Regional President Speech

SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE 13, 1991 - 1 NOVEMBER PAGE I. ADD MY WORDS (?F WELCOME. D- - , ._/"\....o __ A 1-- ~ ~A/),.I ~~ A. THE THEME OF "'NU: CONFERENCE, "PROVIDING FEDERAL RESERVE SERVICES IN A CHANGING ENVIRONMENT," PARTICULARLY APPROPRIATE. 1. THE PHRASE, "CHANGING ENVIRONMENT" SOMEHOW UNDERSTATES THE WHIRL OF CIRCUMSTANCES AROUND US. 2. To BE TRITE THE PACE OF CHANGE HAS ACCELERATED DRAMATICALLY AND WILL ONLY CONTINUE TO DO SO. 3. ED KANE WILL BE GIVING YOU HIS EXPERT VIEWS ON THE BANKING STRUCTURE THAT WE WILL BE DEALING WITH IN THE FUTURE IN JUST A FEW MINUTES. MY HUNCH IS THAT LOOKING AHEAD HE WILL SUGGEST THAT OUR OPERATING ENVIRONMENT WILL BE VERY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 2 8. THEREFORE, THIS IS AN IMPORTANT OPPORTUNITY TO STAND BACK AND ASSESS THE SITUATION AS WE TRY AND DEVELOP THE APPROPRIATE ROLE FOR THE FED IN THE PAYMENTS SYSTEM IN THE FUTURE. II. LET ME START WITH A REMINDER AS TO HOW THE FEDERAL RESERVE SYSTEM CAME INTO BEING. I A. HARDLY NEED TO POINT OUT, PARTICULARLY TO THIS GROUP, THAT IT WAS THE THEN IMPERFECTIONS IN THE PAYMENTS MECHANISM THAT WAS A CRITICAL PART OF THE PASSAGE 1913. OF THE FEDERAL RESERVE ACT OF 1. AT THE TIME THE CHECK COLLECTION SYSTEM WAS HIGHLY INEFFICIENT AND THE REFUSAL OF BANKS TO ACCEPT CHECKS DRAWN ON OTHER BANKS RESULTED IN HEAVY PRESSURES BEING BROUGHT ON THESE BANKS AND IN TURN, FAILURES Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 3 COULD AND DID RESULT. 2. INDEED, THE BREAKDOWN IN THE NATION'S PAYMENTS MECHANISM DURING 1907 THE PANIC OF WAS FUNDAMENTAL TO THE CREATION OF THE FEDERAL RESERVE SYSTEM. B. WITH OUR CURRENT AND UNDERSTANDABLE FOCUS ON THE DIRECT MONETARY POLICY ASPECTS OF OUR RESPONSIBILITIES, WE SOMETIMES FORGET THIS IMPORTANT ELEMENT OF OUR HISTORY. 1. BUT AS I HOPE WILL BE CLEAR FROM MY COMMENTS, THERE IS, IN MY VIEW, AN INEXTRICABLE INTER-RELATIONSHIP BETWEEN THE PAYMENTS MECHANISM AND OUR MONETARY POLICY RESPONSIBILITIES AND THEREFORE, THE REASON THAT THE 1913, SYSTEM WAS CREATED IN IN AN Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 4 OPERATING SERVICE SENSE, CONTINUES TO BE ABSOLUTELY FUNDAMENTAL TO OUR ACTIVITIES. III. 1980, FROM THAT EARLY TIME UNTIL THESE SERVICES WERE, OF COURSE, PROVIDED TO THE MEMBER BANKS WITHOUT ADDITIONAL PAYMENT. A. THOUGH MEMBER BANKS DID FEEL THAT THE COST OF MAINTAINING RESERVE BALANCES CERTAINLY REPRESENTED AN EXPENSE BURDEN TO THEM THAT WAS MORE THAN ADEQUATE FOR THE PRIVILEGE OF USING OUR SERVICES. 1. DURING THAT LONG PERIOD OF TIME OUR ACTIVE PARTICIPATION IN THE VARIOUS OPERATING SERVICES DID RESULT IN SIGNIFICANT IMPROVEMENTS AND EFFICIENCIES. 2. I I THINK IT'S CLEAR AND WILL REEMPHASIZE THE POINT AT THE END Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 5 THAT AS A CONSEQUENCE OF OUR ACTIVE PARTICIPATION IN THE PAYMENTS MECHANISM, SIGNIFICANT EFFICIENCIES HAVE RESULTED. 3. AND I QUESTION WHETHER THAT WOULD HAVE BEEN THE CASE HAD WE NOT BEEN SO INVOLVED. IV. 1980 THE MONETARY CONTROL ACT OF CHANGED OUR APPROACH TO OPERATING SERVICES IN A VERY DRAMATIC WAY. A. IT WAS PERHAPS THE MOST SIGNIFICANT OPERATIONAL CHANGE THAT WE HAD EXPERIENCED UP UNTIL THAT TIME. 1. THERE WERE ALL SORTS OF CONTRADICTORY ATTITUDES ABOUT THE FED'S ROLE IN THESE SERVICES AS WE CAME INTO THIS PERIOD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 6 I A. SOMEWHAT CYNICALLY, THINK SOME (PERHAPS EVEN SOME IN CONGRESS) ~~ FELT THAT THE NATURE OF OUR V OPERATIONS AND ACTIVITIES WERE ~:~ SUCH THAT WE WOULD BE UNABLE TO COMPETE IN A PRICED ENVIRONMENT. '~~~1 B. OTHERS, INDEED SOME SENIOR OPERATING PEOPLE IN COMMERCIAL BANKS, FELT THAT THE SHEER STRENGTH OF THE FED WOULD BE SUCH THAT THE PRIVATE SECTOR WOULD BE PRESSURED OUT OF THESE BASIC OPERATING ACTIVITIES. C. MEANWHILE, IN THE FEDERAL RESERVE BANKS THERE WAS AT LEAST SOME APPREHENSION AS TO HOW WE WOULD COME THROUGH ALL THIS. p .::r"-ls~ ~ oJ_/ , I ~ ~;-')__ ~ µ_ -~ ~~.s,~-~ CJtjN-S,~ Digitized for FRASER https://fraser.stlouisfed.org ~ t ~ . Federal Reserve Bank of St. Louis I la fU.L LA..-N 1/, SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 7 8. I WON'T GO THROUGH A LONG RECITATION OF 1981 THE FINANCIAL HISTORY, BUT IN AND 1982 HAD A WE LOSS IN EACH OF OUR 1982 SERVICE LINES AND IN ALONE, OUR WORST YEAR, WE HAD A TOTAL UNDER-RECOVERY THAT AMOUNTED TO $86 MILLION -- NOT AN INSIGNIFICANT AMOUNT. 1. 1983 IN WE BEGAN TO TURN THE CORNER, THE TOTAL UNDER-RECOVERY WAS REDUCED $13 TO MILLION AND WE WERE PROFITABLE IN THREE SERVICE LINES. 1984 BY WE SOLIDLY EMERGED FROM THIS VERY DIFFICULT TRANSITION PERIOD $33 WITH A MILLION POSITIVE RECOVERY IN CHECK WHICH SIGNIFICANTLY CONTRIBUTED TO THE TOTAL RECOVERY OF $40 MILLION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 8 C. As WE WENT THROUGH THESE EARLY DAYS OF OUR NEW ROLE AS A PRICED SERVICES COMPETITOR, RELATIONSHIPS IN THE MARKETPLACE WERE AT TIMES A BIT STORMY. 1. BANKS QUESTIONED THE APPROPRIATENESS OF FACING THEIR REGULATORS IN A COMPETITIVE ROLE -- CERTAINLY A ~ASONABLE QUESTION ON THEIR PART. ~~ IUl..if", \'4.---vv fJi:ifi- ~~o .,;- t1?> ~ ~ - th c.. A ~ 2. AND GIVEN THE MAGNITUDE OF THE ~ttd(. CHALLENGE THAT WE WERE FACING (THIS VERY LARGE LEVEL OF UNDER-RECOVERY) IT IS PROBABLY A FAIR COMMENT THAT AT TIMES WE GOT PRETTY AGGRESSIVE IN OUR ATTITUDE TOWARD THE MARKET. 