Regional President Speech

t i ~ .2.-rt ~ V ~ I . .,- J. t}o~ o SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 1 I. OVERVIEW OF THE ECONOMY~ c(µ-e--e.!..e_ c:. ~--hv~ ~ , 5 ') lb te;tPD 3 . ~ r~ ., A. TAKE A MOMENT TO LOOK BACK BEFORE LOOKING AHEAD. 1. A QUICK REVIEW OF THE DECADE OF THE 1980 S. 1 I I. ARGUABLY, ONE OF THE MOST INTEREST I NG AND REWARD I NG DECADES FROM AN ECONOMIC ASPECT. A. LOOKING BACK ON THE LATE 1970 S. 1 1. WHILE WE EXPERIENCED SOME ECONOMIC GROWTH IN 1978-79. 2. I NF LAT I ON HAD BECOME ABSOLUTELY IMBEDDED IN THE SYSTEM. 3. CPI INCREASED 13-1/2% IN 1980, HIGHEST ANNUAL RATE SINCE THE POST-WAR YEAR OF 1947 AND ON AN INTERIM MONTHLY BASIS THE ANNUALIZED RATE EXCEEDED 18%. 4. EVEN WORSE, THE EXPECTATIONAL FACTOR HAD TAKEN HOLD. A. RATES AS HIGH AS 25% COMMONLY EXPECTED. B. WHILE THIS EXPERIENCE IS FADING IN OUR MEMORY, IT MUST BE I NS TRUCT I VE FOR THE FUTURE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 2 C. WE CAME CLOSE TO A GENUINE DETERIORATION OF OUR ECONOMIC SYSTEM AND THOSE RESPONSIBLE FOR MONETARY POLICY CANNOT LET THAT HAPPEN AGAIN. 1. ALL OF ACTIVITIES RELATE TO MONETARY POLICY, CERTAINLY TRUE OF OPERATIONS WHICH HAVE SUCH A FUNDAMENTAL IMPACT ON THE PAYMENTS MECHANISM. B. THE VOLCKER APPOINTMENT IN JULY 1979. 1. SK - GENEVA 2. VOLCKER S EARLY RETURN FROM A MEET I NG OF I FINANCE MINISTERS IN EUROPE IN EARLY OCTOBER 1979. 3. THE OCTOBER 6 FOMC DECISION. A. MONETARY AGGREGATES. B. INTEREST RATES -- AND DO BECOME HIGHLY VOLATILE. C. AS A CONSEQUENCE OF INTEREST RATES THAT SKYROCKETED, WE EXPERIENCED A MILD RECESS I ON IN EARLY 1980. 1. A MINI RECOVERY IN LATE 1980-81. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 3 2. THEN A VERY DEEP RECESSION IN LATE 1981-82. A. IT HAD AN ENORMOUS IMPACT ON THE ECONOMY OF THE MIDWEST. 3. THE TURNING POINT 4TH QUARTER 1982. 4. IN THE PROCESS WE DID BREAK THE BACK OF INFLATION: DOWN TO UNDER 4% IN 1982. D. SINCE THEN A VERY POSITIVE ECONOMIC EXPERIENCE THIS HAS BEEN A LONG/STRONG CYCLE. 1. BY ALL STANDARD MEASURES, WE ARE AT RECORD LEVELS. A. GNP - CURRENTLY OPE RAT I NG AT OVER $5.2 TRILLION IN NOMINAL TERMS, $4.l TRILLION IN INFLATION ADJUSTED. B. INDUSTRIAL PRODUCTION. 1. DESPITE SHIFT TO SERVICES -- WE ARE PRODUCING PRODUCTS AT RECORD LEVELS. 2. THE MOST EXCITING PART -- EMPLOYMENT -- OVER 20 MILLION ADDITIONAL JOBS. A. THE MA IN GROWTH OF COURSE IN SERVI CE SECTOR EMPLOYMENT. B. WHILE MANUF AC TUR I NG EMPLOYMENT HIGHER THAN AT THE LOW POINT OF THE RECESSION, NOT YET BACK TO PEAK LEVELS OF 1978/1979. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 4 1. HAVE HAD GOOD PRODUCTIVITY IMPROVEMENTS, WE ARE PRODUCING MUCH MORE WITH FEWER PEOPLE. III. THAT'S THE GOOD NEWS -- WHILE WE HAVE ACHIEVED THESE VERY POSITIVE RESULTS, THERE IS SOME BAD NEWS -- THE DEVELOPMENT OF SOME SERIOUS IMBALANCES IN THE SYSTEM DURING THE 1980S. A. LET ME ENUMERATE A FEW: 1. AN INCESSANT STRETCH OF FEDERAL BUDGET DEFICITS, SOME IN EXCESS OF $200 BILLION (IN THREE DIFFERENT YEARS). 