St. Louis Fed 2007 Annual Report

8/3/2019 St. Louis Fed 2007 Annual Report

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POOLE


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CHAIRMANS MESSAGE | 2007


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2 | ederal rese rve bank o s. louis

I can hink o a beter way o characerize BillPooles 10-year presidency a he Federal Reserve

Bank o S. Louis han o summon an old expres-

sion: When sailing hrough rough waers, keep a

seady hand a he wheel.

Wheher were alking abou he naional and

inernaional economic scene or he changing

operaing environmen here a he Bank, choppy

sur has been he rule raher han he excepion

over he pas decadea period during which he

S. Louis Fed was orunae o have Bill, an avidsailor, a he helm. On he Federal Open Marke

Commitee, Bills seady hand proved invaluable

during crises such as he Asian inancial mel-

down, he 9/11 erroris atacks and he recen

subprime morgage debacle.

Wha assuredly will be one o Bills lasing lega-

cies was his advocacy o clear communicaions

keeping surprises o a minimum while helping he

markes undersand he underlying principles

behind FOMC decisions. Pracicing wha he

preaches, Bill gave nearly 150 speeches during his

presidency, oen speaking on he record wih

reporers aerward o answer heir quesions

and help eliminae conusion. Someimes he

Federal Reserve is accused o being overly and

unnecessarily myserious. Through his acions,

Bill sough o alleviae any misundersandings or

misconcepions abou he Fed.

Despie serving as he Banks CEO or 10 years,

Bill likes o say ha he is always an academic a

hear. And is he eacher in him ha he Banksdirecors, boh pas and presen, really appreci-

aed. Typically, we board members are neiher

economiss nor expers on he inner workings o

he Federal Reserve. We rely on he presiden o

educae us on he ramiicaions o FOMC acions,

as well as he bes opions or us o consider on

decisions we need o make. In his role, Proes-

sor Poole was unailingly helpul o us.

ssagechairmans messagech

Bon Voyage,

Captain Poole


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2007 annual repor | 3

rmansmessagechairmansm

World-class economic daa: The Researchdivisions robus ses o online economic

inormaion and daa services are renowned

and relied upon worldwide. Led by he pop-

ular FRED (Federal Reserve Economic Daa)

daabase, Researchs web pages received

around 60 million visis in 2007.

Communiy connecions: Under Bill, he

our ofices in he Disric have redoubled

heir ocus on areas such as regional eco-

nomic research, communiy developmen and

economic educaion. Mainaining a srong link

beween he Fed and local communiies is

criical. As we have learned wih he subprime

morgage crisis, many consumers have a dire

need or greaer undersanding o economic

and personal inancial issues.

Beore Bill embarked on his nex journeywhich

will include being a disinguished scholar in resi-

dence a he Universiy o Delaware and a senior

ellow a he Cao Insiue, and, naurally, sailing

on he Chesapeake Bay near his new Marylandhomewe caugh up wih him or a inal iner-

view. Here in he S. Louis Feds 2007 Annual

Repor, I invie you o read Bills relecions.

Bill, on behal o my ellow direcors and he res

o he crew here in he Eighh Disric, I hank

you or seering us hrough 10 oen umuluous

years. We will miss your guidance, insigh and

wisdom, and we wish all he bes o you and your

wie, Gerie.

Irl F. EngelhardChairmanBoard of DirectorsFederal Reserve Bank of St. Louis

I have been a member o he Banks board odirecors since 2005 and have observed Bill deal

wih change in a calm, ye nimble, manner ha

beis a seasoned execuive more han i does

a career academic. In ac, rom he ime Bill

arrived in 1998, he encounered a rapidly evolving

business modelone ha privae secor compa-

nies are used o, bu he Fed was no. Neverhe-

less, Bill and his managemen eam embraced he

changes and made decisions ha proved benei-

cial boh o he Eighh Disric and he Federal

Reserve Sysem. An example o an innovaiveeficiency during Bills enure occurred in 2002,

when he S. Louis and Cleveland Reserve banks

ormed a join parnership o share sales and

markeing uncions.

In suppor o Sysem-generaed eficiencies, he

S. Louis Fed was an early advocae o efors o

reduce redundancies across Reserve banks by

convering o common soware plaorms or

human resources and cerain accouning unc-

ions. Bill also conribued o he Sysem byserving a erm as chairman o he Inormaion

Technology Oversigh Commitee, whose respon-

sibiliies include approving overall echnology

sraegies and budges or he Federal Reserve.

Ideniying eficiencies, hough, is only one par o

he sory o Bills success. The Bank can also boas

o many areas o growh and leadership during

he Poole era. Three worh noing are:

U.S. Treasury suppor: Since 2001, he

S. Louis Fed has been he home o heFeds Treasury Relaions and Suppor

Ofice, which oversees all o he Sysems

U.S. Treasury-relaed responsibiliies and

manages he relaionship beween he wo

organizaions. In addiion, he S. Louis Bank

provides a wide range o ax collecion and

cash managemen applicaions and services

or he Treasury.


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4 | ederal reserve bank o s. louis


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LOOKING BACKa rerospeCive Conversaion WiH Wi lliaM poole

ANNUAL REPORT| 2007


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CKLOOKING BACKLOOK

he decade ha you spen as presiden o

he Federal Reserve Bank o S. Louis was

marked by a series o crises, such as he

Asian inancial meldown o he lae 1990s, he

9/11 atacks and he curren subprime morgage

crisis. How would you characerize he urbulen

era during which you served?

I used o hink o moneary policy as dealing wihgenerally normal periods inerruped by shocks. Ive decided

ha is really he oher way around. In ac, he Fed has had

o ace a whole series o shocks inerruped by occasional

periods ha we call normal. I you were o ake he 10 years

as a whole and divide i beween periods o shocks or he hrea

o shocks vs. he normal periods, I hink youd ind a lo more

monhs in he irs caegory.

Wha have you learned abou he bes role or he Federal

Reserve o play during imes o crisis?

To sar wih, cenral bank credibiliy and low and sable inla-

ion expecaions are o criical imporance. Earning ha con-

idence is he mos imporan hing he Fed can do in dealing

wih shocks as hey occur. I he Fed doesn have ha under-

lying conidence, hen all sors o hings can go wrong and,

indeed, he Fed may ind isel willy-nilly aking policy acions

inended o mainain or resore credibiliy raher han dealing


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wih he curren problem, whaever i migh be.So, mos o he work in dealing wih he crises

comes beore hey even happen. Where he Fed

is now is a consequence o earning ha credibiliy

saring wih Paul Volcker and hen dealing suc-

cessully wih a whole series o issues during he

Volcker, Greenspan and now Bernanke eras.

Does he public expec oo much rom he Fed in

response o crises?

You can probably address ha quesion on sev-eral levels. Theres a naural endency or people

in he markes o look o governmen o help

hem. And, oen, is very sel-ineresed. They

wan o be bailed ouis jus ha simple. They

wan someone o ix heir misakes. You see i

across he board. People hink ha i he govern-

men will give hem some money, why no ake i.

I seems ha he people who mos oen alk

abou regulaion ying hem in knos and being

cosly are some o he irs o come asking or

help and o be bailed ou. So, here is nohing

Fed leaders can do excep make sure o have a

correc, disciplined policy and hen be visible in

explaining he raionale or he policies hey

wan o ollow. You have o be prepared o

resis pressures rom Congress and make use

o he independence ha he Federal Reserve

srucure provides.

Could you give a broad hisorical overview

o wha you reer o as he monearis vs.iscalis debae?

The word monearism reers o he way he

debaes were ramed in he 1960s and 70s.

Fundamenally, he argumen a ha ime was

abou a ew proposiions ha have been largely

resolved. Is also imporan o undersand ha

Bill Pooles seminal

conribuions in he

area of monear

heor an polic

are wiesprea an

span four ecaes.

Wheher i be his con

ribuions on monear

polic uner uncer

ain, his earl inves

igaions of simple

rules for seting he

feeral funs rae, or

his analsis of raional

epecaions moels

of he erm srucurefor monear polic,

his heoreical con

ribuions provie

funamenal insighs

an plae an impor

an role in eveloping

wha we now view as

he core of moern

monear heor. He

has coninue his con

ribuions o monear

polic as a member

of he FOMC, bring

ing he same soun,

houghful an consis

en economic analsis

o polic eliberaions.

I have known Bill for

nearl hree ecaesan have learne a

grea eal from him.

Charles I. PlosserPresident

Federal Reserve Bank of

Philadelphia

Paul Volcker1979-1987

Alan Greenspan1987-2006

Ben Bernanke2006-

Recent chairmen of theFederal Reserve Board


10/69

coninued o be an argumen or a while. Theiscaliss would say, We undersand Friedmans

heory, bu he world doesn really work quie

ha way, and, in ac, here is a radeof. The view

ha here was a radeof had a grea deal o do

wih Federal Reserve policy misakes because ha

was he prevailing view o he Federal Reserve

wih he lone excepion o S. Louis. There was

a whole series o policy misakes ha led o grad-

ually rising inlaionsomeimes no so gradual

a coss greaer han anicipaed, including, lo and

behold, coss in erms o employmen and cer-

ainly economic sabiliy. So, over he course o

he 70s, he debae was resolved in avor o wha

had been he monearis posiion.

Four decades laer, where does he heory o

monearism sand? Furhermore, have you

changed your views abou monearism over

he years?

Monearism has become mainsream economics.

We know now he ollowing: Inlaion is cosly,

only he cenral bank is responsible or inlaion,

he Phillips Curve (page 23) is verical in he long

he debae was really a preraional epecaionsebae. (See explanaion on page 23.) One o

he issues being argued was he relaive power

or inluence o moneary policy and iscal policy.

The Kenesian raiion (page 23) coming ou o

he 1930s was ha moneary policy was prety

much a sideshow, and he aggregae economy

was conrolled by iscal policy. Milon Frieman

(page 23) disagreed. He said ha moneary policy

was cenral o undersanding he business cycle.

How did he moneariss and iscaliss diferwhen i came o heir views on inlaion?

The moneariss hough ha inlaion was

cosly and damaging o he economy. The iscal-

iss argued ha inlaion wasn all ha cosly.

The iscaliss believed ha here could be a

consrucive radeof in ha you could acually

obain lower unemploymen i you were willing o

accep somewha higher inlaion. Tha view was

resised a a somewha inuiive level and hen

a a very, very explici heoreical level by Fried-

man in his presidenial address o he American

Economic Associaion in December o 1966. There

THERE IS NOTHING FEd LEAdERS CAN dO ExCEPT MAKE SURE TO HAVE A CORRECT,

dISCIPLINE d POLICy ANd THEN BE VISIB LE IN ExPL AINING THE RATIONALE FOR THE

POLI CIES THEy WANT TO FOL LOW.



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run, and here is no inlaion/employmen

radeof. Those are all par o macroeconomics

oday. There is anoher issue ha was no

direcly conneced wih monearism, bu you

migh say was sor o a ellow-raveler issue:

Friedman was very much a believer in he marke

sysem and disrusul o governmen. He had

grea respec or marke eficiency and grea

skepicism abou governmen eficiency. So, he

people who were on he monearis side o hedebae ended o have ha same view. I don

know o any acivis governmen inerveners who

are moneariss. They jus didn ever go

ogeher. Moneariss generally have grea

respec or markes. Is no o say ha marke

decisions are inallible, bu you will ask a quesion

wo, hree, our imes beore you decide ha

Bill Poole (seated at far end) at a recent FOMC meeting. ChairmanBen Bernanke is seated at the center of the facing side of the table.


