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REMARKS BY .r"R. RoBERT P. ~Yo
PRESIDENT, FEDERAL RESERVE BANK OF CHICAGO
CHICAGO AssocIATION OF CoM"lERCE AND INDUSTRY
Ck:TOBER 3, 1978

CHICAGO AS TI-IE ECONOMIC CENTER OF Mrn-h,,ERICA
CHICAGO IS ONE OF THE GREAT AND EXCITING CITIES OF THE WORLD,

Jr

IS A CITY WHOSE CITIZENS CANNOT HELP BUT FEEL ITS lHROBBING PULSE AND
WHOSE VISITORS TYPICALLY SPEAK ENTHUSIASTICALLY ABOUT ITS IMPRESSIVE
ECONOMIC VITALITY, THE REBIRTH OF OUR CITY'S HEART AND TiiE TREMENOOUS
EXPANSION OF ITS OUTLYING MANUFACTURING, SERVICE INDUSTRIES, SHOPPING
CENTERS, AND RESIDENTIAL ACTIVITY PROVIDE MUCH OF 11-IE STIMULUS,

AND WE

HAVE OlffSTANDING ART, OPERA, AND ONE OF THE hORLD'S GREAT SYMPHONIES,
0JR UNIVERSITIES ARE UNEXCELLED,

So ARE

OUR PARKS, ALL OF THIS IS A

BASE OF JUSTIFIABLE CIVIC AND REGIONAL PRIDE-AN ENVIRONMENT IN w--tICH A
VIGOROUS ECONOMIC AND STRONG FINANCIAL LIFE CAN AND OOES FLOURISH,
JlNYONE WHO HAS ENDEAVORED TO ANALYZE SOMETHING AS COMPLEX AS A
FINANCIAL ENVIRONMENT KNOWS IT IS HARD TO GET AHOLD OF, WE ALL HAVE SOME
NOTION OF WHAT WE MEAN BY THE TERM FINANCIAL ENVIRONMENT, YET PRECISE
DEFINITION IS SOMETHING THAT IS DIFFICULT TO ACHIEVE,

AND,

DEPENDING ON

YOUR VANTAGE POINT, THE CHARACTERISTICS CONSIDERED TO fv1AKE ONE FINANCIAL
ENVIRONMENT "BETTER" TH.l\N ANOTHER MAY VARY WIDELY,
THE CONCEPT "FINANCIAL ENVIRONMENT" OF AfN PARTICULAR COM.MUNITY HAS
AT LEAST 1WO DIMENSIONS: THE FIRST IS THE CAPABILITY OF THE FINANCIAL
INSTITUTIONS RESIDING IN THE COv1MUNITY TO SATISFY THE NEEDS OF INDIVIDUAL
AND BUSINESS FOR A VARIETY OF FINANCIAL SERVICES,

AND THE

SECOND IS THE

ABILITY OF THE FINANCIAL CQ\1MUNITY TO "EXPORT" ITS SERVICES TO OTI-iER AREAS .
THESE TWO ELEMENTS, THE PRODUCTION OF FINANCIAL SERVICE FOR LOCAL CONSUMPTION; AND THE PRODUCTION OF FINANCIAL SERVICE FOR EXPORT, IS W'HAT ~KES
A CQ\1MUNITY A FINANCIAL CENTER,

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- 20-tICAGo's PROMINENCE AS A MANUFACTURING AND TRANSPORTATION CENTER
ASSURED lHE DEVELOPMENT OF FINANCIAL ACTIVITIES ON A LARGE ABSOLLJfE SCALE.
Bur BEYOND THIS, 0-tICAGO's FINANCIAL COMVlUNITY HAS DEVELOPED THE CAPACITY
TO PRODUCE FINANCIAL SERVICES IN A VOLUME GREATER lHAN PROPORTIONAL TO
LOCAL NEEDS1 AND HAS BEEN EXPORTING THEM OVER AN AREA MUCH BROADER 11-fAN
ITS OWN GEOGRAPHIC LIMITS,
SUCH SCOPE IN THE PROVISION OF FINANCIAL SERVICES RESULTS FROM lliE
INTERPLAY OF MANY FACTORS, JbGRESSIVE, IMAGINATIVE MAtNAGEMENT HAS CERTAINLY
PLAYED A ROLE.-- At.so IMPORTANT HAS BEEN ¼HAT ECONOMISTS CALL THE "ECONOMIES
OF SCALE" AND "EXTERNAL
ECONOMIES"--THE ABILITY OF LARGER SIZE FIRMS TO
-,
.

