TABLE

O F

CONTENTS

From the BoardroomLooking Forward*Looking Backward*Executive CommitteeHighlights of 1998*Branch OperationsSummary of OperationsBank OfficersBranch OfficersBoards of Directors1999 Advisory Council12th Federal Reserve DistrictFinancial Statements

The Federal Reserve Bank of San Francisco

1998 Annual Report

The Federal Reserve Bank of San Francisco is one of 12regional Reserve Banks which, together with the Board ofGovernors in Washington, D.C., comprise the nation's centralbank.

As the nation's central bank, the Federal Reserve isresponsible for making and carrying out our nation's monetarypolicy. It also is a bank regulatory agency, a provider ofwholesale priced banking services, and the fiscal agent for theUnited States Treasury.

The Federal Reserve Bank of San Francisco serves the TwelfthFederal Reserve District, which includes the nine westernstates ­­ Alaska, Arizona, California, Hawaii, Idaho, Nevada,Oregon, Utah, and Washington ­­ Guam, American Samoa,and the Northern Mariana Islands.

To serve this expansive region, the San Francisco ReserveBank has five offices: our headquarters in San Francisco andoffices in Los Angeles, Portland, Salt Lake City, and Seattle.Each office provides financial services to the bankinginstitutions in its locale.

*Note: These articles are best viewed with a 4.x browser.

Previous Annual Reports:

2004 Annual Report2003 Annual Report2002 Annual Report2001 Annual Report2000 Annual Report1999 Annual Report1998 Annual Report1997 Annual Report1996 Annual Report1995 Annual Report

From left, Nelson C. Rising, DeputyChairman (1999); Cynthia A. Parker,Deputy Chairman (1998); Robert T.Parry, President; John F. Moore, FirstVice President; and Gary G. Michael,Chairman.

The Federal Reserve Bank of San Francisco

1998 Annual Report

FROM

THE

BOARDROOM

Last year was an important one for the Federal Reserve Bank of San Francisco in that we both celebrated our historyand looked toward our future. The year 1998 marked the 85th anniversary of the establishment of the Federal ReserveSystem. It was December 23, 1913, when President Woodrow Wilson signed into law the Federal Reserve Act. TheFederal Reserve Act stated that its purposes were "to provide for the establishment of Federal reserve banks, to furnishan elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision ofbanking in the United States, and for other purposes." Further legislation has clarified and supplemented these originalpurposes through the years, but our underlying goals remain.

This Bank has a long history of outstanding accomplishments. During1998 we once again reached important milestones that you will readabout in this Report, and we assured our operational readiness to enterthe next century.

Our directors provided us with invaluable information and leadershipthroughout the year. Their independent assessment and knowledge ofeconomic and financial conditions throughout our District are essential tothe formulation of monetary policy. We thank them all for theircontributions.

In particular, we want to express our sincere thanks and appreciation tothose directors and advisory council members who retired from FederalReserve service at 1998 year end: on the Head Office Board, its DeputyChairman, Cynthia A. Parker (Executive Director, AnchorageNeighborhood Housing Services, Inc., Anchorage, Alaska), and StanleyT. Skinner (Chairman and CEO [Retired], Pacific Gas and Electric Co.,San Francisco, CA); on the Los Angeles Branch Board, its Chairman,Anne L. Evans (Chairman, Evans Hotels, San Diego, CA), and StephenG. Carpenter (Director, California United Bank, Encino, CA); on thePortland Branch Board, its Chairman, Carol A. Whipple (Proprietor,Rocking C Ranch, Elkton, OR), and Thomas C. Young (Chairman,Northwest National Bank, Vancouver, WA); on the Salt Lake City BranchBoard, its Chairman, Richard E. Davis (President and CEO, Salt LakeConvention and Visitors Bureau, Salt Lake City, UT), and Roy C. Nelson(President [Retired], Bank of Utah, Ogden, Utah); on the Seattle Branch Board, Constance L. Proctor (Partner, Alston,Courtnage, Proctor & Bassetti, LLP, Seattle, WA); and the Twelfth District Member of the Federal Advisory Council, DavidA. Coulter (Chairman and CEO [Retired], BankAmerica Corporation, San Francisco, CA).

Gary G. MichaelChairman

Robert T. ParryPresident

The Federal Reserve Bank of San Francisco

LOOKING

FORWARD

The countdown is on for 01/01/2000 ­­ the start of the new century. On the last day of 1999celebrants around the world will wait for the stroke of midnight with a mixture of excitement,curiosity, and trepidation. Some will greet the new year at parties planned years in advance,while others will be sitting in their offices wondering whether they started planning farenough in advance. Will the much­ballyhooed Y2K computer meltdown occur?

For the Federal Reserve the concern is not only to be certain thatour internal systems are Y2K compliant, but also that we fulfill ourcharter as a regulator of financial institutions and as the nation'smoney manager. Some critical tasks spelled out in the FederalReserve's charter are to ensure safety and soundness in theoperation of financial institutions, to provide stability in financialmarkets, and to maintain the smooth functioning of the nation'spayments system. It's hard to imagine that back in 1913, whenmembers of Congress empowered the Federal Reserve Systemwith these responsibilities, they could have envisioned a daywhen the financial system would be threatened more by outdatedcomputer code than by banking panics.

