[Federal Register Volume 78, Number 215 (Wednesday, November 6, 2013)]
[Notices]
[Pages 66715-66740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-26560]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1468]


Federal Reserve Bank Services

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has approved the private sector adjustment factor (PSAF) for 2014 of 
$23.4 million and the 2014 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.

DATES: The new fee schedules become effective January 2, 2014.

FOR FURTHER INFORMATION CONTACT: For questions regarding the fee 
schedules: Susan V. Foley, Associate Director, (202/452-3596); Samantha 
J. Pelosi, Manager, Retail Payments, (202/530-6292); Linda S. Healey, 
Senior Financial Services Analyst, (202/452-5274), Division of Reserve 
Bank Operations and Payment Systems. For questions regarding the PSAF: 
Gregory L. Evans, Deputy Associate Director, (202/452-3945); Brenda L. 
Richards, Manager, Financial Accounting, (202/452-2753); or John W. 
Curle, Senior Financial Analyst, (202/452-3916), 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 
2014 fee schedules for the check service are available from the Board, 
the Federal Reserve Banks, or the Reserve Banks' financial services Web 
site at 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. From 2003 through 
2012, the Reserve Banks recovered 99.5 percent of their total expenses 
(including imputed costs) and targeted after-tax profits or return on 
equity (ROE) for providing priced services.1 2
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    \1\ The ten-year recovery rate is based on 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 Statement of Financial Accounting Standards (SFAS) 
No. 158: Employers' Accounting for Defined Benefit Pension and Other 
Postretirement Plans [Accounting Standards Codification (ASC) 715 
Compensation--Retirement Benefits], which resulted in recognizing a 
cumulative reduction in equity related to the priced services' 
benefit plans. Including this cumulative reduction from 2006 to 2012 
in equity results in cost recovery of 92.1 percent for the ten-year 
period. This measure of long-run cost recovery is also published in 
the Board's Annual Report.
    \2\ Over this period, the Reserve Banks have undertaken a range 
of cost-reduction and revenue-generation initiatives as part of 
their long-term business strategy. These initiatives have included 
streamlining management structures, reducing staffing levels, 
increasing productivity, and selectively raising fees. These 
initiatives largely involved the check service, which contributes 
significantly to overall cost recovery and drove several years of 
under recovery in prior periods. For instance, the Reserve Banks 
reduced the number of offices at which paper checks are processed 
from forty-five at the beginning of 2003 to one location in 2010. 
The System's electronic check processing was also consolidated at 
one Federal Reserve site.

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    Table 1 summarizes 2012 actual, 2013 estimated, and 2014 budgeted 
cost-recovery rates for all priced services. Cost recovery is estimated 
to be 104.9 percent in 2013 and budgeted to be 102.3 percent in 2014.

                                      Table 1--Aggregate Priced Services Pro Forma Cost and Revenue Performance \a\
                                                                      [$ Millions]
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                                                                                                                                        54 \e\ Recovery
                                                                                 2 \c\ Total        3 Net income      4 \d\ Targeted       rate after
                           Year                              1 \b\ Revenue         expense          (roe) [1-2]            roe          targeted roe [1/
                                                                                                                                           (2+4)](%)
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2012 (actual)............................................              449.8              423.0               26.8                8.9              104.1
2013 (estimate)..........................................              439.2              414.6               24.6                4.2              104.9
2014 (budget)............................................              422.0              407.1               14.9                5.5              102.3
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\a\ Calculations in this table and subsequent pro forma cost and revenue tables may be affected by rounding.
\b\ For 2012, revenue includes net income on clearing balances (NICB). Clearing balances were assumed to be invested in short-term Treasury securities
  and federal funds. 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. For 2013, revenue includes imputed investment income from additional
  equity imputed to meet minimum capital requirements.
\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 pension
  plans under FAS 158 [ASC 715] are also included.
\d\ Targeted ROE is the after-tax ROE included in the PSAF. For 2012, the targeted ROE reflects average actual clearing balance levels through July
  2012. The clearing balance program was eliminated in 2012; therefore, the clearing balances are not included in the 2013 or 2014 priced services
  balance sheet.
\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
  [ASC 715]. Future gains or losses, and their effect on cost recovery, cannot be projected.

    Table 2 portrays an overview of cost-recovery performance for the 
ten-year period from 2003 to 2012, 2012 actual, 2013 budget, 2013 
estimate, and 2014 budget by priced service.

                                                         Table 2--Priced Services Cost Recovery
                                                                        [Percent]
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                      Priced service                           2003-2012         2012 Actual        2013 Budget       2013 Estimate     2014 Budget \a\
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All services.............................................               99.5              104.1              102.7              104.9              102.3
Check....................................................               98.8              108.8              107.1              111.9              108.0
FedACH...................................................              102.1              101.0              100.0              100.5               99.5
Fedwire Funds and NSS....................................              101.6               98.8               98.3               98.0               98.5
Fedwire Securities.......................................              102.2              100.3              101.6              103.0               98.5
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\a\ The 2014 budget figures reflect preliminary budget information from the Reserve Banks. The Reserve Banks will transmit final budget data to the
  Board in November 2013, for Board consideration in December 2013. The 2013 budget figures reflect the final budgets as approved by the Board in
  December 2012.

