Regional President Speech

SILAS KEEHN REMARKS ECONOMIC DEVELOPMENT COUNCIL (BREAKFAST MEETING - FRBC) NOVEMBER 14, 1986 ~~ IL ~:_-- ,-~/~ ~ • ,nv ~ ~ r::::.../?:-,,. ''-"1-' - t,,,r: rtr ;;i:i..f.c;,b.::. •,. .... I. INTRODUCTION ~,n._f~ ~ ~ ~ - ~ '::za 4--f ~ .t P ,-..> ~,AJ,.#J A. FINANCIAL SERVICES INDUSTRY GOING THROUGH A PHASE OF SIGNIFICANT TRANSITION 1. DEREGULATION - EVOLVING OVER QUITE SOME PERIOD 2. THE PACE HAS ACCELERATED CONSIDERABLY SINCE 1980 3. CHANGES LARGELY DE FACTO AS OPPOSED TO LEGISLATIVE L~~ ,e_~ ~ L-t.t~ ~t.l a:.- !>~~ ... B. DEREGULATION - BOTH GEOGRAPHIC AND SER¥IeE LINE5 [)~Ut4f~ 1. REGULATION HAS CAREFULLY RESTRAINED BOTH SINCE THE 1930S - IF APPROPRIATE THEN, AND THAT S AT I LEAST OPEN TO QUESTION, MARKETPLACE DEVELOPMENTS '-d,-~ ~ ~ HAVE OUTMODED '- ,w 2. ECONOMIC EVENTS OF THE 1980S HAVE BOTH ACCELERATED THE PACE AND HAVE CONCURRENTLY IMPACTED THE INDUSTRY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 2 A. VOLATILE AND ESCALATING INTEREST RATES 1980-1982; GAP PROBLEMS REALLY HIT BANK BALANCE SHEET B. THE FOLLOWING DISINFLATION AND THE RESULTING ASSET QUALITY PROBLEMS - AG~~C~L URE, ENERGY 7:- ~:L~. ~-~ (, ~,-~ - ~CD.,-lfR~ C. MEANWHILE, TECHNOLOGICAL CHANGES AVE ALSO O DRAMATICALLY ESCALATED 1. COMPUTERS - COST 2. COMMUNICATIONS A. THE WORLD IS AN 800 NUMBER AWAY 3. VERY SMALL INSTITUTIONS HAVE ALMOST EQUAL FOOTING WITH THE VERY LARGE D. THE BENEFICIARY - THE CONSUMER 1. MUCH BROADER RANGE OF SERVICES 2. HIGHLY COMPETITIVE PRICING 3. THE MARKETPLACE IN OPERATION II. THE DEVELOPMENT OF NONBANK BANKS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 3 A. DEFINITION - DEPOSITS AND COMMERCIAL LOANS 1. 400 APPLICATIONS FROM BANKS HAVE BEEN FILED 2. 275 APPROVED, 7 OF THESE IN ILLINOIS ~ELL OVER 100 IN OPERATION B. CLEAR WAY OF TRYING TO CIRCUMVENT THE REGULATIONS 1. CONGRESSIONAL ACTION TO DEAL WITH THE ISSUE HAS BEEN PRESSING 2. WITH THE PASSAGE OF TIME, THE CONSUMER HAS BECOME INCREASINGLY COMFORTABLE WITH THESE ACTIVITIES - CONGRESSIONAL RESPONSE WILL BECOME MORE DIFFICULT WITH THE PASSAGE OF TIME 3. GRANDFATHERING A POSSIBLE RESPONSE C. JUST AN EXAMPLE OF THE MARKETPLACE IN OPERATION 1. TO BE REPETITIVE - THE NEED FOR LEGISLATIVE REACTION PRESSING 2. WITHOUT IT, THOSE THAT ARE REGULATED SEVERELY AND SIGNIFICANTLY DISADVANTAGED 3-~~~-~ a ~ ~ ~ N • !;),,. ... ~•c_ ~ A-n-1' etJS-(- ~ Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 4 III. LET ME TRY AND RELATE ALL OF THIS TO CHICAGO CURRENTLY AND PROSPECTIVELY A. THERE IS A GREAT DEAL AT STAKE 1. I'VE TRIED TO POINT OUT THAT THE INDUSTRY IS IN A STATE OF FOMENT 2. TOO EARLY TO SAY THAT THE CEMENT IS DRYING - BUT IT WILL - AND WHEN IT HAS, WE'D BETTER BE THERE . ~~~~ ~be~-~~ B. LET ME JUST REITERATE OUR WELL-KNOWN ADVANTAGES AS A }~ u'J~ 1"'sJ'Ul.