Regional President Speech

SILAS KEEHN REMARKS ECONOMIC DEVELOPMENT COUNCIL CHICAGO, ILLINOIS AUGUST 9, 1984 1. INTRODUCTION - SIGNIFICANT CHALLENGES CURRENTLY FACING THE FEDERAL RESERVE SYSTEM AND FEDERAL RESERVE BANKS A. EACH OF THE MAJOR AREAS OF RESPONSIBILITY UNDERGOING SIGNIFlCANl CHANGES 1. Ili£ EXCITING TIME:. TO BE AFFILIATED WITH THE SYSTEM A. PERHAPS MOST CHALLENGING PERIOD SINCE FOUNDING OF SYSTEM IN 1913 11. DESCRIPTION OF THE FEDERAL RESERVE SYSTEM A. THE DIS.fRICT BANKS AND BRANCHES - GEOGRAPHICAL AREAS - 12/25/RCPCS {DEl.ROil·, DES MOINES, MILWAUKEE, INDIANAPOLIS) 1. BOARD OF DIRECTORS - 9 A. lHE 3 CLASSES - THE ELECTIVE PROCESS 2. APPOINTING THE DISTRICT PRESIDENT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFl (2} 8/2/84 PAGE 2 B. BOARD OF GOVERNORS - 7; 14 YEAR STAGGERED TERMS 1. APPOlNlMEN-f/CONFIRMATION PROCESS A. EXAMPLE - MARTHA SEGER B. CHAIRMAN/VICE CHAIRMAN C. BOARD SlAFF C. INTERRELATIONSHIP BETWEEN THE BOARD OF GOVERNORS AND BANKS 1. GOVERNANCE RESPONSIBILI·ry OF INDIVIDUAL RESERVE BANK BOARDS OF DIRECTORS A. Bu·r QUITE DIFFEREN·r THAN REGULAR COMMERCIAL BANK 2. OPERATIONAL AND PROCEDURAL CON-IROLS 3. CHECKS AND BALANCES A. THE EXTREME IMPORTANCE B. ALMos·r UNIQUELY EFFECTIVE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 3 D. MONETARY POLICY 1. THE NUMBER ONE RESPONSIBILITY AND ABSOLUTE OVERRIDING IMPORTANCE A. EVERYTHING ELSE RELATED TO THIS B. AND IN EFFECT SUBSERVIENT TO THIS MAIN RESPONSIBILITY C. WHICH IS AN IMPACT ON VIRTUALLY EVERYONE 2. THE INDEPENDENCE OF THE FED A. CURRENT RISKS B. EXAMPLES THROUGHOUT THE FREE WORLD C. AN ISSUE TO FOLLOW Ill. DESCRIPTION OF THE FEDERAL RESERVE BANKS BY FUNCTION A. ECONOMIC RESEARCH AND MONETARY POLICY 1. lHE RELATIONSHIP OF THE BANKS TO THE FOMC 2. THE ROLE OF THE PRESIDENTS IN THE FOMC - ELECTIVE VS. APPOINTIVE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 4 3. ECONOMIC CONDITIONS OF THE REGION B. SUPERVISION AND REGULATION 1. REGULATION - THE DEVELOPMENT OF RULES BY WHICH FINANCIAL INSTITUTIONS ARE GOVERNED AND CONTROLLED 2. SUPERVISION - THE ENFORCEMENT OF THOSE REGULATIONS AS lHEY RELATE TO THE INSTITUTIONS C. OPERATIONS 1. lHE ROLE OF THE FEDERAL RESERVE BANKS IN THE PAYMENTS MECHANISM 2. I.E., 1·HE PROCESSING OF CHECKS A. THE EMERGENCE AND DEVELOPMENT OF EFT ACTIVITY 3. MONETARY CONTROL ACT A. THE ENORMOUS PHILOSOPHICAL CHANGE B. SO FAR HIGHLY SUCCESSFUL IN ITS INTENT D. I WILL TOUCH ON EACH OF THESE BASIC AREAS IN SOME DETAIL Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE~ IV. ECONOMIC RESEARCH AND MONETARY POLICY A. THE BASIC OPERATING CHANGE lN OCTOBER 1979 1. THE lHEN ENVlRONMENl. - INTOLERABLE HIGH RATES AND INFLATION A. THE EXPECTATION OF EVEN HIGHER RATES B. CLEARLY THE NUMBER ONE PROBLEM 2. THE VERY SIGNIFICANT GAINS THA·r HAVE BEEN ACHIEVED - CURRENT CPI RATES - 3-4% A. BUT Al AN ENORMOUS COST PARTICULARLY IN lHE MIDWEST B. A RECESSION THAT HAS HAD A STRUCTURAL IMPACT ON 1·HE OUTLOOK FOR OUR BASIC INDUSTRIES B. OUR BASIC TOOLS FOR MONETARY POLICY - THE AGGREGATES OR THE M'S 1. AND OUR MOST FUNCTIONAL ·rooL - M-1 A. HAS UNDERGONE SIGNIFICANT CHANGES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 6 1. INNOVAlIONS IN FINANCIAL SERVICES - NOW ACCOUNTS, MMDA S, ETC. 1 2. THE CURRENT CHALLENGE A. 1·0 MAINlAIN THE PROGRAM B. YE·r BE FLEXIBLE IN THE APPROACH C. CHAIRMAN VOLCKER S TESTIMONY - 7/25/84 1 (1). REAFFIRMED THE RANGES FOR 1984 (A). M-1, M-2 CB). M-3/CREDIT Cl). GROWTH IN FIRST HALF NOT LIKELY TO REPEAl IN SECOND HALF HIGHER TARGE·rs IMPROPER (II). (2). PRELIMINARY ESTIMATES OF lHE