will add 54,000 square feet of office
space by 2007.
Our bank examiners met nearly all examination,
inspection and applications processing mandates.
The St. Louis Fed is poised to face a set of challenges
The Credit/Payments Risk and Statistics function
never encountered before. Our staff’s continued high
achieved all of its operating mandates, even during
level of performance indicates that we are well- posi-
a year in which the functions were reorganized to
tioned to meet the expectations and needs of the
realize efficiencies and enhance cross-functional
System, our customers and our constituents.
communications and staff development. Staff members in these areas participated in new outreach
programs to educate bankers on reporting requirements, account management practices and new
credit facilities.
William Poole
In 2004, the District’s primary challenge will be the
PR ES ID EN T A N D C EO
check and cash consolidation efforts and the concurrent efforts to implement a new model for the branch
offices. At the same time, District management will
continue to look for opportunities to assume System
leadership responsibilities while striving to remain a
W. LeGrande Rives
F IR S T VIC E PR ES ID EN T A N D C OO
benchmark provider of services.
2003 ANNUAL REPORT
39
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
F I N A N C I A L S TAT E M E N T S
For the years ended December 31, 2003 and 2002
The firm engaged by the Board of Governors for the audits of the
individual and combined financial statements of the Reserve Banks for
2003 was PricewaterhouseCoopers LLP (PwC). Fees for these services
totaled $1.4 million. To ensure auditor independence, the Board of
Governors requires that PwC be independent in all matters relating to
the audit. Specifically, PwC may not perform services for the Reserve
Banks or others that would place it in a position of auditing its own
work, making management decisions on behalf of the Reserve Banks,
or in any other way impairing its audit independence. In 2003, the
Bank did not engage PwC for advisory services.
40
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
MARCH 1, 2004
To the Board of Directors:
The management of the Federal Reserve Bank of St. Louis ("the Bank") is responsible for the preparation and fair presentation of the
Statement of Financial Condition, Statement of Income, and Statement of Changes in Capital as of December 31, 2003 (the "Financial
Statements"). The Financial Statements have been prepared in conformity with the accounting principles, policies, and practices established
by the Board of Governors of the Federal Reserve System and as set forth in the Financial Accounting Manual for the Federal Reserve
Banks ("Manual"), and as such, include amounts, some of which are based on judgments and estimates of management. To our
knowledge, the Financial Statements are, in all material respects, fairly presented in conformity with the accounting principles, policies
and practices documented in the Manual and include all disclosures necessary for such fair presentation.
The management of the Bank is responsible for maintaining an effective process of internal controls over financial reporting including
the safeguarding of assets as they relate to the Financial Statements. Such internal controls are designed to provide reasonable assurance to management and to the Board of Directors regarding the preparation of reliable Financial Statements. This process of internal
controls contains self-monitoring mechanisms, including, but not limited to, divisions of responsibility and a code of conduct. Once
identified, any material deficiencies in the process of internal controls are reported to management, and appropriate corrective measures
are implemented.
Even an effective process of internal controls, no matter how well designed, has inherent limitations, including the possibility of human
error, and therefore can provide only reasonable assurance with respect to the preparation of reliable financial statements.
The management of the Bank assessed its process of internal controls over financial reporting including the safeguarding of assets
reflected in the Financial Statements, based upon the criteria established in the "Internal Control -- Integrated Framework" issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, we believe that the Bank
maintained an effective process of internal controls over financial reporting including the safeguarding of assets as they relate to the
Financial Statements.
Federal Reserve Bank of St. Louis
William Poole
PRESIDENT AND CEO
W. LeGrande Rives
FIRST VICE PRESIDENT AND COO
Marilyn K. Corona
V I C E P R E S I D E N T, C F O
2003 ANNUAL REPORT
41
R E P O RT O F I N D E P E N D E N T A C C O U N TA N T S
To the Board of Directors of the Federal Reserve Bank of St. Louis
We have examined management's assertion, included in the accompanying Management Assertion, that The Federal Reserve Bank of
St. Louis ("FRB STL") maintained effective internal control over financial reporting and the safeguarding of assets as they relate to the
financial statements as of December 31, 2003, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. FRB STL’s management is responsible for maintaining effective
internal control over financial reporting and safeguarding of assets as they relate to the financial statements. Our responsibility is to
express an opinion on management’s assertion based on our examination.
Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public
Accountants and, accordingly, included obtaining an understanding of internal control over financial reporting, testing and evaluating
the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.
Because of inherent limitations in any internal control, misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of internal control over financial reporting to future periods are subject to the risk that the internal control may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assertion that FRB STL maintained effective internal control over financial reporting and over the safeguarding
of assets as they relate to the financial statements as of December 31, 2003, is fairly stated, in all material respects, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
This report is intended solely for the information and use of management and the Board of Directors and Audit Committee of FRB STL,
and any organization with legally defined oversight responsibilities and is not intended to be and should not be used by anyone other
than these specified parties.
MARCH 1, 2004
42
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
R E P O RT O F I N D E P E N D E N T A U D I T O R S
To the Board of Governors of The Federal Reserve System and the Board of Directors
of The Federal Reserve Bank of St. Louis
We have audited the accompanying statements of condition of The Federal Reserve Bank of St. Louis (the "Bank") as of December 31,
2003 and 2002, and the related statements of income and changes in capital for the years then ended, which have been prepared in
conformity with the accounting principles, policies, and practices established by the Board of Governors of The Federal Reserve System.
These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared in conformity with the accounting principles, policies, and practices
established by the Board of Governors of The Federal Reserve System. These principles, policies, and practices, which were designed to
meet the specialized accounting and reporting needs of The Federal Reserve System, are set forth in the Financial Accounting Manual
for Federal Reserve Banks and constitute a comprehensive basis of accounting other than accounting principles generally accepted in
the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank as of
December 31, 2003 and 2002, and results of its operations for the years then ended, on the basis of accounting described in Note 3.
