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How the U.S. Economy Recovers from a Crisis

A message from our president

I flew home from New York City the
afternoon of September 10, 2001,
not knowing that the world was
about to change, not knowing that
the building where I had given a
speech that morning was one sunrise
away from becoming Ground Zero
for the most devastating
terrorist attack in U.S. history.




In the days following the attacks on the World
Trade Center, I was grateful to learn that my
fellow attendees at the still-in-progress National
Association for Business Economics annual meeting, being held at the Marriott World Trade Center
Hotel, had all escaped with their lives.
MY CONSOLATION was tempered by the
same feelings that we Americans and
all civilized people across the planet experienced watching events unfold on that
dreadful day: shock, disgust, sadness and
unimaginable horror. My other emotion
was great uncertainty about what the attacks
might mean for the St. Louis Fed, the Federal
Reserve System and the world economy.
Here at the St. Louis Fed, we thought of
the well-being of our Eighth District colleagues who were working at the New York
Fed, just a few blocks away from the World
Trade Center, on September 11. People like
Hillary Debenport, Kim Nelson, Bill Emmons
and Ellen Eubank. Thankfully, all of them
would return home safely.
President Bush would tell the press that
despite the emotional toll the events were
taking on him, “I have a job to do, and I
intend to do it.” From those first harrowing
moments, the employees at the St. Louis Fed
adopted that same resolute attitude. Fear,
outrage and stress made our jobs more difficult than ever. But we had a job to do, and
we did it. Our job—our responsibility—was
to help ensure the nation’s continued confidence in the integrity of the U.S. payments

system. We acted decisively in a number
of ways:
• 	 ur Cash Department processed its usual
	 daily volumes of cash, handled all special
	 requests for cash from financial institu	 tions and made clear to them that we
	 were prepared to provide emergency
	 shipments if necessary.
• 	 Our Credit Discount staff stayed on
	 the job long after the normal closing
	 hour and fulfilled all requests for
	 additional liquidity from District
	 financial institutions.
• 	 ur Check Department processed high
	 volumes and negotiated alternative trans	 portation arrangements to ship checks
	 to other Reserve districts in the absence
	 of air transport.
• 	 Our electronic services operated without
	 a hitch and accommodated all requests
	 for deadline extensions.
• 	 Our Treasury staff met all processing 	
	 deadlines for the U.S. Treasury’s tax
	 collection and investment services.
The St. Louis Fed and the entire Federal
Reserve System played a significant, but
certainly not the only, role in ensuring the
stability of our economy. In this annual


report, we examine four underpinnings of
our economic system that, together, helped
our nation absorb the shocks of September
11: competitive markets, a robust financial
a strong government fiscal position and
monetary stability.
We make the point that the United States
has been able to move forward thanks to
the strongest, most versatile and most balanced economy of any nation on Earth. The
ability to move forward, however, should

not lead us to minimize the impact the
attacks have had on our lives in so many
Beyond the tragic loss of life, our
economy—as well as our national psyche—
took a blow. But as the following essay shows,
the deep foundations upon which our economy stands have allowed us to remain firmly on
our feet as we clean up our demolished buildings, repair our damaged institutions and meet
the threats we face.
St. Louis Fed President and CEO William Poole




The world that might have been:


A terrorist attack devastates the financial
nucleus of a great country, killing thousands
of people and turning skyscrapers into dust
and rubble in just a couple of hours.
THE NATION’S CITIZENS, who have lived their whole lives believing their homeland was immune to a scene of such horror, are paralyzed with fear. In the days
and weeks that follow, the economic system that people had so comfortably
put their faith in for generations begins to crumble to its own foundations:
•	 Producers of basic necessities take advantage of the situation to jack up
	 their prices by as much as 1,000 percent, causing long lines and frayed
	 tempers at gas stations and grocery stores in every city.
•	 Massive bank runs deplete scores of depository institutions of their
	 liquid reserves, while the nation’s banking system is unable to replenish
	 the cash and credit needed to prevent hundreds of banks from failing
	 within weeks.
•	 Heeding government warnings of additional terror attacks, people hunker
	 down in their homes, skipping work and keeping their children home from
	 school; airlines exhaust their cash reserves and shut down; and the federal
	 government, grappling with soaring budget deficits and inflation, looks on
	 helplessly, unable to offer any type of relief package that would prevent
	 hundreds of thousands of employees from losing their jobs.
	 In summary, the shocking events of a single day have caused a seemingly
strong nation to begin a plunge toward depression.




The world that is:


While no American will forget the events of
September 11, 2001, it is equally important
to be aware of how we avoided the catastrophic
economic consequences described on the
previous pages—to be aware of what makes
the U.S. economy so unlike the fragile enterprise
the terrorists mistook it to be.
THE U.S. RESPONSE reflects mutually reinforcing political and economic
strengths. In this essay, we focus on the economic institutions and conditions that
allowed us to successfully adjust to the shock and regain equilibrium. While
further setbacks are certainly possible, the response of our economy to date and its
inherent strengths provide us with great confidence that the final outcome will
be favorable. Four main features of the U.S. economy justify this confidence.
These are:
•	 Vigorously competitive markets
•	 A robust financial system
•	 A strong government fiscal position
•	 Low inflation and monetary stability
	 To reflect on these features is a valuable exercise, for they did not arise by
accident. Given the routine pressures every family, firm and government faces,
it would be all too easy to neglect the investments necessary to build resilient
economic institutions. The components of the U.S. economy we discuss in this
essay were built over time and with attention to a long horizon. They serve the
nation well in ordinary times, but especially so in extraordinary times. In contrast,
a country that accepts economic compromises, through an unwillingness to invest
in the future, places itself at risk. The defects of a compromised structure usually
become painfully apparent in a time of stress, too late to make the long-run
investments that would permit a constructive response to the shock.




With high rewards for entrepreneurs, the competitive market system
is the engine of long-run growth and the mechanism by
which the economy absorbs short-run economic shocks.
THE U.S. ECONOMY contains powerful forces that
promote growth and full employment. Our culture and
institutions reward entrepreneurial activity. They are intact,
completely undiminished by the events of September, as
well as the anthrax scare that followed in October. People
are motivated by the intellectual and financial rewards of
building companies, developing new products and services,
and serving markets. They continually
look for opportunities to move the U.S.
economy forward. With high rewards for
entrepreneurs, the competitive market
system is the engine of long-run growth
and the mechanism by which the economy absorbs short-run economic shocks.
The role of competitive forces was
apparent soon after September 11, as
markets responded to changed demands and firms began
searching for technical innovations to address the new security environment. The travel industry is the most obvious
example: Airlines quickly cut flights and introduced promotional fares, while hotels and resorts offered discount rates.
Other industries followed suit. By late September, the auto
industry was advertising significant savings to consumers in

the form of zero-interest financing. Meanwhile, property
insurance companies increased their premiums on commercial policies substantially, expanded deductibles for such
coverage and, in some cases, added clauses to exclude losses
resulting from acts of terror.
The United States is known around the world for its
technology. In this time of stress, consider a few examples
of how firms are bringing technology to
bear on the problems we face: Manufacturers of equipment generally used to
prevent bacterial contamination of food
applied electron-beam technology to
decontaminate mail sent through various
Washington, D.C., postal facilities.
Researchers at the Mayo Clinic announced
the development of an apparently reliable
one-day test for anthrax exposure. And at Saint Louis
University, researchers are capable of adapting their studies
of the dispersion patterns of dust and cat allergens to help
determine how biological agents such as anthrax spores are
dispersed. (See sidebar at right.)
Other opportunities abound for new approaches to help
solve old problems or to define solutions for emerging prob-


Adapting to New Threats
Last October, Dr. Roger Lewis listened intently to a radio report about
the anthrax spores enclosed with a letter addressed to Senate
Majority Leader Tom Daschle.


