Regional President Speech

SILAS KEEHN REMARKS INTERNS' BREAKFAST AUGUST 17, 1988 I. GREATLY APPRECIATE SPENDING SUMMER WITH US A. MARVELOUS GROUP - WE ARE ENJOYING THE OPPORTUNITY TO BECOME ACQUAINTED WITH YOU B. HOPE THAT YOU HAVE AND WILL LEARN A GOOD DEAL ABOUT THE FEDERAL RESERVE BANK OF CHICAGO AND THE SYSTEM 1. CENTRAL BANKING ALTHOUGH UNIQUE - MYSTIQUE - OVERCAME THAT 2. THAT YOU WILL BE A GOOD SPOKESPERSON FOR OUR ORGANIZATION ON YOUR CAMPUS 3. CAREER CHOICE - BANKING/CENTRAL BANKING/CHICAGO C. LET ME SET THE STAGE WITH A FEW COMMENTS 1. WOULD LIKE TO HEAR FROM EACH OF YOU AS TO ACTIVITIES THIS SUMMER 2. BUT ALSO RESPOND TO ANY QUESTIONS THAT YOU MAY HAVE Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 2 II. THE FEDERAL RESERVE IS GOING THROUGH A PARTICULARLY INTERESTING PERIOD A. ALL OF OUR ACTIVITIES GOING THROUGH A PERIOD OF SIGNIFICANT CHANGE B. AND THE ENVIRONMENT IN WHICH WE OPERATE IS ALSO GOING THROUGH A TREMENDOUS CHANGE 1. GREAT DEAL AT STAKE FOR OUR ECONOMY AND FOR THE STRUCTURE OF OUR FINANCIAL SERVICES INDUSTRY 2 A BIT OF A PLUG - THE FEDERAL RESERVE IS AT THE ABSOLUTE CENTER OF ALL THESE ACTIVITIES AND CHANGES 3. ADDS GREAT EXCITEMENT AND INTEREST TO OUR JOBS III. ONE NOTEWORTHY EXAMPLE - STOCK MARKET BREAK IN OCTOBER A. SURE YOU'VE ALL READ ABOUT IT - PERHAPS THE MOST NOTABLE FINANCIAL DISTURBANCE OF THE LAST 50 YEARS 1. DRAMATIC PRICE SWINGS AND MASSIVE TRADING VOLUMES IN THE NATION'S FINANCIAL MARKETS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 3 2. ACTIONS OF COMMERCIAL BANKS AND THE FED TO KEEP MONEY FLOWING THROUGH THE SYSTEM HELPED AVOID FINANCIAL SQUEEZE B. KEY FACTOR WAS CHAIRMAN GREENSPAN'S PUBLIC ANNOUNCEMENT ON OCTOBER 20TH THAT WE STOOD READY TO PROVIDE LIQUIDITY IF NEEDED C. THROUGHOUT THIS PERIOD, HERE AT THE CHICAGO FED WE KEPT IN CLOSE TOUCH WITH KEY FINANCIAL INDUSTRY FIGURES - ALSO THE FED BANKS AND BOARD, INCLUDING CHAIRMAN GREENSPAN, KEPT IN CLOSE TOUCH WITH EACH OTHER D. OVERALL, FED HELPED STABILIZE MARKETS BY: I -PROVIDING ADDITIONAL LIQUIDITY THROUGH OPEN MARKET OPERATIONS; -EMPHASIZING ITS WILLINGNESS TO LEND TO BANKS THROUGH THE DISCOUNT WINDOW; AND -KEEPING OPERATING SYSTEMS GOING AND EXTENDING THE HOURS ON FEDWIRE. & E. ECONOMY PROVED REMARKABLY RESILIANT TO THE LOSS OF STOCK MARKET WEALTH - SOME FEARED THAT BREAK WOULD LEAD TO A SHARP SLOWDOWN IN GNP GROWTH, OR EVEN A RECESSION, BUT ECONOMIC GROWTH HAS REMAINED VERY VIGOROUS THROUGH THE FIRST HALF OF THIS YEAR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 4 F. ALL OF OUR MAJOR AREAS OF ACTIVITY - MONETARY POLICY, SUPERVISION AND REGULATION, AND OPERATIONS -PLAYED ROLE 1. WILL COMMENT BRIEFLY ON EACH ACTIVITY IV. SUPERVISION AND REGULATION (JIM MORRISON) A. SUPERVISION - MONITORING OF BANKS THROUGH FIELD EXAMINERS TO ASSURE SAFETY AND SOUNDNESS 1. WITH IMPROVED DISTRICT ECONOMY, CONDITION OF OUR BANKS HAS IMPROVED DRAMATICALLY B. REGULATION - THE SETTING OF RULES BY WHICH INSTITUTIONS ARE GOVERNED 1. STRUCTURAL CHANGES CONTINUE TO MOVE FORWARD - ALBEIT SLOWLY AND LARGELY DRIVEN