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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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis - 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 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -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, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis