The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
YOUR CRITICAL ROLE IN OUR FUTURE Remarks by Robert P. Forrestal, President Federal Reserve Bank of Atlanta To the Conference of Assistant Vice Presidents September 21, 1990 Good afternoon! I am delighted to welcom e you to this conference for the Bank’ s firstline officers. W e have used the term assistant vice presidents in the title for this gathering, but our first-line officers have a variety o f titles in addition to A V P . W e also have examining officers, research officers, a public information officer, an assistant general counsel, general auditor, and product manager at this level. Through this diversity o f terminology runs one common thread, however. Each o f you is in a pivotal position as the interface between senior management and the Bank’ s regular staff. Yours is the primary contribution in establishing our goals and objectives, and it then becomes your responsibility to see to their implementation. Equally important, you pass along the Bank’ s expectations for staff performance and maintain these standards by your day-to-day management as w ell as by your personal example. Your participation in carrying through our overall strategies and in directing your staff reflects your understanding o f the Bank’ s corporate philosophy. In recent years, that philosophy has been shaped by a competitive environment inside and outside this organization and has come to place strong emphasis on efficiency. This course has brought us considerable success. H owever, I envision the 1990s as a very fluid environment in which w e might find it appropriate to give additional weight to other qualities like creativity, conceptualization, and long-range thinking. Thus I would like to review briefly the Bank’ s corporate philosophy as it has evolved to its present form. Then I w ill look ahead to issues that could affect us in the 1990s and discuss 2 where I think w e need to reassess and perhaps redefine our culture. Finally, I w ill return to your pivotal role in helping ensure the Bank’ s adaptability in the changing environment o f the 1990s and beyond. The Evolution of Our Current Corporate Philosophy The video we saw a moment ago encapsulates a decade o f dramatic change in the Fed and in the world in which w e operate. The decade began with M C A 80, the most profound change in the Federal Reserve System since the banking legislation o f the 1930s. revolutionized Fed operations by introducing priced services. MCA 80 It also ushered in an era o f regulatory change. Reserve requirements were extended to all depository institutions, and some o f the restrictions that kept those institutions from being competitive with nonbank providers o f financial services were eliminated. As the decade wore on, though, difficulties mounted in the S & L industry, and the desire to avert a similar fiasco in banking increased the burden on our Supervision and Regulation staff. The 1980s also intensified the job o f making monetary policy. The introduction o f interest-bearing transactions accounts undermined the effectiveness o f the monetary aggregates as policy targets. Meanwhile, technology quickened the pace o f market activity and propelled us toward a global economy. Through all this, the Atlanta Fed ended the decade as it had begun it-a s the most efficient performer among the 12 Federal Reserve Banks in providing financial services. And, since we had been highly regarded in Supervision and Regulation for some time as well, we finally achieved a clean sweep when our Research Division gained System-wide respect for its work in 3 the latter years o f the 1980s. I believe that this record o f excellence in a difficult decade has its roots in the mid-1970s, when w e set about to create a state-of-the-art organization. T o do this w e placed a premium on efficiency, created a competitive culture within our organization, and became early converts to the cause o f automation. I would place the beginning o f our current focus on efficiency in 1975. The San Francisco Fed had hired a consulting firm a year earlier to tell them how to cut costs. The leadership o f this Bank, who had inherited an organization that was viewed as the least efficient in the System, decided w e could do the same thing on our own. Within a year w e had trimmed over half a million dollars from our budget. instituted. About the same time, the P A C S system was A ll o f a sudden, someone was keeping score within the System, and by 1976, we ranked first in 9 out o f 12 categories and first overall. W e also kept score among ourselves and brought out the competitive tendencies in our six branches vis-a-vis one another. System-wide ratings were eventually extended to Sup and Reg and Research as well, and this hastened the spread o f our competitive culture into those areas. Even though they are quite different from the work o f operations, Supervision and Regulation as w ell as Research were able to capitalize on one o f the chief efficiency-enhancing tools that had been adopted by the Financial Services Division: they automated. This Bank had assumed a leadership position in technology when w e pioneered development o f the A C H and other electronic payments systems in the early 1970s. Examiners were still using typewriters and calculators in 1980, but they soon switched to word processors and spread sheets, and this brought the processing o f applications and other 4 work into the modem age. The Research Division not only automated but also raised the quality and depth o f its output through staff moves that led to stronger analysis and forecasting. Thus the corporate culture formed 15 years ago has served us w ell in all three o f our businesses. However, I want us to be sure that our thinking has not become ossified just because we succeeded in the past. I feel the decade ahead presents changes and challenges that may call on us to respond in new ways. Let