In his experiments on how
materials like lead and cat
allergens spread, Dr. Roger Lewis
of Saint Louis University often
uses silica. That same
substance was found in the
anthrax letter sent to Senate
Majority Leader Tom Daschle.

he report mentioned that the
anthrax was mixed with a substance called silica. The next day, Lewis
read that the head of the
laboratory examining the letter did
not know why the letter contained silica. Lewis did.
An industrial hygienist and associate
professor of Environmental and
Occupational Health at Saint Louis
University’s School of Public Health,
Lewis often uses silica in his experiments with materials like lead, dust
mite allergens and cat allergens. He
studies how these particles accumulate on surfaces and become
dispersed through the air, how people come in contact with them, and
what are the most effective ways to
remove them.
Recalling the events of last October, Lewis says: “I phoned Greg
Evans, the head of the bioterrorism
center at SLU, and I told him that I
know why that letter contained silica.
It’s because silica is a drying agent.
I have used it for years to keep dust
airborne. It keeps particles aerosolized
and prevents them from clumping. It
works fantastic.”
To Lewis, the presence of silica in
the Daschle letter indicated a highly
sophisticated perpetrator whose
intent was for the spores to spread
easily and cause as much harm as

possible. Evans reported Lewis’
information to the FBI.
Currently, Lewis is working on a
two-pronged project funded by the
U.S. Department of Housing and
Urban Development: determining
the best vacuum cleaning system
for removing leaded dust from carpets and upholstery, and finding the
best detergent for removing these
same contaminants from hard surfaces like floors or windowsills.
Lewis says his kind of research
could easily be adapted to exploring
how anthrax spores are spread.
In fact, Lewis says that he and his
assistants considered halting their
current research so they could
perform experiments simulating
the dispersal of anthrax spores from
opening envelopes. Instead of using
actual anthrax, they would use a safe
surrogate that has nearly the same
physical properties as anthrax.
“The only problem is that here at
the university we’re not top-heavy
with staff; so we can’t stop everything
we’re doing to do this,” Lewis says.
When his schedule lightens up,
Lewis plans to seek government
funding to research and conduct
experiments on anthrax spores—
though he’d prefer to keep his
distance from the real stuff.
“I’ll work with a surrogate, thank
you very much,” he says.

Government to
the Rescue?
In 1973, the Nixon administration began phasing out
the wage and price controls it had imposed in April 1971.
One important control, however, was not lifted.


n response to the oil embargo
imposed on the United States
by OPEC in October 1973, the
administration imposed more stringent price regulations on the oil
industry. The purpose of this complicated set of regulations was to
cushion domestic prices from the
full impact of the higher prices on
world markets.
The price control system entitled
domestic refiners to domestically
produced oil at controlled prices.
The impact of the price controls and
entitlement system was that products produced from crude oil were
not available throughout the country to meet the local demand at the
controlled prices. Long lines developed at gas stations, and economic
activity was disrupted as households and business that were last in
line or low in the allocation priority
were unable to obtain the energy
products they needed. Gas station
owners were even arrested for selling fuel to willing purchasers at
prices above the controlled levels.

How did this mess affect the
economy in general? Economic
activity started slowing in late 1973.
And over the next two years, the
oil price shock and the disruption
of the market system caused by
the price controls contributed to
what at the time was the worst
recession since the Great Depression. Consumer price inflation
accelerated to 11 percent in 1974,
and the unemployment rate rose
to 8.5 percent in 1975.

Not Quite

lems. Providing security for our transportation systems, our
food chain, our energy generation systems and our borders is
an area ripe for innovation. For example, in the immediate
aftermath of September 11, severe bottlenecks developed at
the Canadian and Mexican border crossings as detailed
inspections of thousands of trucks were implemented. Since
the passage of NAFTA, some industries—one being, automobile production—have become highly integrated across
the three North American economies. The traffic jams that
emerged forced the temporary closure of a number of production facilities because parts could not be delivered “justin-time.” Experts have concluded that
thorough security inspections can not be
completed efficiently at centralized border
crossings. If true, then without substantial
innovation, some of the cost savings that
we have realized in recent years through
reduced inventories will be lost.
What to do? One possible solution is
to adapt satellite tracking technology, now
in common use by trucking companies,
to reduce such production disruptions.
Conceivably, entrepreneurs could extend
this technology to monitor vehicles that
have been inspected and sealed at
dispersed points-of-origin so that full
truckloads can be cleared through border
crossings electronically.
Passenger and baggage screening at
major airports is another area with considerable potential for
profitable innovation. Airlines now recommend that passengers arrive at major airports two hours in advance of their
departure time to allow for check-in and security clearance,
an increase of more than one hour from the recommended
lead-time prior to September 11. This additional time substantially increases the cost of airline travel to consumers,
above and beyond any higher ticket prices or user taxes
needed to pay for more intensive security screening.
Over the long run, such cost increases, if sustained, can
be expected to provoke significant substitution of other
modes of travel, particularly for short- and intermediatedistance trips. Nevertheless, even after such substitution,
the total costs of travel will be increased. And, to the extent
that new security procedures permanently increase travel
time and expense, we can expect to see people use other
technologies, such as video conferencing, more frequently
for conducting business.

Businesses and entrepreneurs working to develop new
technologies in this environment can be successful because of
government policies and the structure of our labor and capital
markets. Firms and jobs are created and destroyed continually
in our economy so that ultimately our resources are directed
toward the most productive activities. Experts have noted
this characteristic frequently in explaining why “high-tech”
has penetrated production processes here more quickly and
more intensively than in other countries. In such an environment, the transition to an economy that requires a higher level of security can be accomplished with little, if any,
disruption of the long-term productivity trends that are the source of our
increasing standard of living.
Compared with other industrialized
economies, job entitlements in the
United States are relatively low.
Seniority practices, job security provisions of negotiated labor contracts, plant
closure notification laws and the like
provide some short-term job security
to workers. However, in the face of a
major shock that significantly shifts
demand permanently away from the output of one industry toward another, these
provisions affect only the transition from
an old environment to a new one. For
example, in the aftermath of September 11,
lighter passenger loads caused airlines to
employ smaller planes more frequently, meaning senior
pilots needed to be re-certified to fly those planes. Once
the retraining has been accomplished, these firms will be
able to operate efficiently at the lower level of demand.
Finally, regulatory conditions also help smooth the economy’s adjustment to the new threat of terrorism. A market
system works most effectively when prices signal where
resources should be used. In our current situation, we are
much better positioned than we were in some significant
historical situations. (See sidebar at left.) With the outbreak
of the Korean War, the federal government instituted price
controls and rationed critical materials. One effect of those
policies was that investment in large structures and the production of automobiles were disrupted by steel rationing.
The government also imposed credit controls on mortgage
and consumer credit. All of these regulations interfered
with the market system’s ability to direct resources to their
most productive uses.





