[Federal Register Volume 72, Number 217 (Friday, November 9, 2007)]
[Notices]
[Pages 63592-63608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5602]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1299]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
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SUMMARY: The Board has approved the private sector adjustment factor
(PSAF) for 2008 of $113.1 million and the 2008 fee schedules for
Federal Reserve priced services and electronic access. These actions
were taken in accordance with the requirements of the Monetary Control
Act of 1980, which requires that, over the long run, fees for Federal
Reserve priced services be established on the basis of all direct and
indirect costs, including the PSAF. The Board has also approved
maintaining the current earnings credit rate on clearing balances.
DATES: The new fee schedules and earnings credit rate become effective
January 2, 2008.
FOR FURTHER INFORMATION CONTACT: For questions regarding the fee
schedules: Jack K. Walton II, Associate Director, (202/452-2660);
Jeffrey S.H. Yeganeh, Manager, Retail Payments, (202/728-5801); Edwin
J. Lucio, Senior Financial Services Analyst, (202/736-5636), Division
of Reserve Bank Operations and Payment Systems. For questions regarding
the PSAF and earnings credits on clearing balances: Gregory L. Evans,
Assistant Director, (202/452-3945); Brenda L. Richards, Manager,
Financial Accounting, (202/452-2753); or Jonathan Senner, Senior
Financial Analyst, (202/452-2042), Division of Reserve Bank Operations
and Payment Systems. For users of Telecommunications Device for the
Deaf (TDD) only, please call 202/263-4869. Copies of the 2008 fee
schedules for the check service are available from the Board, the
Federal Reserve Banks, or the Reserve Banks' financial services Web
site at http://www.frbservices.org.
SUPPLEMENTARY INFORMATION:
I. Private Sector Adjustment Factor and Priced Services
A. Overview--Each year, as required by the Monetary Control Act of
1980, the Reserve Banks set fees for priced services provided to
depository institutions. These fees are set to recover, over the long
run, all direct and indirect costs and imputed costs, including
financing costs, taxes, and certain other expenses, as well as the
return on equity (profit) that would have been earned if a private
business firm provided the services. The imputed costs and imputed
profit are collectively referred to as the PSAF. Similarly, investment
income is imputed and netted with related direct costs associated with
clearing balances to estimate net income on clearing balances (NICB).
From 1997 through 2006, the Reserve Banks recovered 99.0 percent of
their total expenses (including special project costs and imputed
expenses) and targeted after-tax profits or return on equity (ROE) for
providing priced services.\1\
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\1\ The ten-year recovery rate is based upon the pro forma
income statement for Federal Reserve priced services published in
the Board's Annual Report.
Effective December 31, 2006, the Reserve Banks implemented
Financial Accounting Standards No. 158: Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans (FAS 158),
which resulted in recognizing a reduction in equity related to the
priced services' benefit plans. Including this reduction in equity
results in cost recovery of 95.5 percent for the ten-year period.
This measure of long-run cost recovery is also published in the
Board's Annual Report.
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Table 1 summarizes 2006, 2007 estimated, and 2008 budgeted cost
recovery rates for all priced services. Cost recovery is estimated to
be 101.5 percent in 2007 and budgeted to be 101.1 percent in 2008. The
check service accounts for approximately 80 percent of the total cost
of priced services and thus significantly influences the aggregate cost
recovery rate. The electronic services (FedACH[supreg], the
Fedwire[supreg] Funds Service and National Settlement Service (NSS),
and the Fedwire[supreg] Securities Service) account for approximately
20 percent of total costs.\2\
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\2\ FedACH and Fedwire are registered servicemarks of the
Reserve Banks.
Table 1.--Aggregate Priced Services Pro Forma Cost and Revenue Performance a
[$ millions]
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5e
3 Net Recovery
2c Total income 4d Target rate after
Year 1b Revenue expense (ROE) [1- ROE target ROE
2] [1/(2+4)]
(percent)
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2006........................................... 1,031.2 875.5 155.7 72.0 108.8
2007 (estimate)................................ 1,015.1 920.0 95.1 80.4 101.5
[[Page 63593]]
2008 (budget).................................. 897.1 821.3 75.8 66.5 101.1
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a Calculations in this table and subsequent pro forma cost and revenue tables may be affected by rounding.
b Revenue includes net income on clearing balances. Clearing balances are assumed to be invested in a broad
portfolio of investments, such as short-term Treasury securities, government agency securities, commercial
paper, long-term corporate bonds, and money market funds. To impute income, a constant spread is determined
from the historical average return on this portfolio and applied to the rate used to determine the cost of
clearing balances. NICB equals the imputed income from these investments less earnings credits granted to
holders of clearing balances. The cost of earnings credits is based on the discounted three-month Treasury
bill rate.
c The calculation of total expense includes operating, imputed, and other expenses. Imputed and other expenses
include taxes, FDIC insurance, Board of Governors' priced services expenses, the cost of float, and interest
on imputed debt, if any. Credits or debits related to the accounting for pensions under FAS 87 are also
included.
d Target ROE is the after-tax ROE included in the PSAF.
e The recovery rates in this and subsequent tables do not reflect the unamortized gains or losses that must be
recognized in accordance with FAS 158. Including these gains or losses, the recovery rate would have been 79.9
percent for 2006 and is estimated to be 103.0 percent for 2007. Future gains or losses, and their effect on
cost recovery, cannot be projected.
Table 2 presents an overview of the 2006, 2007 budgeted, 2007
estimated, and 2008 budgeted cost recovery performance by priced
service.
Table 2.--Priced Services Cost Recovery
[percent]
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2007 2007 2008
Priced service 2006 Budget Estimate Budget a
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All services................................................ 108.8 101.9 101.5 101.1
Check....................................................... 109.3 101.8 100.4 100.3
FedACH...................................................... 104.3 102.5 105.8 102.0
Fedwire Funds and NSS....................................... 111.4 102.5 107.0 105.5
Fedwire Securities.......................................... 104.5 101.9 103.5 105.0
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a 2008 budget figures reflect the latest data from the Reserve Banks. The Reserve Banks will transmit final
budget data to the Board in November 2007, for Board consideration in December 2007.
1. 2007 Estimated Performance--The Reserve Banks estimate that they
will recover 101.5 percent of the costs of providing priced services,
including imputed expenses and targeted ROE, compared with a budgeted
recovery rate of 101.9 percent, as shown in table 2. The Reserve Banks
estimate that they will again exceed $1 billion in revenue and that all
services will achieve full cost recovery. The Reserve Banks also
estimate that they will fully recover actual and imputed expenses and
earn net income of $95.1 million, compared with the target of $80.4
million. The greater-than-targeted net income is largely driven by the
performance of the check service, which had greater-than-expected
volumes of paper return items and Check 21 substitute checks.
The Reserve Banks have continued their efforts to downsize their
paper check processing infrastructure as paper check volumes continue
to decline nationwide. The Reserve Banks have already reduced the
number of sites at which they process checks from forty-five in 2003 to
nineteen in 2007 and have announced that they will consolidate to four
check processing offices by early 2011. These check restructuring
efforts have helped the Reserve Banks to maintain full cost recovery by
reducing costs in line with the decline in revenues associated with
paper check processing.
2. 2008 Private Sector Adjustment Factor--The 2008 PSAF for Reserve
Bank priced services is $113.1 million. This amount represents a
decrease of $19.4 million from the 2007 PSAF of $132.5 million. This
reduction is primarily the result of decreases in both the amount of
imputed equity and in the cost of equity.
3. 2008 Projected Performance--The Reserve Banks project a priced
services cost recovery rate of 101.1 percent in 2008. The 2008 fees for
priced services are projected to result in a net income of $75.8
million compared with the target of $66.5 million. The major risks to
the Reserve Banks' ability to achieve their budgeted targets are
higher-than-expected declines in paper check volume as well as
increased competition from correspondent banks and other service
providers. Other risks include lower-than-expected electronic payments
volumes, and costs associated with unanticipated problems with check
office restructurings or technological upgrades. In light of these
risks, the Reserve Banks will continue to refine their business and
operational strategies to improve efficiency and reduce costs and
excess capacity. These efforts should position the Reserve Banks to
achieve their financial and other payment system objectives and
statutory requirements over the long run.
4. 2008 Pricing--The following summarizes the Reserve Banks'
changes in fee schedules for priced services in 2008:
Check
The Reserve Banks will raise the fees for paper forward
collection check products 12.1 percent, paper return check products
12.5 percent, and payor bank check products 13.8 percent.
The Reserve Banks will decrease Check 21 fees for
FedForward products delivered to electronic endpoints 3.2
[[Page 63594]]
percent and increase Check 21 fees for FedForward products delivered to
substitute check endpoints 10.3 percent. The Reserve Banks also will
increase the FedReceipt Forward deposit discount by $0.001 for each
check presented through FedReceipt products.
With the 2008 fee changes, the price index for the check
service will have increased 75.4 percent since 1998.
FedACH
The Reserve Banks will eliminate the input file processing
fee.
With the 2008 fee change, the price index for the FedACH
service will have decreased 61.7 percent since 1998.
Fedwire Funds and National Settlement
The Reserve Banks will decrease the online transfer fee by
three cents in the highest-priced tier, two cents in the midpriced
tier, and one cent in the lowest-priced tier and increase the volume
thresholds for each tier.
With the 2008 fee changes, the price index for the Fedwire
Funds and National Settlement Services will have decreased 51.6 percent
since 1998.
Fedwire Securities
The Reserve Banks will not change prices.
The price index for the Fedwire Securities Service will
have decreased 44.4 percent since 1998.
5. 2008 Price Index--Figure 1 compares indexes of fees for the
Reserve Banks' priced services with the GDP price index. Compared with
the price index for 2007, the price index for all Reserve Bank priced
services is projected to increase 2.7 percent in 2008. The price index
for electronic payment services is projected to decrease 8.3 percent in
2008. The price index for paper check services is projected to increase
11.7 percent in 2008. This increase mainly reflects the Reserve Banks'
continued efforts to encourage a shift from paper check services to
Check 21 products. For the period 1998 to 2008, the price index for all
priced services is expected to increase by 35.4 percent. In comparison,
from 1998 through 2007, the GDP price index increased 24.3 percent.
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B. Private Sector Adjustment Factor--The method for calculating the
financing and equity costs in the PSAF requires determining the
appropriate
[[Page 63596]]
levels of debt and equity to impute and then applying the applicable
financing rates. In this process, a pro forma balance sheet using
estimated assets and liabilities associated with the Reserve Banks'
priced services is developed, and the remaining elements that would
exist if these priced services were provided by a private business firm
are imputed. The same generally accepted accounting principles that
apply to commercial-entity financial statements also apply to the
relevant elements in the priced services pro forma financial
statements.
The portion of Federal Reserve assets that will be used to provide
priced services during the coming year is determined using information
on actual assets and projected disposals and acquisitions. The priced
portion of these assets is determined based on the allocation of the
related depreciation expense. The priced portion of actual Federal
Reserve liabilities consists of balances held by Reserve Banks for
clearing priced-services transactions (clearing balances), and other
liabilities such as accounts payable and accrued expenses.
Long-term debt is imputed only when core clearing balances, long-
term liabilities, and equity are not sufficient to fund long-term
assets or if the interest rate risk sensitivity analysis, which
measures the interest rate effect of the difference between interest
rate sensitive assets and liabilities, indicates that a 200 basis point
change in interest rates would change cost recovery by more than two
percentage points.\3\ Short-term debt is imputed only when short-term
liabilities and clearing balances not used to finance long-term assets
are insufficient to fund short-term assets. Imputed equity meets the
FDIC requirements for a well-capitalized depository institution for
insurance premium purposes and represents the market capitalization, or
shareholder value, for Reserve Bank priced services.\4\
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\3\ A portion of clearing balances is used as a funding source
for priced-services assets. Long-term assets are partially funded
from core clearing balances, which are currently $4 billion. Core
clearing balances are considered the portion of the balances that
has remained stable over time without regard to the magnitude of
actual clearing balances.
\4\ The FDIC requirements for a well-capitalized depository
institution are (1) a ratio of total capital to risk-weighted assets
of 10 percent or greater, (2) a ratio of Tier 1 capital to risk-
weighted assets of 6 percent or greater, and (3) a leverage ratio of
Tier 1 capital to total assets of 5 percent or greater. The priced
services balance sheet has no components of Tier 1 or total capital
other than equity; therefore, requirements 1 and 2 are essentially
the same measurement.
As used in this context, the term ``shareholder'' does not refer
to the actual member banks of the Federal Reserve System, but rather
to the implied shareholders who would have an ownership interest if
the Reserve Banks' priced services were provided by a private firm.
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The equity financing rate is the target ROE rate produced by the
capital asset pricing model (CAPM). In the CAPM, the required rate of
return on a firm's equity is equal to the return on a risk-free asset
plus a risk premium. To implement the CAPM, the risk-free rate is based
on the three-month Treasury bill; the beta is assumed to equal 1.0,
which approximates the risk of the market as a whole; and the monthly
returns in excess of the risk-free rate over the most recent 40 years
are used as the market risk premium. The resulting ROE influences the
dollar level of the PSAF because this is the return a shareholder would
expect in order to invest in a private business firm.
For simplicity, given that federal corporate income tax rates are
graduated, state income tax rates vary, and various credits and
deductions can apply, an actual income tax expense is not calculated
for Reserve Bank priced services. Instead, the Board targets a pretax
ROE that would provide sufficient income to fulfill its income tax
obligations.\5\ To the extent that actual performance results are
greater or less than the targeted ROE, income taxes are adjusted using
an imputed income tax rate. Because the Reserve Banks provide similar
services through their correspondent banking activities, including
payment and settlement services, and the amount of imputed equity meets
the FDIC requirements for a well-capitalized depository institution,
the imputed income tax rate is the median of the rates paid by the top
fifty bank holding companies (BHCs) based on deposit balances over the
past five years adjusted to the extent that they invested in tax-free
municipal bonds.
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\5\ Other taxes, such as sales taxes, are included in priced-
services actual or imputed costs.
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The PSAF also includes the estimated priced-services-related
expenses of the Board of Governors and imputed sales taxes based on
Reserve Bank estimated expenditures. An assessment for FDIC insurance,
when required, is imputed based on current FDIC rates and projected
clearing balances held with the Reserve Banks.
