Inspiring Conﬁdence The Fed’s Respon se to 9 11/media/publications/annual-report/2001... ·...

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f ederal re se rve bank of ch icago 2001 annual re port

Inspiring ConfidenceThe Fed’s Response to 9/11

head office 230 South LaSalle StreetP.O. Box 834

Chicago, Illinois 60690-0834

(312) 322-5322

detroit branch 160 West Fort StreetP.O. Box 1059

Detroit, Michigan 48231-1059

(313) 961-6880

des moines office2200 Rittenhouse StreetSuite 150

Des Moines, Iowa 50321

(515) 256-6100

indianapolis office8311 North Perimeter RoadIndianapolis, Indiana 46241

(317) 244 -7744

milwaukee office304 East State StreetP.O. Box 361

Milwaukee, Wisconsin 53201-0361

(414) 276-2323

midway facility4944 West 73rd StreetBedford Park, Illinois 60638

(708) 924-8900

peoria facility6100 West Dirksen ParkwayPeoria, Illinois 61607

(309) 633-5000

For additional copies of this annual report contact the Public Information Center,Federal Reserve Bank of Chicago,at () - or access the Bank’s web site at chicagofed.org.

Additional Information on Post-9 ⁄

FOMC Actions:

Federal Open Market Committee statementsand minutes. www.federalreserve.gov/fomc/.

General Information on the Topics Covered in this Report:

Fedpoints series: “How Currency Gets into Circulation,” #1; “Repurchase andMatched Sale Transactions,” #4; “Float,” #8;“Discount Window,” #10; “Federal Funds,”#15; “Commercial Paper,” #29; “OpenMarket Operations,” #32; “Fedwire,” #43;“Federal Open Market Committee,” #48.www.newyorkfed.org/pihome/fedpoint/index.html.

In-depth Information on the Federal Reserveand Open Market Operations:

“Understanding Open Market Operations.”www.newyorkfed.org/pihome/addpub/omo.html.

“The Federal Reserve System: Purposes and Functions.” www.federalreserve.gov/pf/pf.htm.

additional information

Testimony and Speeches Regarding 9 ⁄ :

“The Condition of the Financial Markets,”Alan Greenspan, Federal Reserve Board,Testimony before the Committee on Banking,Housing, and Urban Affairs, U.S. Senate,September 20, 2001.www.federalreserve.gov/boarddocs/testimony/2001/.

“Monetary Policy and Economic Outlook,”Alan Greenspan, Federal Reserve Board,Testimony before the Joint EconomicCommittee, U.S. Congress, October 17, 2001.www.federalreserve.gov/boarddocs/testimony/2001/.

“The September 11 Tragedy and the Responseof the Financial Industry,” Alan Greenspan,Federal Reserve Board, October 23, 2001.www.federalreserve.gov/boarddocs/speeches/2001/.

“Assessing the Impact of September 11,”Michael Moskow, Federal Reserve Bank of Chicago, October 25, 2001.www.chicagofed.org/newsandevents/speeches/index.cfm#2001.

“A Supervisory Perspective on DisasterRecovery and Business Continuity,”Roger Ferguson, Federal Reserve Board,March 4, 2002. www.federalreserve.gov/boarddocs/speeches/2002/.

our mission

The Federal Reserve Bank of Chicago is one of 12 regional Reserve Banks acrossthe United States that, together with theBoard of Governors in Washington, D.C.,serve as the nation’s central bank.The roleof the Federal Reserve System, since itsestablishment by an act of Congress passed in 1913, has been to foster a strong economy,supported by a stable financial system.

To this end, the Federal Reserve Bank ofChicago participates in the formulation andimplementation of national monetary policy,supervises and regulates state-member banks,bank holding companies and foreign bankbranches, and provides financial services todepository institutions and the U.S. govern-ment.Through its head office in Chicago,branch in Detroit, regional offices in DesMoines, Indianapolis and Milwaukee, andfacility in Peoria, the Federal Reserve Bankof Chicago serves the Seventh Federal ReserveDistrict, which includes major portions ofIllinois, Indiana, Michigan and Wisconsin,plus all of Iowa.

our vision

Further the public interest by fostering asound economy and stable financial system

Provide products and services of unmatchedvalue to those we serve

Set the standard for excellence in the FederalReserve System

Work together, value diversity, communicateopenly, be creative and fair

Live by our core values of integrity, respect,responsibility and excellence

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re port conte nt s

P R E S I D E N T’S M E S S A G E 01

I N S P I R I N G C O N F I D E N C E 03

T H E Y E A R I N R E V I E W 23

D I R E C T O R S 28

M A N A G E M E N T C O M M I T T E E 32

B A N K O F F I C E R S 34

A D V I S O R Y C O U N C I L S 36

E X E C U T I V E C H A N G E S 38

O P E R A T I O N S V O L U M E S 39

F I N A N C I A L S TAT E M E N T S 43

F I N A N C I A L N OT E S 46

From left: President and Chief Executive Officer michael moskow,Deputy Chairman robert darnall, Chairman arthur martinez, and First Vice President and Chief Operating Officer gordon werkema.

19 / 11 : I N S P I R I N G C O N F I D E N C E9 / 11 : I N S P I R I N G C O N F I D E N C EI N S P I R I N G C O N F I D E N C E ★ T H E F E D ’ S R E S P O N S E T O 9 / 11

The terrorists’ intentions may never be fully understood, but one of their goals—todisrupt our economy—was clear.The World Trade Center was an important symbolof our free-enterprise system, located in our nation’s financial center. In the aftermathof the attack, the risk of a cascading crisis in our financial system was very real. Andyet, only a few short hours after the attacks, the financial system had begun to recoverand resume operations.

This quick recovery was due to the extraordinary efforts of many people from a wide range of public- and private-sector organizations. I’m proud of the FederalReserve’s role in this effort, which was very much in keeping with our origins andthe classic mission of a central bank. Congress created the Federal Reserve in 1914

in response to a series of financial crises. Since its very beginning, the Fed’s missionhas included maintaining financial stability and containing systemic risk.

The Federal Reserve System’s response to 9/11 involved all of its diverse responsibilities—implementing monetary policy, providing financial services andsupervising and regulating banks. As detailed in the following article, the ChicagoFed faced challenges in each of these areas. And like the rest of the Fed System, theChicago Fed rose to these challenges. I’d like to thank Chicago Fed staff at all ofour six offices for their outstanding efforts.And I’d like to make a special note of theextraordinary efforts of the New York Fed, which continued to operate despite itslocation just a few short blocks from Ground Zero.

As Chairman Greenspan has pointed out, the crisis highlighted the advantages of our nation’s diversified and decentralized economic and financial structure. On aday-to-day basis, our nation’s financial system operates within a physical infrastructure.Without robust private-sector participation and effective supervisory oversight, localdisasters affecting the infrastructure can spill over into the broader economy andincrease systemic risk. At first glance, our financial system may seem duplicative orinefficient, encompassing banks, security firms, insurance companies and many otherparticipants. But the competition encouraged by these many participants increasesinnovation and flexibility—qualities that were essential on 9/11.

M E S S A G E F R O M T H E P R E S I D E N T

11

In the post-9/11 world in which we all live, “ground zero” has assumed a special significance. likemillions of other people, i saw from a distance many tragic and unforgettable images of ground zero.but it wasn’t until last november that i viewed the area in person. it was an unforgettably sad andmoving experience. i left ground zero with a more complete realization of the human loss, physicaldevastation and bravery of those caught in the attack and involved in the rescue efforts.

while ground zero is the site of an american tragedy, i believe it has also become a symbol of somethinghopeful —the tenacity, enterprise and resolve of the american people. along with hundreds of millionsof people across the world, i am confident the u.s. will continue to rebound stronger than ever.

M E S S A G E F R O M T H E P R E S I D E N T

Similarly, the Fed’s regional structure, with its decentralized design and mixtureof public and private features, may seem overly complex.Yet our structure fostersstrong links to our customers and stakeholders; extends the geographical span of ouroperations, knowledge and resources; and encourages innovation.These advantagesserved the Fed well in meeting the challenge of 9/11.

While our financial system recovered very quickly, the effect on the economy hasbeen longer-lasting.The attack shook an already weak economy.The Federal OpenMarket Committee (FOMC) responded decisively, cutting the target for the federalfunds rate by 13

/4 percentage points during the final four months of 2001.These actionsbuilt on earlier policy moves during 2001 in which the target fed funds rate wasreduced by 3 percentage points. Overall, the FOMC reduced the target fed funds rateduring 2001 from 61

/2 percent to 13/4 percent—the lowest level in more than 40 years.

Though the economy was weakened by the attack, our longer-term prospectscontinue to be favorable.The U.S. economy is increasingly resilient to shocks.Deregulated financial markets, more flexible labor markets and major advances ininformation technology all provide a foundation for solid economic growth.Anotherimportant factor has been increased globalization. It is perhaps a natural reaction toseek a reduced level of economic interaction among nations following 9/11. But wemust not lose sight of the many economic benefits of globalization—for the U.S.as well as all other nations. Open markets and expanded trade are some of the bestways to increase economic growth, particularly in developing countries.

Our nation has endured a tremendous tragedy. However, the resiliency and strengthof our free-enterprise system, which served us so well after 9/11, will help us continueto prosper in the future.

The Chicago Fed had a successful year in 2001, as reflected in the recap of ouraccomplishments on pages 23-27. I’d like to extend my appreciation to our staff fortheir hard work and dedication and to our directors for their leadership and counsel.In particular, I’d like to thank three individuals who completed their service asdirectors: Richard Bell and Stephen Polk on our Detroit board, and Arthur Martinezon our Chicago board.A special note of gratitude to Arthur, who provided especiallynoteworthy service as chairman for two years and deputy chairman for three years,and will continue on as a director into part of 2002.

As we look forward, the events of 2001 have only strengthened our resolve at theChicago Fed to accomplish our mission: to further the public interest by fostering a sound economy and stable financial system.

michael h. moskowpresident and chief executive officermarch 26, 2002

F R B C 2 0 0 1 A N N U A L R E P O R T2

part i

T H EN E W S B R E A K S

part ii

T H EBA N K R E S PO N D S

part iii

S TA B I L I Z I N GT H E M A R K E T S

part iv

F OC U S I N GO N T H E E C O N O M Y


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Many responded to 9/11 with extraordinary and heroic acts.

Many others, however, responded in less visible and dramatic ways

by doing their jobs well in difficult circumstances,

part of a collective effort that restored our nation’s stability.

The following article chronicles how the Chicago Fed’s staff

responded on 9/11 and during the critical week after.


During a breakfast meeting with staff, President and CEO Michael

Moskow is listening to an employee make a point when he sees

First Vice President and COO Gordon Werkema signaling him

from the doorway. Moskow excuses himself. Werkema informs him

that a jet has crashed into the North Tower of the World Trade

Center. Minutes later, a second plane crashes into the South Tower.

Terrorism is suspected.

The News Breaks

T U E S D A Y , S E P T E M B E R 11

Moskow and Werkema convene anemergency meeting of the Bank’s leader-ship team—the Management Committee.As the meeting starts, the media reportsthat a plane has crashed into the Pentagon.Fifteen minutes later, the South Towercollapses.The meeting is hectic; informa-tion is sketchy. People monitor events onTV and get updates on their cell phones.

The Committee focuses on assessingthe situation and making sure employeesare safe at the Bank’s seven regional loca-tions. Closing is not an option, althoughthe Bank can evacuate to a back-up site.

“The Fed has a crucial role to play during an economic or financial crisis,”notes Werkema.“Closing the Fed in thosecircumstances would be like shuttingdown the fire department because thereare too many fires.”

The Committee tries to determineif staff is in danger. Employees at theChicago Office are particularly anxiousbecause they are only one block awayfrom one of the world’s tallest build-ings, the Sears Tower.The Protectiondepartment reports that it has alreadyincreased security, particularly at theChicago and Detroit offices, which aremore visible symbols of the Fed than theother offices.

The Committee decides to give staffwho are not “mission-critical” the optionto go home for that day. Other staff areasked to stay.While the Bank continuesoperating at each office, a back-up sitein Chicago is ready to go by 10:30 a.m.,if needed (all times are CST).

I N S P I R I N G C O N F I D E N C E ★ T H E F E D ’ S R E S P O N S E T O 9 / 11 5

8:05 a.m.(CST) “BREAKING NEWS: TWO PLANES CRASH INTO TOWERSOF WORLD TRADE CENTER” — CNN, SEPTEMBER 11, 2001

A P / W I D E W O R L D P H O T O S


8:45 a.m. (CST) “BREAKING NEWS: AMERICAN FLIGHT 77 CRASHESINTO PENTAGON” — CNN, SEPTEMBER 11, 2001

7I N S P I R I N G C O N F I D E N C E ★ T H E F E D ’ S R E S P O N S E T O 9 / 11

In Washington, D.C., Jack Wixted, seniorvice president in charge of Supervisionand Regulation (S&R) at the Chicago Fed,hears a muffled explosion in the distanceat about 8:45 a.m.Wixted, attending ameeting at the Federal Reserve Board,runs to a rooftop terrace. He can seesmoke rising from the Pentagon, abouttwo miles from the Board building.Board staff, already in emergency mode,scramble to evaluate the situation andits implications for employees.

The Board’s S&R division sets up a“war room,” using the model establishedduring Y2K planning.The Board arrangesfor regular conference calls with theFederal Reserve Banks to gather up-to-date information on the banking system.

Despite Wixted’s absence, S&R staffin Chicago quickly arrange for a SeventhDistrict version of a war room. It’s essentialto gather high-quality information andavoid rumors.An S&R staffer in Chicagowrites in bold letters on a board in thewar room:“Just the Facts.”

The Crisis in New York

Meanwhile, at the New York Fed atabout 9 a.m., Carl Vander Wilt, seniorvice president and chief financial officerat the Chicago Fed, hears a distant, deeprumbling—the South Tower has collapsed.Vander Wilt, in New York for aFed meeting on discount window policy,stepped off the subway at the World TradeCenter just 23 minutes before the firstattack.As Vander Wilt looks out the 10th-floor window, a slowly rising curtain of ash and soot begin to block the sun.

“At that point we felt vulnerable,”says Vander Wilt.“We thought a plane hadhit somewhere close to the New YorkFed, but we didn’t know where.”

The New York Fed building becomesa safe haven for hundreds of people outon the street in the suffocating ash andsoot. Some feel their way along thebuilding to find the entrance. New YorkFed staff begin to pass out face masks ormoistened paper towels to fellow employ-ees and fellow New Yorkers caught inthe attack.

Situation in Washington, D.C.


The Bank Responds

Throughout the morning, Chicago Fedstaff at all levels are in constant contactwith banks and other key players in theeconomy. President Michael Moskowtalks to the CEOs of large banks as wellas other businesses. Financial Servicesstaff call their counterparts at commercialbanks; S&R employees contact banksthey supervise.