PRODUCE AT LOWER AVERAGE COSTS, AND lHE BENEFITS ACCRUING TO FIRMS BECAUSE
THEY ARE LOCATED IN A GEOGRAPHICALLY COMPACT AREA,

CcM3INED, THESE fv1AKE

0-f ICAGO A GREAT FINANCIAL CENTER,
IT WOULD BE HELPFUL TO HAVE PRECISE DATA 1HAT WOULD PERMIT US TO
ESTABLISH THE DEGREE TO M-fICH CHICAGO IS A FINANCIAL CENTER, Bur. UNFORTUNATELY, SPECIFIC DATA ARE VERY INCOMPLETE,

I WANT TO APPROACH THE SUBJECT,

THEREFORE, BY TAKING A BROAD QUALITATIVE OVERVIEW OF THE INSTITUTIONS AND
FINANCIAL ACTIVITY THAT HIGHLIGHT 0,ICAGO' S PRESENT STATUS AS THE FINANCIAL
CENTER OF THE MIJJtJEST, ITS STATUS AS lHE SECOND LARGEST FINANCIAL CENTER IN
THE COUNTRY-INDEED, ITS STA11JS AS ONE OF THE f'iDST IMPORTANT FINANCIAL
CENTERS IN THE ENTIRE WORLD,
THERE ARE SEVERAL TYPES OF FINANCIAL ACTIVITY IN WHICH 0-HCAGO
OCCUPIES A POSITION OF UNDISPUTED OOMINANCE, THEY CLEARLY HELP RANK CHICAGO
AS A LEADING FINANCIAL CENTER, lr-Jo SOPHISTICATED ANALYSIS OF

WE

DATA IS

REQUIRED TO DEMONSTRATE 0-tICAGO' s PREEMINENCE, FOR EXAMPLE, IN PROVIDING
MARKETS FOR TRADING C~DITY FUTURES, kROSS THE COUNTRY THESE EXCHANGES
HAVE EXPERIENCED STEADY TRADING GROWTH OVER ™E PAST FIVE YEARS, THERE WERE


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- 342.8 MILLION CONTRACTS TRADED ON ALL COfivX)DITY EXCHANGES DURING "JS77, UP
ALMOST 66 PERCENT FROM 1973' S 25.·8 MILLION CONTRACTS, DURING J.977, THE
0-HCAGO COM'-10DI1Y EXCHA~ES ACCOIJNTED FOR 7J PERCENT OF THE CONTRACTS
TRADED ON ALL CQM\10DITY EXCHANGES IN THE NATION,

fJN INNOVATIVE SPIRIT AND WILLINGNESS TO BUCK SUBSTANTIAL ODDS SEEM TO
HAVE PAID OFF IN LEADERSHIP BY lliE 0-IICAGO FINANCIAL Cav1MUNITY IN THREE OTHER
AREAS, CJJE OF THESE IS THE 0-UCAGO fuARD OPTIONS ExcHANGE (CBOE) w-iICH
OPENED IN

1973,

THE VOLUME OF CONTRACTS TRADED ON THE

IN EVERY YEAR SINCE ITS INCEPTION-FROM
THE FIRST FULL CALENDAR YEAR OF TRADING
\

CBOE

HAS INCREASED

5.7 MILLION CONTRACTS IN 1974,
TO 23.6 MILLION CONTRACTS IN 1977,

THIS PHENOMENAL INCREASE IN.TRADING VOLUME REFLECTS BOTii lliE INCREASE IN
THE NUMBER OF STOCKS WITI-f RESPECT TO WHICH OPTIONS ARE AVAILABLE AND INCREASE IN THE VOLUME OF TRADING OF EXISTING OPTIONS,