1. Net Income on Clearing Balances--The NICB calculation is
performed each year along with the PSAF calculation and is based on the
assumption that the Reserve Banks invest clearing balances net of
imputed reserve requirements and balances used to finance priced-
services assets. Using these net clearing balance levels, the Reserve
Banks impute a constant spread, determined by the return on a portfolio
of investments, over the three-month Treasury bill rate.\6\ The
calculation also involves determining the priced-services cost of
earnings credits (amounts available to offset service fees) on
contracted clearing balances held, net of expired earnings credits,
based on a discounted Treasury bill rate. Rates and clearing balance
levels used in the NICB estimate are based on the most recent rates and
clearing balance levels.\7\ Because clearing balances are held for
clearing priced-services transactions or offsetting priced-services
fees, they are directly related to priced-services. The net earnings or
expense attributed to the investments and the cost associated with
holding clearing balances, therefore, are considered net income for
priced-services.
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\6\ The investment portfolio is composed of investments
comparable to a BHC's investment holdings, such as short-term
Treasury securities, government agency securities, commercial paper,
long-term corporate bonds, and money market funds. See table 7 for
the investments imputed in 2008.
NICB is projected to be $125.8 million for 2008 using a constant
spread of 26 basis points over the three-month Treasury bill rate
and applying this rate to the clearing balance levels used in the
2008 pricing process. The 2007 NICB estimate is $135.7 million.
\7\ July 2007 rates and balances were used to project 2008 NICB.
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2. Analysis of the 2008 PSAF--The decrease in the 2008 PSAF is
primarily due to an overall reduction in imputed equity and a slight
decrease in the required ROE result provided by the CAPM.
Estimated 2008 Federal Reserve assets, reflected in table 3, have
decreased $2,279.8 million, mainly due to a decline in items in process
of collection of $1,977.2 million. This reduction largely stems from
the accelerated collection of items processed in the Check 21
environment.
As shown in table 4, the portion of assets financed with clearing
balances has increased. Short-term assets funded with clearing balances
total $4.2 million. This figure represents a $6.0 million decline from
the short-term assets funded in 2007, a decrease that results from the
reduction in estimated short-term receivables. The amount of core
clearing balances used to fund long-term assets has increased $68.5
million primarily because of an increase in long-term assets and a
lower amount of imputed equity, which also is used to fund long-term
assets.
As previously mentioned, clearing balances are available as a
funding source for priced-services assets. Table 4 shows that $72.7
million in clearing balances is used to fund priced-services
[[Page 63597]]
assets in 2008. The interest rate sensitivity analysis in table 5
indicates that a 200 basis point decrease in interest rates affects the
ratio of rate-sensitive assets to rate-sensitive liabilities and
decreases cost recovery by 1.5 percentage points, while an increase of
200 basis points in interest rates increases cost recovery by 1.4
percentage points. The established threshold for a change in cost
recovery is two percentage points; therefore, interest rate risk
associated with using these balances is within acceptable levels and no
long-term debt is imputed.
As shown in table 3, the amount of equity imputed for the 2008 PSAF
is $628.9 million, a decrease of $114.0 million from the imputed equity
for 2007. In accordance with FAS 158, this amount includes an
accumulated other comprehensive loss of $328.4 million. The capital to
total assets ratio and the capital to risk-weighted assets ratio both
meet or exceed the regulatory requirements for a well-capitalized
depository institution. Equity is based on 5 percent of total assets,
and capital to risk-weighted assets is 10.1 percent.\8\ Following the
final FDIC regulations regarding the assessment of insurance premiums,
the Reserve Banks imputed a one-time priced services assessment credit
of $16.6 million. In 2007, this imputed credit fully offset the imputed
assessment for the priced services. For 2008, the net FDIC assessment
is imputed at $0.4 million.\9\
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\8\ In December 2006, bank regulators (the Board of Governors of
the Federal Reserve System, the FDIC, the Office of the Comptroller
of the Currency, and the Office of Thrift Supervision) announced an
interim ruling that excludes FAS 158-related accumulated other
comprehensive income or losses from the calculation of regulatory
capital. The Reserve Banks, however, elected to impute total equity
at 5 percent of assets, as indicated above, until the regulators
announce a final ruling.
\9\ Per FDIC rules, any remaining portion of the one-time
assessment credit can offset up to 90 percent of the assessment
amount in subsequent years. For 2008, 90 percent of the total
imputed assessment of $4.1 million was offset by the remaining
assessment credit, resulting in a net assessment of $0.4 million.
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Table 6 shows the imputed PSAF elements, the pretax ROE, and other
required PSAF costs for 2007 and 2008. The $20.7 million decrease in
ROE is primarily caused by a lower amount of imputed equity and a
slight decrease in the risk-free rate of return. Sales taxes increased
from $8.5 million in 2007 to $8.9 million in 2008. The effective income
tax rate used in 2008 decreased to 31.2 percent from 31.5 percent in
2007. The priced-services portion of the Board's expenses increased
$0.5 million from $6.7 million in 2007 to $7.2 million in 2008.
Table 3.--Comparison of Pro Forma Balance Sheets for Federal Reserve Priced Services
[Millions of dollars--projected average for year]
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2008 2007 Change
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Short-term assets:
Imputed reserve requirement on clearing balances........... $799.7 $823.4 $(23.7)
Receivables................................................ 64.3 70.1 (5.8)
Materials and supplies..................................... 2.0 1.1 0.9
Prepaid expenses........................................... 29.3 30.2 (0.9)
Items in process of collection \10\........................ 3,411.7 5,388.9 (1,977.2)
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Total short-term assets................................ 4,307.0 6,313.7 (2,006.7)
Imputed investments............................................ 7,124.5 7,444.5 (320.0)
Long-term assets:
Premises \11\.............................................. 393.9 395.2 (1.3)
Furniture and equipment.................................... 131.0 138.7 (7.7)
Leasehold improvements and long-term prepayments........... 86.7 56.6 30.1
Prepaid pension costs...................................... 384.2 349.1 35.1
Deferred tax asset......................................... 150.0 159.3 (9.3)
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Total long-term assets................................. 1,145.8 1,098.9 46.9
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Total assets....................................... 12,577.3 14,857.1 (2,279.8)
================================================
Short-term liabilities:\12\
Clearing balances.......................................... 7,683.9 8,322.7 (638.8)
Deferred credit items \10\................................. 3,724.7 5,300.3 (1,575.6)
Short-term payables........................................ 91.4 91.2 0.2
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Total short-term liabilities........................... 11,500.0 13,714.2 (2,214.2)
Long-term liabilities:\12\
Postemployment/postretirement benefits liability........... 448.4 400.0 48.4
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Total liabilities...................................... 11,948.4 14,114.2 (2,165.8)
Equity \13\.................................................... 628.9 742.9 (114.0)
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Total liabilities and equity........................... 12,577.3 14,857.1 (2,279.8)
================================================
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\10\ Represents float that is directly estimated at the service level.
\11\ Includes the allocation of Board of Governors assets to priced services of $1.2 million for 2008 and 2007.
\12\ No debt is imputed because clearing balances are a funding source.
\13\ Includes an accumulated other comprehensive loss of $361.0 million for 2007, which was reduced to $328.4
million for 2008 to reflect the ongoing amortization of the accumulated loss in accordance with FAS 158.
Future gains or losses, and their effects on the pro forma balance sheet, cannot be projected.