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Has he FOMC reached a good sae in erms o

is communicaion, or do you hink here is more

work o be done?

There is more work o be done. One o he big-

ges innovaions came in 1994 when he FOMC

began o disclose wha is policy decision was

aer each meeing. The communicaion since

hen, however, has someimes been a bi mud-

dled. I don hink here is a setled view in he

FOMC abou he value o essenially orecas-

ing policy, or rying o give hins abou whereyoure going o go. Ive become skepical o ha

approach because I hink he correlaion beween

where you go and where you can see yoursel

going in advance is very low. I also hink ha

here is uninished business wih regard o clar-

iy o objecives. Ive been an advocae since he

irs day I came here o a ormal inlaion arge,

and ha issue is sill unresolved. There is a huge

amoun o uninished business in rying o deine

and communicae he Feds reacion funcion(page 23). One o he problems righ now is

ha he FOMC isel doesn have is reacion

uncion very well speciied. I hink more discus-

sion abou regulariy o he reacion uncion

would be very helpul and would help he com-

municaion sraegy by narrowing he range o

uncerainy so ha he FOMC has more predic-

able policy.

Wha can he FOMC do o urher demysiy is

acions and decisions?

In he public relaions proession, where here is

a lo o concenraion on communicaions srae-

gies, people will ell you ha you have o be sure

o wha your message is. You don jus hrow

a whole lo o inormaion ou here. Wha are

markes are making a misake. And I hink ha

par o i cerainly survives as being exremely

imporan in my hinking. The immediae succes-

sors o he monearis debae o he 60s are

people like Bob Lucas an Tom Sargen (page 23)

and he raional expecaions heoriss. They

were he immediae inellecual heirs o he

debae. I cerainly come rom ha radiion, and

a lo o my speeches have been oriened oward

developing he pracical applicaion o hose

ideas o undersanding and managing moneary

policy. I don hink my views on monearism

have changed in paricular. Those views are sill

very much a par o my hinking.

Does he Federal Reserves decenralized sruc-

ure sill make as much sense now as i did when

he Fed was creaed?

I hink he raionale has changed over ime. Par

o he raionale was ha regional Reserve banks

could pursue diferen moneary policies o

address difering regional needs. Tha argumen

has disappearedhere can be only one naional

moneary policy. Bu par o he original raionale

has survived. I you look back a he Federal

Reserve Ac in 1913, here was remendous disrus

o Washingon and New York. Thas one reason

why you had Reserve banks spread around he

counryso ha you would have decenralized

power. The argumen or decenralized auhoriy

sill sands, bu his case is no very well appreci-

aed by he general public. A lo o people hinko a cenralized sysem as being more eficien,

perhaps more democraic, i is run ou o Wash-

ingon. I hink hose views are undamenally

wrong because I believe ha he original concep-

ion o no having all he auhoriy concenraed in

New York as he inancial cener or Washingon as

he poliical cener remains valid. Continued on Page 14


13/69


don the recordontherexcerpts from some of bill pooles speeches

SyNCHING, NOT SINKING, THE MARKETS (1999)

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CENTRAL BANK TRANSPARENCy: WHy ANd HOW (2001)

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HOUSING IN THE MACROECONOMy (2003)

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THE FEdS MONETARy POLICy RULE (2005)

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w-g gg c h h c g


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cordontherecordonth

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INFLATION TARGETING (2006)

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THINKING LIKE A CENTRAL BANKER (2007)

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dOLLARS ANd SENSE (2008)

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For the full text of all of Bill Pooles speeches, visit www.stlouisfed.org/news/speeches.html.


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you rying o convey? I hink ha, o oo grea

an exen, weve been hrowing inormaion ou

here wihou being clear in our minds wha he

message is. And he way Ive made his poin in

several speeches is ha he issue is no ranspar-

ency, bu communicaion. Transparency implies

ha you hrow back a curain and le everybody

look in. We oo oen dump he daa wihou

explaining wha o make o i and why were

doing i. Wha we need o do is no increase he

maerial ha we pu ou here, bu we need o

increase he inerpreaion and explanaion, and

we need o clariy he message. I don hink

here is enough o ha happening.

Speaking o communicaion, you have had a

repuaion as one o he more ouspoken Reserve

bank presidens, wheher i be your willingness

o speak on record wih he media or he nearly

150 speeches you have given. Why do you eel ihas been so imporan or you o mainain such

high visibiliy?

When I came here and began o give speeches, I

asked mysel: Wha exacly am I rying o do? And

wha purpose is being served? Here I am, ou here

represening he Federal Reserve, knowing ha

expecaions are very imporan. And while expec-

aions are obviously inimaely conneced wih

policy decisions o he Federal Reserve, hey also o

some exen relec wha comes ou o he mouhs,or pens, o Federal Reserve oficials. So, I sared o

hink hrough wha o do and how o do i.

Anoher quesion I asked mysel was: Wha can I

iner and inerpre rom lucuaions in inancial

daa abou inlaion expecaions or expecaions

abou moneary policy? These are hings ha are


St. Louis Mayor Francis Slay congratulates Bill Poole duringthe grand opening of the Banks pedestrian plaza in 2005.

WHAT WE NE Ed TO dO IS NOT INCREAS E THE MATERIAL TH AT WE PUT OUT THER E, BU T

WE NE Ed TO INCREASE THE INTERPRETATION ANd ExPL ANATION, ANd WE N EEd TO

CLARIFy THE MESSAGE.

Continued from Page 11


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imporan o Federal Reserve decision-making.I came o he view ha I can only make sense o

all his i I pu i in very simple absrac erms.

And has where he speech came rom in 1999

ha was called Synching, no Sinking, he

Markes. (See page 12.) I said, les go back o he

basic lieraure o he 1970s and he basic macro-

economic modelhe raional expecaions

equilibrium. The desirable equilibrium is ha he

cenral bank behaves as he marke expecs, and

he marke behaves as he cenral bank expecs.Thas he naure o he equilibrium: When here

is new inormaion, such as daa on indusrial

producion or housing sars, he equilibrium

requires ha he Federal Reserve and he markes

respond o he same daa in he same way. A

number o my speeches have been oriened

around ha heme, and ha provides a uniying

heoreical view ha ies ogeher los o diferen

problems. For one hing, his view gives me a very

easy way o address he quesions ha keep

coming, such as: Hows he Fed going o se

ineres raes a is nex meeing? Wha are you

guys going o do? Then I can say, Wha were

going o do will depend on wha he new inorma-

ion is. I can predic unpredicable inormaion.

And you would no wan me o commiyou

would no wan he FOMC o commias o

wha i is going o do come hell or high waer.

I wouldn make any sense or us o ignore

imporan new inormaion.

I always ell people, Im no being coy wih you.

Im elling you ha I can predic wha he inla-

ion rae is going o be in nex weeks CPI repor.

I is an ousized shock, wih no exenuaing cir-

cumsances o i, hen he Fed needs o ake ha

ino accoun when orming is inlaion oulook,

and ha ough o afec our policy decision.

When we hire Bil

10 ears ago, we

knew ha he was an

ousaning econo

mis an woul bea value paricipan

on he FOMC. M

percepion is ha he

has more han live

up o ha epeca

ion. Wha we i

no know is wheher

he woul be able

o aap o a major

eecuive role in

leaing such a large

insiuion as he

S. Louis Feera

Reserve Bank

He has, in fac

eceee our epec

aions in ha

capaci, which jus

proves ha an olacaemic can learn

new ricks

John F. McdonnelJames S. McDonnell Foundation

Former Chairman of the Federal Reserv

Bank of St. Louis Board of Directors


17/69


The raional expecaions model says ha hemarke has o undersand wha he cenral bank

is doing. The marke undersands wha he cen-

ral bank is doing, in par and maybe even mosly,

hrough inerences rom observed cenral bank

acionshow we se he ederal unds rae. Bu

he communicaions sraegy can deepen he

markes undersanding o wha were doing and

why were doing i, and ha helps o produce a

beter equilibrium. Thas he reason o be as

open and orhrigh as possible.

Earlier, you menioned inlaion argeing. Is he

announcemen o an inlaion arge being ham-

srung and hung up by concern abou he Federal

Reserves dual mandae?

Probably. I hink ha, puting poliical pressures,

which are real, aside, is possible o explain all

his easily wihin he ramework o he ual

manae (page 23). I you look back in hisory,

you see ha he larges problems on he employ-men ron have come rom inlaion and price

insabiliy. You look a delaion during he Grea

Depression, he bigges economic disaser in

U.S. hisory by ar, and hen you look a he 60s

and 70s, when inlaion was rising, he business

cycle lucuaions became more exreme, and he

average rae o unemploymen roseand I don

hink is an acciden ha price-level sabiliy and

employmen levels are conneced. So, we ough

o be able o explain ha achieving susained,high and sable employmen requires inlaion

sabiliy. We can assis in mainaining inlaion

sabiliy i we have grea clariy as o he objec-

ive. Thas an argumen ha I believe and ha

Ive made in some o my speeches. And I don

see any reason why he FOMC shouldn adop

ha as is oficial view.

Bill Poole has ha an

enormous impac on

he Eighh disric an

he Feeral Reserve

Ssem as a lea

ing economis. I also

ha he opporunio see Bill ecel in

anoher Fe role, as

a paricipan in he

Ssems sraegic

irecion projec ur

ing m ime as chair

man. There, he helpe

efine he evolving

roles of he Reserve

banks an helpebring clari o he

principal governance

issues associae wih

he evolving role of

he Reserve banks an

he Boar of Gover

nors. Bill was a leaer

in seting a framework

o help he banks an

he governors achieve

he mission of he

Ssem for he ne

ecae. His respec

for an unersan

ing of he hisor an

he fuure of he Fe

serve our Bank well.

Waler L. Mecalfe Jr.Bryan Cave LLP

Former Chairman of the Federal Reserve Bank

of St. Louis Board of Directors


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19/69

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m. p p c h s. l hgh

h wg ccy hg c y h m

jc my cy. i h w h c c m

c ym mxmm cmc gwh hgh m,

c cmmm c y.

Poole Continued

the St. Louis Fed

Tradition



20/69


ha rack is ha I have a vivid memory when I

was a he Council o Economic Advisers in

Washingon. We had many discussions and were

all very well aware o he problems being covered

up in he savings and loan indusry. Tha experi-

ence led me o raher deep regre ha I had no

raised ha issue publicly. I migh no have beenin a posiion o do i because i was a very polii-

cally dificul issue, and many people were rying

o cover i up, sweep i under he rug and ignore

i. Bu I wish I would have somehow ound a way

o raise ha issue and improve public conscious-

ness. I I had been able o do ha in 1982 or 1983,

and i here had been some earlier acion, i

Swiching o an issue ha brough a lo o

atenion o you a ew years ago: governmen-

sponsored enerprises (GSEs) like Fannie Mae

and Freddie Mac. You made a speech in March o

2003 (page 12) in which you quesioned he long-

erm inancial viabiliy o hese agencies. Where

does his issue sand oday?