    1. 2013 Estimated Performance--The Reserve Banks estimate that they 
will recover 104.9 percent of the costs of providing priced services in 
2013, including total expense and targeted ROE, compared with a 
budgeted recovery rate of 102.7 percent, as shown in table 2. Overall, 
the Reserve Banks estimate that they will fully recover actual and 
imputed costs and earn net income of $24.6 million, compared with the 
target of $4.2 million. Although the check service, the FedACH Service, 
and the Fedwire Securities Service are expected to achieve full cost 
recovery in 2013, the Fedwire Funds and National Settlement Services is 
expected to recover 98.0 percent of its costs. The shortfall is due to 
both lower revenue, associated with less-than-anticipated volume 
growth, and greater costs, associated with technological upgrades. 
Greater-than-expected check volume processed by the Reserve Banks has 
been the single most significant factor influencing priced services 
cost recovery.
    2. 2014 Private Sector Adjustment Factor--The 2014 PSAF for Reserve 
Bank priced services is $23.4 million. This amount represents an 
increase of $9.3 million from the 2013 PSAF of $14.1 million. This 
increase is primarily the result of a change in the net assets to be 
financed on the imputed priced-services balance sheet and an increase 
in the cost of equity.
    3. 2014 Projected Performance--The Reserve Banks project a priced 
services cost-recovery rate of 102.3 percent in 2014, with a net income 
of $14.9 million, compared to a targeted ROE of $5.5 million. The 
Reserve Banks project that the check service will fully recover its 
costs in 2014. The Reserve Banks also anticipate that the FedACH 
Service, the Fedwire Funds and National Settlement Service, and Fedwire 
Securities Service will not achieve full-cost recovery because of costs 
associated with multiyear technology initiatives to