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Table 5.--2008 Interest Rate Sensitivity Analysis \16\
[Millions of dollars]
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Rate
Rate sensitive insensitive Total
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Assets:
Imputed reserve requirement on clearing balances........... ............... $799.7 $799.7
Imputed investments........................................ $7,124.5 .............. 7,124.5
Receivables................................................ ............... 64.3 64.3
Materials and supplies..................................... ............... 2.0 2.0
Prepaid expenses........................................... ............... 29.3 29.3
Items in process of collection \17\........................ (313.0) 3,724.7 3,411.7
Long-term assets........................................... ............... 1,145.8 1,145.8
------------------------------------------------
Total assets........................................... 6,811.5 5,765.8 12,577.3
================================================
Liabilities:
Clearing balances \18\..................................... 5,851.6 1,832.3 7,683.9
Deferred credit items...................................... ............... 3,724.7 3,724.7
Short-term payables........................................ ............... 91.4 91.4
Long-term liabilities...................................... ............... 448.4 448.4
------------------------------------------------
Total liabilities...................................... 5,851.6 6,096.8 11,948.4
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200 basis 200 basis
point decrease point increase
in rates in rates
------------------------------------------------------------------------
Rate change results:
Asset yield ($6,811.5 x rate change) (136.2) 136.2
Liability cost ($5,851.6 x rate (117.0) 117.0
change)............................
-------------------------------
Effect of 200 basis point change (19.2) 19.2
===============================
2008 budgeted revenue............... 897.1 897.1
Effect of change.................... (19.2) 19.2
-------------------------------
Revenue adjusted for effect of 877.9 916.3
interest rate change...........
===============================
2008 budgeted total expenses........ 770.5 770.5
2008 budgeted PSAF.................. 117.3 117.3
Tax effect of interest rate change (6.0) 6.0
($ change x 31.2%).................
-------------------------------
Total recovery amounts.......... 881.8 893.8
===============================
Recovery rate before interest rate 101.1% 101.1%
change.............................
Recovery rate after interest rate 99.6% 102.5%
change.............................
Effect of interest rate change on (1.5)% 1.4%
cost recovery \19\.................
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\16\ The interest rate sensitivity analysis evaluates the level of
interest rate risk presented by the difference between rate-sensitive
assets and rate-sensitive liabilities. The analysis reviews the ratio
of rate-sensitive assets to rate-sensitive liabilities and the effect
on cost recovery of a change in interest rates of up to 200 basis
points.
\17\ The amount designated as rate-sensitive represents items collected
prior to providing credit according to established availability
schedules.
\18\ The amount designated as rate-insensitive represents clearing
balances on which earnings credits are not paid.
\19\ The effect of a potential change in rates is less than a two
percentage point change in cost recovery; therefore, no long-term debt
is imputed for 2008.
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[[Page 63601]]
Table 7.--Computation of 2008 Capital Adequacy for Federal Reserve
Priced Services
[Millions of dollars]
------------------------------------------------------------------------
Risk Weight
Assets weighted assets
------------------------------------------------------------------------
Imputed reserve requirement on clearing $799.7 0.0 $0.0
balances..............................
Imputed investments:
1-year Treasury note \25\ \26\..... 2,475.5 0.0 0.0
Commercial paper (3-month) \25\.... 4,249.5 1.0 4,249.5
GNMA mutual fund \27\.............. 399.5 0.2 79.9
--------------------------------
Total imputed investments...... 7,124.5 ......... 4,329.4
Receivables............................ 64.3 0.2 12.9
Materials and supplies................. 2.0 1.0 2.0
Prepaid expenses....................... 29.3 1.0 29.3
Items in process of collection......... 3,411.7 0.2 682.3
Premises............................... 393.9 1.0 393.9
Furniture and equipment................ 131.0 1.0 131.0
Leasehold improvements and long-term 86.7 1.0 86.7
prepayments...........................
Prepaid pension costs.................. 384.2 1.0 384.2
Deferred tax asset..................... 150.0 1.0 150.0
--------------------------------
Total.......................... 12,577.3 ......... 6,201.7
================================
Imputed equity for 2008................ 628.9 ......... .........
Capital to risk-weighted assets........ 10.1% ......... .........
Capital to total assets................ 5.0% ......... .........
------------------------------------------------------------------------
\25\ The imputed investments are assumed to be similar to those for
which rates are available on the Federal Reserve's H.15 statistical
release, which can be located at http://www.federalreserve.gov/releases/h15/data.htm.
\26\ Includes estimated amounts arising from the collection of items
prior to providing credit according to established availability
schedules. These amounts are assumed to be invested in a short-term
Treasury security.
\27\ The imputed mutual fund investment is based on Vanguard's GNMA Fund
Investor Shares fund, which was chosen based on the investment
strategies articulated in its prospectuses. The fund returns can be
located at https://personal.vanguard.com/VGApp/hnw/FundsByType.
C. Earnings Credits on Clearing Balances--The Reserve Banks will
maintain the current rate of 80 percent of the three-month Treasury
bill rate to calculate earnings credits on clearing balances.\28\
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\28\ Two adjustments are applied to the earnings credit rate so
that the return on clearing balances at the Federal Reserve is
comparable to what the depository institution (DI) would have earned
had it maintained the same balances at a private-sector
correspondent. The ``imputed reserve requirement'' adjustment is
made because a private-sector correspondent would be required to
hold reserves against the respondent's balance with it. As a result,
the correspondent would reduce the balance on which it would base
earnings credits for the respondent because it would be required to
hold a portion, determined by its marginal reserve ratio, in the
form of non-interest-bearing reserves. For example, if a DI held $1
million in clearing balances with a correspondent bank and the
correspondent had a marginal reserve ratio of 10 percent, then the
correspondent bank would be required to hold $100,000 in reserves,
and it would typically grant credits to the respondent based on 90
percent of the balance, or $900,000. This adjustment imputes a
marginal reserve ratio of 10 percent to the Reserve Banks.
The ``marginal reserve requirement'' adjustment accounts for the
fact that the respondent can deduct balances maintained at a
correspondent, but not at the Federal Reserve, from its reservable
liabilities. This reduction has value to the respondent when it
frees up balances that can be invested in interest-bearing
instruments, such as federal funds. For example, a respondent
placing $1 million with a correspondent rather than the Federal
Reserve would free up $30,000 if its marginal reserve ratio were 3
percent.
The formula used by the Reserve Banks to calculate earnings
credits can be expressed as
[ b * (1-FRR) * r] + [ b * (MRR) * f]
Where e is total earnings credits, b is the average clearing
balance maintained, FRR is the assumed Reserve Bank marginal reserve
ratio (10 percent), r is the earnings credit rate, MRR is the
marginal reserve ratio of the DI holding the balance (either 0
percent, 3 percent, or 10 percent), and f is the average federal
funds rate. A DI that meets its reserve requirement entirely with
vault cash is assigned a marginal reserve requirement of zero.
---------------------------------------------------------------------------
Clearing balances were introduced in 1981, as part of the Board's
implementation of the Monetary Control Act, to facilitate access to
Federal Reserve priced services by institutions that did not have
sufficient reserve balances to support the settlement of their payment
transactions. The earnings credit calculation uses a percentage
discount on a rolling thirteen-week average of the annualized coupon
equivalent yield of three-month Treasury bills in the secondary market.
Earnings credits, which are calculated monthly, can be used only to
offset charges for priced services and expire if not used within one
year.\29\
---------------------------------------------------------------------------
\29\ A band is established around the contracted clearing
balance to determine the maximum balance on which credits are earned
as well as any deficiency charges. The clearing balance allowance is
2 percent of the contracted amount or $25,000, whichever is greater.
