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President's Message

Charles Plosser

As the theme of this annual report indicates, 2010 marked a year of “Navigating Change” for the Philadelphia Fed and the Federal Reserve System. The financial crisis and the recession led some people to question the role of the Federal Reserve and even the effectiveness of monetary policy in supporting the nation's economy.

In this year's opening essay, “The Scope and Responsibilities of Monetary Policy,” I explain my concerns about assigning to monetary policy goals that it cannot hope to achieve. In particular, I stress that monetary policy is not capable of achieving employment levels inconsistent with underlying economic fundamentals; it is not a good instrument for selectively bursting perceived bubbles in asset prices; nor is it an appropriate tool for allocating credit to particular sectors or firms as a substitute for fiscal policy. In fact, expanding the reach and scope of monetary policy can undermine the Fed's credibility and its effectiveness in achieving the one goal for which it is uniquely and ideally suited — price stability. Securing price stability, however, is not just an end unto itself, but it is the most effective means by which monetary policy can promote maximum employment and sustainable growth over the longer term.

From a regulatory perspective, the most important change of 2010 was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It is the most substantial reform of the financial regulatory landscape since the 1930s. The Federal Reserve has already started intensive work on implementing many of the law's provisions, which involves, among other things, writing hundreds of new rules. The Fed has direct responsibility for writing more than 50 rules, and it will contribute to many others. Several key employees from the Philadelphia Fed have participated in this important work.

Effective regulation requires effective supervision. Accordingly, the act expands the Fed's supervisory responsibilities and encourages a more macroprudential approach, one where regulators seek to assess not only the risks to individual firms but risks to the entire financial system. The Fed continues to share responsibility for regulating institutions with the OCC, the FDIC, and state regulators. It also retains its responsibility for bank holding companies and is given expanded responsibilities for thrift holding companies. Here in the Third District, that will include adding responsibility for 34 thrift holding companies, in addition to the more than 100 bank holding companies and 20 state member banks. The first feature article in this report details the Philadelphia Fed's role in implementing regulatory reform.

Our second feature article describes Philadelphia's leadership role in developing and launching a centralized database for the Federal Reserve System of consumer credit and related securities. Known as RADAR, for Risk Assessment, Data Analysis, and Research, the database will primarily be used in the supervision and regulation function and will improve the Fed's ability to monitor and supervise risk-taking. It will also help research economists and community development staffs understand economic and financial behavior. It has already proven to be an excellent resource in the Fed's efforts to identify emerging threats that may pose systemic risk in the broader economy.

The final feature article highlights ways the Philadelphia Fed has navigated the changes of 2010. It describes the many ways in which the Bank communicates with its constituents throughout the Third District. These include traditional approaches, such as the annual field meetings for the local banking communities, now in their 66th year, but also new activities, such as specialized foreclosure workshops. The story also details our efforts to reach out to legislative staffs, to inform them of the Fed's mission and its role in the nation's economy.

Changes Within the Bank

In addition to the many ways we are navigating changes in the financial and regulatory world, last year the Philadelphia Fed also experienced its own sea change. During 2010, we said farewell to several of our key executives. First Vice President William Stone, Executive Vice President Richard Lang, and Vice President and General Counsel Edward Mahon retired last year. All three of them were trusted colleagues. Their collective experience, insight, and institutional knowledge have been invaluable to me during my tenure as president. I offer Bill, Rick, and Ed my special thanks for a job well done and my warmest wishes for a long and healthy retirement. This report includes a farewell message from Bill Stone, recalling his long career with the Philadelphia Fed and the many changes he witnessed.

I am pleased to report that the leadership transition has progressed smoothly, with Blake Prichard taking on his new role as first vice president and chief operating officer of the Philadelphia Fed on January 1, 2011. Blake is a talented executive with a deep knowledge of the Federal Reserve System and a strong commitment to its principles. The many leadership positions he has held over nearly 40 years with the Federal Reserve have prepared him well for his new responsibilities. During his nearly 20-year tenure at the Philadelphia Fed, he has helped manage some of the most complex projects undertaken by our Bank and the Federal Reserve System. Blake has contributed a brief message to this annual report, which follows Bill Stone's message. Our list of current officers also notes other officer transitions in 2010.

Board of Directors

During these times of change, we are especially grateful for the advice and counsel of the business leaders who serve on our board of directors. I sincerely thank all of them for their acumen and insights into the region's economy.

Chairman Charles P. Pizzi, president and CEO of the Tasty Baking Company, and Deputy Chairman Jeremy Nowak, president and CEO of The Reinvestment Fund, completed their first year in these leadership roles and both have been re-appointed to serve in 2011. Jeremy was also re-appointed to a new threeyear term as director. Keith S. Campbell, chairman of Mannington Mills, Inc., has been re-elected to a three-year term.

In addition, I welcome our newest board member, R. Scott Smith, Jr., chairman and CEO of Fulton Financial Corporation, and look forward to his contributions. I also want to thank Ted Cecala, former chairman and CEO of Wilmington Trust Corporation, for his service, which ended in 2010.

Scott Smith has served for the past three years as the Third District's representative to the Federal Advisory Council. To that post, we have now appointed Bharat Masrani, president and CEO of TD Bank, N.A., for 2011. We are pleased that he will serve as the District's representative on the Federal Advisory Council, which meets quarterly with the Board of Governors in Washington, D.C.

Our Advisory Councils

Finally, I also want to acknowledge the business and community leaders who participate on the Bank's Economic Advisory Council. These representatives from diverse industries as well as nonprofits and organized labor in the Third District provide information on business conditions in their industries and communities. The council held its first meeting in September 2010 and will hold semi-annual meetings to add to the guidance we get from the Bank's board of directors.

Late in 2010, the Federal Reserve Board of Governors asked each Federal Reserve Bank to establish another advisory council, the Community Depository Institutions Advisory Council (CDIAC). These new councils will include representatives from commercial banks, thrift institutions, and credit unions from local markets around each District. The Bank's CDIAC had its inaugural meeting in March 2011, and we will bring you up to date on its activities in next year's annual report.

Conversations with the Bank's board of directors, its advisory councils, and local business people are invaluable in developing a rich and comprehensive picture of the region's economy. These conversations with people who live and work within the communities that underpin our economy bring Main Street perspectives to the national policy table. Such input is reflected in discussions at the Federal Open Market Committee (FOMC) as it sets policies that best meet the needs of this geographically and economically diverse nation.

Closing Thoughts

In closing, I want to extend my gratitude to the talented and dedicated employees at the Philadelphia Fed. I am proud of their many contributions to the Bank and the Federal Reserve System, especially as we continue to navigate the changes.

The one constant in this climate of change has been the steadfast mission of the Federal Reserve: to foster an environment of price stability that is supportive of maximum sustainable economic growth and employment. We remain dedicated to serving the financial institutions, businesses, and communities of the Third District, as we have for nearly a century. As always, I look forward to working with you in the year ahead.

Charles Plosser Signature
Charles I. Plosser
President and Chief Executive Officer
May 2011


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