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modernize their processing platforms. These investments are expected to 
gain efficiencies, improve the overall quality of operations, and 
enhance the Reserve Banks' ability to offer additional services to 
depository institutions.
    The primary risks to the Reserve Banks' ability to achieve their 
targeted cost recovery rates are unanticipated volume and revenue 
reductions and the potential for cost overruns with the technology 
modernization initiatives. In light of these risks, the Reserve Banks 
will continue to refine their business and operational strategies to 
manage aggressively operating costs, to leverage efficiencies gained 
from technology initiatives, and to increase product revenue.
    4.2014 Pricing--The following summarizes the Reserve Banks' changes 
in fee schedules for priced services in 2014:
Check
     The Reserve Banks will introduce a new tier to each level 
of the FedForward Select Mixed Image Cash Letter (ICL) products.\3\ The 
Reserve Banks also will raise the daily fee for Select Mixed Level 1 
from $2,000 to $2,200.
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    \3\ The Reserve Banks offer customers the option of sending 
FedForward ICLs for items drawn on specific endpoints in a separate 
cash letter, which combines a high fixed fee with a lower variable 
fee. All eligible items in the cash letter receive immediate 
availability while ineligible items receive deferred availability of 
the next business day. A current list of FedForward endpoint tier 
listings and Select Mixed endpoints can be found at http://www.frbservices.org/servicefees/check21_endpoint_listing.html.
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     The Reserve Banks announced in October a 12:30 p.m. 
deadline for FedReturn Mixed ICL deposits, which will provide an 
opportunity for paying banks to return items to the bank of first 
deposit one day earlier.\4\ The ICL fee will be the same as the ICL fee 
for the 1:00 a.m. deadline for FedReturn Mixed ICL deposits, while the 
item fees will be the same as the item fees for the 9:00 p.m. deadline. 
The Reserve Banks also will reduce the FedReturn Mixed ICL per-item 
fees for tier 1 and tier 2, and increase the per-item fees for tier 3, 
tier 4, PDF, and substitute checks.\5\
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    \4\ The announcement can be found at http://www.frbservices.org/files/communications/pdf/check/100313_deposit_deadline.pdf.
    \5\ The FedReturn endpoint tiers listing may be found at http://www.frbservices.org/servicefees/check21_endpoint_listing.html.
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     The Reserve Banks will discontinue the Choice Receiver 
program, which provides pricing incentives to those customers that 
agree to designate the Federal Reserve as their sole electronic 
presentment point and electronic return point. At the same time, the 
Reserve Banks will reduce the per-item fees for the FedReceipt Plus 
Forward and Return products from $0.005 to $0.004.\6\
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    \6\ FedReceipt is electronic presentment of forward items to 
paying banks or delivery of return items to depositary banks.
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FedACH
     The Reserve Banks will increase the FedACH monthly 
settlement fee from $50 to $55 per routing number and increase the 
account servicing fee from $37 to $45 per routing number. In addition, 
Reserve Banks will raise the fee for the use of automated notification 
of change (NOC) functionality from $0.15 to $0.20 per item and 
introduce a participation fee of $5 per month for each routing number 
with NOC activity during a month.
     The Reserve Banks also will restructure the batch/item 
monitoring fee for the Origination Monitoring Service and RDFI Alert 
Service by implementing two volume-based tiers with per batch fees of 
$0.007 for up to 500,000 batches each month and $0.0035 for greater 
than 500,000 batches each month.\7\
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    \7\ The FedACH Risk[supreg] Origination Monitoring Service helps 
originating depository financial institutions (ODFIs) mitigate ACH 
origination risk for forward item batches. The service addresses 
operational, credit, and third-party risk associated with ACH 
payments, regardless of the location or number of sending points. 
The service allows ODFIs to set cumulative credit and/or debit 
processing limits (caps) for certain forward ACH batches processed 
by FedACH. The FedACH Risk RDFI Alert Service is available to help 
RDFIs manage their ACH receipt risk. The RDFI File Alert Service 
allows an RDFI to set debit and credit thresholds (dollar amount, 
addenda/item count, or both) for FedACH output files.
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     The Reserve Banks will offer a discount of $0.0025 off 
FedACH receipt fees for receiving depository financial institutions 
(RDFIs) that originate and receive items on the same routing number 
(``on-us'' transactions).
Fedwire Funds and National Settlement
     The Reserve Banks will increase the per-item fee on all 
transfers that exceed $10 million (high-value transfer surcharge) from 
$0.12 to $0.15 and the per-item fee on all transfers that exceed $100 
million from $0.30 to $0.36. The Reserve Banks will also increase the 
end-of-day origination surcharge from $0.21 to $0.26 and increase the 
monthly fee for the usage of the FedPayments Manager import/export tool 
from $30 to $45.\8\ In addition, the Reserve Banks will increase the 
monthly participation fee from $85 to $90.\9\
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    \8\ This fee is charged to any Fedwire Funds participant that 
originates a Fedwire Funds transfer message via the FedPayments 
Manager (FPM) Funds tool and has the import/export processing option 
setting active at any point during the month.
    \9\ This fee is only charged when there is Fedwire Funds 
transfer activity in a given month.
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     The Reserve Banks will increase the Tier 1 per-item pre-
incentive fee from $0.65 to $0.69 per transaction, decrease the Tier 2 
per-item pre-incentive fee from $0.25 to $0.24, and decrease the Tier 3 
per-item pre-incentive fee from $0.145 to $0.14.\10\
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    \10\ The per-item pre-incentive fee is the fee that the Reserve 
Banks charge for transfers that do not qualify for incentive 
discounts. The Tier 1 per-item pre-incentive fee applies to the 
first 14,000 transfers, the Tier 2 per-item pre-incentive fee 
applies to the next 76,000 transfers, and the Tier 3 per-item pre-
incentive fee applies to any additional transfers. The Reserve Banks 
apply an 80 percent incentive discount to every transfer over 60 
percent of a customer's historic benchmark volume.
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     The Reserve Banks will increase the National Settlement 
Service's settlement file charge from $25 to $30 and the settlement 
charge per entry from $1.20 to $1.50.
Fedwire Securities
     The Reserve Banks will keep prices unchanged in 2014.
FedLine Access Solutions
     The Reserve Banks will increase the price for FedLine 
Command Plus by $200 per month and FedLine Direct by $500 per month.
     The Reserve Banks will no longer include user 
subscriptions for priced services within FedLine packages. Depository 
institutions that wish to access priced services will be required to 
purchase user subscriptions in packs of five (5-packs). The FedMail 
email subscriber 5-packs will be $10 per month, and 5-packs for all 
other FedLine packages will be $80 per month. FedLine packages will 
continue to include unlimited subscriptions to nonpriced services.
     The Reserve Banks will raise the monthly fees for the 56K 
additional dedicated electronic access connection by $500 and the dial-
only VPN surcharge by $200. The Reserve Banks will also raise the 
monthly fee for FedMail fax by $10. Additionally, the Reserve Banks 
will increase the monthly fees for the Accounting Totals by Service 
Line (ACTS) reports.
     The Reserve Banks will include one FedLine subscriber 5-
pack and one FedMail subscriber 5-pack within the FedComplete 100 Plus 
and FedComplete 200 Plus bundled products without an increase in 
published fees. Additionally, the FedComplete 100 product will be 
eliminated.
    5. 2014 Price Index--Figure 1 compares indexes of fees for the 
Reserve Banks' priced services with the GDP price index starting in 
2005, which is the first full year the Reserve Banks offered Check 21 
services. The price

[[Page 66718]]

index for Reserve Bank priced services is projected to increase 
approximately 1 percent in 2014 from the 2013 level. The price index 
for Check 21 services is projected to decrease approximately 2 percent. 
The price index for the FedACH Service is projected to decrease nearly 
1 percent. The price index for the Fedwire Funds and National 
Settlement Services is projected to increase approximately 8 percent. 
The price index for the Fedwire Securities Services is projected to 
decrease approximately 1 percent. For the period 2005 to 2014, the 
price index for total priced services is expected to decrease 31 
percent. In comparison, for the period 2005 to 2012, the GDP price 
index increased 14 percent.
[GRAPHIC] [TIFF OMITTED] TN06NO13.000

