1997 OPERATIONAL HIGHLIGHTS

Cleveland Building Project

The Bank’s new Operations Center was completed on time, with occupancy occurring in the February-March time frame. The move, which involved our major operations areas, was made with no disruption in service to customers. Renovation of the main office building was also begun, with completion scheduled for summer 1998.

Payments Services

 The check function — the Cleveland Fed’s largest operation — succeeded in matching its costs and revenue, achieved the lowest unit cost in the Federal Reserve System, and met all of the System’s key quality measures (only one other Reserve Bank accomplished the last of these goals). The Bank also led the System in electronic check penetration, with 41 percent of all items processed.

 The Cleveland Fed’s Pittsburgh office — one of five regional processing sites for savings bonds — continued to serve the U.S. Treasury. The efficiency and effectiveness of the savings bond operation were enhanced in several ways, including the introduction of a high-speed image capture platform that streamlined the EZ Clear work flow and reconcilement process, and a scanning pilot for automating data input from savings bond applications. Pittsburgh also served as the test site and first implementation site for software developed to support the anticipated rollout of an inflation-indexed savings bond.

 The Bank implemented a number of new automated systems and strategic initiatives, including a new national book-entry system, a new statistics and reserves system, an expanded funds transfer format, expanded funds transfer hours, and a single-account structure for the interstate banking environment.

 The Bank contributed to the System’s effort to achieve operational efficiencies through consolidation by moving its government check and noncash operations to other Reserve Banks. Within the District, the Pittsburgh office’s currency processing operation was consolidated into the Cleveland unit, while funds transfer, ACH, and book-entry securities functions were merged into one unit in Cleveland.

 As the System’s project office for Unisys support, the Cleveland Fed continued to coordinate activities between Unisys Corporation and other Reserve Banks, using the Unisys platform to set the strategic direction and develop the requirements for the next-generation check processing system.

 The Bank developed and began implementing a plan that ensures we are adequately addressing the ramifications of the century date change for our automated systems.

 First Vice President Sandra Pianalto served as staff director for the Committee on the Federal Reserve in the Payments Mechanism, which undertook a fundamental review of the Fed’s role in the payments system. Alternative roles for the Federal Reserve were developed and discussed with payments system participants. The final report concluded that for the foreseeable future, the Fed should continue its role in check processing and ACH services, while striving to enhance the efficiency of both.

Supervision and Regulation

 The Bank successfully carried out its supervisory objectives and responsibilities using a risk-based examination approach. The function remained the most cost-efficient in the System, based on assets supervised. In addition, department staff developed new off-site analysis and reporting procedures for small shell bank holding companies that both enhanced our supervision and reduced the burden on Fourth District financial institutions.

 Banking Supervision and Regulation staff, in collaboration with employees from other areas of the Bank, were substantially involved in efforts to ensure a smooth, effective transition to interstate banking and branching. Using valuable input from District financial institutions affected by the legislation, staff members developed standards to guide future consolidation/merger activities throughout the Federal Reserve System.

 In conjunction with other regulatory agencies, the Cleveland Fed participated heavily in the formulation of interagency Year 2000 supervisory programs. Initiatives included the development of Year 2000 examination guidelines and a Systemwide training class for examination staff. In addition, the Bank sponsored several interagency conferences throughout the District to raise overall awareness about the century date change issue.

 The discount function improved its oversight of account management practices, strengthened initial information systems, and enhanced its communications with Fourth District financial institutions, especially late in the day. These initiatives helped District depositories reduce their use of interday credit by more than 50 percent.

Monetary Policy / Research

 Our staff of Research economists had 17 articles accepted in outside scholarly journals, conference volumes, and books.

 Bank publications included multiple articles on key issues in the areas of monetary policy, fiscal policy, labor markets, financial markets, and banking.

 The Research Department sponsored high-level conferences on comparative financial systems, microeconomic and macroeconomic perspectives on the aggregate labor market, and asset pricing and the term structure of interest rates. In addition, proceedings of the 1996 conference on the dynamic effects of monetary policy were published in the Journal of Money, Credit and Banking.

Quality Improvements

 The Cleveland Fed began a Bankwide transformation effort to ensure readiness for the next century. Our focus on customers, quality, continuous improvement, and teamwork across functions will be maintained, while greater emphasis will be placed on the use of business process analysis and innovation. This ongoing effort will enable the Bank to be more responsive to change and opportunities in the future.

 Customers once again participated in an annual Quality Assessment Survey. Results showed that, as in past years, the Bank maintained its ability to meet or exceed customer expectations across all services. The survey process provided information that will be invaluable in our continuing effort to achieve even higher levels of customer satisfaction.