FEDERAL RESERVE BANK of CHICAGO

1995 ANNUAL REPORT

Our Vision Further the public interest by

fostering a sound economy and stable financial system. Provide products andservice of

unmatched value to those we serve. Set the

standard for excellence in the Federal Reserve

System. Work together, communicate openly, be creative and fair. Live by our core values of integrity, respect, responsibility and excellence. The Federal Reserve Bank of Chicago is one of 12 regional Reserve Banks across the United States that, together with the Board of Governors in Washington, D.C., serve as the nation's central bank. The role of the Federal

Reserve System, since its establishment by an act of Congress passed in 1913, has been to foster a strong economy, supported by a stable financial system.

To this end, the Federal Reserve Bank of Chicago participates in the formulation and implementation of national monetary policy, supervises and regulates banks and bank holding companies, and provides financial services to depository institutions and the U.S. government. Through its head office in Chicago, branch in

Detroit, regional offices in Des Moines, Indianapolis and Milwaukee, and a new facility in Peoria, the Federal

Reserve Bank of Chicago serves the Seventh Federal Reserve District, which includes major portions of Illinois,

Indiana, Michigan and Wisconsin, plus all of Iowa.

CONTENTS

Message to our Customers 1

Committed to our Customers 4

1995 Highlights 16

Operations Volumes 17

Financial Statements 18

Directors and Advisory Councils 20

Officers 22

Executive Changes 24 PRESIDENT's MESSAGE to our CUSTOMERS

FROM LEFT: FIRST VICE PRESIDENT WILLIAM CONRAD, CHAIRMAN ROBERT

HEALEY, DEPUTY CHAIRMAN RICHARD CLINE, AND PRESIDENT MICHAEL MOSKOW

"THE CUSTOMER is KING" This maxim and similar refrains reflect the commitment to customers that has

become the rallying cry for businesses ranging from Mom-and-Pop stores to huge retail conglomerates.

Customer focus has to be paramount for a firm that exists to turn a profit. For such a firm the customer is truly

the ultimate judge, not to mention the jury, and, in some cases, the executioner. But is focusing

on the customer relevant for a public entity such as the Federal Reserve Bank of Chicago? This was

a question we considered carefully during 1995, and the answer we arrived at was a resounding "Yes."

1 OUR VISION Further the public interest by Provide products and services fostering a sound economy and of unmatched value to those stable financial system we serve

Admittedly, one does not necessarily associate central banking with customer service. Nevertheless, the Federal Reserve Bank of Chicago does serve customers. We have customers in the traditional sense be- cause we provide financial services for a fee to depository institutions. We also provide a variety of services to the U.S. Treasury in our role as fiscal agent. Customers who use our economic research "services" include groups interested in our regional economic analysis and a number of internal customers such as the Board of Governors in Washington, D.C., and our board of directors. Even depository institutions that we supervise and regulate are "customers" in a sense. Broadly speaking, the public at large is our most important customer as we are a creation of Congress and ultimately answerable to the American people.

Evaluating our approach to customers was a key aspect of a Bank-wide strategic planning initiative during 1995 in which we took a "Fresh Look" at our organization. Perhaps the most important element of this "Fresh Look" planning effort was the development of a vision statement. In some ways, developing the vision was straightforward. For example, our vision reaffirms our mission to further the public interest by fostering a sound economy and stable financial system. That's the starting point for everything we do— the reason we come to work in the morning.

How best to fulfill that mission is more difficult to determine. In our vision we have stated our commitment to achieving excellence. In most industries, a company will naturally compare itself to its com- petitors to gauge its progress. That strategy has an obvious drawback for a central bank. We're one of a kind, at least within our national borders. But given the Federal Reserve's structure of 12 regional Banks, we do have a basis of comparison. A healthy sense of competition exists within the System in which the Reserve Banks work together closely and share ideas but also try to outperform one another. The Reserve Banks are somewhat like runners in a relay team working together to win the event but also striving to post the best possible time for their leg of the race. Given this background, we have committed ourselves to setting the standard for excellence in the Federal Reserve System.

What is the surest, most direct way to set the standard of excellence? In my view, it is focusing on customers. Our vision reflects this focus by committing us to providing products and services of unmatched value to those we serve. The key phrase is to those we serve. In other words, our customers determine if we are truly providing unmatched value.

2 Set the standard for excellence Work together, communicate Live by our core values of in the Federal Reserve System openly, be creative and fair integrity, respect, responsibility and excellence

Clearly, the Federal Reserve cannot be driven by the customer in the same way as a for-profit firm. Our bottom line is serving the public good. Nevertheless, our customers, though diverse and sometimes amorphous, are the best and truest source of feedback for evaluating our efforts. At the end of the day, they determine if we are achieving excellence. The customer is king, even for a public institution such as the Federal Reserve Bank of Chicago.

The past year has been challenging and exciting. I am very proud of what we have already accom- plished and look to the future with optimism. Our achievements during the past year would not have been possible without the contributions of our entire staff of over 2300 people. The Chicago Fed also benefited greatly from the services of our directors in Chicago and Detroit, an outstanding group of individuals who unselfishly provided their time and expertise. I want to express my gratitude to three directors who completed their terms at the end of 1995: Richard Cline, J. Michael Moore, and Norman Rodgers. I particu- larly want to thank Richard Cline, who served as deputy chairman for two years and as chairman for three years. During their six years of service on the Chicago and Detroit boards, all three provided insightful perspectives and leadership that helped guide our activities.

A commitment to our customers was the common thread tying together our activities during 1995. The following article briefly reports on just a few of our efforts, which reflect our commitment to providing excellent service to customers for many years to come.