    B. Private Sector Adjustment Factor--The method for calculating the 
financing and equity costs in the PSAF requires determining the 
appropriate imputed levels of debt and equity 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 are imputed, as if these priced services were provided by a 
private business firm. The same generally accepted accounting 
principles that apply to commercial-entity financial statements 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 
about 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 postemployment/postretirement benefits, 
accounts payable, and other liabilities. The priced portion of the 
actual net pension asset or liabilities is also included on the balance 
sheet.\11\
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    \11\ The pension assets are netted with the pension liabilities 
and reported as a net asset or net liability as required by 
Accounting Standards Codification (ASC) 715 Compensation--Retirement 
Benefits.
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    The equity financing rate is the targeted 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 market risk premium. To implement the CAPM, the risk-free rate 
is based on the three-month Treasury bill; the beta is assumed to equal 
to 1.0, which approximates the risk of the market as a whole; and the

[[Page 66719]]

market risk premium is based on the monthly returns in excess of the 
risk-free rate over the most recent 40 years. The resulting ROE 
influences the dollar level of the PSAF because this is the return a 
shareholder would require 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 the priced 
services' imputed income tax obligations. 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.
    Capital structure. The capital structure is imputed based on the 
imputed funding need (assets less liabilities), subject to minimum 
equity constraints. Short-term debt is imputed to fund the imputed 
short-term funding need. The ratio of long-term debt and equity is 
imputed to meet the priced services long-term funding need based on the 
capital structure of the U.S. publicly traded firm market. The level of 
equity must meet the minimum equity constraints, which follow the FDIC 
requirements for a well-capitalized institution of at least 5 percent 
of total assets and 10 percent of risk-weighted assets. Any imputed 
equity that exceeds that needed to meet minimum equity constraints is 
offset by a reduction in imputed long-term debt. When imputed equity is 
larger than what can be offset by imputed debt, the excess is imputed 
as investments in Treasury Securities.
    Effective tax rate. As with the imputed capital structure, the 
effective tax rate is calculated based on data from U.S. publicly 
traded firms. The tax rate is the mean of the weighted average rates of 
the U.S. publicly traded firm market over the past 5 years.
    Debt and equity financing. The imputed short- and long-term debt 
financing rates are derived from the nonfinancial commercial paper 
rates from the Federal Reserve Board's H.15 Selected Interest Rates 
release and the annual Merrill Lynch Corporate & High Yield Index rate, 
respectively. The rates for debt and equity financing are applied to 
the priced services estimated imputed liabilities and imputed equity 
derived from the target capital structure.
    The increase in the 2014 PSAF is due primarily to an increase in 
the debt and equity costs resulting from imputed debt and equity that 
was required to offset a reduction in pension and other benefit 
liabilities that were used to fund priced services assets in 2013.
    Projected 2014 Federal Reserve priced-services assets, reflected in 
table 3, have increased $85.7 million 2013 levels, as a result of the 
increase in imputed investments from estimated items in process of 
collection and the shift in the net pension liability to a net pension 
asset.
    Credit float, which represents the difference between items in 
process of collection and deferred credit items, increased to $600.0 
million in 2014 from $550.0 million in 2013.\12\ The projected increase 
for 2014 is primarily due to the increased use of products that 
generate credit float.
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    \12\ Credit float occurs when the Reserve Banks present 
transactions to the paying bank prior to providing credit to the 
depositing bank.
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    As shown in table 3, the amount of equity imputed for the 2014 PSAF 
is $82.3 million, an increase of approximately $10.1 million from the 
equity imputed for 2013. In accordance with FAS 158 [ASC 715], this 
amount includes an accumulated other comprehensive loss (AOCI) of 
$497.5 million. The capital-to-total-assets ratio and the capital-to-
risk-weighted-assets ratio must be equal to or greater than the 
regulatory requirements for a well-capitalized depository institution. 
The ratio of capital to risk-weighted assets exceeds 10 percent, and 
equity exceeds 5 percent of total assets.\13\ In 2013, additional 
equity of $58.1 million was imputed to meet the minimum capital-to-
risk-weighted-asset constraint (the corresponding imputed investment 
income from this additional equity was $0.1 million). In 2014, equity 
was imputed to meet the ratio of long-term debt to long-term debt plus 
equity observed in the market.
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    \13\ On September 10, 2013, the FDIC issued an interim rule, 
effective in 2015, pertaining to the risk weighting of regulatory 
capital and to the inclusion of AOCI in the calculation of 
regulatory capital. Under the agencies' general risk-based capital 
rules, most components of AOCI are not reflected in a banking 
organization's regulatory capital. The Reserve Banks will continue 
to include accumulated other comprehensive income or losses (78 FR 
55346, September 10, 2013). The Office of the Comptroller of the 
Currency and the Board of Governors of the Federal Reserve System 
published a final rule that replaces their existing risk-based and 
leverage capital rules and this final rule is consistent with the 
interim final rule published by the FDIC (78 FR 62017, October 11, 
2013).
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    In 2014, $22.2 million and $119.3 million of short- and long-term 
debt, respectively, was imputed to meet the asset funding requirements 
and to reflect the ratio of long-term debt to equity observed in the 
market (Table 4). In 2013, $14.4 million in short-term debt was imputed 
to meet short-term funding requirements.
    Table 5 shows the imputed PSAF elements for 2014 and 2013, 
including the pretax ROE and other required PSAF costs. The 2014 long-
term debt costs increased to $7.0 million from zero in 2013 due to 
imputing $119.3 million in long-term debt. The 2014 ROE of $8.7 million 
represents an increase of $1.9 million over the 2013 ROE of $6.8 
million and is due to a higher equity level and pre-tax ROE. Imputed 
sales taxes increased to $3.5 million in 2014 from $3.3 million in 
2013. The effective income tax rate used in 2014 decreased to 37.2 
percent from 38.5 percent in 2013. The priced services portion of the 
Board's expenses increased $0.1 million to $4.1 million in 2014 from 
$4.0 million in 2013.
BILLING CODE 6210-01-P