Earnings credits are based on the period-average balance maintained
up to a maximum of the contracted amount plus the clearing balance
allowance. Deficiency charges apply when the average balance falls
below the contracted amount less the allowance, although credits are
still earned on the average maintained balance.
---------------------------------------------------------------------------
D. Check Service--Table 8 shows the 2006, 2007 estimated, and 2008
budgeted cost recovery performance for the commercial check service.
[[Page 63602]]
Table 8.--Check Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 1 Revenue 2 Total income 4 Target target ROE
expense (ROE) [1-2] ROE [1/(2+4)]
(percent)
----------------------------------------------------------------------------------------------------------------
2006........................................... 845.7 716.9 128.7 57.1 109.3
2007 (estimate)................................ 815.2 748.5 66.7 63.2 100.4
2008 (budget).................................. 701.5 647.2 54.4 51.9 100.3
----------------------------------------------------------------------------------------------------------------
1. 2007 Estimate--For 2007, the Reserve Banks estimate that the
check service will recover 100.4 percent of total expenses and targeted
ROE, compared with the budgeted recovery rate of 101.8 percent. The
Reserve Banks expect to recover all actual and imputed expenses of
providing check services and earn net income of $66.7 million (see
table 8).
The lower-than-budgeted cost recovery is the result of costs that
were $40.3 million greater than budgeted and are primarily attributable
to the accrual of one-time costs associated with the next phase of
check restructuring. Revenue was $29.7 million higher than expected,
reflecting additional revenue associated with Check 21 deposits
presented to non-electronic endpoints using substitute checks and
helped to offset the unbudgeted costs.
The number of checks deposited electronically has grown rapidly in
2007 (see table 9). Year-to-date through September, 37.9 percent of the
Reserve Banks' volume was deposited through Check 21 products. Year-to-
date figures, however, understate the current penetration rate of Check
21 products because volume has increased throughout 2007. In the month
of September, for example, the proportion of checks deposited
electronically with the Reserve Banks for collection rose to about 50.6
percent of total check deposits.
The number of checks presented electronically using Check 21
products has also grown steadily in 2007 (see table 9). Year-to-date
through September, 18.6 percent of the Reserve Banks' volume was
presented using Check 21 products, compared with a rate of 26.7 percent
for the month of September. Before the end of the year, the Reserve
Banks expect that nearly a third of all checks will be presented using
Check 21 products. Depository institutions have been slower to accept
check presentments electronically because financial incentives are
generally stronger for electronic check deposit and because integrating
electronic presentments into back-office processing and risk-management
systems can be a complex and expensive undertaking.
Table 9.--Check 21 Product Penetration Rates \a\
[Percent] \b\
------------------------------------------------------------------------
September
2006 2007 Year- September
to-date 2007
------------------------------------------------------------------------
Deposit: 12.0 38.8 51.7
FedForward................... 11.4 37.9 50.6
Paper to Check 21............ 0.6 1.0 1.1
Presentment: 4.1 18.6 26.7
FedReceipt................... 0.1 1.1 1.5
FedReceipt Plus.............. 4.0 17.5 25.2
Return: ........... ........... ...........
FedReturn.................... 12.0 36.0 39.4
------------------------------------------------------------------------
\a\ The Reserve Banks' Check 21 product suite includes FedForward,
FedReturn, FedReceipt, and FedReceipt Return. FedForward is the
electronic alternative to forward check collection; FedReturn is the
electronic alternative to paper check return; FedReceipt is electronic
presentment with accompanying images; and FedReceipt Return is the
electronic return of unpaid checks. Under FedReceipt, the Reserve
Banks electronically present only the checks that were deposited
electronically or that were deposited in paper form and converted into
electronic form by the Reserve Banks. Under FedReceipt Plus, the
Reserve Banks electronically present all checks drawn on the customer.
\b\ Deposit and presentment statistics are calculated as a percentage of
total forward collection volume. Return statistics are calculated as a
percentage of total return volume.
For full-year 2007, the Reserve Banks estimate that their total
forward check volume will decline 8 percent.\30\ Paper forward-
collection volume is expected to decline 35.3 percent for the full year
compared with a budgeted decline of 21.3 percent as more volume is
deposited electronically (see table 10). This greater-than-expected
decline in paper check volume is a result of more checks being
deposited electronically. The Reserve Banks estimate that paper return
volume will decline at a slower pace than forward paper volume, 27.1
percent for the full year compared with a budgeted decline of 31.7
percent.
---------------------------------------------------------------------------
\30\ Total forward Reserve Bank check volumes have dropped from
roughly 11.0 billion in 2006 to 10.1 billion in 2007 and are
expected to fall to 9.2 billion in 2008.
[[Page 63603]]
Table 10.--Paper Check Product Volume Changes
[Percent]
------------------------------------------------------------------------
Change
Budgeted through Estimated
2007 change September 2007 change
2007
------------------------------------------------------------------------
Total forward collection......... -21.3 -35.7 -35.3
Returns.......................... -31.7 -23.4 -27.1
------------------------------------------------------------------------
2. 2008 Pricing--In 2008, the Reserve Banks project that the check
service will recover 100.3 percent of total expenses and targeted ROE.
Revenue is projected to be $701.5 million, or about a $114 million
decline from 2007. This decline is driven by a $142 million drop in
paper check and payor bank fee revenue that is partially offset by a
$43 million increase in Check 21 fee revenue. Total expenses for the
check service are projected to be $647.2 million, or about a $101
million decline from 2007. A key driver in the reduction of local check
costs is the continued planned restructuring of the Reserve Banks'
check-processing sites, including a reduction in staff of approximately
20 percent.\31\
---------------------------------------------------------------------------
\31\ In February 2003, the Reserve Banks announced an initiative
to reduce the number of sites at which they process checks from
forty-five to thirty-two. The Reserve Banks announced further rounds
of restructurings in August 2004, May 2005, and May 2006. As of
October 2007, there are nineteen Reserve Bank check processing
offices. The Reserve Banks have announced plans to consolidate to
four check processing sites by early 2011.
---------------------------------------------------------------------------
For 2008, the Reserve Banks estimate that their total forward check
volume will decline 9 percent. The Reserve Banks project that paper
check volume for forward products will decrease about 44 percent,
volume for paper check return products will decrease 33 percent, and
volume for payor bank products will decrease 45 percent. These expected
volume declines will be offset by a projected increase in Check 21
volumes as the shift from paper to electronic check volume continues.
The Reserve Banks project that FedForward volume will increase 42
percent, FedReceipt Plus volume will increase 87 percent, and FedReturn
volume will increase 39 percent (see table 11). The Reserve Banks'
projected increase in Check 21 volume will result in a more modest 17
percent increase in Check 21 product revenue as the share of Check 21
deposits presented to FedReceipt electronic endpoints grows. Board and
Reserve Bank staff believe that the key to realizing Check 21 cost
efficiencies for the System continues to be the widespread acceptance
of electronic check presentments by paying banks, and by year-end 2008,
the Reserve Banks expect that 75 percent of their check volume will be
deposited using Check 21 services and that 55 percent of their check
volume will be presented using Check 21 services.
