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Ohio Bankers Association
Mid-Winter Meeting
Columbus, Ohio
February 23, 1972
OUR MUTUAL CONCERNS
I WELCOME THIS OPPORTUNITY TO MEET WITH YOU TO LEARN
MOR.E ABOUT YOUR PROBLEMS AND OPERATIONS.
AS A NEWCOMER,
I HAVE NO READY-MADE SOLUTIONS TO OUR COMMON PROBLEMS,
BUT HOPE THAT THIS WILL BE THE BEGINNING OF NUMEROUS EXCHANGES ON AREAS OF MUTUAL CONCERN.
WHILE OUR APPROACHES AND PERSPECTIVE WILL UNDOUBTEDLY
DIFFER, I HOPE THAT OUR LONG-RUN INTERESTS ARE IDENTICAL.
IN OUR RESPECTIVE ROLES AS BANKERS AND PUBLIC OFFICIALS
INEVITABLY CURRENT DEVELOPMENTS CAPTURE THE MAJOR PORTION
OF OUR ATTENTION AND . TIME IN TERMS OF DECISION MAKING.
IT
IS ALSO FROM THE FIRE FIGHTING FRONT THAT WE PAUSE ONLY
OCCASIONALLY TO ENGAGE IN LONG-RANGE PLANNING -- IN AN ATTEMPT
TO ALLEVIATE TODA Y'S PROBLEMS AND ANTICIPATE TOMORROW'S
CHALLENGES.
ONLY IN RARE INSTANCES DO WE FIND SOME UNCOM-
MITTED MOMENTS TO INDULGE IN SPECULATION, SELF-ANALYSIS,
EXTROSPECTION AND EVEN PREDICTION.
WELL:
A SCOTCH POET PHRASED IT
"WAD SOME POWER THE GIFTIE GIE US TO SEE OURSELS AS
OTHERS SEE US." WE ALL HAVE IMAGES OF OURSELVES AND OF OUR
INSTITUTIONS THAT INFLUENCE OUR ACTIONS AND, OF COURSE,
WE BELIEVE WE ARE MOST OBJECTIVE IN OUR VIEWS.
HOWEVER,
SINCE WE CANNOT REALLY BE "OUTSID.E OURSELVES", WE SHOULD
GIVE REASONABLE CONSIDERATION TO OUTSIDE OPINIONS.
IF WE LOOK
-2-
AT OUR ACTIVITIES THROUGH THE EYES OF OTHERS, WE MAY GAIN
SOME CLUE OF CHANGES THAT WE MUST FACE, EAGERLY OR RELUCTANTLY, AND POSSIBLY ANTICIPATE THE CHANGES THAT WILL BE
IMPOSED UPON US AS SOCIETY ADJUSTS ITS INSTITUTIONS TO FIT ITS
REQUIREMENTS AND PRIORITIES.
A SUGGESTION OF AN ALTERATION IN ESTABLISHED AND FAMILIAR
.PATTERNS OFTEN BRINGS FORTH FORECASTS OF GLOOM AND DISASTER,
BUT LET US RECOGNIZE TWO FACTS.
FIRST: WE WILL ALL FINISH OUR CAREERS IN A DIFFERENT
WORLD THAN EITHER THE ONE IN WHICH WE STARTED OR THE ONE
IN WHICH WE ARE NOW OPERATING.
TRULY EXCITING, CHALLENGING,
DRAMATIC CHANGES IN ALL ASPECTS OF OUR LIVES ARE JUST AROUND
THE CORNER--MANY OF THESE ARE THOSE WE WILL MAKE AND INITATE.
SECOND:
THE WORST OF WHAT HAS BEEN PREDICTED FOR US
COLLECTIVELY WILL NOT TAKE PLACE AND THE BEST IS BEYOND
THE RANGE OF OUR MOST FERTILE IMAGINATION.
WE MAY FACE
INDIVIDUAL CATASTROPHE BUT OUR RESPECTIVE ROLES ARE LIKELY
TO EXPAND PERHAPS DRAMATICALLY IN THE PERIOD AHEAD, BUT
NEITHER YOUR INDUSTRY NOR THE CENTRAL BANK WILL HAVE A
CATACLYSMIC FAILURE.
WE HAVE DEMONSTRATED REPEATEDLY
A RESILIENT CAPACITY TO INNOVATE AND TO FORESTALL PREDICTED
DISASTER AND I HAVE GREAT CONFIDENCE IN OUR RETENTION OF
THESE SKILLS.
WHAT ARE THE CHALLENGES WE FACE -- I'D LIKE TO
FIRST RAISE A FEW QUESTIONS -- WHOSE ANSWERS WE WILL BE SEEKING
IN OUR WORKING TOGEJ;'HER IN THE COMING MONTHS.
-3-
WE ARE ALL ACUTELY AWARE OF THE CHANGES THAT HAVE
OCCURRED IN THE BANKING INDUSTRY IN OHIO IN THE SIXTIES:
THE
RAPID GROWTH IN MERGERS AND BANK HOLDING COMPANIES, THE
SHARP FLUCTUATIONS IN CREDIT DEMANDS AND INTEREST RATES,
THE DEVELOPMENTS OF NEW LIABILITY FORMS AND OTHER METHODS
OF TENERATING FUNDS -- THE RESORT TO CD's, EURODOLLARS AND
SUBORDINATED DEBENTURES -- THE MECHANIZATION OF OUR PAPER
HANDLING PROBLEM, TO NAME A FEW.