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    C. Check Service--Table 7 shows the 2012 actual, 2013 estimated, 
and 2014 budgeted cost-recovery performance for the commercial check 
service.

[[Page 66724]]

[GRAPHIC] [TIFF OMITTED] TN06NO13.007

    1. 2013 Estimate--For 2013, the Reserve Banks estimate that the 
check service will recover 111.9 percent of total expenses and targeted 
ROE, compared with the budgeted recovery rate of 107.1 percent. The 
Reserve Banks expect to recover all actual and imputed costs of 
providing check services and earn a net income of $22.7 million (see 
table 7). Greater-than-expected check volumes processed by the Reserve 
Banks and lower-than-expected costs have influenced significantly the 
check services cost recovery.\25\
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    \25\ The greater-than-expected check volume is attributed to two 
new FedForward deposit options that were introduced in late 2011: 
premium mixed and select mixed. The premium mixed option allows 
customers to send forward collection items in a mixed cash letter 
for a higher cash letter fee and lower electronic per-item fee. The 
select mixed option offers similar incentives; however, the customer 
sends forward collection items drawn on specific forward collection 
routing numbers in separate cash letters.
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    The decline in checks collected by the Reserve Banks reflects the 
decline in the number of checks written generally. Through August, 
total forward check volume is 7 percent lower and total return check 
volume is 13 percent lower than for the same period last year. For 
full-year 2013, the Reserve Banks estimate that their total forward 
check collection volume will decline nearly 7 percent and their total 
return check volume will decline 14 percent from 2012 levels.\26\ The 
proportion of checks deposited and presented electronically through the 
Reserve Banks continues to grow (see table 8). The Reserve Banks expect 
that year-end 2013 FedForward deposit and FedReceipt presentment 
penetration rates will exceed 99.9 percent.\27\ The Reserve Banks also 
expect that year-end 2013 FedReturn and FedReceipt Return volume 
penetration rates will reach 99.0 percent and 97.0 percent, 
respectively.\28\
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    \26\ Total Reserve Bank forward check volumes are expected to 
drop from roughly 6.4 billion in 2012 to 6.0 billion in 2013. Total 
Reserve Bank return check volumes are expected to drop from roughly 
48.8 million in 2012 to 41.9 million in 2013.
    \27\ FedForward is the electronic forward check collection 
product. FedReceipt is electronic presentment with accompanying 
images.
    \28\ FedReturn is the electronic check return product. 
FedReceipt Return is the electronic delivery of returned checks with 
accompanying images.
[GRAPHIC] [TIFF OMITTED] TN06NO13.008


[[Page 66725]]


    2. 2014 Pricing--In 2014, the Reserve Banks project that the check 
service will recover 108.0 percent of total expenses and targeted ROE. 
Revenue is projected to be $163.4 million, a decline of 17 percent from 
2013. This decline is driven largely by projected reductions in both 
forward check collection and return check volume. Total expenses for 
the check service are projected to be $149.4 million, a decline of 14 
percent from 2013. The reduction in check costs is driven primarily by 
the cost savings associated with the implementation of a more efficient 
check processing platform and the decommissioning of the legacy 
platform.\29\
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    \29\ The Reserve Banks completed a multi-year check platform 
modernization initiative in October 2012.
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    The Reserve Banks estimate that total Reserve Bank forward check 
volumes will decline nearly 9 percent to 5.4 billion and return check 
volumes will decline approximately 14 percent to 36.2 million in 2014. 
The decline in Reserve Bank check volume can be attributed to the 
continued decline in check use nationwide.
    The Reserve Banks offer depository institutions the option of 
sending FedForward Select Mixed Image Cash Letters (ICL), for items 
drawn on specific routing numbers in a separate cash letter, which 
combines a high fixed fee with a lower variable fee. The Reserve Banks 
will introduce a third tier to each level of the FedForward Select 
Mixed ICL product and will expand the number of eligible routing 
numbers by 828 for a total of 5,411 routing numbers. At the same time, 
the Reserve Banks will raise the daily fee for FedForward Select Mixed 
Level 1 from $2,000 to $2,200 (see Table 9).
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    The Reserve Banks announced in October a 12:30 p.m. deadline for 
FedReturn Mixed ICL deposits, which will provide an opportunity for 
paying banks to return items to the bank of first deposit one day 
earlier. The ICL fee will be the same as the ICL fee for the 1:00 a.m. 
deadline for FedReturn Mixed ICL deposits, and item fees will be the 
same as the item fees for the 9:00 p.m. deadline. The Reserve Banks 
also will reduce FedReturn Mixed ICL per-item fees for tier 1 and tier 
2, and increase per-item fees for tier 3, tier 4, PDF, and substitute 
checks (see Table 10).