Table 11.--Check 21 Volume
------------------------------------------------------------------------
2008
Budgeted Growth
volume from 2007
(millions estimate
of items) (percent)
------------------------------------------------------------------------
FedForward...................................... 5,842 42
FedReceipt Plus................................. 3,841 87
FedReturn....................................... 60 39
------------------------------------------------------------------------
The Reserve Banks expect to see continued growth in their Check 21
volumes in 2008, as market participants continue to replace their
existing traditional check infrastructure to take advantage of more
cost-effective electronic clearing. The Reserve Banks project volume
losses from large banks that are expected to increase the number of
check images exchanged among themselves. This volume loss, however, is
expected to be offset through the expansion of customers using existing
Check 21 products and the introduction of new Check 21 products. In
addition, the Reserve Banks will further standardize their product
offerings and will eliminate products that generate little volume.
These actions will help the Reserve Banks achieve a more uniform
product suite, leading to greater operational efficiencies.
For 2008, the Reserve Banks are targeting an overall price increase
for traditional check services of 12.5 percent, including a 12.1
percent increase in forward check collection fees, a 12.5 percent
increase in return service fees, and a 13.8 percent increase in payor
bank services fees.\32\ For Check 21 services, the Reserve Banks will
decrease by 3.2 percent the fees for Check 21 deposits that are
presented electronically. The fees for Check 21 deposits that are
presented as substitute checks, however, will increase 10.3 percent.
There will be no change in fees charged for the Check 21 FedReturn
product (see table 12).
---------------------------------------------------------------------------
\32\ In 2007, the Reserve Banks announced a sunset strategy for
payor bank services. The Reserve Banks will discontinue offering
these services by the end of 2009.
Table 12.--2008 Fee Changes
[Percent]
------------------------------------------------------------------------
Product Fee change
------------------------------------------------------------------------
Traditional Check.......................................... 12.5
Forward collection....................................... 12.1
Returns.................................................. 12.5
Payor bank services...................................... 13.8
Check 21:
FedForward (electronic endpoints)........................ -3.2
FedForward (substitute check endpoints).................. 10.3
FedReturn................................................ (\B\)
------------------------------------------------------------------------
\a\ FedReceipt customers currently receive a $0.003 discount per check
presented electronically, which will increase to a $0.004 discount in
2008. This discount can be used to offset fees for checks deposited
electronically with the Reserve Banks.
\b\ No changes.
The major risks to meeting the Reserve Banks' budgeted 2008 cost
recovery are higher-than-expected declines in paper check volume as
well as increased competition from correspondent banks and other
service providers as they expand their Check 21 service offerings. The
Reserve Banks may also suffer greater Check 21 volume losses if large
banks exchange images among themselves more quickly than anticipated.
Other risks include unanticipated problems with check restructurings or
other major initiatives that may result in significant cost overruns.
E. FedACH Service--Table 13 below shows the 2006, 2007 estimated,
and 2008 budgeted cost recovery performance for the commercial FedACH
service.
[[Page 63604]]
Table 13.--FedACH Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Target target ROE
expense (ROE) [1-2] ROE [1/(2+4)]
(percent)
----------------------------------------------------------------------------------------------------------------
2006........................................... 91.4 80.1 11.3 7.5 104.3
2007 (estimate)................................ 101.7 87.3 14.3 8.8 105.8
2008 (budget).................................. 99.1 89.6 9.5 7.6 102.0
----------------------------------------------------------------------------------------------------------------
1. 2007 Estimate--The Reserve Banks estimate that the FedACH
service will recover 105.8 percent of total expenses and targeted ROE,
compared with the budgeted recovery rate of 102.5 percent. The Reserve
Banks expect to recover all actual and imputed expenses of providing
FedACH services and earn net income of $14.3 million. Year-to-date
through September, FedACH commercial origination volume is 13.6 percent
higher than during the same period last year, compared with a budgeted
full-year growth of 12.4 percent. For full-year 2007, the Reserve Banks
estimate that FedACH commercial originations will grow 13.1 percent
because some of their customers will have migrated their business to
EPN, the other automated clearing house (ACH) operator.
2. 2008 Pricing--The Reserve Banks project that the FedACH service
will recover 102.0 percent of total expenses and targeted ROE in 2008.
Total revenue is budgeted to decrease $2.6 million from the 2007
estimate, primarily as the result of the elimination of the input file
processing fee. Total expenses are budgeted to increase $2.3 million
from the 2007 estimate. This increase reflects the additional resources
needed to support the multiyear technology transition plan from a
mainframe-computer to a distributed-server processing environment.
The Reserve Banks expect FedACH commercial origination volume to
grow 11.2 percent in 2008. This expected growth is largely attributable
to volume increases associated with electronic check conversion
applications, including checks converted at lockboxes and at the point
of sale.
The Reserve Banks will also change their pricing approach for two
existing ACH products. The first, FedEDI[reg] Plus, offers depository
institutions the ability to provide corporate-level payment data to
their customers.\33\ The second, FedACH risk management services,
provides depository institutions the ability to better monitor the
risks of their ACH transactions. Beginning in 2008, the subscription
fee for FedACH risk management services will be eliminated, and fees
for monitoring criteria will be reduced and tiered. In addition, access
to FedACH risk management services, along with FedEDI Plus, will be
bundled with FedLine Web connectivity. Separate fees will also be
charged for FedEDI Plus scheduled, secure delivery, and on demand
reports.\34\
---------------------------------------------------------------------------
\33\ FedEDI is a registered servicemark of the Reserve Banks.
\34\ Depository institutions that use FedLine Advantage, FedLine
Command, and FedLine Direct will also have access to FedEDI Plus and
FedACH risk management services because FedLine Web functionality is
included in these electronic access packages.
---------------------------------------------------------------------------
The primary risk to meeting the Reserve Banks' budgeted 2008 cost
recovery is the loss of large ACH originators to EPN. Other risks
include the potential growth of direct ACH exchanges that bypass the
ACH operators and unanticipated problems with technology upgrades that
may result in significant cost overruns.
F. Fedwire Funds and National Settlement Services--Table 14 below
shows the 2006, 2007 estimated, and 2008 budgeted cost recovery
performance for the Fedwire Funds and National Settlement Services.
Table 14.--Fedwire Funds and National Settlement Services Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Target target ROE
expense (ROE) [1- ROE [1/(2+4)]
2] (percent)
----------------------------------------------------------------------------------------------------------------
2006........................................... 72.3 59.3 13.0 5.6 111.4
2007 (estimate)................................ 74.8 63.6 11.2 6.3 107.0
2008 (budget).................................. 72.9 63.8 9.0 5.3 105.5
----------------------------------------------------------------------------------------------------------------
1. 2007 Estimate--The Reserve Banks estimate that the Fedwire Funds
and National Settlement Services will recover 107.0 percent of total
expenses and targeted ROE, compared with a 2007 budgeted recovery rate
of 102.5 percent. The greater-than-expected recovery rate is primarily
attributed to higher-than-expected electronic connection and fee
revenues and lower-than-budgeted operating costs. Year-to-date through
September, online funds volume was 1.4 percent higher than during the
same period last year. For full-year 2007, the Reserve Banks estimate
that online funds volume will grow 1.4 percent, compared with a
budgeted flat growth. With respect to the National Settlement Service,
the Reserve Banks estimate that the volume of settlement entries
processed during 2007 will be 7.0 percent higher than the 2007 budget
projection of flat growth. The higher-than-budgeted National Settlement
Service volume is due primarily to the Depository Trust & Clearing
Corporation subsidiaries' greater use of the National Settlement
Service for settlement activity.
