Following the extensive preparations undertaken for Y2K, the Bank experienced
a very successful century date change weekend and subsequent "Leap
Day" on February 29. Prior to the rollover, Bank staff played a critical
role in ensuring that all of our customers had tested their interfaces
with the Bank, as well as making our own internal applications Y2K-compliant.
From left (standing):
Susan A. Sutherland, Senior Vice President
Mark Mullinix, Executive Vice President
Gordon R. G. Werkema, Executive Vice President
Jack H. Beebe, Senior Vice President and Director of Research
From left (seated):
Terry S. Schwakopf, Executive Vice President
Robert T. Parry, President
John F. Moore, First Vice President
In May, the operations and administrative areas of the Bank were organized
along functional lines, whereby staff within the same function in the
five District offices now all report to the same senior officer, as opposed
to the officer in charge of their Branch. This organizational change was
undertaken to ensure that we are positioned to build on our strong performance
over the last several years. Specifically, we sought to improve customer
service and customer care, reduce our cost structure, and streamline decision
making. Significant benefits from the reorganization were apparent by
the third quarter, including reduced operating costs and faster business
The Bank experienced record increases in cash receipts volume in 2000,
partly on account of the anticipated flow-back of Y2K-related currency
early in the year. Throughout the rest of the year, however, receipts
continued at a record pace, possibly signaling a shift in depository institutions'
cash management practices. At the same time, Automated Clearing House
(ACH) originations grew by 6.6 percent to comprise nearly 10 percent of
the System's total ACH volume. Particularly noteworthy was the fact that
the Bank exceeded its local net revenue target for priced services by
$1 million and its target in Check Services alone by $875 thousand, increasing
its Check net revenue contribution by more than $3.8 million over 1999's
level. These accomplishments were the result of tight cost control and
stepped-up efforts to market check services.
- In March, the Board of Governors approved the final design and project
budget for the Phoenix Processing Center, which will improve the quality
of cash services available to the Arizona market. By year-end, construction
was well underway, and the building is on schedule to open in September
- As Enterprise-Wide Adjustments (EWA) project manager for the Federal
Reserve System, the Bank successfully converted 17 Federal Reserve offices
to the EWA platform and made significant enhancements to the EWA software,
expanding its functionality and strengthening its contingency capabilities.
EWA is a component of Check Modernization, a project designed to create
an efficient check processing environment that includes stan-dard, centrally
managed platforms for item processing, check adjustments, and image
services, as well as web-based delivery of check services. The Bank
also assumed responsibility on behalf of the System for supporting and
enhancing the software that serves as the core for the standardized
check processing platform, or Check Standardization, another component
of the Check Modernization project.
- As part of a combined Treasury and Federal Reserve initiative to reduce
the cost of fiscal operations and streamline the provision of services
to customers, the Bank transferred to other Reserve Banks its long-standing
Fiscal Agency functions - Treasury Tax and Loan, Treasury Auction, and
Treasury Direct - while maintaining timely and orderly transactions
and high quality customer service during these consolidations.
Andrea P. Wolcott, Group Vice President,
Salt Lake City
Mark Mullinix, Executive Vice President, Los Angeles
Gordon R. G. Werkema, Executive Vice President, Seattle
Raymond H. Laurence, Senior Vice President, Portland
The Bank continued to work with the Treasury's Financial Management Service
to support the Treasury Offset Program (TOP). Since its inception, TOP
has recovered through offset a total of $5.65 billion that was returned
to creditor federal agencies.
The Bank continued to pursue its long-term strategy of focusing resources
on maintaining high standards of research in monetary policy and macroeconomics,
banking, regulation, and regional studies, as well as international economics,
with a special emphasis on the Pacific Basin.
- Research on U.S. monetary policy issues included several papers on
various aspects of policy rules - such as an assessment of nominal income
rules under uncertainty, rules as a reflection of policymakers' preferences,
and the role of expectations in the instability of rules - as well as
an exploration of the policy implications of a shift in trend productivity.
