Published August 1, 1988 | August 1988 issue
|E. Gerald Corrigan
|Frederick L. Deming
Hugh D. Galusha Jr.
Stephen F. Keating
|James P. McFarland
|Bruce C. MacLaury
|Mark H. Willes
Bruce K. MacLaury
Just recently, the ministers of the European Economic Community authorized a formal study of the desirability and implications of establishing a unified central bank for Europe. In this case, the impetus came, not from a financial panicas did the Federal Reservebut from the recognition that separate monetary policies in an increasingly integrated financial market were an anomaly.
Despite the persuasive intellectual case for a coordinated regulatory framework and a single monetary policy in a "common market," the political pressures to preserve national sovereignty and, for the foreseeable future, separate national currencies make the negotiation of a European central bank an ambitious and difficult task.
It's hard to remember that similar kinds of arguments attended the establishment of the Federal Reserve System in this country. To be sure, we did not have to wrestle with separate currencies, but there was an abiding distrust of the concentration of financial power. And largely for that reason, the design of the system was a carefully balanced federal constructwith regional banks intended to play an important role. Indeed, at the outset it was thought that differing economic conditions across the vast continent of the United States could best be accommodated by flexible administration of differing discount rates at the 12 regional banks. Time and experience taught that moneylike waterseeks its own level.
The days of separate monetary policies for different regions of the United States are long gone. Increasingly, the challenge is to find ways of bridging the mismatch between international financial markets and national political borders. In this evolutionary process, the concept of federalism, in varying forms, can continue to play an important legitimizing role.
Independent central banks are a paradox in a democratic society. Even within national boundaries, there is a tension in creating an institution with substantial economic power outside the direct control of elected officials. Expanding that power across borders compounds the challenge to legitimacy. If for no other reason, therefore, the search for new institutions to oversee integrated financial markets must respect the need for broad political support through local and regional representation.
Historically, there has been a race between changing technology and adapting social organizations. Nowhere is this race more apparent than in the revolutionary progress in communications and information-processing technology. One of the important functions of the Federal Reserve in its earliest days was to speed and unify the collections of payments by check. The challenge for tomorrow is to process an unimaginably large number of electronic transfers without a hitch, and to devise ways of keeping the amount of funds in balance with economic capacity on an international scale. A tall order, indeed!
Bruce K. MacLaury has been president of The Brookings Institution in Washington, D.C., since January 1977. Prior to his term as president of the Minneapolis Fed, he has been with the Treasury as Deputy Undersecretary for Monetary Affairs, and had spent ten years at the New York Federal Reserve Bank.
Mark H. Willes
Most articles about the Federal Reserve discuss various aspects of Federal Reserve policy or focus on a relatively small number of key policy-makers. To be sure, Federal Reserve policy over the years has had substantial impact on everything from banking structure and competition to the vitality add growth of economic systems around the world. And, of course, those policy debates and decisions have been dominated from time to time by key individuals who seem to tower over most of their associates.
On the occasion of the 75th anniversary of the Federal Reserve System, however, it seems desirable to comment on one of the least well-known and yet most important and impressive aspects of the Federal Reserve Systemthe ability and caliber of the thousands of people who work there. During my years at the Fed, I got to know many people at all levels in the system and was particularly close to my associates at the Philadelphia and Minneapolis Reserve Banks. The more I think about it, the more impressed I am with what unsung heroes they really are.
By and large, Federal Reserve officers and employees are people of great integrity who are dedicated to doing the very best they can to serve the public interest. Operational staffs have found creative ways to improve productivity and effectiveness that would compare well with anything found in the private sector. Examination and supervision staffs do a remarkable job in balancing the legally required mandate to ensure the safety and soundness of financial institutions with the pragmatic necessity of allowing those institutions to be flexible and competitive. Research and other professional parts of the System are remarkably able. I am convinced, for example, that the contributions of the Minneapolis Reserve Bank research department to monetary understanding and policy have been both important and lasting.
Why does all of this matter? Because while certain economic events have a force all their own and certain personalities within the Federal Reserve System have a large influence, one of the strengths of the Federal Reserve is that policies and procedures are carefully shaped, honed and executed as a result of the interaction and checks and balances of a large number of people. This sharing of influence is built into the system by law and by tradition. Consequently, by acknowledging the extraordinary ability and dedication of so many Federal Reserve officers and employees, we can all have confidence in its future direction and the role it will play in helping the world function better for all of us.