[[Page 66726]]

[GRAPHIC] [TIFF OMITTED] TN06NO13.010

    The Reserve Banks will discontinue the Choice Receiver program, 
which provides pricing incentives to those customers that agree to 
designate the Federal Reserve as their sole electronic presentment 
point and electronic return point. At the same time, the Reserve Banks 
will reduce the per-item fees for the FedReceipt Plus Forward and 
Return products from $0.005 to $0.004.
    Risks to the Reserve Banks' ability to achieve budgeted 2014 cost 
recovery for the check service include greater-than-expected check 
volume losses to correspondent banks, aggregators, and direct 
exchanges, which would result in lower-than-anticipated revenue, and 
higher-than-expected support and overhead costs.
    D. FedACH Service--Table 11 shows the 2012 actual, 2013 estimate, 
and 2014 budgeted cost-recovery performance for the commercial FedACH 
service.
[GRAPHIC] [TIFF OMITTED] TN06NO13.011

    1. 2013 Estimate--The Reserve Banks estimate that the FedACH 
service will recover 100.5 percent of total expenses and targeted ROE. 
The Reserve Banks expect to recover all actual and imputed costs of 
providing FedACH services and earn net income of $1.8 million. Through 
August, FedACH commercial origination volume was 3.6 percent higher 
than it was during the same period last year. For the full year, the 
Reserve Banks estimate that volume growth will continue at the current 
trend.
    2. 2014 Pricing--The Reserve Banks project that the FedACH service 
will recover 99.5 percent of total expenses and targeted ROE in 2014. 
Total revenue is expected to increase $5.6 million from the 2013 
estimate, primarily because of the projected 3.0 percent growth in 
FedACH commercial origination and receipt volume. Total expenses are 
budgeted to increase $6.4 million from the 2013 estimate because of 
costs associated with the development of a new FedACH technology 
platform.
    The Reserve Banks will increase the FedACH monthly settlement fee 
from $50 to $55 per routing number and will increase the account 
servicing fee from $37 to $45 per routing number. In addition, Reserve 
Banks will raise the fee for the use of automated notification of 
change (NOC) functionality from $0.15 to $0.20 per item and will 
introduce a NOC participation fee of $5 per month. The Reserve Banks 
also will restructure the batch/item monitoring fee for the Origination 
Monitoring Service and RDFI Alert Service by implementing two volume-
based tiers

[[Page 66727]]

with per-batch fees of $0.007 for up to 500,000 batches each month and 
$0.0035 for greater than 500,000 batches each month. The Reserve Banks 
will offer a discount of $0.0025 off FedACH receipt fees for RDFIs that 
originate and receive items on the same routing number (``on-us'' 
transactions).\30\
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    \30\ An RDFI's use of the FedACH risk management services could 
be enhanced with the inclusion of on-us items.
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    The primary risk to the Reserve Banks' ability to achieve budgeted 
2014 cost recovery for the FedACH service is cost overruns associated 
with unanticipated problems with technology upgrades and higher-than-
expected support and overhead costs. Other risks include lower-than-
expected volume and associated revenue due to unanticipated mergers and 
acquisitions and loss of market share due to direct exchanges and a 
shift of volume to the private-sector operator.
    E. Fedwire Funds and National Settlement Services--Table 12 shows 
the 2012 actual, 2013 estimate, and 2014 budgeted cost-recovery 
performance for the Fedwire Funds and National Settlement Services.
[GRAPHIC] [TIFF OMITTED] TN06NO13.012