Michael H. Moskow, President March 28,1996

3 COMMITTED TO OUR CUSTOMERS

IN PURSUING ITS MISSION THE CHICAGO FED ULTIMATELY SERVES THE GENERAL

PUBLIC, PEOPLE SUCH AS (FROM LEFT TO RIGHT), JASON, BONNIE, BARRY,

ASHLEY AND JARED GRANT, SHOWN HERE IN THE NERVE CENTER OF THEIR

URBANDALE, IOWA HOME—THE KITCHEN.

4 We are committed to responding to

the needs of our customers. That is

the surest way to achieve excellence

and fulfill our mission of fostering

a healthy, growing economy and a

stable financial system. Who are the

Federal Reserve Bank of Chicago's

customers? Given our broad mission,

ultimately everyone in the Seventh

Federal Reserve District, including

people such as the Grant family of

Urbandale, Iowa.

On the following pages we will

introduce you to more of our customers

and review some of the Chicago Fed's

accomplishments in 1995 driven by

customer needs.

5 COMMITTED to our CUSTOMERS DEPOSITORY INSTITUTIONS

Working with depository institutions

PROCESSING CHECKS MORE EFFICIENTLY The Chicago Fed in 1995 opened a new check-processing facility at the Peoria Airport, improving customer service to area financial institutions. Since the facility is located in central Illinois, nearby customers have more time each day to process checks internally. Customers also benefit from lower prices for check-processing services.

BUILDING RELATIONSHIPS WITH CUSTOMERS In an effort to provide better

The Chicago Reserve Bank works service, the Bank created three customer advisory groups made up of Seventh

in a number of ways with depository District bankers. The advisory groups provided feedback on financial services,

institutions in the Seventh offering suggestions on the types of products and services to offer. IMPROVING CUSTOMER SERVICE A group of Bank staff studied ways to im- District. The Chicago Fed's prove customer service during 1995. Based on the group's recommendations, the Chicago Fed will develop a new area dedicated to handling the wide range responsibilities include super- of customer service inquiries received by the Bank. The unit will initially focus on inquires and requests for new services from depository institutions. vising bank holding companies

and state member banks and offering CONDUCTING EXAMINATIONS OFF-SITE The Chicago Fed was a leader among the Reserve Banks in 1995 in developing programs to increase the off-site portions financial services such as check pro- of exams. Examiners are now spending more of their time at Fed offices and less cessing and electronic payments to all time on bank premises. The result has been to enhance the efficiency of exams and reduce the disruption to commercial bank operations. District institutions.

RESPONDING TO CHANGE The Chicago Fed played an active role in a Federal Reserve System initiative called Reserve Bank Examination Process for the 21st Century, which is designed to adapt the Fed's supervisory approach to the chang- ing nature of banking and financial services. Input for this process was gathered through surveys and interviews with officials from depository institutions.

SPONSORING CONFERENCES ON BANKING The Chicago Fed continued to sponsor conferences on the changing dynamics of the banking industry. The 31st annual Conference on Bank Structure and Competition examined innovations in the banking industry. The Chicago Fed also co-sponsored a conference on bringing harmony to international financial regulatory systems.

6 KAY ROLANDO IS THE CASHIER OF BANK OF FARMINGTON IN CENTRAL ILLINOIS.

A BANK EMPLOYEE FOR 37 YEARS, KAY LISTENS TO HER CUSTOMERS WHENEVER SHE

CAN, INCLUDING WHEN SHE VISITS THE KERSH CAFE IN DOWNTOWN FARMINGTON.

KAY'S INTERACTION WITH THE CHICAGO FED INCLUDES TAKING ADVANTAGE OF THE

BANK'S NEW CHECK-PROCESSING FACILITY AT THE NEARBY PEORIA AIRPORT.

7 COMMITTEd to our CUSTOMERS POLICYMAKERS

Contributing to public policy

RESEARCHING THE MIDWEST'S PROSPECTS During 1995 the Chicago Fed initiated a comprehensive, year-long study of the Midwest economy The goal of the study is to better understand the Midwest's economic prospects by studying its turnaround since the early 1980s. The project will involve workshops and research studies carried out by Federal Reserve analysts and other researchers from through- out the region. Workshops will consider issues such as labor force training and education, global linkages, and changes in manufacturing industries. The project -will culminate with the publication of the study, which will provide policymakers with the information they need to help ensure the region's continued success.

CONTRIBUTING TO INFORMED POLICY The Chicago Fed continued to conduct research to help policymakers formulate national monetary policy. For example, an article in the Bank's Economic Perspectives explored the relationship between wage increases and inflation. The article suggests that only manufacturing and retail trade The Federal Reserve System is known wages can be used to predict inflation. In other major industries the pattern is for research used in the formulation reversed—inflation is a predictor of wage growth. of national monetary policy. PROVIDING RESOURCES FOR REGULATORY POLICYMAKERS Regulatory policy- In helping develop a national makers benefited in 1995 from research on the latest developments in financial risk management products and on how best to oversee the use of derivatives. As part of picture, the Chicago Fed exam- this effort, Chicago Fed researchers studied the "Pre-Commitment Approach" to ines a broad range of economic setting bank capital standards for market risk. In this approach, banks commit to containing their cumulative losses in their trading portfolio below a certain level issues that affect the Midwest. and set aside capital sufficient to cover the maximum loss level. A fine would result if losses exceeded this pre-committed level. This research benefits national policymakers as well as those at the state SUPPORTING THE FOMC The Bank's monetary policy efforts include supporting internal policymakers such as President Michael Moskow and the board of directors. and local level. By supporting the president's participation on the Federal Open Market Committee and the board's deliberations on the Chicago Fed discount rate, the Bank contributes to the formulation of effective monetary policy

STUDYING DISPLACED WORKERS AND RETRAINING Economists at the Chicago Fed studied numerous issues related to displaced workers and retraining programs. One study explored the impact of plant closings and corporate down-sizing, find- ing that earnings were generally lower for workers even after they found new jobs. Another study examined retraining programs offered at local community colleges. The study offers evidence that such programs can be effective in preparing some workers for different types of work with better pay.