2. SEVERAL IN EXCESS OF A 5% GNP -- WE HAVE NOT EXPERIENCED SUCH A PROTRACTED PERIOD OF HUGE DEFICITS IN A RECOVERY CYCLE IN THE WHOLE HISTORY OF THE COUNTRY. 3. TOTAL TREASURY DEBT, $830 BILLION AT YEAR-END 1979; NOW APPROACHING $3 TRILLION. 4. OUR TRADE ACCOUNTS (HISTORICALLY IN AT LEAST A SLIGHTLY POSITIVE BALANCE) TURNED SHARPLY NEGATIVE WITH DEFICITS IN AT LEAST ONE YEAR (1987) RUNNING AS HIGH AS $170 BILLION. 5. IN THE PROCESS (DURING 1984) WE SHIFTED FROM BEING THE WORLD'S LARGEST EXTERNAL CREDIT OR TO NOW BECOMING THE WORLD'S LARGEST DEBTOR WITH AN EXTERNAL DEBT EXCEEDING $400 BILLION (MEXICO, BRAZIL, ARGENTINA). Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 5 6. THE CREATION OF THIS EXTERNAL DEBT HAS BEEN ESSENTIAL TO FINANCING OUR INTERNAL BUDGET DEFICITS. A. BUT WE HAVE BECOME ABSOLUTELY DEPENDENT ON THE INTERNATIONAL MARKETS TO PROVIDE FINANCING FOR DOMESTIC CONSUMERS. B. IT IS TERR I BLY UN COMFORT ABLE MOVING FROM ONE TREASURY REFINANCING TO THE NEXT NOT KNOWING WHETHER OR NOT THE INTERNATIONAL MARKETS WILL BE THERE TO PARTICIPATE IN THE TREASURY OFFERINGS. B. WE HAVE LEVERAGED OUR ENT I RE ECONOMIC STRUCTURE -- VIRTUALLY EVERY SECTOR OF OUR ECONOMY HAS BECOME VERY HEAVILY INDEBTED. 1. CORPORATE DEBT. A. TO SOME SIGNIFICANT EXTENT, AS RESULT OF MERGERS, TAKEOVERS AND LEVERAGED BUY-OUTS, CORPORATE AMER I CA HAS DECAPITALIZED ITSELF. B. NET FUNDS RAISED BY INCREASED DEBT BY CORPORATIONS AT HIGH, SOMETIMES RECORD, LEVELS. C. AND ON A NET BASIS, EQUITY LEVELS HAVE BEEN REDUCED. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 6 D. AND FROM 1971 UNTIL NOW, THE CONSOL I DATED DEBT TO WORTH RATIO HAS RISEN FROM 65% TO OVER 90%. 2. CONSUMER INSTALLMENT DEBT AS A PERCENTAGE OF PERSONAL INCOME. A. AT COMPARATIVELY HIGH LEVELS. B. ALTHOUGH SOMEWHAT LOWER IN THE MOST RECENT PERIOD THAN A YEAR OR SO AGO, PROBABLY UNDERSTATED. 1. TAX TREATMENT OF INTEREST ON I NS TA LLMENT DEBT LEADS PEOPLE TO BORROWING AGAINST HOME EQUITY FOR CONSUMER PURCHASES. C. IF I HAD SUGGESTED AT THE OUTSET OF THE 1980S THAT DESPITE THESE DAUNTING IMBALANCES WE WOULD ACHIEVE THE ALMOST SPECTACULAR RESULTS THAT I NOTED EARLIER, 1. YOU MIGHT HAVE QUESTIONED MY SANITY. 2. BUT YET IT HAPPENED AND THAT IS ONE OF THE REASONS THAT THE 1980S HAS BEEN SUCH INTERESTING DECADE. IV. WITH THAT AS HISTORY -- NEAR TERM OUTLOOK. A. THE ECONOMY IS CLEARLY SHOWING SIGNS OF MODERATION -- VIRTUALLY ALL OF CURRENT INDICATORS ARE SHOWING REDUCTIONS IN THE GROWTH RATE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 7 1. 