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F E D E R A L R E S E R V E B A N K O F S T. L O U I S

Speed, Security, Efficiency:
Improving the U.S. Payment System


Recruiters attended

IN 2014

29.1 percent




to performing
audits of bank

as of Dec. 31, 2014.

The St. Louis Fed supervised

of the St. Louis Fed’s spending on goods and services
went to minority-owned business enterprises and
women-owned business enterprises.

Internal auditors charged


130 state member banks
509 bank holding companies.

As fiscal agent to the U.S.
Treasury and its Do Not Pay
program, the St. Louis Fed
helped federal agencies identify


The St. Louis Fed recycled

97,900 lbs.
of shredded notes deemed
unfit for circulation


of improper payments,
helping eliminate payment
error, waste, fraud and abuse.

and discovered


suspected counterfeit notes.
The St. Louis Fed ranked

No. 5

among 110 central banks
worldwide for productivity
on monetary policy research.

Federal Reserve Economic Data (FRED) had

data points added or revised in 2014.
FRED® is a registered trademark of the Federal Reserve Bank of St. Louis.

Improving the U.S.
Payment System
A N N U A L R E P O R T 2 014

President’s Message


Speed, Security, Efficiency:
Improving the U.S. Payment System


Mobile Payments Innovation


Our Leaders. Our Advisers.


Chairman’s Message


Boards of Directors, Advisory Councils, Bank Officers




hen the Federal Reserve was created more than 100 years ago,
the primary goal was financial stability. In the aftermath of the
financial crisis of 2007-2009, today’s public discourse about the
Fed is largely focused on its roles with respect to monetary policy, being
the lender of last resort and supervision of financial institutions. Nonetheless, financial stability remains of utmost importance. One aspect of
financial stability that is receiving increased attention is the payment system. A reliable, efficient and safe payment system is essential to a healthy
economy. Quite possibly, the payment system is at a critical juncture in
its evolution.

The payment system has been a focal point for the Fed since its founding.
Partly in response to disruptions in payments during the Panic of 1907, the
Federal Reserve Act allowed for the establishment of a national checkclearing system.1 The act also created the Federal Reserve note. Since
then, Federal Reserve banks have provided cash to meet banks’ demand,
cleared checks and provided FedACH and Fedwire services, which allow
funds to be transferred electronically (e.g., direct deposits, bill payments,
wire transfers).
Technology is at the center of changes throughout the payment system,
from the elements underpinning payments processing to the services
provided to users. While the former changes are less apparent than the
latter changes to most of us, they are no less important for reliability,
efficiency and safety. Technology is changing the face of payments, as has
been evident in the preference shift from checks to credit/debit cards
and the rising interest in mobile payments.2 Beyond these mainstream
innovations, we have also seen the introduction of virtual currencies
such as Bitcoin. Regarding the evolving technology more generally, there
have been changes both in the clearing and settlement technology and in
the front-end technology, which uses the existing payment-clearing and
settlement systems. For instance, card readers attached to mobile phones
allow consumers a slightly different way to pay for goods and services
while using a credit card, but the settlement technology largely remains
the same. In the face of these technological advancements, it is incumbent on the Fed to understand these changes given its stake in a smoothly
functioning payment system.


While payments have been evolving for hundreds of years, we need
continued innovation to further improve the U.S. payment system in
terms of speed, cost and safety. We can learn from other countries that
have already made such improvements. For example, some countries
have infrastructures in place that allow for near-real-time retail payments,
including the United Kingdom and its Faster Payments Service, while
others are relatively close to implementing such a system, including Australia with its New Payments Platform.3 In the U.S., continued innovation
must further the country toward common goals that will best serve the
U.S. public and the economy.
In light of the payment system’s importance to financial stability, the
public relies on the Fed to make sure that the payment system is running
effectively, efficiently and safely. To that end, one of the Fed’s payment
system roles is to be a leader, convener and catalyst. While our role is not
to dictate how the payment system will evolve, we have and will continue
to bring together stakeholders to discuss and support efforts to improve
the payment system, which is covered in more detail in this annual report’s
featured essay by our Bank’s First Vice President David Sapenaro. This is a
worthy goal and an appropriate role for a central bank to play.

“While payments have
been evolving for
hundreds of years, we
need continued innovation
to further improve the U.S.
payment system in terms of
speed, cost and safety.”

James Bullard
President and CEO
1. See Chapter 7, “The Federal Reserve in the U.S. Payments System,” in The Federal Reserve System: Purposes & Functions, published by the Board of Governors
of the Federal Reserve System.
2. See the “Mobile Payments Innovation” sidebar on Page 14 for additional reading on mobile payments.
3. For more information on near-real-time payments, see the speech by former Cleveland Fed President Sandra Pianalto on Sept. 24, 2013, “In Pursuit of a Better
Payments System.”



Improving the U.S. Payment System

Throughout its history, the U.S. payment
system has undergone significant
change, and today is no exception. Credit
and debit cards are continuing to replace
check writing. Online payments have
connected consumers with merchants
around the world. Mobile phones—in
addition to becoming people’s personal
cameras, gaming consoles, calendars and
video players—are emerging as a new
method of paying for goods and services.



et with all these advances
in technology and convenience, inefficiencies remain
in the U.S. payment system. The
system’s speed hasn’t evolved to
the capabilities that many consumers are beginning to demand.
Security threats are constantly
emerging and challenge the
integrity of the system. Many of
the new payment methods are
lacking the ubiquity needed for
widespread efficiencies.

By David Sapenaro

These technological gaps are wellknown, and worthwhile collaborations and research are underway
by many stakeholders—such as
individuals, banks, businesses,
current operators and system
innovators—to address these concerns. Still, a holistic view of what
would benefit everyone is key.
That’s why the Federal Reserve
has embarked on a project to
bring these stakeholders together
for an end-to-end look at how to
improve the U.S. payment system.
This project stems from the Fed’s
belief that a safe, efficient, secure
and broadly accessible U.S. payment system is crucial to the U.S.
economy and contributes to the
nation’s financial stability.

the U.S. Payment System,”
detailing the desired outcomes for
payment system improvements
over the next several years and
the strategies the Fed will pursue
with appropriate stakeholders to
enhance the U.S. payment system.
This paper was the result of years
of work with these stakeholders to
identify the gaps and opportunities present in the system. By no
means is the paper the end of the
work to be done. In fact, one could
say the real work is just beginning.