The Chicago Fed plays a key role inevaluating the implications for the futuresmarket.Although the markets are closed,Bank staff exchange information withcontacts in the futures industry.

In each of these areas, the ChicagoFed takes advantage of its network ofestablished contacts to quickly reach theright person.This intelligence is passed

on to the Board of Governors and FedSystem groups during conference callsscheduled throughout the day.

At the same time, the Bank’sCustomer Support and Contact Centeris receiving dozens of calls from financialinstitutions seeking assurance that theChicago Fed is still operating.The Bankissues a press statement: “The FederalReserve Bank of Chicago is open forbusiness and will continue to provideservices to financial institutions in theSeventh District.”

T U E S D A Y , S E P T E M B E R 1 1

At approximately 9:30 a.m., the North Tower of the World Trade

Center collapses.Ten square blocks in the heart of the nation’s

financial center lie in ruins.The wholesale destruction in Manhattan

has the potential to temporarily cripple the U.S. financial system.

However, the extent of the damage to the financial system is still

unclear. Obtaining up-to-date information and analysis is crucial.

The Federal Reserve Board and the 12 Reserve Banks work in

concert to gather and exchange information.

pam kempken, check manager in the Milwaukee Office, was one of manyemployees in the Bank’s six offices whohelped process the backlog of checkscaused by the shutdown in air traffic.

With the Protection manager out on Bankbusiness, Sergeant aldrow richardsonstepped up to coordinate the Detroit Branch’ssecurity response to 9/11.

richard lamm, director of the financialmarkets and payment system risk unit, kept in close touch with key players from the derivatives exchanges and clearingorganizations in Chicago.



charlotte brown, funds transfer specialist in Electronic Payments, volunteeredto work until 11 p.m. on 9/11 to give banksmore time to close their books.

kevin gearin, Detroit Branch supervisor,was one of many employees in Chicago andDetroit who ensured financial institutionshad access to cash on 9/11.

susan kinney & robert villarrealwere two of the 44 staff members in theCustomer Support and Contact Center whoanswered hundreds of calls from bankers on 9/11.

Staff at the Chicago Fed and throughoutthe System work to get a handle on theextent of the problem. Liquidity is a majorconcern.The attacks have disrupted theimmense daily flow of payments andsettlements in the U.S. Many of thesetransactions flow through banks andbrokerages in New York.The Fed’s task:Contain the disruption and prevent it from spilling over into the rest of the economy.

A particular concern is the com-mercial paper market—a crucial sourceof liquidity for major corporations. Manycompanies have trouble “rolling over”their paper and turn to their lines ofcredit at banks to cover the shortfalls.Banks, dealing with their own liquidityissues, struggle to meet the needs oftheir customers.

Among those contacting Moskow is the CEO of a major company whohas to meet his payroll on September 13.The company had invested funds incommercial paper scheduled to matureon September 12. But with markets ata virtual standstill, this routine operationis now fraught with uncertainty.

Roger Ferguson, vice chairman ofthe Federal Reserve Board, convenes aconference call of the Federal ReserveBank presidents at 10:30 a.m. Ferguson isacting in the absence of Alan Greenspan,who is trying to make his way back to theU.S. from a conference in Switzerland.With the markets in a state of shock,it is clear the discount window — a lastresort for banks that need to borrowfrom the Fed—will play an importantrole in providing liquidity. Followingthe conference call, the Board issues abrief statement: “The Federal ReserveSystem is open and operating.The discount window is available to meet liquidity needs.”

I N S P I R I N G C O N F I D E N C E ★ T H E F E D ’ S R E S P O N S E T O 9 / 11

Responding to Liquidity Concerns

11


Throughout the day, the Bank alsofocuses on its payments services—cash,check and electronic.The Fed’s imme-diate concern: preventing gridlock in thepayments network, the central nervoussystem of the financial sector.

The Fed’s large-dollar transfer service,Fedwire, is critical.The early reports onTuesday morning are positive—Fedwire isrunning smoothly throughout the country,except for some minor disruptions inNew York.The blockages in the financialsystem are due to key private-sector firmsbeing incapacitated by the attack. Laterin the day, the Fed extends its processinghours for Fedwire from the normal 5:30 p.m. closing until 10:45 p.m.Thisgives banks directly affected by the attackmore time to close their books.

The focus shifts to cash. “Once youknow Fedwire is up during a crisis, cashrises to the top of the list,” notes COOWerkema.“During a time of uncertainty,people have a natural reaction to try toget cash. And if it’s not there, you havethe potential for panic.”

The Bank’s Chicago and Detroitoffices let financial institutions knowthey have access to cash. Complicatingthe process is hesitation on the part of some armored carrier companies tooperate in Chicago on September 11 dueto security concerns.

“What we told banks is, ‘Forgetabout the usual schedule for distributingcash. If you need cash, we will provideit,’” says Lupe Garcia, assistant vice president in the Cash department. Onebank requests an emergency shipmentof 1.2 million.The Chicago Fed makesspecial arrangements to send it withinhours. Overall, though, banks reportonly a moderate increase in ATM with-drawals on September 11 and 12.Thefact that consumers can get cash deflatesthe potential for panic withdrawals.

Keeping Payments Flowing

cash, check and fedwire 2001 dollar amounts

Federal Reserve Bank of Chicago, in Trillions

Currency Checks FundsProcessed Processed Transferred

.053

64.9

1.5

Even as it monitors electronic paymentsand cash, the Fed faces a fast-approachingcrisis in check processing.The Fed Systemannually processes more than 17 billionchecks, about one-third of the nation’stotal volume.The Fed uses planes tomove much of this volume, transporting43,000 pounds of checks by air among45 processing sites. At 8:25 a.m., theFederal Aviation Administration shutsdown air traffic indefinitely, leaving theFed to improvise. Fed staff throughoutthe country begin working on alternateground transportation.

The Fed has to decide how to handlepotential massive “float”— check fundsthat are in the process of collection. In the early afternoon, the Federal Reserveannounces it will continue providingcredits based on existing schedules, despite

the delays in collection.The inevitableresult is record levels of float.The moveeliminates uncertainty and providesadditional liquidity.

In Chicago,Assistant Vice PresidentMike Hoppe and other staff meet withbankers on Tuesday afternoon to explainthe decision. “The mood was verysomber,” Hoppe says. “People were stillin a state of shock and disbelief aboutthe attacks.They were grateful we weregranting credits, but also really surprised.One of the Fed’s goals is help make thepayments system more efficient.Thiswasn’t an efficient way to do things innormal circumstances. But keeping thepayments moving in this crisis was moreimportant than anything else.”


Moving the Checks

13

a brie f explanation of float

In providing check services, theFed normally credits the accountsof banks depositing checksaccording to a fixed availabilityschedule. If bad weather or someother factor causes a delay, theFed cannot collect payments frombanks in a timely manner. So if the Fed sticks to existing avail-ability schedules, it would creditbanks for deposited checks beforeit received the correspondingcredit from the banks on whichthe checks were drawn. Havingcredits in two different accountssimultaneously causes float.

Carl Vander Wilt walks back to his hotel at about 6 p.m. after completing his finalconference call at the New York Fed.“There was a thick layer of white ash and dusteverywhere — about two inches on the ground,” Vander Wilt recalls. “I left a trail of footprints.The streets were deserted, except for police and military. I rememberseeing a lone policeman in the distance, with his blue uniform standing out in thewhite-ash landscape.”

End of Day in New York

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Following the chaotic events of September 11, the Fed’s key

challenge is to stabilize financial markets.The Chicago Fed Loan

department gears up for a record-breaking day on Wednesday

morning. Already, loan staff dealt with a steady stream of calls on

September 11.

Wednesday turns out to be even busier.

.19 .09

2.7

45.6

Stabilizing the Markets

W E D N E S D A Y, S E P T E M B E R 12 & T H U R S D AY, S E P T E M B E R 13

daily loan volumesFederal Reserve System, in Billions

Sept. Sept. Sept. Sept.5 12 19 26

“What we had to do was very clear,” saysLoan Officer Jerome Julian.“We knew wehad to make loans.And we knew we hadto work within the Fed’s lending rules tobe as accommodating as possible.”

The Fed requires banks to pledgecollateral, such as U.S. government secu-rities, to receive loans.As a result of Y2Kplanning, most banks have their collateral“pre-pledged” to the Fed so it will bequickly available in an emergency.

“The entire Fed System uses thesame online loan application system,”notes Katie Stembridge, a loan analyst.“When a bank calls, we pull up their fileto check collateral and process the request.The loan then needs to be approved byour loan officer.The entire process takesjust a few minutes.”

In one case, a bank that urgentlyneeds a loan cannot provide the usualcollateral.The Bank switches to alterna-tive arrangements to secure the loan, aback-up process established as part ofY2K preparations.The loan is processedwithin hours.

The Fed System provides a record$45 billion in loans on Wednesday.Theweek before the attack, daily lendingaveraged less than 1/2 of one percent ofthat amount.The Chicago Fed providesabout $4.3 billion in loans on Wednesday,also a record amount.


karen boykin, webmaster in theCustomer Relations and Support Office,quickly provided information to bankers on the System’s financial services Web site.

New off icer jerome julian directed therecord-breaking loan efforts following 9/11. Loan Analyst katie stembridge volun-teered to work until midnight on 9/11.

Examiner paul decker worked with otherS&R staff to monitor the Seventh District’sbanking situation.


That same morning, the Open MarketDesk at the New York Fed begins anotherday’s work. It’s not a typical day.TheNew York Fed building is just a fewshort blocks from the massive destructionat Ground Zero. And the Fed is facingunprecedented liquidity demands.

The Desk will play a key role as it carries out open market operations—the buying and selling of securities—under the direction of the Federal OpenMarket Committee (FOMC).The Fedbegins to flood the financial system withrecord levels of liquidity by executingrepurchase agreements.These overnightloans collaterallized with governmentsecurities are used routinely in openmarket operations, but seldom top a fewbillion dollars each day.

On Wednesday, the Fed injects $38

billion, more than double the previousrecord.Thursday, the Fed shatters thatmark with $70 billion.The next day, theFed injects even more—$81 billion.

In addition, the Fed does not offsetthe float generated by check-processingdelays.Typically, if check deliveries aredelayed, the Fed “soaks up” the floatthrough open market operations.TheFed opts to let the float remain, pro-viding additional liquidity.The result is$23 billion in float on September 12 anda daily average of $28 billion in float for the week ending September 19.

The Fed is also active on the interna-tional front. Soon after the attack, foreignbanks located in the U.S. face a problem:They can’t obtain funding—specificallydollars—due to the disruption in thefinancial markets. On September 12,the FOMC votes during a conferencecall to establish or enlarge 30-day “swapagreements” with the European CentralBank. Similar agreements are laterapproved for the Bank of Canada andthe Bank of England.The swaps enablethe foreign central banks to trade dollarsfor an equivalent amount of foreigncurrency.The foreign central banks arethen able to quickly provide dollars toforeign banks located in the U.S.Theswaps result in an additional $90 billionin liquidity.

“The Fed used every possible meansto add liquidity—the discount window,open market operations, float—and evenused swap lines in an innovative way to help foreign central banks provideliquidity to foreign banks in the U.S.,”says Curt Hunter, the Bank’s director ofresearch. “If you compare the financialsystem to a plumbing system—then therewere a lot of pipes blocked after 9/11.But the Fed flooded the system so liquid-ity was temporarily available throughexisting, still-functioning pipelines.”

Flooding the Market with Liquidity

getting the word out to customers

With effective communications at apremium, the System’s CustomerRelations and Support Office (CRSO)plays a critical role. CRSO, respon-sible for the Fed’s nationwide customer support and marketing,is managed at the Chicago Fed.

Several improvements previouslyspearheaded by CRSO prove to be helpful. Account managers foreach of the 50 largest banks usingFed services are already in place.On the morning of 9/11, ChicagoFed Senior Vice President DickAnstee instructs the account man-agers to contact their bank on aregular basis. In addition, the Fed’snational financial services Web site,established in 1998, becomes acritical tool for quickly dissemin-ating information to customers.

Since early on September 11, S&R’s war room in Chicago serves as a coordi-nation point for gathering and passing oninformation about the region’s bankingsituation.The Chicago Fed acts as aninformation clearinghouse—answeringquestions from banks, conveying informa-tion to them, and passing on informationto the Fed System.The Bank’s practiceof designating an examiner as a “singlepoint of contact” for a bank helps provideclear lines of communication.

Among the issues tracked by theFed: Are banks limiting access to lines ofcredit? And how exposed is the bankingsystem to the industries most affectedby the crisis, such as airlines, insuranceand travel?

Examiner Paul Decker, a 17-yearveteran who has experienced a numberof banking crises, notes, “We had neverseen anything like this.There were a hostof problems—all happening at once.The

money wasn’t flowing. Some banks hadtoo much money; some were short.Thecommercial paper market had collapsed.Commercial banks were under intensepressure.There was a lot of apprehensionand uncertainty.We told banks, ‘We’rehere.We’re not going anywhere.Whateverwe can do to support you, we’ll do it.’”

Decker, a pilot during the VietnamWar, keeps a photo of his old F4 jet onhis desk. “When things got really hectic,I’d look over at the photo and think itcould be worse. I have to admit I lookedat that photo several times.”

Decker ends his day on Thursday at about 8 p.m. by bringing pizza to thestaff he’s working with at a commercialbank. “I wasn’t there to monitor theiractivities,” notes Decker. “I just wantedto provide moral support as they finishedoff another long day.”


Monitoring the Banking System

17

strandedfar from home

Like many Fed employees, AlanGreenspan is stranded far fromhome on 9/11. Greenspan, inSwitzerland for a central bankingconference, eventually hitches aride home on a military cargo jet.

The trip home for Chicago FedS&R staffers Sherry Bormann and Zoriana Kurzeja exemplifiesthe experiences of many. In SanFrancisco on business when theattack occurred, Bormann andKurzeja begin the long drive toChicago on September 12.

“There was a gentleness in thecountry at that time,“ Bormannrecalls. “It was a much kinder,gentler country that we crossed.”

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Focusing on the Economy

%

Pre-9/11 Post-9/11

By the end of the week, financial markets are still shaky but more

stable.The Fed increases its focus on the longer-term implications

for the economy. Earlier in the week, on September 13, Moskow

participates in an FOMC conference call.The Committee has a

detailed discussion of banking and other financial market conditions.

Participants also discuss the outlook for opening the stock exchanges,

closed since September 11 and scheduled to reopen on the 17th.

The Committee decides the situation istoo uncertain for an immediate mone-tary policy move, but that action will be needed very soon. An FOMC call isscheduled for Monday, September 17.

On Friday morning, Chicago FedEconomist Rick Kaglic works on a special edition of the “Beige Book,” theFed’s summary of regional economicconditions based on anecdotal infor-mation.The Federal Reserve Board hasasked each Reserve Bank to help developa post-9/11“Beige Book.”