/Js YOU ARE UNDOUBTEDLY AWARE, THE PURCHASE OF AN OPTION ON THE CHICAGO
fuARD OPTIONS ExCHANGE IS TANTAMOUNT TO PURCHASING THE RIGHT TO BUY ONE
HUNDRED SHARES OF A COMfvON STOCK AT A GIVEN PRICE OORING A PARTICULAR PERIOD
OF TIME, THUS, ALTHOUGH THE ACTUAL EQUITIES 00 NOT CHANGE HANDS, ll1E RIGHTS
TO BLN 00 AND THE VOLUME OF UNDERLYING COMfvON STOCK INVOLVED IS ONE HUNDRED
TIMES THE NUMBER OF CONTRACTS BOUGHT AND SOLD. EQUIVALENT SHARE VOLLME ON
THE OPTIONS EXCHAf'KJES HAS INCREASED FROM]/~ OF 1HAT ON THE STOCK EXCHANGES
IN

1973 TO ABOUT J/2 CURRENTLY,
THE CHICAGO IbARD OPTIONS ExcHANGE IS AN IMPORTANT RECENT DEVELOPMENT

FOR 0-IICAGO, FOUR YEARS OF EFFORT AND $2,5 MILLION WERE SPENT ON DEVELOPMENT PRIOR TO THE OPENING DATE,

✓-~tbw

THAT IT IS OPERATING AND IS BEING

MUCH HERALDED, FOUR OTHER EXCHANGES, INCLUDING THE 0-HCAGO-BASED MIDWEST
STOCK ExcHANGE, HAVE STARTED SIMILAR TRADING IN OPTIONS, DESPITE THIS
COMPETITION, OPTIONS TRADING IN CHICAGO ACCOUNTED FOR 64 PERCENT OF THE
NATIONWIDE STOCK OPTIONS VOLUME,

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- 4ANOTHER EXAMPLE OF THE INITIATIVE WiICH 11-IE u-tICAGO FINANCIAL COMMUNITY
HAS SHOWN IN RECOGNIZING THE POTENTIAL DEMAND FOR A FINANCIAL SERVICE AND IN
DEVISING A MEANS 10 SATISFY TiiAT DEMAND, HAS BEEN lHE DEVELOPMENT OF THE
INTERNATIONAL f'bNETARY ML\RKET OF THE CHICAGO MERCANTILE ExcHANGE, THIS
EXCHANGE'S STATED PURPOSE IS TO PROVIDE "BREADTH, DEPTH, AND RESILIENCY"
TO THE MARKET IN WiICH FORWARD CONTRACTS IN FOREIGN EXCHANGE ARE TRADED,
Jr SET OUT TO ACHIEVE THESE ENDS BY FOCUSING ALL MARKET DECISIONS AT ONE
GEOGRAPHIC POINT AND BY SERVING ALL SEGMENTS OF lHE MARKET, INCLUDING
SPECULATORS wrrH WHOM THE BANKS TRADING IN FOREIGN EXCHANGE HAD BEEN RELUCTANT TO DEAL. THE INTERNATIONAL ~NETARY Ml\RKET HAS EXPERIENCED TREMENDOUS
\

GROWTH AND ACHIEVED A PERMANENT PLACE ON THE NATIONAL, INDEED, INTERNATIONAL
FINANCIAL SCENE.
WHILE ON THE SUBJECT OF FOREIGN EXCHANGE AND INTERNATIONAL TRANSACTION,

