2002 WAS A YEAR OF WHICH ALL OF US AT THE ST. LOUIS FED CAN BE TRULY PROUD. We accomplished our goals—and, in many cases, did more than we set out to do—in helping the Federal Reserve System fulfill its primary responsibilities: setting and carrying out monetary policy, regulating and supervising member financial institutions, and providing financial services to banks and to the federal government.

However, the Federal Reserve’s success in converting paper payments to electronics will result in consolidated operations and a significant change in the way we operate. Recently, the Federal Reserve System announced that it would eliminate jobs because of the decline in the nation’s check usage. For decades, processing checks has been one of our main businesses. At the same time, we’ve been encouraging check writers to switch to electronic forms of payment. Why? Electronic payments make for a more-efficient payments system—one of our primary responsibilities. Because the public has now begun a fundamental shift to electronic payments, we need fewer locations and people to process checks. System-wide, 1,300 positions will be eliminated; in the Eighth District, about 170 jobs will be cut by year-end 2004—more than 10 percent of our staff—as the Little Rock and Louisville branches stop processing checks. Never before has the Fed reduced staff to this extent, and we’re saddened that we’ll lose such dedicated employees. Yet we know these reductions are an unavoidable consequence of a move that will improve the nation’s economy in the long run.

Bill Poole reads the news before starting another day at the helm of the St. Louis Fed.

Despite the sobering news of staff reductions, we must recognize the many successes we’ve had over the past year. These can be measured in a variety of ways: from the numbers on the ledger sheets to the number of outreach efforts, from the quality of our financial services to the valuable research and advice that we provide to our nation’s monetary policy-makers.

Looking at the most basic barometer of success, our expenses last year came in under budget and our financial services local net revenue exceeded expectations. Not many businesses can say that for 2002.

In the financial services arena, we’re working hard to keep up with our customers’ demands. For example, we’ve modernized all check-related systems as the Fed has moved to a single system for the entire nation; the Eighth District was the first Reserve bank in the System to complete this effort. Our cash operations—counting, sorting and storing currency, along with replacing the worn-out bills—have also become more efficient. As a result, we ended 2002 as No. 2 in productivity among the 12 Fed districts in cash operations. The Federal Reserve System has also recognized our track record in processing food coupons at our Memphis Branch—Memphis now has responsibility for processing food coupons for the western half of the United States.

Even as we picked up additional System responsibilities, we gave up some financial services work to other Feds to create common practices, to produce economies of scale and to reduce expenses. For example, our electronic access support was shifted in 2002 to the Minneapolis Fed. We also pursued joint ventures with other Feds; the business development departments of the St. Louis and Cleveland Feds were recently merged—a first for the System—to save money and provide better service to customers across the two districts.

Our previous experience and expertise in financial services have been carried over into the jobs we perform for the U.S. Treasury. For the last two years, the St. Louis Fed has had oversight responsibility for the work done by other Federal Reserve banks for the Treasury. In addition, our District provided some of these Treasury services. For example, we handled more than $2 trillion in transactions for the Treasury last year, mainly in federal tax payments and investments of available Treasury funds in banks around the country. With our help, these investments earned $280 million in interest for the U.S. Treasury in 2002. We also helped in 2002 to devise a new investment program that in the pilot phase alone netted the Treasury an additional $3 million.

In bank supervision, our staff carried out 91 on-site safety and soundness examinations and inspections last year and continued to use off-site monitoring capabilities to improve our own productivity and to be less intrusive in our examinations. Reports on examinations were processed faster than ever. The department’s newly established Center for Online Learning is the System’s leader in web-based training for examiners. The center’s online courses save time and money for all involved and allow trainees to learn at their own pace.

The economists in our Research Department continue to provide valuable policy advice, which is shared with the Federal Open Market Committee when it meets to set monetary policy. The economists also share their research and expertise with broader District audiences—everyone from students to teachers to business executives to government officials. In the past year, the economists have seen more of their work published and have increased the number of speeches they give to outside audiences. They also regularly criss-cross the district to meet our constituents and customers, swap ideas and gather information on local and regional economies.

	LeGrande Rives answers questions at one of the employee town halls last year.

It’s not just the economists who are reaching out to the public with expertise and services. Our Community Affairs staff travels the District and beyond, bringing together bankers and those who need credit to help redevelop their communities. The office also shines the spotlight on issues that deserve attention, issues such as predatory lending and financial literacy. Of particular note is the conference we sponsored in fall 2002 on the subject of revitalizing distressed urban areas. Instead of holding such an affair in a destination city at a fancy hotel, the office took the bold move of holding the conference in East St. Louis, Ill., the exact location that needs and deserves our attention. Meanwhile, our economic education department is at the forefront in the Fed in training teachers and laymen about the economy, having doubled its goal in attendance at such events last year.

As good stewards of our limited resources, we are always trying to do more with less. One of our new initiatives in 2002 for saving money was ED—Electronic Distribution. Instead of printing and mailing regulatory and financial services information to banks, we now send them via e-mail and the Internet. This move reduced our mailing costs by more than half.

Another major savings will come in the future as a result of our decision not to build a new headquarters building. Instead, we will renovate the building that we’ve called home for more than 75 years. This decision will require some creativity on the architects’ part—to give us the added security precautions necessitated by Sept. 11 in our current location. But we won’t sacrifice on employee security, as we’ve already demonstrated. In the past year, we’ve added protection officers at all four offices, and each of them has now been trained and certified as a federal law enforcement officer.

Next year at this time, we hope that we can report a similar level of success. And we wish the same for you.

William Poole
President and Chief Executive Officer

W. LeGrande Rives
First Vice President and Chief Operating Officer

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