Basically, it's just that ­­ outdated computer code ­­ that sits atthe root of the Y2K problem which, depending on the newspaperyou read, may cost as much as $860 billion worldwide to fix. Untilrecently, computers have traditionally used two­digit numbers, rather than four­digit, torepresent years ­­ "98" for 1998 instead of "1998" ­­ to optimize space on very expensivemainframe processors. Thus, 2000 may be miscalculated by the electronic brain as 1900. Inthat case the software would not be able to perform certain functions or would produceerroneous results. This has the potential to affect not only mainframe and personalcomputers, but also machinery, appliances, security systems, and other devices withembedded microchips.

2000 AD:Y2K ComputerGlitch

1901 AD:FirstTransatlanticWireless

Message

We think ofcalendars as factualand scientific. Intruth, they are merelya socially agreedupon system ofkeeping account oftime. Calendars forma basis for planningagricultural, hunting,

and migration cycles;for divination andprognostication; andfor maintainingcycles of religiousand civil events.

The fix is not simple, obvious, or inexpensive but can be donesuccessfully. It requires tedious searching through computercode, much of it written in outdated languages by programmerswho may have long since retired.

Planning for the year 2000 began throughout the FederalReserve System in 1995, when tasks were defined and atimeline was established to ensure that any necessarymodifications would be made to our internal systems to enablethem to function normally over the century date change. Keysteps in the process include assessing the scope of changesand resources needed to reach compliance, modifying programcode, testing all systems (including contingency plans), and,finally, implementing the updated systems. A critical phase ofthe project is testing ­­ internally and externally withcustomers, vendors, and other service suppliers such asutilities, transportation providers, and environmental systems.

The Reserve Banks now have completed the renovation andtesting of our internal systems, and we are satisfied that allfinancial service applications of the Federal Reserve are Y2Kready. Testing applications with depository institutions willcontinue throughout 1999.

In addition to readying its own systems, the Federal ReserveSystem is working closely with other regulators and depositoryinstitutions to oversee the preparations of the banking industryas a whole. To facilitate this process, the System hasspearheaded an extensive awareness and educational process.

1900 AD

1800 AD

Communication is a key element of theFederal Reserve effort to ensure bankingindustry readiness for Y2K. Fedrepresentatives meet regularly withother regulators and trade associationsto assess progress, share information,and facilitate information dissemination.A Century Date Change (CDC) web siteat www.frbsf.org/fiservices/cdc/ providesimmediate, up­to­date communicationregarding the project. The Fed regularlycommunicates with financial institutionsin the United States via newslettersdesigned to guide constituents through amaze of data on the subject andprovides updates and information aboutresources, problems, and solutions. Abooklet, "Small Business and the Year2000," was produced for depositoryinstitutions to distribute to theircustomers. Institutions which haveelectronic relationships with the Fedreceive regular bulletins alerting them toinformation such as timelines, details oftesting, and information resources.

United States legal codedoes not specify an

official national calendar­­ use of the Gregorian

calendar in the U.S. stemsfrom an Act of the BritishParliament in 1751, which

specified use of theGregorian calendar in

England and her colonies.

1799 AD:Rosetta Stonefound

1700 AD

The Chinese calendarnames years bypairing one of 10signs related to theChineseconstellations withone of 12 animals ofthe Chinese zodiac.This pairing creates a60­year cycle.January 1, 2000, willfall in the Chineseyear of the EarthRabbit.

Outreach efforts reached a peak in mid­1998 with a series ofseminars offered throughout the country for depositoryinstitutions. In the Twelfth District alone more than 1,200participants attended 16 seminars in 10 locations to receiveupdates and ask questions regarding regulatory and readinessissues. Later in the year, the Federal Reserve scheduled anational satellite teleconference, which reached viewersgathered in more than 200 locations nationwide to learn moreabout testing, liquidity issues, and contingency planning and tohave their questions answered.

As part of our regulatory role, the Federal Reserve isconcerned with making sure that Y2K problems don't adversely

affect the safety and soundness of the country's financialsystem. In conjunction with interagency guidelines, we reviewY2K readiness of banks, bank holding companies, and otherfinancial institutions. We have established testing and readinessrequirements and regularly review institutions' project plansand progress as part of our examination of risk managementand sound business practices.

1695 AD:Bank of Englandestablished

1601 AD:First WelfareProgram

Contingency planning is a crucial part of our Y2Kreadiness plan. This contingency planning involveslooking beyond automated systems and developing away to keep operating without customary resources. Itrequires testing, more testing, and refining variousscenarios. The Fed's contingency and event

scenarios. The Fed's contingency and eventmanagement plans are dedicated to being able torespond quickly to unforeseen circumstances.

Another key responsibility of theFederal Reserve is ensuring thatenough currency and coin are incirculation to meet the public'sdemand. This demand typicallychanges with the level of economicactivity and with the seasons ofthe year. For example, duringholiday seasons additional coinand currency are placed intocirculation and then eventuallyreturned to depository institutionsby merchants. Depositoryinstitutions, in turn, ship theexcess to their regional ReserveBank, where it is credited to their

accounts.

The word "calendar"comes from the Romanterm "kalendae," whichrefers to the first day ofeach month. Kalendae

is derived from theLatin "calare" ­­ to

announce solemnly, tocall out.

Time is the most valuable thinga man can spend.

Theophrastus(d.278B.C.)From DiogenesLaertius, Lives ofEminent Philosophers.

It is expected that the holiday season,coupled with the turn of the century, willcause the demand for coin and currencyto increase at the end of 1999. Someindividuals may choose to hold extra cashduring the century rollover in caseoperating problems should affect anyretail payment system. Also, since abouttwo­thirds of U.S. currency is held outsidethe United States, there may be increasedforeign demand. To meet this demand,the Federal Reserve has increasedsubstantially its fiscal year 1999 printorder from the Bureau of Engraving &Printing over the 1998 level. Thisincreased amount of currency either incirculation or in vaults at the FederalReserve and the Bureau will enable us tofill our customers' currency ordersquickly.