3. INDEED, THE SUBCOMMITTEE ON DOMESTIC MONETARY POLICY HELD HEARINGS IN 1983 DEALING WITH THESE ISSUES BUT IMPORTANTLY THEY REAFFIRMED OUR Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r , ~ - --\J..y.L t ,g ~ 6J ~ '1 _ tJ. (J/vt, (j ~ s t 'ii .12.. ~ cJ"L<....,,_ - I S LAS KEEHN ~ ~- v , r,J?::J ~ ~ B SINESS DEVELOPMENT CONFERENCE~ ~ ~ N EMBER 13, 1991 - PAGE 9 ~ ~ "? -l•Qt.t..,u,rl. (;, CENTRAL ROLE IN THE NATION'S PAYMENTS SYSTEM. D. WHILE THE COMPETITIVE/SUPERVISORY ISSUE WAXED AND WANED AS WE WENT THROUGH THE DECADE OF THE '80s, IT IS 6ER=Fi\lNL~ MY s - °'- b ·o-..s J■.IU<- t VIE THAT AS THE DECADE CONCLUDED, RELATIONSHIPS IMPROVED.6-7!- __ _ ___ -r-::-- -·~ S ~ ~ T•v..e..~·,VV\.{ ~'"~ 1 1. ~ EACH SIDE DEVELOPED A BETTER UNDERSTANDING OF ITS RESPECTIVE ROLE IN THE PROCESS. 2. AND IT BECAME CLEAR THAT IN NO WAY WERE WE ABUSING OUR SUPERVISORY POSITION IN OUR PRICED SERVICE ACTIVITIES. 3. IMPORTANTLY, REALLY THE MAIN POINT, THE EFFICIENCY OF THE PAYMENTS MECHANISM INCREASED SUBSTANTIALLY DURING THIS PERIOD. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 10 V. THE EXPEDITED FUNDS ACT OF 1987 WAS ANOTHER ENORMOUS OPERATIONAL CHANGE THAT I THINK THE RESERVE BANKS HANDLED VERY, VERY WELL. A. THIS WAS A MASSIVE CHANGE IN THE WAY THAT RETURN ITEMS ARE PROCESSED ALONG WITH THE ACCELERATION OF CHECK CLEARING TIMES. - -;I_ ..,;f;;&rj ~ ~ ~ M."l 'CIL. .,. ~.lwJ 6-.e- ~ ~ b~ S", ~ ~c ~ .s .. 1. "~E ARE CU. R. AliNTL.¥ PROCESSING-A DAILY •~"-' ~ s 2- ~ ~ i' =:::, ,Hou,- 940~1Rtt. . _/;_ _ . vor.UHE 8F Lf~~r-~S~ ~~ ITEMS, CLOS! T8 A 33~SE FROM....- ~ I ~~~ O'-rv ~~ ~ 4,tC~alJ.,t,._ t)f, b-..r. ~-!:i_• T-Mli TIME 9F l'IIIS° '6 11ANCI~ • oJCi.,/ cd oY\l ~ I 2. As A CONSEQUENCE, WE UNDER-RECOVERED A IN 1988 AND 1989 AS WE MADE THIS ADJUSTMENT. 3. I MIGHT NOTE THAT IN 1987 WE BEGAN TO FLOW THROUGH A PORTION OF OUR PENSION ACCOUNT OVER-FUNDING TO OUR PRICED SERVICES (FASB 87), BUT I Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 11 TEND TO LOOK AT OUR OPERATING ~ULTS BEFORE THIS CREDIT~~ cg UQ. u.>S r..c ~ 'ctA ~e..J:r, 4. BUT WE ARE NOW THROUGH THAT AND IN 1990 WE HAD A NET POSITIVE RECOVERY OF $11 MILLION AND WE WERE PROFITABLE IN EACH OF OUR SERVICE LINES -- AN IMPORTANT ACCOMPLISHMENT. 5. AND JUST TO BRING THE NUMBERS CURRENT, FOR THE NINE MONTHS ENDED 30 SEPTEMBER OF THIS YEAR, WE HAD A POSITIVE RECOVERY OF QUITE CLOSE TO $10 MILLION AND I HAVE EVERY EXPECTATION THAT WE WILL FINISH OUT THE YEAR IN A POSITIVE POSITION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE 13, 1991 - 12 NOVEMBER PAGE 6. BUT HAVING SAID THAT, MY SENSE IS THAT IT IS A TIGHTER ENVIRONMENT THIS YEAR THAN WE'VE HAD IN THE PAST. A. AND THEREFORE, THE MARGIN FOR ERROR HAS NARROWED. FRANKLY, OVER THE MOST RECENT YEARS WE HAVE HAD A YEAR-END EVENT OR TWO WHICH HAS NEEDED A MARGIN FOR ERROR. l B. WHILE DO NOT ANTICIPATE ANY SURPRISES THIS YEAR, SHOULD WE EXPERIENCE ONE, OUR ABILITY TO ~ DEAL WITH IT HAS BEEN NMRIWED. ~ " > 7. LOOKING AHEAD, THE PPC MJI lUSr AGREED AND SENT TO THE BOARD OF GOVERNORS THE PRIQNG SCHEDULES FOR ~ ~ ~ ~ 1992 ~D AGAIN WE ARE LO8KING AT A ~ Tb:, '3_o.