As they do for each of the eightannual editions of the “Beige Book,”Kaglic and a small team of associatescontact up to 100 people working inthe Seventh District in fields such asmanufacturing, retail, finance, real estate

and construction.The team seeks infor-mation on how businesses reacted toSeptember 11 and if they have changedtheir business plans. Seventh Districtcontacts confirm that business activity is at a standstill except for items suchas gas and groceries and services such as insurance.

Moskow, an FOMC voting memberin 2001, continues to call business con-tacts in the region as he has throughoutthe week. Prior to the Monday FOMCmeeting, he consults with Curt Hunter,the head of Economic Research, aboutthe state of the economy.Working withHunter, Moskow develops the key pointshe wants to share at the meeting andevaluates how he should vote.

F R I D A Y, S E P T E M B E R 14 – M O N D AY, S E P T E M B E R 17

2001 fed funds rate changesIn Percent

6.00

5.50

5.00

4.50

4.003.75

3.50

3.00

2.50

2.001.75

Economist rick kaglic helped trackregional conditions for a special edition ofthe “Beige Book” following 9/11.

Analyst rich stefanich was one of several Statistics staff members whoresponded to special requests from theFederal Reserve Board to collect statisticalinformation from banks following 9/11.

carey wright, manager of Protection in Chicago, took the initiative to increasesecurity immediately following the 9/11 attacks. Many Protection staff worked 12- to 16-hour days following 9/11.



On Friday afternoon, the Bank’s checkstaff are in a state of high alert. Planes arenow flying; employees know a deluge of checks will inevitably follow. Duringthe last three days, the Fed System deliv-ered roughly 75 percent of its normalcheck volume by cobbling together atemporary truck-delivery network. Butthe Fed still needs to move millions ofchecks by air.

One of the pressure points in theSystem is the Bank’s check operation inChicago.The office serves as a “funnelpoint” for Midwest check volume. Inaddition, a number of large customersin Chicago temporarily shift their checkwork to the Fed due to the crisis.

Just a week earlier, the check operation had moved from downtownChicago to a more efficient space onthe Southwest side of the city nearMidway Airport. Staff spent a hecticweek making the move.“We got to thepoint where we had a good ‘just-moved-in-the-house feeling,’ and then theattacks came,” notes Check SupervisorSonja Hennings.

On Friday afternoon, the dam breaks.Checks start arriving in large numbers.Staff have already agreed to work extend-ed hours over the weekend. Soon, everysquare foot of unoccupied space is coveredwith hundreds of bags of checks waitingto be processed.The incoming checksreplace bags of processed checks that cannow be shipped to the airport.The newcheck work arrives in a steady flow.

“The trucks just kept coming,”

remembers Senior Processor AndrewHall. “We started to wonder when theywere going to stop. Right after you madea dent and could see over a pile of checks,more would come.”

By early Sunday morning, staffbreathe a sigh of relief.The worst isover. Midway staff processed more thansix million checks over the weekend —a record for the Chicago check operation.

“There were some high-fives, sometired high-fives,” says Hall.“We got morechecks than I’ve ever seen.We all pushedhard.The newer people were helped bythe more experienced ones.We all pulledtogether and got it done.”

The Bank’s Midway facility broke a record forprocessing checks thanks to the efforts ofstaff such as Supervisor sonja henningsand Senior Processor andrew hall.

Getting the Checks Out

On Monday, September 17, the FOMCstarts its conference call at 6:30 a.m.The meeting is scheduled early so theFed can announce a decision before thestock markets reopen.The Committeefaces an unusually uncertain outlook.

Prior to September 11, the economywas struggling, with some tentative signsof improvement in the third quarter.Theshock of 9/11 will sap the strength ofan already weak economy.The questionis how much and for how long. “Thesituation was very severe,” Moskow notes.“Activity had ground to a halt. Consumersweren’t going to stores. And some storesweren’t reopening.There was a briefcessation in economic activity.”

After observing a moment ofsilence in honor of the 9/11 victims,the Committee takes only 25 minutes to take decisive action—it cuts the fedfunds target by half a percentage point.

During the remainder of 2001, theFOMC reduces the fed funds target byan additional 11

/4 percentage points to13

/4 percent—the lowest level in 40 years.These actions follow the Fed’s policymoves during the first eight months ofthe year, which reduced the fed fundstarget from 61

/2 percent to 31/2 percent.

However, the economy continues tostruggle after 9/11.With people in shockand glued to their TVs, consumer spend-ing growth falls sharply in September.Spending by consumers later recovers,buoyed in part by aggressive price discounting and low mortgage rates.Business spending, on the other hand,declines as companies liquidate excessinventories and put capital spending planson hold. In addition, economies overseasweaken, dampening the appetite forU.S. exports. In November, the NationalBureau of Economic Research announcesthat the economy entered into a recessionin March of 2001.

By year-end, there are some prelim-inary signs that the economy is reachingbottom.An upturn during 2002 is a rea-sonable prospect, although the outlookis more uncertain than usual. Over thebroader horizon, the prospects for theeconomy remain bright. Factors suchas deregulated financial markets, moreflexible labor markets and technologyadvances have enhanced America’s abilityto absorb shocks and provide a foundationfor solid economic growth.


orlanda hudson, check coordinator atthe Detroit Branch, worked to assure checkcustomers that their accounts would becharged and credited properly during theweek of 9/11.

Responding with Monetary Policy


A little over a week after the attack,financial markets are more stable. Discountwindow borrowing and Fed float are backto normal levels; check operations andother services are proceeding smoothly.Customers and stakeholders give the Fedhigh marks for its efforts. One commercialbank takes a creative approach and sends athousand packages of LifeSavers™ candyto each of the 45 Fed offices.

Looking back at the quick recoveryof the financial system, Alan Greenspansaid, “…we are blessed with a financialsystem that is creative, that is flexible,that is innovative. Banks—including thecentral bank—were there when theywere needed and did what was requiredwith dispatch.”

The crisis gives Chicago Fed staff anenhanced understanding of the centralbank’s critical role. “I got a better ideaof how many people depend on us toget the money out on the street,” saysCheck Supervisor Hennings. “Our jobis to be a bank for banks.That’s whatwe tried to do and we succeeded.”

As the crisis winds down, there ismore time to reflect. Like millions ofother Americans, Chicago Fed staff cometogether on September 14 to watch the national memorial service on TVand honor the victims of the attack.Responding to the many examples ofheroism throughout the nation, employeessing “God Bless America.”

Speaking to staff at the gathering,Moskow notes that “our hearts, thoughtsand prayers go out to the victims ofthis tragedy and their loved ones.” Hethanks employees for their efforts duringan emotional and stressful time for theentire nation. “In times of crisis likethis, a stable financial system is crucialand the Fed is called upon.The Systemand the Chicago Fed have been morethan equal to the challenge.You havedone an outstanding job.”

The Situation Stabilizes

Each crisis provides a chance to improve.The Chicago Fed appoints a review teamto look at the Bank’s response to 9/11. Similar reviews take place at the Systemlevel and at other Reserve Banks. Among the approved recommendations from theChicago Fed review:

Streamline the crisis managementprocess to facilitate quicker decisions.

Develop a more formal crisis communication plan for external and internal audiences.

Take additional measures to ensurethe safety of employees in the post- 9/11 environment.

Enhance business continuity planningby increasing the involvement ofeach department.

Lessons Learned

★

★

★

★

23

B A N K A C C O M P L I S H M E N T S

23

2001 Accomplishments

The Federal Reserve Bank of Chicago had another successful year in 2001, with significantaccomplishments in its four functional areas: Economic Research, Supervision and Regulation(S&R), Financial Services, and Support Activities. In addition to responding to 9/11, the Bank’snotable accomplishments include assuming responsibility for the System’s Customer Relationsand Support Office (CRSO), opening a check processing facility in Chicago, and developing a new Visitors Center.

The following long-term goals provided a broad strategic framework for 2001 activities:

1. Sharpen focus on customers and stakeholders.

2. Successfully execute Federal Reserve System leadership assignments.

3. Contribute to the discussion and development of public policy issues.

4. Continually improve operational efficiency.

5. Continue to prepare staff to meet the Bank’s evolving needs.

★ ★ ★

★

★

★

★

★

★

The Bank introduces the “ChicagoFed National Activity Index,” amonthly index that gauges currentand future economic activity.

The Journal of Finance publishesNicola Cetorelli’s “Banking MarketStructure, Financial Dependence,and Growth: International Evidencefrom Industry Data,” one of 32

Chicago Fed papers published or accepted for publication in academic journals during 2001.

The Bank expands its mentoringprogram, tapping internal resourcesto help staff develop their talentsand skills.

Consumer and Community Affairsworks with local organizations tolaunch the “Housing OpportunitiesPartnership of Southeast Wisconsin,”designed to promote housing oppor-tunities in the region.

The Bank’s conference,“Chicago’sGlobal Economic Connections,”examines the effect of immigration,foreign investment and trade on thecity’s economy.

UseDirectPayment.com, developedby the Chicago Fed to encourageelectronic bill payment, is expandedto banks and billers throughout theSeventh District.

S&R reduces regulatory burden by combining whenever possiblebank holding company inspections,safety and soundness exams andspecialty exams.

Responding to customer feedback,the Chicago Fed launches seminarsfor bankers that cover information on a variety of financial services ina single session.

S&R holds a training seminar for System examiners, one of theinitiatives it undertakes as the Fed’scompetency center on privateequity merchant banking.

f irst quarter

T H E Y E A R I N R E V I E W


VISITORS CENTER OPENS

The Bank opens a 5,500 square-foot

Visitors Center in July as part of an

ongoing effort to reach out to the

public. The Center explains in an

engaging, hands-on way the role of

a central bank and the evolution of

money and banking. In an opening

ceremony, Chairman Alan Greenspan

dedicates the Center in honor of

Nancy Goodman, who played a key

role in the Bank’s outreach efforts

for three decades.

To introduce the Center more

broadly, the Bank hosts a series of

sneak previews for media, employ-

ees, and other audiences. The official

public opening attracts 600 people.

The outreach effort also provides

an opportunity to unveil the Bank’s

new public art collection, “Images

of the Seventh District.” Together,

the art collection and Visitors Center

represent the Bank’s strong commit-

ment to public outreach.


★

★

★ ★

★

★

★

★

The Chicago Fed is selected tolead the System’s initiative regardingElectronic Bill Presentment andPayment (EBPP), which includesmaking strategic recommendationsto the Fed System.

S&R hosts a meeting with banking, insurance and securitiesregulators, part of an ongoingeffort to build relationships withfinancial supervisors.

S&R’s technology lab, a uniqueregulatory resource, holds one of35 training sessions for FederalReserve and other examiners on how to evaluate informationtechnology risk.

The “Conference on BankStructure and Competition,”generally regarded as the nation’sleading conference on financialpublic-policy issues, focuses onthe financial safety net.

The Chicago Fed is selected toimplement, for the Fed System, aWeb-based application for devel-oping budgets on a central server.

S&R creates a new risk-analysisunit, which proactively identifiesrisks facing District banks andallocates supervisory resources toaddress them.

William Conrad, first vice presidentand chief operating officer, retiresafter 42 years of service and issucceeded by Gordon Werkema,formerly executive vice presidentat the San Francisco Reserve Bank.

Economic Research initiates anongoing series of papers and publicforums examining the Midwest’sinfrastructure and long-termgrowth prospects.

second quarter



★

★ ★

★ ★ ★

★

third quarter

The Des Moines Office sets aSystem record for the fewest check-processing errors during a three-month period.The Office goes onto lead the System in the fewesterrors per 100,000 checks for allof 2001.

The Customer Call Center imple-ments interactive voice responseand web applications, providingcustomers with better informationand more flexible options.

The Bank publishes “ProductivityGrowth in the 1990s:Technology,Utilization, or Adjustment?,” bySusanto Basu, John Fernald andMathew Shapiro, one of 26 work-ing papers produced by EconomicResearch during the year.

The Chicago and Detroit Cashdepartments implement new soft-ware used to account for thousandsof daily cash transactions.

The Chicago Fed continues toplay a leading role in executiveeducation and development forthe System, organizing a highlysuccessful Leadership Conferencefor Fed senior officers. In addition,it hosts a special conference for“alumni,” who have attended previous Leadership Conferences.

S&R holds a conference on “de novo” (start-up) banks, one of a series of outreach efforts onregulatory issues.

State and local policymakers,academics, and urban real-estateprofessionals attend a Bank confer-ence examining the prospects oflarge central cities such as Chicago.

The Bank surveys all staff as part ofan ongoing effort to build a strongerculture and engage employees.Asresults are shared, employees formwork groups to develop plans tostrengthen their connection to work.

CRSO ESTABLISHED

The Chicago Fed is selected to lead

the System’s Customer Relations

and Support Office (CRSO). The new

office is successfully established at

the Chicago Fed in June. CRSO

manages several national financial

services functions—sales and mar-

keting, national accounts, customer

support, and electronic distribution

channels. The overall goal for CRSO

is to help ensure consistency and

excellence in financial services to

customers nationwide.

During 2001, CRSO focuses on:

restructuring the National Account

Program, which supports the System’s

largest customers; developing national

marketing campaigns for several

products; piloting new FedLine for

the Web applications; and developing

a national strategy for managing

customer relationships.

★



fourth quarter

★ ★

★

★

★ ★

★

NEW CHECK FACILITY COMPLETED

The Chicago check operation

successfully moves in September to

a new location on the Southwest side

of the city near Midway Airport. The

move to a new 55,000 square-foot

space, completed on schedule and

within budget, enables the Bank to

provide more flexible and convenient

service to customers. Among the

advantages: staff can process checks

more quickly in the new facility. This

enables the Bank to provide customers

with new deposit options.

Bankers and policymakers attend“International Money Transfers,” aChicago Fed conference examiningremittances and their use by the“unbanked” population.

The Bank comments on optionsbeing considered by the FederalReserve Board to reduce risk tothe payments system, one of a seriesof public-comment responses oncomplex policy issues during 2001.

More than 12,000 visitors tourthe Chicago Fed during 2001.

The “Big Problem with SmallChange,” a book co-authored byChicago Fed Economist FrancoisVelde, is described inThe Economistas “a fascinating new history of money.”

The Chicago Fed moves forwardon a System-wide check modern-ization initiative with four officessuccessfully converting to a new,standard check-adjustment systemby year-end.

The Bank completes diversitytraining for all of its managers aswell as all new employees.

The Bank signs up the 1,174thdepository institution submittingits statistical reports via the Internet.

SR chairs the System task forcecharged with studying the busi-ness value of technology investmentfor the Fed’s supervisory function.

Economic Research brings togetherregulators and participants from thefinancial industry and academia toevaluate the complexities involvedwith resolving problems at large,complex banking organizations.

The Chicago Fed’s Audit functionreceives a Commitment to QualityImprovement Award from theInstitute of Internal Auditors.