MARCH 1, 2004
2003 ANNUAL REPORT
43
FEDERAL RESERVE BANK OF ST. LOUIS
S TAT E M E N T S O F C O N D I T I O N
(in millions)
AS OF DECEMBER 31,
2003
2002
ASSETS
Gold certificates
Special drawing rights certificates
Coin
Items in process of collection
Loans to depository institutions
U.S. government and federal agency securities, net
Investments denominated in foreign currencies
Accrued interest receivable
Bank premises and equipment, net
Other assets
TOTAL ASSETS
LIABILITIES AND CAPITAL
Liabilities:
Federal Reserve notes outstanding, net
Securities sold under agreements to repurchase
Deposits:
Depository institutions
Other deposits
Deferred credit items
Interest on Federal Reserve notes due U.S. Treasury
Interdistrict settlement account
Accrued benefit costs
Other liabilities
TOTAL LIABILITIES
Capital:
Capital paid-in
Surplus
TOTAL CAPITAL
TOTAL LIABILITIES AND CAPITAL
The accompanying notes are an integral part of these financial statements.
44
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
$
331
71
53
341
21,254
472
159
67
31
$ 22,779
$
346
71
59
695
11
22,726
343
194
66
26
$ 24,537
$ 19,283
807
$ 18,914
750
509
3
308
13
1,330
59
11
22,323
480
5
345
30
3,554
57
4
24,139
228
228
456
$ 22,779
199
199
398
$ 24,537
FEDERAL RESERVE BANK OF ST. LOUIS
S TAT E M E N T S O F I N C O M E
(in millions)
FOR THE YEARS ENDED DECEMBER 31,
2003
2002
Interest income:
Interest on U.S. government and federal agency securities
Interest on investments denominated in foreign currencies
TOTAL INTEREST INCOME
$ 727
6
733
$ 897
5
902
Interest expense:
Interest expense on securities sold under agreements to repurchase
Net interest income
7
726
902
Other operating income:
Income from services
Reimbursable services to government agencies
Foreign currency gains, net
U.S. government securities gains, net
Other income
TOTAL OTHER OPERATING INCOME
44
60
64
2
170
53
38
42
3
2
138
Operating expenses:
Salaries and other benefits
Occupancy expense
Equipment expense
Assessments by Board of Governors
Other expenses
TOTAL OPERATING EXPENSES
94
9
8
24
66
201
84
8
10
19
42
163
$ 695
$ 877
$
$ 11
50
816
$ 877
Net income prior to distribution
Distribution of net income:
Dividends paid to member banks
Transferred to surplus
Payments to U.S. Treasury as interest on Federal Reserve notes
TOTAL DISTRIBUTION
13
29
653
$ 695
The accompanying notes are an integral part of these financial statements.
FEDERAL RESERVE BANK OF ST. LOUIS
S TAT E M E N T S O F C H A N G E S I N C A P I TA L
for the years ended December 31, 2003 and December 31, 2002
(in millions)
CAPITAL
PAID-IN
Balance at January 1, 2002
(3.0 million shares)
Net income transferred to surplus
Net change in capital stock issued
(1.0 million shares)
Balance at December 31, 2002
(4.0 million shares)
Net income transferred to surplus
Net change in capital stock issued
(0.6 million shares)
Balance at December 31, 2003
(4.6 million shares)
$ 149
SURPLUS
TOTAL
CAPITAL
$ 149
50
$ 298
50
50
$ 199
50
$ 199
29
29
$ 228
$ 398
29
29
$ 228
$ 456
The accompanying notes are an integral part of these financial statements.
2003 ANNUAL REPORT
45
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
NOTE 1
STRUCTURE
The Federal Reserve Bank of St. Louis (“Bank”) is part of the
Federal Reserve System (“System”) created by Congress under
the Federal Reserve Act of 1913 (“Federal Reserve Act”) which
established the central bank of the United States. The System
consists of the Board of Governors of the Federal Reserve
System (“Board of Governors”) and twelve Federal Reserve
Banks (“Reserve Banks”). The Reserve Banks are chartered by
the federal government and possess a unique set of governmental, corporate, and central bank characteristics. The Bank
and its branches in Little Rock, Louisville and Memphis serve
the Eighth Federal Reserve District, which includes Arkansas,
and portions of Illinois, Indiana, Kentucky, Mississippi, Missouri
and Tennessee. Other major elements of the System are the
Federal Open Market Committee (“FOMC”) and the Federal
Advisory Council. The FOMC is composed of members of the
Board of Governors, the president of the Federal Reserve Bank
of New York (“FRBNY”) and, on a rotating basis, four other
Reserve Bank presidents. Banks that are members of the
System include all national banks and any state-chartered bank
that applies and is approved for membership in the System.
Board of Directors
In accordance with the Federal Reserve Act, supervision and
control of the Bank are exercised by a Board of Directors. The
Federal Reserve Act specifies the composition of the Board of
Directors for each of the Reserve Banks. Each board is composed of nine members serving three-year terms: three directors, including those designated as Chairman and Deputy
Chairman, are appointed by the Board of Governors, and six
directors are elected by member banks. Of the six elected by
member banks, three represent the public and three represent
member banks. Member banks are divided into three classes
according to size. Member banks in each class elect one director representing member banks and one representing the public. In any election of directors, each member bank receives
one vote, regardless of the number of shares of Reserve Bank
stock it holds.
NOTE 2
OPERATIONS AND SERVICES
The System performs a variety of services and operations.