~ ~ ~ ~ Digitized for FRASER ~~~~- https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 13 ~ j ~~ ~~ ~ OV\-1! c:;_ YEAR THAT MAY WELL BE EVEN TIGHTER J ~ THAN T:H:IS~ YfE AR. /uA.J'~ ._f'/!J~""'t, 1 /VQ.f""c~ ~n~HE :v CoNTRoL AcT o~~;g-,... ~-s'/-i--t • f ~ 1-nv ~ SPECIFY THAT WE WILL FULLY RECOVER OUR ~ EXPENSES, THE DEFINITION OF FULL 11 RECOVERY" IS OP~ETATION. ~ 1. SOME WOULD SAY THAT BY IMPLICATION WE SHOULD NOT MORE THAN FULLY RECOVER OUR COSTS, THAT ~~ I - OVER-RECOVERY IS AS WRONG AS -) ' UNDER-RECOVERY. OTHERS TAKE THE ' ~ VIEW THAT WE SHOULD AT LEAST FULLY .,_ ;l r "' / 4 0-~~ RECOVER OUR COSTS AND NOT, CERTAINLY :J\ ON ANY PROTRACTED BASIS, _ ,..,-+ /..R ~ l 6 d 7., l:> /~ , r'\""'- LtM ~ ~ l UNDER-RECOVER. INTERESTINGLY, "' CUMULATIVELY IN THE TEN YEARS THAT (1981 WE HAVE BEEN IN THE BUSINESS THROUGH 1990), BEFORE THE FASB 87 ' Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERE 13, 1991 - NOVEMBER PAGE FLOW-THROUGH, WE HAVE HAD T /L/ UNDER-RECOVERY OF$ MILLION, BUT AFTER THE FLOW-THROUGH, THE WAY THAT WE PUBLICLY PUBLISH OUR RESULTS WE HAVE HAD A POSITIVE RECOVERY OF \ ~t/,Uf so S:Z $ IN A PUBLIC SENSE WE HAVE COME QUITE CLOSE TO THE MARK. VI. PHILOSOPHICALLY, I FEEL THAT THE RESERVE BANKS SHOULD ALWAYS AIM AT FULL RECOVERY AND SHOULD BE AT LEAST SLIGHTLY ON THE SUNNY 100%. 100% SIDE OF USING THE BASE, THERE IS MORE THAN JUST A ONE PERCENT DIFFERENCE BETWEEN 99% AND 101%. A. THE DISCIPLINE OF THE MONTHLY P&L STATEMENT HAS AND DOES PRODUCE A MARVELOUS RESULT. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 15 1. THIS HAS INCREASED OUR PRODUCTIVITY ~1'~•~~~ AND VERY, VERY SIGNIFICANTLY. 2. THE INVISIBLE HAND OF THE MARKETPLACE HAS HAD JUST THE DESIRED EFFECT AND 3. THIS HAS HEIGHTENED THE COMPETITIVE PRESSURE WHICH IN TURN NOW PERMEATES THE ENTIRE MARKETPLACE. 4. I THE POINT AM MAKING IS THAT THE FEDERAL RESERVE ACT PUT US IN BUSINESS TO SOLVE A PROBLEM AND WE HAVE DONE THAT AND BY OUR CONTINUED AND ACTIVE PRESENCE IN THESE BASIC PAYMENT SERVICES WE CONTINUE TO DEAL F~~ WITH THISclASIC RESPONSIBILITY. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 16 1980 A. THE MONETARY CONTROL ACT OF PROVIDED THE FINANCIAL INCENTIVE THAT HAS RESULTED IN THE IMPROVED OPERATIONS OF THE RESERVE BANKS AND THE PRIVATE SECTOR PARTICIPANTS AND B. THE PAYMENTS MECHANISM HAS BEEN SUBSTANTIALLY ENHANCED BY OUR ACTIVE PARTICIPATION IN THE BUSINESS. VII. BUT SO MUCH FOR HISTORY -- LET ME TAKE A FEW MINUTES TO L,!)OK AHEAD A BIT.,-o.