BY MARKET FORCES RATHER THAN LEGISLATION 2. GEOGRAPHIC DEREGULATION LARGELY A DONE DEED C. DEREGULATION PROCESS NOW FOCUSING ON BREAKING DOWN BARRIERS ON PERMISSIBLE ACTIVITIES AND SERVICES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 5 1. COMMERCIAL BANKS NOW INVOLVED IN MUCH WIDER RANGE OF SECURITIES ACTIVITIES THAN WOULD HAVE BEEN BELIEVED POSSIBLE EVEN TEN YEARS AGO 2. THE MOST DRAMATIC ENLARGEMENT OF BANKS' SECURITIES POWERS HAVE RESULTED FROM NEW INTERPRETATIONS OF SOME OF THE MORE AMBIGUOUS LANGUAGE IN GLASS-STEAGALL ACT D. SOME PROGRESS ON LEGISLATIVE FRONT - IN MARCH THE SENATE PASSED A BILL THAT WOULD REPEAL THE SEPARATION OF COMMERCIAL AND INVESTMENT BANKING CONTAINED IN THE GLASS-STEAGALL ACT - BUT WOULD ALSO SHARPLY LIMIT INSURANCE ACTIVITIES OF BANK HOLDING COMPANIES 1. IN JULY, THE HOUSE BANKING COMMITTEE APPROVED A SIMILAR BILL THAT WOULD ALSO LOOSEN RESTRICTIONS ON NONBANK BANK ACTIVITIES 2. WILL BE INTERESTING TO FOLLOW DEVELOPMENTS IN NEXT FEW MONTHS E. KEY QUESTION NOW FACING REGULATORS IS HOW TO ENHANCE BANKS' ABILITY TO COMPETE WHILE ASSURING THAT THE BANKING SYSTEM DOES NOT BECOME A SOURCE OF OVERALL ECONOMIC INSTABILITY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 6 1. ONE IMPORTANT STEP IN DEVELOPING AN EQUITABLE REGULATORY SYSTEM WAS THE BASLE COMMITTEE'S AGREEMENT ON BANK CAPITAL GUIDELINES A. UNDER AGREEMENT, BANKS IN 12 MAJOR INDUSTRIAL COUNTRIES WOULD HAVE IDENTICAL MINIMUM CAPITAL REQUIREMENTS BY 1992 B. AGREEMENT ALLOWS FURTHER IMPROVEMENT IN CAPITALIZATION OF U.S. BANKS AND HELPS REDUCE THE COMPETITIVE INEQUITIES RESULTING FROM VARYING SUPERVISORY REQUIREMENTS IN DIFFERENT NATIONS 2. STILL A LOT OF WORK TO BE DONE IN THIS AREA V. OPERATIONS (DAN DOYLE - CHUCK FURBEE/CHECK SERVICES - BILL CONRAD/ELECTRONIC SERVICES} A. IN 1987, BANK ACHIEVED A PROFIT IN OFFERING PRICED \ SERVICES FOR THE FOURTH STRAIGHT YEAR 1. REPEATING THIS SUCCESSFUL PERFORMANCE THIS YEAR B. IN CHECK AREA 1. VOLUMES HAVE INCREASED AND EXPENSES ARE FLAT Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 7 2. PAPER-BASED PAYMENTS A MATURE SERVICE BUT WILL CONTINUE FOR QUITE SOME TIME IN SIZABLE VOLUMES C. ELECTRONIC ACTIVITIES GROWING RAPIDLY 1. ENORMOUS VOLUMES - $1 TRILLION PER DAY/22% GNP 2. GROWING RISKS - WEAK LINK D. MAJOR CHALLENGE IN THE OPERATIONS AREA WAS IMPLEMENTING THE EXPEDITED FUNDS AVAILABILITY ACT PASSED BY CONGRESS IN AUGUST 1987 1. CONGRESS ATTEMPTED TO ADDRESS THE CONCERNS OF CONSUMERS REGARDING THE HOLDS THAT BANKS PLACE ON CHECK DEPOSITS A. LEGISLATION REQUIRES BANKS TO MAKE CHECK DEPOSITS AVAILABLE MORE QUICKLY B. AT THE SAME TIME, ACT SEEKS TO REDUCE RISKS FOR BANKS BY SPEEDING UP THE RETURN OF CHECKS 2. CONGRESS GAVE THE FED RESPONSIBILITY TO IMPLEMENT THE ACT BY SEPTEMBER 1, 1988 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 8 A. BOARD DEVELOPED REGULATORY INITIATIVES AND NEW SERVICES DESIGNED TO SPEED CHECK COLLECTION, ESPECIALLY RETURN ITEM PROCESS B. VERY COMPLEX PROJECT - DOCUMENT EXPLAINING NEW REGULATION AND SERVICES IS ALMOST 700 PAGES - BANK