The Indianapolis Office ranksfirst in the Fed System for thehighest number of check itemshandled per work hour and thelowest unit costs.

The Bank supervises 199 statemember banks and 988 bankholding companies, the largestnumber in the Fed System.

★

★

★

★

★


looking to the future

Given the rapidly evolving eco-nomic and financial environment,the Bank will face new challengesduring 2002 in developing monetary policy, providing financialservices, and supervising banks.While continuing to focus on itsvaried ongoing responsibilities, theChicago Fed has identified fourhigh-priority goals for 2002:

Carry out System responsibilitiesfor leading CRSO.

Build on progress as a SystemSR expert on internet and wireless banking; large, complexbanking organizations; and privateequity merchant banking.

Contribute to System policy onemerging financial services.

Achieve superior performance infinancial services.

BANK SUPPORTS COMMUNITY

Bank staff gather in June to help

build a playground for a day-care

center on the West Side of Chicago.

Such community-based efforts took

place throughout 2001 and inten-

sified following September 11.

Like millions of other Americans,

Chicago Fed staff reach out to help

those affected by the 9/11 attacks.

Employees organize fund-raising

efforts and take part in blood drives

held at the Bank’s offices. Overall,

staff from each of the Bank’s six

offices participate in roughly 40

community service projects during

2001. Among the other 2001 activ-

ities: collecting food, clothing, toys

and child-care items for those in

need; teaching economics-related

topics to hundreds of students via

Junior Achievement; and assisting

low-income families in preparing

tax returns through the Tax

Counseling Project.

1.

2.

3.

4.


F E D E R A L R E S E RV E BA N K OF C H I C A G O B OA R D O F D I R E C TO R S

Deputy Chairman robert j. darnall

ChairmanPrime Advantage ChicagoChicago, Illinois

jack b. evans

PresidentThe Hall-Perrine FoundationCedar Rapids, Iowa

connie e. evans

President and Chief Executive OfficerWSEP VenturesChicago, Illinois

Chairmanarthur c. martinez

Retired Chairman and Chief Executive OfficerSears, Roebuck and Co.Hoffman Estates, Illinois


james h. keyes

Chairman and Chief Executive OfficerJohnson Controls, Inc.Milwaukee,Wisconsin

william a. osborn

Chairman and Chief Executive OfficerNorthern Trust Corp.and Northern Trust Co.Chicago, Illinois

w. james farrell

Chairman and Chief Executive OfficerIllinois Tool Works, Inc.Glenview, Illinois

robert r. yohanan

Managing Director and Chief Executive OfficerFirst Bank & Trust Evanston, Illinois

alan r. tubbs

PresidentMaquoketa State Bank and Ohnward BancsharesMaquoketa, Iowa

29


D E T R O I T B R A N C H B OA R D O F D I R E C TO R S

stephen r. polk

Chairman and Chief Executive OfficerR.L. Polk & Co.Southfield, Michigan

irma b. elder

PresidentElder FordTroy, Michigan

richard m. bell

Retired President and Chief Executive OfficerThe First National Bank of Three Rivers Three Rivers, Michigan

Chairmantimothy d. leuliette

President and Chief Executive OfficerMetaldynePlymouth, Michigan


edsel b. ford 11

DirectorFord Motor CompanyDearborn, Michigan

mark t. gaffney

PresidentMichigan AFL-CIOLansing, Michigan

david j. wagner

ChairmanFifth Third BankGrand Rapids, Michigan

Robert E. Churchill (left),chairman and chief executive officer,Citizens National Bank,Cheboygan, Michigan, replaced Richard Bell, whose term expired on December 3, 200.

Irvin D. Reid (right),president,Wayne State University,Detroit, Michigan, replaced Steven Polk, whose term expired on December 3, 200.

Two new directors joined the Detroit board in :


F E D E R A L R E S E RV E BA N K OF C H I C A G O M A N A G E M E N T C O M M I T T E E

Federal Reserve Bank of Chicago Management Committee (from left): michael moskow, gordon werkema, carl vander wilt, and jerome john.

Federal Reserve Bank of Chicago Management Committee continued (from left): john wixted, angela robinson, barbara benson, charles furbee, and richard anstee.


Federal Reserve Bank of Chicago Management Committee continued (from left): glenn hansen, brian egan, william gram, cynthia castillo, and nate wuerffel.

Federal Reserve Bank of Chicago Management Committee continued (from left): karen kane, william barouski, edward green, and william hunter.


F E D E R A L R E S E RV E BA N K OF C H I C A G O O F F I C E R S

economic researchand programs

William C. HunterSenior Vice President and Director ofResearch

Edward J. GreenSenior Policy Advisor

Jean L.ValeriusVice President andSenior Policy Advisor

Regional EconomicPrograms

William A.TestaVice President andEconomic Advisor

Financial MarketsRegulation and Payments Issues

Douglas D. EvanoffVice President andEconomic Advisor

Elijah Brewer IIIAssistant Vice Presidentand Economic Advisor

James T. MoserResearch Officer andEconomic Advisor

Robert R. BlissSenior Economist andEconomic Advisor

Robert DeYoungSenior Economist andEconomic Advisor

David A. MarshallSenior Economist andEconomic Advisor

Macroeconomic Policy Research

Charles L. EvansVice President andEconomic Advisor

Spencer D. KraneVice President andEconomic Advisor

Anne Marie L. GonczyAssistant Vice Presidentand Economic Advisor

William A. StraussSenior Economist andEconomic Advisor

Microeconomic Policy Research

Daniel G. SullivanVice President andEconomic Advisor

Paula R.WorthingtonResearch Officer andEconomic Advisor

Statistics

Angela D. RobinsonVice President and Director ofResearch Statistics and EEO Officer

Loretta C.ArdaughStatistical ReportsOfficer

supervision and regulation

John J.Wixted, Jr.Senior Vice President

Administration

James A. BluemleVice President andDivision Leader

Kathleen E. BensonDirector

Catherine M. BourkeDirector

Bank and Bank HoldingCompany Supervision

Richard C. CahillVice President and Division Leader

Robert A. BechazRegional Director–Illinois

Jeffrey A. JensenRegional Director–Iowa

William H. LossieSupervisory DirectorResource Group

Joseph J.TurkRegional Director–Indiana and Michigan

Karen Whalen-WardRegional Director–Wisconsin

Compliance/CommunityReinvestment Act

Douglas J. KaslVice President andDivision Leader

Sheryn E. BormannDirector

Richard D. ChelsvigRegional Director–Wisconsin

Michael R. JarrellRegional Director–Indiana and Michigan

Martha L. MuhsRegional Director–Iowa

Arthur J. ZainoRegional Director–Illinois

Global Supervision

James W. NelsonVice President andDivision Leader

A. Raymond BaconDirector

Adrian B. D’SilvaDirector

Mark H. KawaSupervisory Director

Ralph A. LivesaySupervisory Director

Michael E. PlaskettSupervisory Director

Risk Analysis

Catharine M. LemieuxVice President

Philip G. JacksonDirector

Technology Supervisionand Operations

David E. RitterVice President andDivision Leader

Gregory J. BartnickiDirector

Frederick L. MillerDirector

Includes directors and senior economists and economic advisors.

central bank activities*

Michael H. MoskowPresident and Chief Executive Officer

Gordon WerkemaFirst Vice President andChief Operating Officer

*


customer relationsand support office

Richard P.AnsteeSenior Vice President

William A. BarouskiSenior Vice President

Valerie J.Van MeterVice President

Jeffrey S.AndersonVice President

Kathrine KielmaAssistant Vice President

Daniel F. ReimannAssistant Vice President

Beverly A. SchatteAdministrative Officer

Strategic Marketing and Customer Service

Kathleen H.WilliamsVice President

Rosemarie V. GouldAdministrative Officer

financial services

Charles W. FurbeeSenior Vice President

Check, Electronic and Fiscal Services

Thomas G. CiesielskiVice President

Yvonne H.MontgomeryVice President

Mary H. SherburneVice President

Eve M. BobochAssistant Vice President

Cynthia L. RascheAssistant Vice President

James M. RudnyAssistant Vice President

Regional Offices

Des Moines OfficeL. Edward KetchmarkAssistant Vice President

Indianapolis OfficeDonna M.YatesAssistant Vice President

Jeffrey R.Van TreeseOperations Officer

Milwaukee OfficeMichael J. HoppeAssistant Vice President

Leatrice S. MackMarketing Officer

Peoria FacilityTyler K. SmithAssistant Vice President

branch operations and cash operations

Cash Operations

Jerome D. NicolasVice President

Guadalupe GarciaAssistant Vice President

Detroit Branch

Brian D. EganVice President

Patrick A. GarreanAssistant Vice President

Linda S. McDonaldAssistant Vice President

Michael BlanksBuilding Construction Officer

Donna M. DziakOperations Officer

community andcorporate affairs

Karen KaneSenior Vice President

Consumer andCommunity Affairs

Alicia WilliamsVice President

CorporateCommunications

G. Douglas TillettCorporateCommunications Officerand Vice President

James R. HollandCorporateCommunications Officer and Assistant Vice President

corporate and support services

Jerome F. JohnSenior Vice President

Facilities Management,General Servicesand Protection

Kristi L. ZimmermannVice President

Michael CaranoAssistant Vice President

William J. O’ConnorAssistant Vice President

human resource services

Barbara D. BensonVice President

Deidre A. GehantAssistant Vice President

Margaret K. KoenigsAssistant Vice President

Richard F. OpalinskiAssistant Vice President

information technology services

William A. BarouskiSenior Vice President

Business Technology

Frank S. McKennaVice President

James L. BuzieckiAssistant Vice President

Jeffery B. MarcusAssistant Vice President

Ira R. ZilistAssistant Vice President

Human Capital

Brenda D. LadipoAssistant Vice President

Information Security

Lysette R. BaileyAssistant Vice President

Network Services

R. Steve CrainAssistant Vice President

Business Resumption,Asset Management,Budget and Facilities

Anthony J.TempelmanAssistant Vice President

legal department

William H. GramSenior Vice President and General Counsel

Elizabeth A. KnospeVice President andAssociate General Counsel

Yurii SkorinVice President andAssociate General Counsel

Anna M.VoytovichVice President andAssociate General Counsel

financial management services,accounting, loans,payment system riskand reserves andfinancial markets

Carl E.Vander WiltSenior Vice President andChief Financial Officer

Loans,Accounting, PaymentSystem Risk and Reserves

Gerard J. NickVice President

Jerome E. JulianLoans and ReservesOfficer

Robert A. LyonAdvisor

Sara UngariAccounting Officer

Financial andManagement Services

Ellen J. BromagenAssistant Vice President

Joan MielkeOperations Officer

office of the general auditor

Glenn C. HansenGeneral Auditor

Robert M. CaseyAssistant General Auditor

Joseph B. GreenAssistant Vice President

As of December ,

services to depository institutions support functions

35


federal advisorycouncil seventh district representative

Alan G. McNallyChairman and Chief Executive OfficerHarris Bankcorp, Inc.Chicago, Illinois

advisory council onagriculture, labor,and small business

Sandra BatieMichigan StateUniversityEast Lansing, Michigan

Michael CharlesFusilierFusilier Family Farm & GreenhouseManchester, Michigan

Connie GreigLittle Acorn RanchEstherville, Iowa

Ron HeckCheckers, Inc.Perry, Iowa

Mark LeganLegan Livestock and GrainCoatesville, Indiana

Jerome RoweFarmers Cooperative Grain Co.Dalton City, Illinois

Gary SteinerWisconsin Farm BureauMondovi,Wisconsin

Leland StromStrom FarmElgin, Illinois

Terry TuckerMaple Leaf Farms, Inc.Milford, Indiana

Leigh Tuckey, PartnerLeighBert FarmsLancaster,Wisconsin

J. Edward YanosYanos FarmsCambridge City, Indiana

Margaret BlackshereIllinois State Federation of Labor & Congress ofIndustrial OrganizationChicago, Illinois

J. Michael BordenHufcor Inc.Janesville,Wisconsin

Carl CamdenKelly Services, Inc.Troy, Michigan

John ChallengerChallenger, Gray & Christmas, Inc.Chicago, Illinois

Sheila CochranMilwaukee CountyLabor Council,AFL-CIOMilwaukee,Wisconsin

Carl GallmanInternationalAssociation of Machinists &Aerospace WorkersWestchester, Illinois

Thomas HargroveUnited Steelworkers of AmericaEast Chicago, Indiana

Matthew HarperPioneer Hi-Bred International, Inc.Des Moines, Iowa

Dennis WilliamsUnited Auto WorkersDes Plaines, Illinois

David NewbyWisconsin State AFL-CIOMilwaukee,Wisconsin

Robert Crawford, Jr.Brook Furniture Rental, Inc.ArlingtonHeights, Illinois

Thomas CrosbyAmerican National/The Insurance ExchangeCrestwood, Illinois

Ralph DegerBushman Equipment, Inc.Butler,Wisconsin

David FisherOnthank CompanyDes Moines, Iowa

George FrancoNational Financial Corporation (NFC)Milwaukee,Wisconsin

Yolanda Gomez-StupkaNational NativeAmerican BusinessAllianceBingham Farms,Michigan