- WORLD FINANCIAL CENTER c ~ () ~ --- '• ~ /f.M. ~ 1 ~ ~ _L - , < U :r - 1. FOUR MAJOR FINANCIAL EXCHANGES LOCATED HERE 2. THEY TYPICALLY LEAD THE NATION, INDEED THE WORLD, IN THE INNOVATION AND DEVELOPMENT OF NEW AND EXCITING SERVICES 3. CBOE PIONEERED THE LISTED STOCK OPTION AS A RISK MANAGEMENT TOOL - THE WORLD'S LARGEST AND ONLY EXCLUSIVE MARKETPLACE FOR LISTED OPTIONS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 5 4. VOLUME - 700,000 CONTRACTS VALUED AT SOME $300 MILLION EVERY DAY - 64% OF THE OPTIONS MARKET 5. TOGETHER THE BOARD OF TRADE AND THE MERCANTILE ACCOUNT FOR SOME 80% OF THE COMMODITIES TRADING VOLUME IN THE U.S. A. FROM 1983 TO 1985 CONTRACT VOLUME ON THE MERCANTILE INCREASED BY ALMOST 50% AND BY ANOTHER 25% IN THE FIRST SIX MONTHS OF THIS YEAR 6. VOLUME ON THE MIDWEST STOCK EXCHANGE GROWING VERY RAPIDLY - LAST YEAR THE SECOND LARGEST EXCHANGE IN BOTH VOLUME AND VALUE 7. THE NUMBER AND SPREAD OF ACTIVITIES ON THESE EXCHANGES TRULY EXCITING AND GROWING RAPIDLY A. THEY PROVIDE AN EXCEPTIONALLY IMPORTANT FOUNDATION FOR OUR POSITION AS A FINANCIAL SERVICES CENTER Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 6 C. OTHER ACTIVITIES AS WELL - INSURANCE 1. ILLINOIS LEADS THE NATION IN THE NUMBER OF PROPERTY /CASUAL TY INSURERS HEADQUARTERED IN THE STATE D. CHICAGO HAS THE NATION'S THIRD HIGHEST CONCENTRATION OF VENTURE CAPITAL FIRMS IV. LET ME SHIFT AND TALK ABOUT THE BANK STRUCTURE~ ..Jj,N~, "...s A. REGIONAL COMPACT IN ILLINOIS EFFECTIVE JULY 1ST 1. EXTENDS TO INDIANA, IOWA, KENTUCKY, MICHIGAN, MISSOURI AND WISCONSIN 2. RECIPROCAL LAWS PASSED AND SOON TO BECOME EFFECTIVE IN ALL STATES EXCEPT IOWA 3. THE FULL RECIPROCITY OF THE ILLINOIS LAW NOT YET TESTED (BE CAREFUL ON THIS COMMENT) B. THE EARLY EFFECTS OF THIS SIGNIFICANT LEGISLATIVE CHANGE ARE BEGINNING TO BECOME APPARENT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 7 1. SO FAR BANK HOLDING COMPANIES IN OTHER STATES HAVE COME IN TO ILLINOIS 2. MICHIGAN AND MISSOURI INSTITUTIONS HAVE APPLICATIONS PENDING AS DOES A WISCONSIN BANKING ORGANIZATION 3. INDIANA HAS FACED A VIRTUAL ONSLAUGHT FROM OUT OF STATE INSTITUTIONS C. HOW WILL ILLINOIS FARE IN THIS TRANSITION 1. A STUDY RECENTLY CONDUCTED BY OUR RESEARCH STAFF SUGGESTS THAT ILLINOIS WILL HAVE MORE ACQUIREES THAN ACQUIRERS - THE ACQUIRERS ARE LIKELY TO COME FROM OHIO, MICHIGAN AND WISCONSIN A. TYPICAL ACQUIRER - $3. 7 BILLION IN TOTAL ASSETS WITH 123 OFFICES 8. TYPICAL ACQUIREE - $700 MILLION IN TOTAL ASSETS WITH FAR FEWER OFFICES fflP ~ L, /4-./'U,,'~ - ~ ~~~-~-­ JIA~~C,~- Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis C. WE ARE PAYING THE PRICE FOR AN ANTIQUATED BRANCHING LAW THAT IS HIGHLY RESTRICTIVE AND CLEARLY COUNTERPRODUCTIVE D. HUCH AT STAKE - HARD PRESSED TO BELIEVE THAT WE CAN MAINTAIN OUR ROLE AS A FINANCIAL CENTER WITHOUT THE UNDERPINNING~ A STRONG COMMERCIAL BANKING STRUCTURE 1. WITHOUT BEING SPECIFIC, IT IS SELF-APPARENT THAT