July 2004, Vol. 127, No. 7
The Fed reports
Précis from past issues
The Fed reports
The annual reports of the regional Federal Reserve Banks are a valuable but quite probably underutilized resource for economists, business analysts, and other professionals in related fields. As institutions that are run as businesses, the regional banks are required to provide a great deal of financial information, income statements, balance sheets, auditor’s certifications, and so forth. The 12 regional banks together reported incomes before distribution totaling just over $23 billion in 2003, with the bulk of the distribution going to the Treasury as interest on Federal Reserve Notes.
As is frequently the case in annual reports, many of the Federal Reserve Banks use the opportunity to do some community relations and to present information about developments in some of the firm’s major lines of business. While outreach activities rated only a paragraph in the 2003 report from the Board of Governors in Washington, some of the regional banks, out closer to the coal face, devoted significant sections to community affairs and outreach.
The Federal Reserve Bank of Boston devoted several pages of its report to extolling the work its community affairs staff has been doing "with nonprofit organizations, public schools, and other academic institutions to share expertise and enhance economic understanding with all our audiences." In St. Louis, the annual report outlines a six-point plan to enhance and extend their outreach efforts. The bullets ranged from conducting additional research on local economic issues to adding staff to the community affairs department to establishing a new satellite bank examining office in one of the region’s smaller cities.
At the extreme for this theme in the reports, the Federal Reserve Bank of Atlanta’s distinctively designed report was entitled Grassroots and, in the words of the bank’s president, Jack Guynn, "explores how the Fed’s grass-roots foundation not only remains relevant today but actually enhances how we perform our core functions of monetary policy, bank supervision, and payment services as well as the educational mission that is increasingly important for a public policy organization in today’s complex and rapidly changing world."
Payment services, such as clearing checks and other financial instruments, is a significant line of business for the Federal Reserve Banks. New legislation and new technologies affecting the payments system were thus featured in several of the Banks’ reports. According to Chicago Fed president Michael H. Moskow, "The move toward electronic payments has also had a significant impact on our day-to-day check processing operations. In 2003, our check revenue fell short of its targets." The Federal Reserve Banks of Boston, Kansas City, and St. Louis cited some of the operational consolidation the Federal Reserve System as a whole is undertaking to reduce check processing costs. However, the Boston bank, along with several others, saw the implementation of the Check Clearing in the 21st Century Act (Check 21) as having the potential to "increase efficiency in the payments system and encourage banks to provide innovative services to their customers." Check 21 requires banks to accept electronic images in place of the original paper check. This allows electronic workflows to replace much of the physical transportation and shuffling of bits of paper. According to the Federal Reserve Bank of Philadelphia report, the benefits of this may include increased efficiencies, lower costs, expedited collection and return of checks, more deposit options, and extended deposit hours.
Monetary policy is a function of the Federal Reserve System that many of this Review’s readers would have thought of before check cashing. As the President of the Federal Reserve Bank of New York states in his spare annual report letter, "As a central bank, our principal focus must be to get monetary policy decisions right and to help ensure that monetary policy is appropriately calibrated to achieve sustained growth and price stability." Two of the Banks—Kansas City and Richmond—prominently feature an analysis of monetary policy issues in their annual reports. The Federal Reserve Bank of Kansas City had even sponsored a 3-day symposium on "Monetary Policy and Uncertainty: Adapting to a Changing Economy." The Federal Reserve Bank of Richmond report contained an essay by its president and a senior vice president on inflation targeting and how it might support the Fed’s credibility in its policies to sustain stable prices and low inflation.
One of the most interesting and valuable features in the Federal Reserve Banks’ annual reports has been essays—commissioned from eminent economists or written by the Banks’ own professional research staffs—on general economic topics. In 2003, the most prevalent essay topic was innovation and productivity. The Federal Reserve Bank of Dallas builds on previous annual report essays on the microeconomic forces that raise productivity and, in 2003, focus on the impact broader forces such as competition, reorganization, and trade have on productivity growth. The Federal Reserve Bank of Minneapolis commissioned economist Robert E. Lucas, Jr., to survey the growth of productivity and output through the whole range of economic history, focusing on what he calls "the initial phase of the industrial revolution, the years from 1800 to the end of the colonial age in 1950," and the current phase with its emphasis on the rapid diffusion of information, knowledge, and skill.
The Federal Reserve Banks of Cleveland and San Francisco take somewhat different cuts at innovation as the source of productivity growth and economic prosperity. The Cleveland bank’s report stresses the individual and corporate need for the flexibility to embrace change, while San Francisco’s emphasizes the roles of technological and organizational innovation.
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