me highlight a few o f the developments I expect in the financial services industry and in the economy that could affect us in the 1990s. The Challenges of the 1990s Beginning with the financial services industry, it is inevitable, I think, that w e w ill see significant restructuring. From the regulatory point o f view , I hope this w ill mean deposit insurance reform, nationwide interstate banking, and broader powers for banks. In any event, nationwide interstate banking w ill be a fait accompli by 1992, when a majority o f states permit the practice, and this w ill likely hasten the consolidation o f the banking industry that is already under way. Banking, along with most other industries w ill also be affected by the ever- quickening pace o f technological change, which continually opens new ways o f delivering services. In terms o f economic developments, global dynamics w ill probably continue to play a greater role in our domestic affairs. I think this international factor w ill contribute to continued 5 growth here as businesses in the United States increase their export activity, particularly to an economically integrated post-1992 Europe. As the crisis in the M iddle East reminds us, though, events abroad can be disruptive as well. Whether or not the recent rise in oil prices constitutes a long-term inflationary threat remains to be seen. W e should, however, anticipate greater price pressures arising from the shift in U .S. demographics that has already begun to show its effects. N o w that the baby boom has been absorbed into the workforce, a smaller pool o f entry-level labor is available than in the past. Scarcer supplies o f labor imply higher costs through most o f the coming decade. U .S. industries w ill need to counter these costs by greater investment in labor-saving technology, but as long as government budget deficits persist—and it is difficult to see significant reductions in the offing any time soon—investment funds w ill be costlier to obtain. These forces could combine to keep growth from being as robust as in the past. Implications for the System and the Bank For the Federal Reserve System and for this Bank, I think these regulatory and economic prospects add up to a rather fluid situation. On one hand, the likely restructuring and consolidation in the banking industry could have profound effects on our financial services business. Even in its current incomplete state, interstate banking is making District lines anachronistic. As bank holding companies expand outside their home regions, w e are responding to pressures to standardize check-clearing prices System-wide. Interstate banks w ill also process more o f their own checks as "on-us" items, and w e have already seen our market share shrink. Geographical issues that arise from present Federal Reserve boundaries also make processing merger and acquisition applications more cumbersome in Supervision and Regulation. Such 6 considerations in concert with technological advances make consolidation o f some activities in these areas all but inevitable. Discussions about the efficiencies o f scale w e can realize from reducing the number o f electronic transfer processing centers is but one example. A t the same time, staffing and compensation decisions w ill probably have to be made in the context o f labor shortages and persistent inflationary pressures, not to mention voluntary Gramm-Rudmann constraints. One o f the principal uncertainties is how Congress might treat the System as it revisits banking regulation. Chairman Gonzalez o f the House Banking Committee has made it clear that he entertains the possibility o f sweeping revisions, including a unified regulatory structure for all depository institutions. H e does not feel this new agency should be the Fed. Others believe that the Fed should be the super-regulator. The C R A portions o f F IR R E A could foreshadow a leaning toward further consumer-oriented legislation that may impose vague and complex standards, making examinations more difficult. And, as usual, there are proposals to reduce the F ed ’ s independence in formulating monetary policy. W ill Congress take up any o f these reformist suggestions? In the past, legislators have demonstrated renewed interest in the System in times o f economic downturn. A recession severe enough to raise fears that the banking industry might somehow follow S& Ls into collapse would almost certainly prompt Congress to take strong action. A s I indicated earlier, I don’ t see either o f these scenarios in the offing, but in a world that can still be upset by the likes o f Saddam Hussein, w e are reminded that unexpected world events can carry far-reaching implications. 7 Responding to the Challenges of a Fluid Environment Given this outlook, there is no doubt that w e need to remain efficient. It goes without saying that efficiency is basic to the success o f any organization. How ever, at this point in time w e have a particular need to be at the top o f the System by current standards in order to be in the running for home base in any move to consolidate services. Y et I also think that in the fluid environment I have described it behooves us to devote additional attention to other performance criteria. T w o areas stand out. One whose importance w e have long acknowledged is quality service. The second is nurturing the creativity that allows us to meet changing customer needs and to anticipate new developments in the economy and the banking industry. These two criteria can certainly be applied in tandem with efficient execution o f day-to day tasks, but it is possible for an overemphasis on efficiency to work to the detriment o f both customer service and creativity. A stripped-down organization tends to look for ways to extract as much productivity as possible from present capacity. In terms o f human resources, this often translates into longer hours as w ell as more intensive work for proven performers. Under such conditions, even the most conscientious workers can feel so pressed that they avoid asking the additional question that w ill make customers feel someone cares about them. Creativity, too, requires tim e-tim e to experiment, make mistakes, go back to the drawing board. It is difficult for employees who are constantly on the run to carve out time for innovative ideas. What’ s more, the incentive to create new programs is diminished i f they ultimately add to the workload o f the people who initiate them. This catch-22 is captured in the quip abroad in one part o f the Bank that says, "no good deed goes unpunished." 