Functions include: formulating and conducting monetary policy; participating actively in the payments mechanism, including
large-dollar transfers of funds, automated clearinghouse
(“ACH”) operations and check processing; distributing coin
and currency; performing fiscal agency functions for the U.S.
Treasury and certain federal agencies; serving as the federal
government’s bank; providing short-term loans to depository
institutions; serving the consumer and the community by providing educational materials and information regarding consumer laws; supervising bank holding companies and state
member banks; and administering other regulations of the
46
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
Board of Governors. The Board of Governors’ operating costs
are funded through assessments on the Reserve Banks.
The FOMC establishes policy regarding open market operations, oversees these operations, and issues authorizations and
directives to the FRBNY for its execution of transactions.
Authorized transaction types include direct purchase and sale
of securities, matched sale-purchase transactions, the purchase
of securities under agreements to resell, the sale of securities
under agreements to repurchase, and the lending of U.S. government securities. The FRBNY is also authorized by the
FOMC to hold balances of, and to execute spot and forward
foreign exchange (“F/X”) and securities contracts in nine foreign currencies, maintain reciprocal currency arrangements
(“F/X swaps”) with various central banks, and “warehouse”
foreign currencies for the U.S. Treasury and Exchange
Stabilization Fund (“ESF”) through the Reserve Banks.
NOTE 3
SIGNIFICANT ACCOUNTING POLICIES
Accounting principles for entities with the unique powers and
responsibilities of the nation’s central bank have not been formulated by the Financial Accounting Standards Board. The
Board of Governors has developed specialized accounting principles and practices that it believes are appropriate for the significantly different nature and function of a central bank as
compared with the private sector. These accounting principles
and practices are documented in the Financial Accounting
Manual for Federal Reserve Banks (“Financial Accounting
Manual”), which is issued by the Board of Governors. All
Reserve Banks are required to adopt and apply accounting
policies and practices that are consistent with the Financial
Accounting Manual.
The financial statements have been prepared in accordance
with the Financial Accounting Manual. Differences exist
between the accounting principles and practices of the System
and accounting principles generally accepted in the United
States of America (“GAAP”). The primary differences are the
presentation of all security holdings at amortized cost, rather
than at the fair value presentation requirements of GAAP, and
the accounting for matched sale-purchase transactions as separate sales and purchases, rather than secured borrowings
with pledged collateral, as is generally required by GAAP. In
addition, the Bank has elected not to present a Statement of
Cash Flows. The Statement of Cash Flows has not been
included because the liquidity and cash position of the Bank
are not of primary concern to the users of these financial
statements. Other information regarding the Bank’s activities
is provided in, or may be derived from, the Statements of
Condition, Income, and Changes in Capital. A Statement of
Cash Flows, therefore, would not provide any additional useful
information. There are no other significant differences
between the policies outlined in the Financial Accounting
Manual and GAAP.
Each Reserve Bank provides services on behalf of the
System for which costs are not shared. Major services provided for the System by the Bank, for which the costs will not be
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
redistributed to the other Reserve Banks, include operation of
the Treasury Relations and Support Office and Treasury
Relations and Systems Support Department, which provide services to the U.S. Treasury. These services include: relationship
management, strategic consulting, and oversight for fiscal and
payments related projects for the Federal Reserve System; and
operational support for the Treasury’s tax collection, cash management and collateral monitoring.
The preparation of the financial statements in conformity
with the Financial Accounting Manual requires management
to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses
during the reporting period. Actual results could differ from
those estimates. Unique accounts and significant accounting
policies are explained below.
C. LOANS TO DEPOSITORY INSTITUTIONS
The Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that all depository institutions that maintain reservable transaction accounts or nonpersonal time
deposits, as defined in Regulation D issued by the Board of
Governors, have borrowing privileges at the discretion of the
Reserve Banks. Borrowers execute certain lending agreements
and deposit sufficient collateral before credit is extended.
Loans are evaluated for collectibility, and currently all are considered collectible and fully collateralized. If loans were ever
deemed to be uncollectible, an appropriate reserve would be
established. Interest is accrued using the applicable discount
rate established at least every fourteen days by the Boards of
Directors of the Reserve Banks, subject to review by the Board
of Governors.
D. U.S. GOVERNMENT AND FEDERAL AGENCY SECURITIES AND
INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES
A. GOLD CERTIFICATES
The Secretary of the Treasury is authorized to issue gold certificates to the Reserve Banks to monetize gold held by the U.S.
Treasury. Payment for the gold certificates by the Reserve
Banks is made by crediting equivalent amounts in dollars into
the account established for the U.S. Treasury. These gold certificates held by the Reserve Banks are required to be backed
by the gold of the U.S. Treasury. The U.S. Treasury may reacquire the gold certificates at any time and the Reserve Banks
must deliver them to the U.S. Treasury. At such time, the U.S.
Treasury’s account is charged, and the Reserve Banks’ gold certificate accounts are lowered. The value of gold for purposes
of backing the gold certificates is set by law at $42 2/9 a fine
troy ounce. The Board of Governors allocates the gold certificates among Reserve Banks once a year based on average
Federal Reserve notes outstanding in each District.
B. SPECIAL DRAWING RIGHTS CERTIFICATES
Special drawing rights (“SDRs”) are issued by the International
Monetary Fund (“Fund”) to its members in proportion to each
member’s quota in the Fund at the time of issuance. SDRs
serve as a supplement to international monetary reserves and
may be transferred from one national monetary authority to
another. Under the law providing for United States participation in the SDR system, the Secretary of the U.S. Treasury is
authorized to issue SDR certificates, somewhat like gold certificates, to the Reserve Banks. At such time, equivalent amounts
in dollars are credited to the account established for the U.S.
