[Federal Register Volume 74, Number 214 (Friday, November 6, 2009)]
[Notices]
[Pages 57468-57486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-26743]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
[Docket No. OP-1375]
Federal Reserve Bank Services
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors of the Federal Reserve System (Board)
has approved the private sector adjustment factor (PSAF) for 2010 of
$50.2 million and the 2010 fee schedules for Federal Reserve priced
services and electronic access. These actions were taken in
[[Page 57469]]
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 4, 2010.
FOR FURTHER INFORMATION CONTACT: For questions regarding the fee
schedules: Jeffrey C. Marquardt, Deputy Director, (202/452-2360);
Jeffrey S.H. Yeganeh, Manager, Retail Payments, (202/728-5801); Linda
S. Healey, Senior Financial Services Analyst, (202/452-5274), Division
of Reserve Bank Operations and Payment Systems. For questions regarding
the PSAF and earnings credits on clearing balances: Gregory L. Evans,
Deputy Associate Director, (202/452-3945); Brenda L. Richards, Manager,
Financial Accounting, (202/452-2753); or Rebekah Ellsworth, Financial
Analyst, (202/452-3480), 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 2010 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 1999 through 2008, the Reserve Banks recovered 98.7 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\
---------------------------------------------------------------------------
\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
reduction in equity related to the priced services' benefit plans.
Including this reduction in equity results in cost recovery of 92.0
percent for the ten-year period. This measure of long-run cost
recovery is also published in the Board's Anneal Report.
---------------------------------------------------------------------------
Table 1 summarizes 2008, 2009 estimated, and 2010 budgeted cost-
recovery rates for all priced services. Cost recovery is estimated to
be 92.0 percent in 2009 and budgeted to be 96.8 percent in 2010. The
check service accounts for approximately 60 percent of the total cost
of priced services and thus significantly influences the aggregate
cost-recovery rate.
Table 1--Aggregate Priced Services Pro Forma Cost and Revenue Performance a
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 e
3 Net Recovery
1 b 2 c Total income 4 d rate after
Year Revenue expense (ROE) [1 - Targeted targeted
2] ROE ROE [1/
(2+4)]
----------------------------------------------------------------------------------------------------------------
2008........................................... 873.8 820.4 53.4 66.5 98.5%
2009 (estimate)................................ 679.8 718.0 -38.3 21.1 92.0%
2010 (budget).................................. 565.8 565.7 0.1 18.9 96.8%
----------------------------------------------------------------------------------------------------------------
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 pension plans under FAS 158 [ASC 715]
are also included.
d Targeted ROE is the after-tax ROE included in the PSAF. For the 2009 estimate, the targeted ROE reflects
average actual clearing balance levels through July 2009.
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 1999 to 2008, 2008, 2009 budget, 2009 estimate,
and 2010 budget by priced service. The check service is the only
service with a ten-year cost recovery rate below 100 percent. The
Reserve Banks have been aggressively reducing costs in response to the
banking industry's transition to an end-to-end electronic check
processing environment and declining check volumes nationwide. Since
2003, the Reserve Banks have reduced the number of offices at which
they process paper checks from forty-five to four and plan to process
paper checks at only one office by early 2010. In addition, the Reserve
Banks have significantly reduced check service staff as well as their
physical check transportation network. The Reserve Banks believe that
their ongoing cost reduction efforts should enable the check service to
return to full cost recovery within the next several years.
[[Page 57470]]
Table 2--Priced Services Cost Recovery
[Percent]
----------------------------------------------------------------------------------------------------------------
2009 2009 2010
Priced service 1999-2008 2008 Budget Estimate Budget a
----------------------------------------------------------------------------------------------------------------
All services................................... 98.7 98.5 94.3 92.0 96.8
Check.......................................... 97.6 97.8 92.3 92.0 94.5
FedACH......................................... 104.6 101.5 100.3 92.0 100.0
Fedwire Funds and NSS.......................... 103.0 100.4 98.6 90.9 100.4
Fedwire Securities............................. 102.4 102.5 100.8 94.7 103.3
----------------------------------------------------------------------------------------------------------------
a 2010 budget figures reflect the latest data from the Reserve Banks. The Reserve Banks will transmit final
budget data to the Board in November 2009, for Board consideration in December 2009.
1. 2009 Estimated Performance--The Reserve Banks estimate that they
will recover 92.0 percent of the costs of providing priced services in
2009, including imputed expenses and targeted ROE, compared with a
budgeted recovery rate of 94.3 percent, as shown in table 2. The
Reserve Banks expect to recover 95 percent of actual expenses,
incurring an overall net loss of $38.3 million, which is $59.4 million
less than the budgeted net income of $21.1 million. This shortfall is
largely driven by lower-than-expected net income from clearing balances
(NICB) and increased pension costs.\2\
---------------------------------------------------------------------------
\2\ The 2009 estimated NICB was projected to be $48.8 million
and is now estimated at $14.0 million. The decrease in NICB is due
to decreases in the level of clearing balances and in the imputed
investment rate in 2009. The 2009 estimated pension costs are $53.1
million higher than budgeted.
---------------------------------------------------------------------------
2. 2010 Private Sector Adjustment Factor--The 2010 PSAF for Reserve
Bank priced services is $50.2 million. This amount represents a
decrease of $2.6 million from the estimated 2009 revised PSAF of $52.8
million. This reduction is primarily the result of a decrease in the
cost of equity, which is due to both a lower required return on equity
and a lower amount of imputed equity.\3\
---------------------------------------------------------------------------
\3\ In October 2008, the Board approved a budgeted 2009 PSAF of
$62.2 million, which was based on the July 2008 clearing balance
level of $7,361.6 million. Since that time, clearing balances have
declined, which affects 2009 PSAF and NICB. The 2009 estimated PSAF
of $52.8 million, which is based on actual average clearing balances
of $4,560.1 million through July 2009, reflects the lower equity
costs resulting from the decrease in clearing balances. The 2009
final PSAF will be adjusted to reflect average clearing balance
levels through the end of 2009.
---------------------------------------------------------------------------
3. 2010 Projected Performance--The Reserve Banks project that the
FedACH[reg] service, Fedwire[reg] Funds and National Settlement
Services, and Fedwire[reg] Securities Service will fully recover their
costs in 2010 and that the check service will not recover its costs.\4\
Overall, the Reserve Banks project a priced services cost-recovery rate
of 96.8 percent in 2010, with a net income of $0.1 million.\5\ The
projected priced services' cost recovery is heavily influenced by the
check service's underrecovery. This underrecovery is driven by a
projected reduction in check deposit volume and a projected decline in
the effective price of Check 21 services, resulting in lower revenue
for the service.\6\
---------------------------------------------------------------------------
\4\ FedACH and Fedwire are registered servicemarks of the
Reserve Banks.
\5\ The Reserve Banks expect to recover all of their actual and
imputed expenses in 2010, and earn a small profit.
\6\ The decline in the effective price of Check 21 services will
result primarily from an increase in the proportion of checks
presented to electronic endpoints, which incur relatively lower fees
than checks presented to paper endpoints.
---------------------------------------------------------------------------
The primary risks to the Reserve Banks' ability to achieve their
targeted cost recovery rates are (1) unanticipated check volume and
revenue reductions, (2) the potential for cost overruns or delays with
technological upgrades, and (3) further substantial declines in
clearing balances resulting in significant changes to the projected
PSAF and NICB. Although the check service will not achieve full cost
recovery in 2010, the Reserve Banks believe that they will return to
full cost recovery within the next several years by aggressively
managing operating costs, taking advantage of efficiencies gained from
technological upgrades, and increasing value-added product revenue.
4. 2010 Pricing--The following summarizes the Reserve Banks'
changes in fee schedules for priced services in 2010:
Check
The Reserve Banks will increase FedForward fees 6 percent
for checks presented electronically and 17 percent for checks presented
as substitute checks.\7\ The average fee paid by FedForward depositors
will decline by 23 percent over the average 2009 fee as the number of
depository institutions that accept their presentments electronically
increases. The Reserve Banks will also raise FedReturn fees 23 percent
for electronic endpoints and almost 46 percent for substitute check
endpoints.\8\ The average fee paid by depository institutions using
FedReturn will rise only 7 percent as the number of institutions that
accept their returns electronically increases.\9\
---------------------------------------------------------------------------
\7\ FedForward is the electronic forward check collection
product.