AS THE CREDIT NEEDS OF
THE ECONOMY GREW, BANKS SOUGHT NEW SOURCES OF FUNDS AND/OR
NEW ORGANIZATIONAL FORMATS TO HOLD ON TO THEIR SHARE OF
AVAILABLE FUNDS.
IN SPITE OF CURRENT MARKET CONDITIONS THE
FUTURE PF.Olv1ISES NO SATIATION OF CREDIT DElv1ANDS.
ARE THF.RF.
INDICATIONS OF OTHER FUTURE DEVELOPMENTS THAT WILL AFFECT
FINANCIAL INSTITUTIONS AND HENCE FINANCIAL SERVICES PROVIDED
BY THE BANKING COMMUNITY?
RECENT LEGISLATION, COMMISSION
STUDIES, AND PENDING LEGISLATIVE REPORTS GIVE SOME INDICATION
OF THE WINDS OF CHANGE SWIRLING AROUND THE BANKING INDUSTRY.
FOR EXAMPLE, IT IS POSSIBLE THAT THE MAJOR IMPACT OF THE
BANK HOLDING COMPANY ACT AMENDMENTS OF 1970 IS STILL TO
COME.
THE AMENDMENTS' MOST HERALDED EFFECT TO DATE WAS
TO BRING THE ONE BANK HOLDING COMPANY UNDER THE CONTROL OF
THE ACT AND THEREFORE THE FEDERAL RESERVE SYSTEM.
ON THE
OTHER HAND, THE 1970 AMENDMENTS BROADENED THE SCOPE OF
ACTIVITIES PERMITTED FOR ALL BANK HOLDING COMPANIES.
HENCE-
FORTH, TI-IE FEDERAL RESERVE SYSTEM IS TO DETERMINE WHAT
NONBANKING ACTIVITIES ARE CLOSELY RELATED PR INCIDENT TO
-4-
BANKING AND IN THE PUBLIC INTEREST SO THAT HOLDING COMPANIES
MAY PARTICIPATE IN THOSE ACTIVITIES.
IT'S RATHER APPARENT
THAT ANSWERS TO THE QUESTIONS OF "WHAT ACTIVITIES ARE CLOSELY
RELATED" WILL ELICIT HEATED RESPONSE FROM VARIOUS SEC TORS
OF OUR SOCIETY AND ALTER THE NATURE OF THE ACTIVITIES OF YOUR
INSTITUTIONS~
THEN, IN DECEMBER 1971, THE PRESIDENTIAL COMMISSION
TO STUDY FINANCIAL INSTITUTIONS MADE P, NUMBER OF RECOMMENDATIONS THAT WILL CERTAINLY AFFECT FINANCIAL INSTITUTIONS IN
THE FUTURE REGARDLESS OF THE LEGISLATIVE OUTCOME.
YOU WILL
HEAR MORE ABOUT THE SPECIFICS OF THIS REPORT FROM SEVERAL
PAE. TICIPANTS IN THE STUDY LATER IN THE PROGRAM..
IN
G~N E lU\. L:
THE HUNT COMMISSION RECOMMENDATIONS HA VE BEEN BASED ON
A VARIETY OF OBSERVABLE TRENDS IN THE FINANCIAL AREA,
TOGETHER WITH A COMMITMENT TO A MARKET ORIENTATION FOR OUR
SOCIETY.
IN SHORT, THEY SEEK TO INTENSIFY THE COMPETITIVE
ENVIRONMENT OF FINANCIAL INSTITUTIONS BY PROPOSING METHODS BY
WHICH COMMERCIAL BANKS, SAVINGS AND LOAN ASSOCIATIONS, MUTUAL
SAVINGS BANKS AND CREDIT UNIONS COULD BETTER SERVE THE BROAD
SPECTRUM OF CONSUMER NEEDS.
WHETHER THE SPECIFIC RECOMMEN-
DATIONS ARE ADOPTED OR NOT, IT SEEMS CLEAR THAT ALL INSTITUTIOI\
WILL FIND THEMSELVES OPERATING IN A MORE COMPETITIVE ENVIRONMENT AND UNDER NEW OPERA TING CONDITIONS- -E.G., NEW TAX TREA Tl
NEW CONCEPTS OF WHAT IS A BRANCH, BROADER GEOGRAPHICAL HORIZ<
- 5- .
THE ELIMINATION OF INTEREST RATE CEILINGS -- A BROADER RANGE
OF ACTIVITIES.
THE DIRECTIONS OF CHANGE INDICATED BY THE HUNT
COMMISSION REPORT CERTAINLY CONFIRM THE TREND INDICATED BY
DEVELOPMENTS UNDER THE BANK HOLDING COMPANY ACT AMENDMENT
OF 1970 AND ADD SIGNIFICANCE TO THE DEVELOPMENT OF POLICIES
UNDER THIS ACT.
PARALLELING THESE DEVELOPMENTS ARE THE STIRRINGS
WITHIN STA TE LEGISLATURES ABOUT THE STRUCTURE OF BANKING
AND OTHER FINANCIAL INSTITUTIONS WITHIN THEIR BORDERS.