Jan HayhowMichigania, Inc.Lansing, Michigan

Christopher LaMotheIndiana Chamber of CommerceIndianapolis, Indiana

Ritch LeGrandLeGrand & CompanySioux City, Iowa

Karen LennonSomerCor 504, Inc.Chicago, Illinois

Jeffrey PaddenPublic Policy Associates, Inc.Lansing, Michigan

community bankcouncil

Illinois

Kenne P. BristoLiberty Federal BankHinsdale, Illinois

Roger DeVriesMilledgeville State BankMilledgeville, Illinois

Barbara J. KuhlFirst Busey Corp.Urbana, Illinois

Richard K. McCordIllinois National BancorpSpringfield, Illinois

Indiana

Brent CliftonGrabill BankGrabill, Indiana

Michael L. CoxFirst MerchantsCorporationMuncie, Indiana

Chuck CrowCommunity BankNoblesville, Indiana

Michael KubackiLake City BankWarsaw, Indiana

Iowa

David M. BradleyFirst Federal SavingsBank of IowaFort Dodge, Iowa

Michael BauerQuad City Bank &Trust CompanyBettendorf, Iowa

Elizabeth GarstRaccoon Valley State BankAdel, Iowa

Richard WallerSecurity National BankSioux City, Iowa

Michigan

Gary M. BurkhardtCentury Bank & TrustColdwater, Michigan

Richard M. CarncrossSignature BankBad Axe, Michigan

David S. HickmanUnited Bank & TrustTecumseh, Michigan

John R. KluckFirst National BankGaylord, Michigan

Joseph F. SalasCSB BankCapac, Michigan

Wisconsin

Paul AdamskiThe PineriesStevens Point,Wisconsin

Mike FalboState Financial BankHales Corners,Wisconsin

Richard HansenJohnson BankRacine,Wisconsin

Philip G. HollandIxonia State BankIxonia,Wisconsin

David KopperudPeoples State BankWausau,Wisconsin

customer advisorygroups

Central Illinois

Sally BoersSouthside Trust &Savings BankPeoria, Illinois

Craig BeckerSoutheast National Bank of MolineDavenport, Illinois

Mitch BornemanHeritage Bank of Central IllinoisTrivoli, Illinois

Steve DankoSoy Capital BankDecatur, Illinois

Pete JainCitizens Equity Federal Credit UnionPeoria, Illinois

Michael KingPeoples Bank of MaconMacon, Illinois

Wilbur R. LancasterUnion Planters BankDecatur, Illinois

Linda LittleBank IllinoisChampaign, Illinois

Diane McCluskeyIndependent Bankers’ BankSpringfield, Illinois

John McEvoyMetro Bank N.A.East Moline, Iowa

Mike McKenzieFirst Capital BankPeoria, Illinois

Randall RossFirst Mid-Illinois Bank & TrustMattoon, Illinois

Jerald SarnesThe Havana National BankHavana, Illinois

Donald SchlorffBusey BankUrbana, Illinois

Chicago Metropolitan

Donna AdamManufacturers BankChicago, Illinois

John CollinsMid-States Corporate Federal Credit UnionWarrenville, Illinois

John DabrowskiDevon BankChicago, Illinois

Thomas DarovicSuperior Bank, FSBOak Brook Terrace,Illinois

Edward FurticellaPeoples Bank SBMunster, Indiana

Larry Gardner1st Source BankSouth Bend, Indiana

Savannah HannahFinancial Federal TrustChicago Ridge, Illinois

Ron HuntAmerican Chartered BankSchaumburg, Illinois

Mary KosarNLSBNew Lenox, Illinois

Richard MarraMetro Federal Credit UnionArlington Heights,Illinois

Brian D. PayneNational City BankSpringfield, Illinois

Charles SangerBank CalumetHammond, Indiana

Deborah SchneiderFirst Midwest Bank, N.A.Joliet, Illinois

Larry StewartAMCORE Financial, Inc.Rockford, Illinois

Barbara Yeates-PeryerCole Taylor BankChicago, Illinois

Indiana

H. Matthew AyersState Bank of LiztonLizton, Indiana

Steven BaileyFirst Bank of BerneBerne, Indiana

Lynn BierleinSalin Bank and TrustIndianapolis, Indiana

Debbie L. CoxIrwin Union Bank & TrustColumbus, Indiana

Steven D. FlowersBank One Indianapolis, Indiana

Dee Ann HammelFirst Federal Savings BankHuntington, Indiana

Stan V. HartTerre Haute First National BankTerre Haute, Indiana

Rita HydenUnion Bank and TrustNorth Vernon, Indiana

Sherri JonesPhillips FederalCredit UnionFort Wayne, Indiana

Jim MillerGreenfield Banking CompanyGreenfield, Indiana

Rebecca MorganLincoln Federal Savings BankPlainfield, Indiana

Robert J. RalstonLafayette Bank & Trust CompanyLafayette, Indiana

Glenn RaverUnion Bank and TrustGreensburg, Indiana

Steven ReynoldsFarmers Bank FrankfortFrankfort, Indiana

A D V I S O R Y C O U N C I L S


Iowa

Steve AndersonFirst American BankClive, Iowa

Daniel G.AugustineSecurity National BankSioux City, Iowa

Randy BergmanBankers TrustDes Moines, Iowa

Barrie ChristmanPrincipal BankDes Moines, Iowa

Leann CookFirst Federal Savings of AlpenaSt. Charles, Michigan

Jerry FannonLincoln Savings BankReinbeck, Iowa

Dale C. FroehlichCommunity State BankAnkeny, Iowa

Jim HubingerFirst Federal Savings of ApenaSt. Charles, Michigan

Randy JohnsonCommercial Trust & Savings BankStorm Lake, Iowa

Vicki KieliszewskiHuron National BankRogers City, Michigan

Paulette KierzekHuron National BankRogers City, Michigan

Nelson KlavitterDubuque Bank & TrustDubuque, Iowa

Sandra KoenigFirst Federal Savings of AlpenaSt. Charles, Michigan

Judy LynchIsabella Bank & TrustMt. Pleasant, Michigan

Victor QuinnQuad City Bank & TrustBettendorf, Iowa

Marti T. RodamakerFirst Citizens National BankMason City, Iowa

MaryAnn SchafferCommunity State BankSt. Charles, Michigan

Robert A. SteenBridge Community BankMechanicsville, Iowa

Northern Michigan

Dennis P.AngnerIsabella Bank & TrustMt. Pleasant, Michigan

Nikki ColeState Savings Bank of FrankfortFrankfort, Michigan

Jan DavisonCommercial BankIthaca, Michigan

Susan A. EnoCitizens National Bank Cheboygan, Michigan

Sally GapinskiFirst National Bank of GaylordGaylord, Michigan

Marilyne JoyCharlevoix State BankCharlevoix, Michigan

Bill KirstenFirst National Bank of GaylordGaylord, Michigan

Sandra KoenigFirst Federal Savings of AlpenaSt. Charles, Michigan

Sharla LeachAlden State BankAlden, Michigan

Sue MeredithHonor State BankHonor, Michigan

Susan NorrisFirst National Bank of GaylordGaylord, Michigan

Victoria SagerCentral State BankBeulah, Michigan

Nancy SorensenWest Shore BankScottsville, Michigan

Kenneth SterlingFirst Community BankHarbor Springs,Michigan

Kathy TaskeyFirst National Bank of GaylordGaylord, Michigan

Janie WilliamsonHuron Community BankEast Tawas, Michigan

Kathleen VogtCommunity State BankSt. Charles, Michigan

Debra WoodlandCommercial BankIthaca, Michigan

Western Michigan

Don BaldwinSturgis Bank & TrustSturgis, Michigan

Joanne BradyFirst National BankThree Rivers, Michigan

Linda Comps-KlingeState Bank of CaledoniaCaledonia, Michigan

Mike DiamondState Bank of CaledoniaCaledonia, Michigan

Cindy DwyerHillsdale County National BankHillsdale, Michigan

Marianne EssingByron Center State BankByron Center, Michigan

Linda GrouleauEaton Federal Savings BankCharlotte, Michigan

Joan HeffelbowerHastings City BankHastings, Michigan

D. Scott HinesFirst National BankThree Rivers, Michigan

Jaylen T. JohnsonSouthern Michigan Bank & TrustColdwater, Michigan

Linda KaminskiKalamazoo County State BankSchoolcraft, Michigan

Kyle KunnenGrand BankGrand Rapids,Michigan

Sharon MrozekAlliance BankingCompanyNew Buffalo, Michigan

Brad SlaghByron Center State BankByron Center, Michigan

Debra SmithHillsdale County National BankHillsdale, Michigan

Emily StaffordHastings City BankHastings, Michigan

Wendell StoefflerIonia County National BankIonia, Michigan

Jerry Van BlarcomSouthern Michigan Bank & TrustColdwater, Michigan

Detroit Metropolitan

Gordon BadeCapac State BankCapac, Michigan

Aleta BameMetrobankFarmington Hills,Michigan

Peggy BachliBank of Ann ArborAnn Arbor, Michigan

Richard BauerFidelity BankBirmingham, Michigan

Daniel BrownSterling Bank & TrustSouthfield, Michigan

Paul FullerRepublic BankLansing, Michigan

Joseph HallmanCitizens State BankNew Baltimore,Michigan

Sue HarmonOnsted State BankOnsted, Michigan

Bruce HoppenworthCitizens First Savings BankPort Huron, Michigan

Laird KellieLapeer County Bank & Trust Co.Lapeer, Michigan

Stephen M. MazurekBank of LenaweeAdrian, Michigan

Karmen McMillanCitizens First Savings BankPort Huron, Michigan

Mike McMinnMetrobankFarmington Hills,Michigan

Kendall RiemanThumb National BankPigeon, Michigan

Benjamin SchottThumb National BankPigeon, Michigan

Vonda ZuhlkeTri-County BankBrown City, Michigan

Michigan Credit Unions

Tim BeneckeDow Chemical Employees CUMidland, Michigan

Steve BrewerCapital Area School Employees CULansing, Michigan

Melissa BrickleyCapital Area School Employees CULansing, Michigan

Cathy BurnhamCredit Union OneFerndale, Michigan

Debbie BurleyCommunity Choice CURedford Township,Michigan

Jennifer ChildsAmerican One FCUJackson, Michigan

Linda ClarkKellogg FCUBattle Creek, Michigan

Tim ColliaEducation Community CUKalamazoo, Michigan

Lynda ConnellFirst Resource FCUSt. Joseph, Michigan

Mark EmeretCapital Area School Employees CULansing, Michigan

Linda HallCommunity Choice CULivonia, Michigan

Vicki HawkinsDort FCUFlint, Michigan

Linda HessSecurity FCUFlint, Michigan

Judith HillockResearch FCUWarren, Michigan

Jeff JacksonMichigan State University CUEast Lansing, Michigan

Michelle JensenFirst Resource CUSt. Joseph, Michigan

Jaquetta JonesCapital Area School Employees CULansing, Michigan

Lynne KindyTeam One CUSaginaw, Michigan

Carol LapinskiMichigan State University CUEast Lansing, Michigan

Michele MyrickE&A CUMarysville, Michigan

Terry PearsonCapital Area School Employees CULansing, Michigan

Bill PiersonAmerican One FCUJackson, Michigan

Gaye SaucedoDetroit Federal Employees CUSouthfield, Michigan

Mark SchuilingDow Chemical Employees CUMidland, Michigan

Melanie SimeoneCommunity Choice CULivonia, Michigan

Tracie SmitterbergDetroit Federal Employees CUSouthfield, Michigan

Lisa TyrellT&C FCUBloomfield Hills,Michigan

Angelica YoungFirst Resource FCUSt. Joseph, Michigan

Wisconsin

Terry AndereggMutual Savings BankMilwaukee,Wisconsin

Susan BakerSt. Francis BankMilwaukee,Wisconsin

Dennis ConertonBlackhawk State BankBeloit,Wisconsin

Robert W. FouchWisconsin Corporate Central Credit UnionMuskego,Wisconsin

Gail GroleauAnchor BankMadison,Wisconsin

Werner KantEducators Credit UnionRacine,Wisconsin

Richard KostnerAssociated Data ServicesGreen Bay,Wisconsin

Bret MelhouseFirstar BankMilwaukee,Wisconsin

James MingeyM&I Data ServicesMilwaukee,Wisconsin

Ronald L. SlaterBankers BankMadison,Wisconsin

Thomas M. SmithJohnson BankKenosha,Wisconsin

Mara TodorvicBank One Data ServicesMilwaukee,Wisconsin

37


directors

Members of the Federal Reserve Bank ofChicago’s boards of directors are selected torepresent a cross section of the SeventhDistrict economy, including consumers,industry, agriculture, the service sector, laborand commercial banks of various sizes.

The Chicago board consists of nine members.Member banks elect three bankers and threenonbankers.The Board of Governors appointsthree additional nonbankers and designatesthe Reserve Bank chair and deputy chairfrom among its three appointees.

The Detroit Branch has a seven-memberboard of directors.The Board of Governorsappoints three nonbankers and the ChicagoReserve Bank board appoints four additionaldirectors.The Branch board selects its ownchair each year, with the approval of theChicago board. All Reserve Bank and Branchdirectors serve three-year terms, with a two-term maximum.

Director appointments and elections at theChicago Reserve Bank and its DetroitBranch effective in 2001 were:

– Arthur C. Martinez redesignated chairman.

– Robert J. Darnall redesignated deputychairman.

– W. James Farrell appointed to a three-year term.

– William A. Osborn elected to completetwo-years of an unexpired term.

– Jack B. Evans re-elected to a second three-year term.

– Robert R.Yohanan re-elected to a secondthree-year term.

– Timothy D. Leuliette re-appointed to asecond three-year term as a Branch directorand re-designated Branch chairman.

At year-end 2001 the following appointmentsand elections to terms beginning in 2002

were announced:

– Robert J. Darnall designated chairman.

– W. James Farrell designated deputy chairman.

– Robert E. Churchill appointed to a three-year term as Branch director.

– Irvin D. Reid appointed to a three-yearterm as Branch director.

advisory councils

The Federal Advisory Council, which meetsquarterly to discuss business and financialconditions with the Board of Governors inWashington, D.C., is comprised of one bankerfrom each of the 12 Federal Reserve Districts.Each year the Chicago Reserve Bank’s boardof directors selects a representative to thisgroup. Alan G. McNally, chairman and chiefexecutive officer, Harris Bankcorp, Inc., wasre-appointed to serve a one-year term begin-ning January 1, 2002.

Members of the Community Bank Councilserved the first year of their terms in 2001.

Members of the Advisory Council onAgriculture, Labor and Small Business, servedthe second year of their terms in 2001. Thecouncils provide a vital communication linkbetween the Bank and these important sectors.

officers

The Bank’s board of directors acted on thefollowing promotions during 2001:

– Anna M.Voytovich to vice president andassociate general counsel, Legal.

– Eve M. Boboch to assistant vice president,Financial Services.

– Deirdre A. Gehant to assistant vice presi-dent, Human Resource Services.

New officers appointed by the board in 2001 were:

– Gordon Werkema to first vice president.

– Spencer D. Krane to vice president andeconomic advisor, Economic Research.

– Catharine M. Lemieux to vice president,Supervision and Regulation.

– G. Douglas Tillett to vice president,Corporate Communications.

– James L. Buziecki to assistant vice president,Information Technology Services.

– Kathrine Kielma to assistant vice president,Customer Relations and Support Office.

– Daniel F. Reimann to assistant vice president,Customer Relations and Support Office.

– Michael Blanks to building constructionofficer, Detroit Branch.

– Jerome E. Julian to loans and reserves officer, Loans.

– Joan Mielke to operations officer, Financialand Management Services.

– Beverly A. Schatte to operations officer,Customer Relations and Support Office.

– Sara Ungari to accounting officer,Accounting.

William C. Conrad, first vice president, retiredafter 42 years of service. David R. Allardice,senior vice president and branch manager,retired after 27 years of service.