2ND QUARTER GNP+ 1.7% VS. 3.7% FOR THE 1ST QUARTER. 2. TH IS MODE RAT I NG TREND EXPECTED TO CONT I NUE DURING THE BALANCE OF THIS YEAR. 3. CONTINUING INTO NEXT YEAR WITH SOME PICK-UP IN THE GROWTH RATE IN THE 2ND HALF OF 1990. 4. SPECIFICALLY WE ARE FORECAST I NG ON A 4TH QUARTER TO 4TH QUARTER BASIS GROWTH OF 2.4% IN 1989 AND 2.5% IN 1990. 5. IMPORTANTLY -- INDEED THE CRITICAL ISSUE - THE RATE OF INFLATION WILL ALSO BEGIN TO SHOW SIGNS OF MODERATION. A. WE ARE ANTICIPATING AN INCREASE IN THE CPI OF 5-1/2% IN 1989 DROPPING TO 4-1/2% NEXT YEAR. 6. THE POINT IS THAT WE HAVE A GOOD OPPORTUNITY TO ACCOMPLISH THESE RESULTS WITHOUT A RECESSION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 8 A. THE TRADITIONAL INDICATORS OF A PENDING RECESSION JUST DON'T SEEM TO BE THERE. 8. THIS SCENARIO IS EXACTLY WHAT WE HAVE BEEN TRYING TO ACCOMPLISH AND WITH THE PASSAGE OF TIME IT LOOKS I NCREAS I NGL Y POSSIBLE. V. BUT IN A LONGER TERM PERSPECTIVE. A. WE ARE SIMPLY GOING TO HAVE TO DEAL WITH THE IMBALANCES THAT I NOTED ABOVE. 1. THE BUILD-UP IN DOMESTIC DEBT IS CONSUMING FAR TOO MUCH OF AN ABNORMALLY LOW SAVINGS RATE. 2. AT SOME POINT, THE INTERNATIONAL MARKETS MAY CEASE TO BE TOLERANT OF THE INCREASING LEVEL OF DEBT THAT THEY ARE FINANCING. 3. HIGH LEVERAGE FACTOR RAISES QUESTIONS AS TO THE ABILITY OF OUR ECONOMY TO SUSTAIN AN INTERRUPTION OF CASH FLOWS DURING A RECESSION -- IT COULD BE A DESTABILIZING EXPERIENCE. B. WE ARE GOING TO HAVE TO REDUCE THIS DEBT LEVEL LIKE ANY DEBT THESE ARE DEBTS THAT MUST BE SERVICED. 1. AND THIS WILL HAVE SIGNIFICANT IMPLICATIONS ON OUR STANDARD OF LIVING. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 9 2. THE DEBT HAS LARGELY BEEN USED FOR CONSUMPTION PURPOSES AS OPPOSED TO PRODUCT I VE INVESTMENTS WHICH IN THEMSELVES WOULD PRODUCE FUNDS TO REPAY THE LOANS. 3. AS AN EXAMPLE OF THE PROBLEM, INTEREST ON THE FEDERAL DEBT AS A PERCENTAGE OF OUR TOTAL FEDERAL BUDGET HAS INCREASED FROM 10% IN 1976 TO A CURRENT LEVEL OF JUST UNDER 20%. 4. THE FEDERAL DEBT BOTH IN ITS CREATION AND IN ITS SERVICING IS SIMPLY CROWDING OUT PRIVATE INVESTMENT. C. ONE SOL UT I ON OF COURSE, AND THERE ARE SOME OUT THERE BETTING ON IT. 1. THAT THE FED THROUGH I TS MONETARY POL I CY OPERATIONS WI LL SIMPLY REFLATE THE ECONOMY AND MELT THE DEBT AWAY. 2. BUT THE PRICE WE HAD TO PAY TO REDUCE THE I NF LAT I ON OF THE LA TE 1970' S WAS THE VERY DEEP RECESSION IN 1982 -- A REPEAT OF THIS SEEMS ALMOST UNTHINKABLE. A. WE WOULD RUN THE RISK OF RUINING OUR ECONOMY AND LOOK AT THE LATIN AMERICAN EXAMPLE. 3. I ASSURE YOU OF THE FOMC S COMMITMENT TO I PRICE STABILITY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 10 D. THERE IS AN IMPERATIVE NEED TO I NC REASE THE DOMESTIC SAVINGS RATE. 1. AND TO REDUCE BUDGET DEFICIT. 