Treasury, and the Reserve Banks’ SDR certificate accounts are
increased. The Reserve Banks are required to purchase SDR
certificates, at the direction of the U.S. Treasury, for the purpose of financing SDR acquisitions or for financing exchange
stabilization operations. At the time SDR transactions occur,
the Board of Governors allocates SDR certificate transactions
among Reserve Banks based upon Federal Reserve notes outstanding in each District at the end of the preceding year.
There were no SDR transactions in 2003 or 2002.
The FOMC has designated the FRBNY to execute open market
transactions on its behalf and to hold the resulting securities in
the portfolio known as the System Open Market Account
(“SOMA”). In addition to authorizing and directing operations
in the domestic securities market, the FOMC authorizes and
directs the FRBNY to execute operations in foreign markets for
major currencies in order to counter disorderly conditions in
exchange markets or to meet other needs specified by the
FOMC in carrying out the System’s central bank responsibilities. Such authorizations are reviewed and approved annually
by the FOMC.
In December 2002, the FRBNY replaced matched sale-purchase
(“MSP”) transactions with securities sold under agreements to
repurchase. MSP transactions, accounted for as separate sale
and purchase transactions, are transactions in which the
FRBNY sells a security and buys it back at the rate specified at
the commencement of the transaction. Securities sold under
agreements to repurchase are treated as secured borrowing
transactions with the associated interest expense recognized
over the life of the transaction.
The FRBNY has sole authorization by the FOMC to lend
U.S. government securities held in the SOMA to U.S. government securities dealers and to banks participating in U.S. government securities clearing arrangements on behalf of the
System, in order to facilitate the effective functioning of the
domestic securities market. These securities-lending transactions are fully collateralized by other U.S. government securities. FOMC policy requires the FRBNY to take possession of
collateral in excess of the market values of the securities
loaned. The market values of the collateral and the securities
loaned are monitored by the FRBNY on a daily basis, with
additional collateral obtained as necessary. The securities
loaned continue to be accounted for in the SOMA.
F/X contracts are contractual agreements between two parties to exchange specified currencies, at a specified price, on a
specified date. Spot foreign contracts normally settle two days
after the trade date, whereas the settlement date on forward
contracts is negotiated between the contracting parties, but
2003 ANNUAL REPORT
47
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
will extend beyond two days from the trade date. The FRBNY
generally enters into spot contracts, with any forward contracts generally limited to the second leg of a swap/warehousing transaction.
The FRBNY, on behalf of the Reserve Banks, maintains
renewable, short-term F/X swap arrangements with two authorized foreign central banks. The parties agree to exchange their
currencies up to a pre-arranged maximum amount and for an
agreed-upon period of time (up to twelve months), at an
agreed-upon interest rate. These arrangements give the FOMC
temporary access to foreign currencies it may need for intervention operations to support the dollar and give the partner foreign central bank temporary access to dollars it may need to
support its own currency. Drawings under the F/X swap
arrangements can be initiated by either the FRBNY or the partner foreign central bank and must be agreed to by the drawee.
The F/X swaps are structured so that the party initiating the
transaction (the drawer) bears the exchange rate risk upon
maturity. The FRBNY will generally invest the foreign currency
received under an F/X swap in interest-bearing instruments.
Warehousing is an arrangement under which the FOMC
agrees to exchange, at the request of the Treasury, U.S. dollars
for foreign currencies held by the Treasury or ESF over a limited
period of time. The purpose of the warehousing facility is to
supplement the U.S. dollar resources of the Treasury and ESF
for financing purchases of foreign currencies and related international operations.
In connection with its foreign currency activities, the
FRBNY, on behalf of the Reserve Banks, may enter into contracts that contain varying degrees of off-balance-sheet market
risk, because they represent contractual commitments involving future settlement and counter-party credit risk. The FRBNY
controls credit risk by obtaining credit approvals, establishing
transaction limits, and performing daily monitoring procedures.
While the application of current market prices to the securities currently held in the SOMA portfolio and investments
denominated in foreign currencies may result in values substantially above or below their carrying values, these unrealized
changes in value would have no direct effect on the quantity of
reserves available to the banking system or on the prospects for
future Reserve Bank earnings or capital. Both the domestic and
foreign components of the SOMA portfolio from time to time
involve transactions that may result in gains or losses when
holdings are sold prior to maturity. Decisions regarding the
securities and foreign currencies transactions, including their
purchase and sale, are motivated by monetary policy objectives
rather than profit. Accordingly, market values, earnings, and
any gains or losses resulting from the sale of such currencies and
securities are incidental to the open market operations and do
not motivate its activities or policy decisions.
U.S. government and federal agency securities and investments denominated in foreign currencies comprising the
SOMA are recorded at cost, on a settlement-date basis, and
adjusted for amortization of premiums or accretion of discounts on a straight-line basis. Interest income is accrued on a
48
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
straight-line basis and is reported as “Interest on U.S. government and federal agency securities” or “Interest on investments denominated in foreign currencies,” as appropriate.
Income earned on securities lending transactions is reported as
a component of “Other income.” Gains and losses resulting
from sales of securities are determined by specific issues based
on average cost. Gains and losses on the sales of U.S. government and federal agency securities are reported as “U.S. government securities gains, net.” Foreign-currency-denominated
assets are revalued daily at current foreign currency market
exchange rates in order to report these assets in U.S. dollars.
Realized and unrealized gains and losses on investments
denominated in foreign currencies are reported as “Foreign
currency gains, net.” Foreign currencies held through F/X
swaps, when initiated by the counter-party, and warehousing
arrangements are revalued daily with the unrealized gain or
loss reported by the FRBNY as a component of “Other assets”
or “Other liabilities,” as appropriate.