Why the Fed?
Understanding why the Fed is
involved in improving the nation’s
payment system is important. As
the nation’s central bank, the Fed
has a stake in ensuring that the
payment system is functioning at
its highest level. The 2015 paper
was clear in this regard: “A U.S.
payment system that is safe,
efficient and broadly accessible
is vital to the U.S. economy, and
the Federal Reserve plays an
important role in promoting these
qualities as a leader, catalyst for
change and provider of payment
services to financial institutions
and the U.S. Treasury.”

• Operator
• Regulator
• Supervisor
• Leader/catalyst

An operator in the payment system
is an entity that provides direct
payment system services, and the
Fed has long been a provider of
such services. Currently, the Federal Reserve participates through
the following key offerings:
Fedwire is a real-time (or immediate) settlement system used by
banks, businesses and government agencies for mission-critical,
same-day transactions. Typically,
this service is used for very large
transactions. In 2014, an average
day for Fedwire involved 538,000
transactions totaling $3.5 trillion
for an average value of around
$6.5 million per transaction.
The FedACH services are used to
clear and settle credit and debit
transactions, typically on a oneday lag. Typical ACH transactions
include direct deposit of payroll,
direct payments for monthly bills

In early 2015, the Fed released a
paper, “Strategies for Improving

The Fed serves four main roles in
the payment system:

What Is the U.S.
Payment System?

This report features the Federal Reserve’s efforts to bring stakeholders
together to examine improving the U.S. payment system, focusing on
specific items such as speed, security and efficiency. But what exactly is
the payment system?
A simple definition is the means by which funds are transferred
between parties. This includes a wide range of forms—such as cash,
check, credit/debit card, ACH and wire transfers—and the standards
and protocols by which they are exchanged. This also involves numerous
participants, including individuals, businesses, banks, rules and standards
groups, technology solutions providers, payment network operators,
emerging payment providers and the government, which work together to
varying degrees to keep the payment system functioning.


and various federal government
payments. In 2014, the Fed processed an average of 46.3 million
commercial automated clearinghouse transactions each day totaling $79.2 billion. That’s an average
of $1,712 per transaction.
Check Clearing
While the Fed has long been a provider of check-clearing services,
the process has changed considerably over the years as check
writing has declined and legislation
such as the Check Clearing for the
21st Century Act (which allowed
for the electronic collection of
checks) has added efficiencies to
the process. The Federal Reserve
System operated 45 check processing sites as recently as 2003;
that number was managed down
to a single site in mid-2010.
National Settlement Service
Some financial institutions have
agreements that allow for transactions among the institutions
to be summed up and settled at
once, rather than having every
transaction settled individually.
The National Settlement Service
receives files containing the summation of these transactions and
settles them for all involved institutions on the books of the Fed.
Currency Processing
The Fed is responsible for maintaining public confidence in U.S.
currency. This includes supplying
enough currency and coin to meet
demand, maintaining the quality
and integrity of the physical money
in circulation and ensuring that
local financial institutions have
ready access to currency.

The Fed develops and implements
regulations to operationalize

various payment system legislation
enacted by Congress. Examples of
recent regulations include:
• Regulation CC, Availability of
Funds and Collection of Checks.
Among other things, this regulation governs when deposits
must be available to bank
customers and also the use of
check images for settlement
instead of physical checks.
• Regulation II, Debit Card Interchange Fees and Routing. This
regulation establishes standards
for assessing whether debit card
fees are reasonable and proportional to transactions.

“As the nation’s central
bank, the Fed has a
stake in ensuring that
the payment system
is functioning at its
highest level.”

As one of four national banking
supervision agencies, as well as
the supervisor for state-chartered
banks, the Fed examines the safety
and soundness of the banks it
supervises, including use of the
payment system.

This final role is perhaps the
most significant for the current
undertaking. In its position as the
nation’s central bank, the Fed has
the ability to bring various stakeholders together to help create a
shared focus on and to commit
to improving the U.S. payment
Traditionally, improvements in the
payment system have been left to
market forces, rather than government direction. Yet, as a 2013
Fed paper noted: “History shows
that it is sometimes beneficial
for a central coordinating body to
take steps to facilitate cooperation
to address network or coordination challenges that otherwise
continued on Page 10

continued from Page 9

impede innovation, efficiency and
other public benefits. The Federal
Reserve banks believe that ubiquitous, open payment networks
and/or broadly interoperable networks best serve the public interest because the more members of
society who can be reached with
a payment instrument, the more
valuable the payment instrument
is to each of the other members
of society.”1
Thus, the Fed’s involvement is
based on a twofold perspective:
• The public is best served by
ubiquitous, open payment
networks and/or networks that
can work together.
• The Fed has the ability to bring
the various stakeholders in the
payment system together to
collaborate on the future of the
payment system in the U.S.
The latter perspective is the focus
of the Fed’s “leader/catalyst” role,
in which it acts as a convener and
provides resources to supporting

Starting the Journey
In 2012, the Fed initiated a gap
and opportunity analysis to study
improving the speed and efficiency
of the U.S. payment system from
end to end, while maintaining a
high level of safety and accessibility, with “end to end” meaning the
point of payment origination to the
point of receipt, including payment
reconciliation and notification. This
was a significant shift from the
way the Fed previously examined
the payment system, which was
usually limited to the interbank
processing space. This analysis
resulted in the “Payment System
Improvement – Public Consultation
Paper,” which was released on
Sept. 10, 2013.