1600 AD

1500 AD

As 1999 continues, the Fed will continue to test, anticipate, plan, and do everything possible toprovide for the smooth operation of the payments sector and the safety and soundness of thenation's banking system. We have taken prudent actions to make sure that 01/01/2000 is trulythe first day of a happy new year and new century.

The Federal Reserve Bank of San Francisco

LOOKING

BACK

What was the country like the last time people were waiting for the calendar to turn to a newcentury? What was it like to live in America on New Year's eve 1899, and what was on theminds of people as they waited to welcome 1900?

December 31, 1899, was a snowy Sunday night in New YorkCity, but that couldn't put a chill on the optimism and eagernessmany residents felt as they anticipated the new century. Timeswere good. Prosperity had returned to the country after theelection of President William McKinley of Ohio in 1896. Even thegovernment was prosperous with the Treasury showing a $46million surplus of income over expenditures. Thus, the periodcame to be referred to variously as the Age of Optimism, theAge of Confidence, and the Age of Innocence. There were 45states, and the population of the nation was 76 million andgrowing rapidly. America was already becoming the "meltingpot" with one­third of its residents foreign born or children offoreign born. The center of the country was still definitelyeastward with nearly 3,500,000 people living in New York. SanFrancisco had only 342,700 residents and Los Angeles had102,000. Portland was not far behind with 90,400. Seattle and

Salt Lake City boasted populations of 80,700 and 53,500, respectively.

An editorial in the January 1, 1900, New York Times proclaimed, "The year 1899 was a yearof wonders...in business and production. It would be easy to speak of the 12 months justpassed as the banner year were we not already confident that the distinction of highestrecords must presently pass to the year 1900....The outlook on the threshold of the newyear is extremely bright."

1492 AD:Columbus'Voyage

1407 AD:Public Banking

There is some debate whetherthe 21st century actually beginsin 2000 or 2001. Because thereis no year "0" in the Gregoriancalendar, the 1st century beganin A.D. 1. Following themathematics, each centurybegins with '01 (1801, 1901) andends with '00 (1900, 2000),indicating that the 21st centuryactually begins January 1, 2001.

The view into the 20th century from the WestCoast was equally hopeful. The San FranciscoChronicle, in its December 31, 1899, issue,reported, "The financial strength and stabilityof San Francisco, the money center of thePacific Coast, are seen to be better than everbefore. The banks have increased theirresources wonderfully, the gain in the lastfour months being over $8,800,000."

Most people ­­ more than 60 percent ­­ livedon farms or in rural areas. But the move bothto the cities and westward was underway.Although most workers were still employed inagriculture, manufacturing employment wasincreasing quickly. In 1898, for the first timethe U.S. exported more manufactured goodsthan it imported. "Big business" was beginningas smaller companies were being acquired by

industry giants such as Amalgamated Copper,and U.S. Steel.

1400 AD

1302 AD:First Mariner'sCompass

There were vast differences in lifestyle between those on the farm and those in thecity. And it wasn't easy to travel between the two. Few were adventuresome orwealthy enough to spend about $1,500 for an automobile. The bus and truck werenot yet invented. The railroad and the horse and wagon were still the main forms oftransportation. Some 193,000 miles of railroad track crisscrossed the country whilethere were only about 150 miles of paved highway. A town not on the railroad wasvirtually remote. City dwellers could take the electric trolley, which expanded theradius of the city to outlying residential areas and made its center somewhat moreaccessible.

If you wanted to ride a subway, youwould have to go to Boston, while NewYork and Chicago offered elevatedrailroads. Once you got to the city, youmight see some incandescent lights, but,most likely, gas street lights, and cityhomes of only the most wealthy wereelectrified. The tallest building in thecountry was the Ivins Syndicate Buildingin New York, rising 29 stories. New York,Chicago, and Philadelphia each had morethan a million residents.

In addition to the disparity between ruraland city life, there were vast differencesbetween the wealthy and the poor, andsocial problems such as child labor,slums, and disease were emerging asindustry and immigration boomed. Theaverage American worker earned 22cents an hour ­­ less than $500 a year.But you could buy eggs for 12 cents adozen, a sirloin steak for 24 cents apound, and stop by the soda fountain fora 5­cent root beer float, 10­cent sundae,or 5­cent lemon phosphate.

The International DateLine is an imaginary linelocated halfway aroundthe globe from the PrimeMeridian. East of the lineit is one day earlier than

to the west, so that aperson crossing the line

east to west gains, orrepeats, one day, while aperson crossing west to

east loses one day.Without this date change,persons traveling aroundthe globe in a consistentdirection would be off

local time by exactly oneday upon return to their

starting point.

1300 AD

1215 AD:Magna CartaSigned

The "tropical year"consists of a fractionalnumber of days, theexact number of whichremains unknown(approximately365.24219). While mostother measurementsallow larger units tocontain exact numbersof smaller units (a dollaris exactly 100 cents),time measurement isbased upon a pre­defined, thoughindeterminable,number.

Medical problems were a great concern. Influenza,pneumonia, tuberculosis, diphtheria, and typhoid wereamong the leading causes of death. The average lifeexpectancy for men was 46.3 years and for women, 48.3years. Wealthy people in the heart of a city might haverunning water, but those outside probably did not. The

American diet suffered since transportation of fresh foodwas highly impractical. Most people were without freshfruit and vegetables during the winter months. Railroadshad refrigerator cars, but the home electric refrigeratorwas yet to be invented.