8 GRAHAM TOFT BROADENS INDIANA'S ECONOMIC HORIZONS AS PRESIDENT OF THE

INDIANA ECONOMIC DEVELOPMENT COUNCIL, INC. CHICAGO FED RESEARCH HELPS

GRAHAM EVALUATE INDIANA'S ECONOMIC PERFORMANCE AND OBTAIN UP-TO-DATE

INFORMATION ON ISSUES AFFECTING THE MIDWEST.

9 COMMITTED TO OUR CUSTOMERS BUSINESS OWNERS

Meeting the needs of business

FOSTERING ECONOMIC DEVELOPMENT The Chicago Fed in 1995 continued to foster economic and community development by encouraging partnerships among business owners, lenders, local government officials, and community groups. Initiatives included a major conference on economic development as well as a series of workshops and roundtable discussions focusing on issues such as lender involve- By fostering a healthy, ment in empowerment zones. The Chicago Fed also carried out several initiatives in 1995 to help ensure fair access to credit. For example, the Bank published Access growing economy with price to Credit: Women, Lenders, and Small Business Loans, which is intended to help improve stability, the Chicago Fed helps communication between lenders and women owners of small businesses. ensure a sound economic environment PROMOTING AN EFFICIENT PAYMENTS SYSTEM The Chicago Fed joined forces that enables business owners to operate with utility companies, financial institutions, and automated clearinghouse associations to encourage consumers to pay their bills electronically. In addition, efficiently. Among the Bank's activities the Bank directed efforts to explain the benefits of electronic payments to bankers, corporations, municipalities, and non-profit agencies. Through such efforts to are researching economic issues affecting promote the use of electronic alternatives to paper checks, the Bank fosters a more the business environment in the Midwest, efficient payments system. fostering an efficient and reliable UNVEILING NEW CURRENCY DESIGN The Chicago Fed worked with other Fed payments system, and helping Banks and U.S. Treasury officials to unveil redesigned $100 bills in 1995. The Bank conducted a series of workshops for depository institutions throughout the to ensure fair access to credit. Seventh District explaining the security features of the new currency. The new design was initiated to reduce the threat of counterfeiting and maintain confidence in our nation's currency.

RESEARCHING ECONOMIC ISSUES Throughout 1995, the Chicago Fed researched issues that affect Midwest businesses, identifying trends in sectors such as services, manufacturing, and agriculture. As part of this effort, the Bank produced research on regional issues such as education reform, corporate tax practices, emerging trade opportunities, environmental regulation, and trade policy.

10 IRMA ELDER OWNS FOUR AUTO DEALERSHIPS IN SUBURBAN DETROIT, INCLUDING

TROY FORD AND JAGUAR-SAAB OF TROY. HER CORPORATION IS THE SIXTH LARGEST

HISPANIC-OWNED BUSINESS IN AMERICA AND ONE OF THE TOP 50 FEMALE-OWNED

BUSINESSES IN THE COUNTRY. BUSINESS OWNERS SUCH AS IRMA RELY ON CHICAGO

FED INITIATIVES THAT PROMOTE A STABLE ECONOMY AND A SOUND FINANCIAL SYSTEM.

11 COMMITTED to our CUSTOMERS CONSUMERS

Working for consumers

MAINTAINING PRICE STABILITY Chicago Fed research contributed to effective national monetary policy that fostered sustainable economic growth with price stability. In 1995, inflation as measured by the Consumer Price Index (CPI) was three percent or below for the fourth consecutive year.

PROVIDING ELECTRONIC INFORMATION The Chicago Fed installed its own home page on the Internet's World Wide Web. Consumers can electronically access eco- Consumers benefit from many nomic and financial data, up-to-the-minute information on business conditions, news Chicago Fed activities. These include of interest rate changes, and Chicago Fed publications at http://www.frbchi.org. helping to ensure fair treat- ENSURING HIGH-QUALITY CURRENCY The Bank continued to convert to state- ment in credit transactions, of-the-art ISS 3000 currency-processing machines in 1995. The new equipment improves speed and accuracy and helps provide more efficient and cost-effective sponsoring programs that currency processing. It's part of the Chicago Fed's ongoing efforts to provide consumers with high-quality currency free from counterfeits. assist consumers in making informed financial decisions, and INFORMING CONSUMERS In 1995 the Chicago Fed continued to help consumers make informed decisions. Efforts included distributing publications on consumers' offering a wide variety of services in credit rights and offering programs focusing on informing investors that many a cost-effective manner. mutual funds offered by banks are not covered by federal deposit insurance. In addition, the Bank conducted a series of seminars for consumer groups on recent revisions to the Community Reinvestment Act (CRA).

INVESTIGATING LENDING DISCRIMINATION A study by the Federal Reserve Bank of Chicago during 1995 investigated the role of race in mortgage lending decisions. Using data drawn from loan applications from the Boston area, the study found that race had played a role in denial rates for applicants of marginal credit- worthiness. In cases where the credit history of applicants was good, the denial rates between races were not appreciably different.

MOVING TO ELECTRONICS In financial services, the Chicago Fed continued to encourage the use of more efficient electronic alternatives to paper check transactions. Reflecting this effort, the volume of electronic check products increased by 64 percent during 1995. Initiatives to encourage the use of Automated Clearinghouse (ACH) services included playing a key role in testing much of the software in preparation for a System-wide centralization of automated payment services.

12 KENNETH AND PAULINE VERNON OF MILWAUKEE AT THE GRAND AVENUE SHOPPING

MALL. THE VERNONS ARE NOW EMBARKING ON A NEW PHASE IN THEIR LIVES AS

KENNETH RECENTLY RETIRED FROM WISCONSIN ELECTRIC AFTER 40 YEARS OF

SERVICE. CONSUMERS SUCH AS THE VERNONS RELY ON THE CHICAGO FED TO HELP

MAINTAIN PRICE STABILITY AND THE PURCHASING POWER OF THEIR MONEY.

