Message from the First Vice President

The quickening pace of change in the payments system and the financial industry continued to reverberate through the Federal Reserve System’s operations during 2003. The gathering momentum of the shift from paper-based payments to various electronic alternatives was reinforced by the passage of the Check Clearing for the 21st Century Act, or “Check 21” as it has come to be known. This Bank’s EPIC project in Montana several years ago helped pave the way for this legislation by demonstrating the operational feasibility of substituting image replacement documents for the original checks.

Responding successfully to the pace of payments system change will require that the Reserve Banks aggressively manage operational costs and streamline operational decision making. Our efforts in this regard must be guided by rigorous analysis and be characterized by operational excellence in light of the Federal Reserve’s broad responsibilities and the public trust placed in us.

The Bank’s 2003 accomplishments demonstrate how we put these standards into practice on a daily basis.

• The Bank met its 2003 local net revenue targets for Check and for priced services overall. These results are particularly noteworthy given the increase in our targets from 2002, the decline in check volumes and the additional challenges last year related to the conversion of our operations to the new standard check processing environment. More generally, the Bank met its budget objectives across all operations.

• The Bank’s check operations were successfully converted to the Federal Reserve System’s standard check processing platform. The new system will allow us to better serve our customers and respond to changes in the marketplace for payment services. Under the leadership of Minneapolis staff, the System’s five-year project to convert all 37 Reserve Bank check offices to this standard check processing platform was completed in 2003.

• The Bank’s responsibilities for ongoing maintenance and enhancement to the FedACH application grew as a result of initiatives related to FedACH International Transatlantic and Mexico Services, deployment of additional FedACH information services on FedLine Advantage and deployment of FedACH Secure IP solution for quality assurance testing.

• The Bank was selected by the U.S. Treasury to be one of two sites that will provide retail Treasury Services in the future. When the consolidation is complete, the Federal Reserve Bank of Minneapolis and Federal Reserve Bank of Cleveland’s Pittsburgh Branch will handle all savings bonds and marketable securities functions assigned to the Federal Reserve.

• During 2003, the Bank assumed responsibility for the Financial Services Policy Committee. The committee, which is chaired by President Stern, is responsible for the overall direction of financial services and related support functions for the Federal Reserve Banks, as well as for providing leadership for the evolving U.S. payments system.

The Bank’s accomplishments in 2003 provide a strong foundation to build upon as we prepare to face new challenges in providing financial services, supervising banks and developing monetary policy amid a rapidly evolving economic and financial environment.