FOR
EXAMPLE, OHIO AND KENTUCKY HAVE RECENTLY INITIATED MAJOR
STUDIES IN THIS AREA.
WHILE THE SPECIFICS OF THEIR FINDINGS
AND REC01vUv1ENDATIONS ARE
UNKNOVT ~J._ IT
SEE:M:S R.l\. THER CLE.l\R TH.Ll\.l T
THE WINDS OF CHANGE ARE BLOWING IN DIRECTIONS THAT I HAVE
INDICATED ABOVE.
AS I TRAVEL ABOUT THE DISTRICT, I'VE ASKED SEVERAL OF YOU
WHAT YOUR OPERATIONS WOULD BE LIKE IF THERE WERE NO
REGULA TORY RESTRAINTS OF ANY TYPE UPON YOUR ACTIVITIES.
THE THOUGHT OF THIS HAS BEEN SO FOREIGN TO YOUR EXPERIENCE
AND YOU HAVE BEEN SO
~USY
COPING (RATHER SUCCESSFULLY I
MIGHT ADD) WITH THE PROBLEMS OF THE SIXTIES THAT YOU HAVEN'T
HAD MUCH TIME TO DREAM THE BIG DREAM.
BUT WITH THE WINDS OF
CHANGE BLOWING SIMULTANEOUSLY IN SO MANY PLACES LET ME URGE
YOU TO SET YOUR SAILS, TRIM YOUR SAILS, ACQUIRE NEW CLOTH,
SCRAPE OFF THE BARNACLES, OR DO WHATEVER ELSE IS REQUIRED
-6- .
TO TAKE ADVANTAGE OF THESE DEVELOPMENTS SO THAT YOUR SAILING
IN THE 70s CAN BE A MOST PLEASANT EXPERIENCE.
ALL OF THESE ACTIONS, THE BAT'-JK HOLDING COMPANY ACT
AMENDMENTS, THE HUNT COMMISSION REPORT, AND THE STA TE
STUDIES HAVE A COMMON GOAL; THAT IS TO ASSURE THAT THE
FINANCIAL INSTITUTIONS SERVE THE PUBLIC INTEREST BETTER BY
IMPROVING THE PROVISION OF SERVICES AND THE ALLOCATION OF
RESOURCES TO SOCIETY.
THESE STIRRINGS ARE NOT EXERCISES,
UNDER TAKEN TO MERELY GIVE YOU PROBLEMS (WHICH THEY WILL),
BUT THEY WILL GIVE YOU MANY UNIQUE OPPORTUNITIES AS WELL.
BECAUSE OF THE RAPIDLY CHANGING ENVIRONMENT AND TO
MAKE MANY CRUCIAL MANAGEMENT DECISIONS REGARDING NEW AREAS
OF OPERATION, NEW OPERA TING PROCEDURES, TECHNIQUES AND
0
APPROACHES, YOU WILL BE CONFRONTED WITH SOME OLD AND
FAMILIAR PROBLEMS SUCH AS POTENTIAL CONFLICTS OF INTEREST,
NOT ONLY IN FACT, BUT EQUALLY, IN APPEARANCE.
THE ANSWERS
OR SOLUTIONS ARE BY NO MEANS OBVIOUS.
FOR EXAMPLE, A MAJOR AREA OF PARTICULAR INTEREST
CURRENTLY IS THAT FOUND EXISTING BETWEEN TRUST DEPARTMENTS.
AND THE COMMERCIAL SIDE OF BANKING.
FREQUENTLY, A LENDING
OFFICER IN ANALYZING THE CREDIT ASPECTS OF A CUSTOMER WILL
GATHER INFORMATION AND FORM OPINIONS CONCERNING THE FINANCIA
WELL BEING OF THE CUSTOMER.
BE ANALYZING THE COMPANY?
OF COURSE, WHY ELSE WOULD HE
THE INFORMATION THAT HE HAS
- 7-
GATHERED COULD BE OF SIGNIFICANT INTEREST TO THE TRUST
DEPARTMENT WHICH MAY HAVE, OR BE CON TEMP LA TING, TAKING
AN INVESTMENT INTEREST IN THE SAME COMPANY.
IS ALSO TRUE.
THE OPPOSITE
THE INVESTMENT OF TRUST FUNDS MUST BE FREE OF
THE SUSPICION THAT IN SOME MANNER THEY WERE UTILIZED TO AID
THE FURTHER DEVELOPMENT OF COMMERCIAL BUSINESS FOR THE BANK
CLEARLY THE BANK MUST SEEK TO PROTECT ITSELF FROM BEING
CHARGED FROM USING INSIDER INFORMATION, AND YET AT THE SAME
TIME ANSWER TO ITS RESPONSIBILITY AS A FIDUCIARY OF THE TRUST
FUND.
WITH THE MURKY STATUS OF BOTH THE "INSIDER" AND THE
"FIDUCIARY RESPONSIBILITY" AREAS, IT MAY SIMPLY BE A CASE OF
DAMNED IF YOU DO AND DAMNED IF YOU DON!T.