E X E C U T I V E C H A N G E S

O P E R A T I O N S VO L U M E S


2001 2000 2001 2000

CHECK & ELECTRONIC PAYMENTS

Checks, NOWs, & Share Drafts Processed 1.5 Trillion 1.7 Trillion 2.3 Billion 2.3 Billion

Fine Sort & Packaged Checks Handled 16.8 Billion 21.1 Billion 29.9 Million 40.0 Million

U.S. Government Checks Processed 42.4 Billion 37.5 Billion 43.8 Million 35.9 Million

Automated Clearing House (ACH)

Items Processed 2.6 Trillion 2.5 Trillion 920.5 Million 869.8 Million

Transfer of Funds 64.9 Trillion 57.0 Trillion 22.3 Million 20.7 Million

CASH OPERATIONS

Currency Received and Counted 52.9 Billion 51.0 Billion 3.2 Billion 3.1 Billion

Unfit Currency Destroyed 7.3 Billion 9.5 Billion 639.8 Million 731.3 Million

Coin Bags Received and Processed 1.6 Billion 1.3 Billion 2.8 Million 3.5 Million

SECURITIES SERVICES FOR DEPOSITORY INSTITUTIONS

Safekeeping Balance December 3:

Definitive Securities 135.9 Billion 124.5 Billion 5.4 Thousand 6.4 Thousand

Book Entry Securities 284.6 Billion 277.9 Billion — —

Purchase & Sale 1.3 Billion 1.6 Billion 2.5 Thousand 5.2 Thousand

Book Entry Government Securities 4.1 Trillion 3.8 Trillion 837.8 Thousand 709.0 Thousand

LOANS TO DEPOSITORY INSTITUTIONS

Total Loans Made During Year 15.6 Billion 7.9 Billion 0.7 Thousand 2.1 Thousand

SERVICES TO U.S. TREASURY AND GOVERNMENT AGENCIES

Food Stamps Redeemed 364.2 Million 640.2 Million 76.4 Million 127.4 Million

Sell Direct Transactions Processed 683.0 Million 655.8 Million 15.0 Thousand 16.4 Thousand

DOLLAR AMOUNT NUMBER OF ITEMS

2 0 01 F I N A N C I A L R E PO R T S


management assertionfebruary 2002TO THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE BANK OF CHICAGO

The management of the Federal Reserve Bank of Chicago (FRBC) is responsible for the preparation and fair presentation of the Statement of Financial Condition, Statement of Income, and Statement of Changes in Capital as of December 31, 2001 (the “FinancialStatements”).The Financial Statements have been prepared in conformity with the account-ing principles, policies, and practices established by the Board of Governors of the FederalReserve System and as set forth in the Financial Accounting Manual for the Federal ReserveBanks, and as such, include amounts, some of which are based on judgments and estimatesof management.

The management of the FRBC is responsible for maintaining an effective process ofinternal controls over financial reporting including the safeguarding of assets as they relate tothe Financial Statements. Such internal controls are designed to provide reasonable assuranceto management and to the Board of Directors regarding the preparation of reliable FinancialStatements.This process of internal controls contains self-monitoring mechanisms, including,but not limited to, divisions of responsibility and a code of conduct. Once identified, anymaterial deficiencies in the process of internal controls are reported to management, andappropriate corrective measures are implemented.

Even an effective process of internal controls, no matter how well designed, has inherentlimitations, including the possibility of human error, and therefore can provide only reasonableassurance with respect to the preparation of reliable Financial Statements.

The management of the FRBC assessed its process of internal controls over financialreporting including the safeguarding of assets reflected in the Financial Statements, basedupon the criteria established in the “Internal Control – Integrated Framework” issued bythe Committee of Sponsoring Organizations of the Treadway Commission (COSO). Basedon this assessment, the management of the FRBC believes that the FRBC maintained aneffective process of internal controls over financial reporting including the safeguarding ofassets as they relate to the Financial Statements.

federal reserve bank of chicago

michael moskow gordon werkemapresident first vice presidentand chief executive officer and chief operating officer



report of independent accountantsTO THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE BANK OF CHICAGO

We have examined management’s assertion that the Federal Reserve Bank of Chicago(“FRBC”) maintained effective internal control over financial reporting and the safeguardingof assets as they relate to the Financial Statements as of December 31, 2001, included in the accompanying Management’s Assertion. The assertion is the responsibilty of FRBC’s management. Our responsibility is to express an opinion on the assertions based on our examination.

Our examination was made in accordance with standards established by the AmericanInstitute of Certified Public Accountants, and accordingly, included obtaining an under-standing of the internal control over financial reporting, testing, and evaluating the designand operating effectiveness of the internal control, and such other procedures as we considerednecessary in the circumstances.We believe that our examination provides a reasonable basisfor our opinion.

Because of inherent limitations in any internal control, misstatements due to error or fraudmay occur and not be detected. Also, projections of any evaluation of the internal controlover financial reporting to future periods are subject to the risk that the internal control maybecome inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.

In our opinion, management’s assertion that the FRBC maintained effective internalcontrol over financial reporting and over the safeguarding of assets as they relate to theFinancial Statements as of December 31, 2001, is fairly stated, in all material respects, basedupon criteria described in “Internal Control-Integrated Framework” issued by the Committeeof Sponsoring Organizations of the Treadway Commission.

march 4, 2002

PricewaterhouseCoopers LLPOne North Wacker

Chicago, IL 60606

Telephone (312) 298-2000



report of independent accountantsTO THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND

THE BOARD OF DIRECTORS OF THE FEDERAL RESERVE BANK OF CHICAGO

We have audited the accompanying statements of condition of The Federal Reserve Bankof Chicago (the “Bank”) as of December 31, 2001 and 2000, and the related statements of income and changes in capital for the years then ended.These financial statements arethe responsibility of the Bank’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements.An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the over-all financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3, the financial statements were prepared in conformity with theaccounting principles, policies, and practices established by the Board of Governors of the Federal Reserve System.These principles, policies, and practices, which were designedto meet the specialized accounting and reporting needs of The Federal Reserve System, are set forth in the “Financial Accounting Manual for Federal Reserve Banks” and constitute a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

In our opinion, the financial statements referred to above present fairly, in all materialrespects, the financial position of the Bank as of December 31, 2001 and 2000, and results of its operations for the years then ended, on the basis of accounting described in Note 3.

march 4, 2002chicago, illinois

PricewaterhouseCoopers LLPOne North Wacker

Chicago, IL 60606

Telephone (312) 298-2000

2 0 01 F I N A N C I A L S TAT E M E N T S


As of December , 2001 2000

ASSETS

Gold Certificates $ 1,028 $ 1,064

Special Drawing Rights Certificates 212 212

Coin 117 114

Items in Process of Collection 526 1,119

Loans to Depository Institutions 15 25

U.S. Government and Federal Agency Securities, Net 63,617 62,020

Investments Denominated in Foreign Currencies 1,333 1,409

Accrued Interest Receivable 646 722

Interdistrict Settlement Account 6,071 —

Bank Premises and Equipment, Net 136 135

Other Assets 48 37

Total Assets $ 73,749 $ 66,857

LIABILITIES AND CAPITAL

Liabilities:Federal Reserve Notes Outstanding, Net $ 68,119 $ 61,206

DepositsDepository Institutions 3,498 2,796

Other Deposits 4 4

Deferred Credit Items 386 575

Interest on Federal Reserve Notes Due U.S.Treasury 43 132

Interdistrict Settlement Account — 770

Accrued Benefit Cost 88 85

Other Liabilities 25 25

Total Liabilities $ 72,163 $ 65,593

Capital:Capital Paid-In 793 632

Surplus 793 632

Total Capital $ 1,586 $ 1,264

Total Liabilities and Capital $ 73,749 $ 66,857

STATEMENTS OF CONDITION (in Millions)

The accompanying notes are an integral part of these financial statements.



For the years ended December , 2001 2000

INTEREST INCOME

Interest on U.S. Government and Federal Agency Securities $ 3,403 $ 3,545

Interest on Investments Denominated in Foreign Currencies 30 24

Interest on Loans to Depository Institutions 2 6

Total Interest Income $ 3,435 3,575

OTHER OPERATING INCOME (LOSS)

Income From Services $ 110 $ 98

Reimbursable Services to Government Agencies 11 20

Foreign Currency Losses, Net (131) (127)

U.S. Government Securities Gains (Losses), Net 36 (9)

Other Income 13 9

Total Other Operating Income (Loss) $ 39 $ (9)

OPERATING EXPENSES

Salaries and Other Benefits $ 157 $ 141

Occupancy Expense 20 19

Equipment Expense 21 19

Cost of Unreimbursed Treasury Services — 1

Assessments by Board of Governors 65 66

Other Expenses 80 101

Total Operating Expenses $ 343 $ 347

Net Income Prior to Distribution $ 3,131 $ 3,219

DISTRIBUTION OF NET INCOME

Dividends Paid to Member Banks $ 43 $ 36

Transferred to Surplus 162 391

Payments to U.S.Treasury as Interest on Federal Reserve Notes 2,926 2,792

Total Distribution $ 3,131 $ 3,219

STATEMENTS OF INCOME (in Millions)




For the years ended December , and December , CAPITAL PAID-IN SURPLUS TOTAL CAPITAL

Balance at January 1, 2000 (11.6 Million Shares) $ 578 $ 578 $ 1,156Net Income Transferred to Surplus – 391 391

Surplus Transfer to the U.S.Treasury – (337) (337)

Net Change in Capital Stock Issued (1.0 Million Shares) 54 – 54

Balance at December 31, 2000 (12.6 Million Shares) $ 632 $ 632 $ 1,264Net Income Transferred to Surplus – 161 161

Net Change in Capital Stock Issued (3.2 Million Shares) 161 – 161

Balance at December 31, 2001 (15.9 Million Shares) $ 793 $ 793 $ 1,586

STATEMENTS OF CHANGES IN CAPITAL (in Millions)


N OT E S T O F I N A N C I A L S TAT E M E N T S


1. ORGANIZATION

The Federal Reserve Bank of Chicago(“Bank”) is part of the Federal ReserveSystem (“System”) created by Congressunder the Federal Reserve Act of 1913

(“Federal Reserve Act”) which estab-lished the central bank of the UnitedStates.The System consists of the Boardof Governors of the Federal ReserveSystem (“Board of Governors”) andtwelve Federal Reserve Banks (“ReserveBanks”).The Reserve Banks are char-tered by the federal government andpossess a unique set of governmental,corporate, and central bank characteristics.Other major elements of the System arethe Federal Open Market Committee(“FOMC”) and the Federal AdvisoryCouncil.The FOMC is composed ofmembers of the Board of Governors, thepresident of the Federal Reserve Bank ofNew York (“FRBNY”) and, on a rotatingbasis, four other Reserve Bank presidents.

Structure

The Bank and its branch in Detroit,Michigan, serve the Seventh FederalReserve District, which includes Iowaand portions of Michigan, Illinois,Wisconsin and Indiana. In accordancewith the Federal Reserve Act, supervisionand control of the Bank is exercised by a Board of Directors. Banks that are members of the System include allnational banks and any state charteredbank that applies and is approved formembership in the System.

Board of Directors

The Federal Reserve Act specifies thecomposition of the board of directors foreach of the Reserve Banks. Each boardis composed of nine members servingthree-year terms: three directors, includingthose designated as Chairman and DeputyChairman, are appointed by the Board of Governors, and six directors are elect-ed by member banks. Of the six electedby member banks, three represent thepublic and three represent member banks.Member banks are divided into threeclasses according to size. Member banks ineach class elect one director representingmember banks and one representing thepublic. In any election of directors, eachmember bank receives one vote, regard-less of the number of shares of ReserveBank stock it holds.

2. OPERATIONS AND SERVICES

The System performs a variety of servicesand operations. Functions include: formu-lating and conducting monetary policy;participating actively in the paymentsmechanism, including large-dollar trans-fers of funds, automated clearinghouse(“ACH”) operations and check process-ing; distributing of coin and currency;performing fiscal agency functions for theU.S.Treasury and certain federal agencies;serving as the federal government’s bank;providing short-term loans to depositoryinstitutions; serving the consumer andthe community by providing educationalmaterials and information regardingconsumer laws; supervising bank holdingcompanies, and state member banks; andadministering other regulations of the

Board of Governors.The Board ofGovernors’ operating costs are fundedthrough assessments on the Reserve Banks.

The FOMC establishes policy regardingopen market operations, oversees theseoperations, and issues authorizations anddirectives to the FRBNY for its executionof transactions. Authorized transactiontypes include direct purchase and sale of securities, matched sale-purchase trans-actions, the purchase of securities underagreements to resell, and the lending ofU.S. government securities.The FRBNYis also authorized by the FOMC to hold balances of and to execute spot andforward foreign exchange and securitiescontracts in nine foreign currencies, main-tain reciprocal currency arrangements(“F/X swaps”) with various central banks,and “warehouse” foreign currencies for theU.S.Treasury and Exchange StabilizationFund (“ESF”) through the Reserve Banks.

3. SIGNIFICANT ACCOUNTINGPOLICIES

Accounting principles for entities withthe unique powers and responsibilities ofthe nation’s central bank have not beenformulated by the Financial AccountingStandards Board.The Board of Governorshas developed specialized accountingprinciples and practices that it believesare appropriate for the significantly differ-ent nature and function of a central bankas compared to the private sector.Theseaccounting principles and practices aredocumented in the Financial AccountingManual for Federal Reserve Banks (“FinancialAccounting Manual”), which is issued by the Board of Governors. All Reserve



Banks are required to adopt and applyaccounting policies and practices that are consistent with the FinancialAccounting Manual.

The financial statements have beenprepared in accordance with the FinancialAccounting Manual. Differences existbetween the accounting principles andpractices of the System and accountingprinciples generally accepted in the UnitedStates of America (“GAAP”).The primarydifferences are the presentation of allsecurity holdings at amortized cost, ratherthan at the fair value presentation require-ments of GAAP, and the accounting formatched sale-purchase transactions asseparate sales and purchases, rather thansecured borrowings with pledged collat-eral, as is generally required by GAAP.In addition, the Bank has elected not topresent a Statement of Cash Flows.TheStatement of Cash Flows has not beenincluded as the liquidity and cash posi-tion of the Bank are not of primaryconcern to the users of these financialstatements. Other information regardingthe Bank’s activities is provided in, ormay be derived from, the Statements of Condition, Income, and Changes inCapital.Therefore, a Statement of CashFlows would not provide any additionaluseful information.There are no othersignificant differences between the policiesoutlined in the Financial AccountingManual and GAAP.

Effective January 2001, the Systemimplemented procedures to eliminatethe sharing of costs by Reserve Banksfor certain services a Reserve Bank mayprovide on behalf of the System. Datafor 2001 reflects the adoption of thispolicy. Major services provided for the

System by this bank, for which the costswill not be redistributed to the otherReserve Banks, include national businessdevelopment and customer support.

The preparation of the financial state-ments in conformity with the FinancialAccounting Manual requires managementto make certain estimates and assumptionsthat affect the reported amounts of assetsand liabilities and disclosure of contin-gent assets and liabilities at the date of thefinancial statements and the reportedamounts of income and expenses duringthe reporting period.Actual results coulddiffer from those estimates. Certainamounts relating to the prior year have been reclassified to conform to the current-year presentation. Uniqueaccounts and significant accounting policies are explained below.