[[Page 63605]]
2. 2008 Pricing--In 2008, the Reserve Banks expect the Fedwire
Funds and National Settlement Services to recover 105.5 percent of
total expenses and targeted ROE. The Reserve Banks project 2008 total
revenue to decline $1.9 million compared with the 2007 estimate. The
decline in total revenue is due to lower service revenue generated by
the lower transfer fees. Total expenses for 2008 are budgeted to
increase $0.2 million from the 2007 estimate. Online volume for the
Fedwire Funds Service for 2008 is budgeted to increase 1.9 percent
compared with 2007 estimates. Volume for the National Settlement
Service for 2008 is budgeted to be unchanged from 2007 estimated
volume.
The Reserve Banks will decrease the online transfer fee by three
cents in the highest-priced tier, two cents in the midpriced tier, and
one cent in the lowest-priced tier. The Reserve Banks also will
increase the volume thresholds for each tier. The fee reductions for
online transfers are intended to better position the Reserve Banks to
remain competitive with CHIPS. The Reserve Banks will not change the
National Settlement Service fee schedule.
G. Fedwire Securities Service--Table 15 below shows the 2006, 2007
estimated, and 2008 budgeted cost recovery performance for the Fedwire
Securities Service.\35\
---------------------------------------------------------------------------
\35\ The Reserve Banks provide transfer services for securities
issued by the U.S. Treasury, federal government agencies,
government-sponsored enterprises, and certain international
institutions. The priced component of this service, reflected in
this memorandum, consists of revenues, expenses, and volumes
associated with the transfer of all non-Treasury securities. For
Treasury securities, the U.S. Treasury assesses fees for the
securities transfer component of the service. The Reserve Banks
assess a fee for the funds settlement component of a Treasury
securities transfer; this component is not treated as a priced
service.
Table 15.--Fedwire Securities Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Target target ROE
expense (ROE) [1- ROE [1/(2+4)]
2] (percent)
----------------------------------------------------------------------------------------------------------------
2006........................................... 21.9 19.1 2.7 1.8 104.5
2007 (estimate)................................ 23.5 20.6 2.8 2.0 103.5
2008 (budget).................................. 23.6 20.8 2.9 1.7 105.0
----------------------------------------------------------------------------------------------------------------
1. 2007 Estimate--The Reserve Banks estimate that the Fedwire
Securities Service will recover 103.5 percent of total expenses and
targeted ROE, compared with a 2007 budgeted recovery rate of 101.9
percent. The higher-than-budgeted recovery is attributable to greater-
than-expected fee revenue and lower-than-expected operating costs.
Year-to-date through September, online securities volume was 6.4
percent higher than during the same period last year. For full-year
2007, the Reserve Banks estimate that online securities volume will
grow 6.4 percent, compared with a budgeted flat growth. The higher-
than-budgeted volume is due to the recent substantial growth in online
volume driven by recent market volatility.
2. 2008 Pricing--The Reserve Banks project that in 2008 the Fedwire
Securities Service will recover 105.0 percent of total expenses and
targeted ROE. Total revenue and total expenses are expected to be only
slightly higher than 2007. Online and offline securities volumes in
2008 are projected to be unchanged from 2007 estimates. The Reserve
Banks will leave prices unchanged.
H. Electronic Access--The Reserve Banks allocate the costs and
revenues associated with electronic access to the Reserve Banks' priced
services. There are currently three types of electronic access channels
through which customers can access the Reserve Banks' priced services:
FedLine[supreg], FedMail[supreg], and FedPhone[supreg].\36\ For 2008,
the Reserve Banks will be adding new services to, and increasing the
fees for, the FedLine packaged solutions.
---------------------------------------------------------------------------
\36\ FedPhone, FedMail, and FedLine are registered servicemarks
of the Reserve Banks. These connections may also be used to access
non-priced services provided by the Reserve Banks. FedPhone is a
free access option.
---------------------------------------------------------------------------
The Reserve Banks offer seven electronic access packages that are
supplemented by a number of premium (or [agrave] la carte) access and
accounting information options. The first package provides access to
information services through FedMail Email. The next two packages are
FedLine Web[supreg] packages, with either three or five subscribers,
that offer access to basic information and check services. The next two
packages are FedLine Advantage[supreg] packages, with either three or
five subscribers, that expand upon the FedLine Web packages to offer
access to FedACH and Fedwire services. The final two packages are
FedLine Command and FedLine Direct. FedLine Command can connect over
the Internet or through a dedicated connection, while FedLine Direct
exclusively connects through a dedicated connection. FedLine Command is
designed for FedACH functionality, while FedLine Direct, which is the
replacement channel for Computer Interface customers, has both FedACH
and Fedwire functionality. Both FedLine Command and FedLine Direct
expand upon the FedLine Advantage ackages and include most accounting
information services.
The increases to electronic access pricing for 2008 reflect
enhanced services in the FedLine packages. Specifically, the Reserve
Banks are including in the FedLine packages additional enhanced
accounting information services, the FedEDI Plus service, and the
FedACH risk management service. The Reserve Banks will charge an
additional $5 per month for the FedLine Web packages, $10 per month for
the FedLine Advantage and FedLine Command packages, and $100 per month
for the FedLine Direct packages.
II. Analysis of Competitive Effect
All operational and legal changes considered by the Board that have
a substantial effect on payments system participants are subject to the
competitive impact analysis described in the March 1990 policy, ``The
Federal Reserve in the Payments System.'' \37\ Under this policy, the
Board assesses whether the changes would have a direct and material
adverse effect on the ability of other service providers to compete
effectively with the Federal Reserve in providing similar services
because of differing legal powers or
[[Page 63606]]
constraints or because of a dominant market position deriving from such
legal differences. If the changes create such an effect, the Board must
further evaluate the changes to assess whether its benefits--such as
contributions to payment system efficiency, payment system integrity,
or other Board objectives--can be retained while minimizing the adverse
effect on competition.
---------------------------------------------------------------------------
\37\ Federal Reserve Regulatory Service (FRRS) 9-1558.
---------------------------------------------------------------------------
The Board believes that the 2008 fees, fee structures, and changes
in service will not have a direct and material adverse effect on the
ability of other service providers to compete effectively with the
Reserve Banks in providing similar services. The changes should permit
the Reserve Banks to earn an ROE that is comparable to overall market
returns.
FedACH Service 2008 Fee Schedule--Effective January 2, 2008
[Bold indicates changes from 2007 fee schedule]
------------------------------------------------------------------------
Fee
------------------------------------------------------------------------
Origination (per item or record):38
Items in small files................................ $0.0030
Items in large files................................ 0.0025
Addenda record...................................... 0.0010
Input file processing (per file):....................... eliminated
Receipt (per item or record):39
Item................................................ 0.0025
Addenda record...................................... 0.0010
FedACH risk management:
Risk service subscription........................... eliminated
Risk origination monitoring service.................
Monitoring criteria:40
Per set of criteria for the first 20 sets 8.00
per month..................................
Per set of criteria for additional sets up 4.00
to 150 per month...........................
Per set of criteria for every set over 150 1.00
per month..................................
Batch monitoring.................................... 0.0025
FedEDI Plus (per report):
Scheduled report.................................... 0.20
On demand report.................................... 0.75
Secure delivery..................................... 0.20
Monthly (per routing number):
Account servicing 41................................ 25.00
FedACH settlement 42................................ 20.00
Information extract file............................ 20.00
FedLine Web origination returns and notification of 0.30
change (NOC)43.........................................