SO:lvIE
COM.lvIEP.Cil~L
BANKS HAVE ESTABLISHED PROCEDURES TO BUILD A SO-CALLED
"WALL OF CONFIDENTIALITY" BE.TWEEN THEIR COMMERCIAL LENDING
DEPARTMENT AND TRUST INVESTMENT FUNCTION, BUT WILL THIS BE
SUFFICIENT?
FAILURE TO FULFILL FIDUCIARY RESPONSIBILITIES
HAS SUCH GRAVE CONSEQUENCES THAT THE RELATIONSHIP OF TRUST
ACTIVITIES AND COMMERCIAL LENDING MAY PRESENT A NEARLY
UNSOLVABLE PROBLEM.
IT IS NO LESS TRUE THAT IF, IN. THE FUTURE, BANKING ORGANIZATIONS EXPAND THEIR ACTIVITIES INTO AREAS BEYOND "TRADITIONAL' 1
COMMERCIAL BANKING, THE OPPORTUNITIES OF VIOLATING REGULATIOl'
AND LEGISLATION, OR THE APPEARANCE THEREOF, ARE MULTIPLIED.
FOR INSTANCE, A BANK HOLDING COMPANY MAY HAVE SUBSIDIARIES
-8-
WITH THE ABILITY TO SA TIS FY SEVERAL NEEDS OF A CUSTOMER SUCH
AS AN INSURANCE AGENCY, A LEASING COMPANY OR A DATA PROCESSIN<
SERVICE.
IF THE CUSTOMER BELIEVES THAT HE WILL RECEIVE MORE
FAVORABLE TREATMENT AS A BANK CUSTOMER IF HE USES THESE
OTHER SERVICES, HIS ACTIONS MAY GIVE THE APPEARNACE OF A
TIE-IN TO OTHER SERVICES EVEN THOUGH IT MAY BE TRULY VOLUNTAR
TO MINIMIZE THESE POTENTIAL PROBLEMS, IT WOULD BE WELL TO
CONSIDER THEM CAREFULLY IN YOUR EARLY PLANNING.
BUT THE WINDS OF CHANGE AFFECTING OUR OPERATIONS ARE
BY NO MEANS CONFINED TO THOSE FACTORS I'VE JUST MENTIONED.
ONCE AGAIN, LET ME EMPHASIZE THAT A VERY NEAR-SIGHTED
INDIVIDUAL LOSES A GREAT DEAL OF CREDITABILITY BY CLAIMING
GREAT FORESIGHT INTO THE FUTURE - - YET OUR EXPERIENCES OVER
THE PAST TWO DECADES OR MORE POINT UP THE DIRECTION OF
MOVEMENT IN A NUMBER OF AREAS THAT WILL POSE VERY REAL
PROBLEMS OVER THE NEXT DECADE.
SOME HIGHLY PROBABLY DEVELO
MENTS, IF MY WEATHER FINGER HAS ANY DEGREE OF SENSITIVITY ARE:
1.
WAGES WILL CONTINUE TO RISE.
2.
THE RATE OF TECHNOLOGICAL CHANGE WILL ACCELERATE.
3.
THE SERVICE SECTOR OF GNP (INCLUDING FINANCE AND
BANKING) WILL GROW MORE RAPIDLY THAN THE TOTAL.
4.
INCOME AND POLITICAL POWER WILL BECOME MORE
WIDELY DISTRIBUTED THROUGH THE POPULATION . .
5.
SPECIAL INTEREST GROUPS - WOMEN'S LIB, CONSUMER
PROTECTION, VARIOUS MII':J"ORITY CATEGORIES, POVERTY -WILL BECOME EVEN MORE VISIBLE AND EFFECTIVE.
-96.
THE ROLE OF GOVERNMENT IN OUR SOCIETY WILL NOT
DIMINISH.
7.
INTERNATIONAL DEVELOPMENTS WILL PLAY A MORE
IMPORTANT ROLE IN OUR ACTIVITIES - BOTH DIRECTLY AND
INDIRECTLY.
AND I COULD GO ON.
BUT WHAT SIGNIFICANCE MAY THESE TRENDS
HA VE ON OUR ACTIVITIES?
IN THE FIRST PLACE, IT IS CLEAR THAT BANKING IS A LABOR
INTENSIVE INDUSTRY.
AS WAGES AND SALARY COSTS RISE AND AS
THE DEMAND FOR SERVICES INCREASE, YOU WILL ACCELERATE YOUR
EFFORT TO HARNESS THE POWER OF TECHNOLOGY TO INCREASE
PRODUCTIVITY AND HOLD UNIT COST DOWN.
HOWEVER, THE ADOPTION
OF NEW TECHNOLOGY MEANS, BY DEFINITION, DOING THINGS
DIFFERENTLY THAN
THE WA 'f THINGS Al<.E DONE '.CODAY.
AND, AS
WE ALL KNOW, CHANGE ITSELF CREATES PERSONNEL AND INSTITUo
TIONAL STRESS.
NONETHELESS, THE RECORD OF BANKING INDICATES
AN ADA PA TABILITY THAT BODES WELL FOR THE FUTURE. · FOR
INSTANCE, BANKING HAS BECOME ONE OF THE PRINCIPAL USERS OF
0
COMPUTERS -- A DEVICE THAT IS SUBSTANTIALLY CHANGING THE
WAY WE DO BUSINESS.
