2007 Annual Report

CHICAGO FED HIGHLIGHTS OF 2007

ECONOMIC RESEARCH

In support of the Chicago Fed's monetary policy-making responsibilities, staff devoted considerable time to analyzing sharp declines in residential real estate markets, increases in subprime mortgage defaults, and related disruptions in credit and financial markets.
Special policy briefings covered topics ranging from the structure of new auto industry labor contracts to the effect on forecasting models of changing inflation trends.
Twenty-four working papers were produced, and 24 previously written papers were accepted for publication in scholarly journals. Of special note were an acceptance at the American Economic Review, two at the Journal of Political Economy, and three at the Review of Economic Studies.
Economists also presented research analyzing a range of economic and policy developments in the Chicago Fed publications Economic Perspectives, Ag Letter and Chicago Fed Letter.
In addition, Economic Research and the Consumer and Community Affairs staff worked together on a conference that brought together researchers and workforce development practitioners to discuss strategies for increasing the economic mobility of disadvantaged workers.

SUPERVISION AND REGULATION

Supervision and Regulation needed to respond to the financial turmoil triggered by subprime mortgages as well as to rising numbers of problem banks, driven largely by deterioration of the auto industry in Michigan.
With regard to financial turmoil, the department continued to monitor mortgage and commercial-real-estate lending as top risks, bolstered examiner training in the credit area, and closely analyzed the effects on District banks of the stressed market and liquidity environment.
To address the rising number of problem banks, the department shifted staff resources and enhanced its monitoring of weaker banks. It also strengthened communication and coordination with other bank supervisors, especially those responsible for Michigan banks.
More than 1050 examinations, inspections and off-site reviews were conducted.
The department continued to improve its risk analytics by focusing on identification of fundamental (root) causes and the problem-bank resolution process.
A number of new processes were implemented to increase the efficiency of examinations.

CENTRAL BANK SERVICES

In response to pressures evident in short-term funding markets, the Board of Governors in December announced plans to establish a temporary Term Auction Facility (TAF) program to auction term funds to depository institutions. Central Bank Services facilitates these auctions for the Seventh District.

FINANCIAL MARKETS GROUP

The Chicago Fed's Financial Markets Group provided multidisciplinary expertise in financial markets and the clearing and settlement operations that support them, with a particular focus on Chicago derivatives exchanges and clearinghouses.

FINANCIAL SERVICES

The District Check operation was a System leader. The Des Moines office remained among the top performers, and the Midway office improved its efficiency, productivity, and quality.
Seventh District sales of check-processing services played a vital role in supporting, selling and implementing Check 21 products.
District Cash operations aggressively pursued efficiency improvements throughout the year. A process-improvement initiative was implemented in both the Chicago and Detroit offices, significantly improving high-speed machine utilization.

OTHER ACTIVITIES

Charles L. Evans succeeded Michael H. Moskow as president and CEO.
A record 27,814 people toured Chicago's Visitor Center.
Teams from 35 high schools and 15 colleges took part in the High School and College-level Fed Challenge programs, and the Chicago Fed sponsored 10 economic teacher workshops.
Executives from across the Federal Reserve System gathered in Chicago twice during the year for Senior Leadership Conferences.
The District's Money Smart Week program expanded into Iowa and central Illinois and increased participation in existing programs in Chicago, Indiana, Michigan, and Wisconsin. Approximately 1,000 partner organizations worked together to bring over 1,500 seminars, classes, and special events on personal finance topics to thousands of consumers.

CUSTOMER RELATIONS AND SUPPORT OFFICE

The Federal Reserve's national Customer Relations and Support Office is headquartered at the Chicago Fed.

The Customer Relations and Support Office (CRSO) exceeded National Account Program and System revenue targets and the Electronic Access cost recovery target.
The CRSO redesigned its Web site, FRBservices.org, launching Check 21 interactive forms and a Federal Reserve Financial Services contact look-up tool called My FedDirectory. The site was developed in 2007 and unveiled in January of 2008.
The CRSO successfully achieved 2007 goals for converting customers to an all IP Fedline connection environment by mid-2009.

PREVENTING MORTGAGE FORECLOSURES

Members of the Consumer and Community Affairs Department focused on the mortgage foreclosure crisis.

Long active in this area, the department broadened its partnership with the Chicago-based Home Ownership Preservation Initiative (HOPI), co-hosting two meetings with representatives of banks, investment companies, mortgage service companies, and local government agencies.

These meetings led to the development of new strategies for loan work-out and counseling, agreements with servicers to incorporate loss-mitigation techniques, and plans to move foreclosed property more quickly to productive use. The lessons learned and strategies developed were shared throughout the Seventh Federal Reserve District through a series of conferences widely attended by industry leaders, community development practitioners and government officials. These meetings also identified other issues for consideration that are being addressed by additional working groups.

CONFERENCES CONTRIBUTE TO PUBLIC POLICY RESEARCH

Conferences remained integral to the development and dissemination of high-quality public policy research.

Economic Research organized 16 conferences, some with co-sponsors such as the Federal Deposit Insurance Corporation, the International Monetary Fund, the Upjohn Institute, and Chicago Metropolis 2020.

Topics covered included:

The economic outlook.
The mixing of banking and commerce.
The implications of globalization for systemic risk to financial institutions.
Mergers and acquisitions in the financial services industry.
The changing structure of the U.S. auto industry.
The evolution of the use of payment innovations to improve transportation networks.
Developments in state business taxation.
The impact of Medicaid on state budgets.
Cost-effective carbon reduction.