13 COMMITTED to our CUSTOMERS BANK STAFF

Serving internal customers

TAKING A FRESH LOOK AT OUR ACTIVITIES To help guide staff in carrying out their responsibilities, the Chicago Fed took a "Fresh Look" at its activities. Over 200 staff members took part in the planning process, which included the development of multi- year strategies for the Bank's four main operating areas. The Chicago Fed also embarked on several initiatives to realign the Bank's culture with its vision, including a number of short-term changes implemented in 1995. At the same time, a work group was formed to examine longer-term changes in areas such as rewards and recogni- tion, communication, and management style.

PROVIDING STAFF MEMBERS WITH ELECTRONIC INFORMATION During 1995, the The Chicago Fed's emphasis on Bank developed a new on-line communication service that provides staff with easy access to Bank news, forms, and reports. Called FROLIC (Federal Reserve On-Line serving customers is not restricted to Information Center), the electronic service offers information via computer on a wide people outside the Bank. It also in- range of different topics and is updated daily. cludes internal customers— EMPHASIZING TRAINING AND PERSONAL DEVELOPMENT Staff members were Bank staff. An important encouraged to participate in Bank-sponsored training that ranged from basic reading and math skills to computer training to executive assessment and career planning. responsibility for all staff Course offerings in 1995 were expanded to emphasize customer service, team-building, and other skills critical to achieving the Bank's strategic direction. Approximately members is providing services 830 staff members attended one or more of the 90 training sessions throughout the and support to one another. year. The Bank also encouraged staff to continue their education, providing tuition assistance to more than 100 individuals. By working together, Bank staff is better able to provide high-quality PROVIDING NEW TECHNOLOGY FOR REGIONAL OFFICES To increase efficiency in providing services, automation and check staff worked together to take advantage service to external customers. of new "remote processing" technology. The technology enables the Bank's regional check-processing offices to use mainframe computers in Chicago to drive their check-sorting equipment. The remote processing technology enables the Bank to stay close to the customer at regional offices but still take advantage of efficiencies offered by automation consolidation. The Indianapolis Office implemented the technology in early 1995—the first Federal Reserve office to do so. In addition, the Detroit, Milwaukee, and Peoria offices adopted remote processing during 1995. Conversion of all District offices will be completed in 1996.

14 THE BANK'S FOCUS ON INTERNAL CUSTOMERS IS REFLECTED IN THE EFFORTS OF THREE

STAFFERS WHO HELPED DEVELOP FROLIC, A NEW ON-LINE INFORMATION SERVICE FOR

EMPLOYEES. DAVID MOORE (CENTER) MANAGES THE DEVELOPMENT OF COMPUTER

APPLICATIONS; DENNIS DANIELS COORDINATES THE INFORMATION-GATHERING

PROCESS; MARY BALOUN CONVERTS THE INFORMATION INTO A READER-FRIENDLY

GRAPHIC FORMAT.

15 THE BANK IN 1995

ADDITIONAL 1995 HIGHLIGHTS • President Michael Moskow and First Vice President • The Bank continued to encourage more efficient electronic William Conrad discussed the Bank's vision statement alternatives, focusing on expanding Fedline customer during a series of meetings attended by roughly 1,000 connections, increasing electronic check processing, and staff members. encouraging the use of Automated Clearinghouse (ACH). • Economic research had 44 papers published or accept- • Check services lowered many of its fees in keeping with a ed for publication in leading U.S. and international new pricing structure intended to meet the demands of scholarly journals. the market. • The Bank initiated a visiting scholars program to enhance • The Detroit Branch handled the highest volume of elec- links with the academic and policymaking communities. tronic cash letters in the Federal Reserve System. • Research staff evaluated alternative means of control- • The Bank successfully introduced the System's new ling payments system risk, proposing in conjunction with centralized software application for wire transfers. supervision and regulation the optimal clearinghouse • A video-conferencing facility was opened, linking the structure for risk management purposes. Chicago Fed with the other Reserve Banks and the Federal • The Bank assumed responsibility as the repository for Reserve Board. nationwide fair lending data and as the System liaison for • An early retirement program was successfully completed. research related to the data. • Efforts to enhance management and staff development • Staffers in economic research and supervision and regu- included offering expanded career management programs. lation continued to increase their expertise in financial • The Bank created a unit to conduct applied research on markets, particularly derivatives and non-traditional consumer issues such as credit access, fair lending, and financial products. community and economic development. • The Bank successfully carried out its supervisory re- • The Bank conducted tours of its operations for more than sponsibilities, despite legislative and regulatory changes and a dramatic increase in the number of Seventh District 9,500 visitors. state-member banks. • The Bank's audit department coordinated the audit of the national network services division of FRAS (Federal • Chicago Fed staff processed approximately 37 percent Reserve Automation Services). of all Home Mortgage Disclosure Act (HMDA) data for the System. • The Chicago Network Operations Center (CNOC) played a leadership role in reviewing FEDNET backbone • Supervision and regulation staff met guidelines for time- circuits and planning reductions that will substantially liness and quality while processing the highest volume of applications in the System. lower costs. • Chicago Fed staff provided expertise to other countries, • The Bank completed the consolidation of Seventh District traveling overseas on temporary assignments and hosting savings bond operations at the Minneapolis Reserve Bank numerous programs for foreign visitors. on time and on budget. • Bank staff continued to play a leadership role through • A cross-functional team guided the establishment of the participation in many System groups, including serving new check-processing facility in Peoria, a complex effort as chair of more than 20 committees. that was completed on schedule in a relatively short period of time.

