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49th Annual Management Conference

2001 Distinguished Alumni Awards

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Richard Spillenkothen, '75

 

CAREER HIGHLIGHTS

1972-1975
First National Bank of Chicago

1975-Present
Federal Reserve
--senior financial analyst

--manager of projects and planning

--assistant director

--deputy associate director for policy development, implementation, and training

--director of banking supervision and regulation

 

 

2001 Distinguished Alumni Awards

The Safety Net
Since joining the Federal Reserve System, Richard Spillenkothen, '75, has witnessed nearly three decades of challenges to the U.S. financial system, from the real estate troubles of the '70s, to the farm crisis of the '80s, and the global financial problems of the '90s.

He also has seen dramatic changes in the banking industry--diversification, globalization, and deregulation. Yet as director of banking supervision and regulation for the Fed, he has worked to promote the safety and soundness of American financial institutions. He also has served at a time when the supervisors' role has evolved to focus on risk management and technological development.

For these reasons, Chicago GSB has honored Spillenkothen with this year's Distinguished Public Service/Public Sector Alumnus Award.

"I've always been interested in politics, government, and public policy," said Spillenkothen, who left First National Bank of Chicago in 1975 to join the Fed as a senior financial analyst. "I thoroughly enjoyed the bank, but I had always been interested in the intersection of economics, finance, and the public and private sectors."

Thus, the Federal Reserve System, which has important macroeconomic and monetary policy responsibilities, plays a central supervisory role in promoting financial stability, and oversees the nation's payment system, has been an ideal place for Spillenkothen to build his career.

As the independent central bank for the United States, the Fed oversees a network of 12 reserve banks; supervises and regulates banking organizations such as bank holding companies, state member banks, and Edge Act corporations (corporations through which U.S. banking organizations conduct operations abroad); and ensures that the country's financial institutions maintain adequate reserves. It also provides for electronic fund transfers and transaction settlements, sets the interest rates of loans made to member banks, and preserves financial relationships with foreign governments.

Starting at the Fed amid the high inflation and general economic stress of the 1970s was difficult, Spillenkothen said. "It was a challenging time, but I had the benefit of having worked at a bank and seeing what actually goes on there--how they manage themselves, and how they identify and manage risk."
"We as regulators are managing the financial system amid a world of tremendous and dramatic change."

Employing that knowledge to help improve the country's economic state, Spillenkothen led federal efforts to develop an examination system to summarize and evaluate the conditions of banking organizations. The system, known as CAMEL, is an acronym for the five qualities it analyzes: capital adequacy, asset quality, management administration, earnings, and liquidity. The rating system, established in the late 1970s, is still used by the Federal Reserve and other government agencies, including the Office of the Comptroller of the Currency and the FDIC.

"It's a framework that helps us to better identify and pinpoint weaknesses in financial institutions, so that we can work with the institutions to develop corrective action plans," Spillenkothen said. An interagency tool, CAMEL gives bank supervisors a common means for communicating and sharing information. It also has been adopted by several foreign nations and remained virtually unchanged for its first 15 years. In 1997, a sixth analytical component was added‹sensitivity to market risk--and CAMEL became CAMELS.

During the 1980s and early 1990s, new banking challenges emerged, and Spillenkothen developed supervisory policies to deal with them, all the time working in positions of greater and greater authority.

"Different regions of the country [were] under significant stress," he said. "The farm debt crisis led to a lot of small bank failures in the Midwest...There also were tremendous real estate problems in the Northeast and other parts of the country. In addition, some large banks were affected by loans to emerging market countries."

As an assistant director and later as deputy associate director for policy development, implementation, and training, Spillenkothen worked to identify troubled areas before they became crises. The goal was to encourage banks to take proactive steps before small stresses became large, systemic problems.

"We tried to develop policies that would lead banks to identify and resolve their own problems," said Spillenkothen. "These included requiring banks to raise more capital and requiring them to cut their dividends to conserve capital, absorb losses, and give them more time to address problems."

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