\8\ FedReturn is the electronic check return product.
\9\ The Reserve Bank's Check 21 service fees include separate
and substantially different fees for the delivery of checks to
electronic endpoints and substitute check endpoints. Therefore, the
average effective fee paid by depository institutions that use Check
21 services is dependent on the proportion of institutions that
accept checks electronically. Although the Reserve Banks are raising
FedForward fees for the presentment of checks to both electronic and
substitute check endpoints, the effective fee paid by depository
institutions will decline by 23 percent in 2010 due to the expected
increase in the number of institutions that accept checks
electronically. The Reserve Banks are also raising FedReturn fees to
both electronic and substitute check endpoints. However, because of
the relatively larger changes for the FedReturn fees, the effective
fee paid by depository institutions will rise by 7 percent in 2010.
---------------------------------------------------------------------------
The Reserve Banks will increase traditional paper forward
collection fees 47 percent and traditional paper return service fees 33
percent.
With the 2010 fees, the price index for the total check
service will have increased 83 percent since 2000. In comparison, since
2005, the first full year in which the Reserve Banks offered Check 21
services, the price index for Check 21 services will have decreased 57
percent.
FedACH
The Reserve Banks will introduce a $25 minimum monthly fee
for an originating depository financial institution (ODFI) that
originates forward items and the revenue associated with origination is
less than $25. Additionally, the Reserve Banks will introduce a $15
minimum monthly fee for a receiving depository financial institution
(RDFI) that does not originate forward transactions and that has
revenue less than $15 associated with receipts.
The Reserve Banks will increase the monthly fees for
FedACH settlement
[[Page 57471]]
from $37 to $45 per routing number and for information extract files
from $35 to $50 per routing number. In addition, Reserve Banks will
raise the addenda record fees for originations and receipts 0.3 mills
and introduce a $0.15 fee for the use of automated notification of
change functionality.
The Reserve Banks will realign the volume-based pricing
for receipts by implementing a per-item fee of 2.5 mills for items up
to 1 million each month, a per-item fee of 1.8 mills for items over 1
million and up to 25 million each month, and a per-item fee of 1.6
mills for all items when volume is greater than 25 million each month.
With the 2010 fees, the price index for the FedACH service
will have decreased 36 percent since 2000.
Fedwire Funds and National Settlement
The Reserve Banks will raise the monthly participation fee
for Fedwire Funds customers with activity in that month from $60 to
$75. In addition, the Reserve Banks will increase the online transfer
fee by $0.04 in the highest-priced tier, $0.02 in the mid-priced tier,
and $0.01 in the lowest-priced tier and increase the threshold to
qualify for volume-based discounts.
The Reserve Banks will increase the National Settlement
Service's special settlement arrangement fee from $100 to $150.
With the 2010 fees, the price index for the Fedwire Funds
and National Settlement Services will have increased 12 percent since
2000.
Fedwire Securities
The Reserve Banks will retain fees at their current
levels.
With the 2010 fees, the price index for the Fedwire
Securities Service will have decreased 23 percent since 2000.
5. 2010 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 2009, the price index for all Reserve Bank
priced services is projected to increase 1.3 percent in 2010. The price
index for the FedACH service, Fedwire Funds and National Settlement
Services, and Fedwire Securities Service is projected to increase 14
percent. The price index for Check 21 services is projected to decrease
16 percent, reflecting the rapid increase in the number of depository
institutions accepting checks electronically and the resulting
reductions in the effective prices paid to collect and return checks
using Check 21 services. The price index for all other check services
is projected to increase 66 percent. For the period 2000 to 2010, the
price index for all priced services is expected to increase 63 percent.
In comparison, for the period 2000 to 2008 the GDP price index
increased 22 percent.
[GRAPHIC] [TIFF OMITTED] TN06NO09.000
[[Page 57472]]
B. Private Sector Adjustment Factor--In March 2009, the Board
requested comment on proposed changes to the methodology for
calculating the PSAF.\10\ The Board proposed replacing the current
correspondent bank model with a ``publicly traded firm model' in which
the key components used to determine the priced-services balance sheet
and the PSAF costs would be based on data for the market of U.S.
publicly traded firms. Specifically, these components include the
capitalization ratio used to determine financing on the priced-services
balance sheet and the effective tax rate, return on equity rate, and
debt financing rates. The proposed changes were prompted by the
implementation of the payment of interest on reserve (IOR) balances
held by depository institutions (DIs) at the Reserve Banks and the
anticipated consequent decline in balances held by DIs at Reserve Banks
for clearing priced-services transactions (clearing balances).
---------------------------------------------------------------------------
\10\ 74 FR 15481-15491 (Apr. 6, 2009).
---------------------------------------------------------------------------
Since the implementation of IOR, clearing balances have not
declined as rapidly or significantly as originally anticipated. Between
the implementation of IOR in October 2008 and January 2009, the total
level of clearing balances held by DIs decreased approximately $2
billion, from $6.5 billion to $4.5 billion. During the first half of
2009, clearing balance levels were fairly flat at approximately $4.5
billion. Recently, clearing balances have begun to moderately decline
again, with an average balance of $4.0 billion in September 2009. As a
result of the relative stability in clearing balance behavior and the
continued significant level of balances, the Board will continue to use
the correspondent bank model, with two minor modifications, for the
2010 PSAF. First, given the lower level of clearing balances, the Board
will reduce the level of core clearing balances.\11\ Second, in the
event that debt is required, the Board will use market-based rather
than bank holding company (BHC)-based debt rates. Both of these changes
are outlined below.
---------------------------------------------------------------------------
\11\ Core clearing balances are considered the portion of
clearing balances that has remained stable over time and are used to
fund long-term priced services assets as needed.
---------------------------------------------------------------------------
The Board is currently analyzing further the proposed publicly
traded firm model and an alternate model suggested by several
commenters based on a peer group of publicly traded payments
processors.
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 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 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. 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. A portion of clearing
balances is used as a funding source for short-term priced-services
assets. Long-term assets are partially funded from core clearing
balances.
Because of the notable reduction in clearing balances since the
implementation of IOR, the Board will adjust the level of core clearing
balances from $4 billion to $1 billion. In addition, the Board will
base the imputed debt rate on a market-based average debt rate for any
imputed debt, if necessary, rather than an average BHC debt rate.\12\
As compared to an average BHC rate, a market-based debt rate is easier
to calculate and more transparent. The Board will use the average of
the 3-month AA and A2/P2 nonfinancial commercial paper rates for short-
term debt and the Merrill Lynch Corporate and High Yield Bond Index
yield for long-term debt. The Board requested comment on this proposed
change to the correspondent bank model. No comments were received that
addressed this proposal.
---------------------------------------------------------------------------
\12\ This change will likely have little practical effect on the
PSAF because the funding need on the priced services balance sheet
historically has been a fraction of the available clearing balances.
Given current priced services assets and liabilities, the Board
anticipates that even with sizable decreases in clearing balances
through 2010, imputed debt will not be necessary.
---------------------------------------------------------------------------
Imputed equity meets the FDIC requirements for a well-capitalized
institution for insurance premium purposes and represents the market
capitalization, or shareholder value, for Reserve Bank priced
services.\13\ 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 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 require in order to invest in a private business
firm.
---------------------------------------------------------------------------
\13\ 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 member banks of the Federal Reserve System, but rather to the
implied shareholders that would have an ownership interest if the
Reserve Banks' priced services were provided by a private 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 that is the median
of the rates paid by the top fifty bank holding companies based on
deposit balances over the past five years, adjusted to the extent that
they invested in tax-free municipal bonds.
The PSAF also includes the estimated priced-services-related
expenses of the Board of Governors and imputed sales
[[Page 57473]]
taxes based on Reserve Bank estimated expenditures. An assessment for
FDIC insurance 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 an
imputed reserve requirement and balances used to finance priced-
services assets.\14\ The Reserve Banks impute a constant spread,
determined by the return on a portfolio of investments, over the three-
month Treasury bill rate and apply this investment rate to the net
level of clearing balances.\15\
---------------------------------------------------------------------------
\14\ Reserve requirements are the amount of funds that a DI must
hold in reserve against specified deposit liabilities. DIs must hold
reserves in the form of vault cash or deposits with Federal Reserve
Banks. The dollar amount of a DI's reserve requirement is determined
by applying the reserve ratios specified in the Board's Regulation D
to the institution's reservable liabilities. The Reserve Banks
priced services impute a reserve requirement of ten percent, which
is applied to the amount of clearing balances held with the Reserve
Banks.