Following the paper’s release,
the Fed gathered reactions to its
content. The Fed received more
than 200 responses to the paper
and a general consensus that the
desired outcomes captured in the
paper were indeed the right ones
to receive attention.

Opportunities within
the System
Inefficient Payments
It’s not news that check writing
has been declining for many
years. However, despite seemingly
falling out of favor, more than 18
billion checks were still written
in the United States in 2012.2
Checks remain a preferred—or
at least regular—option for many
individuals and businesses. Part
of this stems from checks having
the important attributes of ubiquity (as they are accepted as a
form of payment in many, if not
most, cases) and convenience.
Payment Speed and Security
There is currently no ubiquitous,
convenient and cost-effective way
for U.S. consumers and businesses
to make real-time or even nearreal-time payments from one bank
account to another. While payment
system speed has become faster
as a result of private-sector innovation, the U.S. still lags behind
many other countries in terms of
real-time payments.
In addition, payment security
challenges—such as data breaches,
phishing attacks, spoofed websites, payment card skimming,
fraudulent ATM withdrawals,
computer malware and infiltration
of retail point-of-sale systems—are
becoming more prevalent and
costly. An estimated 31.1 million
fraudulent transactions occurred in
2012, with a value of $6.1 billion.3

Legacy vs. Limited Systems
In the past several years, new
payment methods have been
introduced that offer promising
improvements, such as faster
transaction speeds. However,
these are mostly still private
systems that require the transacting parties to both be part of the
system. With a few exceptions,
nonmembers receive no benefit
and are unable to take part.
On the other hand, legacy
systems—such as check writing
or ACH—are more ubiquitous, but
lack the features of new systems
that customers are increasingly
demanding: real-time validation,
timely notifications, assurance
of payments going through and
masked account details.
The Efficiency of International
Typically, cross-border consumer
and business payments involve
much higher transaction fees
and longer processing times
than domestic payments. Several
innovators have emerged recently
with products and services that
partially address these challenges,
but not in a comprehensive way.
The 2013 paper “Payment System
Improvement – Public Consultation
Paper” summed up the gaps and
opportunities in the U.S. payment
system this way:
“End users of payment services
are increasingly demanding
real-time transactional and
informational features with
global commerce capabilities.
Legacy payment systems
provide a solid foundation for
payment services; however,
some of these systems (e.g.,
check and ACH) rely on paperbased and/or batch processes,

Is the Fed Just Going to Do It by Itself?
which are not universally fast or
efficient from an end-user perspective by today’s standards.
The challenge for the industry
is to provide a payment system
for the future that combines the
valued attributes of legacy payment methods—convenience,
safety, and universal reach at
low cost to the end user—with
new technology that enables
faster processing, enhanced
convenience, and the extraction
and use of valuable information
that accompanies payments.”

Next Steps
Following the public consultation
paper’s release in 2013, the Fed
conducted additional research on
the desired outcomes and potential strategies presented in the
paper, including gathering feedback from various stakeholders.
The additional research culminated
with the January 2015 release of
the paper “Strategies for Improving
the U.S. Payment System.”
The new paper presented refined
versions of the five desired
outcomes published in the 2013
public consultation paper. The final
desired outcomes were:4
• Speed: A ubiquitous, safe,
faster electronic solution(s) for
making a broad variety of business and personal payments,
supported by a flexible and
cost-effective means for payment clearing and settlement
groups to settle their positions
rapidly and with finality.

Additional Services?
A common question is repeatedly asked when discussions about the payment system project arise: Will the Fed simply create its own protocols and services?
The 2015 strategies paper summed up the long-standing criteria that must be met
for the Fed to offer new financial services: “These criteria include the need to fully
recover costs over the long term, the expectation that the new services will yield
clear public benefit and the belief that other providers alone cannot be expected to
provide the service with reasonable effectiveness, scope and equity.”
However, the Fed does play an integral operations role within the payment system
through the services it currently provides. As part of the payment system improvement project, the Fed reviewed these offerings for potential improvements that
would support the overall goal of enhancing the U.S. payment system.

Enhance the National Settlement Service
The Fed will engage in a three-phase process of improving its National Settlement
Service to make it more attractive as a settlement vehicle for private-sector arrangements.
• Phase 1: Extend the service hours to 7:30 a.m. ET to 5:30 p.m. ET. This phase is
already complete.
• Phase 2: By the end of 2015, move the opening time to coincide with the 9 p.m.
ET opening of the Fedwire Funds Service (on the prior calendar date).
• Phase 3: Explore what it would take to support weekend and/or 24/7 operating

Promote Greater Use of Same-Day ACH Capabilities
While most of the 87 million payments per day flowing through ACH do not require
real-time authorization and clearing, some may benefit from same-day ACH processing cycles by reducing counterparty risk and/or improving speed.

Expand Risk-Management Services
The Fed will look for enhanced risk-management products to provide to users of
Federal Reserve Financial Services to complement its services.

Provide the Reserve Banks’ Financial Institution Customers
Access to Interoperable, Secure Directory Tools
Tools offered to Federal Reserve Financial Services customers will support legacy and future payment types, such as access to an industry directory for various

• Security: U.S. payment system
security that remains very
strong, with public confidence
that remains high, and protections and incident response
continued on Page 12


continued from Page 11

that keeps pace with the rapidly
evolving and expanding threat
• Efficiency: Greater proportion of payments originated
and received electronically to
reduce the average end-toend (societal) costs of payment transactions and enable
innovative payment services
that deliver improved value to
consumers and businesses.
• International: Better choices
for U.S. consumers and businesses to send and receive
convenient, cost-effective and
timely cross-border payments.
• Collaboration: Needed payment system improvements
are collectively identified and
embraced by a broad array
of payment participants, with
material progress in implementing them.
This paper outlined five strategies
the Fed will pursue with various
stakeholders to improve the U.S.
payment system. “The strategies
will require collaboration and
action from a range of payment
participants. The primary strategies call for (1) sustaining our
recent high level of stakeholder
engagement; (2) working with
payment stakeholders to identify
effective approach(es) for implementing a safe, ubiquitous, faster
payments capability that promotes
efficient commerce, facilitates
innovation, reduces fraud and
improves public confidence; and
(3) collaborating with stakeholders
to reduce fraud risk and advance
the safety, security and resiliency
of the payment system.”
The strategies involve:
• Identifying effective
approach(es) for implementing

