Ask most people what the Federal Reserve does and they mention setting interest rates.

The Fed’s monetary policy activities are well known these days, which is appropriate

because they are so important. Yet the Fed plays a key role in other areas that have a

powerful impact on individuals’ lives. One of these lesser-known but important roles for

the Chicago Fed is the subject of this annual report: fostering “financial empowerment.” The

Chicago Fed’s 2100 employees—including economists, customer service representatives,

bank examiners, and operations staff—work in a variety of ways to help provide an

environment in which financial empowerment can flourish.

What does financial empowerment mean? I would define it as ensuring that all individuals

have an opportunity to participate fully in sound, competitive financial markets. There

are two aspects to financial empowerment: assuring adequate information for all parties,

and providing an infrastructure that supports good-faith transactions and mutual trust.

Information and trust form the foundation of our free-market economy. Information is

the fuel that powers competition. Buyers and sellers need adequate information to make

rational economic decisions. Trust is also a necessity for an economic system based on

mutually beneficial exchange. “Without mutual trust, and market participants abiding by a

rule of law, no economy can prosper,” Fed Chairman Alan Greenspan once stated. “Our

system works fundamentally on individual fair dealing.” Providing information and education

and promoting trustworthy transactions help to ensure that all individuals have an opportunity to be full market participants.

The Fed provides the foundation for financial empowerment through its monetary policy, supervision and regulation, and financial services activities. As a policymaker, the Federal Reserve promotes a healthy growing economy with price stability. As a provider of financial services, the Fed helps ensure the safety and efficiency of the payments system. And as a upervisor and regulator, the Fed fosters a sound banking system. The Federal Reserve’s responsibilities in this area include ensuring the fair and equitable treatment of consumers in their financial transactions, ruling on applications from banks seeking to merge or buy another bank, and working with banks and community groups to encourage local economic development.

The Chicago Fed also contributes in a more direct way to financial empowerment through its research efforts, outreach initiatives, and community programs. You’ll see in these pages how Chicago Fed research on banking and finance supports effective, informed decision-making by policymakers, business leaders and community groups. In particular, the report highlights a collaborative research effort by the Chicago Fed and the University of Chicago, which focuses on the use of mainstream financial markets in ethnic neighborhoods.

The report also describes the Bank’s various outreach efforts, including Project Money$mart, a major new initiative designed to increase financial literacy. Forming partnerships is another strategy for achieving financial empowerment. One example is the Bank’s partnership with the U.S. Treasury to address the challenges faced by those who do not have a bank account. The Chicago Fed has also been a leader in developing innovative partnerships in both urban and rural areas to encourage community and economic development. As part of this effort, the Bank has served as a catalyst in bringing together a broad range of key players involved in the lending process. Through these initiatives, the Bank has helped to eliminate barriers

affecting the ability of creditworthy customers to obtain small business and mortgage loans.

Why is financial empowerment so important? Access to credit and financial services

is essential to business owners, prospective entrepreneurs, and families because it provides

them with the ability to build their dreams as full and active participants in the economy.

The benefits are not limited to individuals. Financial empowerment also promotes economic

vitality in neighborhoods, a key factorin community development.

Of course, fostering full and active participation does not mean inappropriately influencing an individual’s financial decisions. Nor does financial empowerment mean that depository institutions should make unsound loans or not make a profit in providing services.

Yet there are many consumers who could make better financial decisions if they were better informed. And there are many underserved markets that offer business opportunities for lenders. Ensuring that all individuals have an opportunity to be full participants in sound, competitive financial markets provides important benefits for consumers, businesses, and for the economy as a whole.

The Chicago Fed had another successful year in 2000, as indicated by the listing of key accomplishments on pages 16 –17. The Bank’s success reflects the hard work and commitment of our staff and the leadership and counsel of our directors in Chicago and

Detroit. I would like to thank our staff and our directors for their dedication. I would like to extend my special appreciation to Lester McKeever and Verne Istock, who have completed their service as directors on the Chicago board. The Chicago Fed has benefited tremendously from the support and leadership of Verne as well as Lester, who provided especially noteworthy service as the Bank’s chairman for three years.

Finally, I would like to welcome William Osborn and W. James Farrell to the Chicago board. Each brings important knowledge and experience to our board deliberations.

While 2000 was a year of achievement for the Bank, it was marked by a very sad event for the Chicago Fed family—the tragic death of Nancy M. Goodman. Nancy was senior vice president in charge of Community and Corporate Affairs and a member of the

Management Committee when she passed away on May 31st. She was a valued colleague and trusted adviser to me and many others at the Chicago Fed. Nancy will be greatly missed, but she leaves a legacy as an outstanding communicator and exceptional leader.

Thanks to the efforts of dedicated staff such as Nancy, the Chicago Fed is wellpositioned

to meet the challenges of 2001. We will continue to be guided by our vision, which reaffirms our mission to serve the public interest, and commits us to set the standard of excellence in the Federal Reserve System and provide services of unmatched value to our customers and stakeholders.

Michael H. Moskow

President and Chief Executive Officer

March 20, 2001