\15\ The investment portfolio is composed of investments
comparable to a bank holding company'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 2010.
NICB is projected to be $14.5 million for 2010. This result uses
an investment rate equal to a constant spread of 29 basis points
over the three-month Treasury bill rate, applied to the clearing
balance levels used in the 2010 pricing process. The 2009 NICB
estimate is $14.0 million.
---------------------------------------------------------------------------
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 2010 projected NICB are based on July 2009 rates and
clearing balance levels. 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.
Because the Reserve Banks now pay interest on reserve balances, a
return on the imputed reserve requirement based on the level of
clearing balances on the pro forma balance sheet is also projected.\16\
Similar to the NICB calculation, the interest income on the imputed
reserve requirement calculation is based on July 2009 clearing balance
and rate information. In addition, because all excess balances held at
the Reserve Banks receive explicit interest following the
implementation of IOR, the priced services no longer impute investment
income on any portion of excess balances. Consequently, the clearing
balances on the priced-services pro forma balance sheet do not reflect
excess clearing balances and only consist of contracted clearing
balances held.
---------------------------------------------------------------------------
\16\ The imputed interest income on the imputed reserve
requirement is projected to be $1.5 million for 2010. The projected
2010 rate for imputed interest income on the reserve requirement is
based on the July 2009 rate of 0.25 percent.
---------------------------------------------------------------------------
2. Calculating Cost Recovery--The PSAF and NICB are incorporated
into the projected and actual annual cost recovery calculations for
Reserve Bank priced services. In the fall of each year, the Board
projects the PSAF for the following year using July clearing balance
and rate data during the process of establishing priced services fees.
When calculating actual cost recovery for the priced services at the
end of each year, the Board historically has used the projected PSAF
derived during the price-setting process with only minimal adjustments
for actual rates or balance levels.\17\ For 2009, in light of the
uncertainty about the long-term effect that IOR would have on the level
of clearing balances, the Board will adjust the PSAF used in the actual
cost-recovery calculation to reflect the actual clearing balance levels
maintained throughout 2009. NICB is also projected in the fall of each
year using July data and is recalculated to reflect actual interest
rates and clearing balance levels throughout the year when calculating
actual priced services cost recovery.
---------------------------------------------------------------------------
\17\ The largest portion of the PSAF, the target ROE,
historically has been fixed. Imputed sales tax, income tax, and the
FDIC assessment are recalculated at the end of each year to adjust
for actual expenditures, net income, and clearing balance levels.
---------------------------------------------------------------------------
3. Analysis of the 2010 PSAF--The 2010 PSAF for Reserve Bank priced
services is $50.2 million. This amount represents a decrease of $2.6
million from the estimated 2009 revised PSAF of $52.8 million and a
decrease of $12.0 million from the 2009 budgeted PSAF of $62.2 million.
The decrease in the 2010 PSAF is primarily due to a reduction in the
level of imputed equity and in the targeted ROE rate provided by the
CAPM, partially offset by an increase in the imputed FDIC assessment.
Estimated 2010 Federal Reserve priced-services assets, reflected in
table 3, have decreased $1,780.7 million, mainly due to a decline in
imputed investments in marketable securities of $1,634.3 million. This
reduction stems from the decline in clearing balances held by DIs at
Reserve Banks following the implementation of IOR in October 2008.
The priced-services balance sheet includes projected clearing
balances of $4,831.5 million, which represent a decrease of $2,530.1
million from the amount of clearing balances on the balance sheet for
the budgeted 2009 PSAF. Because of the continued uncertainty regarding
the level of clearing balances in an IOR environment, the actual PSAF
costs used in cost-recovery calculations will continue to be based on
the actual levels of clearing balances held throughout 2010.\18\ To the
extent that clearing balances fall below the current level of core
clearing balances, debt would be imputed.
---------------------------------------------------------------------------
\18\ To the extent that the interest rates on excess balances
are higher than the earnings credit rate, clearing balances will
likely continue to decline. It is difficult to forecast the rapidity
and degree of this shift because it depends on DI behavior and the
disparity between the excess reserves rate and the earnings credit
rate, which at current rates is negligible. The Board is planning to
evaluate DIs' views as to any continued benefit to retaining the
clearing balance program.
---------------------------------------------------------------------------
Credit float, which represents the difference between items in
process of collection and deferred credit items, increased from $617.8
million in 2009 to $1,200.0 million in 2010.\19\ The increase is
primarily a result of new check products introduced in 2009.
---------------------------------------------------------------------------
\19\ Credit float occurs when the Reserve Banks present items
for collection to the paying bank prior to providing credit to the
depositing bank.
---------------------------------------------------------------------------
As previously mentioned, clearing balances are available as a
funding source for priced-services assets. As shown in table 4, in
2010, $10.2 million in clearing balances is used as a funding source
for short-term assets. Because of moderate decreases in several long-
term assets in 2010 ($154.4 million in pension assets, $86.9 million in
Bank premises, and $30.7 million in furniture and equipment), long-term
liabilities exceed long-term assets by $46.5 million. Consequently, no
core clearing balances are used to fund long-term assets and the excess
$46.5 million in equity capital is included in the NICB projection
calculation as additional imputed investments. This represents a
decrease of $72.3 million in clearing balances used to fund priced-
services assets in 2010 over the level of clearing balances used to
fund assets for the 2009 PSAF. 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 increases cost recovery by 1.3 percentage points, while
an increase of 200 basis points in
[[Page 57474]]
interest rates decreases cost recovery by 1.3 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 2010 PSAF
is $369.4 million, a decrease of $89.0 million from the imputed equity
for 2009. In accordance with FAS 158 [ASC 715], this amount includes an
accumulated other comprehensive loss of $407.7 million. Both the
capital to total assets ratio and the capital to risk-weighted assets
ratio meet or exceed the regulatory requirements for a well-capitalized
DI. Equity is calculated as 5.0 percent of total assets, and the ratio
of capital to risk-weighted assets is 10.0 percent.\20\ The Reserve
Banks imputed an FDIC assessment for the priced services based on the
FDIC's proposed 2010 assessment rates and the level of clearing
balances held at Reserve Banks. For 2010, the FDIC assessment is
imputed at $9.6 million, compared with a net FDIC assessment of $0.9
million in 2009. The increase is due to the exhaustion of the one-time
FDIC credit that was used in prior years to offset a majority of the
estimated FDIC assessment.\21\ The imputed FDIC assessment also
reflects the increased rates and new assessment calculation methodology
from the FDIC's most recent proposed rule, which resulted in a prepaid
FDIC asset of $24.6 million on the priced-services balance sheet.\22\
---------------------------------------------------------------------------
\20\ In December 2006, the Board, the FDIC, the Office of the
Comptroller of the Currency, and the Office of Thrift Supervision
announced an interim ruling that excludes FAS 158 [ASC 715]-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.
\21\ Previously, per FDIC rules, any remaining portion of the
one-time assessment credit could offset up to 90 percent of the
assessment amount. For 2009, 90 percent of the total imputed
assessment of $9.3 million was offset by the remaining assessment
credit, resulting in a net assessment of $0.9 million. No credit
remained in 2010 to offset any portion of the $9.6 million
assessment.
\22\ For information on the proposed 2009 FDIC assessment rates,
see http://www.fdic.gov/news/news/press/2009/pr09178.html.
\23\ The 2009 PSAF values in tables 3, 4 and 6 reflect the
budgeted 2009 PSAF of $62.2 million approved by the Board in October
2008.
\24\ Represents float that is directly estimated at the service
level.
\25\ Includes the allocation of Board of Governors assets to
priced services of $0.9 million for 2010 and $1.1 million for 2009.
\26\ No debt is imputed because clearing balances are a funding
source.
\27\ Includes an accumulated other comprehensive loss of $322.6
million for 2009 and $407.7 million for 2010, which reflect the
ongoing amortization of the accumulated loss in accordance with FAS
158 [ASC 715]. Future gains or losses, and their effects on the pro
forma balance sheet, cannot be projected.