16 OPERATIONS VOLUMES

The Federal Reserve Bank of Chicago's volume of operations during 1995 re- dollar amount number of items flected efforts to encourage more 1995 1994 1995 1994 efficient electronic alternatives to CHECK AND ELECTRONIC PAYMENTS paper-based payments. The volume Checks, NOWs, & share drafts processed 1.2 trillion 1.2 trillion 1.7 billion 1.8 billion of Automated Clearinghouse (ACH) Fine sort & packaged items increased by 14 percent during checks handled 101.2 billion 131.7 billion 217.2 million 306.6 million 1995. The volume of electronic check U.S. government checks processed 49.5 billion 48.1 billion 50.2 million 50.2 million products also continued to rise, in- Automated Clearinghouse creasing by 64 percent. The number (ACH) items processed 2.5 trillion 2.2 trillion 626.3 million 547.8 million 14.3 million 13.6 million of paper checks processed declined, re- Transfers of funds 31.5 trillion 30.3 trillion Electronic checks processed 13.1 million 9.0 million 507.8 million 309.7 million flecting increased competition, bank consolidations that have reduced the CASH OPERATIONS Bank's customer base, and the effect Currency received & counted 32.7 billion 30.9 billion 2.4 billion 2.2 billion of the same-day settlement regulation. Unfit currency destroyed 7.7 billion 6.5 billion 958.3 million 726.0 million Coin received & counted 836.2 million 714.0 million 6.7 billion 6.3 billion The volume of savings bonds process- ed declined sharply as a result of the SECURITIES SERVICES FOR DEPOSITORY INSTITUTIONS consolidation of Seventh District Safekeeping balance December 31 operations at the Federal Reserve Definitive securities 13.3 billion 12.7 billion 24.4 thousand 29.7 thousand

Book-entry securities 406.7 billion 452.6 billion — — Bank of Minneapolis Purchase & sale 4.0 billion 4.9 billion 14.6 thousand 18.5 thousand Collection of securities & other noncash items 167.0 million 200.0 million 194.7 thousand 78.6 thousand Book-entry government securities processed 7.1 trillion 9.7 trillion 1.1 million 1.2 million

LOANS TO DEPOSITORY INSTITUTIONS Total loans made during year 1.2 billion 1.7 billion 855 1,211

SERVICES TO U.S. TREASURY AND GOVERNMENT AGENCIES Issues, redemptions & exchanges: U.S. savings bonds 167.9 million 1.5 billion 374.1 thousand 4.0 million Definitive government securities 357.8 million 2.3 billion 9.9 thousand 9.1 thousand Government coupons paid 101.1 million 98.8 million 21.7 thousand 28.9 thousand Federal tax deposits processed 99.3 billion 152.9 billion 883.6 thousand 877.7 thousand Food stamps redeemed 2.3 billion 2.3 billion 443.0 million 452.8 million

17 1995 FINANCIAL STATEMENTS

STATEMENT OF CONDITION

Year-to-year changes in Reserve Bank assets and liabilities largely reflect 12/31/95 12/31/94 general economic developments and ASSETS System monetary policy actions. By Gold certificate account $ 1,220,000,000 $ 1,217,000,000 purchasing securities in the open Interdistrict settlement account (3,015,622,660) (1,047,960,762) Special drawing rights market and making loans to depository certificate account 1,079,000,000 1,036,000,000 institutions, the Federal Reserve in- Coin 35,087,340 22,888,996 creases reserves, providing a base for Loans and securities: Loans 775,000 18,145,000 monetary expansion in accord with the Federal agency securities 303,667,515 416,608,353 national economy's growth needs. In U.S. government securities 43,601,557,630 41,758,063,888 1995 the Bank's total assets fell slight- Total loans and securities $ 43,906,000,145 $ 42,192,817,241 ly, accommodating a slight decrease Items in process of collection 519,317,534 509,387,271 Bank premises 109,889,992 112,246,500 in currency outstanding that more Other assets 3,519,876,662 3,595,919,395 than offset an increase in deposits Total assets $ 47,373,549,013 $ 47,638,298,641 of District depository institutions. Nationally, however, currency out- LIABILITIES Federal Reserve notes $ 41,757,639,370 $ 42,264,580,153 standing increased substantially in 1995. Deposits: Depository institutions 3,539,487,150 3,396,794,719 U.S. Treasury—general account 0 0 Foreign, official accounts 16,040,164 16,162,207 Other 160,003,522 147,593,207 Total deposits $ 3,715,530,836 $ 3,560,550,133

Deferred credit items 462,639,489 495,947,869 Other liabilities 492,307,818 479,189,786 Total liabilities $ 46,428,117,513 $ 46,800,267,941

CAPITAL ACCOUNTS Capital paid in $ 472,715,750 $ 419,015,350 Surplus 472,715,750 419,015,350 Total capital $ 945,431,500 $ 838,030,700 Total liabilities and capital $ 47,373,549,013 $ 47,638,298,641

18 STATEMENT OF INCOME

A Reserve Bank's income is largely a by-product of monetary policy rather 1 995 1 994

than the pursuit of profit. Most of the CURRENT INCOME Bank's income is interest on its share Interest on loans $ 821,393 $ 993,816 Interest on government securities 2,720,699,403 2,199,668,608 of the System Open Market Account Interest on investments portfolio of securities, and appropriately, of foreign currencies 89,218,527 102,461,570 the vast majority of this income is turned Service fees 96,210,847 98,049,361 over to the U.S. Treasury each year. All other 913,388 917,915 Total current income $ 2,907,863,558 $ 2,402,091,270 Current income increased compared to

1994, primarily because of an increase CURRENT EXPENSES in interest received from government Operating expenses $ 207,012,155 $ 203,349,407 Other current expenses 41,724,210 43,386,374 securities. Operating expenses rose slight- Total current expenses 248,736,365 246,735,781 ly as costs associated with increased Less reimbursement for certain supervisory activities and centralized fiscal agency and other expenses 17,416,606 ' 20,324,772 automation more than offset expense Current net expenses $ 231,319,759 $ 226,411,009 reductions in other areas of operations. Current net income $ 2,676,543,799 $ 2,175,680,261