THE ADOPTION OF MICR AND THE EXPERIMENTS
. IN USING AN AUTO MA TIC 24-HOUR TELLER ARE OTHER EXAMPLES
OF BANKING'S OPENNESS TO NEW TECHNOLOGY AND NEW APPROACHES.
THUS, IT APPEARS THAT ALTHOUGH RISING LABOR COST, CHANGING
TECHNOLOGY, AND GROWTH IN THE DEMAND FOR BANKING SERVICES
PRESENT PROBLEMS FOR BANKS, THEY ARE NOT INSURMOUNTABLE.
-10-
BANKING'S RECORD IN MEETING THESE KINDS OF PROBLEMS IS
LAUDABLE.
YfE WILL BE FACED WITH OTHER TYPES OF PROBLEMS, TOO.
THERE WILL CONTINUE TO BE AN INSISTENCE {HOWEVER MISDIRECTED)
THAT BUSINESS OUGHT TO FOCUS ON "PEOPLE--NOT PROFITS," THE
OBVIOUS IMPLICATION BEING THAT SERVICE TO THE COMMUNITY IS
0
0
INCOMPATIBLE WITH PROFITSo
FOR TUNA TELY, FOR BUSINESS AND FOR
SOCIETY, THERE IS NO CONTRADICTION BETWEEN SOCIETY'S GOALS
AND THOSE OF BUSINESS.
AFTER ALL, UNLESS A FIRM IS PROVIDING
A SERVICE THAT SOCIETY DESIRES, IT HAS NO CHANCE OF ACHIEVING
PROFITABILITY.
(SOME HAVE ARGUED, FURTHER THOUGH, THAT A
FIRM OUGHT TO DELIBERATELY SACRIFICE PROFITS IN ORDER TO
"HELP SOCIETY." I HAVE NO SUCH ARGUMENTS FOR YOU HERE.
IN-
STEAD, I ASSERT THAT THE RESPONSIBILITY OF MANAGEMENT IS TO
THE STOCKHOLDERS AND THAT MANAGEMENT HAS NO RIGHT TO SACRIFIC
THE INTERESTS OF A FIRM'S OWNERS TO NON-OWNERS.) I CANNOT
PROMISE THAT SOCIETY WILL NOT REDEFINE THE TERMS OF YOUR
EXISTENCE OR IMPOSE A NEW COMPETITIVE ENVIRONMENT IN WHICH
YOU MUST FUNCTION.
I AM ONLY SAYING THAT WITHIN THOSE CONSTRAil'
YOUR RESPONSIBILITY REMAINS THE SAME.
HOWEVER, DANGERS ARISE WHEN MANAGEMENT SETS OUT TO
. MAXIMIZE PROFITS OVER TOO SHORT A TIME PERIOD.
THAT DANGER IS
ESPECIALLY ACUTE WHERE A FIRM TAKES A SHORT-RUN VIEW IN THE
MIDST OF RAPID SOCIAL CHANGE SUCH AS THAT WHICH WE ANTICIPATE
IN THE INTERMEDIATE-TERM FUTURE.
WHILE BANK MANAGEMENT
MUST NOT FORGET ITS OBLIGATION TO ITS STOCKHOLDERS, IT FAILS
-11-
TO DISCHARGE TH.AT RESPONSIBILITY WHEN--WITH TOO SHORT A
PERSPECTIVE--IT UNDERESTIMATES THE LONG-TERM IMPACT OF COMMUNITY GOODWILL ON THE BANK'S EARNINGS.
IT ALSO FAILS IN THAT
RESPONSIBILITY WHEN--WITH TOO SHORT A PERSPECTIVE--IT DOES NOT
RECOGNIZE THAT SOCIAL AND ECONOMIC CHANGES CONTINUE, ITS
POTENTIAL CLIENTELE CHANGES.
0
THERE IS NO CONFLICT BETWEEN
0
OUR RESPONSIBILITY TO OUR SHAREHOLDERS AND OUR DESIRE TO
SERVE SOCIETY, PROVIDED WE TAKE A LONG-TERM VIEW.
NOW LET US LOOK AT WHAT THIS BRA VE NEW WORLD HOLDS
FOR THE FEDERAL RESERVE SYSTEM.
LIKE ANY WELL-MANAGED
ECONOMIC UNIT, AS PART OF ITS PLANNING ACTIVITIES, THE SYSTEM
IS CONST _ANTLY REEXAMINING ITS OBJECTIVES AND GOALS TO
ASCERTAIN HOW ITS FUNCTIONS CAN BEST CONTRIBUTE TO THE
ACHIEVEMENT OF SOCIETY'S GOALS.
HAVE PROBLEMS.
IT IS APPARENT THAT WE TOO
WE ARE ALSO LABOR INTENSIVE, AND MUST COPE
WITH RAPIDLY CHANGING TECHNOLOGY, SOCIAL AND ECONOMIC ENVIRONMENT AND WE MUST ADAPT AND ADJUST OUR ACTIVITIES TO HELP
ACHIEVE A HEALTHY AND PROGRESSIVE FINANCIAL ENVIRONMENT.