Tha speech caused a litle sir. I don hink

anyhing consrucive by way o reorm has hap-

pened since. I don ake credi or disclosing he

accouning irregulariies, bu when I look back, is

here somehing I wish I had said or no said? The

answer is no. One o he reasons I wen down

In he lae 1960s an earl 1970s, S. Louis Fe Presien darrl Francis an Research direcor

Homer Jones consisenl an vociferousl argue ha price sabili coul onl be resore if

he Fe ariculae an implemene a ssemaic polic ha resraine monear growh. The

S. Louis Bank became known as he monearis bank.

B he 1990s, economiss unersoo ha, in principle, oher ssemaic approaches o mon

ear polic can provie a nominal anchor for he econom. Criical for he success of such

approaches o polic is ha consumers an firms believe ha fuure inflaion will be low an

sable. For polic o succee, he general public mus unersan he Fes longrun infla

ion objecive an how he FOMC will respon o shorrun economic flucuaions. Bill Poole

has been a leaer, perhaps the leaer, wihin he Feeral Reserve Ssem in pushing for greaer

polic ransparenc b he FOMC an a clearer ariculaion of a ssemaic implemenaion of

monear polic aime a achieving price sabili. In his sense, Bill has aape an carrie on

he raiion of he S. Louis Fe in he 21s cenur.

Rober H. RascheSenior Vice President and Director of Research

Federal Reserve Bank of St. Louis


21/69

and on he Federal Reserve Sysem. He had muchmore impac on dealing wih moneary policy

issues han I have had o dae on he GSE issue.

Looking a he operaing environmen o he

S. Louis Fed isel, wha do you regard as he

mos signiican changes ha afeced he Bank

during your enure?

Theres no quesion in erms o he scale o he

efecs, is he consolidaion in inancial services

ha led o ending check and cash operaions inwo branches (Litle Rock and Louisville) and sell-

ing he buildings here. Tha was an enormous

change, going rom branches ha each had 150

employees down o abou eigh. We have more

o ha coming in S. Louis and Memphis because

migh have saved axpayers quie a bi o money.I probably wouldn have made any diference,

bu I would have el beter.

So, par o he reason ha I did push he GSE

issue was a eeling ha I was in a posiion o

undersand he issue and he poenial graviy

o i. And has exacly wha an ofice like his is

or. I have an audience simply by virue o speak-

ing rom his ofice ha I would no have had as a

Brown Universiy proessor; so, why no? Thas

consisen wih my predecessors. Thas wha

Darryl Francis did. (See sidebar on page 18.) He

wen ou campaigning abou he inlaion issue

and abou moneary policy. He did no change

policy a he ime, bu I hink he had very sub-

sanial long-run inluence on he naional debae


. . . HISTORICAL Ly yOU dONT F INd SI GNIFICANT CHANGE S IN MONETARy ARRANGEMENTS

IN THE UN ITEd STATES ABSE NT OF A BIG PROBLEM OR SCRE W-UP OF SOM E SORT.


22/69


The mos imporan

aspec of he Feeral

Reserve Ssem is

is ecenralizesrucure. In his

ssem, he job of

regional Reserve

bank presien

encompasses man

uies, bu among

he mos imporan

is serving as he con

necion beween he

business an inusr of he iniviua

isrics an he

Feeral Reserves

naional monear

polic mission. In

his enure a he

S. Louis Feera

Reserve Bank, Bil

has been ver much

commite o his

role in he mon

ear polic process

bringing his insigh

an analsis o he

eliberaions

Thomas M. HoenigPresiden

Federal Reserve Bank of Kansas City

well be closing down check operaions in heselocaions. And here is consolidaion in oher

services, oo; so, we are much less a sand-alone

company han we were 10 years ago. Some IT and

HR services ha used o be here, or example,

are now elsewhere. Whas happened here is no

unlike whas happened o a lo o companies

ha have ousourced suppor operaions. Is no

unique o he Fed.

Wha do you hink he Federal Reserve migh

look like 10 o 20 years rom now?

Who is i ha said, Forecasing is dificul, espe-

cially abou he uure? How do I come o grips

wih ha quesion, beyond saying ha heres

always uncerainy, and i anyone looks back a

his annual repor, heyll probably laugh a wha

Ill say, bu has he way hese hings always are.

Firs o all, hisorically you don ind signiican

changes in moneary arrangemens in he Unied

Saes absen o a big problem or screw-up osome sor. I would no expec he Federal

Reserve Ac o be opened and revised in any

imporan respec in he absence o a signiican

moneary problem.

Tha means ha well probably have he same

basic ramework in he law. I seems o me ha

he main hing ha he Reserve banks need o do

and probably will do is o manage hemselves

eficienly enoughwhich I hink we do a prety

good job o doingand provide public serviceshrough economic educaion, economic research

and so orh ha are regarded in he public

debae as being worh wha we spend on hem.

From ime o ime, here will probably be some

atacks on us rom Congress. Tha happens. Bu

i we coninue o perorm prety well on he

macroeconomic ron, I don hink were going


23/69

o be very vulnerable, and he atacks ha occurrom ime o ime will no have any maerial

efec on he law. Tha means ha he Federal

Reserve banks will shrink in erms o heir opera-

ing responsibiliies. I hink we need o ge used

o he prospec o Reserve banks being smaller

in erms o employmen, and more vigorous and

more rigorous in erms o our inellecual oupu.

Wha will you miss mos abou being presiden

o he S. Louis Fed?

Ill miss he exciemen and challenge o he mon-

eary policy process. Thas been very ineresing

o observe and be par o.

Leas?

I don hink anybody likes doing perormance

reviews and some o ha adminisraive suf

(laugher). Forunaely, hough, he scale o i is

prety small. I have said o many people, and I

really believe i, ha here is nohing Ive done hereha is as awul as grading a huge sack o exams

over winer break. Im glad I le ha behind.

Are here any closing commens you would

like o make?

I am hrough and hrough an academic, and I had

no managerial experience coming ino his job.

I really enjoyed learning abou a lo o modern

managemen pracices, and I el orunae o

have some very good people do all he hard work.There are a lo o really good people here. n



24/69

kpoolespeakpoolespeakAn explanation of key terms

Preraional Epecaions debae In he 1970s, macroeconomic models o how moneary and iscal poli-cies afec he economy began o ocus on how he public orecass uure values o economic daa and

policies. Macroeconomic models ha incorporae raional expecaions assume ha he public uses all

relevan inormaion when making projecions abou uure values o daa and policy acions. Thus, in

such models, moneary and iscal policies have no permanen efecs on oupu or employmen because

he public will anicipae and, acing in is bes ineres, ake acions ha ofse he impac o policy on he

growh o oupu and employmen.

Kenesian Traiion Reers o John Maynard Keynes (1883-1946), an English economis who proposed

ha high unemploymen, being a resul o insuficien capial spending by business, could be relieved by

governmen-sponsored programs. He also advocaed deici spending by governmens o simulae

economic aciviy.

Milon Frieman The 20h cenurys mos prominen economis advocae o ree markes. A winner o

he 1976 Nobel Prize in Economics, Friedman (1912-2006) was noed as a proponen o monearism and or

his opposiion o governmen inervenion in he economy.

Phillips Curve An inverse relaionship beween inlaion and unemploymen irs observed in daa or

he Unied Kingdom by he economis A.W. Phillips. Moneariss argued, and mos macroeconomiss now

agree, ha here is no long-run relaionship beween inlaion and unemploymen, and ha monearypolicy canno afec he unemploymen rae in he long run.

Lucas an Sargen Reers o Rober Lucas, Nobel Prize winner and proessor o economics a he Univer-

siy o Chicago, and Thomas Sargen, proessor o economics a New York Universiy. Boh were leading

proponens o macroeconomic models ha incorporae he raional expecaions assumpion.

Reacion Funcion Reers o how policymakers adjus heir policies in response o new economic daa and

oher inormaion.

dual Manae Reers o he ac ha he Federal Reserve Ac (as amended) direcs he Federal Reserve o

pursue moneary policies o achieve he goals o boh maximum employmen and sable prices.



25/69



26/69

BOARDS OF DIRECTORS | 2007

THANK YOUeng boad membe

We bd faewell and exe o gade o hoe membe of heEghh Dc boad of deco who hae ecenly eed

O aecaon and be whe go o o he followng

MEMPHIS

Leon Mahew

ST. LOUISCynha J. Bnley

Jay Fzmmon

Lew F. Malloy J

Noe: Lew Malloy now ee a he

Ban Fedeal Adoy Concl membe


27/69

26 | FEDErAL rEsErvE BANk OF st. LOuis

BOARDS OF DIRECTORS |LiLe Rock


28/69

2007 ANNuAL rEpOrt | 27

cal Mcaslan

Chairman

Parner

Pender & McCaslain P.A.Litle Rock, Ark.

Phllp N. Baldwn

Presiden and CEOSouhern Bancorp

Arkadelphia, Ark.

Snja Yas Hbbard

CEOE-Z Mar Sores Inc.

Texarkana, Texas

Sharn Prs

Execuive Direcor

Downown Litle Rock ParnershipLitle Rock, Ark.

Wllam c. Shll

Presiden

Firs Securiy Bancorp-SearcyFirs Securiy Bank

Litle Rock, Ark.

c. Sam Walls

CEOArkansas Capial Corp.

Litle Rock, Ark.

Rbr A. Yng iii

Chairman

Arkansas Bes Corp.

For Smih, Ark.


29/69


Gary A. Ransdll

Chairman

PresidenWesern Kenucky Universiy

Bowling Green, Ky.

Grdn B. Gss

Consulan

Marion, Ky.

Jhn L. Hbr

ConsulanLouisville, Ky.

Barbara Ann Ppp

CEO

Schuler Bauer RealEsae Services

New Albany, Ind.

Jhn c. Shrdr

Presiden

Wabash Plasics Inc.

Evansville, Ind.

L. clar aylr Jr.

CEO

Ephraim McDowell Healh

Danville, Ky.

Sn e. ragr

Chairman and CEORepublic Bank & Trus Co.

Louisville, Ky.

BOARDS OF DIRECTORS |LouiSviLLe


30/69



31/69


BOARDS OF DIRECTORS |MeMPHiS


32/69


N clar

Chairman

Parner

Clark & ClarkMemphis, Tenn.

Mrdh B. Alln

Vice Presiden, MarkeingSaple Coton Cooperaive

AssociaionGreenwood, Miss.

charls S. Blats

Member (Parner)The Bogain Law Firm PLC

Memphis, Tenn.

hmas G. Mllr

PresidenSouhern Hardware Co. Inc.

Wes Helena, Ark.

Dad P. Rmbargr Jr.

Presiden and CEO

Communiy DevelopmenFoundaion

Tupelo, Miss.

Hnr Smmns

Presiden and CEO

Firs Souh Bank

Jackson, Tenn.

No picured:

Ssan S. Sphnsn

Co-Chairman and PresidenIndependen Bank

Memphis, Tenn.


33/69


irl F. englhard

Chairman

ChairmanPario Coal Corp.

S. Louis

Rbr G. Jns

Presiden and CEO

Old Naional BancorpEvansville, Ind.