A BRIEF MENTION OF THE DEVELOPMENTS IN INTERNATIONAL ACTIVITIES OF THE
0-HCAGO BANKING CaviMUNITY IS CERTAINLY IN PLACE,

INDEED, IT HAS BEEN IN

THIS AREA w-iERE 'THE GROWTH OF CHICAGO AS A FINANCIAL CENTER HAS BEEN MOST
SPECTACULAR IN RECENT YEARS,

To BE SURE, INTERNATIONAL BANKING IN THE 0-JICAGO AREA DATES BACK TO
THE MID-19TH CENTURY, Bur THE BROADLY BASED GROWTH OF INTERNATIONAL BANKING IN CHICAGO IS A MUCH MORE RECENT PHENOMENON, THE OPENING OF THE ST,
LAWRENCE SEAWAY THAT OPENED THE LAND-LOCKED MIDWEST t!ORE FULLY TO INTERNATIONAL COfvVvlERCE WAS PERHAPS ONE EVENT THAT Ml\RKED THE BEGINNING OF THE
RECENT EXPANSION,

lT PROVIDED THE BANKS WITH

AN

OPPORTUNilY TO GET ~RE

DEEPLY INVOLVED IN TRADE FI NANC'ING. THE OTHER WAS THE GREAT THRUST OF
J!MERICAN CORPORATIONS INTO INTERNATIONAL AND MULTINATIONAL OPERATIONS
THAT BEGAN IN THE LATE FIFTIES, AND PICKED UP ('l()MENTUM IN THE EARLY SIXTIES,

To SUPPORT THIS THRUST WITH THE PROVISION OF INTERNATIONAL FINANCIAL SERVICES,


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- 5THE LOCAL BANKS EXPANDED THEIR INTERNATIONAL BANKING ACTIVITIES BOlH AT
THEIR HOME OFFICES, AND, THROUGH BRANCHES, ABROAD, THE AVAILABLE Ot\TA
TELL A FASCINATING STORY: • AT lHE END OF lHE FI~TIES, 0-HCAGO BANKS, TOGETHER WITH OTHER BANKS IN THE SEVENll-i FEDERAL RESERVE DISTRICT, HAD
~~

TOTAL FOREIGN -

•

REPRESENTING LOANS AND OTHER ASSETS OF ONLY $10() MILLION;

THERE WERE NO FOREIGN BRANCHES OF DISTRICT PANKS OPERATING ABROAD,

IN

FIVE YEARS BY THE END OF 1~ TI-fE AMOUNT OF CLAIMS HAD INCREASED 10-FOLD
AND WELL EXCEEDED $1 BILLION.
IN 1965, HOWEVER, THE EXPANSION IN INTERNATIONAL BANKING ACTIVITIES
IN THE Mill41EST SUFFERED A SEVERE SETBACK WITH lHE IMPOSITION OF TI-fE VOLUNTARY FOREIGN CREDIT RESTRAINT PROGRAM, HOWEVER, FRUSTRATING AS THE VFCR
PROGRN1 WAS FOR THE MIDIIEST BANKS IN RESTRICTING lHEIR HEAD-OFFICE INTERNATIONAL ACTIVITIES, IT PROVIDED AN IMPETUS FOR AN EXPANSION ABROAD, M«\NY
OF THE DISTRICT'S BANKS SET UP OR EXPANDED THEIR FOREIGN BRANCHES AND SUB·sIDIARIES SO AS TO BE ABLE TO MEET THE NEEDS OF THEIR CUSTOMERS FOR INTERNATIONAL BANKING SERVICES WITHOUT THE ENCUMBRANCE OF THE PROGRAM THAT MADE
IT DIFFICULT FOR THEM TO MEET lHESE NEEDS FROM 11-IEIR HEAD OFFICES,
THE EXPANSION CONTINUED IN 11-IE SEVENTIES, PARTICULARLY AFTER THE .TERMINATION OF THE \/FCR IN 1974, WRRENTLY, THE DISTRICT BANKS ARE OPERATING
SOME

70

BANKING FACILITIES ABROAD, AND TI-fEIR TOTAL CLAIMS ON FOREIGNERS,

INCLUDING THOSE BOOKED FROV1 ABROAD, EXCEED$;{) BILLION,
IN 1973, A NEW DIMENSION OF INTERNATIONAL BANKING ACTIVITIES EMERGED, •
FOREIGN BANKS CAME TO lJ-lICAGO, • RECOGNIZING THE LONG STANDING Itv1PORTANCE
OF THE Mill41EST AS A HEARTLAND OF ~ERICA'S INDUSTRIAL, AGRICULTURAL--AND
EXPORT--ACTIVITIES, AND RECOGNIZING THE EMERGING IMPORTANCE OF THE MIIJtJEST
AS AN INTERNATIONAL FINANCIAL CENTER, lHE FOREIGN MNKS TOOK ADVANTAGE OF
THE NEW 1973 ILLINOIS STATE Bt\NKING l.Aw, AND BEGAN OPENING BANKING FACILI-


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- 6TIES IN 0-HCAGO.