I congratulate the "System" on its 75th anniversary. I express appreciation to the marvelous people who make it work and who give me confidence in its future.
Mark H. Willes, president of General Mills Inc., Minneapolis, spent 13 years with the Federal Reserve System. Ten of those years were at the Philadelphia Fed, where he became first vice president at age 30. In 1977 he was named president of the Minneapolis Fed, and three years later he accepted an executive position at General Mills.
E. Gerald Corrigan
One of the most important characteristics of the Federal Reserve System is its decentralized and regional structure. Symbolically and substantially, the 12 Federal Reserve Banks are the central banking embodiment of the federalist tradition which is so fundamental to the political and economic history of the United States. Indeed, the mere presence of the 12 Federal Reserve Bankseach with its own board of directors drawn from the district which it serveshelps to ensure that the independence of the Federal Reserve from short-term political pressures is appropriately maintained. In addition, the regional character of the Federal Reserve helps it to achieve another important objective; namely, it better ensures that the process of setting national monetary and credit policies takes place in a context in which those responsible for policy arethrough the eyes and ears of the Reserve Banksin close and continuing contact with the economic pulsebeat of all regions of the country and all sectors of the economy.
While the founding fathers of the Federal Reserve System had great vision, I doubt that even they could have envisioned how well the regional character of the Federal Reserve has served the nation over the 75-year history of the System. And, nowhere has that feature of the Federal Reserve been more evident nor worked better than it has in the Ninth Federal Reserve District. In fact, one of my more lasting impressions of the Federal Reserve Bank of Minneapolis is the extent to which the bank wasand isa creature of its own environment: the social, economic and cultural fabric of the vast and diverse geographic area it encompasses, stretching as it does from the upper Michigan peninsula of the western edge of Montana.
While there are many reasons why the bank has been so successful in discharging its various responsibilities, one that stands out from my perspective is the special relationship between the bank and its board of directors. In the period in which I was president of the bank, I had the good fortune to work with 26 dedicated men and women who served as directors of the bank and its Helena branch. Without exception, they gave freely of their time and experience in helping me and the other officers of the bank to form judgments and opinions that invariably were better and sounder by virtue of the perspective provided by the directors.
Of equal importance, through the directors, I came to know something of the communities across the district in which they lived and worked. In good times and in bad, one could not help but be struck by the extent to which attitudes in those communities were forged by a balance of realism, vision and purpose. Those traits have obvious value in their own right, but they can also be viewed as something of a credo for central banking since the essence of sound monetary policy is often to be found in the ability of policy-makers to take the longer view of things and to temper one's hopes and expectations by what is realistic and what is pragmatic.
Looked at in a still broader light, the manner in which these traits are reflected in the dialogue between Reserve Banks and the various groups in their districts can only help to ensure that the regional character of the Federal Reserve serves the purposes for which it was intended. To the considerable extent that the dialogue is part of the legacy of the first 75 years at the Federal Reserve Bank of Minneapolis, it will surely help to ensure continued success in the next 75 years.
E. Gerald Corrigan is president of the New York Federal Reserve Bank, a position he assumed in 1985 at the time he resigned from the Minneapolis Fed. Prior to his four years at Minneapolis, he had been at the New York Fed for 12 years. Through a series of promotions, he served as research economist, personnel officer, vice president in charge of the open market trading desk, and senior vice president.
Hugh D. Galusha Jr.
In Thornton Wilder's "The Skin of Our Teeth," the old gypsy fortune teller derides those who would tell the future for taking the easy end of prediction. According to her, it is the past no one can read. I find great comfort in having a distinguished playwright like Thornton Wilder on my side. What has happened to the financial community in the last five years, and especially to its principal component, commercial banking, is a story no one tells well, nor will it be for some years to come. Like most history, it may have to wait until that day when economic historians can tell it like it was without anyone around who actually lived it to argue with them.
(From Banks, Bankers and Change, a speech by H. D. Galusha in May 1969.)
