As president of the Federal Reserve Bank of Richmond, J. Alfred Broaddus Jr. knows a thing or two about the retail payment system.
The Richmond Fed is the headquarters of the Federal Reserve Automated Service, which manages all of the central bank's priced-services businesses and is home to one of three redundant computer centers that processes retail payment services.
The Fed must continue to process and clear checks, he said, because it alone can prevent default by one large institution from causing the system to collapse.
"Final settlement is a quintessential central bank function," Mr. Broaddus said in a recent interview. "The Fed has to be involved in that."
A complete review of the central bank's participation in the priced- service arena is being conducted by Fed Vice Chairman Alice M. Rivlin. She recently released five possibilities for the Fed ranging from quitting the market to becoming the leader in automated payment systems. Mr. Broaddus is assisting in that review.
The biggest challenge for the Fed will come from emerging electronic payment systems, such as smart and stored-value cards, Mr. Broaddus predicted. Private companies will offer these products, he said, but the Fed will settle the accounts.
Securities firms and other nonbank providers of financial services should not have access to Fed Wire and other payment system services, according to Mr. Broaddus.
Banks are highly regulated, which reduces the chance that one of them would jeopardize the payment system by defaulting on a payment, he said. "The safety and soundness of the payment system cannot be jeopardized in any way."
Although spending much of his career as an economist, Mr. Broaddus quickly became a banking expert after assuming the helm of the Richmond Fed in 1993.
The professional economist established a regular series of half-day briefings involving up to 50 staff members on specific banking issues, such as the mixing of commercial and investment banking.
"When you come to something late in your career, there are always going to be holes and I'm trying to fill those," Mr. Broaddus said. "These bank policy briefings help educate me and the staff."
Mr. Broaddus is not someone to tackle a challenge half-heartedly. For instance, when he started running for exercise, his goal wasn't just making it around the block. He set his sights on completing the Richmond Marathon.
His first marathon wasn't easy. After struggling through 26 miles, leg and back cramps sent him to the pavement with just 300 yards to go. He managed to regain his footing without help and staggered to the finish line.
He ran his last marathon in 1985, finishing in four hours, 19 minutes. "My feet and joints couldn't take it any more," the 57-year-old executive said. But he continues to enter shorter races with his wife and two sons. "I don't work with wood," he said. "I don't play golf. But my wife, Margaret, and I run together and we enjoy it."
A Fulbright fellow, he studied the creation of the European Community in the 1960s at the University of Strasbourg, France. "It was one of the great experiences of my life," he said. "I grew up here in Richmond and had never been overseas, so this opened my eyes."
He recalls renting a room from a 70-year-old widow. "She had a vision of Americans as more fun-loving than she wanted," he said. "She was suspicious, but I convinced her I wasn't going to have a party there every night."
His family recently returned to Strasbourg to visit his old haunts, which he said were surprisingly unchanged. They also toured Munich, where his wife studied. "That was the best vacation we ever had as a family," he said.
After returning from school in Europe, Mr. Broaddus became a Defense Intelligence Agency specialist before enrolling at Indiana University to study the Soviet economy. "The idea was to return to the Department of Defense as a Soviet expert," he said.
Instead, he got hooked on his first-year money and banking class. After finishing his PhD course work in 1970, Mr. Broaddus received offers from the Federal Deposit Insurance Corp., the Federal Reserve Bank of Cleveland, and the Richmond Fed.
He chose to return to his boyhood hometown, Richmond, and has remained with the bank for the past 27 years, moving steadily up the ranks, becoming research director in 1985.
Mr. Broaddus lives only four miles from the bank and often goes home for dinner and a run before returning to his office in the evening. "I'm a night owl," he said.
He does not hide behind his office door. He is vice chairman of Health Corp. of Virginia, past president of the Richmond Memorial Hospital fund, and a member of the board of the World Affairs Council and the Confederate Museum.
His passion is monetary policy. "I'm a strong proponent of the Fed focusing on aggregate price stability," he said. "That is the type of monetary policy that will contribute to strong growth in jobs and output."
Robert D. McTeer Jr., president of the Federal Reserve Bank of Dallas, said his Richmond Fed colleague is a forceful advocate. "He is very consistent and persistent in his anti-inflationary views," Mr. McTeer said. "He is a hawk's hawk."
Staff members brief Mr. Broaddus several times a week on the latest economic data and he gives about 30 speeches a year around the district on the state of monetary policy.
"There is always a perception that central banks are closed institutions, remote and aloof and not always sensitive to the needs of ordinary households," he said. "I try to counter that by getting out and talking."
His outreach is appreciated. "If we picked up the phone and asked him to come, he would drive down or jump in a plane," said Thad Woodard, president of the North Carolina Bankers Association. "He is very responsive. Accessibility is one of his trademarks."
"He is doing an outstanding job," agreed Walter C. Ayers, executive vice president of the Virginia Bankers Association. "He is held in high regard both for his command of economic policy and for his ability to get out into the community and share his insight."
The Richmond district is home to some of the most aggressive, expansion- minded banks in the country, including NationsBank Corp. and First Union Corp.
Mr. Broaddus said he sees little harm in the merger wave, adding that larger banks are fierce competitors. "I have no reason to believe consolidation won't be beneficial," he said. "We are in a period where competition is increasing and not decreasing."
On financial modernization, he pretty much toes the Fed line. Combining banking and commerce could work, he said, noting that thrifts crossed that line long ago. But he questioned whether banks are ready to manage such a radical change. For instance, banks may feel pressured to save ailing commercial subsidiaries by extending unsound loans or they may use their lower costs of funds to finance commercial ventures. "There are risks, but also opportunities," he said. "We need a balance."
Although he supports Glass-Steagall repeal, Mr. Broaddus said the Fed has used the Depression-era law to allow banks into the securities business slowly. This has given institutions a chance to develop risk-management systems before they put too much of their capital at risk, he said. "The way it has evolved has been beneficial."
He is not philosophically opposed to having banks underwrite securities in direct subsidiaries as the Comptroller of the Currency advocates. But he said regulators would have to guarantee that banks do not fund the business with insured deposits or expand the safety net to investment banking products. "That is the most important issue we need to be clear about," he said.