ADDITIONS TO (OR DEDUCTIONS FROM) CURRENT NET INCOME Net profit (or loss) on sales of securities $ 734,844 $ (2,773,780) Net profit (or loss) on foreign exchange transactions 114,291,538 277,694,924 Assessment for Board of Governors expenditures (18,572,800) (16,877,600) Cost of Federal Reserve currency (41,012,869) (44,471,199) All other—net (10,624,127) (4,189,236) Net additions (or deductions) 44,816,586 209,383,109 Net income available for distribution $ 2,721,360,385 $ 2,385,063,370

DISTRIBUTION OF NET INCOME Dividends paid $ 27,267,891 $ 24,284,767 Payments to U.S. Treasury (as interest on Federal Reserve notes) 2,640,392,094 2,331,628,353 Transferred to surplus 53,700,400 29,150,250 Total income distributed $ 2,721,360,385 $ 2,385,063,370

19 DIRECTORS AND ADVISORY COUNCILS

1995 Board of Directors, Federal Reserve Bank of Chicago, from left to right: Robert Healey, Lester McKeever, Richard Cline, Stefan Anderson, Charlene Sullivan, David Fox, Donald Schneider, Arnold Schultz, and Thomas Dorr.

Reserve Bank directors have a general governance responsibility BOARD of DIRECTORS Lester H. McKeever, Jr. FEDERAL RESERVE BANK Managing Partner for the management of operations, approving budgets, expenditures, OF CHICAGO Washington, Pittman, & McKeever Chicago, Illinois and official appointments. In addition, directors provide advice CHAIRMAN and counsel to the Reserve Bank president on the state of the econ- Robert M. Healey Donald J. Schneider Member President omy and financial system. Reserve Bank directors also determine, Illinois Labor Relations Board Schneider National, Inc. Green Bay, Wisconsin subject to review by the Board of Governors, the Bank's discount Chicago, Illinois DEPUTY CHAIRMAN Arnold C. Schultz rate. The Chicago Reserve Bank and Detroit Branch directors are Chairman, President, Richard G. Cline and Chief Executive Officer Chairman and selected to represent a variety of interests and activities within the The Grundy National Bank Chief Executive Officer Grundy Center, Iowa District and bring to their diverse duties a broad range of expertise NICOR, Inc. Naperville, Illinois and experience. A. Charlene Sullivan Associate Professor of Management Stefan S. Anderson Krannert Graduate School The Federal Advisory Council, consisting of one repre- Chairman, President, of Management and Chief Executive Officer sentative from each District, meets quarterly with the Board of Purdue University First Merchants Corporation West Lafayette, Indiana Governors to discuss economic conditions. The Chicago Reserve Muncie, Indiana Bank's advisory councils on small business and agriculture Thomas C. Dorr President and provide a vital communication link between the Bank and these Chief Executive Officer Dorr's Pine Grove Farm Company important economic sectors. Marcus, Iowa

David W. Fox Former Chairman and Chief Executive Officer The Northern Trust Corporation Chicago, Illinois

20 1995 Board of Directors, Detroit Branch, from left to right: John Forsyth, William Odom, Norman Rodgers, Florine Mark, Charles Weeks, J. Michael Moore, and Charles Allen.

BOARD OF DIRECTORS FEDERAL ADVISORY Kam Washburn Diana J. Hall DETROIT BRANCH COUNCIL REPRESENTATIVE Elsie, Michigan Peoria, Illinois Roger L. Fitzsimonds Michigan Soybean Association National Association of Women CHAIRMAN Chairman and Business Owners (NAWBO) John D. Forsyth Kaye Whitehead Chief Executive Officer Central Illinois Chapter Executive Director Muncie, Indiana Firstar Corporation University of Michigan Hospitals Member-at-Large Linda M. Jolicoeur Milwaukee, Wisconsin Farmington Hills, Michigan Ann Arbor, Michigan Patricia M. Yungclas National Association of Women Ellsworth, Iowa Charles E. Allen ADVISORY COUNCIL Business Owners (NAWBO) Women Involved in Farm President and ON AGRICULTURE Greater Detroit Chapter Economics (WIFE) Chief Executive Officer Reginald J. Clause Kendig K. Kneen Graimark Realty Advisors, Inc. Jefferson, Iowa ADVISORY COUNCIL Ottumwa, Iowa Detroit, Michigan Iowa Cattlemen's Association ON SMALL BUSINESS Iowa Association of Business Florine Mark George Crosby Gary E. Baker and Industry President and Greensburg, Indiana Ann Arbor, Michigan Chief Executive Officer Lucius Murray, Jr. Milk Promotion Services Small Business Association The WW Group, Inc. Detroit, Michigan of Indiana, Inc. of Michigan Farmington Hills, Michigan Booker T. Washington Business David DeLong James Bernstein Association J. Michael Moore Clinton, Wisconsin Sioux City, Iowa Gene Qualmann Chairman and Wisconsin Fertilizer and Member-at-Large Oregon, Wisconsin Chief Executive Officer Chemical Association Invetech Company Charles J. Garcia Wisconsin Manufacturers Detroit, Michigan William D. Engelbrecht Carmel, Indiana and Commerce Henry, Illinois Indiana Hispanic Chamber William E. Odom Eduardo Salse Illinois Beef Association of Commerce Chairman Northbrook, Illmois Ford Motor Credit Company, Donald W. Gillings Thomas Gearing Latin American Chamber and Group Vice President Bay City, Michigan Milwaukee, Wisconsin of Commerce Michigan Agri-Business Ford Motor Company Independent Business R Eric Turner Association Dearborn, Michigan Association of Wisconsin Gas City, Indiana Norman F. Rodgers Tim L. Kapucian Sue Ling Gin Indiana Chamber of Commerce President and Keystone, Iowa Chicago, Illinois Chief Executive Officer Iowa Pork Producers Member-at-Large Hillsdale County National Bank Association David W. Goodrich Hillsdale, Michigan Gary Steiner Indianapolis, Indiana Charles R. Weeks Mondovi, Wisconsin National Federation of Independent Chairman, President, Wisconsin Farm Bureau Business/Indiana and Chief Executive Officer Federation Ray J. Green Citizens Banking Corporation Richard Ward Jacksonville, Illinois Flint, Michigan Crawfordsville, Indiana National Automobile Dealers Indiana Pork Producers Association Association

21 OFFICERS

Federal Reserve Bank of Chicago Management Committee, from left to right: Charles Furbee, Richard Anstee, Carl Vander Wilt, George Coe, William Hunter, Nancy Goodman, Michael Moskow, William Conrad, David Allardice, William Gram, Franklin Dreyer, and Jerome John.

