2015 Annual Report

2015 ANNUAL REPORT FEDERAL RESERVE BANK OF PHILADELPHIA About the President 3 First Vice President’s Message 7 2015 Highlights 8 Innovation: Strategies for Changing Times 17 2015 Board of Directors 29 Community Depository Institutions Advisory Council 31 Economic and Community Advisory Council 32 Management Committee 33 Additional Bank Officers 34 2015 Statement of Auditor Independence 35 2015 Financial Statements 36 The Federal Reserve Bank of Philadelphia, serving eastern and central Pennsylvania, southern New Jersey, and Delaware, promotes a stronger economy and job creation. We work with banks, nonprofits, and government agencies that help low- and moderate-income people and communities. We also serve as a source of information about the regional and national economy for policymakers and the public. 1 | Federal Reserve Bank of Philadelphia www.philadelphiafed.org Patrick T. Harker President and Chief Executive Officer Federal Reserve Bank of Philadelphia 2 | Federal Reserve Bank of Philadelphia www.philadelphiafed.org ABOUT THE PRESIDENT The year 2015 was a time of transition. Charles I. Plosser, president The First Months at the Helm and chief executive officer of the Federal Reserve Bank of Philadelphia since 2006, retired on March 1, 2015. The subsequent Since you have been president and CEO of the Federal search for a new leader culminated in the appointment of Patrick Q Reserve Bank of Philadelphia, what is your primary focus? T. Harker, a Third District native. He stepped into his new post as the 11th president and CEO on July 1, 2015, ready to engage with As a native son of the Third District, I care about the the community and showcase the Bank’s cutting-edge research economic growth of its communities. I grew up in South to the world. AJersey, and I have spent most of my career in Pennsylvania and Delaware. I know the region’s many unique economic strengths Previously, Harker had been the 26th president of the University of and its potential for growth. Delaware, professor of business administration at the university’s Alfred Lerner College of Business and Economics, and a professor of Our job at the Federal Reserve Bank of Philadelphia is to help shine a civil and environmental engineering at the College of Engineering. light on what’s working well, to provide our research, to define areas Before his tenure at the University of Delaware, Harker had been where more can be done, and to foster collaboration to grow jobs and dean and Reliance Professor of Management and Private Enterprise the economy throughout the Third District, which includes southern at the Wharton School of the University of Pennsylvania. He was New Jersey, Delaware, and eastern and central Pennsylvania. also a fellow of the Institute for Operations Research and the Management Sciences; a charter fellow of the National Academy The Bank is also committed to contributing to the national of Inventors; a White House fellow, appointed by President George economy through our role in shaping monetary policy. I have met H. W. Bush in 1991; and a special assistant to FBI Director William S. with community leaders across a broad range of sectors to inform Sessions from 1991 to 1992. my understanding of how issues such as social mobility, economic inclusion, and equitable growth are playing out in the Third District. In the following interview, Harker shares some of the highlights The Federal Reserve Bank of Philadelphia adds value to local from his first months at the helm, the trends he is seeing, and his communities by bringing these insights about the national economy insights into monetary policy. to the conversation. 3 | Federal Reserve Bank of Philadelphia www.philadelphiafed.org Are there any aspects of your new position of president and For this reason, the Federal Reserve Bank of Philadelphia has been Q CEO that surprised you? particularly focused on workforce-related issues for young people. In recent years, there has been about a 10 percent decrease in labor force The Federal Reserve’s role in the nonmonetary policy world participation among young people between the ages of 16 and 24. Ais often misunderstood. We conduct a tremendous amount of So, we are looking at strategies to bring this demographic back into research on economic and community development trends the workforce in a productive way. I recently toured the YouthBuild to share with stakeholders in our District and across the country. Philadelphia Charter School, Philadelphia Works, and District 1199C We conduct research on issues ranging from the challenges and Training & Upgrading Fund. These organizations are focused on opportunities for community banks in small business lending to the reengaging the region’s young people and helping them learn job skills effectiveness of pre-purchase homeownership counseling. and meaningful work. The work that these groups and others are doing has a positive impact