Balances of U.S. government and federal agency securities
bought outright, securities sold under agreements to repurchase, securities loaned, investments denominated in foreign
currency, interest income and expense, securities lending fee
income, amortization of premiums and discounts on securities
bought outright, gains and losses on sales of securities, and
realized and unrealized gains and losses on investments
denominated in foreign currencies, excluding those held under
an F/X swap arrangement, are allocated to each Reserve Bank.
Securities purchased under agreements to resell and unrealized
gains and losses on the revaluation of foreign currency holdings under F/X swaps and warehousing arrangements are allocated to the FRBNY and not to other Reserve Banks.
In 2003, additional interest income of $61 million representing one day’s interest on the SOMA portfolio was accrued
to reflect a change in interest accrual methods, of which $1.9
million was allocated to the Bank. Interest accruals and the
amortization of premiums and discounts are now recognized
beginning the day that a security is purchased and ending the
day before the security matures or is sold. Previously, accruals
and amortization began the day after the security was purchased and ended on the day that the security matured or was
sold. The effect of this change was not material; therefore, it
was included in the 2003 interest income.
E. BANK PREMISES, EQUIPMENT, AND SOFTWARE
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line
basis over estimated useful lives of assets ranging from two to
fifty years. Major alterations, renovations, and improvements
are capitalized at cost as additions to the asset accounts.
Maintenance, repairs, and minor replacements are charged to
operations in the year incurred. Costs incurred for software,
either developed internally or acquired for internal use, during
the application development stage are capitalized based on
the cost of direct services and materials associated with
designing, coding, installing, or testing software. Capitalized
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
software costs are amortized on a straight-line basis over the
estimated useful lives of the software applications, which
range from two to five years.
F. INTERDISTRICT SETTLEMENT ACCOUNT
At the close of business each day, all Reserve Banks and branches assemble the payments due to or from other Reserve Banks
and branches as a result of transactions involving accounts residing in other Districts that occurred during the day’s operations.
Such transactions may include funds settlement, check clearing
and ACH operations, and allocations of shared expenses. The
cumulative net amount due to or from other Reserve Banks is
reported as the “Interdistrict settlement account.”
bank. As a member bank’s capital and surplus changes, its
holdings of the Reserve Bank’s stock must be adjusted.
Member banks are those state-chartered banks that apply and
are approved for membership in the System and all national
banks. Currently, only one-half of the subscription is paid-in
and the remainder is subject to call. These shares are nonvoting with a par value of $100. They may not be transferred or
hypothecated. By law, each member bank is entitled to
receive an annual dividend of 6 percent on the paid-in capital
stock. This cumulative dividend is paid semiannually. A member bank is liable for Reserve Bank liabilities up to twice the
par value of stock subscribed by it.
I. SURPLUS
G. FEDERAL RESERVE NOTES
Federal Reserve notes are the circulating currency of the United
States. These notes are issued through the various Federal
Reserve agents (the Chairman of the Board of Directors of each
Reserve Bank) to the Reserve Banks upon deposit with such
agents of certain classes of collateral security, typically U.S.
government securities. These notes are identified as issued to a
specific Reserve Bank. The Federal Reserve Act provides that the
collateral security tendered by the Reserve Bank to the Federal
Reserve agent must be equal to the sum of the notes applied for
by such Reserve Bank. In 2003, the Federal Reserve Act was
amended to expand the assets eligible to be pledged as collateral
security to include all Federal Reserve Bank assets. Prior to the
amendment, only gold certificates, special drawing rights certificates, U.S. government and federal agency securities, securities
purchased under agreements to resell, loans to depository institutions, and investments denominated in foreign currencies could
be pledged as collateral. The collateral value is equal to the book
value of the collateral tendered, with the exception of securities,
whose collateral value is equal to the par value of the securities
tendered. The par value of securities pledged for securities sold
under agreements to repurchase is similarly deducted. The Board
of Governors may, at any time, call upon a Reserve Bank for
additional security to adequately collateralize the Federal Reserve
notes. The Reserve Banks have entered into an agreement that
provides for certain assets of the Reserve Banks to be jointly
pledged as collateral for the Federal Reserve notes of all Reserve
Banks in order to satisfy their obligation of providing sufficient
collateral for outstanding Federal Reserve notes. In the event
that this collateral is insufficient, the Federal Reserve Act provides
that Federal Reserve notes become a first and paramount lien on
all the assets of the Reserve Banks. Finally, as obligations of the
United States, Federal Reserve notes are backed by the full faith
and credit of the United States government.
The “Federal Reserve notes outstanding, net” account represents the Bank’s Federal Reserve notes outstanding reduced
by its currency holdings of $3,961 million, and $3,088 million
at December 31, 2003 and 2002, respectively.
H. CAPITAL PAID-IN
The Federal Reserve Act requires that each member bank subscribe to the capital stock of the Reserve Bank in an amount
equal to 6 percent of the capital and surplus of the member
The Board of Governors requires Reserve Banks to maintain a
surplus equal to the amount of capital paid-in as of December
31. This amount is intended to provide additional capital and
reduce the possibility that the Reserve Banks would be
required to call on member banks for additional capital.
Pursuant to Section 16 of the Federal Reserve Act, Reserve
Banks are required by the Board of Governors to transfer to
the U.S. Treasury as interest on Federal Reserve notes excess
earnings, after providing for the costs of operations, payment
of dividends, and reservation of an amount necessary to
equate surplus with capital paid-in.
In the event of losses or a substantial increase in capital,
payments to the U.S. Treasury are suspended until such losses
are recovered through subsequent earnings. Weekly payments
to the U.S. Treasury may vary significantly.