2. I WILL SPARE YOU A LONG MESSAGE. VI. LET ME SHIFT TO MORE ISSUES NEARER AT HAND A. THE GAO REPORT ON OUR PRICED SERVICES ACTIVITIES -- LONG IN COMING AND THE FINAL RESULT SOMEWHAT BETTER THAN WE MIGHT HAVE EXPECTED. 1. BUT THERE ARE SOME PO I NTS THAT EMERGE THAT WE NEED TO FOLLOW. 2. THE REPORT DOES RAISE THE QUESTION OF THE COMPETITIVE EQUALITY BETWEEN THE FED AND THE PRIVATE SECTOR PARTICIPANTS. 3. AND IN OUR RESPONSE, WE ACKNOWLEDGE THAT ISSUE. A. WE SUGGEST THAT WE WILL REVIEW OUR CURRENT PROCESS AND CONSIDER A DIFFERENT APPEAL PROCEDURE. 4. THE REPo~7~~RGES A MOVE TOWARD SAME-DAY ~'Acfi!!tE.Nr AND WE ARE CURRENTLY REVIEWING THAT CONCEPT. A. ADVISORY COMMITTEE HAS BEEN FORMED WHICH MAY HAVE ITS INITIAL MEETING AS EARLY AS THIS MONTH. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 11 B. MY SENSE IS THAT IN SOME WAY THE FED WI LL GO FORWARD WI TH TH IS CONCEPT THERE IS A RING OF FAIRNESS TO IT. C. BY UTILIZING THE COMMENTS THAT WE HAVE RECEIVED SO FAR TO THE EXTENT WE CAN (WHICH HAVE BEEN OVERWHELMINGLY NEGATIVE) AS WELL AS THE WORK THAT WILL BE DONE BY THE ADVISORY COUNCIL, SHOULD BE READY TO PUT A REVISED PROPOSAL OUT FOR COMMENT IN EARLY 1990. B. PPC ISSUES. 1. WE HAVE BEEN THROUGH A MAJOR REVIEW AND REVAMP ING OF PSAF -- I LL SPARE YOU THE I DETAILS. A. VERY SIMPLY 50 BANKS/5 YEARS. B. HOPEFULLY THESE REVISIONS WI LL REDUCE THE AD HOC TINKER I NG THAT HAS BEEN NECESSARY. C. ALSO HOPEFULLY, THIS WILL LAST FOR A WHILE. D. AS A CONSEQUENCE, THE AGGREGATE AMOUNT OF THE PSAF WILL BE HIGHER IN 1990 - THE HURDLE GOES UP A BIT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 12 2. LET ME COMMENT ON OUR CURRENT PRICING RESULTS: A. ALL SERVICES (BEFORE THE COST OF SPECIAL PROJECTS) JUNE 100.6 YTD 100.2 8. CHECK JUNE 99.0 YTD 98.7 C. FUNDS JUNE 110.0 YTD 107.3 D. ACli. JUNE 103.0 YTD 102.96 E. BOOK ENTRY JUNE 107.0 YTD 108.4 F. DEFINITIVE JUNE 95.0 YTD 106.6 G. NON CASH JUNE 95.0 YTD 106.6 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 13 H. SPECIAL JUNE 101.0 YTD 104.0 3. LAST YEAR OUR ]ECOVERY RATE FOR ALL SERVICES / oo . u "lu WAS Aff iW=f---9:9_.% -- .MfN QR Urt D-8-R REC OY 'E'R Y. A. IN MY VIEW GIVEN THE MAGNITUDE OF THE OPERATING CHANGE REQUIRED BY EFA, THIS WAS A SPECTACULAR RESULT -- JUST WOULD NOT HAVE GUESSED THAT WE COULD DO THAT WELL. B. GIVEN THE UNCERTAINTY OF THE OPERATIONAL ASPECTS OF THE RETURN ITEM ACTIVITY OF EFA, ENTIRELY LIKELY THAT OUR INITIAL PRICES MIGHT NOT BE RIGHT -- AND THEY WERE NOT. C. _ EFORE, WE REPRICED OUR RETURN ITEM T~~ ~-,\, t t,~ .J P~ BRINGING THEM TO LEVELS WHICH WE HOPE WILL TEND TOWARD FULL RECOVERY BY YEAR-END -- CERTAINLY NOT THE YEAR AS A WHOLE. 1. HAVING JUST RAISED PRICES -- DON'T WANT TO TURN AROUND AND REDUCE THEM. D. FROM ALL APPEARANCE, THE RECOVERY RATE FOR CHECK SERVICES SHOULD BE RIGHT ABOUT ON FOR THE YEAR. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 14 F. IF THERE IS A CONCERN, IT IS THE HIGH LEVEL OF THE RECOVERY RATE IN ELECTRONIC SERVICES, BUT THAT IS AN ACTIVITY THAT MAY FARE SOME UNUSUAL EXPENDITURES NEXT YEAR -- AND TO REDUCE THE PRICE IN ADVANCE OF THESE EXPENSES WOULD CAUSE UNEVENNESS FOR THE PRICING PROCESS. G. OUR OBJECTIVE IS TO ACHIEVE A RECOVERY RATE OF 102/103% - --fti~!;WOIICQ bl dS?Eft. T lf#R· I lSE?fi~ 11 WA~-,--A g::::q::: SA f , FOR Ha RY UNDl!R~T ODIP 0B l E RE AS OM$ PNPFR Fntt kP¢iQEBY, AND I THINK WE'VE GOT A GOOD OPPORTUNITY TO COME IN ABOUT RIGHT tvvf, ~ - ' ~ 'f ~ ~ /()3f'fo."/. • 4. AS YOU KNOW, (AND I AM SURE THAT MANY OF YOU ARE DIRECTLY INVOLVED) WE ARE CURRENTLY GOING THROUGH A REPRICING EXERCISE FOR 1990. A. THESE PRICES WI LL GO TO THE PPC IN OCTOBER. B. I KNOW THIS IS AN ARDUOUS AND A TEDIOUS TASK FOR A LOT OF YOU BUT IT IS A VERY IMPORTANT EXERCISE AND I WANT TO EXPRESS MY APPRECIATION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 15 1. THERE IS A VERY HIGH SENSITIVITY LEVEL TO OUR RECOVERY RATE -- OVER RECOVERY WI LL BR I NG A REACT ION THAT COULD BE EVERY BIT AS NEGATIVE AS AN UNDER-RECOVERY RATE AND TH IS IS A VERY NARROW AND DIFFICULT LINE TO TREAD. 1. GIVEN THIS SENSITIVITY, OUR REPRICING PROCESS IS EXCEPTIONALLY IMPORTANT. 5. OUR CURRENT RELATIONSHIP WITH THE ABA/ARCB. A. WE HAVE PERIODIC MEETINGS WITH THESE TWO BANK TRADE GROUPS. B. THE MOST RECENT MEET I NG SEEMED HIGHLY CONSTRUCT I VE AND I TH INK RELATIONSHIPS NOW ARE PRETTY GOOD. C. TH IS COULD BE TEMPORARY -- CHANGES CAN OCCUR PRETTY QUICKLY BUT AS OF NOW I DON T SENSE ANY MAIN ISSUES ON WHICH I THERE ARE ACRIMONIOUS DIFFERENCES. 1. FOR EXAMPLE, THE PROPOSED REVISION OF THE PSAF DREW ONLY 6 COMMENT LETTERS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ~ I \4 ,...Qii__ ~ <;::-4 ,_;,. ~ ~~I ~ /4..(. -2. ~ ~ ~-~ Q~· -7 A. ~~u-~~ ~I' u'; w J- ~ I ' ,- v~ Lv-R rb. c ~ N L-- ~ ~ ~ CL~ L,.J' /j f ) ~ ~ ~ , t ? ~ ~ ' LJJ- !~ - p-·~~- ~ ~ ~ : , ~ f' l . Ilk_~ (.J(.A -~ /~~~. P~ w~~ (~(¥~-, t~~-r---~ ..lt__C..l-f1'-~ ,,,,vf') Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 16 D. BUT THE ISSUE THAT THESE GROUPS AND WE ARE FOCUSING ON IS SAME-DAY SETTLEMENT. THEY ARE HAVING AN EXCEPTIONALLY DIFFICULT TIME COMING TO THE CONSENSUS -- IT IS A VER~_DJFFICULT D, ·s p~ :.<. ''-"4 ISSUE FOR A GROUP AS DE.SPER,'HE AS SAY THE ABA MEMBERSHIP TO COME TO CONSENSUS ON. 1. RESERVE CI TY HAS PUT FORTH A PROPOSAL AND THEY ARE TRY I NG TO PUSH THAT ON TO THE ABA. VII FINALLY, LET ME COMMENT ON THE QUESTION OF CONSOLIDATION AND BY THAT I MEAN THE CONSOLIDATION OF SERVICES AND FUNCTIONS AMONG THE FEDERAL RESERVE DISTRICTS. A. THE STRUCTURE OF THE FED WAS ESTABLISHED BY THE ACT THAT WAS PASSED IN 1914 -- THINGS WERE VERY DIFFERENT THEN THAN THEY ARE NOW. BUT YET IN A STRUCTURE SENSE, THE FED IS VERY UNCHANGED. IT SEEMS TO ME THAT EACH OF OUR THREE MAIN LINES OF ACTIVITY LEND THEMSELVES TO SOME CHANGING OF THIS STRUCTURE. 