---------------------------------------------------------------------------
Table 6 shows the imputed PSAF elements, including the pretax ROE
and other required PSAF costs, for 2009 and 2010. The $18.0 million
decrease in ROE is caused by the combination of a lower amount of
imputed equity and a decrease in the risk-free rate of return. Sales
taxes decreased from $7.3 million in 2009 to $5.2 million in 2010. The
effective income tax rate used in 2010 increased to 33.1 percent from
32.6 percent in 2009. The priced-services portion of the Board's
expenses decreased $0.6 million from $7.8 million in 2009 to $7.2
million in 2010.
Table 3--Comparison of Pro Forma Balance Sheets for Federal Reserve Priced Services \23\
[Millions of dollars--projected average for year]
----------------------------------------------------------------------------------------------------------------
2010 2009 Change
----------------------------------------------------------------------------------------------------------------
Short-term assets:
Imputed reserve requirement on clearing balances............ $603.1 $797.9 $(194.8)
Receivables................................................. 45.9 53.6 (7.7)
Materials and supplies...................................... 0.9 1.9 (1.0)
Prepaid expenses............................................ 23.2 26.3 (3.1)
Items in process of collection \24\......................... 520.0 236.4 283.6
-----------------------------------------------
Total short-term assets................................. 1,193.1 1,116.1 77.0
Imputed investments............................................. $5,464.7 $7,099.0 $(1,634.3)
Long-term assets:
Premises \25\............................................... $235.4 $322.3 $(86.9)
Furniture and equipment..................................... 62.1 92.8 (30.7)
Leasehold improvements and long-term prepayments............ 60.3 83.0 (22.7)
Prepaid pension costs....................................... 148.9 303.3 (154.4)
Prepaid FDIC asset.......................................... 24.6 0.0 24.6
Deferred tax asset.......................................... 198.9 152.2 46.7
-----------------------------------------------
Total long-term assets.................................. 730.2 953.6 (223.4)
-----------------------------------------------
Total assets........................................ $7,388.0 $9,168.7 $(1,780.7)
===============================================
Short-term liabilities \26\
Clearing balances........................................... $4,831.5 $7,361.6 $(2,530.1)
Deferred credit items \24\.................................. 1,720.0 854.2 865.8
Short-term payables......................................... 59.8 84.3 (24.5)
-----------------------------------------------
Total short-term liabilities............................ 6,611.3 8,300.1 (1,688.8)
Long-term liabilities \26\
Postemployment/postretirement benefits liability............ $407.3 $410.2 $(2.9)
-----------------------------------------------
Total liabilities....................................... $7,018.6 $8,710.3 $(1,691.7)
Equity \27\..................................................... 369.4 458.4 (89.0)
-----------------------------------------------
Total liabilities and equity............................ $7,388.0 $9,168.7 $(1,780.7)
----------------------------------------------------------------------------------------------------------------
BILLING CODE 6210-01-P
[[Page 57475]]
---------------------------------------------------------------------------
\28\ Clearing balances shown in table 3 are available for
financing priced-services assets. Using these balances reduces the
amount available for investment in the NICB calculation. Long-term
assets are financed with long-term liabilities, equity, and core
clearing balances; a total of $4 billion and $1 billion in clearing
balances is available for this purpose in 2009 and 2010,
respectively. Short-term assets are financed with short-term
payables and clearing balances not used to finance long-term assets.
No short- or long-term debt is imputed.
\29\ See table 6 for calculation of required imputed equity
amount.
[GRAPHIC] [TIFF OMITTED] TN06NO09.001
[[Page 57476]]
Table 5--2010 Interest Rate Sensitivity Analysis \30\
[millions of dollars]
----------------------------------------------------------------------------------------------------------------
Rate
Rate sensitive insensitive Total
----------------------------------------------------------------------------------------------------------------
Assets:
Imputed reserve requirement on clearing balances............ .............. $603.1 $603.1
Imputed investments......................................... $5,464.7 .............. 5,464.7
Receivables................................................. .............. 45.9 45.9
Materials and supplies...................................... .............. 0.9 0.9
Prepaid expenses............................................ .............. 23.2 23.2
Items in process of collection \31\......................... (1,200.0) 1,720.0 520.0
Long-term assets............................................ .............. 730.2 730.2
-----------------------------------------------
Total assets............................................ $4,264.7 $3,123.3 $7,388.0
===============================================
Liabilities:
Clearing balances........................................... $4,831.5 .............. $4,831.5
Deferred credit items....................................... .............. $1,720.0 1,720.0
Short-term payables......................................... .............. 59.8 59.8
Long-term liabilities....................................... .............. 407.3 407.3
-----------------------------------------------
Total liabilities....................................... $4,831.5 $2,187.1 $7,018.6
�����������������������������������������������������������������===============================================
200 basis 200 basis
point point
Rate change results decrease increase
in rates in rates
------------------------------------------------------------------------
Asset yield ($4,264.7 x rate change)............ $(85.3) $85.3
Liability cost ($4,831.5 x rate change)......... (96.6) 96.6
-----------------------
Effect of 200 basis point change........ $11.3 $(11.3)
=======================
2010 budgeted revenue........................... $565.8 $565.8
Effect of change................................ 11.3 (11.3)
-----------------------
Revenue adjusted for effect of interest $577.1 $554.5
rate change............................
=======================
2010 budgeted total expenses.................... $543.7 $543.7
2010 budgeted PSAF (net of $9.3 tax effect) \32\ 40.9 40.9
Tax effect of interest rate change ($ change x 3.8 (3.8)
33.1%).........................................
-----------------------
Total recovery amounts.................. $588.4 $580.8
=======================
Recovery rate before interest rate change....... 96.8% 96.8%
Recovery rate after interest rate change........ 98.1% 95.5%
Effect of interest rate change on cost recovery 1.3% (1.3)%
\33\...........................................
------------------------------------------------------------------------
BILLING CODE 6210-01-P
---------------------------------------------------------------------------
\30\ 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-sensitive assets to rate-sensitive liabilities and
the effect on cost recovery of a change in interest rates of up to
200 basis points.
\31\ The amount designated as rate-sensitive represents items
collected prior to providing credit according to established
availability schedules.
\32\ The tax effect is due to the projected under-recovery of
total actual costs, imputed costs, and targeted ROE.
\33\ 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 2010.
---------------------------------------------------------------------------
[[Page 57477]]
[GRAPHIC] [TIFF OMITTED] TN06NO09.002
---------------------------------------------------------------------------
\34\ No short-term is imputed because clearing balances are a
fundign source for those assets that are not financed with short-
term payables.
\35\ No long-term debt is imputed because core clearing balances
are a funding source.
\36\ Based on the regulatory requirements for a well-capitalized
institution for the purpose of assessing insurance premiums.
\37\ The 2010 ROE is equal to a risk-free rate plus a risk
premium (beta * market risk premium). The 2010 after-tax CAPM ROE is
calculated as 0.18% + (1 * 4.93%) = 5.11%. Using a tax rate of
33.1%, the after-tax ROE is converted into a pretax ROE, which
results in a pretax ROE of (5.11% / (1-33.1%)) = 7.6%.
\38\ System 2010 budgeted priced services expenses less shipping
and float are $521.2 million.
[[Page 57478]]
Table 7--Computation of 2010 Capital Adequacy for Federal Reserve Priced
Services
[Millions of dollars]
------------------------------------------------------------------------
Weighted
Assets Risk weight assets
------------------------------------------------------------------------
Imputed reserve requirement on $603.1 0.0 $0.0
clearing balances...............
Imputed investments:
3-month Treasury bills $2,317.5 0.0 $0.0
\39,40\.....................
Commercial paper (1-month) 2,746.3 1.0 2,746.3
\39\........................
GNMA mutual fund \41\........ 400.9 0.2 80.2
--------------------------------------
Total imputed investments 5,464.7 ........... 2,826.5
Receivables...................... $45.9 0.2 $9.2
Materials and supplies........... 0.9 1.0 0.9
Prepaid expenses................. 23.2 1.0 23.2
Items in process of collection... 520.0 0.2 104.0
Premises......................... 235.4 1.0 235.4
Furniture and equipment.......... 62.1 1.0 62.1
Leasehold improvements and long- 60.3 1.0 60.3
term prepayments................