Although some components of the financial system
had their operations shut down by the collapse of the
Twin Towers, most continued to function normally.
THE INFRASTRUCTURE of our nation’s financial
system proved to be vulnerable to the attacks of
September 11. Key operations located at and near the
World Trade Center included stock exchanges, clearing
banks, several of the important dealers who made markets
in federal government securities, traders who made markets
in foreign exchange, and brokers who linked the banks that
wanted to borrow and lend federal funds.
Following the attacks, all aircraft were grounded in
U.S. airspace, except for military planes. The government
bond market was closed and did not reopen
until September 13. Equity markets were
closed until September 17. The clearing
of both wholesale payments and securities
transactions was disrupted because of processing problems experienced by a major
New York clearing bank, whose operations
center was located near the World Trade
Center. Communications were affected by the extensive
damage suffered at a major telephone-switching center in
Lower Manhattan. Also disrupted was our national system
for clearing checks, a large share of which moves through
air transport to the paying banks.

As severe as the interruption was, it is important to note
that the vulnerability turned out to be the physical infrastructure of payments and trading systems, not the underlying strength of financial services firms. These firms and
their suppliers proved to have the capital and the technical
resources to restore damaged infrastructure. This fact is not
a trivial one.
Developments during the first week after September 11
were especially important in limiting the impact of the
attacks on our payments system and financial institutions.
(See sidebar at right.) Although some
components of the financial system had
their operations shut down by the collapse
of the Twin Towers, most continued to
function normally. The depth of operational resources, the capacity to call on
backup systems, and the role of the Federal
Reserve in providing massive amounts of
liquidity reflect the robustness of the U.S. financial system.
The electronic payment networks operated by the
Federal Reserve System—Fedwire ® and the Automated
Clearing House (ACH)—hummed along without interrup® Fedwire is a registered service mark of the Federal Reserve banks.


Regaining Equilibrium
Few, if any, sectors of the U.S. economy were unaffected by
the events of September 11.


he charts below show how four
economic indicators—depository institutions’ reserves, initial
unemployment claims, retail sales,
and M2 money supply—reacted to

the shock. Three of the charts
indicate continued turbulence for
several weeks or months before
leveling off to pre-September 11
levels. The spike in M2 receded
quickly and by the end of October,
M2 returned to its pre-September
11 trend. The charts report weekly
data, and the dashed lines indicate
the week of September 11.

Reserves of Depository Institutions

Initial Unemployment Claims

Millions of Dollars





5/30/01 6/30/01 7/30/01 8/30/01 9/30/01 10/30/01 11/30/01 12/30/01 1/30/02 2/28/02

Redbook Retail Sales Average
Percent Change Year over Year



5/30/01 6/30/01 7/30/01 8/30/01 9/30/01 10/30/01 11/30/01 12/30/01 1/30/02 2/27/02

Billions of Dollars







5/26/01 6/26/01 7/26/01 8/26/01 9/26/01 10/26/01 11/26/01 12/26/01 1/26/02 2/26/02

5/30/01 6/30/01 7/30/01 8/30/01 9/30/01 10/30/01 11/30/01 12/30/01 1/30/02 2/27/02

What Happens
When Financial Institutions Are
Not Strong
During times of crisis, people have often sought
security by keeping their money close at hand.


anic-stricken, they have rushed
to their banks to withdraw
cash, an act that can be detrimental
to a bank’s operations when performed in large numbers. Fortunately, bank runs did not occur after
September 11. Why? Because
people felt confident enough in the
stability of the banking system to
leave their money where it was.
Experience during the early 1930s in
the United States illustrates what
can happen when people lose confidence in the strength of their banks.
Because of poor monetary policy,
the money supply declined sharply
during the early part of the decade,
and large numbers of banks failed.
Problems in the banking system
reached a crisis stage by early 1933.
Several states had declared banking
holidays. During a banking holiday,
the government closes all banks
temporarily, generally to stop runs by
depositors withdrawing their funds.
In addition, customers could not use
the funds they had on deposit to
make payments. The banking holi-

days also caused a suspension in
the operation of financial markets,
including the securities and foreign
exchange markets.
Shortly after his inauguration,
President Franklin D. Roosevelt
declared a federal banking holiday
on March 6, closing every bank in
the country. Even the Federal
Reserve shut down for a few days.
The temporary halt to bank operations disrupted commerce throughout the nation. The government
began reopening banks a week
later, but more than 5,000 banks—
out of 17,800 banks as of year-end
1932—remained closed March 15.
While many of these banks eventually reopened several months later,
many others never did. The experience of our nation during the early
1930s is a reminder of the importance of government policies,
including appropriate monetary
policy, that keep our nation’s banking
system strong.

tion. These systems facilitated the operation of other
segments of the payments system and the settlement of
transactions among financial institutions.
The attacks temporarily disrupted market mechanisms
through which banks trade their reserves, including borrowing in the federal funds market or selling federal government securities held as secondary reserves. In response,
the Federal Reserve made large loans through its discount
window to provide liquidity to banks that could not raise

The solid capital positions enjoyed by most banks permitted
them to make it through.
The credit card, debit card and ATM networks functioned normally after the terrorist attacks. The flow of
data among participants in these systems, including banks
and merchants, occurs over electronic communication
networks. Participants in these systems settled their net
positions over the Fed’s electronic payment networks in
the usual manner.

Processing checks is an important, and hectic, component of America’s economic engine.
At the St. Louis Fed and Reserve banks throughout the country, this task became even more
critical after the attacks of September 11. To help maintain confidence at all levels of the
payments system, the Eighth District absorbed nearly $800,000 in costs for the month of
September. Most of these costs involved float the Fed granted to financial institutions
because Reserve banks could not collect checks on the usual schedule for several days
after the attacks. Check employees in St. Louis also logged overtime performing activities
like processing checks for financial institutions that temporarily closed September 11.

adequate funds through normal mechanisms. Shortterm discount window loans, which were $99 million
on September 5, rose to more than $45 billion on
September 12. By September 26, these loans dropped
back to $20 million; the system had returned to normal.
Extra liquidity injected into the banking system flowed
to where it was needed. Banks increased their loans to
other banks substantially. Interbank loans increased from
$300 billion on September 5 to $442 billion on September 12. By early October, interbank loans had returned
to about $300 billion. The willingness of banks to increase
their loans to one another by large amounts on short
notice was based on the confidence that they were lending
to banks that were strong financially. (See sidebar at left.)