safe, ubiquitous, faster
• Reducing fraud risk and
advancing the safety, security
and resiliency of the payment
• Achieving greater end-to-end
efficiency for domestic and
cross-border payments
• Enhancing Fed bank payment, settlement and riskmanagement services
• Actively engaging with stakeholders on initiatives designed
to improve the U.S. payment
Faster System
With speed being a central concern of many payment system
users, creating a faster system is
a significant goal of the payment
system improvement project. This
was confirmed through a faster
payments analysis conducted
by the Fed. This analysis found
that increased payment speed
would initially benefit at least 29
billion transactions per year, or
12 percent of the total for the
country. These transactions would
be concentrated primarily in four
different types:
• Person to person (for example,
sending money to a friend or
• Business to business (for
example, just-in-time supplier
• Person to business (for example, time-sensitive bill payments)
• Business to person (for example, temporary worker payroll)
One of the most visible ways the
need for a faster payment system
will be addressed is through the

establishment of a faster payments
task force, expected to be established in mid-2015. This task force
will identify and evaluate alternative approaches for implementing
safe, ubiquitous, faster payments
capabilities in the United States.
More Secure System
Equally important is improving the
security of the payment system.
As the January 2015 paper noted:
“The payment system faces
dynamic, persistent and rapidly
escalating threats, and stakeholders are increasingly aware
of the need to enhance payment
Prior to the release of that paper,
the Fed sponsored a payment
security landscape study, which
identified four weaknesses in U.S.
payment system security:
• While technologies already exist
that could improve payment
system security, they haven’t
been adopted widely enough,
nor are there strong enough
standards and protocols, to
make the impact they are
capable of.
• Continuous use and improper
implementation of weaker
security technologies leaves the
system vulnerable.
• Fraud and payment security
data are not robust enough to
help with identifying security
needs and designing better
security measures.
• The complex regulatory environment dissuades coordination
and communication among
regulators, potentially creating
authority or supervision gaps.
Concurrent to the faster payments
task force will be a payment
continued on Page 14

“Given the large number
of stakeholders in
the payment system,
widespread collaboration
will be absolutely essential
if viable progress is to be
made in improving it.“

continued on Page 12

continued from Page 12

security task force, which will
advise the Fed on payment security matters and determine areas
of focus and priorities for future
action to advance payment system
safety, security and resiliency. This
task force will coordinate with
the faster payments task force to
ensure that potential solutions are
both fast and secure.
More Efficient System
Check writing has been on the
decline for years, as the number of
checks paid in 2012 was less than
half the number in 2003. Still, as
noted earlier, more than 18 billion
checks were paid in 2012, with
many of these checks functioning
as business-to-business payments.
In addition, a persistently large
number of people do not use bank

Mobile Payments
By David Benitez and Michael Milchanowski


obile payment technology,
or the ability to pay for
goods and services via
mobile phone, has experienced a
rise in adoption and popularity in
the past few years. Its rise stems
from companies and consumers
alike looking for new ways not only
to make payments more accessible
and convenient, but also to help
decrease certain types of fraud.
According to the 2013 Federal
Reserve Payments Study, the
estimated number of unauthorized


accounts or traditional financial
services, which often leads to
using inefficient and/or costly services for payment needs. Likewise,
differing standards make crossborder payments slower and less
efficient than should be otherwise
Inefficiencies such as these create
costs that don’t otherwise need to
exist. Reducing these inefficiencies could potentially drive costs
down, providing a net benefit for
all who operate within the payment system. One strategy being
pursued involves the adoption and
implementation of the ISO 20022
standard by payment and clearing
participants. This standard sets
forth common “languages” for
conducting financial transactions,
making them easier to complete

transactions (or third-party fraud) in
2012 was 31.1 million, with a value
of $6.1 billion.1 General purpose
cards—including credit, debit and
prepaid cards, and ATM withdrawals—were used in the majority of
these transactions, accounting for
92 percent of the number and 65
percent of the total value.
Much of this vulnerability stems
from outmoded magnetic strip
technology used in today’s credit
cards, which dates back to World
War II and allows thieves to easily
steal and clone payment data by
reading the static information
stored on each card’s strip. In
2012, the major credit card networks (Visa, MasterCard, Discover
and American Express) announced
that they would migrate to EMV,2
a more secure technology already

between differing systems. Several participants—including The
Clearing House Payments Company, NACHA — The Electronic
Payments Association, and the
Accredited Standards Committee X9—are part of a stakeholder
group tasked with studying implementation of this standard, which
may help address efficiencies in
international payments.
Domestically, the Fed will work
with industry stakeholders to
develop technologies and rules
that foster greater ubiquity and
interoperability among payment
directories for person-to-person,
person-to-business and businessto-business (for small businesses)
payments and that address barriers to electronic payment adoption
by businesses.

adopted worldwide that uses
“chip” technology. To speed up the
implementation of EMV cards and
readers, the credit card networks
will initiate a liability shift in October 2015, meaning that whoever
possesses the lesser of the credit
card technologies at the point of
sale (merchant or card issuer)
would be liable for any fraud.
Within this changing environment,
multiple companies have put forth
technological payment innovations
that attempt to improve both security and convenience for consumers. From adding user-friendly card
readers to merchant terminals to
allowing payments with mobile
phones through near-field communication chips (which allow devices
to communicate with each other
when a few inches away), payment