J. INCOME AND COSTS RELATED TO TREASURY SERVICES
The Bank is required by the Federal Reserve Act to serve as fiscal agent and depository of the United States. By statute, the
Department of the Treasury is permitted, but not required, to
pay for these services.
K. TAXES
The Reserve Banks are exempt from federal, state, and local
taxes, except for taxes on real property. The Bank’s real property taxes were $420 thousand and $383 thousand for the
years ended December 31, 2003 and 2002, respectively, and
are reported as a component of “Occupancy expense.”
L. RECENT ACCOUNTING DEVELOPMENTS
In May 2003, the Financial Accounting Standards Board issued
SFAS No. 150, “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity.” SFAS No.
150, which will become applicable for the Bank in 2004,
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and equity and imposes certain additional disclosure
requirements. When adopted, there may be situations in
which the Bank has not yet processed a member bank’s application to redeem its Reserve Bank stock. In those situations,
this standard requires that the portion of the capital paid-in
that is mandatorily redeemable be reclassified as debt.
2003 ANNUAL REPORT
49
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
M. 2003 RESTRUCTURING CHARGES
In 2003, the System restructured several operations, primarily
in the check and cash services. The restructuring included
streamlining the management and support structures, reducing staff, decreasing the number of processing locations, and
increasing processing capacity in the remaining locations.
Footnote 10 describes the restructuring and provides information about the Bank’s costs and liabilities associated with
employee separations and contract terminations. The costs
associated with the write-down of certain Bank assets are discussed in footnote 6. Costs and liabilities associated with
enhanced pension benefits for all Reserve Banks are recorded
on the books of the FRBNY as discussed in footnote 8 and
those associated with the Bank’s enhanced postretirement
benefits are disclosed in footnote 9.
NOTE 4
U.S. GOVERNMENT AND FEDERAL AGENCY SECURITIES
Securities bought outright are held in the SOMA at the FRBNY.
An undivided interest in SOMA activity and the related premiums, discounts and income, with the exception of securities
purchased under agreements to resell, is allocated to each
Reserve Bank on a percentage basis derived from an annual
settlement of interdistrict clearings. The settlement, performed in April of each year, equalizes Reserve Bank gold certificate holdings to Federal Reserve notes outstanding. The
Bank’s allocated share of SOMA balances was approximately
3.146 percent and 3.556 percent at December 31, 2003 and
2002, respectively.
The Bank’s allocated share of securities held in the SOMA
at December 31, that were bought outright, was as follows
(in millions):
2003
PAR VALUE:
U.S. government:
Bills
$ 7,703
Notes
10,173
Bonds
3,098
TOTAL PAR VALUE
20,974
Unamortized premiums
308
Unaccreted discounts
(28)
TOTAL ALLOCATED TO BANK $ 21,254
2002
$
8,060
10,592
3,728
22,380
383
(37)
$ 22,726
The total of SOMA securities bought outright were $675,569
million and $639,125 million at December 31, 2003 and 2002,
respectively.
As noted in footnote 3, the FRBNY replaced MSP transactions with securities sold under agreements to repurchase in
December 2002. At December 31, 2003 and 2002, securities
sold under agreements to repurchase with a contract amount
of $25,652 million and $21,091 million, respectively, were outstanding, of which $807 million and $750 million were allocated to the Bank. At December 31, 2003 and 2002, securities
sold under agreements to repurchase with a par value of
$25,658 million and $21,098 million, respectively, were out-
50
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
standing, of which $807 million and $750 million were allocated to the Bank.
The maturity distribution of U.S. government securities
bought outright and securities sold under agreements to
repurchase, that were allocated to the Bank at December 31,
2003, was as follows (in millions):
Securities
U.S.
Sold Under
Government
Agreements to
Securities
Repurchase
(Par value) (Contract amount)
MATURITIES OF SECURITIES HELD
Within 15 days
16 to 90 days
91days to 1 year
Over 1 year to 5 years
Over 5 years to 10 years
Over 10 years
Total
$ 1,502
4,384
5,162
5,885
1,614
2,427
$ 20,974
$ 807
$ 807
At December 31, 2003 and 2002, U.S. government securities
with par values of $4,426 million and $1,841 million, respectively, were loaned from the SOMA, of which $139 million and
$65 million were allocated to the Bank.
NOTE 5
INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES
The FRBNY, on behalf of the Reserve Banks, holds foreign currency deposits with foreign central banks and the Bank for
International Settlements, and invests in foreign government
debt instruments. Foreign government debt instruments held
include both securities bought outright and securities purchased
under agreements to resell. These investments are guaranteed
as to principal and interest by the foreign governments.
Each Reserve Bank is allocated a share of foreign-currencydenominated assets, the related interest income, and realized
and unrealized foreign currency gains and losses, with the
exception of unrealized gains and losses on F/X swaps and
warehousing transactions. This allocation is based on the ratio
of each Reserve Bank’s capital and surplus to aggregate capital
and surplus at the preceding December 31. The Bank’s allocated share of investments denominated in foreign currencies
was approximately 2.375 percent and 2.030 percent at
December 31, 2003 and 2002, respectively.
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
The Bank’s allocated share of investments denominated in foreign currencies, valued at current foreign currency market
exchange rates at December 31, was as follows (in millions):
2003
European Union Euro:
Foreign currency deposits
Government debt
instruments including
agreements to resell
Japanese Yen:
Foreign currency deposits
Government debt
instruments including
agreements to resell
Accrued interest
TOTAL
2002
$ 163
$ 113
97
67
35
36
175
2
$ 472
125
2
$ 343
Total investments denominated in foreign currencies were
$19,868 million and $16,913 million at December 31, 2003
and 2002, respectively.