8 I think w e still do a good job o f responding to customer needs and innovating, but we could afford to place more emphasis on these qualities. Our need to do more work in this area was brought home when w e formulated our core values. As most o f you remember, w e asked employees to help identify the primary elements to be included in our corporate philosophy. By an overwhelming majority, the Bank agreed that integrity should be given primacy. H ow ever, cost-effectiveness came out second, and quality service, third. Management felt this placed a disproportionate focus on the bottom line. W e reversed the order among the latter two core values, reexamined some o f our approaches, and hoped w e had set the situation more to rights. How ever, I have remained uncertain as to how firm ly that message has taken root. Is a management decree that service is more important than cost-effectiveness enough to change a culture-not to mention a strategic planning, budgeting, and evaluation process-that was built on cutting costs? Beyond this, what exactly do w e mean by cost-effectiveness? I think w e need to do a better job o f communicating that cost-effectiveness does not necessarily lie in minimizing costs, but rather in maximizing value-added. Finally, what must w e do to achieve a balance between efficiency and creativity that is appropriate to the challenges ahead? The Role of the First-line Officer in the 1990s I have not come to you with answers to these questions this afternoon. Indeed, I feel you first-line officers need to help the Bank find the answers for our present concerns just as you 9 always have in the past. In your pivotal positions, you need to provide the information that w ill help keep our organization responsive as w ell as efficient. On one level, this involves your own responsiveness to the people you manage. They are the Bank’ s most important resource, and your relationship with them is critical not only in getting tasks accomplished but also in evoking the qualities that w ill maintain our flexibility in the years ahead. I hope you w ill pay as much attention to leading each o f them toward realizing their full potential as to managing the day-to day flow o f work. In this regard, leadership is less a matter o f being a tough disciplinarian than o f listening to others’ ideas and observations. Leadership also means having your own ideas, and on another level, I urge you to analyze the ways w e go about our various businesses and communicate your thoughts to senior management. In particular, w e need you to point out the stresses in our present way o f doing business. W here are the overloads that might reduce sensitivity to customer needs? What can w e do to stimulate the creative energies o f our staff? I know that all o f you are intimately familiar with these issues because you live with them every day. You are people whose inboxes are never empty and who always have a line at your doors. Part o f our purpose in bringing you here is to give you time away from those demands to reflect on where our organization is going. Another is to reexamine with you the way the different parts o f the Bank fit together into a unified whole. Looking ahead to the challenges I have outlined, it is more vital than ever that w e accentuate the synergies among our three businesses. The different types o f work that you all do provide us a rich diversity o f 10 perspectives on the Bank, and w e need to draw these viewpoints together into a unified vision o f the future. Still another reason w e have brought you here is to communicate anew senior management’ s sense o f our strategic direction and put it on the table for open discussion. I hope that w e w ill in these ways be able to stimulate your creativity in helping us identify those functions and parts o f the Bank’ s structure that need to be redesigned for the 1990s and beyond. W e are counting on you to play your pivotal role as you always have: with sound judgment and consistently high standards. The future o f the Bank is in your capable hands. INTRODUCTION OF GOVERNOR LAWARE It is my honor and a distinct pleasure to introduce our special guest, Governor John La Ware. Governor LaW are is going to elaborate on System issues that w ill affect us at the Reserve Bank level, and I think w e are most fortunate to have someone with breadth o f experience both in the private sector and the Fed to do this. As you know, he came to the Board in 1988 after a distinguished career in banking. H e was previously chairman and CEO o f Shawmut Bank o f Boston and its holding company and also served at one point as chairman o f the Association o f Bank Holding Companies. His affiliation with the System began with a directorship at the Boston Fed, and his interest in Reserve Bank matters continues through his membership on the Board’ s Committees on Banking, Supervision, and Regulation, which he chairs, Federal Reserve Bank Activities, Research and Statistics, and Consumer and Community Affairs. The governor 11 is always an articulate spokesperson on regulatory matters in his appearances at Congressional hearings and at other public forums, and w e are fortunate that he agreed to provide us his insights at this conference. Please join me in welcoming Governor John LaW are.
@FedFRASER