Prepaid pension costs............ 148.9 1.0 148.9
Prepaid FDIC asset............... 24.6 1.0 24.6
Deferred tax asset............... 198.9 1.0 198.9
--------------------------------------
Total.................... $7,388.0 ........... $3,694.0
======================================
Imputed equity for 2010.......... $369.4
Capital to risk-weighted assets.. 10.0%
Capital to total assets.......... 5.0%
------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\39\ The imputed investments are assumed to be similar to those
for which rates are available on teh Federal Reserve's H.15
statistical release, which can be located at http://www.federalreserve.gov/releases/h15/data.htm.
\40\ 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.
\41\ 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.
---------------------------------------------------------------------------
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.\42\
---------------------------------------------------------------------------
\42\ 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 $25,000, whichever is greater.
Earnings credits are based on the period-average balance maintained
up to a maximum of the contracted amount plus the clearing balance
allowance. Deficiency charges apply when the average balance falls
below the contracted amount less the allowance, although credits are
still earned on the average maintained balance.
---------------------------------------------------------------------------
D. Check Service--Table 8 shows the 2008, 2009 estimated, and 2010
budgeted cost recovery performance for the commercial check service.
Table 8--Check Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Targeted targeted
expense (ROE) [1-2] ROE ROE [1/
(2+4)]
----------------------------------------------------------------------------------------------------------------
2008........................................... 683.6 647.1 36.5 51.9 97.8%
2009 (estimate)................................ 495.8 524.0 -28.2 15.1 92.0%
2010 (budget).................................. 345.4 353.7 -8.4 11.6 94.5%
----------------------------------------------------------------------------------------------------------------
1. 2009 Estimate--Through August 2009, the check service has
recovered 95.3 percent of total costs, including imputed expenses, and
targeted ROE. For the full year, the Reserve Banks do not expect to
recover fully their costs of providing check services. Specifically,
the Reserve Banks estimate that the check service will recover 92.0
percent of its total costs for the full year compared with the budgeted
2009 recovery rate of 92.3 percent, with an operating loss of $28.2
million (see table 8).\43\ The lower-than-budgeted recovery rate is
driven primarily by lower-than-anticipated NICB and higher-than-
expected pension costs, which are offset largely by higher-than-
expected product
[[Page 57479]]
revenue and lower-than-expected operating costs.
---------------------------------------------------------------------------
\43\ The Reserve Banks expect to recover 95 percent of their
actual expenses in 2009.
---------------------------------------------------------------------------
The general decline in the number of checks written continues to
influence the decline in checks collected by the Reserve Banks,
although the estimated decline for 2009 is somewhat less than the
budgeted assumption. For full-year 2009, the Reserve Banks estimate
that their total forward check collection volume will decline nearly 9
percent compared with a budgeted decline of 12 percent.\44\ The
proportion of checks deposited and presented electronically has grown
steadily in 2009 (see table 9). The Reserve Banks expect that year-end
2009 FedForward deposit and FedReceipt presentment penetration rates
will reach 99 percent and 97 percent, respectively. The Reserve Banks
also expect that year-end 2009 FedReturn and FedReceipt Return
penetration rates will reach 97 percent and 72 percent, respectively.
FedReturn and FedReturn Receipt penetration rates have lagged those of
FedForward and FedReceipt because initial efforts by the Reserve Banks
and depository institutions to apply electronics to the check clearing
process focused on the relatively higher volume forward collection
process. Moreover, the recent economic environment has limited
depository institutions' back-office investments to apply electronics
to the check return process.
---------------------------------------------------------------------------
\44\ Total forward Reserve Bank check volumes are expected to
drop from roughly 9.5 billion in 2008 to 8.7 billion in 2009.
Table 9--Check 21 Product Penetration Rates \a\
[Percent] \b\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Forward deposit volume Return Volume
-------------------------------------------------------------------------------------------------------
FedForward FedReceipt FedReturn FedReceipt Return
-------------------------------------------------------------------------------------------------------
Full-year Year-end Full-year Year-end Full-year Year-end Full-year Year-end
--------------------------------------------------------------------------------------------------------------------------------------------------------
2007............................................ 43 58 12 23 38 45 1 1
2008............................................ 77 92 42 61 58 72 6 13
2009 (estimate)................................. 97 98 78 90 82 93 28 45
2010 (budget)................................... 99 99 95 97 95 97 60 72
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ FedForward is the electronic forward check collection product; FedReceipt is electronic presentment with accompanying images; FedReturn is the
electronic check return product; and FedReceipt Return is the electronic delivery of returned checks with accompanying images.
\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.
As the vast majority of Reserve Bank check deposits are now
electronic, paper forward-collection volume is expected to decline
nearly 86 percent for the full year (see table 10). The Reserve Banks
also estimate that paper return volume will decline at a slightly
faster pace than anticipated, 60 percent for the full year, compared
with a budgeted decline of 53 percent.
Table 10--Paper Check Product Volume Changes
[Percent]
------------------------------------------------------------------------
Budgeted Estimated
2009 2009
change change
------------------------------------------------------------------------
Forward Collection.............................. -87 -86
Returns......................................... -53 -60
------------------------------------------------------------------------
2. 2010 Pricing--In 2010, the Reserve Banks project that the check
service will recover 94.5 percent of total expenses and targeted
ROE.\45\ Revenue is projected to be $345.4 million, a decline of $150.4
million from 2009. This decline is driven largely by projected
reductions in check deposits and an increasing proportion of checks
being presented electronically. Total expenses for the check service
are projected to be $353.7 million, a decline of $170.3 million from
2009. The reduction of check costs is driven by the continued decline
in the number of Reserve Bank check-processing sites and associated
staff reductions. The Reserve Banks recently announced plans to further
accelerate the consolidation of their check processing offices, which
began in 2003 when they processed checks at 45 offices nationwide. In
early 2010, the Reserve Banks will have a single full-service paper
check processing site located at the Federal Reserve Bank of Cleveland.
---------------------------------------------------------------------------
\45\ The Reserve Banks expect to recover all of their actual and
10 percent of their imputed expenses in 2010.
---------------------------------------------------------------------------
For 2010, the Reserve Banks estimate that their total forward check
volume will decline 9 percent (see table 11). FedForward and
traditional paper check volumes are expected to decline 6 percent and
84 percent, respectively. The decline in Reserve Bank check volume can
be attributed to increased competition, increased use of direct
exchanges, and the continued decline in check use nationwide. The
Reserve Banks also expect that return volume will decline 10 percent,
as FedReturn volume rises 4 percent and traditional paper returns
decline 76 percent.
Table 11--Check Volume
------------------------------------------------------------------------
2010
Budgeted Growth
volume from 2009
(millions estimate
of items) (percent)
------------------------------------------------------------------------
FedForward...................................... 7,821 -6
Traditional paper forward....................... 47 -84
-----------------------
Total forward............................... 7,868 -9
=======================
FedReturn....................................... 77 4
Traditional paper return........................ 4 -76
-----------------------
Total return................................ 81 -10
------------------------------------------------------------------------
The Reserve Banks will increase FedForward fees, on average, 6
percent for checks presented electronically and 17 percent for checks
presented as substitute checks (see table 12). The average fee paid by
FedForward depositors will decline by 23 percent over the average 2009
fee, as the number of depository institutions that accept their
presentments electronically increases. FedReturn fees will also
increase, on average, 23 percent and 46 percent for electronic and
substitute check endpoints, respectively. The average fee paid by
depository institutions using FedReturn will rise 7 percent, as the
number of institutions
[[Page 57480]]
that accept their returns electronically increases.
For the traditional paper check products, the Reserve Banks will
increase forward paper check collection fees 47 percent and paper
return fees 33 percent (see table 12). These increases are designed to
encourage the continued adoption of Check 21 services.
Table 12--2010 Fee Changes
------------------------------------------------------------------------
2009 2010
Average fee Average fee Fee change
\a\ \a\ (percent)
------------------------------------------------------------------------
FedForward:
Electronic endpoints......... $0.0205 $0.0218 6
Substitute check endpoints... 0.0809 0.0945 17
Weighted average fee \b\. 0.0314 0.0241 -23
FedReturn:
Electronic endpoints......... 0.3066 0.3766 23
Substitute check endpoints... 0.8983 1.3083 46
Weighted average fee \b\. 0.6847 0.7352 7
Paper:
Forward collection........... 0.0860 0.1262 47
Returns...................... 2.1467 2.8528 33
------------------------------------------------------------------------
\a\ The average fees in this table represent combined cash letter and
per-item fees for each product type.