The maturity distribution of investments denominated in
foreign currencies which were allocated to the Bank at
December 31, 2003, was as follows (in millions):
MATURITIES OF INVESTMENTS DENOMINATED IN FOREIGN CURRENCIES
Within 1 year
Over 1 year to 5 years
Over 5 years to 10 years
Over 10 years
TOTAL
$ 433
31
8
$ 472
At December 31, 2003 and 2002, there were no outstanding
F/X swaps or material open foreign exchange contracts.
At December 31, 2003 and 2002, the warehousing facility
was $5,000 million, with no balance outstanding.
NOTE 6
BANK PREMISES, EQUIPMENT, AND SOFTWARE
A summary of bank premises and equipment at December 31
is as follows (in millions):
2003
Bank premises and equipment:
Land
Buildings
Building machinery and equipment
Construction in progress
Furniture and equipment
Subtotal
Accumulated depreciation
BANK PREMISES AND
EQUIPMENT, NET
DEPRECIATION EXPENSE,
FOR THE YEARS ENDED
$
2002
7
49
17
7
54
$ 134
(67)
$
4
50
18
57
$ 129
(63)
$
67
$
66
$
8
$
9
Future minimum payments under agreements in existence at
December 31, 2003, were immaterial.
The Bank has capitalized software assets, net of amortization, of $2 million and $4 million at December 31, 2003 and
2002, respectively. Amortization expense was $1 million for
each of the years ended December 31, 2003 and 2002,
respectively.
Assets impaired as a result of the Bank’s restructuring plan,
as discussed in footnote 10 include building, furniture and
equipment. Asset impairment losses of $7 million for the period ending December 31, 2003 were determined using fair values based on quoted market values or other valuation techniques and are reported as a component of “Other Expenses.”
NOTE 7
COMMITMENTS AND CONTINGENCIES
At December 31, 2003, the Bank was obligated under noncancelable leases for premises and equipment with terms ranging
from one to approximately three years. These leases provide for
increased rental payments based upon increases in real estate
taxes, operating costs, or selected price indices.
Rental expense under operating leases for certain operating
facilities, warehouses, and data processing and office equipment
(including taxes, insurance and maintenance when included in
rent), net of sublease rentals, was $1 million for each of the
years ended December 31, 2003 and 2002, respectively.
Certain of the Bank’s leases have options to renew.
Future minimum rental payments under noncancelable
operating leases and capital leases, net of sublease rentals,
with terms of one year or more, at December 31, 2003, were
(in thousands):
OPERATING LEASES
2004
2005
2006
2007
2008
Thereafter
$
451
451
352
$ 1,254
At December 31, 2003, other commitments and long-term
obligations in excess of one year were immaterial.
Under the Insurance Agreement of the Federal Reserve
Banks dated as of March 2, 1999, each of the Reserve Banks
has agreed to bear, on a per incident basis, a pro rata share of
losses in excess of one percent of the capital paid-in of the
claiming Reserve Bank, up to 50 percent of the total capital
paid-in of all Reserve Banks. Losses are borne in the ratio that
a Reserve Bank’s capital paid-in bears to the total capital paidin of all Reserve Banks at the beginning of the calendar year in
which the loss is shared. No claims were outstanding under
such agreement at December 31, 2003 or 2002.
The Bank is involved in certain legal actions and claims arising in the ordinary course of business. Although it is difficult
to predict the ultimate outcome of these actions, in manage-
2003 ANNUAL REPORT
51
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
ment’s opinion, based on discussions with counsel, the
aforementioned litigation and claims will be resolved without
material adverse effect on the financial position or results of
operations of the Bank.
NOTE 8
RETIREMENT AND THRIFT PLANS
RETIREMENT PLANS
The Bank currently offers two defined benefit retirement plans
to its employees, based on length of service and level of compensation. Substantially all of the Bank’s employees participate
in the Retirement Plan for Employees of the Federal Reserve
System (“System Plan”) and the Benefit Equalization Retirement
Plan (“BEP”). In addition, certain Bank officers participate in the
Supplemental Employee Retirement Plan (“SERP”).
The System Plan is a multi-employer plan with contributions fully funded by participating employers. Participating
employers are the Federal Reserve Banks, the Board of
Governors of the Federal Reserve System, and the Office of
Employee Benefits of the Federal Reserve Employee Benefits
System. No separate accounting is maintained of assets contributed by the participating employers. The FRBNY acts as a
sponsor of the Plan for the System and the costs associated
with the Plan are not redistributed to the Bank. The Bank’s
projected benefit obligation and net pension costs for the BEP
and the SERP at December 31, 2003 and 2002, and for the
years then ended, are not material.
THRIFT PLAN
Employees of the Bank may also participate in the defined
contribution Thrift Plan for Employees of the Federal Reserve
System (“Thrift Plan”). The Bank’s Thrift Plan contributions
totaled $3 million for each of the years ended December 31,
2003 and 2002, respectively, and are reported as a component
of “Salaries and other benefits.”
NOTE 9
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS AND
POSTEMPLOYMENT BENEFITS
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the Bank’s retirement plans, employees who
have met certain age and length of service requirements are
eligible for both medical benefits and life insurance coverage
during retirement.
The Bank funds benefits payable under the medical and life
insurance plans as due and, accordingly, has no plan assets.
Net postretirement benefit costs are actuarially determined
using a January 1 measurement date.