Operating the nation’s check collection system was a
greater challenge. Because banks could not collect checks
through air transport, the Fed adopted a policy to minimize disruptions to the use of checks. The Reserve banks
accepted checks from banks for deposit to their reserve
accounts and credited these reserve accounts for the proceeds of the checks on the usual availability schedule.
“Check float” increased substantially because the Fed
could not collect the checks on the usual schedule. Such
float jumped to $23 billion September 12. In comparison,
it was only $2 billion a week earlier. The Fed’s policy of
accepting checks for deposit and crediting the accounts
of collecting banks on the established availability schedule
facilitated the relatively smooth operation of one impor-




tant phase in check collection: banks accepting checks
from their customers and crediting their accounts as usual.
Relatively few people withdrew more cash than usual
from their accounts. The Fed was able to help banks meet
this demand by providing additional cash from the vaults of
the Reserve banks. Because the banks and the Fed made
clear to the public that cash would remain readily available,
an unusual demand for cash never materialized. What additional demand did surface quickly subsided.
Our nation’s financial system returned to more normal
operation during the week after September 11. Although
stock market averages declined when the trading of equity
shares resumed, the markets showed no signs of panic selling. Stock prices tended to change in a rational pattern,
with the largest percentage declines in the share prices of
companies that appeared most adversely affected by the
attacks. Settlement of trades occurred in almost the usual
orderly fashion. To provide extra time for processing in the
Treasury securities market, trades conducted on September
13 and 14 were settled three days later, and five days after
for trades made between September 17 and September 21;
starting Monday, September 24, trades were settled on a
normal next-day basis.
The large increases in bank reserves during the first days
after September 11 were reversed during the following
week, as more checks reached the paying banks and banks
repaid their loans from the Fed’s discount window. Interbank loans declined as the temporary disruptions in the
operation of the financial markets ended.
Banks Were Prepared

One reason why payments systems worked in a crisis
situation is that these systems contain arrangements that
limit the risk assumed by each participant by extending
credit to counterparties. In addition, banks have relatively
high ratios of capital to total assets. Although large banks
have experienced an increase in problem loans since 1997,
bank capital ratios remain substantially higher than during
the last period of major problems in the banking industry,
in the late 1980s and early 1990s. One of the factors that
could have adversely affected payments arrangements
would have been an unwillingness of participants to
extend credit to one another. There is no evidence that
such credit restriction occurred.
The supervisory authorities in the United States are also
committed to keeping our banking industry in sound
condition. Banks that suffer losses that compromise their

capital positions are closed or reorganized unless their
shareholders inject additional equity. The experience of
the U.S. savings and loan industry in the 1980s and of
other nations, especially Japan, demonstrates the problems
inherent in the supervisory policy of forbearance when
losses deplete the capital of financial firms. An economy
cannot grow if its major financial institutions remain in
weak financial condition for an extended period of time.
Moreover, such firms would not have the strength to
withstand a shock of the magnitude of September 11.
Dealing with Future Crises	

While we cannot know whether we will have more
terrorist attacks in our future, the operation of our payments system and financial institutions after September 11
gives us a basis for optimism about our nation’s ability to
cope with future events. This capacity rests on a continuing commitment to two basic principles:
First, the Fed as the central bank must be prepared to
inject additional reserves into the banking system temporarily during a financial crisis. This point is so well
understood, certainly within the Fed, that there can be
no doubt that liquidity would flow freely as needed.
Second, our government supervisory agencies must
maintain a commitment to policies that promote the
strength of our financial institutions. This strength includes
sound capital positions and comprehensive contingency
plans for maintaining or restoring operations. The Fed
and financial firms across the country had prepared
extensively for possible economic disruptions in advance
of Y2K. Because of those preparations, the century
rollover occurred with practically no problems whatsoever. On September 11, the contingency plans were
taken off the shelf. In the days that followed, these plans
paid off handsomely.


Despite the fiscal policy actions taken in response to September 11,
the United States is very far from being fiscally stretched.
THE UNITED STATES has dealt with the terrorist
attacks from a position of financial strength, namely, historically large federal, state and local government budget
surpluses. Indeed, the ability to marshal significant
resources during times of war is one of our country’s great
strengths. To be sure, the war on terrorism is decidedly
unlike previous conflicts. No one now knows the scale of
governmental resources that will be necessary to prosecute
the war. But because the nation entered the conflict with
a solid government financial position, the consequences
for the economy are unlikely to include large tax increases
and the uncertainty that would accompany them.
The federal government recorded a $69.2 billion
unified budget surplus in fiscal year 1998; by fiscal year
2000, the surplus had grown to just under $240 billion,
or 2.4 percent of GDP. The government attained this
budget position through a combination of fiscal restraint
and better-than-expected economic growth. The higher
economic growth rate reflected an increase in the growth
of labor productivity beginning around 1995, which most
economists attribute to the marked rise in investment in
high-tech capital equipment. That investment was
financed in part through the surpluses in the federal

budget. Paying down federal debt released funds for
private investment.
This virtuous cycle, in which a strong economy increased
federal revenues, and a federal budget surplus helped to support private investment that boosted economic growth, continued until the recession of 2001 set in, starting in March.
Previous growth had taken the economy to a much higher
level than it would have achieved had growth remained relatively low in the late 1990s; as a consequence, despite the
mild recession, the federal budget was in much better shape
than it otherwise would have been.
In May of last year, passage of the Economic Growth
and Tax Relief Reconciliation Act of 2001, reduced, but did
not eliminate, prospective budget surpluses. Consequently,
federal resources were deemed available to deal with circumstances that changed dramatically after the terrorist
attacks. Soon after September 11, President Bush proposed
a $20 billion emergency aid package to assist those individuals, businesses and government administrators directly
affected by the attacks. Congress quickly doubled the size
of this package, which also authorized funds for increased
military and security measures, and then sent it to the president, who signed the legislation into law September 18.




“ With my signature, this
law will give intelligence and
law enforcement officials
important new tools to
fight a present danger.”

President George W. Bush
signs the Patriot Act,
Anti-Terrorism Legislation,
October 26, 2001.

Some combination of modest tax increases and
modest spending restraint in other areas of the
federal budget will likely provide the resources
needed to address security requirements.
Subsequently, emergency legislation totaling $15 billion was
signed into law to help stanch the losses suffered by domestic air carriers. Then, Congress passed and the president
signed into law the Aviation Security Act of 2001, which
authorized federal oversight and responsibility of most
airport security measures, including inspection of passenger
baggage; increased use of federal air marshals; and awarded
grants to air carriers to improve in-flight security measures.
Given that the traveling public will cover about half of the
cost of these measures through increased fees, the Congressional Budget Office estimates the net cost of this legislation over the next five years at a little more than $9 billion.
Going forward, it is possible that additional monies will
be required if the war extends longer than expected, if
threats of additional attacks crop up or if additional attacks
are carried out successfully. Is the federal government positioned to cope with these new fiscal strains? What about
state and local governments, which also have an important
role to play?
The central question in this regard is whether the economy’s growth rate in coming years will be high enough to
generate required revenues at current tax rates. The key
issue is the rate of productivity growth, a subject of much

dispute and limited actual knowledge. The prevailing view
among most forecasters and academic economists is that
labor productivity has accelerated—perhaps sufficiently to
push the economy’s sustainable rate of output growth up
from the roughly 2.5 percent pace that prevailed between
1974 to 1995, to around 3.25 percent. If such estimates are
correct, then budget surpluses may still be more likely than
deficits over the next 10 years. Despite the fiscal policy
actions taken in response to September 11, the United
States is very far from being fiscally stretched. (See sidebar
at right.) Should substantial additional security expenditures
be required, some combination of modest tax increases and
modest spending restraint in other areas of the federal
budget will likely provide the resources needed to address
security requirements.
The United States has benefited from a fiscal policy that
focuses on efficient use of federal resources and attention to
the policy’s effects on economic growth. This policy crosses
both political parties and has been maintained over many
years. Much more could be done to improve the efficiency
of federal spending and tax policies, but the point here is
that the strong U.S. fiscal position has served the nation well
in dealing with the stresses of the terrorist attacks.