There have been times in the past when commercial banks tended to act as if they were independent of social, political and economic changes occurring in their environments. Rightly or wrongly, the American public, which includes U.S. banks' principal customers, is demanding more and more services from its institutions regardless of their nature. This includes banks. The changes that are taking place in the United States have to be anticipated by banks; which is another way of saying all banks have to think about what kind of a world they'll be functioning in at some point well out in the future. Only if they can anticipate some of the possibilities in that world can they intelligently prepare their institutions to meet the demands which will be imposed upon them by the customers of that later date.
How far in the future management sets its horizon is a fairly arbitrary judgment. Certainly it should be far enough to break out of the rigidities of the way things are now. We [the Minneapolis Fed] happen to be using 20 years, which is probably an outer limit, but this dimension will always be imprecise. Most of the changes in the political, economic and social environment, however certain it is they will happen eventually, seldom occur on schedule. The important thing is that most of these will occur sometime during the period, with a higher order of predictability in the near term, and the bank has to be prepared to meet them.
What kinds of skills will bank employees need? In any consideration of the future, the technology of banking is such an important factor that it is easy to think it is the only factor of change in the training of the new banker. In making this mistake, a new generation of buggy whip wrappers could be the result. If the scope of banking continues to expand as I believe it will, the smaller banks will be caught up in the process whether they like it or not because of competitive pressures. The emphasis will be on the ability to manage an increasingly complicated and varied enterprise. The essence of modern management is non-doctrinaire resiliencethe ability to shift resources within the enterprise quickly and easily to provide the products or services a changing market requires. This is true of public enterprises like the Federal Reserve Bank of Minneapolis where the objective is the mandate of public purpose as set by Congress, and it is true of private enterprises like banks where the objective is the equally legitimate and important one of profitability.
Hugh D. Galusha Jr. had been a director of the Minneapolis Fed before he was named president in 1965. A native of Helena, Mont., he was head of his own CPA and tax law firm (Galusha, Higgins & Galusha) for many years. Mr. Galusha, a western history buff and an authority on national parks and wilderness areas, died in January 1971 while on a snowmobile trip to Yellowstone National Park He was 51.
Frederick L. Deming
It was April 1,1957, when I came to the Minneapolis Bank. President Eisenhower was in the White House and Hubert Humphrey was in the Senate. Not quite eight years later, Vice President Humphrey swore me in as Undersecretary of the Treasury for Monetary Affairs. When I left the Treasury at the end of the Johnson Administration, I was succeeded by Paul Volcker.
As a small boy I had lived for about five years in the copper country of Michigan's Upper Peninsula. I had lived in St. Louis, though, for 37 years, and in 1957 knew little about the Twin Cities or the Upper Midwest except that it got cold and had a lot of snow. When I arrived in Minneapolis (by train) the weather was not much different from St. Louis, but it changed: there was a 12-inch snowfall that night.
Until my wife and son joined me, stayed at the Minneapolis Club, which then had no women members. We got a house on Lake Harriet, still the prettiest part of the Twin Cities. The Ninth District, I learned, contained three of the four U.S. time zones. It also included Montana and the Helena branch, which I got to know well and favorably quite early.
The bank, then at Fifth and Marquette, was just completing a major remodeling, adding 10 stories to the original Cass Gilbert structure. It was a great place to work and the people really did work. Discipline was strict but supervision was fair, and there was evident good feeling throughout the bank, exemplary of the Upper Midwest work ethic. When we celebrated the opening of the new quarters in May 1957, I told the audience, mostly bankers, that I had always known that the best Federal Reserve Bank was located on the Mississippi River; until two months earlier I had just mislocated it 600 miles to the south.
There were 137 Federal Open Market Committee meetings between April 1957 and January 1965. I attended all but 10, and three of those absences occurred when I was on a special mission to Taiwan. Those were golden years for monetary policy, both because it was used and because it was effective. In the Eisenhower years it was the principal instrument of flexible economic policy; in the Kennedy-Johnson years fiscal policy grew in importance, but monetary policy was still a key factor.
As was quite natural, there was criticism of policy and its results, but there was relatively little criticism of policy guides by academic "experts." The monetarists were of lesser importance and nobody had heard of supply-side.
The System has changed considerably since I joined the Federal Reserve Bank of St. Louis in the summer of 1941. Then the banks were fairly autonomous with respect to operations but the presidents had little input with regard to monetary policy. When William McChesney Martin became chairman in 1951, he brought the presidents into monetary policy formulation, which was reflected in the number of Open Market Committee meetings referred to earlier. But over the past several years the banks have lost a lot of their operations autonomy.