J. hmas May

Chairman and CEO

Simmons Firs Naional Corp.Pine Bluf, Ark.

Pal . cmbs

Presiden

Baker Implemen Co.Kennet, Mo.

A. Rgrs Yarnll ii

Presiden

Yarnell Ice Cream Co. Inc.

Searcy, Ark.

Dad R. Prsn

Presiden and CEO

Firs Naional Bank in Pinckneyville

Pinckneyville, Ill.

Grgry M. Dt

Senior Vice Presiden and Corporae CounselBapis Memorial Healh Care Corp.

Memphis, Tenn.

Sn H. Lpsn

Deputy Chairman

Presiden and CEO

BJC HealhCareS. Louis

BOARDS OF DIRECTORS |S. LouiS


34/69



35/69

INDUSTRY COUNCIL |AGRiBuSiNeSS

Jhn kng iiiKing Farms

Helena, Ark.

Larry clarBunge Norh America Inc.S. Louis

Sam J. FrllDonald DanorhPlan Science Cener

S. Louis

Dad Wllams, Ph.D.Burkmann FeedsDanville, Ky.

No ced:Br Grnwal, Ph.D

Arkansas Sae Universiy

Sae Universiy, Ark.

Lnard Garraa, Ph.D.World Agriculural Forum

S. Louis

d HbrHubers Orchard & Winery

Sarligh, Ind.

Rhard JamsnJameson Farms

Brownsville, Tenn.

kh GlrProducers Rice Mill Inc.

Sutgar, Ark.



36/69

INDUSTRY COUNCIL |HeALH c ARe

Sphn A. WllamsNoron Healhcare

Louisville, Ky.

caln AndrsnBlue Cross Blue Shield

o Tennessee

Memphis, Tenn.

No ced:

Rssll D. Harrngn Jr.Bapis Healh

Litle Rock, Ark.

D PrsnUniversiy o Arkansas or

Medical Sciences

Litle Rock, Ark.

Ssr Mary Jan RyanSSM Healh Care Sysem

S. Louis

Jan c. vsSignaure Healh Services Inc.

S. Louis

Bb GrdnBapis Memorial Healh Care

Memphis, Tenn.

Jfry B. BrngardnrHumana-Kenucky Inc.

Louisville, Ky.



37/69

INDUSTRY COUNCIL |ReAL eSAe

kn HhngsnColliers Dickson FlakeLitle Rock, Ark.

Wllam MhllMemphis AreaAssociaion o Realo

Memphis, Tenn.

Ja McrayBank o he OzarksLitle Rock, Ark.

Jhn J. MrandaPinnacle Properieso Louisville, LLC

Louisville, Ky.

Dad PrWhitaker Builders Inc.

S. Louis

Mary SngrCresaParners Memphis

Memphis, Tenn.


No ced:

Grg kzzAlberici Consrucors

S. Louis

e. Phllp Shrr iiiCommercial Kenucky Inc.

Louisville, Ky.


38/69

INDUSTRY COUNCIL |RANSPoRAioN

Rbr L. LsUPS

Louisville, Ky.

kr hmpsnJ.B. Hun Transpor Services Inc.

Lowell, Ark.

Mar knyMEMCO Barge Line

Cheserield, Mo.


No ced:. Mhal GlnnFedEx Corp.

Memphis, Tenn.

charl W. JhnsnC.W. Johnson Xpress

Louisville, Ky.

Dnns oalyBruce Oakley Inc.

Norh Litle Rock, Ark.

Jsph rayDo Transporaion Inc.

M. Serling, Ill.

Phl rnaryPinnacle Airlines Inc.

Memphis, Tenn.


39/69


Wllam Pl

Presiden and CEO

Da Sapnar

Firs Vice Presiden

and COO

karl Ashman

Senior Vice Presiden

Jd crny


Mary karr


Rbr Rash


Rbr Shn


Jl Sahs


MANAGEMENT COMMITTEE |S. LouiS


40/69



41/69


bankers and business, governmen and commu-niy leaders. Bill Poole was an arden supporer

o hese efors and raveled boh ar and re-

quenly o mee wih he Banks consiuens.

During he pas decade, we have also grealy

enhanced he already ormidable amoun o

economic daa on he Research porion o he

Banks web sie. We are currenly in he process

o revamping he res o our web sie and plan

o launch he new sie laer his year.

Chairman Engelhard ouched on he S. LouisFeds relaionship wih he U.S. Treasury. Tha is

cerainly rue. We are exremely proud o he

parnership we have orged wih he Treasury in

recen years. In 2007, he Feds Treasury Relaions

and Suppor Ofice, based in S. Louis, coninued

o provide efecive monioring and suppor or

he Sysems Treasury-relaed objecives. In

addiion, our Disrics Treasury operaions were

awarded addiional Treasury responsibiliies in

2007, ensuring ha he Disric will coninue obe a leading Reserve bank in erms o serving

he U.S. Treasury.

The Disrics banking supervision uncion las

year successully me all saey and soundness,

consumer afairs, and applicaions processing

mandaes, and provided efecive supervision and

monioring o Disric sae member banks and

bank holding companies. In addiion, he Disric

coninued o expand is supervisory porolio.

Despie all o hese posiive developmens, we

have also been orced o make some dificul

decisions in recen years. Resrucuring decisions

in deparmens like Check, Cash and even Trea-

sury have lowered our employmen levels in hose

areas. We had o bid arewell o many dedicaed,

ow, is our urn. In heprevious pages, Chairman

Engelhard shared his

houghs on Bill Poole, as

did pas chairmen and a

ew o Mr. Pooles col-

leagues around he Federal Reserve Sysem. And,

o course, our pas presiden himsel ofered his

relecions in he main essay. We, he Banks

senior managemen eam, would also like o

express our appreciaion o Presiden Poole or his

wise guidance and counsel over he las decade.

The Bank is a much diferen place han i was

when we welcomed Mr. Poole in 1998. In he pas

10 years, as changes have occurred boh inside

and ouside he Federal Reserve, we have

remained agile enough o develop new capabili-

ies and skillul enough o emerge as a Sysem

leader in several areas.

Mr. Poole saw he need or he Bank o, in a

sense, redeine isel. For example, our check

operaions a all our ofices had hisorically

perormed very well. Bu ha didn change an

environmen ha winessed more and more

people swiching o elecronic orms o pay-

mena rend ha he Federal Reserve has

encouraged. As we have reduced, and coninue

o reduce, our check operaions, we have bol-

sered areas o he Bank ha Mr. Poole liked o

reer o as our inellecual presence.

By ha, he mean sharing our knowledge abou

he economy, moneary policy and personal

inance wih radiional and nonradiional

audiences alike. We are doing his hroughou

our Disric hrough programs like economic

orums, educaion workshops, and meeings wih

tmessage from managementm

n


42/69

alened employees. Perhaps here used o be aeeling here ha he Federal Reserve was immune

o employmen pressures ha privae companies

rouinely ace. Tha is no longer he case.

As we prepare o welcome a new presiden o he

S. Louis Fed, we are excied abou aking on he

challenges ha lie ahead. I is clear ha Mr. Poole

le he Bank solidly posiioned o ace he con-

inuing evoluions in he economy, he banking

secor and he Federal Reserve Sysem.

IN THE PAST 10 YEARS, AS

CHANgES HAvE OCCURRED

BOTH INSIDE AND OUTSIDE THE

FEDERAL RESERvE, wE HAvE

REMAINED AgILE ENOUgH TO

DEvELOP NEw CAPABILI TIES

AND SKILLFUL ENOUgH TO

EMERgE AS A SYSTEM LE ADER

IN SEvERAL AREAS.

sagefrommanagementmessag



43/69



44/69

FINANCIAL STATEMENTS | 2007

Fo he yea ended Decembe 31, 2007 and 2006


45/69


The frm engaged by the Board o Governors or the audits othe individual and combined fnancial statements o the ReserveBanks or 2007 was Deloitte & Touche LLP (D&T). Fees or theseservices totaled $4.7 million. To ensure auditor independence,the Board o Governors requires that D&T be independent inall matters relating to the audit. Specifcally, D&T may not

perorm services or the Reserve Banks or others that wouldplace it in a position o auditing its own work, making manage-ment decisions on behal o the Reserve Banks, or in any otherway impairing its audit independence. In 2007, the Bank didnot engage D&T or any material advisory services.


46/69


ManageMents RepoRt on InteRnal ContRol oveR FInanCIal RepoRtIng

To The Board o direcTors:

Mrch 20, 2008

th mm h Fdr Rr Bk s. lui (FRBstl) i rib r h rri d ir ri h

sm Fici Cdii, sm Icm d Cmrhi Icm, d sm Ch i Ci Dcmbr 31, 2007 (h Fici sm). th Fici sm h b rrd i crmiy wih h ccu-

i rici, ici, d rcic bihd by h Brd grr h Fdr Rr sym d rh i h

Fici accui Mu r h Fdr Rr Bk (Mu), d uch, icud mu, m which r bd

mm judm d im. t ur kwd, h Fici sm r, i mri rc, iry rd i

crmiy wih h ccui rici, ici d rcic dcumd i h Mu d icud dicur cry r

uch ir ri.

th mm h FRBstl i rib r bihi d miii ci ir cr r ci rri

i r h Fici sm. such ir cr i did rid rb urc mm d h

Brd Dircr rrdi h rri h Fici sm i ccrdc wih h Mu. Ir cr ci -

miri mchim, icudi, bu imid , diii ribiiy d cd cduc. oc idid, y mridcici i ir cr r rrd mm d rri crrci mur r immd.

e ci ir cr, mr hw w did, h ihr imii, icudi h ibiiy hum rrr, d

hrr c rid y rb urc wih rc h rri rib ci m. a, rjci

y ui ci uur rid r ubjc h rik h cr my bcm idqu bcu ch i

cdii, r h h dr cmic wih h ici r rcdur my drir.

th mm h FRBstl d i ir cr r ci rri rfcd i h Fici sm, bd u

h criri bihd i h Ir Cr Ird Frmwrk iud by h Cmmi sri orizi h

trdwy Cmmii. Bd hi m, w bi h h FRBstl miid ci ir cr r ci rr-

i i r h Fici sm.

Fdr Rr Bk s. lui

Wm P, prid d Chi excui ocr

d a. sp, Fir vic prid d Chi ori ocr

M K. c, vic prid, Chi Fici ocr


47/69

46 | federal reserve bank of st. louis

W h udid h ccmyi m cdii h Fdr Rr Bk s. lui (FRB s. lui) Dcmb

31, 2007 d h rd m icm d cmrhi icm d ch i ci r h yr h dd, which

h b rrd i crmiy wih ccui rici bihd by h Brd grr h Fdr Rr sy-

m. W h udid h ir cr r ci rri FRB s. lui Dcmbr 31, 2007, bd criri

bihd i Internal Control Integrated Frameworkiud by h Cmmi sri orizi h trdwy

Cmmii. FRB s. lui mm i rib r h ci m, r miii ci ir cr r

ci rri, d r i m h ci ir cr r ci rri, icudd i h ccmy

i Mm Rr Ir Cr r Fici Rri. our ribiiy i xr ii h ci

m d ii FRB s. lui ir cr r ci rri bd ur udi. th ci m

FRB s. lui r h yr dd Dcmbr 31, 2006 wr udid by hr udir wh rr, dd Mrch 12, 2007, xrd

uquid ii h m.

