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President's Message

Charles Plosser

Every annual report, in essence, is a summary of how an organization is meeting the challenges, achieving results, and delivering on its commitments to stakeholders. This year's annual report theme, "Meeting the Challenges," highlights the work of the Federal Reserve Bank of Philadelphia in an extraordinary year of challenges.

Throughout 2008, the Federal Reserve has taken unprecedented actions in both monetary policy and its lending operations to address a deteriorating economy and a growing financial crisis in the U.S. and around the world. The powerful combination of events — beginning with troubles in the housing market and culminating in a global credit crisis — prompted these extraordinary responses from the nation's central bank.

In this year's essay, "Principles of Sound Central Banking," I share my perspectives on the principles that should guide the central bank's monetary policy. They include: 1) setting clear and explicit objectives, 2) committing to a systematic approach over time — even when it seems expedient to abandon course, 3) communicating with transparency about policies and actions to the public, and 4) ensuring the independence of the central bank. I believe these same principles can guide the Federal Reserve's actions to promote greater financial stability.

In the pages that follow, starting with First Vice President Bill Stone's letter, we also describe how the Philadelphia Fed has played an instrumental role in meeting the challenges of 2008. Among our many accomplishments, the Philadelphia Fed worked closely with the U.S. Treasury in a number of ways from processing fiscal stimulus checks in the first half of the year to assisting the District's financial institutions with applications for capital infusions late in the year.

Other feature articles describe how the Philadelphia Fed's Supervision, Regulation and Credit (SRC) Department is adapting to changes in the banking industry and regulation in response to the crisis. We also explain the extraordinary actions taken by our discount window operations in lending to the District's depository institutions. By law, a central bank lends against good collateral, and the Philadelphia Fed's Collateral Management System application helps keep track of $5 trillion in collateral on behalf of the entire Federal Reserve System.

You will also learn about the ongoing efforts of our Community Affairs Department to address one of the consequences of the crisis: the high rate of mortgage foreclosures. Finally, you will read how our Research staff kept pace with increased demands for policy and economic analyses during a period of rapid change.

A Continuing Voice in Policy

During 2008, the Philadelphia Fed was a voting member of the Federal Open Market Committee (FOMC), the Federal Reserve's monetary policymaking body. The FOMC includes all of the Fed Governors in Washington, D.C., as well as the 12 Reserve Bank presidents. Yet, by law, only five of the Reserve Bank presidents vote each year with the Governors. Having served in such a crucial role during this challenging year was an extraordinary experience.

Although I will not vote again until 2011, all Reserve Bank presidents participate equally in the FOMC's analysis and deliberations. Giving each president a seat at the FOMC table brings a valuable diversity of views to monetary policy decisions. Throughout the coming year, I will continue to be an active voice at the FOMC table and in my outreach within the Third District and the broader economic community of ideas.

Board of Directors

As we met the challenges of 2008 head-on, we were grateful for the valuable insights provided by our board of directors. Their guidance provided us with timely perspectives on our region's economy and wise counsel to our operations. We offer sincere gratitude to John G. Gerlach, president of Pocono Community Bank, who has completed his term of service on our board.

We are pleased to report that William F. Hecht, retired chairman, president, and CEO of PPL Corporation, has been reappointed chairman of the board of directors. Charles P. Pizzi, president and CEO of Tasty Baking Company, has been reappointed deputy chairman.

At the beginning of 2009, we also welcomed our newest board member, Frederick (Ted) C. Peters, president and CEO of Bryn Mawr Trust Company. His experience and expertise will contribute much to our board in the years ahead.

I am also pleased to announce that in June 2008, the Philadelphia Fed established its Economic Advisory Council. This new body, which replaces our former council structure, includes representatives from the tourism, health-care, retail, and food industries, as well as organized labor. The council's 14 members reflect our District's diverse economic base and represent a broader geographic area than the previous council structure.

Thanks to Our Employees

Finally, I want to offer my sincere thanks to the dedicated employees of the Philadelphia Fed, who are working together as never before to lead the Bank and its stakeholders during this period of economic difficulty. The pages of this annual report highlight only a handful of their remarkable stories of service.

Special recognition goes to Philadelphia's Retail Payments employees, who have served admirably through several major consolidations of check processing as our economy continues the rapid move toward electronic payments. Philadelphia has been one of four main consolidation sites over the past two years. In November 2008, the Federal Reserve System announced plans to consolidate into one location in Cleveland for paper check processing and one site in Atlanta for electronic check processing. Philadelphia will continue to serve as a regional processing site until check processing moves to Cleveland by the end of 2009. While change is always difficult, our people continue to meet the challenge with professionalism and dedication, recognizing that our work here will help ensure a strong and stable payments system.

All of us at the Philadelphia Fed look forward to our region's — and our nation's — economic recovery and will continue to work with our many constituents throughout the Third District in the year ahead.

Charles Plosser Signature
Charles I. Plosser
President and Chief Executive Officer
May 2009