Appointments to and promotions within the Federal Reserve Bank's Michael H. Moskow James T. Moser President Senior Research Economist official staff are made by the Bank's board of directors. The board and Research Officer William C. Conrad appoints the Bank's president (chief executive officer) and first First Vice President Paula R. Worthington vice president (chief operating officer) to five-year terms, subject Senior Research Economist CENTRAL BANK ACTIVITIES and Research Officer to approval by the Board of Governors. ECONOMIC RESEARCH REGIONAL ECONOMIC The primary activities of the Chicago Reserve Bank are William C. Hunter PROGRAMS Senior Vice President and Gary L. Benjamin divided into nine functional areas, overseen by senior vice pres- Director of Research Economic Advisor and Vice President idents who report to the Bank's president and first vice president. MONETARY POLICY AND An additional function, the Auditing Department, reports directly FINANCIAL MARKETS RESEARCH Robert H. Schnorbus Elijah Brewer III Senior Economist and to the board of directors' Audit Committee. The Bank's senior Senior Economist and Assistant Vice President Assistant Vice President officers together form the Management Committee and determine William A. Testa Douglas D. Evanoff Senior Economist and the Chicago Reserve Bank's strategic direction. Senior Economist and Assistant Vice President Assistant Vice President Philip R. Israilevich Charles L. Evans Senior Regional Economist Senior Economist and and Research Officer Assistant Vice President STATISTICS Anne Marie L. Gonczy Jean L. Valerius Senior Economist and Vice President Assistant Vice President Loretta C. Ardaugh Kenneth N. Kuttner Statistical Reports Officer Senior Economist and Assistant Vice President

Daniel G. Sullivan Senior Economist and Assistant Vice President

22 SUPERVISION AND REGULATION LOANS AND RESERVES DETROIT BRANCH SUPPORT SERVICES AND LOANS Gerard J. Nick David R. Allardice Carl E. Vander Wilt Franklin D. Dreyer Vice President Senior Vice President Senior Vice President Senior Vice President and Branch Manager and Chief Financial Officer William J. O'Connor Assistant Vice President REGULATION Yvonne H. Montgomery ACCOUNTING SERVICES James A. Bluemle Robert A. Lyon Vice President Richard P. Bush Loans Officer Vice President Vice President and Valerie J. Van Meter Director of Regulation Vice President MANAGEMENT SERVICES David S. Epstein SERVICES TO DEPOSITORY Brian D. Egan Glenn C. Hansen Vice President INSTITUTIONS Assistant Vice President Vice President Douglas J. Kasl CASH/FISCAL AND Patrick A. Garrean Margaret K. Koenigs Vice President WHOLESALE SERVICES Assistant Vice President Assistant Vice President Richard P. Anstee Sheryn E. Bormann Joseph R. O'Connor Jeffrey B. Marcus Assistant Vice President Senior Vice President Assistant Vice President Assistant Vice President Maureen A. Cummings William A. Bonifield F. Alan Wells Assistant Vice President SUPPORT SERVICES Vice President Assistant Vice President Wayne R. Baxter William H. Lossie Jr. Jerome D. Nicolas Robert M. Marable Assistant Vice President Vice President Assistant Vice President Operations Officer Kenneth R. Berg James W. Nelson Lawrence J. Powaga Assistant Vice President Assistant Vice President Assistant Vice President SUPPORT FUNCTIONS Tyler K. Smith Anne M. Phillips James M. Rudny AUTOMATION AND Operations Officer Assistant Vice Presideiit Assistant Vice President COMMUNICATIONS SERVICES Ronald A. Rolighed Guadalupe Garcia George E. Coe HUMAN RESOURCE SERVICES Assistant Vice President Operations Officer Senior Vice President Thomas G. Ciesielski Philip G. Jackson Vice President INTERSTATE MARKETING AUTOMATION SUPPORT Applications Officer Richard F. Opalinski Glen Brooks R. Steve Crain Assistant Vice President Carl R. Quinn Vice President Assistant Vice President Examining Officer Angela D. Robinson Brenda D. Ladipo RETAIL SERVICES Assistant Vice President John A. Valenti Assistant Vice President Charles W. Furbee Information Support Officer Jeffrey S. Anderson Senior Vice President Frank S. McKenna Personnel Officer SUPERVISION Assistant Vice President CHECK SERVICES Barbara D. Benson David E. Ritter OFFICE OF THE Diane S. Noble Vice President and Assistant Vice President GENERAL AUDITOR Director of Supervision Vice President and Data Security Officer Jerome F. John General Auditor William A. Barouski Cynthia L. Rasche Karen L. Rosenberg Operations Officer Vice President Assistant Vice President Robert M. Casey Geoffrey C. Rosean Mary H. Sherburne Assistant General Auditor Operations Officer ELECTRONIC ACCESS SUPPORT Vice President Joseph B. Green Anthony J. Tempelman Audit Officer A. Raymond Bacon REGIONAL OFFICES Assistant Vice President Assistant Vice President David R. Starin OFFICE OF THE COMMUNITY AND Robert A. Bechaz Vice President GENERAL COUNSEL INFORMATION SERVICES Assistant Vice President William H. Gram Des Moines Office Nancy M. Goodman Senior Vice President, Kathleen E. Benson L. Edward Ketchmark Senior Vice President Assistant Vice President Assistant Vice President General Counsel and Secretary CONSUMER AND Michael R. Jarrell Indianapolis Office LEGAL SERVICES Donna M. Yates COMMUNITY AFFAIRS Assistant Vice President Elizabeth A. Knospe Assistant Vice President Alicia Williams Assistant Vice President and Gay Whiting Vice President Assistant Vice President Milwaukee Office Assistant General Counsel Angelina S. Chin John L. Bergstrom Yurii Skorin Charles A. Jeffrey Assistant Vice President Assistant Vice President Examining Officer Assistant Vice President and Assistant General Counsel GENERAL SERVICES Jeffrey A. Jensen RETAIL SERVICES Examining Officer Stephen M. Pill Kristi L. Zimmermann Anna M. Voytovich Vice President Assistant Vice President Assistant Vice President and Jean T. Parulski Assistant General Counsel Examining Officer Kathleen H. Williams PUBLIC AFFAIRS Assistant Vice President James R. Holland Public Affairs Officer