Public education was becoming more available, especiallythrough the high school level. Nearly all states outside theSouth had compulsory education laws by 1900, and thenational rate of illiteracy had declined from 20 percent in1870 to 10.7 percent in 1900. Wages for the averageteacher were $325 per year.

1200 AD

1100 AD

Communication was difficult. The telephone was not yet inwidespread use, typewriters were scarce, and there wasno such thing as a radio. Magazines and newspaperscomprised what then served as mass communication.There were about 5,000 magazines, most with smallcirculation. But the daily circulation of Joseph Pulitzer'sNew York World newspaper regularly exceeded onemillion. Traveling lecturers and Chautauquas ­­ camp­likecenters for education and entertainment ­­ were popularsources of learning, as were libraries. By 1900 there weremore than 1,700 libraries in the United States withcollections of more than 5,000 volumes.

At the dawn of the 20th century, most Americans werefilled with optimism, delight, and fascination with the newinventions that opened worlds and made tasks easier, andconfidence that opportunities for success would continue tobe offered. In the words of New York Senator Chauncey

Depew, "There is not a man here who does not feel 400 percent bigger in 1900 thanhe did in 1896, bigger intellectually, bigger hopefully, bigger patriotically."

1095 AD:Crusades Begin

1008 AD:World's FirstNovel

The Federal Reserve Bank of San Francisco

1998 Annual Report

EXECUTIVE

COMMITTEE From left, John F. Moore, First Vice President; Jack H. Beebe, Senior

Vice President and Director of Research; (seated) Robert T. Parry,President; Terry S. Schwakopf, Senior Vice President; and Gordon R.G. Werkema, Executive Vice President.

The Federal Reserve Bank of San Francisco

HIGHLIGHTS

O F

1998

As you have read elsewhere in this Report, preparing for the century date change is a toppriority which all of our operating departments addressed in addition to conducting their normalbusiness in 1998. The modifications and testing of our internal systems are complete, and weare now focused on testing and retesting both our contingency and event management plans.

Financial Services

Providing cost­effective and innovative services to the financial services industry, the public, andthe U.S. Treasury is a key element of the San Francisco Reserve Bank's mission. From paper­based payment services like cash distribution and check collection to electronic paymentsystems like the Automated Clearing House (ACH) and the large­dollar Funds Transfer and Book­Entry Securities Systems, the Bank plays a key role in ensuring that the nation's paymentsystems are reliable, efficient, and responsive to changing needs.

An important initiative in 1998 was ensuring that banks with interstate branch networks couldmanage their reserve account and financial services relationships with the Reserve Banks on acoordinated, nationwide basis through the new Interstate Branch Banking account structure. Alsoin an effort to enhance the accessibility and functionality of its services, the Bank piloted two"web­based" services during the year: Check Image, which enables financial institutions to viewdigitized images of their cleared items online, and Cash Order and Deposit Notification.

One of the Bank's ongoing objectives is to promotethe growth of electronic payments and electroniccollection of checks. In 1998 the Bank expanded itsinnovative Automatic Bill Payment Program thatinvolves major utility companies and their banks inencouraging their customers to sign up for ACH debitas a means of bill payment. On the Check side, theBank introduced Front­End MICR, a family of electronicproducts that enables depository institutions to takeadvantage of the full benefits of electronic checkcollection and eliminate physical item processing, thusimproving overall efficiency in the payments system.

The Twelfth District is also leading a Systemwide effortto improve error resolution and customer service byimplementing a common check adjustment processingsystem nationwide. Among other features, Enterprise­Wide Adjustments will facilitate consistent servicelevels across the System and streamline cross­districtadjustments processing. When this project is fullyimplemented, it will be the largest distributedapplication in place in the Federal Reserve System.

The Mayan calendar isactually based onseveral calendars that,meshed together, markthe movement of theSun, the Moon, andVenus. The Mayandivine calendar, theTzolkin, pairs numbersone through 13 with 20day names to createmixtures similar to ourdays of the weekpairing with dates in amonths: 1­Imix, 2­Ik,etc., being similar toSunday the 1st, Mondaythe 2nd.

The Mayan civil calendar,the Haab, consists of 18 20­day months, plus ashort month of five days.

The combined Tzolkin­Haab cycle, known as theCalendar Round, coversapproximately 52 yearsbefore all of the cyclescome back to the samealignment. It is still used

The Bank also spearheaded the Treasury OffsetProgram (TOP) for the U.S. Treasury. The goal of TOPis to develop an automated system to enable creditoragencies to locate delinquent debtors and assist thoseagencies in withholding offsetting governmentpayments to those debtors. The potential financialbenefit of this initiative is substantial; in limited

implementation, the debt collected by TOP is already$5 million.

All offices of this Bank played a key role in informingand educating the public about the redesigned Series1996 $20 bill for several months prior to its Septemberunveiling. Media events, school programs, speeches,and community partnerships served to promote theredesigned bill, which incorporates the latest anti­counterfeiting and low­vision features.

alignment. It is still usedby people in the Mexicanhighlands. The MayanLong Count recordsperiods longer than 52years.

In another milestone involving currency ­­ in this case historical ­­ the Bank's premiere collection of AmericanCurrency, which was put on view in an exhibit in the lobby of the San Francisco office in 1997, was made availableto visitors worldwide on the Bank's web site at www.frbsf.org/currency/. The audience for this magnificentcollection can now include currency experts, historians, students, and the general public, regardless of location;they can take a virtual tour of the exhibit ­­ 24 hours a day, seven days a week ­­ and explore the U.S. historywhich forms the context for the displays.