RANGES FOR 1985 CA). CONTINUATION OF THE LONGER RANGE PROGRAM Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFl (2) 8/2/84 PAGE 7 (B). NARROW THE M-1 RANGE/REDUCE IHE 1·op OF THE RANGE - 4 TO 7% (C). M-2 - COVERED BY 11/2% 10 6-8 1/2% (D). M-3 / CREDIT REMAINS 1·HE SAME (3). THE CHALLENGE TO MAINTAIN lHE APPROPRIATE BALANCE AND FLEXIBILITY (A). YET CONTINUE TOWARD FUNDAMEN.fAL OBJECTIVE - PRICE STABILITY C. CONDITIONS OF ·rHE REGION 1. ON A NATIONAL BASIS, THE VERY s·rRONG EXPANSION WHICH IS SUSTAINABLE A. GNP - UNEMPLOYMENT FORECASTS FOR 1984-85 (1). 4Q-4Q: 1984 6 - 6 1/2% 1985 3 - 3 1/2% (2). UNEMPLOYMENl - UNDER 7% BOTH YEARS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 8 2. lHE COMMERCIAL CLUB PROGRAM - THE REGION IS NOT ENJOYING RESULTS COMPARABLE TO NAllONAL A. WISCONSIN DEVELOPMENT COUNCIL 3. DEALING WilH CONDITIONS Of ·rHE REGIONS WILL BE A SIGNIFICANT CHALLENGE V. SUPERVISION AND REGULATION - THE FINANCIAL SERVICE INDUS.IRY IS UNDERGOING ENVIRONMENlAL CHANGES A. SIGNIFICANT CHANGES ON A DE FAc·ro BASIS - FAR AHEAD OF THE DE JURE CHANGES 1. EXAMPLE OF OTHER INDUSTRIES THAT HAVE GONE THROUGH DEREGULAl.ION - BROKERAGE/AIRLINES/.fRUCKlNG 2. BANKING WILL BE NO DIFFERENT 3. THE EARLY SIGNS ARE APPARENl B. INDUSTRY HAS EXPERIENCED A SIGNIFICANT NUMBER OF FAILURES 1. TO SOME CONSIDERABLE EXTENT NOT UNRELATED TO CHANGES BROUGHT ABOUT l"HROUGH MONETARY POLICY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 9 A. CHANGE FROM A HIGH INFLATION TO OUR CURRENT STATUS B. INFLAllON NO LONGER BAILS OUT MANAGEMENT ERRORS 2. THE CONTINENTAL PROBLEM A. NOl CAUSED BY DEREGULATION - QUITE THE OPPOSITE B. AN EXAMPLE OF PROBLEMS THAT THE SUPERVISION IS AND WILL BE DEALING WITH 3. THE OVER-CAPACITY CONCEPT A. REGULATION SUPPORTED GREATER INSTITUTIONS THAN MARKET FORCES CAN DEAL WITH B. DEREGULATION MUST RESULT IN CONSOLIDATION AND FEWER NUMBERS OF INSTITUTIONS C. WHICH COULD BE A RUGGED PROCESS D. ONE IN WHICH THE SAFETY AND SOUNDNESS ISSUE WILL BECOME CRITICAL Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT (2) 8/2/84 PAGE 10 VI. OPERATIONS - PAYMENTS MECHANISM A. MCA - BASIC DESCRIPTION 1. SHIFT FROM BENIGN SUPPLIER OF SERVICES 2. TO A COMPElITIVE lNTERRELATIONSHlP IN A HIGHLY COMPE:.fITIVE MARKET 3. THE RESERVE BANKS HAVE MADE ·rHIS CONVERSION 4. VOLUME EXPE:RIENCE FOR THE OUTLOOK B. OUR ROLE MISUNDERSTOOD BY THE PRIVATE SECTOR 1. GOVERNMENT ENlITY COMPETING WITH PRIVATE SEc·roR 2. lHE MARKET WILL DETERMINE OUR APPROPRIATE ROLE 3. THE RISKS ARE SIGNIFICANT 4. If WE ARE NOT SUCCESSFUL, OUR ROLE IN THE PAYMENTS MECHANISM WILL NOT BE VIABLE 5. DIFfICULT TO MAINl"AIN A PRESENCE WITHou·r FINANCIAL SUCCESS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SK DRAFT {2} 8/2/84 PAGE 11 C. ADMIT THE CONTRADICllON 1. BUT THE LAW HAS SPtCIFIED IN PLACING US IN A CONlRADIClORY ROLE VlI. CONCLUSION A. WE HAVE COME THROUGH A DIFFICULT PERIOD WITH GREAT SUCCESS 1. lHt CHALLENGES CONlAINED B. OUR CONTINUED SUCCESS HAS MAJOR IMPLICATIONS FOR VIRlUALLY EVERYONE 1. THERE lS A GREAT DEAL AT STAKE 2. Wt WILL BE SUCCESSFUL C. lHE MAJOR CHALLENGE - lHE FISCAL DEFICIT 1. NOT JUSl AN ECONOMIC OR MONETARY POLICY ISSUE 2. DEEP SOCIAL AND PHILOSOPHICAL ISSUE * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1984, August 8). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19840809_silas_keehn

@misc{wtfs_regional_speeche_19840809_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1984},
  month = {Aug},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19840809_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}