W cducd ur udi i ccrdc wih h drd h pubic Cmy accui orih Brd (Uid s). th

drd rquir h w d rrm h udi bi rb urc bu whhr h ci m r r

mri mim d whhr ci ir cr r ci rri w miid i mri rc. our

udi h ci m icudd xmii, bi, idc uri h mu d dicur i h -

ci m, i h ccui rici ud d iic im md by mm, d ui h r

ci m ri. our udi ir cr r ci rri icudd bii udrdi ir

cr r ci rri, i h rik h mri wk xi, d i d ui h di d ri

ci ir cr bd h d rik. our udi icudd rrmi uch hr rcdur w cidrd

cry i h circumc. W bi h ur udi rid rb bi r ur ii.

FRB s. lui ir cr r ci rri i rc did by, r udr h urii , FRB s. lui rici

xcui d rici ci cr, r r rrmi imir uci, d cd by FRB s. lui brd dircr,

mm, d hr r rid rb urc rrdi h ribiiy ci rri d h rri ci m r xr ur i ccrdc wih h ccui rici bihd by h Brd grr h

Fdr Rr sym. FRB s. lui ir cr r ci rri icud h ici d rcdur h (1) ri

h mic rcrd h, i rb di, ccury d iry rfc h rci d diii h FRB

s. lui; (2) rid rb urc h rci r rcrdd cry rmi rri ci m i

RepoRt oF InDepenDent aUDItoRs

To The Board o Governors o The ederal reserve sysTeMand The Board o direcTors o The ederal reserve BanK o sT. louis


48/69


ccrdc wih h ccui rici bihd by h Brd grr h Fdr Rr sym, d h rci d

xdiur FRB s. lui r bi md y i ccrdc wih uhrizi mm d dircr FRB s. lui;

d (3) rid rb urc rrdi ri r imy dci uuhrizd cquiii, u, r diii FRB

s. lui h cud h mri c h ci m.

Bcu h ihr imii ir cr r ci rri, icudi h ibiiy cui r imrr m-

m rrid cr, mri mim du rrr r rud my b rd r dcd imy bi. a,

rjci y ui h ci h ir cr r ci rri uur rid r ubjc h

rik h h cr my bcm idqu bcu ch i cdii, r h h dr cmic wih h ici r

rcdur my drir.

a dcribd i n 3 h ci m, FRB s. lui h rrd h ci m i crmiy wih ccu-

i rici bihd by h Brd grr h Fdr Rr sym, rh i h Financial Accounting Manual or

Federal Reserve Banks, which i cmrhi bi ccui hr h ccui rici ry ccd i h Uid

s amric. th c uch ci m h dirc bw h ccui rici bihd by h

Brd grr h Fdr Rr sym d ccui rici ry ccd i h Uid s amric r

dcribd i n 3.

I ur ii, h ci m rrrd b r iry, i mri rc, h ci ii FRB s. lui

Dcmbr 31, 2007, d h ru i ri r h yr h dd, h bi ccui dcribd i n 3. a,

i ur ii, FRB s. lui miid, i mri rc, ci ir cr r ci rri Dcmbr 31,

2007, bd h criri bihd i Internal Control Integrated Frameworkiud by h Cmmi sri oriz-

i h trdwy Cmmii.

s. lui, Miuri

Mrch 20, 2008


49/69



50/69


W h udid h ccmyi m cdii h Fdr Rr Bk s. lui (h Bk) Dcmbr 31,

2006, d h rd m icm d ch i ci r h yr h dd, which h b rrd i crmiy

wih h ccui rici, ici, d rcic bihd by h Brd grr h Fdr Rr sym. th

ci m r h ribiiy h Bk mm. our ribiiy i xr ii h ci

m bd ur udi.

W cducd ur udi i ccrdc wih ry ccd udii drd bihd by h audii sdrd Brd

(Uid s) d i ccrdc wih h udii drd h pubic Cmy accui orih Brd (Uid s).

th drd rquir h w d rrm h udi bi rb urc bu whhr h ci m

r r mri mim. a udi icud xmii, bi, idc uri h mu d dicur i

h ci m, i h ccui rici ud d iic im md by mm, d ui

h r ci m ri. W bi h ur udi rid rb bi r ur ii.

a dcribd i n 3, h ci m wr rrd i crmiy wih h ccui rici, ici, d rcic

bihd by h Brd grr h Fdr Rr sym. th rici, ici, d rcic, which wr did

m h ciizd ccui d rri d h Fdr Rr sym, r rh i h Financial Accounting

Manual or Federal Reserve Banks which i cmrhi bi ccui hr h ccui rici ry ccd

i h Uid s amric.

I ur ii, h ci m rrrd b r iry, i mri rc, h ci ii h Bk

Dcmbr 31, 2006, d h ru i ri r h yr h dd, h bi ccui dcribd i n 3.

Mrch 12, 2007

RepoRt oF InDepenDent aUDItoRs

To The Board o Governors o The ederal reserve sysTeMand The Board o direcTors o The ederal reserve BanK o sT. louis


51/69


asseTs

gd cric $ 326 $ 328

sci drwi rih cric 71 71Ci 50 40

Im i rc cci 13 196

l diry iiui 1,050 -

scurii urchd udr rm r 1,486 -

U.s. rm curii, 23,831 24,897

Im dmid i ri currci 513 223

accrud ir rcib 205 214

Irdiric m ccu 3,742 1,807

Bk rmi d quim, 127 96

ohr 42 45

Tt t $ 31,456 $ 27,917

liaBiliTies and caPiTal

libiii:

Fdr Rr udi, $ 29,212 $ 25,994

scurii d udr rm rurch 1,406 941

Di:

Diry iiui 289 434

ohr di 13 7

Drrd crdi im 38 103

Ir Fdr Rr du U.s. trury 42 16

accrud b c 80 80

ohr ibiii 16 10

Tt bt $ 31,096 $ 27,585

Ci:

Ci id-i 180 166

suru (icudi ccumud hr cmrhi $18 mii

d $21 mii Dcmbr 31, 2007 d 2006, rciy) 180 166

Tt pt 360 332

Tt bt pt $ 31,456 $ 27,917

FeDeRal ReseRve BanK oF st. loUIs

sTaTeMenTs o condiTion

( in millions)

As of December 31,

2007 2006

The accompanying notes are an integral part o these fnancial statements.


52/69


Ir icm:

Ir U.s. rm curii $ 1,235 $ 1,112

Ir curii urchd udr rm r 45 -Ir im dmid i ri currci 6 4

Ir diry iiui 3 1

Tt tt m 1,289 1,117

Ir x:

Ir x curii d udr rm rurch 54 42

nt tt m 1,235 1,075

ohr ri icm:

Cmi rcid r ric ridd 26 22

Rimburb ric rm ci 115 116

Fri currcy i, 20 13

ohr icm 3 2

Tt t ptg m 164 153

ori x:

sri d hr b 104 94

occucy x 10 10

equim x 7 8

am by h Brd grr 23 20

ohr x 108 107

Tt ptg xp 252 239

nt m p t tbt 1,147 989

Ch i udd u b 3 -

cmp m p t tbt $1,150 989

Diribui cmrhi icm:

Diidd id mmbr bk $ 10 $ 10

trrrd uru d ch i ccumud hr cmrhi 14 43

pym U.s. trury ir Fdr Rr 1,126 936

Tt tbt $ 1,150 $ 989


sTaTeMenTs o incoMe and coMPrehensive incoMe

( in millions)

For the year ended December 31,

2007 2006



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sp

nt im amt ot Tt

cpt P-i rt cmp l sp Tt cpt

Bc Jury 1, 2006

(2.9 mii hr) $ 144 $ 144 $ $ 144 $ 288

n ch i ci ck

iud (0.4 mii hr) 22 22

trrrd uru 43 43 43

adjum iiiy y

sFas n. 158 (21) (21) (21)

Bc Dcmbr 31, 2006

(3.3 mii hr) $ 166 $ 187 $ (21) $ 166 $ 332

n ch i ci ck

iud (0.3 mii hr) 14 14

trrrd uru d

ch i ccumud

hr cmrhi 11 3 14 14

B t dmb 31, 2007

(3.6 m ) $ 180 $ 198 $ (18) $ 180 $ 360


sTaTeMenTs o chanGes in caPiTal

For the years ended December 31, 2007, and December 31, 2006( in millions)


54/69


noTe 1

sTrucTure

th Fdr Rr Bk s. lui (Bk) i r hFdr Rr sym (sym) d h w Rr

Bk (Rr Bk) crd by Cr udr h FdrRr ac 1913 (Fdr Rr ac), which bihdh cr bk h Uid s. th Rr Bk rchrrd by h dr rm d uiqu rm, crr, d cr bk chrcriic. thBk d i brch i li Rck, luii d Mmhi rh eihh Fdr Rr Diric, which icud ark, dri Iii, Idi, Kucky, Miiii, Miuri dt.

I ccrdc wih h Fdr Rr ac, urii dcr h Bk i xrcid by brd dircr. thFdr Rr ac ci h cmii h brd dircr r ch h Rr Bk. ech brd i cm-d i mmbr ri hr-yr rm: hr dircr,

icudi h did chirm d duy chirm,r id by h Brd grr h Fdr Rrsym (Brd grr) rr h ubic, d ixdircr r cd by mmbr bk. Bk h r mmbr h sym icud i bk d y -chrrdbk h y d r rd r mmbrhi i h sy-m. Mmbr bk r diidd i hr c ccrdi iz. Mmbr bk i ch c c dircr rrimmbr bk d rri h ubic. I y ci dircr, ch mmbr bk rci , rrd h umbr hr Rr Bk ck i hd.

th sym ci, i r, h Brd grrd h Fdr o Mrk Cmmi (FoMC). th Brd grr, idd dr cy, i chrd by h

Fdr Rr ac wih umbr cic dui, icud-i r urii r h Rr Bk. th FoMC icmd mmbr h Brd grr, h rid h Fdr Rr Bk nw Yrk (FRBnY) d, ri bi, ur hr Rr Bk rid.

noTe 2

oPeraTions and services

th Rr Bk rrm riy ric d ri.Fuci icud ricii i rmui d cducimry icy; ricii i h ym ym, icud-

i r-dr rr ud, umd crihu(aCH) ri, d chck cci; diribui cid currcy; rrmc c cy uci r h U.s.trury, cri dr ci, d hr ii; ri h dr rm bk; rii hr-rm diry iiui; ric h cumr d h cmmu-iy by ridi duci mri d irmi rrdicumr w; d urii bk hdi cmi, mmbr bk, d U.s. c ri bki riz-i. Cri ric r ridd ri d irimry uhrii, rimriy by h FRBnY.

th FoMC, i h cduc mry icy, bih

icy rrdi dmic mrk ri, r

h ri, d uy iu uhrizi d dirc-

i h FRBnY r i xcui rci. th FRBnY

i uhrizd d dircd by h FoMC cduc ri i

dmic mrk, icudi h dirc urch d U.s.rm curii, h urch curii udr r-

m r, h curii udr rm rur-

ch, d h di U.s. rm curii. th FRBnY

xcu h mrk rci h dirci h

FoMC d hd h rui curii d rm i h

ri kw h sym o Mrk accu (soMa).