Collaboration from All
Even the best strategies are nothing more than wishes if they’re not
implemented and implemented
well. Given the large number
of stakeholders in the payment
system, widespread collaboration will be absolutely essential if
viable progress is to be made in
improving it. The 2015 strategies
paper is clear about the need for
collaboration: “A real commitment
of resources and representation
of diverse stakeholder interests
will be essential to the success of
these initiatives.”
Over the past few years, the Fed
has demonstrated its commitment to this project through its
leadership and the resources

technology has gradually intertwined with continuously upgraded
consumer electronics.
At the heart of this innovation
surge is a security feature known
as “tokenization,” or the act of
replacing sensitive information
(credit card numbers) with a token
or a nonsensitive equivalent (that
is, a unique security code). These
tokens are produced by the chip
that is a part of EMV technology
for credit cards and also mobile
phone payments. The process of
tokenization decreases the sharing
of sensitive information with merchants, people and applications,
making each purchase unique and
While mobile payments have
existed in the U.S. for a number

it has committed. This level of
commitment will continue to exist
to see the payment system project
through to fruition.5 As the 2015
strategies paper concludes, “The
Federal Reserve is committed
to working with payment stakeholders to turn this vision for the
future into reality. Only through
collective efforts can a faster,
ubiquitous, safer, more efficient
payment system be achieved for
the United States.”
David Sapenaro is the first vice president
and chief operating officer at the Federal
Reserve Bank of St. Louis. He recently
completed his responsibility as the Federal
Reserve’s interim payments strategy

of years, the introduction of Apple
Pay in 2014 has made them an
increasingly common means of
payment. The success of Apple
Pay has sparked numerous rival
companies, including Google
and Samsung, to announce their
own forms of mobile payments
to be released in the near future.
Competition and the rapid pace
of mobile phone technological
advancement will help ensure that
advances in security and convenience reach consumers quickly.
As the payments field advances
and changes, it is a certainty that
companies will continue to listen
to both consumer desires and
industry needs. The transition
from magnetic strip credit cards
to more secure EMV technology
is estimated to take years to

1. “Payment System Improvement – Public
Consultation Paper,” Federal Reserve
Financial Services, Sept. 10, 2013.
2. “The 2013 Federal Reserve Payments
Study,” Federal Reserve System,
Dec. 19, 2013.
3. Ibid.
4. “Strategies for Improving the U.S.
Payment System,” Federal Reserve
Financial Services, Jan. 26, 2015.
5. Gordon Werkema has been named payments strategy director overseeing this
initiative. Werkema has been serving as
the first vice president and chief operating officer of the Federal Reserve Bank
of Chicago and product director for the
Federal Reserve System’s National Customer Relations and Support Office.

complete, but in the meantime,
consumer demand will continue
to drive technological innovation
in hopes of bridging the current
security gap.
Michael Milchanowski is a senior manager responsible for the Supervisory Policy
and Risk Analysis unit within the St. Louis
Fed’s Bank Supervision and Regulation
David Benitez is a policy analyst in the
Supervisory Policy and Risk Analysis unit
within the St. Louis Fed’s Bank Supervision
and Regulation division.
1. “The 2013 Federal Reserve Payments
Study,” Federal Reserve System,
Dec. 19, 2013.
2. EMV stands for “Europay, MasterCard
and Visa,” the three companies that
developed the technology.


Our Leaders.
Our Advisers.
Our nation’s central bank, the Federal
Reserve, has three main components:










the Board of Governors, the Federal
Open Market Committee and the 12
Reserve banks around the country,
including the Federal Reserve Bank of
St. Louis. This decentralized structure
helps to ensure that the diverse views
and economic conditions of all regions
of the country are represented in
monetary policymaking.
The St. Louis Fed serves the Eighth
Federal Reserve District, which includes
all of Arkansas, eastern Missouri,
southern Illinois and Indiana, western
Kentucky and Tennessee, and northern
Mississippi. The Eighth District offices are
in St. Louis, Little Rock, Ark., Louisville,
Ky., and Memphis, Tenn.




orld-class organizations are defined by certain core characteristics: expertise, innovation and a passion for serving constituents,
to name a few. These same words fittingly define the Federal
Reserve Bank of St. Louis, a distinguished institution for which I have the
privilege of serving as chairman of the board.
After commemorating its centennial in 2014, the St. Louis Fed, along with
the entire Federal Reserve System, entered a second century as an organization that is essential to the economic health of our region, our nation and
the world.
The St. Louis Fed has long contributed to the economy in many vital ways.
For example, it’s been a leading researcher and advocate of sound monetary policy, a global provider of comprehensive economic data and analytical tools, and a voice of Main Street around the Federal Open Market
Committee table.

During my three years on the St. Louis Fed’s board, I have come to know
and respect the Bank as an organization catalyzed by a strong research and
business culture. Each day, the St. Louis Fed’s staff anticipates and tackles
constituents’ needs with integrity and purpose. Whether by supervising
financial institutions to ensure financial stability, producing cutting-edge
economic research, serving as fiscal agent for the U.S. Treasury, interacting
with the public through its new Inside the Economy® Museum, or producing
engaging economic education curriculum for schools and community development programs, the St. Louis Fed today continues its tradition of serving
diverse communities to make a positive impact on the economy for all.
This year’s annual report contains many examples of how the St. Louis Fed
makes a difference. A particular highlight is the leadership that the Bank
has provided in the Federal Reserve System’s current study on the future of
the U.S. payment system. (See the main essay of this annual report.)
On behalf of the entire board of directors, I thank the St. Louis Fed’s executives for their outstanding leadership and all of the employees for carrying
forth the Bank’s outstanding legacy and enduring commitment to serving
the public.

George Paz, Chairman and CEO, Express Scripts

George Paz
Chairman of the Board of Directors
Federal Reserve Bank of St. Louis



George Paz, Chairman
Chairman and CEO,
Express Scripts
St. Louis


Rakesh Sachdev,
Deputy Chairman
President and CEO,
Sigma-Aldrich Corp.
St. Louis

William E. Chappel
Vice Chairman, The First
National Bank
Vandalia, Ill.