-(/e,_~ ~~ A-c:>(1?. A. THE ENVIRONMENT IN WHICH WE WILL BE OPERATING WILL BE VERY DIFFERENT AS WE MOVE FURTHER INTO THE DECADE OF THE '90s. 1. THE BANKING INDUSTRY HAS AND WILL CONTINUE TO CONSOLIDATE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 17 2. THEREFORE, OUR RELATIVE POSITION AS AN INTERMEDIARY IN THE PAYMENTS MECHANISM WILL CHANGE. 3. THIS IS AN APPROPRIATE TIME TO STAND BACK, ASSESS THE SITUATION AND DEVELOP A POSITION THAT WILL BE APPROPRIATE FOR THE FUTURE. B. l MENTIONED A MOMENT AGO THAT AS THE Ot,¼1--- RESERVE BANKS AND ,'lflE PRIVATE SECTOR COMPETITORS WERE DEVELOPING THEIR RESPECTIVE ROLES AND POSITIONS IN THE 198Os EARLY FROM TIME-TO-TIME ATTITUDES GOT A LITTLE SPARKY BUT AS TIME PASSED .. /~t.:,p~ RELATIONSHIPS IMPROVED. 1-:- ___ ~- ~~ pAAV""'1fl. ~ V i.-- 1. BUT WITH CONSOLIDATION" WHAT HAS BECOME A SOMEWHAT BENIGN ISSUE MAY WELL REEMERGE. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 18 2. AND THE COMPETITIVE ATTITUDES COULD INTENSIFY, TO AN UNFORTUNATE LEVEL RAISING AGAIN THE QUESTION OF OUR APPROPRIATE ROLE IN THE PAYMENTS MECHANISM. 3. As CHECK VOLUMES STABILIZE AND THEN PERHAPS EVEN DECLINE AS BANKING CONSOLIDATION WORKS ITS WAY, CAN WE CONTINUE TO MEET THE REQUIREMENTS OF THE MONETARY CONTROL ACT? A. CAN WE DEAL WITH OUR COSTS IN A WAY THAT WILL ENABLE US TO~ ~COVER? B. CAN WE MAINTAIN ADEQUATE LEVELS OF SERVICE ON A NATIONWIDE BASIS? Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 19 ~ C. THE PPC WILL BE CONSIDERING '"AjfS VERY FUNDAMENTAL QUESTION>ovER THE NEXT FEW MONTHS. 1. AT A MEETING OF THE COMMITTEE TWO WEEKS AGO, WE CHARTERED A TASK FORCE TO EXPLORE THE EVOLUTION OF THE BANKING ENVIRONMENT AND ITS IMPACT ON THE FEDERAL RESERVE SYSTEM AS A PAYMENTS SERVICE PROVIDER. 2. THIS TASK FORCE WILL BE CHAIRED BY JIM BOWEN AS EXECUTIVE DIRECTOR FOR PRICED SERVICES AND WILL INCLUDE THE PRODUCT DIRECTORS, DAN DOYLE, JACK GUYNN AND BILL STONE, AS WELL AS A REPRESENTATIVE FROM THE 80AtD STAFF ~.\rt..V,'l.Jt..f"~~. AND KARL SCHELD, THE DIRECTOR OF RESEARCH AT OUR BANK. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 20 VIII. WITHOUT IN ANY WAY MEANING TO PREJUDGE THE RESULTS OF THIS VERY SIGNIFICANT STUDY, IT DOES SEEM TO ME THERE ARE SOME FUNDAMENTAL CONSIDERATIONS THAT WE NEED TO REMEMBER. A. FIRST WE NEED TO REMEMBER THAT WE ARE THE CENTRAL BANK OF THE UNITED STATES AND THEREFORE, HAVE A UNIQUE RESPONSIBILITY -- WE ARE NOT JUST ANOTHER PROVIDER OF THESE SERVICES. B. THE PAYMENTS MECHANISM DOES NOT JUST INVOLVE A VARIETY OF SEPARATE, INDIVIDUAL OPERATING SERVICES. 