A. Gold Certificates

The Secretary of the Treasury is author-ized to issue gold certificates to theReserve Banks to monetize gold held by the U.S.Treasury. Payment for thegold certificates by the Reserve Banks ismade by crediting equivalent amounts indollars into the account established forthe U.S.Treasury.These gold certificatesheld by the Reserve Banks are requiredto be backed by the gold of the U.S.Treasury.The U.S.Treasury may reacquirethe gold certificates at any time and theReserve Banks must deliver them to the U.S.Treasury. At such time, the U.S.Treasury’s account is charged and theReserve Banks’ gold certificate accountsare lowered.The value of gold for pur-poses of backing the gold certificates isset by law at 422/9 a fine troy ounce.The Board of Governors allocates the

gold certificates among Reserve Banksonce a year based upon Federal Reservenotes outstanding in each District.

B. Special Drawing Rights Certificates

Special drawing rights (“SDRs”) areissued by the International Monetary Fund(“Fund”) to its members in proportion toeach member’s quota in the Fund at thetime of issuance. SDRs serve as a supple-ment to international monetary reservesand may be transferred from one nationalmonetary authority to another. Under thelaw providing for United States partici-pation in the SDR system, the Secretaryof the U.S.Treasury is authorized to issueSDR certificates, somewhat like goldcertificates, to the Reserve Banks. Atsuch time, equivalent amounts in dollarsare credited to the account established forthe U.S.Treasury, and the Reserve Banks’SDR certificate accounts are increased.The Reserve Banks are required to purchase SDRs, at the direction of theU.S.Treasury, for the purpose of financ-ing SDR certificate acquisitions or forfinancing exchange stabilization oper-ations. At the time SDR transactionsoccur, the Board of Governors allocatesamounts among Reserve Banks based uponFederal Reserve notes outstanding in eachDistrict at the end of the preceding year.There were no SDR transactions in 2001.

C. Loans to Depository Institutions

The Depository Institutions Deregulationand Monetary Control Act of 1980 pro-vides that all depository institutions thatmaintain reservable transaction accountsor nonpersonal time deposits, as definedin Regulation D issued by the Board



of Governors, have borrowing privilegesat the discretion of the Reserve Banks.Borrowers execute certain lending agree-ments and deposit sufficient collateralbefore credit is extended. Loans areevaluated for collectibility, and currentlyall are considered collectible and fullycollateralized. If any loans were deemedto be uncollectible, an appropriate reservewould be established. Interest is accruedusing the applicable discount rate estab-lished at least every fourteen days by the Board of Directors of the ReserveBanks, subject to review by the Board of Governors. Reserve Banks retain theoption to impose a surcharge above thebasic rate in certain circumstances.

D. U.S.Government and Federal AgencySecurities and Investments Denominatedin Foreign Currencies

The FOMC has designated the FRBNYto execute open market transactions onits behalf and to hold the resulting secu-rities in the portfolio known as the SystemOpen Market Account (“SOMA”). Inaddition to authorizing and directingoperations in the domestic securitiesmarket, the FOMC authorizes and directsthe FRBNY to execute operations inforeign markets for major currencies inorder to counter disorderly conditionsin exchange markets or to meet otherneeds specified by the FOMC in carryingout the System’s central bank responsibil-ities. Such authorizations are reviewedand approved annually by the FOMC.

Matched sale-purchase transactionsare accounted for as separate sale andpurchase transactions. Matched sale-pur-chase transactions are transactions inwhich the FRBNY sells a security and

buys it back at the rate specified at thecommencement of the transaction.

The FRBNY has sole authorization by the FOMC to lend U.S. governmentsecurities held in the SOMA to U.S.government securities dealers and tobanks participating in U.S. governmentsecurities clearing arrangements on behalfof the system, in order to facilitate theeffective functioning of the domesticsecurities market.These securities-lendingtransactions are fully collateralized byother U.S. government securities. FOMCpolicy requires FRBNY to take posses-sion of collateral in excess of the marketvalues of the securities loaned.The marketvalues of the collateral and the securitiesloaned are monitored by FRBNY on a daily basis, with additional collateralobtained as necessary.The securitiesloaned continue to be accounted for in the SOMA.

Foreign exchange (“F/X”) contractsare contractual agreements between twoparties to exchange specified currencies,at a specified price, on a specified date.Spot foreign contracts normally settletwo days after the trade date, whereas the settlement date on forward contractsis negotiated between the contracting parties, but will extend beyond two days from the trade date.The FRBNYgenerally enters into spot contracts,with any forward contracts generallylimited to the second leg of a swap/warehousing transaction.

The FRBNY, on behalf of the ReserveBanks, maintains renewable, short-termF/X swap arrangements with two author-ized foreign central banks.The partiesagree to exchange their currencies up to a pre-arranged maximum amount and

for an agreed upon period of time (upto twelve months), at an agreed upon interest rate.These arrangements givethe FOMC temporary access to foreigncurrencies that it may need for inter-vention operations to support the dollarand give the partner foreign central banktemporary access to dollars it may needto support its own currency. Drawingsunder the F/X swap arrangements canbe initiated by either the FRBNY or the partner foreign central bank, andmust be agreed to by the drawee.TheF/X swaps are structured so that the partyinitiating the transaction (the drawer) bearsthe exchange rate risk upon maturity.The FRBNY will generally invest theforeign currency received under an F/Xswap in interest-bearing instruments.

Warehousing is an arrangement underwhich the FOMC agrees to exchange,at the request of the Treasury, U.S. dollarsfor foreign currencies held by the Treasuryor ESF over a limited period of time.Thepurpose of the warehousing facility is to supplement the U.S. dollar resourcesof the Treasury and ESF for financingpurchases of foreign currencies and relatedinternational operations.

In connection with its foreign cur-rency activities, the FRBNY, on behalfof the Reserve Banks, may enter intocontracts which contain varying degreesof off-balance sheet market risk, becausethey represent contractual commitmentsinvolving future settlement and counter-party credit risk.The FRBNY controlscredit risk by obtaining credit approvals,establishing transaction limits, and per-forming daily monitoring procedures.



While the application of current market prices to the securities currentlyheld in the SOMA portfolio and invest-ments denominated in foreign currencies may result in values substantially above or below their carrying values, these un-realized changes in value would have nodirect effect on the quantity of reservesavailable to the banking system or on theprospects for future Reserve Bank earningsor capital. Both the domestic and foreigncomponents of the SOMA portfolio fromtime to time involve transactions thatcan result in gains or losses when hold-ings are sold prior to maturity. However,decisions regarding the securities andforeign currencies transactions, includingtheir purchase and sale, are motivated by monetary policy objectives ratherthan profit. Accordingly, earnings andany gains or losses resulting from the sale of such currencies and securities are incidental to the open market oper-ations and do not motivate its activities or policy decisions.

U.S. government and federal agencysecurities and investments denominated inforeign currencies comprising the SOMAare recorded at cost, on a settlement-date basis, and adjusted for amortizationof premiums or accretion of discountson a straight-line basis. Interest income is accrued on a straight-line basis and isreported as “Interest on U.S. governmentand federal agency securities” or “Intereston investments denominated in foreigncurrencies,” as appropriate. Incomeearned on securities lending transactionsis reported as a component of “Otherincome.” Gains and losses resulting fromsales of securities are determined byspecific issues based on average cost.Gains and losses on the sales of U.S.

government and federal agency securitiesare reported as “U.S. government securitiesgains (losses), net.” Foreign-currency-denominated assets are revalued daily atcurrent market exchange rates in orderto report these assets in U.S. dollars.Realized and unrealized gains and losseson investments denominated in foreigncurrencies are reported as “Foreign currencylosses, net.” Foreign currencies heldthrough F/X swaps, when initiated bythe counter-party, and warehousingarrangements are revalued daily, with theunrealized gain or loss reported by theFRBNY as a component of “Other assets”or “Other liabilities,” as appropriate.

Balances of U.S. government and federal agencies securities bought outright, securities loaned, investmentsdenominated in foreign currency, interestincome, securities lending fee income,amortization of premiums and discountson securities bought outright, gains andlosses on sales of securities, and realizedand unrealized gains and losses on invest-ments denominated in foreign currencies,excluding those held under an F/Xswap arrangement, are allocated to eachReserve Bank. Securities purchasedunder agreements to resell and unrealizedgains and losses on the revaluation offoreign currency holdings under F/Xswaps and warehousing arrangements are allocated to the FRBNY and not toother Reserve Banks.

Statement of Financial AccountingStandards No. 133, as amended andinterpreted, became effective on January 1,

2001. For the periods presented, theReserve Banks had no derivative instru-ments required to be accounted for underthe standard.

E. Bank Premises and Equipment

Bank premises and equipment are statedat cost less accumulated depreciation.Depreciation is calculated on a straight-line basis over estimated useful lives ofassets ranging from 2 to 50 years. Newassets, major alterations, renovations andimprovements are capitalized at cost asadditions to the asset accounts. Main-tenance, repairs and minor replacementsare charged to operations in the yearincurred. Internally developed software is capitalized based on the cost of directmaterials and services and those indirectcosts associated with developing, imple-menting, or testing software.

F. Interdistrict Settlement Account

At the close of business each day, allReserve Banks and branches assemble thepayments due to or from other ReserveBanks and branches as a result of trans-actions involving accounts residing inother Districts that occurred during theday’s operations. Such transactions mayinclude funds settlement, check clearingand ACH operations, and allocations of shared expenses.The cumulative netamount due to or from other ReserveBanks is reported as the “Interdistrictsettlement account.”

G.Federal Reserve Notes

Federal Reserve notes are the circulatingcurrency of the United States.These notesare issued through the various FederalReserve agents to the Reserve Banksupon deposit with such Agents of certainclasses of collateral security, typically U.S.government securities.These notes areidentified as issued to a specific ReserveBank.The Federal Reserve Act provides



that the collateral security tendered bythe Reserve Bank to the Federal ReserveAgent must be equal to the sum of thenotes applied for by such Reserve Bank.In accordance with the Federal ReserveAct, gold certificates, special drawingrights certificates, U.S. government andfederal agency securities, triparty agree-ments, loans to depository institutions,and investments denominated in foreigncurrencies are pledged as collateral fornet Federal Reserve notes outstanding.The collateral value is equal to the bookvalue of the collateral tendered, with theexception of securities, whose collateralvalue is equal to the par value of the secu-rities tendered.The Board of Governorsmay, at any time, call upon a ReserveBank for additional security to adequatelycollateralize the Federal Reserve notes.The Reserve Banks have entered into an agreement which provides for certainassets of the Reserve Banks to be jointlypledged as collateral for the FederalReserve notes of all Reserve Banks in order to satisfy their obligation ofproviding sufficient collateral for out-standing Federal Reserve notes. In theevent that this collateral is insufficient,the Federal Reserve Act provides thatFederal Reserve notes become a first andparamount lien on all the assets of theReserve Banks. Finally, as obligations ofthe United States, Federal Reserve notesare backed by the full faith and credit ofthe United States government.

The “Federal Reserve notes out-standing, net” account represents FederalReserve notes reduced by currency heldin the vaults of the Bank of 6,424 million,and 9,479 million at December 31, 2001

and 2000, respectively.

H.Capital Paid-in

The Federal Reserve Act requires thateach member bank subscribe to the capital stock of the Reserve Bank in anamount equal to 6 percent of the capitaland surplus of the member bank. As a member bank’s capital and surpluschanges, its holdings of the Reserve Bank’sstock must be adjusted. Member banksare those state-chartered banks that applyand are approved for membership in theSystem and all national banks. Currently,only one-half of the subscription is paid-in and the remainder is subject to call.These shares are nonvoting with a parvalue of 100.They may not be transferredor hypothecated. By law, each memberbank is entitled to receive an annual dividend of 6 percent on the paid-incapital stock.This cumulative dividend ispaid semiannually.A member bank is liablefor Reserve Bank liabilities up to twicethe par value of stock subscribed by it.

I. Surplus

The Board of Governors requiresReserve Banks to maintain a surplus equalto the amount of capital paid-in as ofDecember .This amount is intendedto provide additional capital and reducethe possibility that the Reserve Bankswould be required to call on memberbanks for additional capital. Reserve Banksare required by the Board of Governorsto transfer to the U.S.Treasury excessearnings, after providing for the costs of operations, payment of dividends,and reservation of an amount necessaryto equate surplus with capital paid-in.

The Consolidated Appropriations Act of 2000 (Public Law 106-113, Section 302)directed the Reserve Banks to transfer

to the U.S.Treasury additional surplusfunds of 3,752 million during the FederalGovernment’s 2000 fiscal year. FederalReserve Bank of Chicago transferred337 million to the U.S.Treasury. ReserveBanks were not permitted to replenish thesurplus for these amounts during fiscal year2000, which ended September 30, 2000;however, the surplus was replenished byDecember 31, 2000.

In the event of losses or a substantialincrease in capital, payments to the U.S.Treasury are suspended until such lossesare recovered through subsequent earnings.Weekly payments to the U.S.Treasurymay vary significantly.

J. Income and Costs related to Treasury Services

The Bank is required by the FederalReserve Act to serve as fiscal agent and depository of the United States. Bystatute, the Department of the Treasury ispermitted, but not required, to pay forthese services.The costs of providingfiscal agency and depository services tothe Treasury Department that have beenbilled but not paid are immaterial andincluded in “Other expenses.”

K. Taxes

The Reserve Banks are exempt fromfederal, state, and local taxes, except fortaxes on real property, which are reportedas a component of “Occupancy expense.”



4. U.S. GOVERNMENT AND FEDERALAGENCY SECURITIES

Securities bought outright are held inthe SOMA at the FRBNY.An undividedinterest in SOMA activity, with theexception of securities held under agree-ments to resell and the related premiums,discounts and income, is allocated toeach Reserve Bank on a percentage basisderived from an annual settlement ofinterdistrict clearings.The settlement,performed in April of each year, equalizesReserve Bank gold certificate holdings toFederal Reserve notes outstanding.TheBank’s allocated share of SOMA balanceswas approximately 11.326 percent and11.961 percent at December 31, 2001 and2000, respectively.

The Bank’s allocated share of securitiesheld in the SOMA at December 31,that were bought outright, were as follows(in millions):

Total SOMA securities bought out-right were 561,701 million and 518,501

million at December 31, 2001 and 2000,respectively.

The maturity distribution of U.S.government and federal agency securitiesbought outright, which were allocated tothe Bank at December 31, 2001, were asfollows (in millions):

At December 31, 2001, and 2000,matched sale-purchase transactionsinvolving U.S. government securitieswith par values of 23,188 million and21,112 million, respectively, were out-standing, of which 2,626 million and2,525 million were allocated to theBank. Matched sale-purchase transactionsare generally overnight arrangements.

At December 31, 2001 and 2000,

U.S. government securities with par valuesof 7,345 million and 2,086 million,respectively, were loaned from the SOMA,of which 832 million and 250 millionwere allocated to the Bank.