HELD MORE THAN 80 SEMINARS 3. ACT WILL RESULT IN SIGNIFICANT CHANGES FOR BANK'S RETURN ITEM AREA A. ESSENTIALLY, RETURN ITEMS WILL BE HANDLED IN THE SAME MANNER AS FORWARD COLLECTION CHECKS B. LOCAL RETURNS WILL BE PROCESSED ON AN OVERNIGHT BASIS C. RETURN ITEM EMPLOYEES WILL CHANGE FROM DAYTIME HOURS TO A NIGHT SHIFT VI. ECONOMIC RESEARCH (KARL SCHELD) A. VARIETY OF FACTORS TO CONSIDER: CONDITIONS IN THE DISTRICT - BROAD NATIONAL OUTLOOK & INTERNATIONAL RELATING TO OUR FOMC RESPONSIBILITIES - STRUCTURAL QUESTIONS AS THEY RELATE TO BANKING INDUSTRY 1. GREAT DEAL GOING ON IN EACH OF THESE AREAS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 9 B. IMPORTANTLY, THE OVERALL ECONOMIC OUTLOOK CONTINUES TO BE VERY FAVORABLE 1. NATION WELL INTO ITS SIXTH YEAR OF ECONOMIC EXPANSION - THE LONGEST PEACETIME EXPANSION IN THE NATION'S HISTORY 2. WON'T SPEND TIME ON A DETAILED FORECAST BUT FAIR TO SAY THAT NATION HAS ACHIEVED REMARKABLE ECONOMIC PROGRESS OVER THE PAST FIVE YEARS AND WE SEE NO INDICATION OF A RECESSION THIS YEAR OR NEXT 3. AS WITH NATIONAL ECONOMY, THE OUTLOOK FOR MIDWEST IS VERY BRIGHT DESPITE THE DROUGHT A. LAST YEAR, OVERALL ECONOMIC GROWTH IN THE MIDWEST OUTPACED THE REST OF THE NATION - FIRST TIME SINCE 1980 B. WITH THE LOWER DOLLAR, IMPROVED TRADE AND PRODUCTIVITY GAINS, THE MIDWEST IS MUCH MORE COMPETITIVE C. SEVENTH DISTRICT SHOWING SIGNS OF ONCE AGAIN BECOMING THE ENGINE OF ECONOMIC GROWTH FOR THE NATION Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 10 C. OUR CONCERN IS NOW ABOUT ECONOMY OVERHEATING 1. CURRENT RATE OF GROWTH EXCEEDS LONG-RUN TREND A. PLANT CAPACITY USE AND EMPLOYMENT MAY BE APPROACHING LIMITS B. MUST BE ALERT TO BUILDING WAGE PRESSURES C. PRODUCER PRICES HAVE BEEN MOVING UP AND WE EXPECT CPI INCREASE TO ACCELERATE 2. SO AS PUBLIC ANNOUNCEMENTS INDICATE, FED HAS BEEN NUDGING POLICY TIGHTER OVER LAST FEW MONTHS 3. LAST WEEK INCREASED DISCOUNT RATE - FIRST MOVE IN 11 MONTHS - DRAMATIC STATEMENT A. "DECISION REFLECTS THE INTENT OF THE FEDERAL RESERVE TO REDUCE INFLATIONARY PRESSURES" B. FED VERY CLEAR ON THIS - NO DOUBT ABOUT OUR RESOLVE D. DURING THE REST OF YOUR TIME HERE AND NEXT YEAR'S SCHOOL YOU WILL WANT TO KEEP YOUR EYE ON THESE DEVELOPMENTS Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis INTERN REMARKS - PAGE 11 VII. AGAIN, A VERY GREAT PLEASURE TO HAVE YOU WITH US THIS SUMMER A. YOU ARE AN OUTSTANDING GROUP REPRESENTING A BROAD NUMBER OF EXCELLENT INSTITUTIONS 1. HOPE THE REST OF YOUR SUMMER IS ENJOYABLE AND INTERESTING 2. MOST IMPORTANTLY FROM OUR PERSPECTIVE, WE HOPE THAT YOU FOUND IT TO BE A USEFUL EXPERIENCE AND WILL CONSIDER A CAREER AT THE FED AFTER YOU GRADUATE THANK YOU Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1988, August 16). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19880817_silas_keehn

@misc{wtfs_regional_speeche_19880817_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1988},
  month = {Aug},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19880817_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}