[Federal Register Volume 61, Number 84 (Tuesday, April 30, 1996)]
[Notices]
[Pages 19062-19064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-10606]
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FEDERAL RESERVE SYSTEM
[Docket No. R-0922]
Federal Reserve Uniform Cash Access Policy
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Policy statement.
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SUMMARY: The Board has revised its cash access policy to provide
greater consistency in Federal Reserve Bank cash service levels. The
policy provides for a base level of free currency access to all
depository institutions, but restricts the number of offices served and
the frequency of access. Depository institution offices that meet
minimum volume thresholds will be able to obtain more frequent free
access. Additional access, beyond the free service level, will be
priced.
EFFECTIVE DATE: May 1, 1998.
FOR FURTHER INFORMATION CONTACT: Jon J. Cameron, Manager (202/452-2220)
or Kathleen M. Connor, Senior Financial Services Analyst (202/452-
3917), Cash Section, Division of Reserve Bank Operations and Payment
Systems; for the hearing impaired only: Telecommunications Device for
the Deaf, Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
I. Background
The Federal Reserve Banks supply currency and coin to depository
institutions throughout the nation. Reserve Banks provided cash
services to Federal Reserve member banks at no explicit fee (beyond the
face value of cash orders or deposits) from 1914 to 1981. Nonmember
institutions received cash services from the Treasury Department until
the transfer of its Subtreasury functions to the Federal Reserve Banks
in 1920. As a result, nonmember institutions generally met their cash
needs through correspondent member banks from 1920 to 1980. During this
period, member banks could request the Federal Reserve to provide cash
services to a nonmember institution. The member's reserve account would
reflect the transaction, including a charge to reimburse the Federal
Reserve for the cash transportation cost.
The Monetary Control Act of 1980 authorized the Federal Reserve
Banks to offer priced services to both member and nonmember
institutions, and included currency and coin services in its list of
priced Federal Reserve Bank services. The Board determined in the
development of its pricing principles that ``currency and coin
processing (paying, receiving and verifying both coin and currency, and
issuing, processing, canceling, and destroying currency) are
governmental functions and would not be priced.'' The Board noted,
however, that ``the Reserve Banks may impose reasonable limitations on
frequency of service, number of offices served and size of orders/
deposits.'' (45 FR 56893, September 4, 1980)
As part of the Federal Reserve's implementation of the Monetary
Control Act, the Board adopted a policy in November 1981 to provide
standard access nationwide to every depository institution that
requested coin and currency directly from the Federal Reserve. (46 FR
55152, November 6, 1981) Under the policy, the Board required that all
Federal Reserve offices provide access to, at a minimum, one office per
depository institution or one office of a depository institution per
municipality, subject to adjustment where special circumstances apply.
In 1982, the Board adopted fee schedules for currency and coin
transportation and coin wrapping services. (47 FR 58364, December 30,
1982)
In 1984, the Board adopted uniform cash service standards (UCSS)
for Federal Reserve Banks and most recently revised the UCSS in 1987.
The UCSS provide a common framework for Federal Reserve cash services.
The UCSS address packaging standards, handling and verification
requirements, access frequency, and depository institution service
levels. The UCSS allow normal service to each authorized depository
institution or office once per week and recognizes that certain
depository institution offices may call for more frequent service where
volume and cost justify more frequent service. Under the UCSS, Reserve
Banks that wish to provide access exceeding the basic frequency may do
so as a priced service but are not required to price the service.
In 1987, the Federal Reserve Bank of Minneapolis and the Detroit
Branch of the Federal Reserve Bank of Chicago established access fees
for additional cash services in excess of the free weekly service
allowed by the UCSS. In March 1996, the Federal Reserve Bank of San
Francisco modified its cash service structure to restrict the frequency
of access. Under the modified structure, a depository institution must
meet a minimum bundle threshold to qualify for more frequent access.
\1\ Additional access is priced if the bundle threshold is not met.
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\1\ A bundle is a standard unit of 1000 currency notes of the
same denomination. Deposits of lower denomination notes generally
are made in bundle increments. Deposits of higher denomination notes
(e.g., $50s or $100s) generally are made in strap increments (100
currency notes).
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Currently, there is a lack of consistency in the cash service
levels provided by the Reserve Banks. Some Reserve Bank offices limit
access to cash services to as few as five offices per depository
institution, while other offices allow unrestricted access (up to 400
offices). While some Reserve Bank offices permit unrestricted frequency
of access, other offices limit frequency based on parameters such as
dollar values, volumes, and location. As noted above, only a few
offices offer additional priced access. Consistency in Federal Reserve
policies and service levels will become increasingly important as an
increasing number of depository institutions have a presence in
multiple Federal Reserve districts.