Economic Research

Formulating and implementing monetary and bankregulatory policies in a manner that keeps theeconomy healthy are primary functions of the FederalReserve. The Bank's Research area contributes to thisprocess by continually studying and analyzing currenteconomic and financial information which affects policydecisions. In addition, its outreach efforts play a keyrole in interpreting monetary policy and explaining thepurposes and functions of the Federal Reserve to thepublic.

A major challenge of the year was to respond to thecurrency crisis in Asia with research, policy briefings,speeches, and publications. Research analyzed thedeterminants of the crisis and its severity as well asthe spread of the crisis through financial marketlinkages. In addition, a staff member providedtechnical assistance to the Asia Development BankInstitute on site in Tokyo for a month.

During the 20 yearswhich Rip had sleptaway on themountainside, greatchanges had takendplace. While Rip hadbeen sleepingpeacefully, a fierce warhad been fought. Nowhe was no longer anEnglishman but anAmerican.

WashingtonIrvingRip VanWinkleThe SketchBook1820

The department, along with the Stanford Institute for Economic Policy Research, presented a conference on"Central Bank Inflation Targeting," bringing together some 100 eminent economists from academia, the FederalReserve, and foreign central banks to discuss the advisability and methodology of explicit inflation targeting.Another conference, co­sponsored with the Federal Reserve Bank of Atlanta, addressed "Financial Modernizationand Regulation." It brought together Federal Reserve policymakers and staff as well as academic economists todiscuss the implications of modernization for the design of financial regulatory policy.

Banking Supervision and Regulation

The Federal Reserve, along with several state and federal agencies, supervises and regulates the nation'sfinancial institutions to ensure their financial soundness and compliance with banking, consumer, and otherapplicable laws. Specifically, the Federal Reserve is responsible for supervising all bank holding companies andtheir nonbank and foreign subsidiaries; state member banks and their foreign branches and subsidiaries; EdgeAct and agreement corporations through which U.S. banking organizations conduct operations abroad; and U.S.activities of foreign banking organizations.

The San Francisco Federal Reserve Bank has implemented a strategy that focuses resources in areas of greatestneed, investing in new technology to increase overall effectiveness. The strategy also helps to retain and develophigh performing staff, and strengthen communication and outreach with the banking community.

The first day of the year 2000on the Gregorian calendar as itwill look on various calendars:Mayan: 12.19.6.15.0, 9

Ahau 8 KankinIslamic: 24 Ramadan 1420

At the end of 1998 there were 70 statemember banks in the District. There were also201 holding companies with assets of $374.9billion, 106 agencies and branches of foreignbanks, 15 Edge and agreement corporationoffices, and 29 representative offices.

Applications activity increased somewhat with244 filings received in 1998, compared to 234in 1997. Two major cases last year whichinvolved considerable analysis and staff

Hebrew: 23 Teveth 5760Julian: 19 December 1999Persian: 11 Dey 1378Ethiopic: 23 Takhsas 1993Coptic: 22 Kivahk 1716Chinese: Cycle 78, year 16,

month 11, day 25

involved considerable analysis and staffattention were the mega­mergers of Bank ofAmerica with NationsBank and Wells Fargowith Norwest. Applications to form bankholding companies decreased by 8 from 35 to27.

Supervision and regulation staff also madesignificant contributions to the Bank's outreachefforts on behalf of Y2K by participating innumerous educational seminars throughoutthe District.

Important functions of the Community Affairs unit are to encourage banks to work with community organizationsto help meet the credit needs of their communities and to monitor compliance with consumer protection lawsrelating to credit. In keeping with this, they created and facilitated a series of Sovereign Lending meetings toaddress access to credit issues for Native American tribes in Washington, Oregon, Idaho, and Utah. Theseseminars brought together tribal representatives, local bankers, and government and nonprofit representatives.The program has increased lending, spurred the creation of small business centers on several reservations,improved relationships between bankers and tribal representatives, and led to the adoption of uniformcommercial codes by several tribes.

Other workshops presented during the year encouraged banks' involvement with nonprofit small businessassistance providers and introduced a new concept to provide funds to match deposits low­income customersplace in special savings accounts, helping them to reach specific financial goals.

The Federal Reserve Bank of San Francisco

1998 Annual Report

BRANCH

OPERATIONS

From left, Raymond H. Laurence, Senior Vice President­in­Charge,Portland; Andrea P. Wolcott, Vice President­in­Charge, Salt Lake City;Gordon R. G. Werkema, Executive Vice President, Northern Region;and Mark Mullinix, Senior Vice President­in­Charge, Los Angeles.