I ddii uhrizi d dirci ri i h

dmic curii mrk, h FoMC uhriz d dirc

h FRBnY xcu ri i ri mrk r mjr

currci i rdr cur dirdry cdii i xch

mrk r m hr d cid by h FoMC i crry-

i u h sym cr bk ribiii. th FRBnY i

uhrizd by h FoMC hd bc , d xcu

d rwrd ri xch (FX) d curii crc

r, i ri currci d i uch ri currcy

hdi uri dqu iquidiy i miid. th FRBnY

i uhrizd d dircd by h FoMC mii rcirc

currcy rrm (FX w) wih ur cr bk

d wrhu ri currci r h U.s. trury d

exch sbiizi Fud (esF) hruh h Rr Bk.

I cci wih i ri currcy ciii, h FRBnY

my r i rci h ci ryi dr -

bc-h mrk rik h ru rm hir uur m

d cur-ry crdi rik. th FRBnY cr crdi rik by

bii crdi r, bihi rci imi, d

rrmi diy miri rcdur.

ahuh h Rr Bk r r ii, i hir rr cicy d ci hy cbr

i h diry cri ri d ric. th cb-

ri k h rm crizd ri d rduc r

uci c h h ribiiy r h diry cri

ric bh h Rr Bk. vriu ri

d mm md r ud d r urd by ric

rm bw h Rr Bk ridi h ric d

h hr Rr Bk. I m c, c icurrd

by Rr Bk r ric ridd hr Rr Bk

r hrd; i hr c, h Rr Bk r bid r

ric ridd hm by hr Rr Bk.

Mjr ric ridd bh h sym by h Bk,

r which h c wr rdiribud h hr RrBk, icud ri h trury Ri d sur

oc d h trury Ri d sym sur Dr-

m, which rid ric h U.s. trury. th ric

icud: rihi mm, ric cui, d

rih r c d ym rd rjc r h Fdr

Rr sym; d ri ur r h trury x

cci, ch mm d cr miri.


noTes To inancial sTaTeMenTs


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noTe 3

siGniicanT accounTinG Policies

accui rici r ii wih h uiqu wr dribiii h i cr bk h b r-mud by ccui drd-i bdi. th Brd grr h dd ciizd ccui rici drcic h i cidr b rri r h ur duci cr bk, which dir iicy rm h h ri cr. th ccui rici d rcicr dcumd i h Fici accui Mu r Fd-r Rr Bk (Fici accui Mu), which iiud by h Brd grr. a h Rr Bk rrquird d d y ccui ici d rcich r ci wih h Fici accui Mu d hci m h b rrd i ccrdc wih hFici accui Mu.

Dirc xi bw h ccui rici d rc-ic i h Fici accui Mu d ry ccdccui rici i h Uid s (gaap), rimriydu h uiqu ur h Bk wr d ribii-i r h i cr bk. th rimry dirci h ri curii hdi mrizd c,rhr h ui h ir u ri rquird by gaap.U.s. rm curii d im dmid i r-i currci cmrii h soMa r rcrdd c, m-d bi, d djud r mrizi rmiumr ccri dicu rih-i bi. amrizd cmr rriy rfc h Bk curii hdi ih sym uiqu ribiiy cduc mry icy.Whi h ici curr mrk ric h curiihdi my ru i u ubiy b r bw hircrryi u, h urizd ch i u wud h dirc c h quiy rr ib h bkiym r h rc r uur Bk ri r ci.Bh h dmic d ri cm h soMa r-i my i rci h ru i i r whhdi r d rir muriy. Dcii rrdi curiid ri currcy rci, icudi hir urch d, r mid by mry icy bjci rhr hr. accrdiy, mrk u, ri, d y i r rui rm h uch curii d currci ricid h mrk ri d d midcii rd icy r mrk ciii.

I ddii, h Bk h cd r sm Ch Fw bcu h iquidiy d ch ii h Bk

r rimry ccr i h Rr Bk uiqu w-r d ribiii. a sm Ch Fw, hrr,wud rid ddii miu irmi. ohrirmi rrdi h Bk ciii i ridd i, rmy b drid rm, h sm Cdii, Icm dCmrhi Icm, d Ch i Ci. thr r hr iic dirc bw h ici uid i hFici accui Mu d gaap.

th rri h ci m i crmiywih h Fici accui Mu rquir mm mk cri im d umi h c h rrd

mu d ibiii, h dicur ci - d ibiii h d h ci m, d hrrd mu icm d x duri h rririd. acu ru cud dir rm h im. Uiquccu d iic ccui ici r xid bw.

a. Gold and sPecial draWinG riGhTs cerTiicaTes

th scrry h U.s. trury i uhrizd iu d dci drwi rih (sDR) cric h Rr Bk.

pym r h d cric by h Rr Bk i mdby crdii qui mu i dr i h ccubihd r h U.s. trury. th d cric hd by hRr Bk r rquird b bckd by h d h U.s.trury. th U.s. trury my rcquir h d cric y im d h Rr Bk mu dir hm h U.s.trury. a uch im, h U.s. trury ccu i chrd,d h Rr Bk d cric ccu r rducd.th u d r ur bcki h d cric i by w $42 2/9 ry uc. th Brd grr

c h d cric m Rr Bk c yrbd h r Fdr Rr udi i chRr Bk.

sDR cric r iud by h Iri Mry Fud(Fud) i mmbr i rri ch mmbr qui h Fud h im iuc. sDR cric r um iri mry rr d my b r-rrd rm i mry uhriy hr. Udrh w ridi r Uid s ricii i h sDR y-m, h scrry h U.s. trury i uhrizd iu sDRcric mwh ik d cric h Rr Bk.Wh sDR cric r iud h Rr Bk, quimu i dr r crdid h ccu bihd r hU.s. trury, d h Rr Bk sDR cric ccu

r icrd. th Rr Bk r rquird urch sDRcric, h dirci h U.s. trury, r h ur ci sDR cquiii r r ci xch biiz-i ri. a h im sDR rci ccur, h Brd grr c sDR cric rci m RrBk bd u ch Rr Bk Fdr Rr u-di h d h rcdi yr. thr wr sDRrci i 2007 r 2006.

B. loans To dePosiTory insTiTuTions

Diry iiui h mii rrb rci c-cu r r im di, dd i ruiiud by h Brd grr, h brrwi rii

h dicri h Rr Bk. Brrwr xcu cridi rm d di uci cr br crdii xdd. th Bk r hr dicu widw rrm diry iiui: rimry crdi, cdry crdi, d - crdi, ch wih i w ir r. Ir i ccrudui h icb dicu r bihd ry ur- dy by h brd dircr h Rr Bk, ubjc riw d drmii by h Brd grr.

I ddii, diry iiui h r iib brrwudr h Rr Bk rimry crdi rrm r iib rici i h mrry trm auci Fciiy (taF)




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rrm. Udr h taF rrm, h Rr Bk cducuci r xd mu ud, wih h ir r dr-mid by h uci rc, ubjc miimum bid r. adc udr h taF mu b uy crizd.

oudi r ud r ccibiiy, d curry r cidrd ccib d uy crizd. I wrr dmd b uccib, rri rr wudb bihd.

c. u.s. GovernMenT securiTies and invesTMenTs

denoMinaTed in oreiGn currencies

Ir icm U.s. rm curii d imdmid i ri currci cmrii h soMa i c-crud rih-i bi. gi d rui rm curii r drmid by cic iu bd r c. Fri-currcy-dmid r ruddiy curr ri currcy mrk xch r i rdr rr h i U.s. dr. Rizd d urizdi d im dmid i ri curr-

ci r rrd Fri currcy i, i h s-m Icm d Cmrhi Icm.

aciiy rd U.s. rm curii, icudi hrmium, dicu, d rizd d urizd i d, i cd ch Rr Bk rc bidrid rm u m h irdiric -m ccu h ccur i ari ch yr. th m quiz Rr Bk d cric hdi FdrRr udi i ch Diric. aciiy rd i-m dmid i ri currci i cd chRr Bk bd h ri ch Rr Bk cid uru r ci d uru h rcdiDcmbr 31.

d. securiTies Purchased under aGreeMenTs To resell,securiTies sold under aGreeMenTs To rePurchase, andsecuriTies lendinG

th FRBnY my i ri-ry urch curii udrrm r (ri-ry rm). tri-ry r-m r cducd wih w cmmrci cudi bk hm h cri d m cr. Cr ihd i xc h crc mu. accb crudr ri-ry rm rimriy icud U.s. rmcurii, -hruh mr curii h grmni Mr acii, Fdr Hm l MrCrri, d Fdr ni Mr acii, stRIpcurii h U.s. grm, d rid curii

hr rm ci. th ri-ry rm r c-cud r ci rci, wih h cid iricm ccrud r h i h rm.

scurii d udr rm rurch r ccudr ci rci d h cid ir xi rcizd r h i h rci. th rcir rrd i h sm Cdii hir crcumu d h rd ccrud ir yb i rrd cm ohr ibiii.

U.s. rm curii hd i h soMa r U.s.rm curii dr i rdr cii h ci

ucii h dmic curii mrk. scurii-dirci r uy crizd by hr U.s. rmcurii d h cr k i i xc h mrk u h curii d. th FRBnY chr h dr rbrrwi curii d h r rrd cm ohr icm.

aciiy rd curii d udr rm rur-ch d curii di i cd ch h RrBk rc bi drid rm u m h irdiric m ccu. o Fbrury 15, 2007 hFRBnY b ci h hr Rr Bk h ciiyrd curii urchd udr rm r.

e. X sWaP arranGeMenTs and WarehousinG aGreeMenTs

FX w rrm r crcu rm bww ri, h FRBnY d uhrizd ri cr bk,whrby h ri r xch hir currci u rrrd mximum mu d r rd-u rid im (u w mh), rd-u ir r.

th rrm i h FoMC mrry cc hri currci i my d ur i iri r-i d i h uhrizd ri cr bk mrrycc dr. Drwi udr h FX w rrm cb iiid by ihr ry d mu b rd by h hrry. th FX w rrm r rucurd h h ryiiii h rci br h xch r rik u m-uriy. Fri currci rcid uru h rmr rrd cm Im dmid iri currci i h sm Cdii.

Wrhui i rrm udr which h FoMC r xch, h rqu h U.s. trury, U.s. dr rri currci hd by h U.s. trury r esF r imidrid im. th ur h wrhui ciiy i

um h U.s. dr rurc h U.s. trury d esFr ci urch ri currci d rd ir-i ri.

FX w rrm d wrhui rm r r-ud diy curr mrk xch r. aciiy rd h rm, wih h xci h urizd i d rui rm h diy rui, i cd chRr Bk bd h ri ch Rr Bk cid uru r ci d uru h rcdiDcmbr 31. Urizd i d rui rm hdiy rui r rcrdd by FRBnY d cd hhr Rr Bk.




57/69


. BanK PreMises, equiPMenT, and soTWare

Bk rmi d quim r d c ccumuddrcii. Drcii i ccud rih-i bir h imd uu i h , which r rm w y yr. Mjr ri, ri, d imrmr ciizd c ddii h ccu d rdrcid r h rmii uu i h r, i r-ri, r h uiqu uu i h ri, ri, rimrm. Mic, rir, d mir rcm rchrd ri x i h yr icurrd.