II. Uniform Cash Access Policy
The Board has approved a new cash access policy, which was
developed within the following framework: (1) the structure of cash
services should include a common, base level of free services to
achieve greater uniformity in Federal Reserve cash service levels; (2)
the base level of free cash services should be consistent with a
wholesale role for the Reserve Banks, which implies that a large
depository institution is responsible for servicing its own branch
network; and (3) Reserve Banks that choose to provide cash services
exceeding the base level may do so as a priced service, where demand
exists.
The new policy imposes more uniformity on the provision of cash
services than currently exists. While the policy reflects the differing
operating capabilities of the various Federal Reserve Bank offices, the
Board's intent is to move to full uniformity within two years of
implementation of this policy. The Board will review the Reserve Banks'
initial experience with this policy and assess whether there are
impediments to moving to a fully uniform policy. Based on the results
of the review, the Board may modify the policy to achieve Systemwide
uniformity with respect to volume thresholds, pricing, and additional
priced access.
Following is a discussion of the new cash access policy and how and
why it
[[Page 19063]]
differs from the current policy provisions.
A. Number of Depository Institution Offices Eligible for Free Access
Under the new policy, each depository institution with a banking
presence in a Federal Reserve office territory can designate up to ten
offices to receive free cash access (deposit and order) service from
the local Reserve Bank office. Beyond the ten offices, Reserve Bank
offices will provide free cash access to large offices whose volumes
exceed a specified threshold and that satisfy the local Reserve Bank
office's denomination bundle standard.2 Each district will set a
``high bundle threshold,'' within the range of fifty to one hundred
bundles, to accommodate the needs of the geographic area being serviced
by a particular office within their district. During initial
implementation of the policy, depository institutions will include the
known large offices exceeding the ``high bundle threshold'' in the
original ten designated offices to receive free access to cash
services.
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\2\ The Reserve Banks make payments and accept deposits in
standard units as defined by the UCSS. The denomination bundle
standard is set by the individual Reserve Bank office to reflect the
operating needs of the office. Each Reserve Bank's denomination
bundle standard is included in its cash operating circular.
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The current policy requires Federal Reserve Banks to provide free
cash access service to depository institutions on an equal and
impartial basis, consistent with their capabilities to provide such
service through maximum utilization of available physical facilities.
The varying application of this provision by the Reserve Bank offices
has resulted in inconsistent cash service levels throughout the System.
The new ten-office provision provides uniformity in the provision
of cash services. The new provision is consistent with the wholesale
role of the Federal Reserve in providing cash services, particularly
with respect to large institutions. The policy encourages large
institutions to consolidate deposit and cash ordering functions and
imposes reasonable limitations on the number of offices served.
The provision for ten free endpoints may provide many smaller
depository institutions with complete coverage of their branch network.
The Board considered developing a formula to set the number of
endpoints eligible to receive free service based on the institution's
deposit size and total number of endpoints. The Board concluded that
such a formula would prove too difficult to administer and that the
provision of ten free endpoints would result in the least disruption to
the current level of free cash services.
The Reserve Banks estimate that 95 percent of depository
institutions would continue to receive their current level of cash
services free of charge. The policy would affect primarily branch
networks of large depository institutions. The policy would result in a
reduction of approximately 8,700 endpoints from the current base of
29,500 endpoints that currently receive free cash services (a reduction
of approximately 26 percent). The Board believes implementation of the
policy will not materially affect the Reserve Banks' costs of providing
cash services. Aggregate cash receipts and disbursements are expected
to remain unchanged.
The Reserve Banks will establish procedures to ensure that, if a
depository institution receives free access to more than ten offices,
all endpoints must meet the high bundle threshold. In addition, the
Reserve Banks have developed administrative guidelines to accommodate
mergers and bank acquisitions. For one year after the merger or
acquisition, the merged institutions can receive the same level of free
access as they received at the time of the merger. After one year, the
Reserve Banks will treat the merged institutions as one entity for the
purposes of this policy.
B. Frequency of Access
Normal free access for each designated office of the depository
institution will continue to be once per week. Access more frequent
than once per week will be available free of charge to the designated
endpoints whose volumes exceed a twenty-bundle aggregate threshold and
that satisfy the local Reserve Bank office's denomination bundle
standard.