Will the War on
Terrorism Bust the

the Korean and Vietnam wars—
the ratio declined steadily to
below 40 percent; budget deficits
were small on average and GDP
grew. In the 1980s, deficit spending financed a huge defense
buildup. That effort, along with
tax cuts, the transition to lower
inflation and slow growth, pushed
the ratio back up to about 70 percent, still a quite manageable situation. In the 1990s, the ratio fell
to under 60 percent in the wake
of strong economic growth and
budget surpluses. Sustained low
inflation contributed to both of
these outcomes by increasing
economic stability, keeping interest rates relatively low and
encouraging a high rate of business investment that contributed
to high productivity growth.

In waging the war on terrorism,
the U.S. government will spend large sums in certain
areas, particularly domestic security.


ven so, the ratio of debt to
gross domestic product
(GDP), after rising slightly, is projected to decline steadily over the
next decade. The debt/GDP ratio
compares total government debt
with the entire output of the
economy in one year.
As the chart shows, the United
States emerged from World War II
with a debt/GDP ratio well in
excess of 100 percent. Over the
ensuing 35 years—which included

U.S. Debt (as a percent of GDP)






































A Battle on Two Fronts
A little more than 50 years ago, while American
forces were engaged in conflict thousands of miles
away, consumers on the homefront were fighting
their own enemy—inflation.


hen the Korean War broke
out in June 1950, inflation
was subdued. The month-to-month
inflation rate was generally in the
range of 0 to 5 percent at annual
rates. Inflation, however, began
climbing rapidly and jumped to
nearly 20 percent by early 1951.
The fear of inflation was so real that
people began resorting to “buy in
advance” behavior in an attempt to
beat anticipated future inflation and
possible resumption of World War
II-style rationing. These fears complicated the economic and political

CPI Inflation Rates, January 1950 to July 1952
Month-to-Month Percentage Change at Annual Rates
Outbreak of Korean War

Jan. 50

April 50

July 50

Oct. 50

Jan. 51

April 51

July 51

Oct. 51

Jan. 52

April 52

July 52

problems that arose from the
Korean War emergency. The
Federal Reserve could not pursue
an independent monetary policy
to fight inflation because it was still
honoring an agreement carried over
from the war to maintain interest
rates on U.S. Treasury securities at
fixed, unchanging levels.
In 1951, the Fed-Treasury Accord
was negotiated, re-establishing the
independence of monetary policy in
the United States. The improved
monetary policy helped to reverse
inflation’s course. Today, the
Federal Reserve has both the
authority and commitment to limit
inflation. Thus, while many fears
have gripped Americans since
September 11, inflation has not
been one of them.

That we now take price stability almost for granted
is a great strength of our current condition.

A MARKET SYSTEMWORKS most effectively when price
signals are not confused by inflationary expectations.
Evidence shows that no consumer behavior has seemed
motivated by fear of inflation since September 11. A few
lines at gas stations emerged that day, based on unfounded
fears of a physical shortage and sharply higher prices. In the
weeks after the attacks, energy prices fell, reflecting reduced
demand in the face of a global economic slowdown.
Consumer price inflation has not accelerated. Survey
measures of longer-term inflation expectations have remained
unchanged. The spreads between regular Treasury bonds and
the Treasury’s inflation-indexed bonds—another measure of
inflation expectation—receded after the terrorist attacks and
have remained low.
Indeed some commentaries in the immediate aftermath
of September 11 raised concerns about deflation. Such fears
arose out of short-run data that appeared immediately after
the attacks and out of an inadequate understanding of deflation in Japan, where wholesale and consumer prices generally
drifted downward starting in the mid-1990s and where asset
prices (land and equities) collapsed. A more complete analysis indicates that the U.S. economy is in no danger of replicating Japan’s experience in the 1990s.

One of the great economic accomplishments of the last
20 years is restoration of a climate of price stability in the
United States. During the early 1980s, the Fed managed
monetary policy to stabilize the inflation rate at a much
lower rate than in the 1970s; in the 1990s, the Fed was
able to put the inflation rate on a gentle downward trend.
The outcome was accompanied by steadily declining
unemployment, contrary to the forecasts of many.
By the middle of the 1990s, the objective of reducing
inflation to a low-enough level that it was largely ignored in
the day-to-day decision making of consumers and businesses
was substantially achieved. That we now take price stability
in this sense almost for granted is a great strength of our
current condition. (See sidebar at left.) This environment
gives the Fed flexibility in responding aggressively to situations where there is the potential for a liquidity crisis, such
as on September 11 and the following days, or where there
is evidence of an economic slowdown. As always, the Fed’s
responses must be tempered by consideration that an overreaction, or a failure to reverse short-run policy actions in a
timely fashion, could result in a deterioration of expectations
about future inflation.





There is no reason to
	 believe that what served us
well during this crisis would
abandon us in the future.
economy in the wake of September 11 is encouraging.
Yes, the attacks were damaging. But they were not crippling. In a society in which entrepreneurial initiative and
risk-taking are rewarded, recovery from disaster is bound
to be expedited. When citizens have faith in the soundness
of their financial institutions, they have less reason to panic.
Where a federal government spends taxpayers’ monies
wisely, a nation shows resilience during adversity. And
where a central bank sets a goal of maintaining price
stability, consumers feel confident that their money will
retain its purchasing power, even in dire circumstances.
The United States embodies all of these qualities.
The result? Its economy is, in many ways, shock-resistant.
Despite the devastating ramifications of the terrorist
attacks, many key economic indicators began to regain
equilibrium within weeks. Economic statistics for the
period since September 11 have suggested that the economy is stabilizing quickly after initial declines caused by
the attacks:
• 	Real GDP increased at an annual rate of 1.7 percent
	 in the fourth quarter of 2001.
• 	Productivity in the nonfarm business sector increased
	 5.2 percent at an annual rate in the fourth quarter.
•	 Monthly CPI inflation came in at 0.2 percent in
	 February and 1.1 percent for the 12 months ending
	 with February.
• 	Payroll employment rose by 66,000 jobs in February.
• 	In February, real consumption rose 0.5 percent
	 over January.
In the end, our economy passed one of the most
challenging tests in the nation’s history.
The question is, can it pass even tougher tests? Yes.
There is no reason to believe that what served us well
during this crisis would abandon us in the future.
Our competitive markets and strong financial system
are deeply ingrained within our culture. And while

government fiscal policy and Federal Reserve actions evolve
over time and depend to some degree upon the individuals
in office, the benefits of prudent budgets and low inflation
have become so obvious that they have become institutionalized within our society as well.
We have known for many years that an economy based
on free markets and personal liberty performs better than
one based on central planning and government compulsion.
We now know also that a market economy and free people
are remarkably resilient in the face of a severe shock. We
hope that all of the new security precautions will thwart
future terrorist attacks in the United States. But whatever
the future may bring, we can be confident of our nation’s
capacity to weather the storm.






Retiring Board Members

William Poole, President and CEO | Charles W. Mueller, Chairman

Thank You
We would like to express our deepest gratitude
to those members of our Eighth District boards
of directors who retired in 2001. For their
distinguished service, our appreciation and best
wishes go out to:
Roger Reynolds, chairman of the Louisville
Board; Orson Oliver and Edwin K. Page,
Louisville Board members; John C. Kelley Jr.,
Memphis Board member; and Thomas H.
Jacobsen, St. Louis Board member. We also
thank Katie S. Winchester, who served as our
District’s Federal Advisory Council member.




Board of Directors

St. Louis


Lunsford W. Bridges

Joseph E. Gliessner Jr.

Lewis F. Mallory Jr.