C icurrd r wr duri h ici d-m , ihr dd iry r cquird r iru, r ciizd bd h c dirc ric dmri cid wih dii, cdi, ii, r iwr. Ciizd wr c r mrizd rih-i bi r h imd uu i h wr ic-i, which r rm w yr. Mic crd wr r chrd x i h yr icurrd.

Ciizd icudi wr, buidi, hd

imrm, uriur, d quim r imird wh r ch i circumc idic h h crryimu r ru i rcrb d ii-cy xcd hir ir u.

G. inTerdisTricT seTTleMenT accounT

a h c bui ch dy, ch Rr Bk mbh ym du r rm hr Rr Bk. th y-m ru rm rci bw Rr Bk d r-ci h i diry iiui ccu hd by hrRr Bk, uch Fdwir ud d curii rr,d chck d aCH rci. th cumui mudu r rm h hr Rr Bk i rfcd i h Ir-

diric m ccu i h sm Cdii.

h. ederal reserve noTes

Fdr Rr r h circui currcy h Uids. th r iud hruh h riu FdrRr (h chirm h brd dircr chRr Bk d hir di) h Rr Bk udi wih uch cid c cr curiy,yicy U.s. rm curii. th r idid iud cic Rr Bk. th Fdr Rr acrid h h cr curiy drd by h Rr Bk h Fdr Rr mu b qu h um h id r by uch Rr Bk.

a iib b dd cr curiy icud h Bk . th cr u i qu h bk u h cr drd, wih h xci curii, rwhich h cr u i qu h r u h curi-i drd. th r u curii dd r curiid udr rm rurch i dducd.

th Brd grr my, y im, c u RrBk r ddii curiy dquy criz h FdrRr . t iy h bii rid uci c-r r udi Fdr Rr , h Rr Bkh rd i rm h rid r cri

h Rr Bk b jiy dd cr r hFdr Rr iud Rr Bk. I h h hi cr i iuci, h Fdr Rr ac ridh Fdr Rr bcm r d rmu i h h Rr Bk. Fiy, Fdr Rr r bii h Uid s rm. a Dcmbr31, 2007, Fdr Rr iud h Rr Bkwr uy crizd.

Fdr Rr udi, i h sm Cdii rr h Bk Fdr Rr ud-i, rducd by h Bk currcy hdi $3,770 miid $3,175 mii Dcmbr 31, 2007 d 2006, rciy

i. iTeMs in Process o collecTion and deerredcrediT iTeMs

Im i rc cci i h sm Cdii ri-mriy rr mu ribub chck h h bdid r cci d h, h bc h d,h y b rd h yi bk. Drrd crdi

im r h curr ibiiy im i rc ccid h mu i hi ccu ri rm drri crdi rdid im ui h mu r ccd. th bc ibh ccu c ry iicy.

j. caPiTal Paid-in

th Fdr Rr ac rquir h ch mmbr bk ub-crib h ci ck h Rr Bk i muqu 6 rc h ci d uru h mmbrbk. th hr r i wih r u $100 dmy b rrrd r hyhcd. a mmbr bkci d uru ch, i hdi Rr Bk ckmu b djud. Curry, y -h h ubcrii i

id-i d h rmidr i ubjc c. a mmbr bk i i-b r Rr Bk ibiii u wic h r u ckubcribd by i.

By w, ch Rr Bk i rquird y ch mmbrbk u diidd 6 rc h id-i cick. thi cumui diidd i id miuy. t rfch Fdr Rr ac rquirm h u diidd rdducd rm ri, diidd r rd diri-bui cmrhi icm i h sm Icmd Cmrhi Icm.

K. surPlus

th Brd grr rquir h Rr Bk mii

uru qu h mu ci id-i Dcmbr31 ch yr. thi mu i idd rid ddiici d rduc h ibiiy h h Rr Bk wudb rquird c mmbr bk r ddii ci.

accumud hr cmrhi icm i rrd cm uru i h sm Cdii d hsm Ch i Ci. th bc ccumudhr cmrhi icm i cmrid x, i,d rd dd b i d hrrirm b h, udr ccui drd,r icudd i hr cmrhi icm bu xcudd rm




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icm. addii irmi rrdi h cici ccumud hr cmrhi icm i ridd i n9 d 10.

th Bk iiiy id h rii sFas n. 158,emyr accui r Dd B pi d ohrprirm p, Dcmbr 31, 2006. thi ccuidrd rquir rcii h rudd r udruddu dd b rirm i h sm Cdii, d rcii ch i h udd ui h yr i which h ch ccur hruh cmrhiicm. th rii ru r immi h drd r-quird yi h rii h d h yr iiiimmi, d h c Dcmbr 31, 2006i rcrdd adjum iiiy y sFas n. 158 ih sm Ch i Ci.

l. inTeresT on ederal reserve noTes

th Brd grr rquir h Rr Bk rrxc ri h U.s. trury ir Fdr Rr

, r ridi r h c ri, ym diidd, d rri mu cry quuru wih ci id-i. thi mu i rrd py-m U.s. trury ir Fdr Rr ih sm Icm d Cmrhi Icm d irrd ibiiy, r i rid duri h yr,i h sm Cdii. Wky ym h U.s.trury my ry iicy.

I h r icr i ci id-i R-r Bk, ym h U.s. trury r udd d r-i r rid ui h uru i qu h ci id-i.

I h dcr i ci id-i, h xc uru,r qui ci id-i d uru Dcmbr 31, i di-ribud h U.s. trury i h wi yr.

M. incoMe and cosTs relaTed To u.s. Treasury services

th Bk i rquird by h Fdr Rr ac r -c d diry h Uid s. By u, hDrm h trury i rmid, bu rquird, yr h ric. Duri h yr dd Dcmbr 31, 2006d 2007, h Bk w rimburd r ric ridd h Drm trury.

n. coMPensaTion received or services Provided

th Fdr Rr Bk a (FRBa) h r r-ibiiy r mi h Rr Bk rii chck d

aCH ric diry iiui, d, ru, rc-iz sym ru r h ric i sm Icm d Cmrhi Icm. simiry, h FRBnYm h Rr Bk rii Fdwir ud dcurii rr ric, d rciz symru r h ric i sm Icm dCmrhi Icm. th FRBa d FRBnY cmh hr Rr Bk r h c icurrd rid hric. th Bk rr hi cmi Cmircid r ric ridd i h sm Icm dCmrhi Icm.

o. assessMenTs By The Board o Governors

th Brd grr h Rr Bk ud iri bd ch Rr Bk ci d urubc Dcmbr 31 h rir yr. th Brd g-

rr ch Rr Bk r h x icurrdr h U.s. trury rr d rir Fdr Rr bd ch Rr Bk hr h umbr cmrii h sym ibiiy r Fdr Rr Dcmbr 31 h rir yr.

P. TaXes

th Rr Bk r xm rm dr, , d cx, xc r x r rry. th Bk r rryx wr $1 mii r ch h yr dd Dcmbr 31,2007 d 2006, d r rrd cm occu-cy x.

q. resTrucTurinG charGes

th Rr Bk rciz rrucuri chr r xi rdi c icurrd r h cur bui cii-i i ricur ci, h rci bui ciiirm ci hr, r udm rrizih c h ur ri. Rrucuri chr myicud c cid wih my ri, crcrmii, d imirm. ex r rcizd ih rid i which h Bk cmmi rmizd rrucur-i r xcu h cic ci cmd i h d criri r ci m rcii h b m.

n 11 dcrib h Bk rrucuri iiii drid irmi bu h c d ibiii cidwih my ri d crc rmii. th c

cid wih h imirm cri h Bk r dicud i n 6. C d ibiii cid wihhcd i b i cci wih h rrucuriciii r h Rr Bk r rcrdd h bk h FRBnY.

r. recenTly issued accounTinG sTandards

I smbr, 2006, h FasB iud sFas n. 157, Fir vuMurm (sFas n. 157). sFas n. 157 bih i uhrii dii ir u, u rmwrkr muri ir u, d xd rquird dicurbu ir u murm. sFas n. 157 i ry c-i r h Bk Jury 1, 2008, huh h ci d

m rii i Jury 1, 2009. th rii sFasn. 157 wi b id rciy d r xcd h mri c h Bk ci m.




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noTe 4

u.s. GovernMenT securiTies, securiTies Purchased underaGreeMenTs To resell, securiTies sold under aGreeMenTsTo rePurchase, and securiTies lendinG

th FRBnY, bh h Rr Bk, hd curiibuh urih i h soMa. th Bk cd hr soMa bc w rximy 3.196 rc d 3.177rc Dcmbr 31, 2007 d 2006, rciy.

th Bk cd hr U.s. grm curii, ,hd i h soMa Dcmbr 31, w w (i mii):

2007 2006

P :

U.s. rm:

Bi $ 7,282 $ 8,801

n 12,841 12,784

Bd 3,548 3,162Tt p 23,671 24,747

Umrizd rmium 255 277

Uccrd dicu (95) (127)

Tt t t t Bk $ 23,831 $ 24,897

a Dcmbr 31, 2007 d 2006, h ir u h U.s. -rm curii cd h Bk, xcudi ccrud ir-, w $24,838 mii d $25,287 mii, rciy, drmid by rrc qud ric r idic curii.

th h U.s. rm curii, , hd i hsoMa w $745,629 mii d $783,619 mii Dcmbr31, 2007 d 2006, rciy. a Dcmbr 31, 2007 d

2006, h ir u h U.s. rm curii hd i hsoMa, xcudi ccrud ir, w $777,141 mii d$795,900 mii, rciy, drmid by rrc qud ric r idic curii.

ahuh h ir u curiy hdi c b ubiyrr r h h rcrdd u y i i im, hurizd i r h c h biiy hRr Bk, cr bk, m hir ci biid ribiii, d hud b miudrd rr-i rik h Rr Bk, hir hrhdr, r h ub-ic. th ir u i rd y r irmi ur.

Fici irmi rd curii urchd udrrm r d curii d udr rm r-urch r h yr dd Dcmbr 31, 2007, w w(i mii):

st stP s

gmt gmt

t t p

acd h Bk:

Crc mu udi,

d yr $ 1,486 $ 1,406

Wihd r mu

udi, duri h yr 1,121 1,114

Mximum mh-d bc

udi, duri h yr 1,646 1,406

scurii dd,

d yr 1,408

sym :

Crc mu udi,

d yr $ 46,500 $ 43,985

Wihd r mu

udi, duri h yr 35,073 34,846

Mximum mh-d bc

udi, duri h yr 51,500 43,985

scurii dd,

d yr 44,048

a Dcmbr 31, 2006, h crc mu curiid udr rm rurch w $29,615 mii, which $941 mii w cd h Bk. th r -u soMa curii h wr dd r curii d udrm rurch Dcmbr 31, 2006 w $29,676mii, which $943 mii w cd h Bk.

th crc mu r curii urchd udr r-m r d curii d udr rm rur-ch rxim ir u.