_,,Now 31 ARE OPERATING HERE·, INCLUDING BAANCHES, REPRESENT-

..

ATIVE OFFICES, AND SUBSIDIARIES,
FI NALLY, AS ALMOST THE ULTIMATE TR !BUTE TO 0-H CAGO AS AN IMPORTANT
INTERNATIONAL FINANCIAL CENTER, BANKS FROM OTHER ~OR U,S, ttONEY CENTERS
SUOi AS f·JEW YORK AND SAN FRANCISCO, RECENTLY BEGAN TO OPEN INTERNATIONAL
BANKING OFFICES HERE IN UiICAGO UNDER A CORPORATE FORM KNOWN GENERALLY AS
THE EDGE kT AND JlGREB~ENT CORPORATIONS. 0vER THE PAST SEVERAL YEARS, 13
EDGE AcT AND

2 AGREEMENT CORPORATIONS

WERE ESTABLISHED HERE,

FOLLOWIN.G CLOSELY ON THE HEELS OF THE SUCCESSFUL FOREIGN CURRENCIES
FUTURES CONTRACTS WAS THE DEVELOPMENT OF THE INTEREST RATE FUTURES CONTRACTS-THE MOST-SUCCESSFUL NEW FUTURES CONTRACTS IN RECENT YEARS, BEGINNING IN Ck:TOBER

1975 WITH

THE tDVERNMENT NATIONAL fvbRTGAGE AssocIATION

(GNW\) FUTURES CONTRACT ON lHE ~ICAGO fuARD OF TRADE ((BOT) BORROWERS AND
LENDERS WERE PROVIDED WITH A NEW AND fvORE EFFICIENT MEANS OF HEDGING THEIR
INTEREST RATE RISKS, SINCE ™AT TIME, THE MENU OF INTEREST RATE FUTURES
CONTRACTS HAS MUSHROOMED TO INCLUDE NINETY-DAY TREASURY BILLS (JAN~RY

1976

ON THE Hi1), LONG-TERM TREASURY BONDS <AUGUST 'J:377 ON THE CBOT), NINEn'-

1977 ON lHE CBOT) AND ONE-YEAR TREASURY
BILLS (SEPTEMBER 1978 ON THE IM"]), IN ADDITION TO THESE CONTRACTS IN
DAY COMMERCIAL PAPER (SEPTEMBER

WHICH THERE IS ONGOING TRADING, THE CBOT HAS RECEIVED APPROVAL FROM THE
Cor1VDDITIES FUTURES TRADING Cofv1MISSION (THE REGULATORY AGENCY THAT OVERSEES FlJTURES TRADING IN 11-IE U.S.) TO TRADE THIRTY-DAY COrv1MERCIAL PAPER
FUTIJRES AND HAS SUBMITTED FOR APPROVAL A FOUR TO SIX YEAR TREASURY NOTE
FlITURES CONTRACT AND A THREE-f1)NTH EUROOOLLAR (] FUTURES CONTRACT, THE

IJVM ALSO HAS SUB"\ITTED FOR APPROVAL A FOUR-YEAR TREASURY NOTE FUTURES
CONTRACT,


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- 7IF, AS THEY /SAY, IMITATION IS TI-iE SINCEREST FORM OF FLATTERY, THEN WE

ARE INDEED FLATTERED BECAUSE OUR rJEW YORK CITY FRIENDS ARE SCRAf1BLING TO
GET ABOARD THE INTEREST RATE FUTURES MNDWAGON, THE FIRST NEW YORK ENTRY
WAS A GNMt\ FUTURES CONTRACT ~ICH BEGAN TRADING ll·fIS SEPTEMBER ON THE NEW
~ER ICAN CoMivoDITIES ExCHANGE (AC£), A DIVISION OF THE .AMERICAN STOCK ExCHANGE. ACE AND SOME OF THE OTHER ESTABLISHED NEW YORK CavffiDITY EXCHANGES
ARE BUSY DEVELOPING OTI-fER INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS lHAT WILL C~PLEMENT AND C0\1PETE WilH OURS.