\b\ The weighted average fees for FedForward and FedReturn products are
dependent on electronic receipt penetration rates. In this table, the
weighted average fees are based on electronic receipt penetration
rates estimated for full-year 2009 and projected for full-year 2010.
Risks to the Reserve Banks' ability to achieve budgeted 2010 cost
recovery for the check service include greater-than-expected check
volume losses to correspondent banks, aggregators, and direct
exchanges, which would result in lower-than-anticipated revenue, and
significant cost overruns associated with unanticipated problems with
the Reserve Banks' Check 21 platform.
E. FedACH Service--Table 13 shows the 2008, 2009 estimate, and 2010
budgeted cost-recovery performance for the commercial FedACH service.
Table 13--FedACH Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Targeted targeted
expense (ROE) [1-2] ROE ROE [1/
(2+4)]
----------------------------------------------------------------------------------------------------------------
2008........................................... 97.9 88.9 9.0 7.6 101.5%
2009 (estimate)................................ 93.6 98.7 -5.1 3.1 92.0%
2010 (budget).................................. 113.2 109.4 3.8 3.8 100.0%
----------------------------------------------------------------------------------------------------------------
1. 2009 Estimate--The Reserve Banks estimate that the FedACH
service will recover 92.0 percent of total expenses and targeted ROE,
compared with the budgeted recovery rate of 100.3 percent, for an
operating loss of $5.1 million.\46\ The lower-than-budgeted recovery
rate is driven by shortfalls in NICB and product revenue of $5.4
million and $3.5 million, respectively, and higher-than-expected
pension costs of $6.5 million. Through August, FedACH average daily
commercial origination volume has declined 2 percent relative to the
same period in 2008. The Reserve Banks had originally projected a 10.5
percent growth in FedACH commercial origination volume for 2009, which
was in line with historical volume growth rates. The FedACH volume
decline reflects weaker-than-expected industry ACH volume growth and a
slight loss of market share. For the full year, the Reserve Banks
estimate that volume will decline 2 percent.
---------------------------------------------------------------------------
\46\ The Reserve Banks expect to recover 95 percent of their
actual expenses in 2009.
---------------------------------------------------------------------------
2. 2010 Pricing--The Reserve Banks project that the FedACH service
will recover 100.0 percent of total expenses and targeted ROE in 2010.
Total revenue is budgeted to increase $19.6 million from the 2009
estimate, primarily due to increases in monthly fixed fees, changes to
volume-based receipt fees, the introduction of new monthly minimum
fees, the implementation of new value-added services, and increasing
electronic access revenue. Total expenses are budgeted to increase
$10.7 million from 2009 due to an increase in the allocation of
electronic access costs.\47\
---------------------------------------------------------------------------
\47\ Beginning in 2010, the Reserve Banks changed the
methodology for allocating both revenues and costs to the electronic
access channels, resulting in both higher revenues and costs
allocated to the FedACH service.
---------------------------------------------------------------------------
The Reserve Banks expect FedACH commercial origination and receipt
volume in 2010 to grow 2.9 percent and 2.5 percent, respectively. The
growth rates for recurring ACH credits and debits are projected to be
slightly lower than their historical average. Moreover, payments that
have accounted for much of the ACH growth in recent years (e.g.,
electronic check conversion applications, including checks converted at
lockboxes and at the point of sale) are unlikely to be a source of
significant volume growth in 2010. Additionally, the sustained growth
of direct exchanges and competition from the private-sector ACH
operator, Electronic Payments Network, is expected to limit FedACH
volume growth.
[[Page 57481]]
The Reserve Banks will adopt several pricing strategies that are
designed to better align the revenue stream with the costs of providing
the service, which are predominantly fixed, and to meet competitive
challenges better. Specifically, the Reserve Banks will revise the
current volume-based pricing structure for ACH receipt services, which
includes volume-based tier levels and per-item fee incentives. The
pricing establishes three volume tiers and applies a single transaction
fee across all items if a receiving institution met the threshold for
the highest volume tier level (see table 14). Eligible volume includes
all receipt items originated through both the Reserve Banks and the
private-sector operator. Eligibility for the revised volume-based price
incentive will be determined by receipt volume aggregated across all of
an institution's ACH routing numbers.
Table 14--Volume-Based FedACH Receipt Fees
----------------------------------------------------------------------------------------------------------------
Receipt volume
-----------------------------------------------------------------------------------------------------------------
Tier Minimum Maximum Per-item fee
----------------------------------------------------------------------------------------------------------------
Base................................... 1 1,000,000 $0.0025
1...................................... 1,000,001 25,000,000 $0.0018
2...................................... 25,000,001 or greater $0.0016
(all items)
----------------------------------------------------------------------------------------------------------------
The Reserve Banks will also introduce new minimum fees based on
volume received from an ODFI or a RDFI, which will only be applied to
FedACH participants that have one or more active routing numbers in the
FedACH database. The new pricing consists of two minimum fees: (1) A
$25 monthly fee for an ODFI that originates forward ACH transactions
and the revenue associated with these transactions is less than the
minimum fee, and (2) a $15 monthly fee for an RDFI that does not
originate forward ACH transactions with the Reserve Banks and the
revenue associated with the RDFI's receipt volume is less than the
minimum fee.
The Reserve Banks will also increase the addenda record fees for
origination and receipt transactions. At the same time, the Reserve
Banks will increase monthly fees for FedACH settlement and information
extract files and to introduce a fee for the use of automated
notification of change functionality.
Risks to meeting the Reserve Banks' budgeted 2010 cost recovery
include lower-than-anticipated volume due to competition from EPN and
direct ACH exchanges, and unanticipated problems with technology
upgrades that result in cost overruns.
F. Fedwire Funds and National Settlement Services--Table 15 shows
the 2008, 2009 estimate, and 2010 budgeted cost-recovery performance
for the Fedwire Funds and National Settlement Services.
Table 15--Fedwire Funds and National Settlement Services Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
5 Recovery
3 Net rate after
Year 1 Revenue 2 Total income 4 Targeted targeted
expense (ROE) [1-2] ROE ROE [1/
(2+4)]
----------------------------------------------------------------------------------------------------------------
2008........................................... 67.8 62.3 5.5 5.3 100.4%
2009 (estimate)................................ 65.5 69.9 -4.4 2.2 90.9%
2010 (budget).................................. 81.5 78.5 3.0 2.7 100.4%
----------------------------------------------------------------------------------------------------------------
1. 2009 Estimate--The Reserve Banks estimate that the Fedwire Funds
and National Settlement Services will recover 90.9 percent of total
expenses and targeted ROE, compared with a 2009 budgeted recovery rate
of 98.6 percent.\48\ The lower-than-expected recovery rate is primarily
attributable to lower-than-expected NICB and higher-than-expected
pension costs. For full-year 2009, the Reserve Banks estimate that
online Fedwire funds transfer volume will decline 5 percent, compared
to a budgeted decline of 1 percent. With respect to the National
Settlement Service, the Reserve Banks estimate that the volume of
settlement entries processed during 2009 will be 11 percent lower than
the 2009 budget projection. The decline in National Settlement Service
volume is due primarily to the continued loss and consolidation of
local check clearinghouse arrangements.
---------------------------------------------------------------------------
\48\ The Reserve Banks expect to recover 94 percent of their
actual expenses in 2009.
---------------------------------------------------------------------------
2. 2010 Pricing--The Reserve Banks expect the Fedwire Funds and
National Settlement Services to recover 100.4 percent of total expenses
and targeted ROE in 2010. The Reserve Banks project total revenue to
increase $16.0 million from the 2009 estimate. Approximately half the
increase in revenue is due to increases in the monthly participation
fee and transaction fees for the Fedwire Funds Service. The other half
of the increase in revenue is primarily due to an increase in
electronic access revenue of $6.6 million and NICB revenue of $1
million.
The Reserve Banks project total expenses to increase $8.6 million
from the 2009 estimate. This increase is mainly due to an increase in
the allocation of electronic access costs as well as increased
amortization and depreciation expenses associated with the Fedwire
migration program.\49\ Online volumes for the Fedwire Funds Service and
the National Settlement Service for 2010 are budgeted to remain
unchanged from 2009 estimates.
---------------------------------------------------------------------------
\49\ Beginning in 2010, the Reserve Banks changes the
methodology for allocating both revenues and costs to the electronic
access channels, resulting in both higher revenues and costs
allocated to the Fedwire Funds Service.