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th muriy diribui U.s. rm curii buhurih, curii urchd udr rm r, d -curii d udr rm rurch h wr cd h Bk Dcmbr 31, 2007, w w (i mii):

u.s.Gmtst(P )

stP

uagmt

t r(cttmt)

sts u

agmt trp(cttmt)

Wihi 15 dy $ 872 $ 1,486 $ 1,406

16 dy 90 dy 4,785

91 dy 1 yr 4,867

or 1 yr 5 yr 7,689

or 5 yr 10 yr 2,619

or 10 yr 2,839

Tt tt t Bk $ 23,671 $ 1,486 $ 1,406

a Dcmbr 31, 2007 d 2006, U.s. rm curiiwih r u $16,649 mii d $6,855 mii, rc-iy, wr d rm h soMa, which $532 mii d$218 mii, rciy, wr cd h Bk.

noTe 5

invesTMenTs denoMinaTed in oreiGn currencies

th FRBnY, bh h Rr Bk, hd ri cur-rcy di wih ri cr bk d wih h Bk rIri sm d i i ri rm dbirum. Fri rm db irum hd icudbh curii buh urih d curii urchd udr

rm r. th im r urd rici d ir by h iui ri rm.

th Bk cd hr im dmid iri currci w rximy 1.085 rc d 1.089rc Dcmbr 31, 2007 d 2006, rciy.

th Bk cd hr im dmid iri currci, icudi ccrud ir, ud ricurrcy mrk xch r Dcmbr 31, w w(i mii):

2007 2006

eur:

Fri currcy di $ 298 $ 68

scurii urchd udr

rm r 28 24

grm db irum 51 45

J Y:

Fri currcy di 30 28

grm db irum 62 58

swi rc:

Fri currcy di 44

Tt t t t Bk $ 513 $ 223

a Dcmbr 31, 2007, h mu ri currcydi hd udr FX crc w $24,381 mii, which$264 mii w cd h Bk. a Dcmbr 31, 2006,hr wr ri xch crc.

a Dcmbr 31, 2007 d 2006, h ir u imdmid i ri currci, icudi ccrud ir-, cd h Bk w $513 mii d $222 mii,rciy. th ir u rm db irum wdrmid by rrc qud ric r idic curii.th c bi ri currcy di d curii ur-chd udr rm r, djud r ccrud ir,rxim ir u. simir h U.s. rm curiidicud i n 4, urizd i r h c h biiy Rr Bk, cr bk, m i cibii d ribiii.

t sym im dmid i ri currciwr $47,295 mii d $20,482 mii Dcmbr 31, 2007d 2006, rciy. a Dcmbr 31, 2007 d 2006, hir u h sym im dmid i ricurrci, icudi ccrud ir, w $47,274 mii d

$20,434 mii, rciy.th muriy diribui im dmid i r-

i currci h wr cd h Bk Dcmbr 31,2007, w w (i mii):

ep jp sw

e y Tt

Wihi 15 dy $ 54 $ 32 $ 86

16 dy 90 dy 251 4 44 299

91 dy 1 yr 30 22 52

or 1 yr 5 yr 42 34 76

Tt t

t t Bk $ 377 $ 92 $ 44 $ 513

a Dcmbr 31, 2007 d 2006, h uhrizd wrhuiciiy w $5,000 mii wih bc udi.




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noTe 6

BanK PreMises, equiPMenT, and soTWare

Bk rmi d quim Dcmbr 31 w w (i mii):

2007 2006

Bk rmi d quim:

ld $ 11 $ 11

Buidi 74 69

Buidi mchiry

d quim 20 18

Cruci i rr 50 18

Furiur d quim 40 43

sub 195 159

accumud drcii (68) (63)

Bk rmi d quim, $ 127 96dpt xp, t dmb 31 $ 8 $ 8

th Bk c uid wih rm h yr. R icm rm uch w imm-ri r h yr dd Dcmbr 31, 2007, d 2006. Fuurmiimum ym udr rm i xic Dcmbr31, 2007, wr immri.

th Bk h ciizd wr , mrizi, $6 mii d $8 mii Dcmbr 31, 2007 d 2006,rciy. amrizi x w $3 mii r ch hyr dd Dcmbr 31, 2007 d 2006. Ciizd wr r rrd cm ohr d h

rd mrizi i rrd cm ohr x-. swr $3 mii wr wri i 2006.th mjriy h wri- wr rimburd by h Dr-m h trury.

a imird ru h Bk rrucuri , dicud i n 11, icud chck rci quim. aimirm $2 mii d $1 mii r h riddi Dcmbr 31, 2007 d 2006, rciy, wr dr-mid ui ir u bd qud mrk u r hrui chiqu d r rrd cm ohrx. th imirm r h rid di Dcmbr31, 2006, rr urhr wri dw h li Rck ci-iy, which w ib r d rrd cm ohr .

noTe 7

coMMiTMenTs and conTinGencies

a Dcmbr 31, 2007, h Bk w bid udr c-cb r rmi d quim wih rmii rmri rm rximy hr yr. th rid r icrd r ym bd u icr ir x, ri c, r cd ric idic.

R x udr ri r cri riciii, wrhu, d d rci d c quim(icudi x, iurc d mic wh icudd ir), ub r, w $2 mii r ch h yrdd Dcmbr 31, 2007 d 2006. Cri h Bk h i rw.

Fuur miimum r ym udr ccbri , ub r, wih rmii rm yr r mr, Dcmbr 31, 2007 r w(i hud):

optg

2008 $ 628

2009 535

2010 75

t mmm t pmt $ 1,238

a Dcmbr 31, 2007, hr wr mri urcrdd

ucdii urch cmmim r -rm bii ixc yr.a Dcmbr 31, 2007, h Bk hd cmmim -

rximy $15 mii r h cruci d cquiii ddii buidi c h s. lui ciiy. excd y-m rd h cmmim r $15 mii r h yrdi Dcmbr 31, 2008.

Udr h Iurc arm h Fdr Rr Bk,ch h Rr Bk h rd br, r icidbi, r r hr i xc rc hci id-i h cimi Rr Bk, u 50 rc h ci id-i Rr Bk. l r bri h ri Rr Bk ci id-i h ciid-i Rr Bk h bii h cdr yr

i which h i hrd. n cim wr udi udrh rm Dcmbr 31, 2007 r 2006.th Bk i id i cri ci d cim rii

i h rdiry cur bui. ahuh i i dicu rdic h uim ucm h ci, i mmii, bd dicui wih cu, h rmidiii d cim wi b rd wihu mri dr -c h ci ii r ru ri h Bk.

noTe 8

reTireMenT and ThriT Plans

reTireMenT Plans

th Bk curry r hr dd b rirm i my, bd h ric d cmisubiy h Bk my rici i h Rir-m p r emy h Fdr Rr sym (symp). emy cri cmi rici i hB equizi Rirm p (Bep) d cri RrBk cr rici i h sum emy Rirmp (seRp).

th sym p rid rirm b my hFdr Rr Bk, h Brd grr, d h oc




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emy B h Fdr Rr emy B sym.th FRBnY, bh h sym, rciz h dc cid wih h sym p i i ci m.C cid wih h sym p r rdiribud hrricii myr.

th Bk rjcd b bii, udd u, d i x r h Bep d h seRp Dcmbr 31,2007 d 2006, d r h yr h dd, wr mri.

ThriT Plan

emy h Bk my rici i h dd c-ribui thri p r emy h Fdr Rr sym(thri p). th Bk thri p cribui d $4mii d $3 mii r h yr dd Dcmbr 31, 2007d 2006, rciy, d r rrd cm sri d hr b i h sm Icm dCmrhi Icm. th Bk mch my cribu-i bd cid rmu. Fr h yr dd Dcm-br 31, 2007 d 2006, h Bk mchd 80 rc h

r 6 rc my cribui r my wih h yr ric d 100 rc h r 6 rc my cribui r my wih r mr yr ric.

noTe 9

PosTreTireMenT BeneiTs oTher Than Pensions andPosTeMPloyMenT BeneiTs

PosTreTireMenT BeneiTs oTher Than Pensions

I ddii h Bk rirm , my wh hm cri d h--ric rquirm r iib

r bh mdic b d i iurc cr duririrm.th Bk ud b yb udr h mdic d i

iurc du d, ccrdiy, h .Fwi i rcciii h bii d di b-

c h b bii (i mii):

2007 2006

accumud rirm

b bii Jury 1 $ 73.0 $ 66.2

sric c-b rd duri h rid 2.6 1.7

Ir c ccumud b bii 4.3 3.3

n curi (i) (1.7) 19.9

Curim i (1.0)

Cribui by rici 0.6 0.5

B id (4.4) (3.6)

Mdicr pr D ubidi 0.3 0.3

p mdm (15.3)

amt pttmt

bft bgt t dmb 31 $ 73.7 $ 73.0

a Dcmbr 31, 2007 d 2006, h wihd-rdicu r umi ud i di h rir-m b bii wr 6.25 rc d 5.75 rc,rciy.

Dicu r rfc yid ib hih-quiy crrbd h wud r h ch fw cry y h b wh du.

Fwi i rcciii h bii d di b-c h , h uudd rirm b bi-i, d h ccrud rirm b c (i mii):

2007 2006

Fir u

Jury 1 $ $

Cribui by myr 3.5 2.8

Cribui by rici 0.6 0.5

B id, Mdicr

pr D ubidi (4.1) (3.3)

p t

t dmb 31 $ $

u bgt

pttmt bft t $ 73.7 $ 73.0

amu icudd i ccumud

hr cmrhi

r hw bw:

prir ric c $ 10.4 $ 15.1

n curi (29.2) (36.3)

Drrd curim i 1.1

Tt mt t

mp $ (17.7) $ (21.2)

accrud rirm b c r rrd cm- accrud b c i h sm Cdii.

Fr murm ur, h umd hh cr c rdr Dcmbr 31 r w:

2007 2006

Hh cr c rd

r umd r x yr 8.00% 9.00%

R which h c rdr i umd dci

(h uim rd r) 5.00% 5.00%

Yr h h r rch

h uim rd r 2013 2012




63/69




aumd hh cr c rd r h iic c h mu rrd r hh cr . a rc- i ch i umd hh cr c rd r wudh h wi c r h yr dd Dcmbr 31, 2007(i mii):

o Ptg o Ptg

Pt i Pt d

ec r

ric d ir c

cm ridic

rirm b c $ 0.7 $ (0.7)

ec ccumud

rirm

b bii 5.6 (5.9)

th wi i ummry h cm ridicrirm b x r h yr dd Dcmbr 31

(i mii):

2007 2006

sric c-b rd

duri h rid $ 2.6 $ 1.7

Ir c ccumud

b bii 4.3 3.3

amrizi rir ric c (3.4) (3.4)

amrizi curi 4.2 2.3

t ridic x 7.7 3.9

Curim i (0.1)

nt p pttmt

bft xp $ 7.6 $ 3.9

eimd mu h wi b

mrizd rm ccumud

hr cmrhi i

ridic rirm

b x i 2008

r hw bw:

prir ric c $ (3.1)

n curi 2.8

Tt $ (0.3)

n rirm b c r curiy drmidui Jury 1 murm d. a Jury 1, 2007 d2006, h wihd-r dicu r umi ud drmi ridic rirm b c wr 5.75rc d 5.50 rc, rciy.

n ridic rirm b x i rrd cm sri d hr

Documents

St. Louis Fed 2007 Annual Report