IN FACT, IT HAS BEEN

REPORTED IN THE FINANCIAL PRESS TI-IAT 11-IE PRESTIGOUS

NEW YORK STOCK E.xcHANGE

HAS EMBARKED ON A CRASH PROGRAM TO DEVELOP INTEREST RATE FUTURES TRADING,
W-iILE

I DO NOT WANT TO BORE YOU WITH NUMBERS, CHICAGO CI-IALNINISM.

IMPELS ME TO QUOTE A FEW STATISTICS WHICH ATTESTS TO THE SUCCESS OF THESE
FLED3IN3 MARKETS IN INTEREST RATE FUTURES CONTRACTS. DuRING

1976, A TOTAL

238,791 INTEREST RATE FUTURES CONTRACTS-WERE TRADED, THIS JlJvlPED
AU'10ST 230 PERCENT TO 779,718 CONTRACTS IN 1977. THIS FIGURE HAS ALREADY
BEEN SURPASSED IN THE FIRST EIGHT MONTHS OF 1978 WITH OVER ONE MILLION
OF

INTEREST RATE FlITURES CONTRACTS HAVING BEEN TRADED,

I DO NOT MEAN TO IGNORE BANKS IN CHICAGO AND 11-IEIR SIGNIFICANT CONTRIBUTIONS TO 0-n CAGO' s F1NANC IAL ENVIRONMENT, As OF JUNE 30, 1978 lHE CnY
OF CHICAGO HAD EIGHT BANKS IN THE LARGEST 300 UNITED STATES PANKS ACCORDING
TO DEPOSIT SIZE, FIVE OF THESE BANKS

Ht\D

TOTAL DEPOSIT LIABILITIES OF

MORE THAN $1 BILLION EACH AND AGGREGATE TOTAL DEPOSITS OF $44 BILLION,

lN

TERMS OF TOTAL DEPOSITS OF ALL ITS C0fv1MERCIAL BJ\NKS, CHICAGO RANKED TiiIRD,
✓-~

IN ADDITION TO THE SIZE OF THE TOTAL BANKING FACILI1Y, A MEASURE, HOW-

EVER IMPERFECT, OF THE CAPABILITY OF A FINANCIAL CENTER TO MEET AN'f 1YPE
OF FINANCIAL DEMAND 11-IAT MIGHT BE PLACED ON IT IS THE SIZE OF ITS LARGEST
INSTITIJTIONS, UNFORTUNATELY, THE STRUCTURE OF U.S. BANKING DICTATED BY


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- 8STATE LAWS VARIES WIDaY FRCY',1 STATE TO STATE AND lHEREFORE Ml\KES SUSPECT
DIRECT CavlPARISONS OF THE RELATIVE IMPORTANCE OF DIFFERENT FINANCIAL
CENTERS USING SUM"1ARY MEASURES SUCH AS THE TOTAL DEPOSITS OF lHEIR
LARGEST BANKS, EVEN WITH lHIS RESERVATION, HOWEVER, A LISTING OF U.S.
BANKS IN DESCENDING ORDER OF DEPOSIT SIZE SHOWS THE BANK OF ArvlERICA OF
SAN FRANCISCO FIRST--wrn; SIX OUT OF THE NEXT EIGHT POSITIONS OCCUPIED BY
NEW YORK BANKS, THE SEVENTH AND NINTH SPOTS ARE OCCUPIED BY CoNTINENTAL