    1. 2013 Estimate--The Reserve Banks estimate that the Fedwire Funds 
and National Settlement Services will recover 98.0 percent of total 
expenses and targeted ROE, compared with a 2013 budgeted recovery rate 
of 98.3 percent. For the full year, the Reserve Banks estimate that 
Fedwire Funds online volume will exceed the budget by 3.0 percent. 
Although volume is higher than originally projected, revenue is 
expected to be lower because of a different-than-projected distribution 
of volume across the fee structure. With regard to the National 
Settlement Service, the Reserve Banks estimate that the volume of 
settlement files will exceed projections by 6.3 percent while the 
volume of settlement entries will be higher by 2.4 percent.
    2. 2014 Pricing--The Reserve Banks will increase prices on average 
by 13.5 percent in order for the Fedwire Funds and National Settlement 
Services to recover 98.5 percent of total expenses and targeted ROE. 
The pricing strategy is sensitive to the competitive vulnerabilities of 
different customer segments and focuses price increases on value-added 
aspects of the service. The Reserve Banks project total revenue to 
increase $12.6 million from the 2013 estimate. This projected revenue 
increase is primarily the result of price increases for the Fedwire 
Funds and the National Settlement Services and a 2.0 percent projected 
growth in Fedwire Funds volume. The Reserve Banks project total 
expenses to increase $11.8 million from the 2013 estimate. This 
increase is due primarily to ongoing projects to upgrade the Fedwire 
application and related information technology infrastructure.
    The Reserve Banks will increase the surcharge for transfers 
exceeding $10 million from $0.12 to $0.15 and the surcharge for 
transfers exceeding $100 million from $0.30 to $0.36.\31\ The Reserve 
Banks believe that high-value transfer surcharges are an equitable way 
to shift more of the cost associated with Fedwire resiliency to those 
high-value payments that drive the need for such resiliency.
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    \31\ In 2013, the Reserve Banks introduced a $0.30 high-value 
surcharge for both the senders and receivers of transfers exceeding 
$100 million.
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    The Reserve Banks also will adjust the incentive pricing fees and 
related benchmark volume for the Fedwire Funds Service. First, the 
Reserve Banks will increase the Tier 1 per item pre-incentive fee (the 
fee before volume discounts are applied) from $0.65 to $0.69. Second, 
the Reserve Banks will decrease the Tier 2 per item pre-incentive fee 
from $0.25 to $0.24. Third, the Reserve Banks will decrease the Tier 3 
per item pre-incentive fee from $0.145 to $0.140. Finally, the Reserve 
Banks will increase the benchmark at which customers receive volume-
based discounts from 50 percent of a customer's historical average of 
daily transfer activity to 60 percent.
    The Reserve Banks will increase the late-day (after 5:00 p.m. ET) 
origination surcharge from $0.21 to $0.26. In addition, the Reserve 
Banks will increase the FedPayments Manager import/export monthly fee 
from $30 to $45. The Reserve Banks believe that these increases are 
reasonable given the significant value that these services provide to 
the customer. Lastly, the Reserve Banks will increase the monthly 
participation fee from $85 to $90. The Reserve Banks estimate that the 
price increases will result in an approximate 13.5 percent average 
price increase for Fedwire Funds customers.
    With respect to the National Settlement Service, the Reserve Banks 
will increase the settlement file fee from $25 to $30 and the 
settlement entry fee from $1.20 to $1.50. The Reserve Banks project 
volume growth to remain at 2013 levels.
    The Reserve Banks' proposed Fedwire Funds and National Settlement 
Services fees are consistent with their multi-year strategy to minimize 
pricing volatility while undertaking the ongoing technology upgrades 
and related information technology infrastructure projects.\32\ The 
primary risk to the Reserve Banks' ability to achieve budgeted 2014 
cost recovery for these services is cost overruns associated with 
managing the complexity of these technology upgrades.
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    \32\ The Reserve Banks expect costs associated with the upgrades 
to peak in 2013 and 2014.
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    F. Fedwire Securities Service--Table 13 shows the 2012 actual, 2013 
estimate, and 2014 budgeted cost

[[Page 66728]]

recovery performance for the Fedwire Securities Service.\33\
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    \33\ 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.
[GRAPHIC] [TIFF OMITTED] TN06NO13.013