Sonja Yates Hubbard
CEO, E-Z Mart Stores Inc.
Texarkana, Texas

D. Bryan Jordan
Chairman, President
and CEO, First Horizon
National Corp.
Memphis, Tenn.

Kathleen M.
Chairman, President and
CEO, Graybar Electric
Company Inc.
St. Louis

Cal McCastlain
Partner, Dover Dixon
Horne PLLC
Little Rock, Ark.

John N. Roberts III
President and CEO,
JB Hunt Transport
Services Inc.
Lowell, Ark.

Susan S. Stephenson
and President,
Independent Bank
Memphis, Tenn.


Ray C. Dillon, Chairman
President and CEO,
Deltic Timber Corp.
El Dorado, Ark.

Michael A. Cook
Senior Vice President
and Assistant
Treasurer, Wal-Mart
Stores Inc.
Bentonville, Ark.

Keith Glover
President and CEO,
Producers Rice
Mill Inc.
Stuttgart, Ark.

Robert Martinez
Owner, Rancho La
De Queen, Ark.

Karama Neal
Chief Operating Officer,
Southern Bancorp
Community Partners
Little Rock, Ark.

P. Mark White
President and CEO,
Arkansas Blue Cross
and Blue Shield
Little Rock, Ark.

Ronald B. Jackson
Community Chairman,
Simmons First
National Bank of
Pine Bluff
Russellville, Ark.

Robert Hopkins
Regional Executive,
Little Rock Branch,
Federal Reserve Bank
of St. Louis



Susan E. Parsons, Chair
Chief Financial Officer,
Secretary and
Treasurer, Koch
Enterprises Inc.
Evansville, Ind.

Nikki R. Jackson
Regional Executive,
Louisville Branch,
Federal Reserve Bank
of St. Louis


Malcolm Bryant
President, The Malcolm
Bryant Corp.
Owensboro, Ky.

David P. Heintzman
Chairman and CEO,
Stock Yards Bank &
Trust Co.
Louisville, Ky.

Alice K. Houston
President and CEO,
Houston-Johnson Inc.
Louisville, Ky.

Jon A. Lawson
President, CEO and
Chairman, Bank of
Ohio County
Beaver Dam, Ky.

Mary K. Moseley
President and CEO,
Al J. Schneider Co.
Louisville, Ky.

Randy W. Schumaker
President and Chief
Management Officer,
Logan Aluminum Inc.
Russellville, Ky.


Carolyn Chism Hardy,
President and CEO, Chism
Hardy Investments LLC
and Hardy Logistics
Solutions LLC
Collierville, Tenn.

Michael E. Cary
President and CEO,
Carroll Bank and Trust
Huntingdon, Tenn.

David T. Cochran Jr.
Partner, CoCo Planting
Co. and CoCo
Avon, Miss.

Roy M. Ford Jr.
Vice Chairman and
CEO, Commercial
Bank and Trust Co.
Memphis, Tenn.

Lisa McDaniel
President, Room to
Room Inc.
Tupelo, Miss.

Charlie E. Thomas III
Regional Director—
Affairs, AT&T
Memphis, Tenn.

J. Brice Fletcher
Chairman and CEO,
First National Bank of
Eastern Arkansas
Forrest City, Ark.

Douglas Scarboro
Regional Executive,
Memphis Branch,
Federal Reserve Bank
of St. Louis


Council members represent a wide range of Eighth District
industries and businesses and periodically report on economic
conditions to help inform monetary policy deliberations.

Meredith B. Allen
President and CEO, Staple Cotton
Cooperative Association
Greenwood, Miss.
Cecil C. “Barney” Barnett
Chairman, Algood Food Company
Louisville, Ky.
John Rodgers Brashier
Vice President, Consolidated Catfish
Producers LLC
Isola, Miss.
Cynthia Edwards
Deputy Secretary, Arkansas Agriculture
Little Rock, Ark.
Edward O. Fryar Jr.
CEO and Founder, Ozark Mountain Poultry
Rogers, Ark.
Dana Huber
Vice President of Marketing/
Public Relations, Huber’s Orchard,
Winery & Vineyards
Borden, Ind.
Wayne Hunt
President, H&R Agri-Power
Hopkinsville, Ky.
Ted Longacre
CEO, Mesa Foods LLC
Louisville, Ky.
Tania Seger
Vice President, Finance, U.S. Commercial
Row Crops, Monsanto Co.
St. Louis


Mike Castellano
CEO, Esse Health
St. Louis

Martin Edwards Jr.
President, Edwards Management
Inc., Realtors
Memphis, Tenn.

Cynthia Crone
Little Rock, Ark.

David L. Hardy
Managing Director, CBRE Inc.
Louisville, Ky.

June McAllister Fowler
Senior Vice President, Communications
and Marketing, BJC HealthCare
St. Louis

Janet Horlacher
Principal and Executive Vice President,
Janet McAfee Inc.
St. Louis

Diana Han
Chief Medical Officer, GE Appliances
& Lighting
Louisville, Ky.

Larry K. Jensen
President and CEO, Cushman & Wakefield |
Commercial Advisors
Memphis, Tenn.

Lisa M. Klesges
Founding Dean and Professor, School
of Public Health, University of Memphis
Memphis, Tenn.

Chuck Kavanaugh
Executive Vice President, Building Industry
Association of Greater Louisville
Louisville, Ky.

Susan L. Lang
St. Louis

Gregory J. Kozicz
President and CEO, Alberici Corp.
St. Louis

Jason M. Little
President and CEO, Baptist Memorial
Health Care Corporation
Memphis, Tenn.

Chuck Quick
Little Rock, Ark.

Robert “Bo” Ryall
President and CEO, Arkansas Hospital
Little Rock, Ark.
Alan Wheatley
President, Retail Segment, Humana
Louisville, Ky.
Anthony Zipple
President and CEO, Seven Counties
Services Inc.
Louisville, Ky.

Mark A. Bentley
Principal and Managing Director, Central
Arkansas, Colliers International
Little Rock, Ark.