---------------------------------------------------------------------------
[[Page 57482]]
The Reserve Banks will raise volume-based transfer fees for the
Fedwire Funds Service by $0.01 to $0.04 across the three volume tiers.
The Reserve Banks will also restructure the three volume tiers by
increasing the threshold to qualify for volume-based discounts from
3,000 transfers per month to 14,000 transfers per month. The Reserve
Banks will increase the Fedwire Funds monthly participation fee by $15
to $75 in 2010. The Reserve Banks estimate that the price increases
will result in an approximate 23 percent price increase to the average
Fedwire Funds customer. With respect to the National Settlement
Service, the Reserve Banks will retain fees at their current levels
except for the special settlement arrangement fee, which the Reserve
Banks will increase by $50 to $150 in 2010.\50\
---------------------------------------------------------------------------
\50\ The special settlement arrangement fee currently applies
only to CHIPS.
---------------------------------------------------------------------------
G. Fedwire Securities Service--Table 16 shows the 2008, 2009
estimate, and 2010 budgeted cost recovery performance for the Fedwire
Securities Service.\51\
---------------------------------------------------------------------------
\51\ The Reserve Banks provide transfer services for securities
issued by the U.S. Treasury, federal government agencies,
government-sponsored enterprises, and certain international
institutions. The prices component of this service, reflected in
this memorandum, consists of revenues, expenses, and volumes
associated with the transfer of all non-Treasury securities. For
Treasury securities, the U.S. Treasury assesses fees for the
securities transfer component of the service. The Reserve Banks
assess a fee for the funds settlement component of a Treasury
securities transfer; this component is not treated as a priced
service.
Table 16--Fedwire Securities Service Pro Forma Cost and Revenue Performance
[$ millions]
----------------------------------------------------------------------------------------------------------------
3 Net 5 Recovery
2 Total income 4 Targeted rate after
Year 1 Revenue expense (ROE) [1- ROE targeted ROE
2] [1/(2+4)]
----------------------------------------------------------------------------------------------------------------
2008........................................ 24.5 22.2 2.3 1.7 102.5%
2009 (estimate)............................. 24.8 25.4 -0.6 0.8 94.7%
2010 (budget)............................... 25.7 24.1 1.6 0.8 103.3%
----------------------------------------------------------------------------------------------------------------
1. 2009 Estimate--The Reserve Banks estimate that the Fedwire
Securities Service will recover 94.7 percent of total expenses and
targeted ROE, compared with a 2009 budgeted recovery rate of 100.8
percent.\52\ The lower-than-budgeted recovery is primarily attributable
to lower-than-expected NICB and increased pension costs. Through
August, online securities volume is down almost 4 percent from the same
period in 2008. The decline in revenues and higher-than-expected costs
led the Reserve Banks to implement a mid-year price increase in monthly
account maintenance fees.
---------------------------------------------------------------------------
\52\ The Reserve Banks expect to recover 99 percent of their
actual expenses in 2009.
---------------------------------------------------------------------------
2. 2010 Pricing--The Reserve Banks project that the Fedwire
Securities Service will recover 103.3 percent of total expenses and
targeted ROE in 2010. The Reserve Banks project that total revenue will
increase by $0.9 million compared with the 2009 estimate. The increase
in revenue is due to the full-year effect of the mid-year price
increase to account maintenance fees. Total expenses are budgeted to
decrease $1.3 million from the 2009 estimate because of declining
operating costs.\53\ For 2010, online securities volume is projected to
decline 5 percent from current 2009 estimates while offline securities
volume is projected to remain unchanged.\54\
---------------------------------------------------------------------------
\53\ For 2010, the Reserve Banks changed the methodology for
allocating costs to the electronic access channels, resulting in
lower costs allocated to the Fedwire Securities Service.
\54\ The Reserve Banks expect Fedwire Securities volumes to
decline when the Fixed Income Clearing Corporation's Mortgage Back
Securities Division (FICC-MBSD) implements it proposal to become a
central counterparty allowing for an additional around of netting.
The new netting service is expected to reduce the number of
securities transactions that settle over the Fedwire Securities
Service.
---------------------------------------------------------------------------
The fees for the Fedwire Securities Service will remain unchanged
from 2009.
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 electronic access channels through
which customers can access the Reserve Banks' priced services: FedLine
[supreg], FedPhone [supreg], and FedMail [supreg].\55\ The Reserve
Banks package these channels into nine electronic access packages that
are supplemented by a number of premium (or [agrave] la carte) access
and accounting information options.
---------------------------------------------------------------------------
\55\ FedPhone, FedMail, and FedLine are registered service marks
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.
---------------------------------------------------------------------------
Attended access packages offer access to critical payment and
information services via a web-based interface. The FedMail E-mail
package provides access to basic information services via fax or email,
while the FedLine Web packages offer FedMail E-mail plus, online
attended access to a broad range of informational services and check
services. The FedLine Advantage packages expand upon the FedLine Web
packages and offer attended access to FedACH and Fedwire Services.
Unattended access solutions are computer-to-computer, IP-based
interfaces designed for medium-to high-volume customers. The FedLine
Command package offers an unattended connection to FedACH, Fedwire
Securities statement services, and most accounting information
services. The final three packages are FedLine Direct packages, which
allow for unattended connections at one of three connection speeds to
FedACH, Fedwire Funds and Securities transactional and information
services, and most accounting information services.
For 2010, the Reserve Banks will leave prices for most attended
access solutions unchanged and will increase fees on the FedLine
Command and the FedLine Direct electronic access packages to improve
the alignment of revenues and costs. In addition, the Reserve Banks
will raise fees on various premium option services.
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 Payment System.'' \56\ Under this policy, the
Board assesses whether changes would have a direct and material adverse
effect on the
[[Page 57483]]
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 the changes create such an
effect, the Board must further evaluate the changes to assess whether
the associated benefits--such as contributions to payment system
efficiency, payment system integrity, or other Board objectives--can be
achieved while minimizing the adverse effect on competition.
---------------------------------------------------------------------------
\56\ Federal Reserve Regulatory Service (FRRS) 9-1558.
---------------------------------------------------------------------------
The Board projects that the 2010 fees will result in a net income
below the targeted ROE, primarily due to shortfalls in the check
service. Given the ongoing major structural transition in the nation's
check clearing system, it is likely that other market participants are
also not achieving an ROE equivalent to that targeted by the Reserve
Banks for services similar to Reserve Bank priced services. Therefore,
while it is possible, it is not likely that the Reserve Banks' failure
to achieve the targeted ROE would adversely affect the ability of other
service providers to compete with the Reserve Banks. In addition, any
potential adverse effect on competing service providers would not be
the result of differing legal powers or a dominant market position
deriving from such legal differences.
The Reserve Banks have taken steps to maximize their 2010 cost
recovery. They are continuing to reduce check service costs by
restructuring their check processing operations as volumes continue to
decline and shift to electronic product offerings. These cost reduction
efforts will continue into 2010 and beyond, and should position the
check service to return to full cost recovery within the next several
years. In addition, the Reserve Banks are significantly increasing fees
for traditional paper check services and increasing fees more-modestly
for Check 21 services. The Reserve Banks believe that more-significant
fee increases for Check 21 services will slow the transition to a full
electronic check-processing environment nationwide and result in lower
check net revenue because of additional volume losses. Given the fee
increases and the check market environment, the Board believes that
additional fee increases at this time may hinder the achievement of the
Reserve Banks' objective of improving the efficiency of the nation's
check-collection system and may not materially improve cost recovery.
FedACH Service 2010 Fee Schedule
[Effective January 4, 2010. Bold indicates changes from 2009 prices]
------------------------------------------------------------------------
Fee ($)
------------------------------------------------------------------------
FedACH minimum monthly fee \57\
ODFI....................... 25.00
RDFI....................... 15.00
Origination (per item or
record): \58\
Items in small files....... 0.0030
Items in large files....... 0.0025
Addenda record............. 0.0013
Receipt (per item or record):
\59\
Volume based fees \60\
Base (up to 1,000,000 0.0025
per month).
Tier 1 (1,000,001- 0.0018
25,000,000 per month).
Tier 2 (more than 0.0016 (all items)
25,000,000 per month).
