The primary focus of our Bank during 1999 was to ensure the banking system's operational readiness for the transition to the year 2000. Our activities capped off a multi-year effort to prepare our internal systems and to ensure the preparedness of financial institutions' systems that support the nation's payments systems. As a regulator of financial institutions and the nation's money manager, our charter directs us to ensure safety and soundness in the operations of financial institutions, to provide stability in financial markets, and to maintain the smooth functioning of the nation's payments system.

Throughout the year we tested applications with the depository institutions that are our customers, implemented updated systems, reviewed institutions' readiness plans, and regularly communicated our progress to the public. We produced the brochure "How Is the Banking Industry Preparing for Y2K?" in four languages and distributed it to more than 150,000 constituents, along with providing speakers on the subject of Y2K readiness for 45 events and 22 seminars. Our Bank's credit and risk management area prepared District financial institutions to obtain short-term credit in the event of Y2K-related liquidity problems. We also devoted considerable resources to ensuring that adequate supplies of cash would be available to meet the higher demand for currency expected in the days leading up to the century rollover weekend.

Financial Services

The Bank did not allow its Y2K preparations to eclipse other critical, long-standing objectives. In our financial services functions, we continued to focus on promoting electronic transactions and transitioning customers from paper-based delivery of transaction information to electronic delivery. In addition, we prepared for the Systemwide consolidation of two of our fiscal agency functions, TreasuryDirect and Treasury Tax and Loan (TT&L), in 2000.

Executive Committe From left (standing): Gordon R.G. Werkema, Executive Vice President; John F. Moore, First Vice President; Jack H. Beebe, Senior Vice President and Director of Research From left (seated): Terry S. Schwakopf, Senior Vice President; Robert T. Parry, President

In another significant event, we received final approval from the Board of Governors to establish a cash operations center in Phoenix to meet the cash needs of the growing Arizona market. We will break ground on that facility in the spring of 2000in preparation for a September 2001 opening.

In the retail payments area, the Bank continued to promote electronic payments and electronic collection of paper-based payments by offering competitive and innovative services. The Bank's Automatic Bill Payment (ABP) Program is a joint marketing program that enables utilities, municipalities, and newspapers that share common customers to coordinate direct payment promotional efforts using a common enrollment form. The San Francisco Bay Area ABP Program, which started in 1997, now includes 14 billers and 30 financial institutions with a total of 222,000 enrollments.

In addition, the Bank provided project leadership for the Treasury Point of Sale Check Conversion project, which is testing the feasibility and consumer acceptance of converting check payments made at the point of sale to ACH debit transactions for faster processing and speedier collection. By year-end, the U.S. Patent Office had two payment terminals generating ACH debits, and a number of other Treasury agencies were on track to convert checks in 2000, including the Department of Veterans Affairs Canteen Service, the Bureau of Printing and Engraving, and the U.S. Customs Office.

Also, to promote electronic collection of checks, the Bank expanded its pilot of "Deposit MICR" services, adding a sizable financial institution with subsidiary banks in the Portland and Seattle zones to its customer base. The Bank's pilot of deposit MICR services includes the capture, sorting and imaging of transit and "on us" checks, as well as "proof of deposit" type services and item encoding. By enabling financial institutions to eliminate back office operations associated with handling paper items, these services make electronic check collection much more economical for financial institutions, particularly when they also provide images of paid items in their customers' monthly account statements in lieu of returning the physical items.

In order to provide higher levels of service and operate more efficiently through enhanced automation platforms, we continued to lead the Enterprise-wide Check Adjustments (EWA) project for the System. This application is the largest distributed processing application in the Federal Reserve. It will provide improved cross-District adjustments processing capabilities, as well as a platform for Web-based submission and tracking of cases, resulting in better efficiency in back room operations and enhanced services to both local and national customers.

Economic Research

Branch Operations From left (standing): Gordon R.G. Werkema, Executive Vice President, Northern Region; Raymond H. Laurence, Senior Vice President-in-Charge, Portland; Mark Mullinix, Senior Vice President-in-Charge, Los Angeles Seated: Andrea P. Wolcott, Vice President-in-Charge, Salt Lake City

The Bank contributes to the formulation of sound monetary and regulatory policy through academic research on topics of policy concern to the Federal Reserve, timely and high-quality data reporting, and outreach to increase the public's understanding of the Federal Reserve as the nation's central bank.

Research efforts in 1999 were concentrated in three key areas: structural change in the economy and the conduct of monetary policy, financial crises in emerging-market economies, and financial services industry restructuring and supervisory policy.

The Bank's Center for Pacific Basin Monetary and Economic Studies hosted an international conference on the theme "Financial Crises in Emerging Markets." The event brought together nearly 100 researchers and policymakers from foreign central banks, international organizations, academia, and the Federal Reserve to discuss the role of the financial sector in the occurrence of banking and currency crises in emerging market countries, particularly in Asia.

Banking Supervision and Regulation

In addition to handling successfully its Y2K-related supervisory responsibilities, the Bank's supervision function continued to focus on emerging risks, particularly in the supervision of large, complex banking organizations (LCBOs). In this regard, we deepened our expertise in global bank supervision, the supervision of new information technologies used in the delivery of financial services, and credit risk modeling techniques used by financial institutions. We also enhanced our Asia supervision program and our reputation as a leading expert in Asia. We continued to strengthen our safety and soundness and compliance supervisory programs for regional and community banking organizations by focusing on ongoing monitoring of, and outreach to, our supervised entities. In this matter, we were able to address emerging issues in a timely, cooperative manner.

In the Community Affairs area, the Bank continued to develop innovative outreach programs and to promote partnerships between financial institutions and community groups, focusing particularly on increasing the availability of credit to tribal lands. In this regard, the Bank convened and facilitated 25 meetings for bankers and tribal representatives on various Indian reservations in the Pacific Northwest, Idaho, and Utah. These gatherings have resulted in several financial institutions developing tribe-specific partnerships with loan commitments for mortgage and commercial lending on tribal lands.