Lester T. Sanders
Realtor, Semonin Realtors
Louisville, Ky.
Lynn B. Schenck
Managing Director, St. Louis Office,
Jones Lang LaSalle
St. Louis

Bryan Day
Executive Director, Little Rock
Port Authority
Little Rock, Ark.
Michael D. Garriga
Executive Director of State Government
Affairs, BNSF Railway
Memphis, Tenn.
Thomas Gerstle
CEO, Road & Rail Services Inc.
Louisville, Ky.

Industry Councils cont.
Rhonda Hamm-Niebruegge
Director of Airports, Lambert
International Airport
St. Louis
David Keach
President, Gateway Industrial Power
Collinsville, Ill.
Mike McCarthy
President, Terminal Railroad Association
of St. Louis
St. Louis

The members meet twice a year to advise the St. Louis Fed’s
president on the credit, banking and economic conditions
facing their institutions and communities. The council’s chair
also meets twice a year in Washington, D.C., with the Federal
Reserve chair and governors.

Mark L. McCloud
Chief Financial Officer, UPS Airlines
Louisville, Ky.
Judy R. McReynolds
President and CEO, ArcBest Corp.
Fort Smith, Ark.
James G. Powers
President, Unigroup Inc.
Fenton, Mo.

Glenn D. Barks, Chairman
President and CEO, First Community
Credit Union
Chesterfield, Mo.
Jeffrey Dean Agee
President and CEO, First Citizens
National Bank
Dyersburg, Tenn.
Carolyn “Betsy” Flynn
President and CEO, Community
Financial Services Bank
Benton, Ky.
John D. Haynes Sr.
President and CEO, Farmers &
Merchants Bank
Baldwyn, Miss.
Greg Ikemire
President and CEO, Peoples State Bank
Newton, Ill.
Jeffrey L. Lynch
President and CEO, Eagle Bank and Trust
Little Rock, Ark.


Paul Wellhausen
Executive Vice President, SCF Lewis
and Clark
Granite City, Ill.

Elizabeth G. McCoy
President and CEO, Planters Bank
Hopkinsville, Ky.
Dennis McIntosh
President and CEO, Ozarks Federal
Savings and Loan
Farmington, Mo.
Larry W. Myers
President and CEO, First Savings Bank
Clarksville, Ind.
Eric R. Olinger
President, Freedom Bancorp
Huntingburg, Ind.
Frank M. Padak
President, CEO and Treasurer,
Scott Credit Union
Collinsville, Ill.
Steve Stafford
President and CEO, Anstaff Bank
Green Forest, Ark.

The council is composed of one representative from each of the 12 Federal Reserve districts.
Members confer with the Fed’s Board of Governors at least four times a year on economic
and banking developments and make recommendations on Fed System activities.
Ronald J. Kruszewski
Chairman, President and CEO,
Stifel Financial Corp.
St. Louis


The council keeps the St. Louis Fed’s president and
staff informed about community development in the
Eighth District and suggests ways for the Bank to support
local development efforts.

John Bucy
Executive Director, Northwest Tennessee
Development District
Martin, Tenn.
Terrance Clark
Co-Founder, Thrive
Helena, Ark.

Keith Sanders
Executive Director, The Lawrence and
Augusta Hager Educational Foundation
Owensboro, Ky.

David C. Howard Jr.
Vice President of Equity, Federation of
Appalachian Housing Enterprises Inc.
Berea, Ky.

Sarina Strack
Senior Vice President, Director of
Compliance, Midwest Bank Centre
St. Louis

Ben Joergens
Assistant Vice President, Financial
Empowerment Officer, Old National Bank
Evansville, Ind.
Christie McCravy
Director, Center for Housing and Financial
Empowerment, Louisville Urban League
Louisville, Ky.
Joe Neri
President, IFF

Rex Duncan
President, Champion Community
Carbondale, Ill.

Martie North
Senior Vice President, Director of
Community Development/CRA,
Simmons First National Bank
Little Rock, Ark.

Brian Fogle
President and CEO, Community Foundation
of the Ozarks
Springfield, Mo.

Eric Robertson
President, Community LIFT & River City
Capital Investment Corp.
Memphis, Tenn.

Thank you to the St. Louis Fed’s recent
board and council retirees.

St. Louis
Gregory M. Duckett
Sharon D. Fiehler
Little Rock
Mary Ann Greenwood
John T. Womack
Gerald R. Martin
Kevin Shurn
Lawrence C. Long
Clyde Warren Nunn

Rita Green
Assistant Professor of Consumer
Economics, Mississippi State University
Mississippi State, Miss.

Sam J. Fiorello
Keith Glover
Lyle B. Waller II
Health Care
Calvin Anderson
Steven J. Bares
Glenn Burney
Reginald W. Coopwood
LaQuandra S. Nesbitt
Stephen A. Williams
Real Estate
E. Phillip Scherer III
Bob Blocker
Richard McClure
Mitch Nichols
John F. Pickering

Deborah Temple
Senior Manager, Entrepreneurship,
Communities Unlimited Inc.
Pine Bluff, Ark.
Elizabeth Trotter
Senior Vice President/CRA Director,
Lafayette, La.
Keith Turbett
First Vice President, Community
Development Manager, Memphis and
Nashville Regions, SunTrust
Memphis, Tenn.
Johanna Wharton
Executive Director, Jackie
Joyner-Kersee Foundation
East St. Louis, Ill.