Gayle P.W. Jackson

Bert Greenwalt

President and CEO
Metropolitan National Bank
Little Rock, Arkansas

Executive Director
New Directions
Housing Corporation
Louisville, Kentucky

Chairman and CEO
National Bank of
Starkville, Mississippi

Managing Director
FondElec Group Inc.
St. Louis, Missouri

Greenwalt Company
Hazen, Arkansas


Walter L. Metcalfe Jr.
Deputy Chairman

Charles W. Mueller

Bryan Cave LLP
St. Louis, Missouri

Chairman and CEO
Ameren Corporation
St. Louis, Missouri

Robert L. Johnson
Chairman and CEO
Johnson Bryce Inc.
Memphis, Tennessee


Bradley W. Small
President and CEO
The Farmers and Merchants
National Bank
Nashville, Illinois

Board of Directors

Little Rock


David R. Estes

Raymond E. Skelton

Lawrence A. Davis Jr.

President and CEO
First State Bank
Lonoke, Arkansas

Regional President
U.S. Bank
Little Rock, Arkansas

University of Arkansas
at Pine Bluff
Pine Bluff, Arkansas


Everett Tucker III
Moses Tucker Real Estate Inc.
Little Rock, Arkansas

A. Rogers Yarnell II
Yarnell Ice Cream Co. Inc.
Searcy, Arkansas

Cynthia J. Brinkley
Southwestern Bell
Telephone Company
Little Rock, Arkansas

Not Pictured:
Vick M. Crawley
Plant Manager
Baxter Healthcare Corporation
Mountain Home, Arkansas




Board of Directors



Cornelius A. Martin

David H. Brooks

Norman E. Pfau Jr.

President and CEO
Martin Management Group
Bowling Green, Kentucky

Chairman and CEO
Stock Yards Bank & Trust Co.
Louisville, Kentucky

President and CEO
Geo. Pfau’s Sons
Company Inc.
Jeffersonville, Indiana


Thomas W. Smith
President and CEO
Ephraim McDowell Health
Danville, Kentucky

J. Stephen Barger
Executive Secretary-Treasurer
Kentucky State District
Council of Carpenters
Frankfort, Kentucky

Not Pictured:
Frank J. Nichols
Chairman, President and CEO
Community Financial Services Inc.
Benton, Kentucky


Marjorie Z. Soyugenc
Executive Director and CEO
Welborn Foundation
Evansville, Indiana

Board of Directors



Mike P. Sturdivant Jr.

James A. England

Gregory M. Duckett

E.C. Neelly III

Due West
Glendora, Mississippi

Chairman, President and CEO
Decatur County Bank
Decaturville, Tennessee

Senior Vice President and
Corporate Counsel
Baptist Memorial Health
Care Corporation
Memphis, Tennessee

Management Consultant
First American National Bank
Iuka, Mississippi


Tom A. Wright
Chairman, President and CEO
Enterprise National Bank
Memphis, Tennessee

Russell Gwatney

Walter L. Morris Jr.
H&M Lumber Co. Inc.
West Helena, Arkansas

Gwatney Companies
Memphis, Tennessee




Financial Statements

The Federal Reserve Bank of St. Louis
Financial Statements
for the years ended December 31, 2001 and 2000


Letter to Board of Directors

March 4, 2002

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, 2001, (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, and as such, include
amounts, some of which are based on judgments and estimates of management.
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, the management of
the Bank believes 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 Chief Executive Officer

W. LeGrande Rives, First Vice President and Chief Operating Officer




Report of Independent Accountants

To the Board of Directors of the Federal Reserve Bank of St. Louis:
We have examined management’s assertion that the Federal Reserve Bank of St. Louis (“FRBSTL”)
maintained effective internal control over financial reporting and the safeguarding of assets as they
relate to the Financial Statements as of December 31, 2001, included in the accompanying Management’s Assertion. The assertion is the responsibility of FRBSTL management. Our responsibility is to
express an opinion on the assertions based on our examination.
Our examination was made in accordance with standards established by the American Institute
of Certified Public Accountants, and accordingly, included obtaining an understanding of the internal
control over financial reporting, testing, and evaluating the design and operating effectiveness of the
internal control, and 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 the 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 the FRBSTL maintained effective internal control over
financial reporting and over the safeguarding of assets as they relate to the Financial Statements
as of December 31, 2001, is fairly stated, in all material respects, based upon criteria described in
“Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of
the Treadway Commission.

March 4, 2002
St. Louis, Missouri


Report of Independent Accountants

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, 2001 and 2000, and the related statements of income and
changes in capital for the years then ended. These financial statements are the responsibility of the
Bank’s management. Our responsibility is to express an opinion on the 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 discussed in Note 3, the 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, 2001 and 2000, and results of its operations
for the years then ended, on the basis of accounting described in Note 3.

March 4, 2002
St. Louis, Missouri





(in millions)
Gold certificates	
Special drawing rights certificates		
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		
Interdistrict settlement account		
Bank premises and equipment, net		
Other assets		
			 Total assets	





	 Federal Reserve notes outstanding, net	
	 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 paid-in		



			 Total capital		



			 Total liabilities and capital	


The accompanying notes are an integral part of these financial statements.






(in millions)
Interest income:			
	 Interest on U.S. government and federal agency securities	
	 Interest on investments denominated in foreign currencies		
	 Interest on loans to depository institutions		
			 Total interest income		



Other operating income:			
	 Income from services		
	 Reimbursable services to government agencies		
	 Foreign currency gains losses, net		
	 U.S. government securities gains, net		
	 Other income		


			 Total other operating income		



Operating expenses:			
	 Salaries and other benefits		
	 Occupancy expense		
	 Equipment expense		
	 Assessments by Board of Governors		
	 Other expenses		


			 Total operating expenses		
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	


The accompanying notes are an integral part of these financial statements.










for the years ended December 31, 2001 and December 31, 2000
(in millions)
Capital Paid-in	
Total Capital
Balance at January 1, 2000
		 (3.2 million shares)	
	 Net income transferred to surplus				
	 Surplus transfer to the U.S. Treasury				
	 Net change in capital stock redeemed
		 (0.4 million shares)		
Balance at December 31, 2000
		 (2.8 million shares)	
	 Net income transferred to surplus				
	 Net change in capital stock issued
		 (0.2 million shares)		
Balance at December 31, 2001
		 (3.0 million shares)	

The accompanying notes are an integral part of these financial statements.


Board of Directors

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. 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.

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.


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. In accordance with the
Federal Reserve Act, supervision and control of the Bank are
exercised by a Board of Directors. 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.

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 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, 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 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.