On April 25,1964, we celebrated the bank's 50th birthday with a major convocation held at the Leamington Hotel in Minneapolis. The program included talks by Chairman Martin of the Federal Reserve Board, Managing Director Pierre Paul Schweitzer of the International Monetary Fund, President Reno Odlin of the American Bankers Association and President Edwin P. Neilan of the U.S. Chamber of Commerce. I hope that the System's 75th birthday will be as memorable as the celebration we enjoyed 25 years ago.
Frederick L. Deming had been with the St. Louis Federal Reserve Bank from 1941 to 1957. He left there as first vice president in order to lead the Minneapolis bank.
Beginning in 1965 he spent four years at the Treasury Department as Undersecretary for Monetary Affairs. He later returned to Minneapolis and became president of National City Bancorporation, a post he held until his retirement in 1982.
Stephen F. Keating
As I look back over my 12 years service as a member and, subsequently, chairman of the board of the Ninth Federal Reserve District, I do so with great pride and pleasure. It was without question one of my most satisfying public service experiences. More specifically, found it rewarding in two particular aspects. One, I think all of us who served on the board over the years felt we were a part of what is certainly not only one of the most important agencies of our federal system, but one of the most effectively governed. Secondly, as a person who has always been interested in the personal side of things, I found it extremely rewarding to be a part of a board consisting of a wide spectrum of people geographically spread over this region. My business experience in some respects had confined me to Twin Cities and national business matters, but, until my service on the board, I had not been particularly involved in the activities of the relatively far-flung geography of the Ninth District.
It is well known, and perhaps somewhat overdone, to point up the fact that the Ninth is the smallest of the 12 districts [in terms of total deposits]. From my observation, which is obviously somewhat biased, it was and is certainly one of the most effectively run districts from a professional standpoint and, measured by the varied background of its board members, has one of the most well-rounded boards in the system. The leadership of the bank, as represented by Hugh Galusha and his predecessors, and then by Bruce MacLaury, was recognized as outstanding not only within the Federal Reserve System, but also by the bankers and businessmen of this district. I'm terribly proud of the fact that during my tenure on the board, we were fortunate and wise enough to sustain that outstanding leadership in the persons of Mark Willes and then Jerry Corrigan. All of themMacLaury in the nonprofit world, Willes in the private sector and Corrigan in the Federal Reserve Systemhave gone on to outstanding careers after leaving the bank here. While I was not on the board when Gary Stern was selected, I was fortunate enough to serve as a member of the search committee which selected Gary and, thus, feel a part of continuing that marvelous tradition.
It was a source of satisfaction to have served with an outstanding group of men and women as directors during my term. I believe that one of the real strengths of the Federal Reserve System is the cohesiveness, and yet the diversity, of the boards of all of the districts. Many of those directors I was fortunate to meet during the year I chaired the Conference of Chairmen of the Federal Reserve Districts.
As an alumnus and an admirer of the Federal Reserve System, I continue to be proud of having played a small role in the contributions of this great institution. To many of us in these difficult times of budget and trade deficits, the Fed appears to be the only short-term hope of achieving some degree of stability in our extremely complex fiscal and monetary relationships.
Stephen F. Keating, retired chairman of Honeywell Inc., Minneapolis, joined that company in 1948. He rose through the ranks to become president in 1965 and later chairman. Earlier in his career, he had practiced law in St. Paul; and during World War II, he served as a naval air combat intelligence officer in the Pacific.
After "retiring" from Honeywell in 1980, he accepted an assignment at Toro Company in Minneapolis as chairman of the executive committee, a position he holds currently.
James P. McFarland
During my term as chairman of the Minneapolis Fed (1976-78) the board realized these achievements:
Instituted board member presentations on their businesses or professional interests and their area economic conditions.
Certainly the electronics explosion which has been taking place throughout the world has posed new challenges to the banking system. As it continues to evolve, the Fed must consider its broadened role in exercising controls without unnecessary restraints on the international character of money matters. Above all, the integrity of the American dollar must be preserved.
James P. McFarland, retired chairman of General Mills Inc., Minneapolis, devoted his entire business career to that company, with the exception of service from 1942 to 1946 with the U.S. Air Force. He was elected president of General Mills in 1967 and two years later he was named chairman.