ILLINOIS AND FIRST NATIONAL J¼NK, RESPECTIVELY, B01H OF O-HCAGO, fun,
CALIFORNIA AND

NEW YORK HAVE STATEWIDE BRANCHING, ILLINOIS, ON 11-iE OTHER

HAND, DOES NOT PERMIT BRANCHES, ALTHOUGH ILLINOIS BANKS CAN NOW ESTABLISH
TWO FACILITIES WI1HIN A SHORT DISTANCE OF lHE MAIN OFFICE,

So

THESE RANKINGS OVERSTATE lHE PROMINENCE OF

NEW YORK AND WEST CoAST

BANKING INSTITUTIONS, ESPECIALLY IF THE ABILITY TO SERVICE LARGE SOPHISTICATED CUSTOMERS IS CONSIDERED TO BE AN IMPORTANT ASPECT OF BEING A FINANCIAL
CENTER,

IT IS CLEAR THAT ALL 1HE DEPOSITS OF 11-IE fvDRE 1HAN 1,000 BRANCHES

OF THE BANK OF fiMERICA OR ALL OF THE DEPOSITS OF THE r-t)RE ll-lAN 200 BRANCHES
OF THE FIRST NATIONAL CnY Rf\NK IN NEW YORK ARE NOT AVAILABLE TO SERVICE
CREDIT DEMANDS OF LARGE CUST°'1ERS IN SAN FRANCISCO OR

NEW YORK.

THEY

ARE

RETAIL-ORIENTED BANKS AND A LARGE PROPORTION OF THEIR RESOURCES IS CGr'MITTED
TO LENDING IN THE LOCAL SMALL BUSINESS AND CONSUMER LOAN MARKETS,

IF BANKS

IN THE VARIOUS CITIES WERE RANKED BY THE DEPOSITS THEY HAVE AVAILABLE FOR
MEETING LOAN DEMANDS IN THE CITY ITSELF, CHICAGO BANKS WOULD STAND EVEN
HIGHER,

As A PARTIAL OFFSET TO THE LIMITATIONS OF RESTRICTIVE BRANCHING AND
HOLDING COMPANY LAWS IN ILLINOIS, AN EXTENSIVE CORRESPONDENT BANKI~G NETWORK THROUGHOUT THE MIIJtJEST HAS DEVELOPED OVER lliE YEARS, WITH CHICAGO BANKS
TAKI~ THE DOMINANT ROLE, THROUGH THIS CORRESPONDENT NETWORK Sl'IIALLER BANKS
RECEIVE BOTH CREDIT AND NON-CREDIT SERVICES FROM THEIR LARGER CilY CORRESPONDENTS, SoME OF THESE SERVICES ARE SIMPLY NOT AVAILABLE AT THE LOCAL


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-9LEVEL, SoME OTHERS MAY BE AVAILABLE BUT IN 1-NFERIOR QlJALilY OR AT UNATTRACTIVE PRICES, G,1CAGO AREA EANKS COMPETE VIGOROUSLY TO SUPPLY TiiESE OUTLYING
BANKS WITH DEMAND DEPOSIT ACCOUNTING, INVESTMENT AND PORTFOLIO ADv'ICE,
COMPUTER TIME, AND OTHER SERVICES.
IN ADDITION TO lliE FLOW OF SERVICES FROM THE CllY CORRESPONDENT BANKS,
THE CORRESPONDENT NE1WORK PERMITS CHICAGO BANKS TO DRAW ON lliE RESOURCES OF
SMALLER BANKS THROUGH SUCH DEVICES AS THE FEDERAL FUNDS tviARKET, &v1ALLER
BANKS ARE lYPICALLY NET SELLERS IN THIS MARKET AND USE THEIR CilY CORRESPONDENTS TO EFFECTUATE THEIR SALES, fuRING PERIODS OF RISING INTEREST RATES,
SMALLER BANKS MANY TIMES FIND THE FEDERAL FUNDS tviARKET RELATIVELY tv"ORE
ATTRACTIVE AND INCREASE lliEIR NET SALES,