Addenda record............. 0.0013
Risk Product:
Risk origination monitoring
criteria
Tier 1 (1-20 sets)..... 8.00/set of criteria/month
Tier 2 (21-150 sets)... 4.00/set of criteria/month
Tier 3 (more than 150 1.00/set of criteria/month
sets).
Risk origination monitoring 0.0025/batch
batch.
FedEDI Plus:
Defined report generated... 0.20
On demand report generated. 0.75
Premier report............. 10.00
Secure delivery via e-mail. 0.20
Monthly fee (per routing
number):
Account servicing fee \61\. 37.00
FedACH settlement \62\..... 45.00
Information extract file... 50.00
IAT Output File Sort....... 35.00
FedLine Web origination returns 0.30
and notification of change
(NOC) fee: \63\.
Voice response returns/NOC fee: 3.00
\64\.
Automated NOC fee: \65\........ 0.15
Non-electronic input/output
fee: \66\
CD or DVD input/output..... 50.00
paper input/output......... 50.00
Facsimile exception returns/ 30.00
NOC \67\.
Canadian cross-border fee:
Item originated to Canada 0.62
\68\.
Return received from Canada 0.99
\69\.
Trace of item at receiving 5.50
gateway.
Trace of item not at 5.00
receiving gateway.
Mexico service fee:
Item originated to Mexico 0.67
\68\.
Return received from Mexico 0.91
\69\.
Item trace................. 13.50
[[Page 57484]]
Panama service fee:
Item originated to Panama 0.72
\68\.
Return received from Panama 1.00
\69\.
Item trace................. 7.00
NOC........................ 0.72
------------------------------------------------------------------------
Fedwire Funds and National Settlement Services 2010 Fee Schedule
[Effective January 4, 2010. Bold indicates changes from 2009 fee
schedule]
------------------------------------------------------------------------
Fee ($)
------------------------------------------------------------------------
Fedwire Funds Service
------------------------------------------------------------------------
Monthly participation fee................................... 75.00
Basic volume-based transfer fee (originations and
receipts)
Per transfer for the first 14,000 transfers per 0.30
month..............................................
Per transfer for additional transfers up to 90,000 0.19
per month..........................................
Per transfer for every transfer over 90,000 per 0.09
month..............................................
Surcharge for offline transfers (originations and 40.00
receipts)..............................................
------------------------------------------------------------------------
National Settlement Service
------------------------------------------------------------------------
Basic:
------------------------------------------------------------------------
Settlement entry fee.................................... 0.80
Settlement file fee..................................... 18.00
Surcharge for offline file origination...................... 40.00
Minimum monthly charge (account maintenance) \70\........... 60.00
Special settlement arrangements \71\
Fee per day............................................. 150.00
------------------------------------------------------------------------
Fedwire Securities Service 2010 Fee Schedule (Non-Treasury Securities)
[Effective January 4, 2010]
------------------------------------------------------------------------
Fee
------------------------------------------------------------------------
Basic transfer fee:
Transfer or reversal originated or received.............. 0.35
Surcharge:
Offline transfer or reversal originated or received...... 60.00
Monthly maintenance fees:
Account maintenance (per account)........................ 36.00
Issues maintained (per issue/per account)................ 0.40
Claim adjustment fee......................................... 0.60
Joint custody fee............................................ 40.00
------------------------------------------------------------------------
Electronic Access 2010 Fee Schedule
[Effective January 4, 2010. Bold prices indicate changes from 2009 fee
schedule]
------------------------------------------------------------------------
------------------------------------------------------------------------
Electronic Access Packages (monthly)
------------------------------------------------------------------------
FedMail E-mail......................... $20.00
FedLine Web W3......................... $95.00
Includes: FedMail E-mail.
FedLine Web with three individual
subscriptions.
Service Charge Information.
Account Management Information.
FedACH Risk Monitoring Service.
FedEDI Service.
FedLine Web W5......................... $140.00
[[Page 57485]]
Includes: FedMail E-mail.
FedLine Web with five individual
subscriptions.
Service Charge Information.
Account Management Information.
FedACH Risk Monitoring Service.
FedEDI Service.
Cash Management System Basic-Own
report only.
FedLine Advantage A3................... $330.00
Includes: FedLine Web W3 package.
FedLine Advantage with three
individual subscriptions.
Virtual Private Network maintenance
for one device..
FedLine Advantage A5................... $380.00
Includes: FedLine Web W5 package.
FedLine Advantage with five
individual subscriptions.
Virtual Private Network maintenance
for one device.
Intraday search download feature
within Account Management
Information.
FedLine Command........................ $700.00
Includes: FedLine Advantage A5
package.
Virtual Private Network maintenance
for one device.
Billing Data Format File.
Intra-Day File.
End of Day Reconcilement File.
Statement of Account Spreadsheet
File (SASF).
FedLine Direct D56, D256, DT1.......... D56 $2,800.00 D256 $3,500.00,
and DT1 $5,100.00
Includes: FedLine Command package.
One dedicated unattended wide area
network connection for FedLine
Direct.
------------------------------------------------------------------------
Premium Options (monthly) \72\
------------------------------------------------------------------------
Electronic Access:
FedMail Fax (monthly per routing $30.00
number).
Additional subscribers package $80.00
(each package contains 5
additional subscribers).
Maintenance of additional Virtual $60.00
Private Network.
Additional dedicated connections \73\
56K................................ $1,750.00
256K............................... $2,450.00
T1................................. $3,000.00
FedImage/Large File Delivery........... Various
Transparent Contingency................ $1,000.00
FedLine International Setup (one-time $1,000.00
fee).
FedLine Advantage 800 Usage $2.00
Accounting Information Services:
Cash Management System:
Basic--Respondent and/or sub $10.00
account reports (per report/
month).
Basic--Respondent/sub account $40.00
recap report (per month).
Plus--Own report up to six $60.00
times a day (per month).
Plus--Less than 10 respondent $125.00
and/or sub accounts.
Plus--10-50 respondent and/or $225.00
sub accounts.
Plus--51-100 respondents and/or $400.00
sub accounts.
Plus--101-500 respondents and/ $750.00
or sub accounts.
Plus--500 $1,000.00
respondents and/or sub
accounts.
End of Day Reconcilement File (per $150.00
month).
Statement of Account Spreadsheet $150.00
File (per month).
Intra-Day File (per month)......... $150.00
ACTS Report--<= 20 subaccounts..... $250.00
ACTS Report--21-40 subaccounts..... $500.00
ACTS Report--41-60 subaccounts..... $750.00
ACTS Report--60 $1,000.00
subaccounts.
------------------------------------------------------------------------
[[Page 57486]]
By order of the Board of Governors of the Federal Reserve
System, November 2, 2009.
Robert deV. Frierson,
Deputy Secretary of the Board.
---------------------------------------------------------------------------
\57\ Minimum fee of $25 for an ODFI that originates forward
items and the revenue associated with origination is less than $25.
Minimum fee of $15 for an RDFI that does not originate forward
transactions and the revenue associated with receipt is less than
$15.
\58\ 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.
\59\ Receipt fees do not apply to items that the Reserve Banks
send to the private-sector ACH operator.
\60\ Depository institutions that meet Tier 2 volume
requirements pay $0.0016 for all items. Eligible volume includes all
forward receipt items originated through both the Reserve Banks and
the private-sector operator that are delivered to the RDFI by the
Reserve Banks.
\61\ 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.
\62\ 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 U.S. government transactions
only.
\63\ The fee includes the transaction and addenda fees in
addition to the conversion fee.
\64\ The fee includes the transaction and addenda fees in
addition to the voice response fee.
\65\ The fee includes the notification of change processing fee.
\66\ Limited services are offered in contingency situations.
\67\ The fee includes the transaction fee in addition to the
conversion fee.
\68\ This per-item surcharge is in addition to the standard
domestic origination and input file processing fees.
\69\ This per-item surcharge is in addition to the standard
domestic receipt fees.
\70\ This minimum monthly charge will only be assessed if total
settlement charges during a calendar month are less than $60.
\71\ 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.
\72\ Premium options for FedLine Web W3 and FedLine Advantage A3
are limited to FedMail Fax.
\73\ Network diversity supplemental charge of $1,200 a month may
apply in addition to these fees.
---------------------------------------------------------------------------
[FR Doc. E9-26743 Filed 11-5-09; 8:45 am]
BILLING CODE 6210-01-C