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 to 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 as 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. Therefore, a Statement of Cash
Flows would not provide any additional useful information. There
are no other significant differences between the policies outlined
in the Financial Accounting Manual and GAAP
Effective January 2001, the System implemented procedures
to eliminate the sharing of costs by Reserve Banks for certain
services a Reserve Bank may provide on behalf of the System.
Data for 2001 reflects the adoption of this policy. Major services
provided for the System by this bank, for which the costs will not
be 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 and 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.
Certain amounts relating to the prior year have been reclassified
to conform to the current-year presentation. Unique accounts
and significant accounting policies are explained below.
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 upon 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 SDRs, at the direction of the
U.S. Treasury, for the purpose of financing SDR certificate acquisitions or for financing exchange stabilization operations. At the
time SDR transactions occur, the Board of Governors allocates
amounts 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 2001.
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 any
loans were 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 Board of
Directors of the Reserve Banks, subject to review by the Board of
Governors. Reserve Banks retain the option to impose a surcharge
above the basic rate in certain circumstances.
d. U.S. Government and Federal Agency Securities and Investments
Denominated in Foreign Currencies

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.
Matched sale-purchase transactions are accounted for as separate sale and purchase transactions. Matched sale-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.
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 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 FRBNY on a
daily basis, with additional collateral obtained as necessary. The
securities loaned continue to be accounted for in the SOMA.
Foreign exchange (“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 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 that 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 which 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 can result in gains or losses when holdings are sold
prior to maturity. However, decisions regarding the securities
and foreign currencies transactions, including their purchase
and sale, are motivated by monetary policy objectives rather
than profit. Accordingly, 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 straightline basis. Interest income is accrued on a 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 (losses), net.”
Foreign-currency-denominated assets are revalued daily at current 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 (losses), 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 loaned, investments denominated in
foreign currency, interest income, 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. Income from
securities lending transactions undertaken by the FRBNY are
also 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.
Statement of Financial Accounting Standards No. 133, as
amended and interpreted, became effective on January 1, 2001.
For the periods presented, the Reserve Banks had no derivative
instruments required to be accounted for under the standard.
e. Bank Premises and Equipment

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 2 to 50
years. New assets, 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. Internally-developed software is
capitalized based on the cost of direct materials and services
and those indirect costs associated with developing, implementing, or testing software.
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.”

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 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 accordance with the Federal Reserve
Act, gold certificates, special drawing rights certificates, U.S. government and federal agency securities, triparty agreements,
loans to depository institutions, and investments denominated
in foreign currencies are pledged as collateral for net Federal
Reserve notes outstanding. 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 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 which 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 Federal Reserve notes reduced by currency held in the
vaults of the Bank of $2,586 million, and $3,770 million at
December 31, 2001 and 2000, 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
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

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. Reserve Banks are required
by the Board of Governors to transfer to the U.S. Treasury 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.
The Consolidated Appropriations Act of 2000 (Public Law 106113, Section 302) directed the Reserve Banks to transfer to the
U.S. Treasury additional surplus funds of $3,752 million during the
Federal Government’s 2000 fiscal year. Federal Reserve Bank of
St. Louis transferred $92 million to the U.S. Treasury. Reserve
Banks were not permitted to replenish surplus for these amounts
during fiscal year 2000, which ended September 30, 2000; however, the surplus was replenished by December 31, 2000.
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.

providing fiscal agency and depository services to the Treasury
Department that have been billed but not paid are immaterial
and included in “Other expenses.”
k. Taxes

The Reserve Banks are exempt from federal, state, and local
taxes, except for taxes on real property, which are reported as a
component of “Occupancy expense.”
Securities bought outright are held in the SOMA at the FRBNY.
An undivided interest in SOMA activity, with the exception of
securities held under agreements to resell and the related premiums, discounts and income, 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 3.604 percent and 3.799 percent at December 31,
2001 and 2000, respectively.

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. The costs of

The Bank’s allocated share of securities held in the SOMA at December 31, that were bought outright, were as follows (in millions):
2001	2000
Federal agency	
U.S. government:					
		 Total par value		



Unamortized premiums		
Unaccreted discounts		



		 Total allocated to Bank	





Total SOMA securities bought outright were $561,701 million and $518,501 million at December 31, 2001 and 2000, respectively.



The maturity distribution of U.S. government and federal agency securities bought outright, which were allocated to the Bank at
December 31, 2001, were as follows (in millions):
U.S. Government 	
Federal Agency	
Within 15 days	
16 days to 90 days		
91 days to 1 year		
Over 1 year to 5 years		
Over 5 years to 10 years		
Over 10 years		

$	 19,884	



$	 19,884

At December 31, 2001 and 2000, matched sale-purchase transactions involving U.S. government securities with par values of $23,188
million and $21,112 million, respectively, were outstanding, of which $836 million and $802 million were allocated to the Bank. Matched
sale-purchase transactions are generally overnight arrangements.
At December 31, 2001 and 2000, U.S. government securities with par values of $7,345 million and $2,086 million, respectively, were
loaned from the SOMA, of which $265 million and $79 million were allocated to the Bank.

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 held 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 2.001 percent and 2.456 percent at December 31,
2001 and 2000, respectively.

The Bank’s allocated share of investments denominated in foreign currencies, valued at current exchange rates at December 31,
was as follows (in millions):		
	 Foreign currency deposits	
	 Government debt instruments including agreements to resell		
	 Foreign currency deposits 		
	 Government debt instruments including agreements to resell		





Total investments denominated in foreign currencies were $14,559 million and $15,670 million at December 31, 2001 and
2000, respectively.






The maturity distribution of investments denominated in foreign currencies which were allocated to the Bank at December 31, 2001,
was as follows (in millions):
Within 1 year	
Over 1 year to 5 years		
Over 5 years to 10 years		
Over 10 years		





At December 31, 2001 and 2000, there were no open foreign exchange contracts or outstanding F/X swaps.
At December 31, 2001 and 2000, the warehousing facility was $5 billion, with zero outstanding.

A summary of bank premises and equipment at December 31 is as follows (in millions):
		 2001		2000
$	 4	
$	4
Buildings		 46		36
Building machinery and equipment		
Construction in progress		
Furniture and equipment		
		 123		108
Accumulated depreciation		
Bank premises and equipment, net	





Depreciation expense was $8.6 million and $8.7 million for the years ended December 31, 2001 and 2000, respectively.
The Bank leases unused space to outside tenants. Rental income from such leases was immaterial.

At December 31, 2001, the Bank was obligated under noncancelable leases for premises and equipment with terms
ranging from 1 to approximately 5 years. These leases provide
for increased rentals 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 year ended
December 31, 2001 and 2000, respectively. Certain of the Bank’s
leases have options to renew.

Future minimum rental payments under noncancelable operating leases, net of sublease rentals, with terms of one year or more,
at December 31, 2001, were (in thousands):
$	276
2003		240
2004		64
2005		64
2006		48
Thereafter		–
At December 31, 2001, other commitments and long-term obligations in excess of one year were $0.



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 1 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 paid-in 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, 2001 or 2000.
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 management’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.

tributions fully funded by participating employers. No separate
accounting is maintained of assets contributed by the participating employers. The Bank’s projected benefit obligation and net
pension costs for the BEP at December 31, 2001 and 2000, 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
$2 million for each year ended December 31, 2001 and 2000,
respectively, and are reported as a component of “Salaries and
other benefits.”
Postretirement Benefits Other Than Pensions

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”). The System Plan is a multi-employer plan with con-

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.

Following is a reconciliation of beginning and ending balances of the benefit obligation (in millions):
Accumulated postretirement benefit obligation at January 1	
Service cost-benefits earned during the period		
Interest cost of accumulated benefit obligation		
Actuarial loss (gain)		
Contributions by plan participants		
Plan Amendment/Settlement		
Benefits paid		
Accumulated postretirement benefit obligation at December 31	




2001	2000




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):
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 initial net transition asset (obligation)		
Unrecognized prior service cost		
Unrecognized net actuarial gain (loss)		
Accrued postretirement benefit costs	




Accrued postretirement benefit costs are reported as a component of “Accrued benefit costs.”
At December 31, 2001 and 2000, the weighted average discount rate assumptions used in developing the benefit obligation were
7.0 percent and 7.5 percent, respectively.					
For measurement purposes, a 10.0 percent annual rate of increase in the cost of covered health care benefits was assumed for 2002.
Ultimately, the health care cost trend rate is expected to decrease gradually to 5.0 percent by 2008, 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, 2001
(in millions):
1 Percentage 	
1 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		

The following is a summary of the components of net periodic postretirement benefit costs
for the years ended December 31 (in millions):
		 2001		2000
Service cost-benefits earned during the period	
Interest cost of accumulated benefit obligation		
Amortization of prior service cost		
Recognized net actuarial loss		
Net periodic postretirement benefit costs	





Net periodic postretirement benefit costs are reported as a component of “Salaries and other benefits.”

