Highlights of 1997
By Karen Flamme
As the payments system of the country evolves technologically, regional
Reserve Banks respond to the needs of their constituencies and look for
innovative ways to achieve efficiencies, through both technology and an
integration of Federal Reserve services across Districts.
The District Business Development office in Portland served as the national
logistics coordinator for the important Rivlin study conducted during
1997, planning five national forums and eight regional meetings held in
our District. During these meetings representatives of financial institutions
were invited to discuss five hypothetical scenarios for the future role
of the Federal Reserve in retail payments services. These alternatives
ranged from exiting check collection and ACH services altogether to adopting
a leadership role in spurring innovation and market acceptance of new
payments services and products.
With information from these sessions, as well as from internal studies,
the Rivlin Committee reached two major conclusions: first, it is important
for the Federal Reserve to remain a provider of check collection and ACH
services with the goal of enhancing the efficiency, effectiveness, and
convenience of both systems, while ensuring access for all depository
institutions; and second, the Federal Reserve should play a more active
role, working closely with providers and users of the payments system,
both to enhance the efficiency of check and ACH services and to help evolve
strategies for moving to the next generation of payment instruments.
To further encourage the transition from paper to electronic payments,
the District conducted a highly successful ACH Direct Payment campaign
targeted initially at utility customers in portions of the San Francisco
Bay Area, encouraging them to pay their utility bills through automatic
deduction. The program was a partnership between our Bank, Western Payments
Alliance, the utilities, and their financial institutions. More than 100,000
sign-ups were received, exceeding expectations based on similar projects
in other Districts. Additional campaigns are planned for the Pacific Northwest
and Southern California areas in 1998.
A variety of check imaging services were made available Districtwide
during 1997. And our customers can now go to a page on the Bank╠s web
site at / and browse through our check product offerings.
To remind us of our roots and the ever-present demand for currency, in
spring 1997 the Bank opened a stellar exhibition of American Currency
in the lobby of the San Francisco headquarters. Featuring a premiere collection
of historical currency, the exhibition is a resource for educators, numismatists,
and the public through our tour program, as well as on a walk-in basis.
A web version of the exhibition will be on-line by mid-1998.
Establishing and implementing the nation╠s monetary policy is one of
the primary functions of Reserve Banks. Ongoing research is essential
to providing a strong foundation for supporting this Bank╠s monetary policy
recommendations. Research conducted during 1997 focused on various policy-related
issues. Among them were studies examining the merits of alternative policy
rules for targeting inflation; the effects on economic performance of
policies to reduce inflation; and the key features of the different policy
regimes in place under Federal Reserve Chairmen Burns, Volcker, and Greenspan.
Several articles were written on labor markets. Staff economists examined
job insecurity in the U.S. and the effects of welfare reform, health insurance,
and family structure on the labor force. The banking unit studied financial
modernization, including implications for efficiency, risk, and profitability
in banking. Other research dealt with consolidation in banking and examining
evidence on contagion effects from bank mergers, as well as the effect
of bank mergers on the pricing of retail deposits and interstate banking
in the District.
The Bank continued to serve as a focal point for analysis of Pacific
Basin issues through the activities of our Pacific Basin Center. Research
staff examined the causes and lessons of the 1997 East Asian financial
crisis. International studies analyzed monetary policy issues in selected
countries, including Korea, New Zealand, and Singapore. Research staff
also looked at the implications of trade agreements and of budget and
trade imbalances in the region. The department co-hosted an academic conference
with the Center for Economic Policy Research at Stanford University. The
conference featured papers by eminent academic and System economists on
¤Recent Developments in Macroeconomics.
The department also hosted a conference with the American Committee on
Asian Economic Studies on ¤Financial Liberalization and Development in
the Pacific Basin.
Banking Supervision and Regulation
Risk-focused initiatives were the hallmark of activities in the Supervision
and Regulation area during 1997. Risk-based functional reviews were implemented
at the District╠s largest institutions, procedures were developed and
tested for conducting risk-focused compliance examinations, and mergers
and acquisitions regulations were revised to speed the applications process
for organizations that are well-managed and well-capitalized.
Federal Reserve Banks have primary responsibility for supervising all
bank holding companies, their nonbank and foreign subsidiaries; state
member banks and their foreign branches and subsidiaries; Edge Act and
agreement corporations through which U.S. banking organizations conduct
operations abroad; and U.S. activities of foreign banking organizations.
At year-end there were 60 state member banks in the District. There were
also 203 holding companies with assets of 511 billion, 103 agencies and
branches of foreign banks, 17 Edge and Agreement corporation offices,
and 40 representative offices.
Overall applications activity declined by 39, approximately 13 percent,
compared to the same period in 1996. This was partially offset by an increase
in bank acquisitions, continuing the industry╠s trend of expansion and
consolidation. Applications to form bank holding companies increased by
9 (from 26 to 35).
Community Affairs expanded its role of providing outreach and education
on community reinvestment topics. Staff hosted a series of training sessions
for Community Reinvestment Act (CRA) officers throughout the District
to introduce them to local community reinvestment opportunities and provide
education on technical CRA aspects. A conference announced recommendations
of the San Francisco Mortgage Credit Partnership task forces, which had
been convened to identify barriers that exist for low-income borrowers
in the home purchase process. In addition, staff provided a week of intensive
hands-on credit training for 60 community development professionals and
community lenders in partnership with the University of Washington at
the National Community Development Lending School.
In Hawaii, meetings were held to assist in the creation of a micro-loan
pool for low-income entrepreneurs. To complement that effort, meetings
were also held with representatives of local community-based organizations,
a local bank, and the Department of Rehabilitation to discuss self-employment
opportunities for people with disabilities.