BECAUSE OF THE EVER INCREASING VOLUME OF WORK WE ARE
HANDLING AND THE INCREASING COST OF LABOR, WE, TOO, MUST
ADOPT NEW TECHNOLOGIES TO HELP US OPERATE MORE EFFICIENTLY.
SOME SOOTHSAYERS HAVE SAID THAT SOCIETY WILL DROWN .IN
A SEA OF PAPER AND THERE ARE DAYS WHEN I'M TEMPTED TO SEND
OUT AN S.O.S BUT THEY UNDERESTIMATE THE NEW TECHNOLOGY AND
MAN'S ADAPTIVENESS. .
-12-
IN THE AREA OF CHECK COLLECTION, FOR INSTANCE, WE ARE
RAPIDLY MOVING FORWARD IN ESTABLISHING REGIONAL CHECK
PROCESSING AND COLLECTION CENTERS THAT MAY ASSIST IN HOLDING
DOWN THE COST OF CHECK COLLECTION BY REDUCING SUBSTANTIALLY
THE NUMBER OF TIMES THE ITEMS ARE HANDLED AND AT THE SAME
TIME SUBSTANTIALLY SPEED UP THE COLLECTION PROCESS.
BUT
THIS IS ONLY AN INTERIM STEP; THESE CENTERS ARE VIEWED AS
THE FUTURE CORE OF AN ELECTRONIC SYSTEM THAT WILL LEAD US
TO A CHECKLESS, OR AT LEAST A "LESS CHECK", PAYMENTS MECHANISM.
MANY OF YOU ARE AWARE OF OUR PROGRESS IN ESTABLISHING AN RCPC - ·
AS THESE CHECK COLLECTION CENTERS ARE CALLED -- IN COLUMBUS.
WE HOPE THAT THIS WILL BECOME A REALITY IN 1972 AND OUR PLANNING
IS WELL ADVANCED FOR MAKING SIMILAR SERVICES AVAILABLE TO ALL
PARTS OF THE STATE WITHIN A REASONABLY SHORT PERIOD OF TIME.
SIMILAR DEVELOPMENTS ARE OCCURRING IN OTHER FEDERAL RESERVE
DISTRICTSo
OUR VARIOUS SERVICE ACTIVITIES, SUCH AS SUPPLYING YOU
WITH CURRENCY AND COIN, ARE BEING REEXAMINED AND REVISED
WHERE NECESSARY AND OUR MANY SERVICES FOR THE TREASURY
DEPARTMENT ARE BEING SUBJECTED TO SIMILAR EXAMINATION AND
CHANGE.
HOPEFULLY, THESE CHANGES IN OUR ACTIVITIES WILL
CONTRIBUTE TO A MORE EFFICIENT FUNCTIONING FINANCIAL SYSTEM
FROM A SOCIETAL VIEWPOINT.
WE ARE COGNIZANT, HOWEVER,
-13- .
THAT THESE WILL REQUIRE ADJUSTMENTS IN YOUR ACTIVITIES TO
A GREATER OR LESSER DEGREE.
IN ADDITION, WE ARE AWARE
THAT MANY OF OUR RULES AND REGULATIONS MAY NOT BE
APPROPRIATE IN A RAPIDLY CHANGING ENVIRONMENT.
SOME THOUGHT IS BEING GIVEN TO A NUMBER OF THESE, E.G.,
THE PROBLEM OF RESERVE REQUIREMENTS, INTEREST RATE REGULATION, ETC.
THE SYSTEM HAS THE POWER UNDER PRESENT LEGISLATIOl\
TO INTRODUCE SIGNIFICANT AND NEW APPROACHES OR TO MAKE
SUBSTANTIAL CHANGES IN PRESENT ACTIVITIES.
OTHER CHANGES
WOULD REQUIRE LEGISLATIVE ACTION AND THE COOPERATION OF
OTHER AGENCIES.
SPELL OUT ALL
IT WOULD BE A BIT PRESUMPTUOUS TO TRY TO
.ALTERN.1~.. TIVES.
BUT I sn.1PLY "\i'lANT TO !NDICA TE
TBA T THE WINDS OF CHANGE ARE JUST AS ACTIVE WITHIN THE SYSTEM
AS OUTSIDE.
THE QUESTIONS OF EQUITY ARE VERY MUCH BEFORE US
AS WE TRY TO EXAMINE CAREFULLY THE PRESENT FINANCIAL STRUCTU:
AND THE MANY CHANGES WHICH MAY OCCUR IN THE MONTHS, YES,
MO:i'JTHS AHEAD.
WE WILL NEED YOUR HELP, COMMENTS AND CRI-
TICISMS AS WE ENDEA VER TO FIND SOLUTIONS THAT WILL IMPROVE THE
FUNCTIONING OF OUR FINANCIAL SYSTEM.
SOME OF THE SIDE EFFECTS
MAY BE QUITE UNEXPECTED OR QUITE DIFFERENT FROM THOSE THAT
WE ANTICIPATE.
FOR EXAMPLE, I'VE BEEN QUITE INTERESTED IN SOME OF THE
EXPERIMENTS BEING CONDUCTED BY COMMERCIAL BANKS SUCH AS THE
ONE IN UPPER ARLINGTON.