IN ·THE FIRST HALF OF 1978, FOR

EXAMPLE, NET PURCHASES OF FIVE LARGE 0,ICAGO BANKS AVERAGED OVER $5 BILLION
PER DAY

I

NET SALES OF FEDERAL FUNDS BY Sl'v1ALLER EANKS IN THE SEVENll-f

FEDERAL RESERVE DISTRICT ALONE AVERAGED ABOUT $11/2 BILLION A DAY,
0rHER CHICAGO FINANCIAL INSTITUTIONS-Sa.1E OF WHICH ARE N'ONG THE
LARGEST INSTITUTIONS OF ll-lEIR KIND-EXPAND THE RANGE OF FINANCIAL SERVICES
AVAILABLE IN CHICAGO,

Aust OF

THE LARGEST FINANCE COMPANIES IN lHE U.S.,

FOR EXAMPLE, SHOWS CHICAGO WITH A CONSUMER FINANCIAL COMPANY, A COV1MERCIAL
FI NANCE COMPANY, AND A SALES FI NANCE COMPANY JVIONG THE LEADERS, . THERE ARE
Al.JIX)ST A DOZEN BROKERS AND/OR DEALERS HEAOOUARTERED IN UUCAGO

W,0

fv1ANAGED

OR COMANAGED OVER J3J BOND AND EQUITY ISSUES IN THE CALENDAR YEAR 1977,
CHICAGO'S GOVERN'VlENT SECURI~
YORK,

D EQUITIES MARKETS ARE SECOND ONLY TO NEW

IN ADDITION, THE INSURANCE INDUSTRY PLAYS A LARGE ROLE IN u-fICAGO'S

FINANCIAL SCENE Willi SEVERAL OF lliE NATION'S LEADERS HEAOOUARTERED HERE,
AND l HAVEN'T EVEN MENTIONED lliE STRENGTH OF CHICAGO'S FINANCIAL GIANTS
IN THE SAVINGS AND LOAN FIELD,


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-10 - •
IN THIS BRIEF SKETCH OF THE PAST DEVELOPMENT AND PRESENT STATUS OF THE
G-iICAGO FINANCIAL ENVIRONMENT, l HAVE HAD TO TOUCH LIGHTLY ON A LARGE NUMBER
OF IMPORTANT EVENTS AND TO IGNORE IN THEIR ENTIRETY CERTAIN OTHERS,

I HAVE

ONLY TRIED TO PUT IN PERSPECTIVE hHERE OUR CITY NOW STANDS AS A FINANCIAL
CENTER AND HOW IT GOT 11-fERE.
G-iICAGO HAS A GREAT FUTURE AS A FINANCIAL CENTER.
•

~ ~~r.vw..~~

-

Bur THAT FUTURE WILL

.

REST LARGELY ON OUR INNeVATTIJNES"S IN COMPETING VIGOROUSLY WITH NOT ONLY

NEW

YORK AND loNOON AND FRANKFURT AND TOKYO, BUT ALSOWITI-f OUR SISTER CITIES IN
THE MI lliEST-DETRO Ir, MILWAUKEE, lNDIANAPOLI s, Sr. Lou Is, MI NNEAPOLI s, l<ANsAs
CITY, JUST TO NAME A FEW. 0-HCAGo's FUTURE AS A FINANCIAL CENTER WILL SEE
•

~

•

DEVELOPMENT UNANTICIPATED BY ANYONE ·rn THIS ASSEMBLY. WE ALL KNOW THAT 11-fE
CONTINUED GROWTH AND PROSPERilY OF 0-tICAGO'S FINANCIAL Cav1MUNI1Y WILL DEPEND
MORE ON ITS ABILilY AND WILLINGNESS TO CONTINUE TO INNOVATE AND TAKE NEW
RISKS THAN ON Atf( ARG~ENT lHAT, BECAUSE OF ITS LARGE POPULATION AND INDUSTRIAL BASE, 0-tICAGO 110LGHT ro" RIVAL NEW YORK AS A FINANCIAL CENTER, WE
ARE NUMBER TWO IN OUR NATI ON, BUT LI KE A FI RM IN n-tE AUTO RENTAL BUS INESS,
"WE TRY HARDER," lT IS THE KEY TO GREATER ACHIEVEMENT,


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