Voice response returns/NOC 44........................... 2.00
Non-electronic input/output: 45
Tape input/output................................... 25.00
Paper output........................................ 15.00
Facsimile exception returns/NOC 46.................. 15.00
Canada service:
Cross-border item surcharge 47...................... 0.039
Return received from Canada 48...................... 0.77
Same-day recall of item at receiving gateway 4.00
operator...........................................
Same-day recall of item not at receiving gateway 7.00
operator...........................................
Trace of item at receiving gateway.................. 3.50
Trace of item not at receiving gateway.............. 5.00
Mexico service:
Cross-border item surcharge 47...................... 0.67
Return received from Mexico 48...................... 0.69
Item trace.......................................... 11.50
Transatlantic service:
Cross-border item surcharge: 47
Austria......................................... 2.00
Germany......................................... 2.00
The Netherlands................................. 2.00
Switzerland..................................... 2.00
United Kingdom.................................. 2.00
Return received: 48
Austria......................................... 5.00
Germany......................................... 8.00
The Netherlands................................. 5.00
Switzerland..................................... 5.00
United Kingdom.................................. 8.00
------------------------------------------------------------------------
38 Small files contain fewer than 2,500 items and large files contain
2,500 or more items. These origination fees do not apply to items that
the Reserve Banks receive from the private-sector ACH operator.
39 Receipt fees do not apply to items that the Reserve Banks send to the
private-sector ACH operator.
40 Sets of criteria are the combination of variables the originating
depository financial institution (ODFI) will use to monitor ACH
processing. For example, ODFIs can select which originators to
monitor, set debit and credit caps, and receive e-mail notification.
41 The account servicing fee applies to routing numbers that have
received or originated FedACH transactions. Institutions that receive
only U.S. government transactions or that elect to use the other
operator exclusively are not assessed the account servicing fee.
42 The FedACH settlement fee is applied to any routing number with
activity during a month. This fee does not apply to routing numbers
that use the Reserve Banks for government transactions only.
[[Page 63607]]
43 The fee includes the transaction and addenda fees.
44 The fee includes the transaction fee in addition to the voice
response fee.
45 These services are offered for contingency situations only.
46 The fee includes the transaction fee in addition to the conversion
fee.
47 This per-item surcharge is in addition to the standard domestic
origination fees.
48 This per-item surcharge is in addition to the standard domestic
receipt fees.
Fedwire Funds and National Settlement Services 2008 Fee Schedule--
Effective January 2, 2008
[Bold indicates changes from 2007 fee schedule]
------------------------------------------------------------------------
Fee
------------------------------------------------------------------------
Fedwire Funds Service
------------------------------------------------------------------------
Origination and receipt:
Per transfer for the first 3,000 transfers per month $0.26
Per transfer for additional transfers up to 90,000 0.17
per month..........................................
Per transfer for every transfer over 90,000 per 0.08
month..............................................
Surcharge:
Offline transfer originated or received............. 30.00
------------------------------------------------------------------------
National Settlement Service
------------------------------------------------------------------------
Basic:
Settlement entry.................................... 0.80
Settlement file..................................... 14.00
Surcharge for offline file origination.................. 25.00
Minimum monthly charge (account maintenance) \49\....... 60.00
Special settlement arrangements \50\ Per day............ 100.00
------------------------------------------------------------------------
\49\ This minimum monthly charge will only be assessed if total
settlement charges during a calendar month are less than $60.
\50\ Special settlement arrangements use Fedwire funds transfers to
effect settlement. Participants in arrangements and settlement agents
are also charged the applicable Fedwire funds transfer fee for each
transfer into and out of the settlement account.
Fedwire Securities Service 2008 Fee Schedule (Non-Treasury Securities)--
Effective January 2, 2008
[Bold indicates changes from 2007 fee schedule]
------------------------------------------------------------------------
Fee
------------------------------------------------------------------------
Transfer or reversal, originated or received............ $0.34
Surcharge:
Offline transfer or reversal originated or received. 60.00
Monthly maintenance:
Account maintenance (per account)................... 16.00
Issues maintained (per issue/per account)........... 0.40
Claim adjustment........................................ 0.30
Joint custody........................................... 40.00
------------------------------------------------------------------------
Electronic Access 2008 Fee Schedule
[Effective January 2, 2008. Bold indicates changes from 2007 fee
schedule]
------------------------------------------------------------------------
------------------------------------------------------------------------
Electronic Access Packages (Monthly)
------------------------------------------------------------------------
FedMail E-mail....................................... $15.00
FedLine Web W3....................................... $85.00
Includes:
FedMail E-mail
FedLine Web with three individual
subscriptions
Service Charge Information (SCI)
Account Management Information (AMI)
FedACH risk management service
FedEDI Plus service
FedLine Web W5....................................... $130.00
Includes:
FedMail E-mail
FedLine Web with five individual
subscriptions
Service Charge Information (SCI)
Account Management Information (AMI)
FedACH risk management service
FedEDI Plus service
Cash Management System Basic--Own report only
FedLine Advantage A3................................. $310.00
[[Page 63608]]
Includes:
FedLine Web W3 package
FedLine Advantage with three individual
subscriptions
Virtual Private Network (VPN) maintenance
FedLine Advantage A5................................. $360.00
Includes:
FedLine Web W5 package
FedLine Advantage with five individual
subscriptions
VPN maintenance
Intraday search download feature within AMI
FedLine Command...................................... $660.00
Includes:
FedLine Advantage A5 package
One dedicated unattended connection over the
Internet for ACH services
Billing data format file (BDFF)
Intra-day file
End of day file (FIRD)
Statement of account spreadsheet file (SASF)
FedLine Direct D56, D256, DT1........................ D56 $2,100.00,
D256 $3,100.00,
and DT1 $3,600.00
Includes:
FedLine Command package
One dedicated unattended connection for
Computer Interface or FedLine Direct
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Premium Options (Monthly) \51\
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Electronic Access
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FedMail Fax (monthly per fax line)................... $25.00
Additional subscribers package (each package contains $75.00
5 additional subscribers)...........................
Maintenance of additional VPN........................ $50.00
Additional dedicated connections \52\
Primary:
56K.......................................... $750.00
256K......................................... $1,750.00
T1........................................... $2,250.00
Contingency:
56K.......................................... $650.00
256K......................................... $1,650.00
T1........................................... $2,150.00
FedImage/Check 21 large file delivery................ Various
Accounting Information Services
Cash Management System:
Basic--Respondent and/or subaccount reports (per $7.00
report/month).....................................
Basic--Respondent/subaccount recap report (per $35.00
month)............................................
Plus--Own report up to six times a day (per month). $50.00
Plus--Less than 10 respondent and/or subaccounts $100.00
and SASF (per month)..............................
Plus--10 or more respondent and/or subaccounts and $200.00
SASF (per month)..................................
End of day reconcilement file (FIRD) (per month)..... $100.00
Statement of account spreadsheet file (SASF) (per $100.00
month)..............................................
Intra-day search download file (per month)........... $100.00
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\51\ Premium options for FedLine Web W3 and FedLine Advantage A3 limited
to FedMail Fax.
\52\ Network diversity supplemental charge of $1,000 a month may apply
in addition to these fees.
By order of the Board of Governors of the Federal Reserve
System, November 5, 2007.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 07-5602 Filed 11-8-07; 8:45 am]
BILLING CODE 6210-01-P