23 EXECUTIVE CHANGES

DIRECTORS Members of the Federal Reserve Bank of ADVISORY COUNCILS The Federal Advisory Council, which Chicago's board of directors are selected to represent a cross meets quarterly to discuss business and financial conditions section of the Seventh District economy, including consumers, with the Board of Governors in Washington, D.C., is comprised industry, agriculture, the service sector, labor, and commer- of one member from each of the 12 Federal Reserve Districts. cial banks of various sizes. Each year the Chicago Reserve Bank's board of directors The nine-member board includes three bankers and selects a representative to this group. Roger L. Fitzsimonds three nonbankers, all elected by member banks. Three addi- served as the Seventh District's representative in 1995 and was tional nonbankers are appointed by the Board of Governors, re-appointed to a second one-year term for 1996. which also designates the Reserve Bank chairman and deputy Members of the Bank's two advisory councils, who are chairman from among its three appointees. selected from nominations by Seventh District small business The Board of Governors also selects three nonbankers and agricultural organizations, served the second year of their to serve on the seven-member board of the Bank's Detroit terms in 1995. The councils provide a vital communication Branch. Four additional directors are selected by the Chicago link between the Bank and these important sectors. Two new Reserve Bank board. The Branch board selects its own chair- members, Sue Ling Gin and Eduardo Salse, were appointed man each year. All Reserve Bank and Branch directors serve to the Advisory Council on Small Business for 1995. three-year terms, with a two-term maximum.

Director appointments and elections at the Chicago OFFICERS The Bank's board of directors acted on the Reserve Bank and its Detroit Branch effective in 1995 were: following promotions during 1995: • Robert M. Healey designated Chairman. • David R. Allardice, to Senior Vice President and • Richard G. Cline designated Deputy Chairman. Branch Manager, Detroit Branch. • Lester H. McKeever, Jr. appointed to three-year term as • Alicia Williams, to Vice President, Community director, replacing Duane Burnham. and Information Services. • Thomas C. Dorr and Stefan S. Anderson elected to second • Brian D. Egan, to Assistant Vice President, three-year terms as directors. Detroit Branch. • John D. Forsyth designated Branch Chairman. New officers appointed by the board in 1995 were: At year-end 1995 the following appointments and • William C. Hunter, to Senior Vice President and elections to terms beginning in 1996 were announced: Director of Research. • Robert M. Healey redesignated Chairman. • Elijah Brewer III, to Senior Economist and • Lester H. McKeever, Jr. designated Deputy Chairman. Assistant Vice President, Economic Research. • Arthur C. Martinez, Chairman and Chief Executive Officer • James W. Nelson, to Assistant Vice President, of Sears, Roebuck and Co., appointed to a three-year term Supervision and Regulation. as a director, replacing Richard Cline. • Joseph B. Green, to Audit Officer, Auditing. • John D. Forsyth redesignated Branch Chairman. • James R. Holland, to Public Affairs Officer, • Richard M. Bell, president of the First National Bank of Three Community and Information Services. Rivers in Three Rivers, Michigan, and Stephen R. Polk, chair- • Cynthia L Rasche, to Auditing Officer, Auditing. man and chief executive officer of R. L. Polk & Co., Detroit, Roby L. Sloan, Senior Vice President and Branch Michigan, appointed to three-year terms as Branch direc- Manager, retired after 33 years of service to the Bank, including tors, replacing Norman F. Rodgers and J. Michael Moore. 11 years as manager of the Detroit Branch. Joan M. DeRycke, Assistant Vice President and Assistant Secretary, retired after 21 years of service to the Bank, including 12 years in the Office of the Bank Secretariat.

24

HEAD OFFICE 230 South LaSalle Street P.O. Box 834 Chicago, Illinois 60690-0834 312-322-5322

DETROIT BRANCH 160 West Fort Street P.O. Box 1059 Detroit, Michigan 48231-1059 313-961-6880

616 Tenth Street P.O. Box 1903 Des Moines, Iowa 50306-1903 515-284-8800

INDIANAPOLIS OFFICE 8311 North Perimeter Road P.O. Box 2020 B Indianapolis, Indiana 46206-2020 317-244-1744

MILWAUKEE OFFICE 304 East State Street FEDERAL RESERVE BANK P.O. Box 361 OF CHICAGO Milwaukee, Wisconsin 53201-0361 414-276-2323

PEORIA OFFICE 6100 West Dirksen Parkway P.O. Box 4318 Peoria, Illinois 61607-0318 309-633-5000

For additional copies of this report, contact the Public Information Center, Federal Reserve Bank of Chicago, at 312-322-5111 or access the Bank's Internet home page at http://www.frbchi.org.