5. INVESTMENTS DENOMINATED INFOREIGN CURRENCIES

The FRBNY, on behalf of the ReserveBanks, holds foreign currency depositswith foreign central banks and the Bankfor International Settlements and investsin foreign government debt instruments.Foreign government debt instruments heldinclude both securities bought outright

and securities held under agreements to resell.These investments are guaran-teed as to principal and interest by theforeign governments.

Each Reserve Bank is allocated a shareof foreign-currency-denominated assets,the related interest income, and realizedand unrealized foreign currency gains andlosses, with the exception of unrealizedgains and losses on F/X swaps and ware-housing transactions.This allocation isbased on the ratio of each Reserve Bank’scapital and surplus to aggregate capitaland surplus at the preceding December 31.The Bank’s allocated share of invest-ments denominated in foreign currencieswas approximately 9.158 percent and8.994 percent at December 31, 2001 and2000, respectively.

The Bank’s allocated share of invest-ments denominated in foreign currencies,valued at current exchange rates atDecember 31, were as follows (in millions):

Total investments denominated in foreign currencies were 14,559 millionand 15,670 million at December 31, 2001

and 2000, respectively.

PAR VALUE

U.S. FederalMaturities of Govt. AgencySecurities Held Securities Obligations Total

Within 15 Days $ 1,210 – $ 1,210

16 Days to 90 Days 14,106 – 14,106

91 Days to 1 Year 14,795 – 14,795

Over 1 Year to 5 Years 17,346 $ 1 17,347

Over 5 Years to 10 Years 6,041 – 6,041

Over 10 Years 8,983 – 8,983

Total $62,481 $ 1 $ 62,482

2001 2000

European Union Euro:Foreign Currency Deposits $ 420 $ 417

Government Debt Instruments IncludingAgreements to Resell 247 244

Japanese Yen:Foreign CurrencyDeposits 173 248

Government DebtInstruments IncludingAgreements to Resell 487 494

Accrued Interest 6 6

Total $ 1,333 $ 1,409

2001 2000

PAR VALUE

Federal Agency $ 1 $ 16

U.S. Government:Bills 20,621 21,380

Notes 30,120 28,729

Bonds 11,740 11,098

Total Par Value $ 62,482 $ 61,223

Unamortized Premiums 1,280 1,164

Unaccreted Discounts (145) (367)

Total Allocated to Bank $ 63,617 $ 62,020



The maturity distribution of invest-ments denominated in foreign currencieswhich were allocated to the Bank atDecember 31, 2001, were as follows (in millions):

At December 31, 2001 and 2000, therewere no open foreign exchange contractsor outstanding F/X swaps.

At December 31, 2001 and 2000, thewarehousing facility was billion, withzero outstanding.

6. BANK PREMISES AND EQUIPMENT

A summary of bank premises and equipment at December 31 is as follows(in millions):

Depreciation expense was 15 millionfor each of the years ended December 31,

2001 and 2000, respectively.The Bank leases unused space to

outside tenants.Those leases have terms ranging from 1 to 10 years. Rental incomefrom such leases was 3 million for eachof the years ended December 31, 2001,

and 2000. Future minimum lease pay-ments under non-cancelable agreementsin existence at December 31, 2001, were(in millions):

7. COMMITMENTS ANDCONTINGENCIES

At December 31, 2001, the Bank wasobligated under non-cancelable leases for premises and equipment with termsranging from 1 to approximately 10 years.These leases provide for increased rentalsbased upon increases in real estate taxes,operating costs or selected price indices.

Rental expense under operating leasesfor certain operating facilities, ware-houses, and data processing and officeequipment (including taxes, insuranceand maintenance when included in rent),net of sublease rentals, was 3 million and2 million for each of the years endedDecember 31, 2001 and 2000, respectively.Certain of the Bank’s leases have optionsto renew.

Future minimum rental paymentsunder noncancelable operating leases,net of sublease rentals, with terms of oneyear or more, at December 31, 2001,were (in millions):

Under the Insurance Agreement ofthe Federal Reserve Banks dated as ofMarch 2, 1999, each of the Reserve Bankshas agreed to bear, on a per incidentbasis, a pro rata share of losses in excessof 1 percent of the capital paid-in of theclaiming Reserve Bank, up to 50 percentof the total capital paid-in of all ReserveBanks. Losses are borne in the ratio thata Reserve Bank’s capital paid-in bears to the total capital paid-in of all ReserveBanks at the beginning of the calendaryear in which the loss is shared. No claimswere outstanding under such agreementat December 31, 2001 or 2000.

On September 4, 2001, the Bank sold its Westgate facility for a total of 3

million.The gain of 1 million is reportedas a component of “Other income.”

The Bank is involved in certain legalactions and claims arising in the ordinarycourse of business. Although it is difficultto predict the ultimate outcome of theseactions, in management’s opinion, basedon discussions with counsel, the afore-mentioned litigation and claims will be

2001 2000

Bank Premises and Equipment:

Land $ 6 $ 6

Buildings 131 129

Building Machineryand Equipment 17 17

Construction in Progress 3 1

Furniture and Equipment 107 101

$ 264 $ 254

Accumulated Depreciation (127) (119)

Bank Premises and Equipment, Net $ 137 $ 135

2002 $ 2

2003 3

2004 3

2005 2

2006 2

Thereafter 3

Total $ 15

Operating

2002 $ 2

2003 2

2004 1

2005 1

2006 1

Thereafter 1

Total $ 8

Maturities of Investments Denominated in Foreign Currencies

Within 1 Year $ 1,256

Over 1 Year to 5 Years 37

Over 5 Years to 10 Years 40

Over 10 Years —

Total $ 1,333



resolved without material adverse effecton the financial position or results ofoperations of the Bank.

8. RETIREMENT AND THRIFT PLANS

Retirement Plans

The Bank currently offers two definedbenefit retirement plans to its employees,based on length of service and level ofcompensation. Substantially all of theBank’s employees participate in the Retire-ment Plan for Employees of the FederalReserve System (“System Plan”) and the Benefit Equalization Retirement Plan(“BEP”).The System Plan is a multi-employer plan with contributions fullyfunded by participating employers. Noseparate accounting is maintained of assetscontributed by the participating employers.The Bank’s projected benefit obligationand net pension costs for the BEP atDecember 31, 2001 and 2000, and forthe years then ended, are not material.

Thrift Plan

Employees of the Bank may also partici-pate in the defined contribution ThriftPlan for Employees of the Federal ReserveSystem (“Thrift Plan”).The Bank’s ThriftPlan contributions totaled 4.7 millionand 4.4 million for the years endedDecember 31, 2001 and 2000, respectively,and are reported as a component of“Salaries and other benefits.”

9. POSTRETIREMENT BENEFITSOTHER THAN PENSIONS ANDPOSTEMPLOYMENT BENEFITS

Postretirement Benefits Other Than Pensions

In addition to the Bank’s retirement plans,employees who have met certain age andlength of service requirements are eligiblefor both medical benefits and life insurancecoverage during retirement.

The Bank funds benefits payableunder the medical and life insuranceplans as due and, accordingly, has no planassets. Net postretirement benefit cost isactuarially determined using a January 1measurement date.

Following is a reconciliation ofbeginning and ending balances of thebenefit obligation (in millions):

Following is a reconciliation of thebeginning and ending balance of theplan assets, the unfunded postretirementbenefit obligation, and the accrued post-retirement benefit cost (in millions):

Accrued postretirement benefit cost is reported as a component of “Accruedbenefit cost.”

At December 31, 2001 and 2000,

the weighted average discount rateassumptions used in developing the benefit obligation were 7.0 percent and7.5 percent, respectively.

For measurement purposes, a 10.00

percent annual rate of increase in thecost of covered health care benefits wasassumed for 2002. Ultimately, the healthcare cost trend rate is expected to decreasegradually to 5.00 percent by , andremain at that level thereafter.

2001 2000

Accumulated Postretirement Benefit Obligation at January 1 $ 70.1 $ 67.3

Service Cost-Benefits Earned During the Period 1.5 1.4

Interest Cost of Accumulated Benefit Obligation 5.4 4.7

Actuarial (Gain) Loss 10.0 (0.1)

Contributions by Plan Participants 0.3 0.2

Benefits Paid (4.1) (3.4)

Plan Amendments,Acquisitions, Foreign Currency Exchange Rate Changes,Business Combinations,Divestitures, Curtailments,Settlements, Special Termination Benefits (8.0) –

AccumulatedPostretirement Benefit Obligation at December 31 $ 75.2 $ 70.1

2001 2000

Fair Value of Plan Assets at January 1 $ – $ –

Actual Return on Plan Assets – –

Contributions by the Employer 3.7 3.2

Contributions by Plan Participants 0.3 0.2

Benefits Paid (4.0) (3.4)

Fair Value of Plan assets at December 31 $ – $ –

Unfunded Postretirement Benefit Obligation 75.2 70.1

Unrecognized Prior Service Cost 18.6 13.9

Unrecognized Net Actuarial Gain (17.1) (9.3)

Accrued Postretirement Benefit Cost $ 76.7 $ 74.7



Assumed health care cost trend rateshave a significant effect on the amountsreported for health care plans. A onepercentage point change in assumedhealth care cost trend rates would havethe following effects for the year endedDecember 31, 2001 (in millions):

The following is a summary of thecomponents of net periodic postretire-ment benefit cost for the years endedDecember 31 (in millions):

Net periodic postretirement benefitcost is reported as a component of“Salaries and other benefits.”

Postemployment Benefits

The Bank offers benefits to former orinactive employees. Postemploymentbenefit costs are actuarially determinedand include the cost of medical and dental insurance, survivor income, anddisability benefits. Costs were projectedusing the same discount rate and healthcare trend rates as were used for project-ing postretirement costs.The accruedpostemployment benefit costs recognizedby the Bank at December 31, 2001 and2000, were 11 million and 10 million,respectively.This cost is included as acomponent of “Accrued benefit cost.”Net periodic postemployment benefitcosts included in 2001 and 2000 operatingexpenses were 2 million for each year.

10. SUBSEQUENT EVENT

Subsequent to December 31, 2001

Federal Reserve System managementdetermined that it would not proceedwith an ongoing technology project.Accordingly, in 2002 the Bank will recordan asset impairment of 7 million forassets currently held by the Bank onbehalf of the System.

2001 2000

Service Cost-Benefits Earned During the Period $ 1.5 $ 1.4

Interest Cost of Accumulated Benefit Obligation 5.4 4.7

Amortization of Prior Service Cost (1.3) (1.3)

Recognized Net Actuarial Loss 0.2 –

Net Periodic Postretirement Benefit Cost $ 5.8 $ 4.8

One OnePercentage Percentage

Point PointIncrease Decrease

Effect on Aggregate of Service and Interest Cost Components of Net Periodic Postretirement Benefit Cost $ 1.3 $ (1.0)

Effect on Accumulated Postretirement Benefit Obligation 11.9 (9.5)

For additional copies of this annual report contact the Public Information Center,Federal Reserve Bank of Chicago,at () - or access the Bank’s web site at chicagofed.org.

Additional Information on Post-9 ⁄

FOMC Actions:

Federal Open Market Committee statementsand minutes. www.federalreserve.gov/fomc/.

General Information on the Topics Covered in this Report:

Fedpoints series: “How Currency Gets into Circulation,” #1; “Repurchase andMatched Sale Transactions,” #4; “Float,” #8;“Discount Window,” #10; “Federal Funds,”#15; “Commercial Paper,” #29; “OpenMarket Operations,” #32; “Fedwire,” #43;“Federal Open Market Committee,” #48.www.newyorkfed.org/pihome/fedpoint/index.html.

In-depth Information on the Federal Reserveand Open Market Operations:

“Understanding Open Market Operations.”www.newyorkfed.org/pihome/addpub/omo.html.

“The Federal Reserve System: Purposes and Functions.” www.federalreserve.gov/pf/pf.htm.

additional information

Testimony and Speeches Regarding 9 ⁄ :

“The Condition of the Financial Markets,”Alan Greenspan, Federal Reserve Board,Testimony before the Committee on Banking,Housing, and Urban Affairs, U.S. Senate,September 20, 2001.www.federalreserve.gov/boarddocs/testimony/2001/.

“Monetary Policy and Economic Outlook,”Alan Greenspan, Federal Reserve Board,Testimony before the Joint EconomicCommittee, U.S. Congress, October 17, 2001.www.federalreserve.gov/boarddocs/testimony/2001/.

“The September 11 Tragedy and the Responseof the Financial Industry,” Alan Greenspan,Federal Reserve Board, October 23, 2001.www.federalreserve.gov/boarddocs/speeches/2001/.

“Assessing the Impact of September 11,”Michael Moskow, Federal Reserve Bank of Chicago, October 25, 2001.www.chicagofed.org/newsandevents/speeches/index.cfm#2001.

“A Supervisory Perspective on DisasterRecovery and Business Continuity,”Roger Ferguson, Federal Reserve Board,March 4, 2002. www.federalreserve.gov/boarddocs/speeches/2002/.

our mission

The Federal Reserve Bank of Chicago is one of 12 regional Reserve Banks acrossthe United States that, together with theBoard of Governors in Washington, D.C.,serve as the nation’s central bank.The roleof the Federal Reserve System, since itsestablishment by an act of Congress passed in 1913, has been to foster a strong economy,supported by a stable financial system.

To this end, the Federal Reserve Bank ofChicago participates in the formulation andimplementation of national monetary policy,supervises and regulates state-member banks,bank holding companies and foreign bankbranches, and provides financial services todepository institutions and the U.S. govern-ment.Through its head office in Chicago,branch in Detroit, regional offices in DesMoines, Indianapolis and Milwaukee, andfacility in Peoria, the Federal Reserve Bankof Chicago serves the Seventh Federal ReserveDistrict, which includes major portions ofIllinois, Indiana, Michigan and Wisconsin,plus all of Iowa.

our vision

Further the public interest by fostering asound economy and stable financial system

Provide products and services of unmatchedvalue to those we serve

Set the standard for excellence in the FederalReserve System

Work together, value diversity, communicateopenly, be creative and fair

Live by our core values of integrity, respect,responsibility and excellence

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f ederal re se rve bank of ch icago 2001 annual re port


head office 230 South LaSalle StreetP.O. Box 834

Chicago, Illinois 60690-0834

(312) 322-5322

detroit branch 160 West Fort StreetP.O. Box 1059

Detroit, Michigan 48231-1059

(313) 961-6880

des moines office2200 Rittenhouse StreetSuite 150

Des Moines, Iowa 50321

(515) 256-6100

indianapolis office8311 North Perimeter RoadIndianapolis, Indiana 46241

(317) 244 -7744

milwaukee office304 East State StreetP.O. Box 361

Milwaukee, Wisconsin 53201-0361

(414) 276-2323

midway facility4944 West 73rd StreetBedford Park, Illinois 60638

(708) 924-8900

peoria facility6100 West Dirksen ParkwayPeoria, Illinois 61607

(309) 633-5000

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