A Farewell to the Fed> > >
by William H. Stone, Jr., First Vice President, Federal Reserve Bank of Philadelphia
In 2010, First Vice President and Chief Operating Officer Bill Stone announced his plans to retire from the Bank after nearly 40 years of service. In his final annual report message, he reflects upon his tenure at the Bank and shares his thoughts on the future of the Federal Reserve.
From our offices, I can look out on Independence Mall, the National Constitution Center, and William Penn atop City Hall. Also, just a few blocks from here stand the First and Second Bank of the United States, predecessors to today's Federal Reserve, which serve as a reminder of how central banking has evolved over the centuries. I am honored to have had the opportunity to contribute to an institution as prestigious as the Federal Reserve and to have worked with so many talented and dedicated people.
Since joining the Philadelphia Fed in 1971, I have observed tremendous changes in the financial industry, as well as in the Federal Reserve System. We've seen how rapid technological advancements have indelibly changed the way we do business, and we've witnessed an explosion in the number and sophistication of financial products. When I began my career here, many of the Bank's operations were still being performed manually. Today, we have more information on our mobile devices than we had on the massive mainframes of the 1970s.
Our region's financial landscape also looks very different than it did four decades ago. Our District, once dominated by a small number of regional banks, changed as larger financial institutions outside our District acquired local banks. Just as the banking industry has evolved, so too has the Philadelphia Fed. I stand in awe at the remarkable progress we have made as an institution. Yet, throughout our history, one constant has remained: our strong connection to the financial industry and the communities we serve.
The Philadelphia Fed and the Federal Reserve System have been through extraordinary changes.
Perhaps the most widespread difference has been consumers' steady shift toward electronic payments. The Federal Reserve's recently released study of noncash payments indicates that more than three-quarters of all U.S. noncash payments were made electronically in 2009. Since our last study three years ago, electronic payments have increased by 9.3 percent annually, while at the same time, the number of checks processed decreased by 7.2 percent annually. Moreover, we observed a rapid rise in the electronification of the clearing process, with roughly 96 percent of interbank checks now cleared electronically, compared with only 43 percent in our last study.1
This sweeping shift in how people make payments was the catalyst that led the Fed to consolidate its check processing operations to a single site for electronic check processing in Atlanta and a single site for paper check processing in Cleveland. It is worth mentioning, however, that before the consolidation, Philadelphia's check operation was, at one time, the largest in the System, processing over a billion checks per year at its peak in the 1980s and 1990s.2 Another monumental change to our organization was the passage of the Monetary Control Act (MCA) in 1980. Before then, the Fed had provided services for free to member banks.3 The law mandated that the Federal Reserve offer priced services not only to member banks but also to any depository institution that wanted to use them. The act also required all depository institutions to hold the same level of reserves and granted them equal access to discount window lending.
Since the MCA required the Fed to sell its services in competition with private providers of payment services, the Federal Reserve's business expanded to include sales. We were able to build a broad presence in the region based on our success in winning check business and our reputation for quality service, which encouraged banks to do business with us.
I spent my first decade at this Bank visiting the CEOs of local financial institutions to discuss business conditions and industry trends. These conversations enabled us to see the economy through the eyes of our financial institutions and to better serve them, usually through adding new services that catered to their unique needs.
Many of the close relationships the Bank developed with District financial institutions continue today. In fact, the Philadelphia Fed is one of only a few Reserve Banks to host annual field meetings, at which Bank officers travel throughout the Third District to meet with banking leaders and discuss the economy and the banking industry. In 2010, we marked the 65th year of this outreach program, making these the oldest continual series of field meetings in the Federal Reserve System.
One more point about the Monetary Control Act is that it paved the way for the ongoing shift from paper to electronic check processing, ultimately leading to the Check Clearing for the 21st Century Act in 2003. The Fed proposed and supported the passage of this act, which improved the efficiency of check processing by allowing for the substitution of check images in clearing and settlement. From a monetary policy perspective, the Fed has made considerable progress in communicating its actions. Our move from opacity to openness has helped us make strides toward clarifying our objectives to the public. Sharing knowledge allows the Fed to contribute to the economic vitality of the nation. In our cash operations, the Fed has worked with the U.S. Treasury, the U.S. Bureau of Engraving and Printing, and the U.S. Secret Service over the last two decades to improve our currency's security features. It has also greatly enhanced the automation of its currency and coin operations.
Within the Federal Reserve System, our Bank's leadership and expertise have been recognized in many areas. We developed the first book-entry system for marketable Treasury securities transactions for retail customers in the mid-1980s. We are the home of the Treasury Check Information System (TCIS), which is the Treasury's check processing and reconcilement system. Through this program, we are tasked with tracking all government checks issued and paid. We also run the Treasury's collateral management and monitoring business.
The Payment Cards Center, established just over 10 years ago, is another example of how the Philadelphia Fed has earned a reputation for knowledge and expertise. The center provides insights into consumer credit and payments through research, conferences, and publications.
Our Research Department is also well respected for its various datacollection efforts and for the rigorous economic research it produces. Philadelphia's intellectual output is widely published in top-tier academic and scholarly journals. In addition, the Philadelphia Fed's regional Business Outlook Survey is broadly recognized as an indicator of the national economy.
Our public outreach efforts are second to none. Throughout each year, various departments hold workshops, seminars, and conferences to educate our many constituencies on a range of topics, including the important work of the Federal Reserve. Our Community Development area has a long history of focusing attention on community development issues and helping consumers improve their financial literacy. In 2003, the Bank opened “Money in Motion,” our interactive financial and historical exhibit, to help educate the public about money, finance, and the history of central banking in the United States.
In recent years, new programs have given us even greater outreach in our communities. We developed PhillyFedCARES to coordinate and support our employees' volunteer efforts. This initiative strengthens our community ties and helps important causes in the communities we serve.
Throughout its evolution, the Fed has played a vital role in guiding the nation's economy not only through extraordinary changes but also through crises. From the savings and loan crisis in the 1980s, to the tragedy of 9/11, to the more recent Great Recession, the Federal Reserve has continued to support the country's economy through some very difficult times. Through our triumphs and challenges, we have continued to grow and evolve. Much of what we have learned from these events will help us shape better policy, more effective supervision and regulation, and a more efficient payments system.
Looking ahead, in the wake of the financial crisis and the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Fed and other regulatory agencies will undergo some significant changes. Right now, the Fed and its counterparts are working diligently to create the infrastructure that will implement this landmark legislation. In an era in which the Federal Reserve is centralizing operations and Reserve Banks are becoming more specialized in their activities, the Philadelphia Fed has carved out some important niches. We make strong contributions to the System, and we are particularly known for our expertise in retail and consumer credit, payment cards, and Treasury services.
I know that under the capable leadership of President Plosser and my successor, Blake Prichard, our Bank will continue its stellar work. I am confident that our Bank is well positioned to face whatever challenges lie ahead. The Philadelphia Fed — along with the entire Federal Reserve System — is doing its part to ensure that our customers and constituents remain confident in the integrity of our nation's central bank.
I would be remiss if I did not close with an expression of how tremendously rewarding my work at the Philadelphia Fed has been. I have always been proud to work at the Bank because of our employees' shared commitment to public service. As I close this chapter of my career, I want to express my gratitude for having had the privilege of being part of this great institution. I hope I have helped to build something that will carry on a tradition of excellence for a long time to come.
FEDERAL RESERVE BANK OF PHILADELPHIA . TEN INDEPENDENCE MALL . PHILADELPHIA, PA 19106-1574 . TEL: (215) 574-6000
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