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 both December 31, 2001
and 2000, were $4 million. This cost is included as a component
of “Accrued benefit costs.” Net periodic postemployment benefit
costs included in 2001 and 2000 operating expenses were
$1 million for each year.


Advisory Councils and Bank Officers

David W. Kemper
President and CEO
Commerce Bancshares Inc.
St. Louis, Missouri
Paul Combs
Vice President
Baker Implement Company
Kennett, Missouri
Robert A. Cunningham
Valley Farms
Bigbee Valley, Mississippi
Robert Seidenstricker
Hazen, Arkansas
Joseph H. Spalding
Lebanon, Kentucky
Small Business
Gerald W. Clapp Jr.
Clapp Oldsmobile
Clarksville, Indiana
William D. Crawley
Southern Sales & Service
Memphis, Tennessee
Chris Krehmeyer
Executive Director
Beyond Housing
St. Louis, Missouri

Joan P. Cronin
Senior Vice President

James B. Bullard
Assistant Vice President

Visweswara R. Kaza
Operations Officer

Mary H. Karr
Senior Vice President, General
Counsel and Secretary

Martin J. Coleman
Assistant Vice President

Vicki L. Kosydor
Information Technology Officer

Susan K. Curry
Assistant Vice President

Raymond McIntyre
Facilities Officer

Hillary B. Debenport
Assistant Vice President

Christopher J. Neely
Research Officer

Michael W. DeClue
Assistant Vice President

Patricia S. Pollard
Research Officer

Elizabeth A. Hayes
Assistant Vice President

Kathy A. Schildknecht
Operations Officer

Edward A. Hopkins
Assistant Vice President

Philip G. Schlueter
Information Technology Officer

Timothy A. Bosch
Vice President

Patricia A. Marshall
Assistant Vice President,
Assistant Counsel and
Assistant Secretary

Harriet Siering
Operations Officer

Timothy C. Brown
Vice President

Jerome J. McGunnigle
Assistant Vice President

Ronald L. Byrne
Vice President

John M. Mitchell
Assistant Vice President

Marilyn K. Corona
Vice President

John W. Mitchell
Assistant Vice President

Cletus C. Coughlin
Vice President

Kathleen O’Neill Paese
Assistant Vice President

Judith A. Courtney
Vice President

Frances E. Sibley
Assistant Vice President

William T. Gavin
Vice President

Harold E. Slingerland
Assistant Vice President

R. Alton Gilbert
Vice President

Leisa J. Spalding
Assistant Vice President and
Assistant General Auditor

Robert H. Rasche
Senior Vice President and
Director of Research
David A. Sapenaro
Senior Vice President
Richard G. Anderson
Vice President
John P. Baumgartner
Vice President
John W. Block Jr.
Vice President

Dennis Ott
Dennis Ott and
Company Inc.
Clarksville, Indiana

Jean M. Lovati
Vice President

Ann Ross
Ann’s Business Consulting
St. Louis, Missouri

Michael J. Mueller
Vice President

St. Louis Office
William Poole
President and Chief
Executive Officer
W. LeGrande Rives
First Vice President and
Chief Operating Officer
Karl W. Ashman
Senior Vice President
Henry Bourgaux
Senior Vice President

Jeffrey L. Miller
Vice President

Kim D. Nelson
Vice President
Michael D. Renfro
Vice President and
General Auditor
Steven N. Silvey
Vice President

Jeffrey L. Wann
Assistant Vice President
David C. Wheelock
Assistant Vice President
Carl K. Anderson
Supervisory Officer
Barkley Bailey
Supervisory Officer
Diane B. Camerlo
Assistant Counsel
Michael J. Dueker
Research Officer

Diane A. Smith
Information Technology Officer
Mark D. Vaughan
Supervisory Officer
Howard J. Wall
Research Officer
Sharon N. Williamson
Human Resources Officer
Glenda J. Wilson
Community Affairs Officer
Little Rock Office
Robert A. Hopkins
Vice President and
Branch Manager
William D. Little
Assistant Vice President
Todd J. Purdy
Assistant Vice President
Louisville Office
Thomas A. Boone
Vice President and
Branch Manager
V. Gerard Mattingly
Assistant Vice President
James E. Stephens
Operations Officer

Randall C. Sumner
Vice President and
Assistant Secretary

Joseph C. Elstner
Public Affairs Officer

Daniel L. Thornton
Vice President

Paul M. Helmich
Operations Officer

Martha Perine Beard
Vice President and
Branch Manager

Dennis W. Blase
Assistant Vice President

Joel H. James
Bank Relations Officer

J. Allen Brown
Assistant Vice President

Daniel P. Brennan
Assistant Vice President

Gary J. Juelich
Supervisory Officer

John G. Holmes
Assistant Vice President




Memphis Office

Summary of Operations

Summary of Key Operation Statistics for Services Provided to Depository Institutions and the U.S. Treasury

Number of Items	
Dollar Amount
2001	2000	 2001	 2000
Government Checks Processed	
Postal Money Orders Processed	
Commercial Checks Processed	
ACH Commercial Items Originated	
Currency Processed	
Funds Transfers	
$	 3,542,873 	
$	 3,597,950
Loans to Depository Institutions	
Transfer of Government Securities	
Food Coupons Destroyed	


Contributors: Robert H. Rasche, R. Alton Gilbert,
Kevin L. Kliesen and David C. Wheelock
Editor: Stephen Greene
Designers: Joni Williams, Brian Ebert
Production: Barbara Passiglia, Mark Kunzelmann
Photography: Boards of directors,
president and cover–Steve Smith Studios
This annual report is also available on the
Federal Reserve Bank of St. Louis
web site at
For additional print copies, contact
Public Affairs Department
Federal Reserve Bank of St. Louis
411 Locust Street
St. Louis, Missouri 63102
(314) 444-8809

411 Locust Street
St. Louis, Missouri 63102
(314) 444-8444
325 West Capitol Avenue
Little Rock, Arkansas 72201
(501) 324-8300
410 South Fifth Street
Louisville, Kentucky 40202
(502) 568-9200
200 North Main Street
Memphis, Tennessee 38102
(901) 523-7171

The Federal Reserve Bank of St. Louis is one of
12 regional Reserve banks, which together with the
Board of Governors make up the nation’s central
bank. The Fed carries out U.S. monetary policy,
regulates certain depository institutions, provides
wholesale-priced services to banks and acts as
fiscal agent for the U.S. Treasury. The St. Louis Fed
serves the Eighth Federal Reserve District, which
includes all of Arkansas, eastern Missouri, southern
Indiana, southern Illinois, western Kentucky, western
Tennessee and northern Mississippi. Branch offices
are located in Little Rock, Louisville and Memphis.

PA0129 4/02