BILLING CODE 6210-01-C
    1. 2013 Estimate--The Reserve Banks estimate that the Fedwire 
Securities Service will recover 103.0 percent of total expenses and 
targeted ROE, compared with a 2013 budgeted recovery rate of 101.6 
percent. The higher-than-expected cost recovery is primarily due to 
higher-than-projected volumes and associated revenue. Specifically, 
continued low mortgage rates have resulted in higher mortgage-backed 
securities issuance and thus higher issues maintenance and online 
transfer activity. In addition, account maintenance activity is higher 
than expected as customers have been closing empty accounts at a slower 
rate than originally projected. For the full year, the Reserve Banks 
expect total revenue to exceed the budget by 8.9 percent or $2.2 
million.
    2. 2014 Pricing--The Reserve Banks project that the Fedwire 
Securities Service will recover 98.5 percent of total expenses and 
targeted ROE driven by a projected decrease in volume and revenue in 
2014. The Reserve Banks project that revenue will decrease by $1.4 
million compared with 2013 estimates. Expenses are expected to decrease 
by $0.4 million, partly reflecting higher Treasury reimbursements.\34\ 
The Reserve Banks expect costs associated with the Fedwire 
modernization program to increase.
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    \34\ Treasury reimbursement is calculated largely by multiplying 
costs by the ratio of Treasury to agency transfers. In 2014, 
Treasury projects its transfer volume will remain flat, while the 
Reserve Banks expect agency transfers to decrease. Therefore, the 
higher projected ratio of Treasury to agency transfers will result 
in Treasury reimbursing a higher portion of total costs.
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    In calculating projected Fedwire Securities revenue for 2014, the 
Reserve Banks project that online transfer activity will decline by 7.6 
percent, the number of accounts maintained will decrease by 6.2 
percent, and the number of agency securities maintained will decrease 
by 1.2 percent. The estimated decrease in securities maintenance and 
online transfer activity reflects a lower issuance of mortgage-backed 
securities due to the recent uptick in mortgage rates. The number of 
accounts is also expected to decrease largely due to the historically 
high proportion of empty accounts, which customers continue to close.
    The Reserve Banks propose no price change for the Fedwire 
Securities Service for 2014.
    G. FedLine Access--The Reserve Banks charge fees for the electronic 
connections that depository institutions use to access priced services 
and allocate the costs and revenue associated with this electronic 
access to the various priced services. There are currently five FedLine 
channels through which customers can access the Reserve Banks' priced 
services: FedMail[supreg], FedLine Web[supreg], FedLine 
Advantage[supreg], FedLine Command[supreg], and FedLine 
Direct[supreg].\35\ The Reserve Banks package these channels into nine 
FedLine packages, described in the two paragraphs that follow, that are 
supplemented by a number of premium (or [agrave] la carte) access and 
accounting information options. In addition, the Reserve Banks offer 
FedComplete packages, which are bundled offerings of a FedLine 
Advantage connection and a fixed number of FedACH, Fedwire Funds, and 
Check 21-enabled services.
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    \35\ FedMail, FedLine Web, FedLine Advantage, FedLine Command, 
and FedLine Direct are registered trademarks of the Federal Reserve 
Banks.
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    Five attended access packages offer access to critical payment and 
information services via a web-based interface. The FedMail email 
package provides access to basic information services via fax or email, 
while two FedLine Web packages offer FedMail email options plus online 
attended access to a range of services, including cash services, FedACH 
information services, and check services. Two FedLine Advantage 
packages expand upon the FedLine Web packages and offer attended access 
to critical transactional services: FedACH, Fedwire Funds, and Fedwire 
Securities.
    Four unattended access packages are computer-to-computer, IP-based 
interfaces designed for medium-to high-volume customers. The FedLine 
Command package offers an unattended connection to FedACH, as well as 
most accounting information services. The three remaining packages are 
FedLine Direct packages, which allow for unattended connections at one 
of three connection speeds to FedACH, Fedwire Funds, and Fedwire 
Securities transactional and information services and to most 
accounting information services.
    Many of the FedLine access solutions fee changes in 2014 are 
designed to encourage customers to migrate to more efficient access 
solutions. The Reserve Banks will increase the fees on legacy services, 
such as an additional $10 per month for FedMail Fax, $500 per month for 
FedLine Direct (56K), $500 for a 56K additional connection, and $200 
per month for the Dial-Only VPN surcharge.
    In addition, the Reserve Banks will make other changes to FedLine 
pricing for 2014 to improve alignment of value and revenue. In 
particular, the Reserve

[[Page 66729]]

Banks will increase the monthly fees for FedLine Command Plus by $200 
and monthly fees for Accounting Totals by Service Line (ACTS) reports.
    The Reserve Banks will no longer include user subscriptions for 
priced services within FedLine packages. Depository institutions that 
wish to access priced services will be required to purchase user 
subscriptions in packs of five (5-packs). The FedMail email subscriber 
5-pack will be $10 per month, and 5-packs for all other FedLine 
packages will be $80 per month. FedLine packages will continue to 
include unlimited subscriptions to nonpriced services.
    The Reserve Banks will eliminate the FedComplete 100 product. 
Depository institutions will have the option to choose either the 
FedComplete 100 Plus or FedComplete 200 Plus packages, which are $775 
and $1,300 per month, respectively. These FedComplete packages will 
include one FedLine subscriber 5-pack and one FedMail subscriber 5-
pack.

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.'' \36\ Under this policy, the 
Board assesses whether proposed 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 constraints or because of 
a dominant market position deriving from such legal differences. If any 
proposed changes create such an effect, the Board must further evaluate 
the changes to assess whether the benefits associated with the 
changes--such as contributions to payment system efficiency, payment 
system integrity, or other Board objectives--can be achieved while 
minimizing the adverse effect on competition.
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    \36\ Federal Reserve Regulatory Service, 9-1558.
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    The Board projects that the 2014 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 fees should permit the 
Reserve Banks to earn a ROE that is comparable to overall market 
returns and provide for full cost recovery over the long run.
BILLING CODE 6210-01-P

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[GRAPHIC] [TIFF OMITTED] TN06NO13.024


    By order of the Board of Governors of the Federal Reserve 
System, October 31, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-26560 Filed 11-5-13; 8:45 am]
BILLING CODE 6210-01-C