1. As I PHRASE IT, THE PAYMENTS MECHANISM IS THE PIPELINE THROUGH WHICH ALL OF THE FINANCIAL TRANSACTIONS FLOW, NOT ONLY IN THIS COUNTRY BUT INCREASINGLY ON A WORLDWIDE BASIS. OUITE LITERALLY, Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 21 THE WORLD'S ECONOMY FLOWS THROUGH THIS PIPELINE. 2. IF THERE ARE ANY INTERRUPTIONS OR FAILURES IN THIS PIPELINE CLEARLY THIS HAS SIGNIFICANT IMPLICATIONS FOR OUR ECONOMY. 3. THIS, IN TURN, INVOKES OUR MONETARY POLICY RESPONSIBILITIES -- THERE IS THIS INEXTRICABLE RELATIONSHIP I BETWEEN THE TWO THAT NOTED EARLIER. 4. I AM HARD PRESSED TO BELIEVE THAT WE CAN DEAL WITH OUR BASIC RESPONSIBILITIES -- THE OVERRIDING CONSIDERATIO~THOUT BEING AN ACTIVE PARTICIPANT IN THE BUSINESS. 5. AND CERTAINLY THERE IS A SIGNIFICANT DIFFERENCE BETWEEN BEING A Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 22 INTERESTED BYSTANDER OR AN OBSERVER AS OPPOSED TO BEING AN ACTIVE PARTICIPANT. C. LET ME JUST REMIND YOU OF A FEW CHANGES THAT HAVE TAKEN PLACE IN THESE SERVICES OVER THE NOT TOO DISTANT PAST. 1. WE WERE AN ACTIVE PARTICIPANT IN THE DEVELOPMENT OF MICR ENCODING FOR CHECKS IN THE LATE 1950s. As A BY-PRODUCT OF THIS THE RESERVE BANKS BEGAN TO INSTALL HIGH-SPEED CHECK HANDLING EQUIPMENT. BETWEEN 1939 AND 1952 THE VOLUME OF CHECKS PROCESSED ANNUALLY INCREASED FROM 3-1/2 BILLION TO ABOUT 8 BILLION. BY 1957 THE NUMBER HAD INCREASED TO 12 BILLION AND BY THE END OF THE '80s WE WERE PRETTY CLOSE TO 50 Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE 23 NOVEMBER 13, 1991 - PAGE BILLION CHECKS PER YEAR. 2. I'D MAKE THE CASE THAT THE FED'S PARTICIPATION IN THE BUSINESS HAS ACCOMMODATED THIS EXPLOSIVE INCREASE IN VOLUME WHICH OTHERWISE MIGHT NOT HAVE BEEN POSSIBLE. 3. IN THE EARLY 1970s WE INTRODUCED THE RCPCs WHICH SIGNIFICANTLY IMPROVED CHECK CLEARING TIMES AND REDUCED OVERALL CHECK FLOAT LEVELS BY ABOUT HALF. _ ~ _L,,.~~ 4- ~-Cl'l.. -----.. r ~,IN~~ 0 ~ A. N9.t: INCIDENTALLY OVER THE LAjT t" c4-e.l~ ~,- ~. ~ ~ ~ ~ ___ Y£APS ~LOAT Ni-sa£EN ~ 1??7 ,~ou.Jv.Jyv ~ REDUCED FROM ___ TO ll'-,Jdle1..- • I 'Jr-c;( , ---- -- A VERY SIGNIFICANT REDUCTION WITH AN IMPORTANT PUBLIC GAIN WHICH HAS RESULTED FROM OUR ACTIVE PARTICIPATION. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 24 4. IN THE LATE 1970s WE TOOK OVER THE PROCESSING RESPONSIBILITIES FOR MOST OF THE NATION'S ACH ASSOCIATIONS. ~M A<.--t<r :f_~s A. HERE AGAIN PARTICULARLY AS WE /qJ>() ._ ~2-f) JtN\ ·, (, Vr-J WENT THROUGH THE 1980s ACH {q , ""· ~ 2.. ~- VOLUME INCREASED ON AN ANNUAL BASIS BY SOME ;J.,~ %. B. IT HAS ALL WORKED SO SMOOTHLY THAT WE HAVE BARELY NOTICED IT BUT AS COMMERCIAL ACH TRANSACTIONS HAVE GROWN, THIS HAS BECOME AN INCREASINGLY COMMON WAY OF MOVING LARGER AND LARGER VOLUMES OF MONEY. C. AGAIN OUR ACTIVE PARTICIPATION IS CRITICAL TO THIS ASPECT OF THE PAYMENTS MECHANISM. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 25 5. IN 1983 WE SPENT SOME $30 MILLION TO IMPLEMENT A NEW TRANSPORTATION NETWORK TO CLEAR CHECKS AND DEVELOP ~ t-t.._ UNI FORM flRZSENfflllll! I lRE TO PRESENT CHECKS TO PAYING INSTITUTIONS. 6. 1984 IN WE INTRODUCED THE HIGH DOLLAR GROUP SORT PROGRAM WHICH SPEEDED THE COLLECTION OF LARGE DOLLAR ITEMS DRAWN ON SELECTED REGIONAL INSTITUTIONS. 7. MORE RECENTLY THE FED'S COMMITMENT TO MOVE TO AN ALL ELECTRONIC ENVIRONMENT WILL FURTHER ENHANCE THE PAYMENTS MECHANISM. ~ 8. GIVEN THE LOCATION OF THIS MEETING I CAN'T HELP BUT OBSERVE THAT THE ELECTRONIC CASH LETTER INTRODUCED BY Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 26 OUR RESERVE BANK IS ANOTHER EXAMPLE OF A SIGNIFICANT ENHANCEMENT TO THE PAYMENTS MECHANISM. 0. THE LIST OF CHANGES AND IMPROVEMENTS THAT HAVE RESULTED FROM OUR INVOLVEMENT GOES ON. 1. I HIGHLIGHT THESE FEW AS A WAY OF TRYING TO EMPHASIZE THE POINT THAT THEY HAVE RESULTED FROM OUR ACTIVE PARTICIPAT~O~ IN THESE SERVICES. IO w,q ~ 'r,, o.... E. I ~ PASSIVE BYSTANDER OR OBSERVER THINK IT WOULD BE DIFFICULT TO ENSURE THE INTEGRITY AND EFFICIENCY OF THE SYSTEM 1. WITH EQUITABLE ACCESS BY ALL 2. THUS, ENABLING US TO CONTINUINGLY ENSURE THE DEVELOPMENT OF AN OPTIMAL PAYMENTS MECHANISM Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 27 IX. I To CONCLUDE, WOULD WANT TO EMPHASIZE THE ............._~ 'b~ ~ ~ ~~&..,-'2-1.rz~ ROLE OF ~IIE SuaeOMMITTEE 8N BUSINESS DEVELOPMENT IN THIS PROCESS I A. AND HERE AM CERTAINLY PREACHING TO THE CHOIR. 1. BUT I, WOULD POINT OUT THAT I WAS A MEMBER OF THE CHOIR FOR SOME 20 YEARS. 8. THE IDEAS THAT HAVE ENABLED US TO I DEVELOP THE CHANGES THAT HAVE ENUMERATED HAVE COME FROM THE MARKETPLACE. 1. You ARE THE ONES THAT WILL PERCEIVE THE NEEDS OF THE MARKET AND THE SERVICES THAT WE WILL HAVE TO INNOVATE AND PROVIDE IN ORDER TO MEET THESE NEEDS. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SILAS KEEHN BUSINESS DEVELOPMENT CONFERENCE NOVEMBER 13, 1991 - PAGE 28 2. THEREFORE, YOU ARE OUR INTERFACE WITH THE CUSTOMER -- THE MARKET PLACE. YOUR IDEAS AND INNOVATIONS WILL POSITION THE FEDERAL RESERVE SYSTEM TO STAY ON THE LEADING EDGE OF THE CHANGES THAT ARE TAKING PLACE ~~ AND THUS CONTINU Bit:t' MAINTAIN OUR APPROPRIATE ROLE IN THE PAYMENTS MECHANISM. THANK YOU VERY MUCH. Digitized for FRASER https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis

Silas Keehn (1991, November 12). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19911113_silas_keehn

@misc{wtfs_regional_speeche_19911113_silas_keehn,
  author = {Silas Keehn},
  title = {Regional President Speech},
  year = {1991},
  month = {Nov},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19911113_silas_keehn},
  note = {Retrieved via When the Fed Speaks corpus}
}