WE START OFF IN A DISADVANTAGED POSITION 2. BANKS IN THE PARTS OF OUR AREA THAT HAVE ACCESS TO ILLINOIS THROUGH THE REGIONAL LAW SENSE THIS 3. OTHER CITIES FEEL THAT WE ARE VULNERABLE AND THAT THEY CAN ASSUME A LARGER ROLE AS A REGIONAL FINANCIAL CENTER THAN HAS BEEN THE CASE V. TO CONCLUDE AND ON A POSITIVE NOTE - WE HAVE SOME STRONG ADVANTAGES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 9 A. I I VE TALKED ABOUT SOME OF THE ACTIVITIES THAT ARE IMPORTANT TO OUR CITY AND IN WHICH WE ARE A RECOGNIZED WORLD LEADER B. AND THERE ARE SOME OTHER ADVANTAGES 1. TECHNOLOGICAL INNOVATIONS IN COMMUN I CAT IONS PUT US IN ALMOST I NS TANT CONTACT WI TH THE OTHER MARKETS IN THE WORLD 2. HARD TO DEFINE BUT MY SENSE IS THAT THE EMPLOYEE POOL IN CH I CAGO IS WELL EDUCATED STABLE AND I ENERGETIC - OUTSIDERS PERCEIVE THIS AS A GOOD PLACE TO DO BUSINESS - NOT TRUE OF OTHER FINANCIAL CENTERS 3. TRANSPORT AT I ON IN AND OUT OF CH I CAGO IS GOOD WHICH FACILITATES THE MOVEMENT OF EMPLOYEES 4. WAGE RATES COMPARE FAVORABLY 5. COST OF LIVING COMPARES FAVORABLY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 10 C. OUR BANK HAS JUST EMBARKED ON A MAJOR COMPREHENSIVE STUDY ON THE COST OF DOING BUSINESS IN CHICAGO ~~~ ~ 1. WE PLAN THIS TO BE A MAJOR DEFINITIVE STUDY 2. DAVE ALLARDICE HAS A MAJOR RESPONSIBILITY IN THIS ACTIVITY 3. I IN NO WAY WANT TO PRE-JUDGE HIS FINDINGS (AGAIN WE HAVE ONLY JUST STARTED THE EFFORT) 4. OBVIOUSLY MY HOPE IS THAT THE STUDY WILL INDICATE THAT THE COST OF DOING BUSINESS IN CHICAGO COMPARES FAVORABLY 5. JUST ONE INGREDIENT - CORPORATE AND PERSONAL INCOME TAX RATES - WE COMPARE FAVORABLY WITH NEW YORK AND CALIFORNIA - THE HOPE IS THAT IN OTHER CATEGORIES THE FAVORABLE COMPARISON WILL PERSIST D. THE RESULTS OF THE STUDY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ECON.DEVEL.COUNCIL 11/14/86 PAGE 11 1. IF WE DO NOT COMPARE FAVORABLY, THE STUDY WILL POINT OUT AREAS WHERE WE NEED TO DO SOME WORK ( NOT UNLIKE THE REGIONAL COMPACT EFFORTS LAST YEAR) A. AND WE WILL NEED TO USE ORGANIZATIONS SUCH AS THE ECONOMIC DEVELOPMENT COUNCIL TO WORK WITH US IN BRINGING ABOUT THESE CHANGES - IT WILL BE TOUGH WORK BUT WELL WORTH THE EFFORT 2. IF THE RESULTS COMPARE FAVORABLY AND/OR AFTER WE HAVE ACCOMPLISHED THE APPROPRIATE LEGISLATIVE CHANGES, THEN THIS SHOULD BE A BASIS FOR ATTRACTING ADDITIONAL FINANCIAL SERVICE ACTIVITY TO OUR AREA WHICH, FROM AN EMPLOYMENT PERSPECTIVE, WILL BE CRITICALLY IMPORTANT ~. r ~ ~ (Y~ - v~-~ ~-~Ar? -~1''-''<# THANK YOU * * * * * Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1986, November 13). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19861114_silas_keehn

@misc{wtfs_regional_speeche_19861114_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1986},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19861114_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}