1. SUPERVISION AND REGULATION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 17 A. WITH A BANKING INDUSTRY WHICH HAS BECOME REGIONAL AND IS MOVING TOWARD A NATIONAL INDEED INTERNATIONAL BASIS, IS OUR PRESENT CONFIGURATION APPROPRIATE? 2. ECONOMIC RESEARCH. A. 75 YEARS AGO, OUR COUNTRY WAS COMPRISED OF SOMEWHAT SEPARATE ECONOMIES THAT COULD BE DEALT WITH INDIVIDUALLY IN TERMS OF MONETARY POLICY. B. BUT, IN A WORLD THAT HAS BECOME GLOBALIZED, THIS IS NO LONGER THE CASE. C. WHILE REGIONAL INPUT IS CRITICALLY IMPORTANT, MONETARY POLICY CANNOT BE DEVELOPED REGIONALLY BUT MUST BE IMPLEMENTED ON A NATIONAL BASIS WITH ADEQUATE AWARENESS OF THE INTERNATIONAL ISSUES. 3. OPERATIONS. A. AS WITH OUR OTHER ACTIVITIES, IT IS ONLY LOGICAL TO QUESTION WHETHER WE NEED TO HAVE THE 12 RESERVE BANKS, EACH INVOLVED IN CHECK, ELECTRONIC AND OTHER OPERATIONAL ACTIVITIES. 8. THE 1-94 PROJECT WITH MINNEAPOLIS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 18 1. AN ATTEMPT TO SEE IF SOME OF OUR ELECTRONIC ACTIVITIES COULD NOT TO SOME EXTENT BE CONSOLIDATED. 2. WHILE THE CONCEPT WAS AT LEAST OPERATIONALLY FEASIBLE, ACCOUNTING ISSUES PRECLUDED IMPLEMENTATION. C. THERE IS A CURRENT EFFORT IN WHICH CHUCK FURBEE IS INVOLVED TO STUDY THE FEASIBILITY OF CONSOLIDATING CERTAIN ACTIVITIES AMONG 4 RESERVE BANKS. 1. INITIAL INDICATIONS SEEM POSITIVE BUT THERE IS A LONG WAY TO GO. D. THE TWO PILOT PROJECTS RELATING TO THE CONFIGURATION OF OUR DATA PROCESSING ACTIVITIES IN THE 1990 S -- EPP AND EPS. 1 1. THE FORMER COULD RESULT IN SOME OPERATIONAL CONSOLIDATION AMONG THE RESERVE BANKS. E. WHILE NOT IMMEDIATE, LONG TERM I JUST HAVE TO TH INK THAT SOME CONSOL I DAT I ON WILL TAKE PLACE. - ~ , S 1. CLEARLY THIS WILL RESULT IN SOME COMPETITIVE STRUGGLE BETWEEN THE RESERVE BANKS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN OPERATIONS & CHECK SERVICES PLANNING CONFERENCE AUGUST 9, 1989 - PAGE 19 2. THE WAY FOR US TO POSITION OURSELVES FOR TH IS IS TO BE SURE THAT IN ABSOLUTELY EVERYTHING WE DO THAT WE ARE OPERATING AT A HIGH LEVEL OF EFFECT I VENESS AND EFFICIENCY. 3. THIS WILL ENABLE US TO GO INTO THIS NEGOTIATING FROM A POSITION OF STRENGTH. THANK YOU. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1989, August 8). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19890809_silas_keehn

@misc{wtfs_regional_speeche_19890809_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1989},
  month = {Aug},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19890809_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}