The Federal Reserve Bank of San Francisco

1998 Annual Report

SUMMARY

O F

OPERATIONS

Volume (in thousands)1996 1997 1998

Custody ServicesCash Services

Currency notes paid into circulation 4,317,704 4,626,649 4,739,673Food stamp coupons processed 748,535 654,068 483,942

Securities ServicesOther Treasury original issues 125 105 76Book­entry securities processed 829 751 673

Payments ServicesCheck Services

Commercial checks collected 2,188,856 2,313,792 2,312,860Government checks processed 61,741 54,466 52,103Return items processed 32,767 35,251 34,591

Electronic Payments ServicesWire transfers processed 22,113 24,058 26,622Automated clearinghouse transactions processed

404,974 428,564 499,527

Discounts & AdvancesTotal discounts & transactions* 461 478 463Number of financial institutions accommodated*

83 86 77

*Whole numbers (not in thousands)

The Federal Reserve Bank of San Francisco

1998 Annual Report

SUMMARY

O F

OPERATIONS

Volume (in thousands)1996 1997 1998

Custody ServicesCash Services

Currency notes paid into circulation 4,317,704 4,626,649 4,739,673Food stamp coupons processed 748,535 654,068 483,942

Securities ServicesOther Treasury original issues 125 105 76Book­entry securities processed 829 751 673

Payments ServicesCheck Services

Commercial checks collected 2,188,856 2,313,792 2,312,860Government checks processed 61,741 54,466 52,103Return items processed 32,767 35,251 34,591

Electronic Payments ServicesWire transfers processed 22,113 24,058 26,622Automated clearinghouse transactions processed

404,974 428,564 499,527

Discounts & AdvancesTotal discounts & transactions* 461 478 463Number of financial institutions accommodated*

83 86 77

*Whole numbers (not in thousands)

The Federal Reserve Bank of San Francisco

1998 Annual Report

BANK

OFFICERS

Robert T. ParryPresident and ChiefExecutive Officer

John F. MooreFirst Vice President andChief Operating Officer

Jack H. BeebeSenior Vice President andDirector of Research

Sara K. GarrisonSenior Vice President

Michael J. MurraySenior Vice President

Terry S. SchwakopfSenior Vice President

D. Kerry WebbSenior Vice President

John H. ParrishGeneral Auditor

Robert D. MulfordVice President, General

Counsel, and Ethics Officer

Elizabeth R. MastenVice President and

Secretary of the Board

Barbara ContiniVice President

Frederick T. FurlongVice President

William K. GinterVice President

Reuven GlickVice President

John P. JuddVice President and Associate

Director of Research

Donald R. LiebVice President

Ronald E. Mitchell, Jr.Vice President

Deborah S. SmythVice President

Michael J. StanVice President

Susan A. SutherlandVice President

Sallie H. WeissingerVice President and Directorof Public Information

Patricia A. WelchVice President

Jet Auer de SaramDirector and Deputy General

Counsel

James M. BarnesDirector

Kenneth R. BinningDirector

Harold H. BlumDirector

Eliot E. GiuiliDirector

Andreas HauerDirector

John S. HsiaoDirector

Ann Marie KohlligianDirector

Elizabeth M. O'SheaDirector

David W. WalkerDirector

Kenneth M. KinoshitaAssociate General Counsel

Bonnie R. AllenAssistant Vice President

Barbara J. BeckmanAssistant Vice President

Armen BeylerianAssistant Vice President

James J. CallahanAssistant Vice President

Teresa M. CurranAssistant Vice President

Gail A. GarveyAssistant Vice President

Elaine G. GellerAssistant Vice President

Louis "Skip" GeorgeAssistant Vice President

Todd A. GlissmanAssistant Vice President

Ellen M. HamiltonAssistant Vice President

Beverley­Ann HawkinsAssistant Vice President

Peter K. C. HsiehAssistant Vice President

Michael E. JohnsonAssistant Vice President

Craig B. KnudsenAssistant Vice President

Mark E. LevonianAssistant Vice President

Ellsworth E. Lund, Jr.Assistant Vice President

Joy Hoffmann MolloyAssistant Vice President

Darren S. PostAssistant Vice President

Philip M. RyanAssistant Vice President

W. Starr SeegmillerAssistant Vice President

Daniel K. ShawAssistant Vice President

Gordon S. TannuraAssistant Vice President

James J. TengeAssistant Vice President

Elizabeth L. WoodAssistant Vice President

Kevin C. AleccaCheck Processing Officer

Angela J. D'Alessandro*Examining Officer

* On loan to the Board

Barbara A. BennettCorporate Strategy andDevelopment Officer

Thomas R. BurkeAccounting Officer

Richard K. CabralCash Officer

Lee C. DwyerElectronic Payments andFiscal Services Officer

Alice FarrellAutomation Resources

Officer

Joseph P. MatteyResearch Officer

Brian MotleyResearch Officer

Gary P. PalmerInformation and Technology

Officer

Glenn D. RudebuschResearch Officer

Mark M. SpiegelResearch Officer

Bharat TrehanResearch Officer

Roxana C. TsougarakisFinancial Planning and

Control Officer

Mary E. WujekInformation and Technology

Officer

(As of December 31, 1998)

The Federal Reserve Bank of San Francisco

1998 Annual Report

BRANCH

OFFICERS

Los Angeles Branch

Mark L. MullinixSenior Vice President

Sean J. RodriguezVice President

Robert G. WileyVice President

Robert W. ReplogleDirector

Marla E. BorowskiAssistant Vice President

Robert C. JohnsonAssistant Vice President

Jimmy F. KamadaAssistant Vice President

Mark E. KoegelAssistant Vice President

Dale L. VaughanAssistant Vice President

Linda J. WesterschulteAssistant Vice President

Anthony P. DazzoCash Officer

Steven E. JungCheck Processing Officer

Sherann L. MackBusiness Development Officer

Northern Region

Gordon R. G. WerkemaExecutive Vice President

Portland Branch Seattle BranchRaymond H. LaurenceSenior Vice President

Mary E. LeeAssistant Vice President

Robert D. LongAssistant Vice President

Robin A. RockwoodAssistant Vice President

Gale P. AnsellAssistant Vice President

Mark A. GouldAssistant Vice President

Lynn M. JorgensenAssistant Vice President

Kenneth L. PetersonAssistant Vice President

Salt Lake City BranchAndrea P. WolcottVice President

Jed W. BodilyAssistant Vice President

Gerald R. DallingAssistant Vice President

Richard B. HornsbyAssistant Vice President

Thomas P. McGrathAssistant Vice President

(As of December 31, 1998)