- Articles on banking and regulation included studies of the issues
surrounding the separ-ation of banking and commerce, the benefits of
expanded bank powers, and a study of the forecast performance of the
implied correlations in exchange rate currency options. Staff also looked
at regional and labor market issues, examining the cyclical and demographic
influences on California's income distribution, as well as income and
wage inequality in the U.S., and union effects on health insurance provision.
- Research in the international area focused mainly on Pacific Basin
issues and included such topics as Japan's banking sector and regulatory
policy, aspects of anticipating currency crises, macroeconomic performance
under different exchange rate regimes, the continued feasibility of
"soft" currency pegging arrangements, and the impact of capital
- The Bank organized two conferences that addressed macro policy issues
and were co-hosted with the Stanford Institute of Economic Policy Research
at Stanford University. One conference focused on whether the U.S. economy
has undergone a structural change and what the implications are for
monetary policy, and the second offered different explanations of the
recent behavior of the stock market.
- Nineteen research articles were accepted for publication, eleven of
which were accepted in refereed journals. In addition, two volumes containing
papers from conferences sponsored by the Bank were published or were
in press. The requirement for publishing in the FRBSF Economic Review
was reduced in order to increase the output of papers destined for refereed
journals; in the process, the publication was revamped to focus on policy-related
articles and updates on staff research, and the number of issues was
reduced from three to one.
- The Bank studied the impact of rising energy prices on the Twelfth
District economy, with a particular focus on the severe problems in
the California electricity market.
Banking Supervision and Regulation
|Check Modernization is comprised
of four major projects: Check Standardization (CS), Enterprise-Wide
Adjustments (EWA), Image Services System (ISS), and Electronic
Access and Delivery (EA&D). Check Modernization will
create an efficient check processing environment that
includes standard, centrally managed platforms for item
processing, check adjustments and image services, as well
as web-based delivery of check services.
To provide effective oversight in the face of sweeping changes taking
place in the financial services industry, the Bank continued to focus
on enhancing its capacity to identify and address emerging supervisory
The Bank was successful in meeting the demands that resulted from
the new powers granted under the Gramm-Leach-Bliley Act, which appointed
the Federal Reserve as the "umbrella" supervisor of financial
holding companies. The Bank realigned its resources and quickly adjusted
to the new supervisory responsibilities created by the financial modernization
legislation. The Charles Schwab Corporation, based in San Francisco,
became one of the first in the country to apply for financial holding
company status under the Act, resulting in the development of an innovative
approach to assess enterprise-wide risk in financial holding companies
where securities is the primary business.
The Bank needed tools to monitor the risk associated with the high
concentrations of commercial real estate loans found in the portfolios
of Twelfth District institutions. Accordingly, a pilot commercial
real estate market monitoring program was developed for select metropolitan
areas to determine whether such a program would enhance the Bank's
ability to assess credit risk. Successful completion of the pilot
encouraged expansion of the program to include all the major markets
in the District.
In order to address the impact of economic developments in Asia on
domestic and foreign banking organizations, the Bank continued to
expand its international program by analyzing financial sector developments
in key Asian countries, and providing technical assistance and training
to Asian supervisory authorities. In addition, the Bank broadened
its supervisory contacts and knowledge base in Europe.
In the Community Affairs area, the Bank continued to encourage community
development throughout the District by providing educational and partnership
opportunities for financial institutions. As well as focusing on the
Sovereign Lending initiative (see article on page 17), the Bank held
quarterly Community Reinvestment Act (CRA) officer roundtables in
nine Twelfth District cities, with attendance averaging over 200 financial
institution participants per quarter. The Bank also had several successful
outreach efforts, coordinating two meetings of the Association of
Reinvestment Consortia for Housing in San Francisco and in Boston.
The Bank also coordinated and co-sponsored, with the other bank regulatory
agencies, the 2000 Community Reinvestment Conference in San Francisco.