by William H. Stone, Jr., First Vice President
Throughout a tumultuous 2008, the Federal Reserve Bank of Philadelphia showed its ability to meet the challenges of our times in how we responded to the nation's financial crisis and in our pursuit of the Philadelphia Fed's vision to be widely recognized as a leader and innovator in central bank knowledge and service.
In many ways, this financial crisis has drawn attention to the professionalism of some of the operations at the Philadelphia Fed that may not always be highly visible. Yet, when the time came, Philadelphia Fed staff met the challenge.
This was certainly true in the Bank's Collateral Management System (CMS) and discount window lending operations. In most years, lending at the Philadelphia Fed is a small part of our overall operations. Yet, the team led by Vish Viswanathan, vice president and discount officer, stepped up to the challenge of managing exponentially higher loan volumes in 2008.
Treasury Services has a Central Business Administration Function (CBAF) that maintains the CMS, which manages and monitors roughly $5 trillion in collateral on behalf of the Federal Reserve System. The team provided expertise and guidance — often at all hours of the night and on weekends — to ensure that the CMS could adapt to new collateral procedures for the Fed's new lending facilities. CMS's web-based portal also had to be available around the clock because financial institutions relied on the expertise of the Fed's credit risk management community to support the implementation of new collateral programs and answer questions about complex processing issues.
Another Philadelphia-based system that proved invaluable during the crisis was our Treasury Check Information System (TCIS). TCIS made necessary enhancements to accommodate the influx of more than 75 million additional check payments resulting from the early 2008 stimulus package. The team in Philadelphia also implemented a Treasury check verification application to mitigate fraud. TCIS, which was developed by the Philadelphia Fed in conjunction with the U.S. Treasury, is a web-enabled infrastructure that records and reconciles Treasury checks. It ensures the highest levels of financial integrity, significantly improves the processing of Treasury transactions, and reduces losses resulting from counterfeit checks.
The Philadelphia Fed also lent its expertise to the Board of Governors and other Federal Reserve Banks throughout the crisis. Staff in our Supervision, Regulation and Credit (SRC) Department played an important role in reviewing the activities and portfolios of the government-sponsored enterprises Fannie Mae and Freddie Mac (see The Financial Crisis and Challenges for Regulators). SRC staff also led a business group working with colleagues in Kansas City to develop a new database to help the Fed research and report on U.S. mortgage conditions. In fact, our SRC staff as a whole did a remarkable job in processing applications from financial institutions for capital infusions through the Treasury's program.
Apart from the financial crisis, the most significant change in the financial landscape has been the continuing shift away from paper checks to electronic payments. As a result, the Fed has reduced its check-processing infrastructure over the past six years to better match the declining volume of paper checks being processed nationwide.
In Philadelphia, the process began in 2006, when the Bank absorbed the check-processing function of the Federal Reserve Bank of New York's East Rutherford Operations Center. During 2008, Philadelphia continued to serve as one of four main consolidation sites, assuming check-processing operations from the New York Fed's Utica, N.Y. office and the Federal Reserve Bank of Boston's location in Windsor Locks, Conn. The Philadelphia Fed also closed its check adjustments operations, which moved to other check adjustment centers in the System.
In November 2008, the Federal Reserve System announced plans to accelerate the consolidations and ultimately move to just one location for paper check processing in Cleveland and one in Atlanta for electronic processing. As a result, Philadelphia's check-processing operations will move to Cleveland by the end of 2009.
Philadelphia has demonstrated leadership and expertise as one of the four consolidation sites. Our check processing operation has also made major changes in workflow in the last year to handle an increasing number of electronic checks, including the addition of high-speed printers for substitute check printing. While meeting the challenges of change is often difficult, we greatly appreciate the hard work and dedication of everyone involved. We also know that this process supports the Federal Reserve's mission to promote the long-term efficiency and integrity of the payments system.
The Fed is a 24-hour-a-day operation. Part of our responsibility is to plan for contingencies to ensure it remains working. In 2008, the Philadelphia Fed moved to a new District relocation facility in New Jersey, one that will serve as Philadelphia's main relocation point and as a secondary site for the New York Fed.
During 2008, we also made progress on several projects to enhance the security and safety of our operations. As we announced in last year's annual report, the Philadelphia Fed is constructing a 6,300-square-foot screening facility across from the Bank's 7th Street entrance. This new facility, which we expect to open in late 2009, will allow our Law Enforcement officers to conduct inspections of vehicles away from the main Bank building and out of the flow of traffic.
Throughout what was arguably one of the toughest years in our Bank's history, the Philadelphia Fed met the challenge by contributing to important Bank and System initiatives. In addition to the projects mentioned here, you can read more about our achievements in 2008 in the Bank Highlights section.
All of these achievements have demonstrated that the people at the Philadelphia Fed can adapt to change and continue to show strong performance and maintain efficient operations. This is a testament to our employees' expertise, skills, and experience. These attributes will allow us to further expand our capabilities in the future, as we contribute to the System and serve our Third District stakeholders.
FEDERAL RESERVE BANK OF PHILADELPHIA . TEN INDEPENDENCE MALL . PHILADELPHIA, PA 19106-1574 . TEL: (215) 574-6000
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