Tamika Edwards
Cary Tyson
Deborah Williams

Kirk P. Bailey
H. David Hale
Mark A. Schroeder
Larry T. Wilson


James Bullard
President and CEO

David A. Sapenaro
First Vice President
and Chief Operating

Karl W. Ashman
Senior Vice President
Administration and

Karen L. Branding
Senior Vice President
Public Affairs

Cletus C. Coughlin
Senior Vice President
and Chief of Staff to
the President

Nikki R. Jackson
Regional Executive
Louisville Branch

Mary H. Karr
Senior Vice President,
General Counsel and

Kathleen O’Neill
Senior Vice President
Treasury Services

Julie L. Stackhouse
Senior Vice President
Banking Supervision,
Credit, Community
Development and
Learning Innovation

Christopher J. Waller
Senior Vice President
and Director of



James Bullard
President and CEO

Susan K. Curry
Vice President

David A. Sapenaro
First Vice President and
Chief Operating Officer

Kathy A. Freeman
Vice President, OMWI Director

Karl W. Ashman
Senior Vice President
Karen L. Branding
Senior Vice President
Cletus C. Coughlin
Senior Vice President
Mary H. Karr
Senior Vice President, General
Counsel and Secretary
Kathleen O’Neill Paese
Senior Vice President
Michael D. Renfro
Senior Vice President
Julie L. Stackhouse
Senior Vice President
Christopher J. Waller
Senior Vice President
Robert A. Hopkins
Vice President and Regional Executive
Nikki R. Jackson
Vice President and Regional Executive
Douglas G. Scarboro
Vice President and Regional Executive
David Andolfatto
Vice President
Randall B. Balducci
Vice President
Jonathan C. Basden
Vice President
Timothy A. Bosch
Vice President
Timothy C. Brown
Vice President
Marilyn K. Corona
Vice President


Susan F. Gerker
Vice President
Anna M. Hart
Vice President
Timothy R. Heckler
Vice President
Roy A. Hendin
Vice President
Amy C. Hileman
Vice President
Debra E. Johnson
Vice President
Michael J. Mueller
Vice President
James A. Price
Vice President
B. Ravikumar
Vice President
Katrina L. Stierholz
Vice President
Matthew W. Torbett
Vice President
Scott M. Trilling
Vice President
David C. Wheelock
Vice President
Carl D. White II
Vice President
Stephen D. Williamson
Vice President
Terri A. Aly
Assistant Vice President
Jane Anne Batjer
Assistant Vice President
Diane E. Berry
Assistant Vice President

Heidi L. Beyer
Assistant Vice President

Michael W. McCracken
Assistant Vice President

Dean A. Woolcott
Assistant Vice President

Cassie R. Blackwell
Assistant Vice President

Raymond P. McIntyre
Assistant Vice President

Christian M. Zimmermann
Assistant Vice President

Ray Boshara
Assistant Vice President

Christopher J. Neely
Assistant Vice President

Subhayu Bandyopadhyay

Adam L. Brown
Assistant Vice President

Arthur A. North II
Assistant Vice President

Alexander Baur

Winchell S. Carroll
Assistant Vice President

Glen M. Owens
Assistant Vice President

Susan M. Black

Christopher D. Chalfant
Assistant Vice President

Michael T. Owyang
Assistant Vice President

Jill S. Dorries

William D. Dupor
Assistant Vice President

Jennifer L. Robinson
Assistant Vice President

Jeromey L. Farmer

William R. Emmons
Assistant Vice President

Craig E. Schaefer
Assistant Vice President

Carlos Garriga

William M. Francis
Assistant Vice President

Abby L. Schafers
Assistant Vice President

George-Levi Gayle

James W. Fuchs
Assistant Vice President

Kathy A. Schildknecht
Assistant Vice President

Limor Golan

Joseph A. Gambino
Assistant Vice President

Philip G. Schlueter
Assistant Vice President

Tamara S. Grimm

Patricia M. Goessling
Assistant Vice President

Scott B. Smith
Assistant Vice President

Jennifer A. Haynes
Assistant Counsel

Stephen P. Greene
Assistant Vice President

Yvonne S. Sparks
Assistant Vice President

Kevin L. Kliesen

Karen L. Harper
Assistant Vice President

Kristina L.C. Stierholz
Assistant Vice President

Alexander Monge-Naranjo

Kevin L. Henry
Assistant Vice President

Rebecca M. Stoltz
Assistant Vice President

Christopher M. Pfeiffer

Cathryn L. Hohl
Assistant Vice President

Mary C. Suiter
Assistant Vice President

Kevin J. Shannon

Terri L. Kirchhofer
Assistant Vice President

Donald J. Trankler
Assistant Vice President

Amy B. Simpkins

Catherine A. Kusmer
Assistant Vice President

James L. Warren
Assistant Vice President

Jeffrey S. Wright

Maurice D. Mahone
Assistant Vice President

Yi Wen
Assistant Vice President

Jackie S. Martin
Assistant Vice President

Ranada Y. Williams
Assistant Vice President




Federal Reserve Bank of St. Louis
One Federal Reserve Bank Plaza
Broadway and Locust Street
St. Louis, MO 63102

Council lists, boards of directors,
management committee and officer list
as of July 15, 2015.

Little Rock Branch
Stephens Building
111 Center St., Ste. 1000
Little Rock, AR 72201

Public Affairs
Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, MO 63166

Louisville Branch
National City Tower
101 S. Fifth St., Ste. 1920
Louisville, KY 40202
Memphis Branch
200 N. Main St.
Memphis, TN 38103

For additional copies, contact:

or email
This report is also available online at:

RC Balaban
Editor and Project Manager
AP Westcott
Designer and Photo Illustrator
Kristie M. Engemann
Research Assistance
Kathie Lauher
Adam Robinson

• Ragan Communications

Bank employees reached

Corporate Social
Responsibility Award
for Best Education/
Scholarship Program

• St. Louis Regional

Chamber’s Arcus
Award for achievement
in Financial Services



Literacy’s Nonprofit
Organization of
the Year



• Institute for Financial

with Teach Children to Save Day.

We reached

who attended
programs, such
as conferences,
workshops and

students and teachers,

representing all 50 states, enrolled in
our online economic education courses
in 2014.

Presentations by St. Louis
Fed staff at more than


Our new, award-winning

Inside the Economy Museum
features nearly 100 interactive
displays about the economy.

Our @stlouisfed
Twitter account had

reached more than



and was named to
Business Insider’s
list of the 102 Finance
People You Have to
Follow on Twitter.

IN 2014