The Federal Reserve Bank of San Francisco

1998 Annual Report

BOARDS

O F

DIRECTORS

1999

Federal Reserve Bank of San Francisco

Chairman and Federal Reserve AgentGary G. MichaelChairman and CEOAlbertson's Inc.Boise, Idaho

E. Lynn CaswellChairman and CEOPacific Community Banking GroupLaguna Hills, California

Warren K. K. LukeVice Chairman, President,and CEOHawaii National BankHonolulu, Hawaii

Deputy ChairmanNelson C. RisingPresident and CEOCatellus Development Corp.San Francisco, California

Krestine CorbinPresident and CEOSierra Machinery, Inc.Sparks, Nevada

Byron I. MallottExecutive DirectorAlaska Permanent FundCorporationJuneau, Alaska

Robert S. AttiyehSenior Vice President and CFO(Retired)ConsultantAmgen, Inc.Thousand Oaks, California

Sheila D. HarrisConsultantHarris ConsultingLitchfield Park, Arizona

John V. RindlaubPresident, Northwest RegionBank of AmericaSeattle, Washington

Federal Advisory CouncilMemberWalter A. Dods, Jr.Chairman and CEOBancWest Corp.Honolulu, Hawaii

Los Angeles Branch

Chairman of the BoardLonnie KanePresidentKaren Kane, Inc.Los Angeles, California

John H. GleasonSenior Vice PresidentDel Webb CorporationPhoenix, Arizona

William D. JonesChairman, President, andCEOCityLink Investment Corp.San Diego, California

Lori R. GayPresidentLos Angeles NeighborhoodHousing Services, Inc.Los Angeles, California

Russell GoldsmithChairman and CEOCity National BankBeverly Hills, California

Liam E. McGeePresident, SouthernCaliforniaBank of AmericaLos Angeles, California

Linda GriegoManaging General PartnerEngine Co. No. 28Los Angeles, California

Portland Branch

Chairman of the BoardNancy WilgenbuschPresidentMarylhurst University

Marylhurst, Oregon

Patrick BorundaExecutive DirectorONABEN ­­ A Native AmericanBusiness Network

Portland, Oregon

Karla S. ChambersVice President and Co­OwnerStahlbush Island Farms, Inc.Corvallis, Oregon

Phyllis A. BellPresidentOregon Coast AquariumNewport, Oregon

Martin BrantleyPresident and General ManagerOregon's 12­KPTVPortland, Oregon

Gary T. DuimVice ChairmanU.S. BancorpPortland, Oregon

Guy L. WilliamsPresident and CEOSecurity BankCoos Bay, Oregon

Salt Lake City Branch

Chairman of the BoardBarbara L. WilsonIdaho and Regional Vice PresidentU.S. WESTBoise, Idaho

Maria GarciazExecutive DirectorSalt Lake NeighborhoodHousing Services, Inc.Salt Lake City, Utah

Jon M. Huntsman, Jr.Vice ChairmanHuntsman CorporationSalt Lake City, Utah

R. D. CashChairman, President and CEOQuestar CorporationSalt Lake City, Utah

Curtis D. HarrisChairman, President and CEOBarnes Banking Co.Kaysville, Utah

J. Pat McMurrayPresidentFirst Security Bank, N.A.Boise, Idaho

Nancy S. MortensenVice President, MarketingZions Cooperative MercantileInstitutionSalt Lake City, Utah

Seattle Branch

Chairman of the BoardRichard R. SonstelieChairman of the BoardPuget Sound Energy, Inc.Bellevue, Washington

James C. HawkansonManaging Director and CEOThe Commerce Bank ofWashington, N.A.Seattle, Washington

Tomio MoriguchiChairman and CEOUwajimaya, Inc.Seattle, Washington

Boyd E. GivanSenior Vice President and CFO(Retired)The Boeing CompanySeattle, Washington

Betsy LawerVice Chair and COOFirst National Bank of AnchorageAnchorage, Alaska

Helen M. RockeyPresident and CEOBrooks Sports, Inc.Bothell, Washington

Peter H. Van OppenChairman and CEOAdvanced Digital InformationCorporationRedmond, Washington

The Federal Reserve Bank of San Francisco

1998 Annual Report

ADVISORY

COUNCIL

1999

ChairmanBailey "Biff" S. BarnardSenior Vice President

Allied Capital CorporationSan Francisco, California

Vice ChairmanWalter F. Payne, Jr.President and CEO

Blue Diamond GrowersSacramento, California

Members

Barbara BryDirector

ATCOM/INFOSan Diego, California

Ed P. MaynePresident

Utah AFL­CIOWest Valley City, Utah

Bob L. VicePresident

BLV, Agribusiness ConsultantsFallbrook, California

Thomas E. ClevelandChairman and CEO

Access Business FinanceBellevue, Washington

Laura E. NaumesVice PresidentNaumes, Inc.

Medford, Oregon

Richard S. WaldenPresident

Farmers Investment CompanySahuarita, Arizona

Paula R. CollinsChief Executive OfficerWDG Ventures, Inc.