52
F E D E R A L R E S E R V E B A N K O F S T. L O U I S
Following is a reconciliation of beginning and ending balances
of the benefit obligation (in millions):
2003
Accumulated postretirement
benefit obligation at January 1
Service cost-benefits earned
during the period
Interest cost of accumulated
benefit obligation
Actuarial (gain) loss
Curtailment gain
Special termination loss
Contributions by plan participants
Benefits paid
Plan amendments
ACCUMULATED POSTRETIREMENT
BENEFIT OBLIGATION
AT DECEMBER 31
2002
$ 45.8
$ 45.4
1.2
0.8
3.4
13.5
(3.3)
0.1
0.2
(2.4)
-
2.9
(1.1)
0.1
(2.5)
0.2
$ 58.5
$ 45.8
Following is a reconciliation of the beginning and ending balance
of the plan assets, the unfunded postretirement benefit obligation, and the accrued postretirement benefit costs (in millions):
2003
Fair value of plan assets at January 1
Contributions by the employer
Contributions by plan participants
Benefits paid
FAIR VALUE OF PLAN ASSETS
AT DECEMBER 31
Unfunded postretirement
benefit obligation
Unrecognized net curtailment gain
Unrecognized prior service cost
Unrecognized net actuarial loss
ACCRUED POSTRETIREMENT
BENEFIT COSTS
2002
$
2.2
0.2
(2.4)
$
2.4
0.1
(2.5)
$
-
$
-
$ 58.5
1.4
6.8
(13.4)
$ 45.8
9.0
(3.5)
$ 53.3
$ 51.3
Accrued postretirement benefit costs are reported as a component of “Accrued benefit costs.”
At December 31, 2003 and 2002, the weighted average
discount rate assumptions used in developing the benefit
obligation were 6.25 percent and 6.75 percent, respectively.
For measurement purposes, a 10.00 percent annual rate of
increase in the cost of covered health care benefits was
assumed for 2004. Ultimately, the health care cost trend rate
is expected to decrease gradually to 5.0 percent by 2011 and
remain at that level thereafter.
Assumed health care cost trend rates have a significant
effect on the amounts reported for health care plans. A one
percentage point change in assumed health care cost trend
rates would have the following effects for the year ended
December 31, 2003 (in millions):
FEDERAL RESERVE BANK OF ST. LOUIS
N O T E S T O F I N A N C I A L S TAT E M E N T S
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
Effect on aggregate of
service and interest cost
components of net periodic
postretirement benefit costs
Effect on accumulated
postretirement benefit
obligation
$ 0.2
$ (0.4)
3.5
(5.3)
The following is a summary of the components of net periodic
postretirement benefit costs for the years ended December 31
(in millions):
2003
Service cost-benefits earned
during the period
Interest cost of accumulated
benefit obligation
Amortization of prior service cost
Recognized net actuarial loss
Total periodic expense (credit)
Special termination loss
Net periodic postretirement benefit costs
2002
$ 1.2
$ 0.8
3.4
(0.8)
0.3
$ 4.1
0.1
$ 4.2
2.9
(0.8)
$ 2.9
$ 2.9
Net periodic postretirement benefit costs are reported as a
component of “Salaries and other benefits.”
The recognition of a special termination loss is the result of
enhanced retirement benefits provided to employees during the
restructuring described in footnote 10. The curtailment gain,
associated with the employee terminations, will be offset by the
unrecognized actuarial losses and prior service cost gains. As a
result, an unrecognized net curtailment gain will be recorded in
2004 when the affected employees terminate employment.
Following the guidance of the Financial Accounting
Standards Board, the Bank elected to defer recognition of the
financial effects of the Medicare Prescription Drug
Improvement and Modernization Act of 2003 until further
guidance is issued. Neither the accumulated postretirement
benefit obligation at December 31, 2003, nor the net periodic
postretirement benefit cost for the year ended reflect the
effect of the Act on the plan.
Postemployment Benefits
The Bank offers benefits to former or inactive employees.
Postemployment benefit costs are actuarially determined and
include the cost of medical and dental insurance, survivor
income, and disability benefits. Costs were projected using the
same discount rate and health care trend rates as were used for
projecting postretirement costs. The accrued postemployment
benefit costs recognized by the Bank at December 31, 2003 and
2002, were $6 million and $5 million, respectively. This cost is
included as a component of “Accrued benefit costs.” Net periodic postemployment benefit costs included in 2003 and 2002
operating expenses were $1 million for each year.
NOTE 10
RESTRUCTURING CHARGES
In 2003, the Bank announced plans for restructuring to streamline operations and reduce costs, including consolidation of check, check
adjustment and cash operations and staff reductions in various functions of the Bank. These actions resulted in the following business
restructuring charges:
Major categories of expense (in millions):
TOTAL
ESTIMATED
COSTS
Employee separation
Contract termination
Other
TOTAL
$ 5.1
0.3
$ 5.4
Employee separation costs are primarily severance costs related
to reductions of approximately 256 staff and are reported as a
component of “Salaries and other benefits.” Contract termination costs include the charges resulting from terminating
existing lease and other contracts and are shown as a component of “Other expenses.”
Costs associated with the write-downs of certain Bank
assets, including software, buildings, leasehold improvements,
furniture, and equipment are discussed in footnote 6. Costs
ACCRUED
LIABILITY
12/31/02
$
$
-
TOTAL
CHARGES
TOTAL
PAID
ACCRUED
LIABILITY
12/31/03
$ 5.1
0.1
$ 5.2
$ (0.1)
(0.1)
$ (0.2)
$ 5.0
$ 5.0
associated with enhanced pension benefits for all Reserve
Banks are recorded on the books of the FRBNY as discussed in
footnote 8. Costs associated with enhanced postretirement
benefits are disclosed in footnote 9.
Future costs associated with the restructuring that are not
estimable and are not recognized as liabilities will be incurred
in 2004.
The Bank anticipates substantially completing its
announced plans by December 31, 2004.
2003 ANNUAL REPORT
53
“So
That’s
What
Monetary
Policy
Means.”
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