MANY OF YOU ARE FAR MORE FAMILIAR TH1
-14-
I WITH THIS PROJECT AND I WAS REMINDED IN MY LITTLE FIELD RESEAR<
EFFORT THAT THE MERCHANTS WERE VERY MUCH AWARE THAT THIS
WAS A TOOL FOR THEIR OTHER ACTIVITIES NOT THE PRIMARY PURPOSE
OF THEIR ENDEAVORS.
THIS NOT ONLY SUGGESTS THAT OUR PAYMENTS
MECHANISM IN THE FUTURE MAY BE QUITE DIFFERENT FROM THAT
WE KNOW TODAY -- BUT IT MAY ALSO SUGGEST THAT THE BASIS OF
PAYMENT TO BANKS FOR FINANCIAL SERVICES TO CONSUMERS,
BUSINESS FIRMS, AND EVEN 0 THER BANKS, MAY BE DRASTICALLY
CHANGED -- TERMS OF TRADE IN THE INDUSTRY MAY BE ALTERED -NEW COMMUNICATION PROBLEMS AND THE NEED FOR THE FED TO
RETHINK A NUMBER OF ITS POLICIES AND PROCEDURES.
I'M SIMPLY
INDICATING THAT THE CONSEQUENCES OF SOME OF THE CHANGES
INDICATED ABOVE MAY BE QUITE DIFFERENT FROM THOSE WE EXPECT.
THE FEDERAL RESERVE CAN EXPECT TO BE REMINDED SHARPLY
BY OTHERS OF THE NUMEROUS SOCIETAL PROBLEMS.
WE ARE
RESTRICTED BY LAW WITH RESPECT TO OUR RESPONSE BUT WE
WILL TRY TO RESPOND POSITIVELY TO THE EXTENT OF OUR ABILITY . .
FOR EX.AMPLE, WE CAN FOCUS OUR RESEARCH STRENGTH ON SOME
OF THE ISSUES THAT I HAVE OUTLINED SO FAR AND HOPEFULLY
GAIN A BETTER UNDERSTANDING OF THE ECONOMIC PROBLEMS OF
THE DISTRICT, DEVELOP INNOVATIVE SOLUTIONS TO OTHER PROBLEMS
THROUGH OUR OWN PERSONNEL POLICIES AND DECISIONS, RECOGNIZE
AND RESOLVE THE POLLUTION PROBLEM WE MAY HAVE FOSTERED
THROUGH OUR BURNING OF CURRENCY, ETC.
-15-
WE ARE FACED WITH NEW REGULATORY ISSUES OCCASIONED
BY CHANGES IN THE STRUCTURE AND OPERATIONS OF OUR BAT\TKING
INSTITUTIONS.
IF THE HUNT COMMISSION'S RECOMMENDATIONS, .
WITH RESPECT TO THE REGULATION OF THE BANKING STRUCTURE,
WERE ADOPTED, OUR ACTIVITIES IN THIS REGULATORY FUNCTION
WOULD BE ELIMINATED.
OUT OF THE WATER.
THESE WINDS OF CHANGE WOULD BLOW US
THE PRESENT OVERLAP OF REGULATORY
AUTHORITY IS AN OLD STORY TO YOU AND I CERTAINLY AM IN NO
POSITION TO DEFEND THE STATUS QUO AS IDEAL.
PERHAPS MY
REACTION IS SIMPLY THE VERY HUMAN ONE WHEN CONFRONTED BY THE
NECESSITY FOR CHANGE.
BUT WITHIN THE FEDERAL RESERVE
SYSTEM SOME OF US HA VE REAL CONCERN ABOUT LOSING THE INFORMA'
THAT RESULTS FROM THE DIRECT AND INTIMATE CONTACT WITH BANKS
THAT WE REALIZE THROUGH THE EXAMINATION PROCESS.
THE
PRESENT CONTACT WITH BANKING OFFICERS IS A VALUED SOURCE OF
lliFORMA TION.
FOR,"- DESPITE CHANGrnG OPERATtONS, INCREASED SERVICE
FUNCTION,· AND AN INCREASED OR A DECREASED REGULATORY
FUNCTION--THE SYSTEM MOST COPE WITH ITS RAISON D'ETRE,"
ITS MONETARY POLICY FUNCTION.
IN THE BROADEST SENSE, · WHAT
WILL BE SOCIETY'S GOALS IN THE YEARS AHEAD?
THESE GOALS
DETERMINE THE POLICY FUNCTION THE FEDERAL RESERVE SYSTEM
IS EXPECTED TO PERFORM.
WILL THE BASIC ISSUES OF THE
FUTURE ENVIRONMENT RESEMBLE OUR CURRENT CONCERNS: A
-16TRADEOFF BETWEEN
UNEMPLOY~ENT
AND PRICE STABILITY,
BETWEEN DOMESTIC AND INTERNATIONAL GOALS, AND STABILIZATION
ill TERMS OF MINIMIZlliG DEVIATIONS FROM SOME NORM.
OR
WILL THE EMPHASIS SHIFT TO REDISTRIBUTION AND ALLOCATION
OF
R~SOURCES?