San Francisco, California

Lawrence S. OkinagaPartner

Carlsmith BallHonolulu, Hawaii

Don M. "Duff" WilleyPresident

Willey Motors, Inc.Bountiful, Utah

Paul Ecke IIIChairman and CEOPaul Ecke RanchEncinitas, California

Peter H. ParraChairman

Board of SupervisorsFifth District, County of KernBakersfield, California

Denice A. Young, C.P.A.President

Young Real Estate GroupTorrance, California

The Federal Reserve Bank of San Francisco

1998 Annual Report

TWELFTH

FEDERAL

RESERVE

DISTRICT

San Francisco OfficeP.O. Box 7702San Francisco, California 94120

Los Angeles BranchP.O. Box 2077, Terminal AnnexLos Angeles, California 90051

Portland BranchP.O. Box 3436Portland, Oregon 97208

Salt Lake City BranchP.O. Box 30780Salt Lake City, Utah 84130

Seattle BranchP.O. Box 3567Seattle, Washington 98124­3567

This Report was produced and written by Karen Flamme.Design and illustrations were created by Mark Hendricks.Sidebars and layout were completed by Dylan Frederick.Color photography by Paul Schulz.

The Federal Reserve Bank of San Francisco

1998 Annual Report

FINANCIAL

STATEMENT S*

February 11, 1999

To: PricewaterhouseCoopers LLP

The management of the Federal Reserve Bank of San Francisco (FRB­SF) is responsible for thepreparation and fair presentation of the Statement of Financial Condition, Statement of Income, andStatement of Changes in Capital as of December 31, 1998 (the "Financial Statements"). The FinancialStatements have been prepared in conformity with the accounting principles, policies, and practicesestablished by the Board of Governors of the Federal Reserve System and as set forth in the FinancialAccounting Manual for the Federal Reserve Banks, and as such, include amounts, some of which arebased on judgments and estimates of management.

The management of the FRB­SF is responsible for maintaining an effective process of internal controlsover financial reporting including the safeguarding of assets as they relate to the FinancialStatements. Such internal controls are designed to provide reasonable assurance to management andto the Board of Directors regarding the preparation of reliable Financial Statements. This process ofinternal controls contains self­monitoring mechanisms, including, but not limited to, divisions ofresponsibility and a code of conduct. Once identified, any material deficiencies in the process ofinternal controls are reported to management, and appropriate corrective measures are implemented.

Even an effective process of internal controls, no matter how well designed, has inherent limitations,including the possibility of human error, and therefore can provide only reasonable assurance withrespect to the preparation of reliable financial statements.

The management of the FRB­SF assessed its process of internal controls over financial reportingincluding the safeguarding of assets reflected in the Financial Statements, based upon the criteriaestablished in the "Internal Control Integrated Framework" issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO). Based on this assessment, the management ofthe FRB­SF believes that the FRB­SF maintained an effective process of internal controls over financialreporting including the safeguarding of assets as they relate to the Financial Statements.

Federal Reserve Bank of San Francisco

byRobert T. ParryPresident

byJohn F. MooreFirst Vice President

PricewaterhouseCoopers LLP

Report of Independent Accountants

To the Board of Directors of theFederal Reserve Bank of San Francisco

We have examined managements assertion that the Federal Reserve Bank of San Francisco ("FRBSan Francisco") maintained effective internal control over financial reporting and the safeguarding ofassets as they relate to the Financial Statements as of December 31, 1998, included in the

accompanying Managements Assertion.

Our examination was made in accordance with standards established by the American Institute ofCertified Public Accountants, and accordingly, included obtaining an understanding of the internalcontrol over financial reporting, testing, and evaluating the design and operating effectiveness of theinternal control, and such other procedures as we considered necessary in the circumstances. Webelieve that our examination provides a reasonable basis for our opinion.

Because of inherent limitations in any internal control, misstatements due to error or fraud may occurand not be detected. Also, projections of any evaluation of the internal control over financial reportingto future periods are subject to the risk that the internal control may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may

changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate.

In our opinion, managements assertion that the FRB San Francisco maintained effective internalcontrol over financial reporting and over the safeguarding of assets as they relate to the FinancialStatements as of December 31, 1998, is fairly stated, in all material respects, based upon criteriadescribed in " Internal Control ­ Integrated Framework" issued by the Committee of SponsoringOrganizations of the Treadway Commission.

[Signed PricewaterhouseCoopers LLP]

San Francisco, California March 5, 1999

PricewaterhouseCoopers LLP

Report of Independent Accountants

To the Board of Governors of The Federal Reserve Systemand the Board of Directors of the Federal ReserveBank of San Francisco

We have audited the accompanying statements of condition of the Federal Reserve Bank of SanFrancisco (the "Bank") as of December 31, 1998 and 1997, and the related statements of income andchanges in capital for the years then ended. These financial statements are the responsibility of theBank's management. Our responsibility is to express an opinion on the financial statements based onour audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis forour opinion.

As discussed in Note 3, the financial statements were prepared in conformity with the accountingprinciples, policies, and practices established by the Board of Governors of The Federal ReserveSystem. These principles, policies, and practices, which were designed to meet the specializedaccounting and reporting needs of The Federal Reserve System, are set forth in the FinancialAccounting Manual for Federal Reserve Banks and constitute a comprehensive basis of accountingother than generally accepted accounting principles.

In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of the Bank as of December 31, 1998 and 1997, and the results of its operations forthe years then ended, on the basis of accounting described in Note 3.

[Signed PricewaterhouseCoopers LLP]

San Francisco, CaliforniaMarch 5, 1999

*As of December 31, 1998