on the future of the regional economy. Each Federal Reserve Bank works with local bankers, community development organizations, and local businesses, among other groups. This structure gives Reserve Banks a unique perspective on the “Our job at the Federal Reserve Bank of economy that is more nuanced than from just looking at the data. Philadelphia is to help shine a light on what’s It also ensures that the voices of all citizens are reflected in policy working well, to provide our research, to define decisions. areas where more can be done, and to foster Growth Across the Region collaboration to grow jobs and the economy throughout the Third District.” How can the Federal Reserve Bank of Philadelphia support Q job growth in the region? How can the Philadelphia Fed ensure that economic growth The strength of our economy depends on the skills, ability, and Q is shared across the region? Afinancial stability of our workforce. Local business owners tell me that they need trained workers to grow their businesses. Equitable economic growth has been a long-standing priority There must be more investment in human capital to meet this Afor the Philadelphia Fed. I’m meeting with people who drive demand. Investing in our region’s workers can lead to an improved our regional economy and asking what we can do to help grow quality of life and economic growth across the board. the economy. Monetary policy does not grow the economy. That’s the job of great mayors, great business leaders, and great community 4 | Federal Reserve Bank of Philadelphia www.philadelphiafed.org organizers. The role of the Federal Reserve is to facilitate critical Focusing on the Local Community conversations among these key stakeholders. What economic trends are you seeing in the Third District? Relying on Data to Formulate Policy Q This is an exciting time of change for the region. We are seeing What is your approach to monetary policy? Arenewed investment in businesses across the Third District and, Q as a result, employment growth. I would characterize my approach as data dependent. I formulate Amy policy perspective by considering all the data — from market One of the highlights of my first year at the Fed has been touring the stability to job growth to inflation — and make decisions based Third District to get a better understanding of the forces behind the on what the numbers are telling us. I think it’s important to take a long- region’s growth. I have heard firsthand about innovative community term view rather than to react to short-term volatility and to consider programs, new housing models, small business challenges, and much an array of data and longer term trends in forming a policy stance. more. People’s pride, commitment, and resilience are empowering. You have discussed good and bad monetary policy. Can you expand on this? Q “Good monetary policy ... allows businesses Good monetary policy is almost invisible when it’s done well. and employers to invest in the people, AIt allows businesses and employers to invest in the people, capital, and technology needed to grow their capital, and technology needed to grow their businesses. Good businesses.” monetary policy can smooth out business cycles, but it will not affect long-term economic growth. You’ll recognize bad monetary policy because it limits businesses from doing what they would naturally I visited Allentown in the Lehigh Valley of Pennsylvania to see the do. It goes without saying that bad monetary policy can derail the area’s expansion of businesses and its plans for future growth. I also economy and reduce economic growth. went to northern Pennsylvania and visited Williamsport, where business leaders told me they remain optimistic that, as energy prices There is plenty of scope for economic policies — broadly interpreted bounce back, they will continue to be a major producer of natural gas. — to improve the performance of the U.S. economy. Lawmakers can Our challenge is to make sure we have the resources, the vision, and also do a great deal through fiscal policy and tax policy to support the leadership to make full use of our District’s potential. long-term economic growth. 5 | Federal Reserve Bank of Philadelphia www.philadelphiafed.org You have said that you are optimistic about our economy investments. Community bankers have also told me about issues Q and that the underlying shift shows that our economy is such as compliance cost. It’s important for the Federal Reserve growing. What indicators are you seeing? to hear about these challenges and bring them to policymakers in Washington, D.C. We need to discuss how we can ease that regulatory Economic fundamentals are sound, and our financial system is burden for the banks while continuing to ensure that they are safe Ain good shape. The main indicator is the labor market. We are and sound and that consumers are protected.

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