These provisions impose reasonable limitations on the frequency of
service and standardize System service levels. They are consistent with
the current cross-shipping policy, which will continue under the new
cash access policy.\3\ Elimination of the cross-shipping policy could
result in some depository institutions relying on the Reserve Banks as
money distribution centers, which would be inconsistent with the
Federal Reserve's wholesale role.
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\3\ The cross shipment policy states that cross shipment
(deposit of excess fit currency and reorder of the same denomination
within five business days) should be eliminated at the depositing-
office level, and minimized, or eliminated where practicable, at the
depositing-institution level.
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C. Priced Additional Access
The new policy requires that Reserve Banks price additional cash
services. Under the current policy, Reserve Banks that provide access
exceeding the basic frequency can do so as a priced service but are not
required to price the service. The Board anticipates that all Reserve
Banks will offer priced cash services except for those offices that can
demonstrate that operational limitations prevent them from doing so.
The pricing of additional service will recover the cost of access
to the Federal Reserve cash vault only and will not reflect the costs
of the governmental aspects of the Reserve Banks' cash services, such
as vault storage and processing of currency. Preliminary estimates of
the range of Reserve Bank fees for additional access are $20-$100 per
deposit or order.
D. Delegation of Authority
The Board believes that flexibility is desirable in the
administration of future routine changes to the policy. The Board,
therefore, has delegated authority to the Director of the Division of
Reserve Bank Operations and Payment Systems to (1) approve changes in
the base number of free endpoints and the volume thresholds; and (2)
waive the policy for a limited period if warranted by special
circumstances, such as a natural disaster or the introduction of new
currency.
III. Effective Date
The new cash access policy becomes effective on May 1, 1998. The
Board believes that two years is adequate time for financial
institutions to make the necessary preparations to implement the
policy.
IV. Competitive Impact Analysis
The Board assesses the competitive impact of changes that may have
a substantial effect on payment system participants. In particular, the
Board assesses whether a proposed change would have a direct and
material adverse effect on the ability of other service providers to
compete effectively with the Federal Reserve Banks in providing similar
services and whether such effects are due to legal differences or due
to a dominant market position deriving from such legal differences.
The Reserve Banks will continue to perform the governmental
functions of currency and coin processing. While private-sector service
providers cannot duplicate the entire range of Federal Reserve cash
functions, these providers can supply and accept coin and currency. In
addition, private-sector service providers offer an array of value-
[[Page 19064]]
added cash services that the Federal Reserve Banks do not provide. For
example, some private-sector service providers maintain automated
teller machines for depository institutions and offer specific retail
services for the depository institutions' customers. Therefore, it is
unlikely that the policy will result in any significant shift to
Federal Reserve cash services away from private-sector providers. The
Board's policy, as revised, does not adversely affect the ability of
depository institutions or service providers to compete with the
Federal Reserve Banks to provide cash services.
V. Federal Reserve Cash Service Access Policy
The Board has adopted the following Federal Reserve cash access
policy:
1. Number of endpoints eligible for free cash access. Each
depository institution with a banking presence in a Federal Reserve
office territory can designate up to ten offices in that territory to
receive free cash access (deposit and order) service from the local
Reserve Bank office.
Beyond the ten offices, Reserve Bank offices will provide free cash
access to endpoints whose volumes exceed a specified threshold and that
satisfy the local Reserve Bank office's denomination bundle standard.
Each Reserve Bank office will set a ``high bundle threshold,'' within
the range of fifty to one hundred bundles, to accommodate the needs of
the geographic area being serviced within that Federal Reserve office
territory. If a depository institution receives free access for more
than ten endpoints, all endpoints must meet the high bundle threshold.
2. Frequency of access. Normal free access for each designated
office of the depository institution will be once per week. Access more
frequent than once per week will be available free of charge to each
designated office whose volume exceeds a twenty-bundle aggregate
threshold and that satisfies the local Reserve Bank office's
denomination bundle standard.
3. Priced access. Reserve Bank offices may choose to accommodate
additional access where the demand exists subject to the constraints of
the physical facilities at each Reserve Bank office. Reserve Banks must
price access to cash services beyond the free service described above,
if offered.
4. Delegation of authority. The Director of the Division of Reserve
Bank Operations and Payment Systems, under delegated authority, may (1)
approve changes in the base number of free endpoints and the volume
thresholds; and (2) waive the policy for a limited period if warranted
by special circumstances, such as a natural disaster or the
introduction of new currency.
By order of the Board of Governors of the Federal Reserve
System.
Dated: April 24, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-10606 Filed 4-29-96; 8:45 am]
BILLING CODE 6210-01-P