AT PRESENT, THERE SEEMS TO BE WIDESPREAD
AGREEMENT ON THE NECESSITY TO ACHIEVE THE ECONOMIC GOALS
SPELLED GUT IN THE EMPLOYMENT ACT OF 1946: FULL EMPLOYMENT
WITH PRICE STABILITY/ GROWTH AND PRODUCTION; · AND BALANCE .
OF PAYMENTS EQUILIBRIUM.
THERE IS CONSIDERABLY LESS
AGREEMENT ON OUR ABILITY TO CONTRIBUTE TO ALL OF .THESE
SIMULTANEOUSLY.
WE, TOO, HAVE LIMITED TOOLs; · LTh1ITED
KNOWLEDGE, · AND SOCIETAL CONSTRAINTS.
FOR EXAMPLE,- DOES
THE CENTRAL BANK 1 S RESPONSIBILITY TO MAINTAIN ORDERLY
FINANCIAL MARKETS CONFLICT WITH THE STABILIZATION GOALS
OF THE FULL EJvIPLOYMENT ACT?
IF WE WERE TO OPERA TE IN A
SYSTEM THAT ENCOMPASSES ALL DEPOSITORY INSTITUTIONS UNDER
A SINGLE SET OF REGULATIONS, WILL WE DISCOVER THAT POLICY
TARGETS ARE MORE CLOSELY ASSOCIATED WITH POLICY GOALS;
THAT SHORT-TERM AND LONG-TERM GOALS ARE LESS FREQUENTLY
AT ODDS? OBVIOUSLY, WE NEED TO
OTHERS SEE US,"
11
SEE OURSELVES AS
TO KNOW WHAT IS EXPECTED OF US, . TO
ANALYZ~
IF WHAT WE CAN ACCOMPLISH lviATCHES THOSE EXPECTATIONS.
- .11
THERE ARE UNDOUBTEDLY OTHER FACTORS THAT COULD BE
MENTIONED THIS AFTERNOON BUT GER TAINLY NO MORE ARE NEEDED
TO STRESS MY POINT.
SEE CHANGE.
AS YOU LOOK AT YOUR INDUSTRY, YOU CAN
HOWEVER, IF YOU CONSIDER THE OPINION OF' OTHERS
WHO HAVE LOOKED AT COMMERCIAL BANKING AS A PART OF OUR
·
NETWORK OF FINANCIAL INSTITUTIONS, THE POSSIBLE CHANGES THEY
FORESEE WERE STAGGERING.
PERHAPS, AFTER ALL_ THE QUESTIONS I'VE INTRODUCED, I CAN
CLOSE WITH A FEW CERTAINTIES.
I CAN STATE THAT THE PACE OF
OUR DECISION MAKING WILL NOT SLOW -- OUR CHOICES WILL NOT
NARROW - - WE WILL NOT BE REQUIRED TO MANAGE LESS.
YOU WILL
NEED TO MARSHALL ALL AVAILABLE TALENTS, USE THE BEST
TECHNOLOGY, IMPROVE YOUR PROFITABILITY ANALYSIS, AND
RECOGNIZE AND ADAPT TO THE IRREVERSIBLE TRENDS IN YOUR FUTURE.
THE FEDERAL RESERVE SYSTEM MUST BE EQUALLY OPEN AND FLEXIBLE.
WE MUST BOTH PLAN FOR CHANGE EVEN IF WE CANNOT PRECISELY
DETERMINE TODAY THE SPECIFIC ACTIONS .THE FUTURE WILL DEMAND
I AM SUGGESTING ONLY THAT THIS PLANNING WILL BE ENHANCED BY
A STUDY OF ALL POINTS OF VIEW -- THOSE OF OUR SUPPORTERS AS
. WELL AS OUR CRITICS FOR THEY ARE LIKELY TO HAVE AS MUCH
INFLUENCE ON OUR FUTURE (AS ECCNOMIC UNITS) AS OUR OWN DECISIONE
REGARDING THE INTERNAL FACTORS WE NOW CONTROL.
IT IS A DEMAND
· ING AND EXCITING ROLE TO BE PART OF THE FINANCIAL COMMUNITY
(
.
AT THIS TIME.
-us-
BUT SPEAKING ON BEHALF OF MY COLLEAGUES IN THE FEDERAL
RESERVE BANK OF CLEVELAND, I WANT TO ASSURE YOU OF AN OPENLINE -- WE NEED TO HEAR FROM YOU -- TO UNDERSTAND YOUR
PROBLEMS AND THOSE OF YOUR COMMUNITIES.
NEED
TC
YOU, IN TURN,
UNDERSTAND OUR PROBLEMS AND OUR PERSPECTIVE.
WE
MAY NOT AGREE ON ALL POINTS BUT HOPEFULLY BY WORKING
TOGETHER WITH MUTUAL RESPECT AND UNDERSTANDING WE CAN
FIND BETTER SOLUTIONS FOR THE PROBLEMS WE FACE AND THUS
EVOLVE A BETTER FINANCLA..L STRUCTURE.
WITH YOUR HELP I'll
AT LEAST HAVE MORE CONFIDENCE IN MY PRESCRIPTIONS -- I ONLY
HOPE THAT IN TURN AND IN TIME '. YOU MAY SHARE THIS FEELING -I VTANT TO AVOID THE LOCKED OPEN PROBLEM --- IF POSSIBLE.
@FedFRASER